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When it comes to spotting the warning signs of developing fiscal problems, the availability of quality information to support decision making is of utmost importance writes Chris Ridley, public sector policy manager at ACCA.

Most countries run with a public sector finance deficit and have done so for many decades, but when does it become unsustainable?

The recent shift towards an integrated global economy has driven the requirement for information to be available on a comparable basis. Gone is the time when national finances can operate in blissful ignorance of conditions overseas. This has resulted in a growing number of nations moving away from country-centric accounting standards towards a common set of international standards for budget and reporting purposes.

International Financial Reporting Standards (IFRS) are already widely used and an equivalent set of International Public Sector Accounting Standards (IPSAS) have been developed alongside them. While being similar in many respects, they reflect the unique requirements of the public sector. For example, the focus on public service provision rather than profit making, and the levying of tax and other charges by government to meet the financial commitments created. This is important as the public sector commonly accounts for around one-third of the Gross Domestic Product (GDP) in the majority of developed countries.

A significant number of countries continue to manage their public sector finances on a cash basis, although an increasing number have adopted full accrual accounting. This has the advantage of looking beyond a simple income and expenditure analysis towards the complete financial position, including the assets and liabilities held. Where this information is consolidated, for example as a set of Whole of Government Accounts (WGA), this provides strategic information on the sustainability of the national fiscal arrangements.

ACCA remains supportive of IPSASs and continues to encourage a move towards the adoption of full accrual rather than cash-only IPSASs given the additional financial information provided. With the move towards IPSAS in many countries, ACCA launched the Certificate in International Public Sector Accounting Standards (Cert IPSAS) at the end of 2014. ACCA’s Cert IPSAS is a flexible, top-up qualification for finance professionals working in / with the public sector. As a globally accessible online course and assessment it meets the needs of individuals and organisations wishing to develop essential working knowledge of IPSAS in an efficient and cost effective way.

Only by improving the information held on public finances and then acting on the issues raised can public services be maintained and improved for the future. Otherwise, as recent events have highlighted, countries could find themselves with severe financial difficulties that might take a generation to resolve.

When it comes to financing sustainable public services, more often than not, there are no quick fixes.

2015: Year of the Robot?

accapr —  12 January 2015 — Leave a comment

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By David Poole, CEO of Symphony Ventures 

Automation of business processes through Robotic Process Automation and Artificial Intelligence is the subject of a great deal of speculation. Is the accounting profession on a collision course with these game-changing technologies? Is the future bleak or bright for today’s Accountant?

In the recent ACCA white paper, Digital Darwinism: Thriving In The Face Of Technology ChangeFaye Chua and her contributors make some very insightful predictions about the emerging role of technology in accountancy. The chapter on Artificial Intelligence (AI) and Robotics offers an interesting view into the potential role process automation can play in improving systems, reducing costs, and increasing accuracy. As an accountant by training, I am fascinated by what the future holds for this industry.

While far from envisioning a world where mechanical robots can credibly take over the complex and intuitive role of the accounting professional, I believe software robots, or Robotic Process Automation (RPA), are indeed capable of handling labour-intensive tasks in a highly efficient manner. These software robots don’t sit at a desk, but toil quietly behind the scenes, easing the burden of routine monthly tasks including data collection, reconciliations, complex journal entries, compliance testing and master data management (to name but a few). Once ‘taught’, they faithfully follow the processes accurately and reliably until told to stop. They don’t mind working 24/7 or skipping lunch breaks. They never quit, and a fleet of them can upskill as fast as you can say ‘copy/paste’. Millions of bits of data can be processed, analysed, and computed more quickly and efficiently by a handful of digital accountants than by dozens (even hundreds) of junior assistants.

An inevitable trend

The fact that robots can access multiple systems at once and make complex calculations means that as long as a process can be documented and the data is digital, the software can do the work.  The accounting world is well served by very good ERP and finance software which has automated many accounting tasks and created enormous value over the past 20 years. However, there are still a very large number of accounting staff and, some might say, more now than prior to the advent of ERP systems. It’s these human roles that are the target of robotic assistants.

So, how, you might ask, do you take advantage of this trend rather than being thrashed by it? It’s an important question, because automation in accounting is inevitable, and having a plan is critical.

Planning for Automation in Accounting

Your goal in the early days should be to gain a comfort level with automation and introduce it in ways that encourage adoption (rather than resistance).  One such area is for Digital Labour automation to take over the most onerous of tasks so that accountants can focus on the high-value work that best takes advantage of their background and knowledge. This will also create more fulfilling roles for junior staff as they can focus on analysis rather than process. Conservative estimates have such automation infiltrating most accounting offices within the next five years.

The robots can either work as assistants to teams of accountants, making them far more efficient, or can take over entire tasks and work independently in the background. For instance, it’s possible for robots to manage bank reconciliations in real-time and then escalate complex issues as they arise to a human colleague. And, as some have foreseen, the robot may then learn how to solve that problem independently next time it arises.

Areas of Opportunity

Once a comfort level has been achieved, one need not look far to find ripe areas of opportunity for automation. Firstly, look for areas where interfaces with business systems are either nonexistent or only partially implemented. This is robot nirvana. Robots are very efficient at completing integrations extremely quickly, cheaply, and often more reliably than building interfaces to legacy systems. For example, collecting, summarising, and posting sales data, order data, commitment data and so on.

Secondly, there is an ever increasing demand for analytics and reporting to add value to the business.  Robots can rapidly access data from multiple accounting and business systems and present results and insights to a human colleague. For the time being, robots are not as capable at interpreting the results of the analysis in the context of a specific business or industry. However, it’s only a matter of time before even the most nuanced and complex cerebral tasks are being automated as well – thanks to Artificial Intelligence software development being one of the hottest and fastest growing areas of R&D.

The Numbers

As accountants, it’s important that the numbers add up – that this is not just a management fad. Well, they do. All of the tasks described above can today be achieved at a fraction of the cost of employing humans. A single software robot can cost a small percentage of an FTE and yet perform the tasks of multiple humans, work longer hours, and do so with far more consistent results. They can also do so in a format that is highly compliant and auditable. Obviously the set up and implementation of a digital workforce is not straightforward and requires professional help and advice. Typically, however, even with the upfront investment and time taken to implement such automation, it is not uncommon to see a break-even within one year and a 3-4x payback on the initial investment over a period of three years.

With such a clear business case, the march of the robots is inevitable. The question is not ‘if’, but ‘when’ will you need to take a long hard look at the potential of Robotic Process Automation and Artificial Intelligence in your finance function? Many organisations are creating specific automation budgets for 2015 to start to develop their knowledge and capabilities around these new technologies.  The potential across the organisation, not just in finance, will be material in the coming years. Automation projects truly are transformational, but without the huge systems and wholesale restructuring that went along with ERP-grade transformations of the past.

The robots are indeed coming. The value they bring is real, and the competitive advantage they enable is significant. So make 2015 the year of the robot, and begin investing in the future of your profession and your firm.

Jamie Lyon NEW PHOTO

By Jamie Lyon, head of corporate sector, ACCA

Collaboration, collaboration, collaboration should be the new mantra for corporate evangelists. Speaking at our Asia CFO summit last week, I had the temerity to suggest that finance had to up its game in working cross-functionally, and that future business growth was dependant on greater collaboration between the CFO function and the rest of the executive team. In a customer focused and digital knowledge economy, collaboration is king to evolving the business model, realigning operational processes and mining (in particular) the enterprises’ intellectual capital to create value. Consider one of today’s most prized enterprise assets – data. Today, there are countless examples of savvy enterprises who continue to invest in breakthrough technologies to leverage the power of the data at their disposal. Yet we also know that many enterprises still aspire to a single source of data truth. Functional responsibilities continue to blur in the great data debate, and the unspoken question at the C Suite table remains this: who takes ownership or leads the enterprise wide agenda in this critical asset class?

I am duty bound to say the CFO function has an outstanding case to take the leadership role here. The CFO is the steward of corporate value, the keeper of the purse strings, and it is they who must primarily drive required enterprise ROI. But in today’s connected environment, understanding and leveraging the value of enterprise IP is critically dependant on reaching out and building alliances with the CMO, the CIO, the CHRO and other new emerging C suite roles; the assets and processes that create corporate wealth today typically have little respect for functional boundaries. The data example provides an outstanding opportunity for CFOs to move the dial on peer collaboration. Collaboration of this kind will bring much greater clarity and agreement across the executive table on the processes that will create value in the future, it will mean a much more effective capital allocation strategy for the business, and it should help the CFO lead a clearer line of sight tracking, measuring and reporting on the enterprise activities that matter most.

Collaboration, collaboration, collaboration. A new year’s resolution for every CFO.

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By Ewan Willars, director of policy, ACCA

Last week, the Prince of Wales’ Accounting for Sustainability project celebrated its 10th year anniversary. The great and the good of the sustainability world gathered in London to mark the occasion. ACCA was there, and we have also helped A4S identify the issues that will matter in the next ten years.

Looking back, the past decade has seen the sustainability agenda championed, challenged, and even denied.

Sustainability has been (and remains) an issue of fervent debate.

Policy-wise, there is of course more work to be done. The outcome of the Rio+20 global summit in 2012 showed that a global consensus on sustainability reporting is hard to achieve. Agreeing on reporting measures remains a challenge.

However, against these dynamic, and often difficult political, social, scientific and environmental contexts, A4S has played an instrumental and highly influential role in leading the sustainability debate. It has pushed for greater transparency from business, for clearer reporting and for an integrated approach to sustainability. A4S’s assertion that sustainability is critical for the future prosperity of the world is one that ACCA supports whole heartedly.

As a member of the executive board of the A4S project, ACCA is proud to play a part in A4S’s important work. With A4S, ACCA has published research into the developments and progress of sustainability and non-financial reporting, examining the wider corporate and social responsibility debate and the part the accountancy profession plays in sustainability reporting.

ACCA has long recognised that sustainable development is critical to society and business. The accountancy profession has a vital role in defining and delivering the means by which sustainable development is measured and reported.

To celebrate the 10th anniversary of A4S we conducted research amongst over 4500 of our students around the world, from Africa to Australia, to understand their hopes, fears and aspirations for the future, and specifically their thoughts on sustainability and business over the next ten years.

The main focus of our questioning was: what will the world look like in 2024 for them, as financial professionals of the future? We wanted to get opinions of tomorrow’s finance professionals  on how they believe the global macro sustainability trends will impact businesses and the role of accountants in 10 years from now.

To what extent do you think the following sustainability issues will have impacted businesses by 2024?

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We asked the students what they saw as the key global trends that might impact business over the next ten years.  The top three concerns were the decline in natural resources; population rise and instability in the finance markets.

The impacts of social, environmental, population, economic and political changes are a concern to the majority of respondents – 78% said this was a worry, agreeing that the sustainability of businesses will be challenged as the world changes in the future.

Looking ahead to 2024 and beyond, to what extent do you agree with the following statements about the possible role of the finance and accounting profession?

  • 87% think finance and accounting professionals will need to provide businesses with more decision-making insight than now e.g. forecasting (so, more on what might happen in the future, than recording what has happened)
  • 79% think sustainability issues will be more prominent in business
  • 74% think the environment’s impact on organisations will be a bigger focus for finance and accounting professionals
  • 73% believe the role of finance and accounting professionals will be more crucial to the performance of businesses than it is now
  • 68% think sustainability considerations will impact my everyday working life
  • 68% believe the finance function will be key to creating a sustainable business
  • 62% think business will have established ways of addressing global sustainability issues
  • 57% believe there will be greater opportunities for finance and accounting professionals than now 
  • 34% believe the world will be a better place for me to live in

Our research also showed that finance and accounting professionals will need to provide businesses with more decision-making insight than now, such as forecasting and providing insights on more of what might happen in the future, rather than recording what has happened.

So how can accountants manage these future challenges? ACCA’s policy paper, Sustainability Matters (May 2014), said that the global accountancy profession has an important role in making organisations more responsible and accountable in the pursuit of sustainable development.

From sustainability reporting to integrated reporting; the assurance of non-financial reporting and disclosure; climate change; natural capital and the green economy – accountants are central to making the sustainable equation add up and make business sense.

In terms of integrating sustainability issues into business in the future, do you see finance and accounting professionals becoming…?

  • 54% believe they will be much more involved
  • 34% said somewhat more involved
  • 8% said same level as today
  • 3% said less involved
  • 1% said not involved 

Accountants’ professional skills in developing metrics, information systems, reporting and designing economic instruments, among other business attributes, will help make economies greener, companies more accountable, and achieve global and national measures that look beyond economic output to factor in non-traditional measures, such as human well-being and natural capital.

The bottom line is that the finance professionals of 2024 will have more challenges ahead of them than now, with research from the UN and the OECD telling us that climate change will have a major impact on business. The OECD’s Environmental Outlook 2050The Consequences of Inaction” (2012) said that: “Climate change presents a global systemic risk to society. It threatens the basic elements of life for all people: access to water, food production, health, use of land, and physical and natural capital.”

We believe that the young accountants of today will go on to develop the skills, abilities and knowledge to shape and change the future; many are already doing so. Our hope is that by 2024, the accountancy professional, wherever that person may be working, will be creating a brave new world with sustainability integral to it.

Palma Michel

By Palma Michel, former CFO headhunter and founder of the Mindful Leadership program at BeYoCo 

The world as we know it has changed dramatically since 2008 and there has been more volatility in the past eight years, than over the past 30 years. It sounds like a cliché but we live in a world of constant change, increased complexity and uncertainty. Applying yesterday´s business solutions and behaviours to today´s and tomorrow´s problems does no longer work. It is no longer about “what” someone does but “how” they go about it.

In order to initiate or guide skilful change we need to be present to what is here, not what we thought would be here or to what was here yesterday. We also need to be able to hold ambiguity and be comfortable with the unknown.

What typically gets into our way to do this is our nervous system. We evolved in circumstances that did not change as intensely as the circumstances we find ourselves in today.  Back millions of years in evolution, our reflexive bottom-up mind or reptilian brain (amygdala) favoured short-term thinking, impulse and speedy decisions. Whenever the amygdala perceived something as a thread this led to a fight, flight freeze reaction. While this was useful when our ancestors were attacked by a tiger, fast forward to now, the problem is our amygdala still goes off when it perceives something as a threat, which typically happens when we are faced with an unknown situation; but it could also just be a full inbox, a budget meeting, etc. The other problem is that fMRI scans show, that what mostly switches on our amygdala are not even external circumstances but our very own thoughts. Our amygdala is also much faster in brain time than our executive brain and as a result we often react to what we think is here and fall into habitual reactive patterns instead of being able to respond according to what the situation requires.

According to Professor Jeremy Hunter from the Peter F. Drucker Graduate School of Management, contemporary management education has largely overlooked creating an educational process as systematic as accounting and financial analysis for managing oneself. Professionals are left to fend for themselves to know how to skilfully handle and transform the inner forces of emotions, physical sensations, thoughts and beliefs.

Neuroscientist Richard Davidson and his team suggest that mindfulness training can change our in-built response to pressure and demands; by strengthening our executive brain (the left side of the prefrontal cortex) as well as the white matter between the amygdala and the executive brain. By dampening down the amygdala, the prefrontal cortex is able to quiet signals associated with negative emotions, enabling the brain to plan and act effectively.

As such mindfulness practice is not a nice to have but a core capacity for managing today. Mindfulness training in the business world means examining our underlying assumptions and what we are doing while we are doing it – moment by moment. With mindfulness we begin to uncover the workings of our own mind, seeing how the filters of our mind effect our focus, engagement, perceptions, decisions and strategies.

Mindfulness training can be a capacity to effectively meet adaptive challenges, which are those challenges that require us to do something different and to develop a new way of operating in the world. Training in mindfulness helps us to say no to impulse and regain our capacity to be present in the midst of the current environment.