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How to stay on top of the numbers
game.
Robert Bruce looks at the latest changes in the evolving
role of the accountant in the financial information supply chain
Accountancy, as any finance director
implementing international financial reporting standards will tell you, is
becoming almost impossibly complex. And within companies it is down to the
accountants to make sense of the management accounting and explain it to the
non-financial managers in the organisation.
“The accountant in business is becoming more of a critical link in the
financial supply chain,” is how Bill Connell, who chairs the Professional
Accountants in Business committee of the International Federation of
Accountants, puts it. And that works both ways. “It may have been the
auditors who got the knocks on the head over Enron,” he says, “but
everything started inside the company.”
It is management accountancy which is taking the strain and turning what
the profession does into an indispensable part of every corporate structure.
There are two sides to this. The first is how management accountants have
become strategists much more than scorekeepers. The second is how far they now
use non-financial information to drive performance.
“There is a split between the processing side and the advisory side,”
says Mr Connell.
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“Frankly, the traditional role is diminishing
while there is a dramatic increase in working on the business advisory
side.” And much of the more traditional side of the finance function work
is being done somewhere other than in the old corporate counting house.
“One of the trends in finance,” says Richard Mallett, director of
technical development at the Chartered Institute of Management Accountants,
(CIMA), “is the outsourcing of the transactional side”. This is not
only a side effect of technology. It is to do with globalisation as well.
“Once you would have worked within a regional boundary,” says Mr
Connell. “Now it doesn’t matter. You could move the outsourcing from India to China. And accountants would be
leading the project.”
The other effect of outsourcing the finance function is equally clear. “It
makes more space for the finance professionals to provide analysis and
insight,” says Mr Mallett.
“The daily chores used to restrict their ability to do this.” This
opens up the management accountancy horizons. “They can move into
many other areas,” says Mr Mallett. “They become heavily involved in
some of the major strategic decisions. For example, going through appraisals in
merger and acquisition work. This is all far from the role of producing a set
of management accounts every month.”
It also moves management accountancy away from its traditional reliance
on pure figures. “If you take the framework of financial management as a
given,” says Robert Bittlestone, chairman and managing director of
consultancy Metapraxis, “what you now need to know is what the trends tell
you about the future”. This is where non-financial information comes in.
“It is hard to detect trends from walls of figures,” as Mr
Bittlestone says. But using non-financial information is not only more
understandable to non-accountants, it also enables a company to adapt its
systems and track its performance in a customised way. “Large companies
are adapting management accountancy to their own needs and finding
non-financial information provides good leading indicators,” says Mr
Mallett.
Increasingly this is coming in graphic and display form. Technology allows
information to be used in very sophisticated ways. And it also allows a large
number of trends to be tracked. “The issue at the top table,” says Mr
Bittlestone, “is the ability to gain the earliest warning that one of the
trends is starting to head south”.
And this is where technology is increasingly coming into its own. Mr
Bittlestone has a theory. Homo sapiens did not, from earliest times, develop
sophisticated skills for spotting a warning trend amongst a mass of figures.
But having to outwit predators did mean that we developed great skills at
spotting unexpected movements. “We have, from the days of cavemen,
developed a remarkable visual competence and ability at detecting
movement,” he says. He suggests that with the almost limitless array of
performance indicators now available and provided by management accountants in
any sophisticated business there is a problem of understanding what they all
mean in some sort of trend. “People simply don’t get on top of this stuff
when it is a wall of numbers,” he says. “The primary diagnosis should
be working with our visual skills.”
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