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CFOs Urged To Take 'A Holistic Approach'

Posted on October 27, 2014 at 9:30 AM

It was just over a year ago when Douglas Flint, Group Chairman of HSBC Holdings, spelt it out. “Management accounting" he said, "is a critical aspect of the finance function because it informs the board, investors and management why the numbers are what they are, not just what the numbers are.” 

I covered it at the time at Forbes Europe

Last week new global management accounting principles became reality, released by two of the world's largest accountancy bodies - the Chartered Institute of Management Accountants (CIMA) and the American Institute of CPAs (AICPA).

You can access them here.

Developed by CIMA and the AICPA with input from CEOs, CFOs, academics, regulators and other professionals across five continents and in 20 countries, the four principles focus on breaking down silos. The framework details how each principle is applied across 14 different practice areas, ranging from investment appraisal to treasury and cash management.

Management accounting is likened to "the GPS for the C-suite, guiding strategy through the provision of future focused insight and analysis." While it sits alongside financial accounting, it has lacked the same level of guidance to ensure consistent practice worldwide, and these principles are intended to help fill the gap.

"We work with a range of organisations across the world and can see that decision-making is becoming more and more difficult as complex information flows so much faster" says Charles Tilley, CIMA's CEO. The principles are intended to help CEOs and their teams achieve higher-quality decision-making across their organisations.

One could argue they come not a moment too soon. Unilever's CFO, Jean-Marc Huet, says : "It is crucial that all elements of an organisation - financial and non-financial - share information. Taking the holistic approach is the best advice I could give any new CFO. In my eyes non-financial factors, such as the quality of our people, are as important as numbers."

These principles arrive as the buzz around integrated reporting gets louder, and following important research on the need for values-based investment.

There is a virtuous circle here - but it does mean CFO's need to embrace a word they may think belongs to a different language entirely: 'holistic.'

Business leaders have welcomed the arrival of the new global management accounting principles. A handful of them - including the CEO of BAE, the CFO of Vodafone, the Chairman of Sainsbury , the CEO of XChanging and the CFO of Ladbrokes - wrote a letter to the editor of the Financial Times the other day, and said:

"Successful businesses recognise the need to professionalise the decision-making process through a framework that factors in external and non-financial information covering the present and the future.

That is why we support the new set of Global Management Accounting Principles developed by CIMA and the American Institute of Certified Public Accountants. At a time when economic growth and recovery have never been so critical, we encourage government and business leaders globally to consider how these Principles can help drive sustainable success in their organisations."

Perhaps we need to ensure that as much noise is made about the stepping stones for better business as is made about every failure. At the heart of these principles is the spirit of collaboration.

Categories: Measurement, Accountability, Stewardship