Kenneth Witt, CPA, CGMAAICPA Technical Manager, Management Accounting

Developing the Future: From Strategic Management Accounting to Integrated Reporting

Beta Alpha Psi Annual Meeting

August 7, 2015

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Kenneth W. Witt, CPA, CGMA

Technical Manager, Management Accounting in the Business Industry and Government team at the AICPA.

Staff liaison to the Business & Industry Executive Committee which provides insight and guidance on professional issues and trends

Involved in thought leadership and professional development activities for the Chartered Global Management Accountant (CGMA) designation.

Managed the development of a portfolio of guidelines on strategy, risk and performance management topics

Launched the AICPA Sustainability Initiative

Created and manages the AICPA Business & Industry Economic Outlook Survey

Member of the task force for the COSO Internal Control over Financial Reporting – Guidance for Smaller Public Companies

BBA in accounting from the University of Iowa; Started career with Touche Ross & Co.

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Agenda

Complexity and Competencies

Developing the Future Accountant

Business Strategy Game –LaVie Clothing

Management Accounting –Delivering Growth, Managing Complexity

Sustainability and Integrated Reporting

Fast Track to Leadership -Challenges, Opportunities

Complexity and Competencies

555

Complexity is increasing

AICPA Business and Industry Economic Outlook Survey

CPA decision makers (primarily CFOs, CEOs and Controllers)

Given the changing US and global economic and regulatory environment…

666

…how would you gauge the change in the level of general business complexity that you and your business have experienced over the past 3 years?

Significantly

more

complex

30%

Moderately

more

complex

38%

Slightly

more

complex

25%

No change

in

complexity

7%

Slightly less

complex

0%

More Complex = 93%

777

Significantly

more

complex

32%

Moderately

more

complex

40%

Slightly

more

complex

22%

No change

in

complexity

5%

Slightly less

complex

1%

Even More Complex = 96%

…looking ahead 3 years, how do you see the level of general business complexity changing?

888

And… The role of finance is changing

In addition to traditional financial accounting and reporting…

999

…what areas have become your focus?

39%

41%

43%

44%

46%

55%

58%

67%

0% 10% 20% 30% 40% 50% 60% 70%

Human Resources

Pricing and Cost Analysis

Tax Strategy and Planning

Legal and Compliance

Management/Governance

Acctg Information Systems

Strategic Business Planning

Risk Management and I/C

101010

And the role is changingNot just for senior executives

For recent graduates and new finance professionals, how important are…

111111

…business skills, people skills and leadership skills that you would not have expected or required in the past for the same role?

Somewhat important

22%

Not very important

2%

Very Important

= 76%

Developing the future accountant

131313

What do employers need?

Pathways Commission

Education

Old School New School

141414

CGMA Competency Framework

Applying accounting and finance skills in the context of the business…to influence and lead

Business strategy game

LaVie Clothing What needs to change?

161616

CGMA Business Game

Your Role

• You are the Senior Manager of Finance, reporting directly to the CFO

Major Stakeholders

• CEO

• Board of Directors

• US-based clothing manufacturer, est. 1952 - 6 manufacturing facilities in US selling directly to key customers

• Well-designed, well-finished ladies and children’s clothing at medium to higher end of market – quality is key which is main reason for keeping manufacturing in US.

• Introduced new design center in US and new distribution center in Europe which also increased profitability.

• Facing hostile competitive environment – considerable buyer power of large customers driven by lower cost and increasing quality of imports, especially from China

LaVie Clothing Pre-read info

“What needs to change?”

Business Scenario

• Dependent on small number of key contracts – increasing cost pressure from major buyers

• Increasing quality of low-cost goods from China - price is main bargaining tool

• Responsive action to competition is to increase efficiency/lower costs – wage cuts, factory closings under consideration

• Morale is low, quality is falling

First Trigger – Email from CFOBoard of Directors Meeting Next Tuesday

Three Proposals• Appoint Famous Designer• Manufacturing Center in Eastern Europe• Franchise Shops in US, Europe and Asia

LaVie

LaVie Clothing – possible solutions

• Designer to prepare 4 collections per year –

expected to increase sales, expand customer base

• Manufacturing center – expected to reduce

manufacturing and distribution costs

• Franchise stores – expected to provide access to

new markets, reduce dependence on major buyers

Task 1

Prepare a presentation for the CFO to present to the CEO summarizing the advantages and risks of the 3

growth proposals and make your recommendation whether to proceed

or not

15 mins

What are the implications? Potential Revenues? Costs? Competitors? Risks?

222222

Report Out

Each team should identify 3 speakers to report out:

1. What are the primary advantages?

2. What are the major risks?

3. What key information you would need for a full analysis?

Management Accounting

Delivering Growth and Managing Complexity

242424

252525

How do we make money?

Customer Value Profit Margin Processes

Strategy and the Business Model

262626

Finance as business partner throughout the innovation lifecycle

Managing Innovation and Risk

272727

The role of finance throughout the innovation lifecycle

Leading innovation and managing risk Managing Innovation

CGMA - 2013

282828

Risk Management and Internal Control

Who is COSO?

292929

COSO Internal Control – 2013 Update

Why the update?

Expectations for governance and oversight are greater

Globalization

Complexity

Technology

Expectations for fraud prevention and detection

2013 COSO CUBE

303030

COSO Enterprise Risk Management -ERM

Aligning risk appetite and strategy

Enhancing risk response decisions – risk avoidance, reduction, sharing, and acceptance

Reducing operational surprises and losses

Identifying and managing multiple and cross-enterprise risks

Seizing opportunities

Improving deployment of capital

ERM Cube

313131

Big Data, Business Intelligence, Business Analytics

From Insight to Impact: Unlocking the opportunities of big data

Focuses on finance role in linking decisions to data

Key questions:

What drives the business?

What do customers care about most?

323232

What is Big Data? Levels

of

An

aly

sis

Scale and Complexity of Data

333333

Managing Big Data

The three Vs

Volume

Velocity

Variety

SAS.com

Also

Variability

Complexity

343434

Management Accountant and Big Data

Reduce CostsIncreased Efficiency

Driver –BasedForecasting

Develop and Monitor KPIs

Increase Revs –Customer

Segmentation

Monitor External Risks

353535

Data Quality – An obvious concern

Sustainability and Integrated Reporting

373737

What is Sustainability?

Image – Ethical Corporation

383838

Green Growth Indicators

The 3Rs

Reduce

Reuse

Recycle

393939

More than Green Initiatives

“CORPORATE SUSTAINABILITY IS A COMPANY’S DELIVERY OF LONG-TERM VALUE IN FINANCIAL, ENVIRONMENTAL, SOCIAL AND ETHICAL TERMS.”

404040

Life Cycle of a Pair of Levi Jeans

Sustainability Accounting and Reporting Frameworks

424242

Sustainability Accounting and Reporting

Triple Bottom Line

• Economic Viability

• Social Responsibility

• Environmental Responsibility

434343

Major Sustainability Frameworks

444444

Data and Reporting Considerations

• Relevant

• Consistent

• Comparable

• Clear and understandable

• Inter-connected

• Forward-looking

Data

• Materiality

• Reporting boundary

• Reporting period

• Faithful representation

•Assurance

Reporting

454545

Climate Disclosure Standards Board

CDSB is an international consortium of business and environmental organizations committed to the integration of climate change-related information into mainstream corporate reporting.

“CDSB connects corporate non-financial reporting approaches”

464646

Global Reporting Initiative – New GRI G4 Guidelines

Designed to be a universally recognized standard

Compatible with other frameworks including Integrated Reporting

G4 Focus on -

Materiality

Key stakeholder views

Link between business strategy, operations and sustainability impacts

474747

GRI Content – Aspects and Boundaries

Boundaries

Assess whether inside or outside of organization

Own operations, suppliers, distributors, etc.

Aspects

Significant economic, environmental and social

impacts, that

Substantively influence assessments and decisions

of stakeholders

484848

G4 Economic and Environmental Aspects

Economic Aspects

• Performance

• Market Presence

• Indirect Impacts

• Procurement Practices

Environmental Aspects

• Materials

• Energy

• Water

• Effluents and Waste

• Biodiversity

• Emissions

• Other

494949

G4 Social- Sub-categories and AspectsLabor Practices and Decent Work

• Labor relations

• Occupational health and safety

• Diversity and equal opportunity

Human Rights

• Child labor

• Freedom of association and collective bargaining

• Non-discrimination

Society

• Local communities

• Anti-corruption

• Compliance

Product Responsibility

• Customer health and safety

• Privacy

• Product and service labeling

505050

What is Integrated Reporting?

The primary purpose of an integrated report is to explain to providers of financial capital how an

organization creates value over time.

International Integrated Reporting Committee

515151

Key Concepts of Integrated Reporting

The creation of value

The use of “capitals”

The definition of the organization’s business model

Integrated thinking

525252

What is Integrated Thinking?

IIRC and PwC

Integrated thinking begins with a thorough understanding of the

business model within the context of the external environment.

This understanding creates a more robust basis for identifying risks

and opportunities.

Integrated thinking helps companies develop a better

understanding of financial and non-financial factors and how

they impact their businesses.

535353

Traditional Financial Statement Model

545454

Integrated Reporting Model

International Integrated Reporting Committee

555555

Integrated Report Content Elements

Organizational overview and external environment

Governance

Business model

Risks and opportunities

Strategy and resource allocation

Performance

Outlook

565656

What companies are doing -

Fast track to leadership

The challenges, opportunities and action plan

585858

595959

Ethics Underscore the Profession

“Despite the increased prevalence of ethics policies and behaviouralstandards, professionals around the world are feeling pressured to compromise these norms, and bribery remains a concern for businesses.

Managing Responsible Business

CGMA 2015

606060

How Emotional Intelligence Drives Performance

Daniel Goleman Hay McBer

Personal Competence

How we manage

ourselves

Social Competence

How we manage our relationships

626262

How to develop EQ

636363

CFO of the Future will create strategic impact

TWTCPA Case Competition

Questions?

Thank You

CGMA. orgkwitt@aicpa.org