Snapshots" Series……
On Target continues its series of Snapshots on a particular theme over many
issues.
KEY ORGANISATIONAL ISSUES IN MANAGEMENT ACCOUNTING
In the last issue of On Target we reported that the ICMA conducts research in
a number of 'hot topics' and bring members the results of such research via its
research Journal, JAMAR, and its newsletter, On Target. Two such topics,
'open-book management' and 'empowerment accounting' were discussed. In this
issue, four more topics, specifically on strategic organisational issues are
covered.
Environmental Reporting
Environmental reporting is becoming more and more common in business. Today
about 65% of the world's 250 largest corporations now issue environmental
reports. That represents a remarkable change from just a decade ago, when it was
hard to find any companies providing detailed data on their environmental
performance to the public.
Companies are voluntarily embracing "green" reporting because it
makes good business sense. Not only does public reporting push companies to be
more disciplined about their environmental performance, which, in turn, reduces
their environmental risk, it also creates positive PR. Good green reporting can
serve as a differentiator in the war for talent people like working for socially
responsible companies - and it can make a company more attractive to customers
and investors as well. Moreover, because green reporting puts all business
practices under scrutiny, it often helps managers identify cost savings and even
new business opportunities. Thus, with tools such as Activity Based Costing,
Value Analysis and Life-cycle costing, this area is right up the management
accountants' street.
The Strategic Audit
A Strategic Audit provides an objective view of the growth and exit options
available to shareholders and management when difficult and important decisions
need to be made in order to maximise shareholder value. The result of a
Strategic Audit is to ensure that there is a well defined and agreed path of
development including a series of practical steps which when implemented will
substantially enhance the value of a company.
Management Accountants may be called upon to conduct a large selection of
alternative Strategic Audits, either as internal information providers or as
external managerial auditors. Although not as yet mandatory, it is in this
latter role that the management accounting profession can ensure the adequacy of
the corporate governance procedures in organisations.
A Strategic Audit is far different from the common perception of financial
audits. It is a continuous evaluation of all the strategic functions of any
success-seeking firm. Numerous components as outlined below make up the totality
of the Strategic Audit, although the scope of each component audit will vary
depending on the organisation.
Fast Closing
Fast Closing is the need is for transparent financial information faster than
ever before. IFRS compliance and the fast close requirements (last month plus x
days) pose extra challenges in today's global reporting environment. This will
be much easier for companies that have already established integrated financials
architecture in their own country and defined group standards for accounting and
controlling - in line with the reporting requirements of the parent company.
With companies having to comply with IFRS accounting standards as of 2005 and
keep up with the trend toward faster closing, ever greater demands are being
placed on both group reporting and IT systems. Although fast closing
requirements are primarily due to the demands coming from USA, which ultimately
under the IAS international reporting complexities, i.e. the movement towards
IFRS (2005) or convergence, will affect all countries.
This requires significant input from the management accountant. There is also
a need for increased stakeholder scrutiny of financial data as recent corporate
failures have challenged the business climate. The demand is for a "no
surprises" in the financial reporting environment. Fast Close contains
procedures to:
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Optimise and accelerate the closing process
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Streamline financial operations
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Increase timeliness of information
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Get better data quality and more transparent information
Reputation Risk Management
Any diminution of an organisation's reputation due to poor risk management
techniques, ultimately results in the diminution of that organisation's value,
and if this process goes unchecked, or has a significant avoidable disaster, an
Enron type corporate collapse could result.
The ICMA has commissioned a project to test the proposition that not only can
risk be managed and valued, but also its associated reputation value can be
incorporated in the financial statements. The outcome of the project is to
provide a valuation model based on the premise that risk management should not
be based on what the organisation has, but instead what the organisation can do,
i.e. its capability to manage and enhance its reputation in order to ultimately
generate incremental future cash flow, and hence value. Under such a valuation
model, consideration will be given to the approach that auditors can take to
determine an organisation's strategic capability of sustaining and generating
value via reputation enhancement. Consideration will also be given to the role
of the Risk Manager, and how an empowered open-book approach to communicating
and financial reporting can provide significant motivational benefits in risk
reduction and reputation enhancement that ultimately result in increased value.
(In the next issue of On Target, we will cover the strategic cost management
issues of Resource Consumption Accounting; Throughput Accounting and Lean
Accounting)
IMA-ICMA MERGER PROGRESS REPORT
Members are no doubt interested about the progress of the merger negotiations
between IMA and ICMA.
As was reported in an earlier issue of ON TARGET, discussions were held in
New Jersey between the representatives of the two bodies on Jan 30, 31 and Feb
1, 2006 and many issues were discussed. As there were more stakeholders present
at this meeting compared to the first merger meeting, some changes were made to
preliminary understandings that were put to the ICMA membership at its 2005 AGM..
As these changes were within the parameters of the authority given by the
ICMA membership at the 2005 AGM; the ICMA President Leon Duval and IMA President
and CEO Paul Sharman signed a draft MOU that each body agreed to take to their
respective Executive Boards (at IMA this is called the Board of Regents) for
ratification.
This issue of ON TARGET was held back until some feedback was received from
the IMA Board of Regents. This was received only on June 28, 2006, and it
appears that two issues of contention essentially remain, i.e. the recognition
of all membership categories of ICMA, and the recognition of each body's
education programs for CMA certification. At time of going to press, the
following timetable is envisaged: the IMA changes to the MOU will be discussed
by your Executive in July, and some clarifications from IMA will be sought. The
ICMA Executive will then take these changes back to its membership to seek final
approval. Therefore, the merger timetable has once again been changed, and it is
unlikely that any decisions will be made prior to the AGM in September 2006.
Keep watching this space!
Book Shelf
I have recommended AFR Boss magazine in this column before. This comes with
the Australian Financial Review on the second Friday of each month (also
available on its website: http://www.afrboss.com.au.) The June 2006 issue has an
interesting article by Jeffrey Pfeffer and Robert Sutton on "The Failure of
Strategy" (pp. 36-40) - sometimes the obsession with strategic planning can
distort a company's operations.
The authors agree that "leaders and their people need to know what to do
and how to compete. But like many half-truths, a fixation on strategy can
obscure as much as it illuminates. The corporate obsession with strategy can
cause leaders to overlook other, even more crucial and more sustainable avenues
for success. Even corporate successes attributed to great strategy often turn
out not to stem from strategy at all."
The words by Anna Chandler which start her tongue-in-cheek commentary on page
81 of this issue might also make us think about strategic planning: "The
creation of a successful business plan is a dark art devoted covering your
team's backsides while reassuring senior management that you know what you're
doing."
Pages 80-81 also have summaries of six journal articles by John Rimmer of
LaTrobe University. The articles summarised in this issue include:
· "Just-in-time under fire: The five major constrains upon JIT
practices" by Polito and Watson in The Journal of American Academy of
Business, March, 2006.
· "Strategies to prevent economic recessions from causing business
failure" by Pearce and Michael in Business Horizons 2006, Vol. 49.
· "The use of humour in the workplace" by Romero and Cruthirds in
Academy of Management Perspectives, May 2006.
Web addresses for each of these publications are provided.
Bill Richardson
What's On?
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June 3-10, 2006- Chennai, India
Advanced Management Accounting and Advanced Strategic Management Accounting
seminars conducted by cmaindia for ICMA
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June 8-13, 2006- Colombo, Sri Lanka
Advanced Strategic Management Accounting 4-day seminar conducted by the
Institute of Chartered Accountants of Sri Lanka for ICMA
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June 17-24, 2006- New Delhi, India
Advanced Management Accounting and Advanced Strategic Management Accounting
seminars conducted by cmaindia for ICMA
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June 22 - July 1, 2006- Beirut, Lebanon
Advanced Management Accounting and Advanced Strategic Management Accounting
seminars conducted by cmalebanon for ICMA.
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June 26-28, 2006- Colombo, Sri Lanka
Advanced Management Accounting 3-day seminar conducted by the Institute of
Chartered Accountants of Sri Lanka for ICMA
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July 10- 19, 2006- Jakarta, Indonesia
Advanced Management Accounting and Advanced Strategic Management Accounting
seminars conducted by IPMI for ICMA
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July 17- 26, 2006- Toronto, Canada
Advanced Management Accounting and Advanced Strategic Management Accounting
seminars conducted by ICMA Global
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August 12 to October 28, 2006 - Manila, Philippines
CMA Philippines seminars on Advanced Management Accounting and Advanced
Strategic Management Accounting (Batch 8) conducted by Business Sense for ICMA.
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August 24 to September 2, 2006 - Kuala Lumpur, Malaysia
Advanced Management Accounting and Advanced Strategic Management Accounting
seminars conducted by Multimedia College for ICMA
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September 30, 2006
Proposed (tentative new) completion date of merger with IMA, USA.
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