Companies need to enhance their business reporting to provide a holistic view of corporate performance.
By Venkkat Ramanan
Business success these days is much more than just maintaining a healthy balance sheet, and accountants have an increasing role in supporting how this corporate story is told to stakeholders. Today, less than 15% of a company’s market value can be accounted for by its financial and physical assets. Other factors, particularly relationships, and intellectual and human capital, make up an increasing proportion of a company’s value.
The Association of International Certified Professional Accountants (the Association) believes traditional financial reporting is too narrow. There is a need for enhanced business reporting that provides a holistic view of corporate performance. While neither traditional financial reporting nor sustainability reporting on their own can provide a sufficient view of performance, it is critical for companies to focus on multiple, non-financial measurements such as customer satisfaction, reputation, brand loyalty and brand awareness when making decisions. This approach is part of integrated thinking and reporting, which takes the necessary broad view of the interests of the company’s stakeholders and its value creation potential.
A new research report, Purpose Beyond Profit: The Value of Value – Board-level Insights, provides evidence that this is the right approach. The study was a collaborative project between the Association – the unified voice of the Chartered Institute of Management Accountants (CIMA) and the American Institute of CPAs (AICPA) – and Black Sun Plc. and the International Integrated Reporting Council (IIRC). It surveyed global business leaders, including CEOs, presidents and CFOs, to understand how value creation information is used.
The research covered a range of topics investigating how value is thought about and understood, and how companies approach strategic planning and performance measurement. The findings highlight how customer satisfaction, value created for society and co-creation of value through external relationships are becoming central to future business success. It also found that executives believe integrated thinking and a longer-term strategic view can help create sustainable value for all stakeholders and communicate the value creation story of their business.
The research also reveals that executives believe that the non-financial information and processes they currently use for internal decision-making could be improved. The report highlights three factors that limit the use of this information: appropriate quantitative environmental, social, and governance information (highlighted by 55% of respondents); a lack of comparability of data over time (50%); and questionable data quality (45%). Closing these gaps is clearly crucial to ensure a business’s decisions are grounded on a full range of relevant data.
Looking to the future, customer and other stakeholder information needs will become more important than before. We are in a new age – as public expectations of business change, we also need to change how businesses make decisions, and report and disclose information. The good news is that management accountants, with their professional discipline and rooted in designations such as CGMA, are also in pole position to go beyond the financials and connect performance with purpose.
More information about how the Association supports Integrated Reporting and accounting professionals can be found at https://www.cgma.org/resources/creating-wider-value-through-integrated-reporting.html
Venkkat Ramanan, FCMA, CGMA, Regional VP Asia-Pacific, Association of International Certified Professional Accountants.