Accounting Standards » Rethinking best practice in finance

Rethinking best practice in finance

In his latest column for The CFO, Peter Spence sheds light on how the rapid economic and social change experienced over the past decade means the way we evaluate the work of finance teams must adapt to keep up

Rethinking best practice in finance

To say the past few years have been eventful for finance professionals is an understatement. The pandemic not only caused unprecedented business stresses, but it resulted in a very rapid and dramatic change in working practices, such as in the rise of remote working.

We are yet to fully understand the impact this will have on productivity and business models, but we can say for certain that we are operating in an entirely new business environment.

The businesses best placed to thrive in these circumstances are agile, quick to adapt and open to change. They are the ones best able to take advantage of the opportunities offered by the emergence of new technologies and use them as part of their adaptation strategies. The finance teams who work in these organisations must play their part, and they too must be agile and adaptable.

Today’s finance teams have the power to make an even greater impact than they have in the past. There is an abundance of management information available, and the data analytics tools available to them are improving all the time. This means the insights the finance team can generate are becoming more powerful, and this is having knock-on effects on the role the finance department plays within an organisation.

Management accounting has always been about decision-making based on financial understanding. Increasingly it is about applying insights to influence an organisation’s strategic decision-making processes. This places a greater weight on the business partnering aspect of the role.

New principles for management accountants

It is for this reason that AICPA & CIMA have published a new set of Global Management Accounting Principles. The principles set out best practices in finance and define what ‘good’ looks like for management accountants. They are a benchmark which finance should be judged against and are free and accessible for anyone in the profession to access, not just members.

The new Global Management Accounting Principles reflect this new environment and outline how management accountants should enhance long-term sustainable decision-making and drive value creation. The extensive research that AICPA & CIMA have conducted has built up a significant base of up-to-date knowledge, which provides the foundations for the new principles.

Deriving the Global Management Accounting Principles

The new Global Management Accounting Principles are founded on the four basic principles of management accounting:

  1. Communication influences and creates impact. Good management accounting requires all communications to be well-articulated, received and understood so that it can actioned.
  2. Information is relevant. Stakeholders must be provided with the information they need to formulate strategy and execute tactics.
  3. Analysis generates sustainable value. Finance teams must prioritise value rather than just cost. This requires a thorough understanding of the business model in addition to the application of rigorous management accounting techniques.
  4. Stewardship builds trust. Good practice must be firmly rooted in professionalism and ethics.

Finance professionals can use the new Global Management Accounting Principles as a guide for how to put these principles into action. They are applicable to every management accounting practice area, and provide a pathway for creating and assessing value. Using the principles you can develop a better understanding of how good decision-making and performance management together can produce higher-value outcomes.

We all know that we have to adapt ourselves and our working practices as the business world around us evolves. The new Global Management Accounting Principles mean we have a suitably up-to-date standard by which we can make sure we are performing at the top of our capabilities, and continue to power the organisations we serve to success.

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