Accountants are good with numbers, almost by definition. It’s what they do. But many of the biggest markets where the numbers have done the most to shape society now seem to be asking for more than just the bottom line, more than just the shareholder return. And worse yet, it may even be that the focus on financials has gone beyond a positive influence and is leading us down the path to global disaster.
The focus on meeting numerical targets has driven two business scandals to break this summer – the Toshiba accounting issues, and Volkswagen’s diesel engine emissions troubles. And while they look on the surface to be very different affairs, the underlying issues are disturbingly similar – set an apparently impossible target, individuals in business are driven to bend or even break the rules just so that they can disclose a set of figures at one point in time which superficially make the grade. But in both cases, in straining to reach that artificial goal they’ve missed their way and lost sight of what society sees as their real objective.
And the pattern repeats at a macro level. On a global level, countries are ranked by GDP. And yet eternal exponential growth, which is what focussing on GDP entails, will break the planet. So what are we going to measure instead as our “target” if financial numbers have had their day?
The change is coming already – businesses aren’t just being measured on how much profit they make; how much tax they pay back into society is growing in importance. And how they make the profits, and divide up what they haven’t paid in tax, is a focus of interest. Even if investors in developing markets are still focussed on the value of audited numbers, the global multinationals who drive the extractive industries and world spanning supply chains are being forced to declare whether their profits are built on the back of slave labour. The EU is bringing in a whole raft of non-financial reporting disclosures on everything from board diversity to respect for human rights. The rise of the integrated report, and focus on the triple bottom line, reflect the calls of stakeholders to understand more about the motivation behind the numbers, and where they might be taking us.
So how are accountants supposed to respond?
What we cannot ignore is that society wouldn’t exist without business. From the very first time someone realised that if you measure and record the grain going into the granary then you can identify, allocate and trade the productive surplus of society we became reliant on numbers. Fast forward a couple of thousand years to the development of the corporate entities which underpin the fabric of the modern world, and methodologies for monitoring the behaviour of owners and managers by other owners and by creditors are essential to the health of the Corporations which allow for the use of investors’ capital, opening up opportunities for achievements and returns that would otherwise be unattainable. Society is built on business, and business is built on trust in the business forms and business relationships which the numbers and narrative encapsulate.
The speed and size of modern markets, modern transactions, can’t change the underlying reality that society is made up of humans, some trustworthy, some trusting, some neither. Society still needs assurance that the individuals managing and controlling the flow of productive capability are doing it not just in their own interest, but with the broader good in mind. Accountants are indispensable for giving investors that trust in business.
Whether it’s the numbers in the back half of the accounts or the narratives we read in the front half of the accounts, it’s accountants in their role as auditors who sign off on the company reports. And increasingly it’s the real time operation of the business which concerns stakeholders. Who is better placed to analyse the data, to balance the likely impacts of the external environment, to critically assess and balance the competing pressures which assail the modern business?
However ethically pure an organisation’s motives, it won’t survive without a realistic view of the numbers and how they fit into the supply chain – and that’s a view which has to come from a trained and experienced mind. An English idiom, highlighting that actions are better than words, describes this situation well: “fine words will butter no parsnips” – and good intentions will balance no statements of financial position.
The world needs ethical and professional accountants, taking the wider view of business that society demands, and nothing can take the place of that ability to work with the numbers. What accountants need to do now is show how their talents and training fit into the modern economy in a way that no other skillset can emulate.