This is the seventh installment of a 12-month publication series titled Exploring the IESBA Code. This installment addresses inducements. 

For more information about the Code, click here.

In the wake of unprecedented economic disruption due to the COVID-19 pandemic, many companies are rethinking their fundamentals and assessing how their corporate purpose, strategy and business model will drive long-term success. To support businesses in this uncertain environment, the International Federation of Accountants (IFAC), International Integrated Reporting Council (IIRC), and the Association of International Certified Professional Accountants (the unified voice of the American Institute of CPAs (AICPA) and the Chartered Institute of Management Accountants (CIMA)) today released new guidance for Chief Financial Officers (CFOs) and finance teams to navigate their organizations toward long-term value creation.

“COVID-19 is the greatest threat to value creation we’ve seen in generations. As a result, many companies are juggling a handful of pressing priorities, including protecting cash flows, ensuring long-term value creation, and delivering positive societal impacts,” said IFAC CEO Kevin Dancey. “The CFO and finance function can partner with management to overcome the challenges associated with understanding and driving long-term value creation.”

The report contains actionable insights for CFOs, finance teams, and other business leaders to sharpen their perspective on value creation beyond the financials, including how to:

• Understand the value creation process
• Identify principal opportunities and risks related to the organization’s strategy and business model
• Develop an integrated view of performance and value, incorporating balance sheet, business, and societal perspectives; and
• Drive priorities for value creation into decision making and reporting.

The approach outlined in this report helps CFOs and finance teams to think about how to ensure that all relevant information around performance, opportunities, risks, and trade-offs are available to internal decision-makers, investors, and other capital providers. It also enables the corporate mindset to evolve from shareholder value creation to a longer-term stakeholder value creation perspective.

“With an estimated 80 percent of enterprise value now made up of non-financial assets such as brand recognition, human capital and customer satisfaction, organizations that understand how to create and deliver value will be better positioned to achieve sustainable success,” said Barry Melancon, CPA, CGMA and CEO of the Association of International Certified Professional Accountants. “Accounting and finance professionals are uniquely positioned to bring together the insights and data needed by management teams to inform a value creation agenda, which is particularly important during this time of uncertainty.”

“Business leaders are under growing pressure to marry profit with purpose. A value creation agenda delivers exactly this,” said Charles Tilley, CEO of the IIRC. “Building on the International Integrated Reporting Framework, this new report will guide CFOs to better understand, measure, and report on value creation and impact. The result is comprehensive measurement based on a company’s value drivers that can be used to steer long-term sustainable development.”

About IFAC
The International Federation of Accountants (IFAC) is the global organization for the accountancy profession dedicated to serving the public interest by strengthening the profession and contributing to the development of strong international economies. IFAC is comprised of more than 175 members and associates in more than 130 countries and jurisdictions, representing more than 3 million accountants in public practice, education, government service, industry, and commerce.

About IIRC
The International Integrated Reporting Council (IIRC) is a global coalition of regulators, investors, companies, standard setters, the accounting profession, academia and NGOs. The coalition promotes communication about value creation as the next step in the evolution of corporate reporting. The IIRC’s vision is to align capital allocation and corporate behaviour to wider goals of financial stability and sustainable development through the cycle of integrated reporting and thinking. Visit: www.integratedreporting.org

About the Association for International Certified Professional Accountants
The Association of International Certified Professional Accountants (the Association) is the most influential body of professional accountants, combining the strengths of the American Institute of CPAs (AICPA) and The Chartered Institute of Management Accountants (CIMA) to power trust, opportunity and prosperity for people, businesses and economies worldwide. It represents 650,000 members and students across 179 countries and territories in public and management accounting, and advocates for the public interest and business sustainability on current and emerging issues. With broad reach, rigor and resources, the Association advances the reputation, employability and quality of CPAs, CGMAs and accounting and finance professionals globally.

IFAC continues to speak out on behalf of the global accounting profession on the topic of non-financial reporting, most recently in response to the European Commission’s review of the Non-Financial Reporting Directive (NFRD). This review marks another valuable step in the dialogue and evolution toward relevant, reliable, and comparable reporting of non-financial information. A summary of IFAC’s response is available on its website.

IFAC urges the Commission to adopt a global mindset by engaging input from a broad range of international stakeholders in determining the best way forward.  Steps taken must “fit within” a global system and avoid regional regulatory fragmentation.

Non-financial reporting answers the call from investors and other providers of capital for better, broader information about company performance and prospects for value creation, while also helping identify opportunities to support sustainable—and less carbon-reliant—business models. In the post-COVID world, corporate reporting that reflects the needs of a broad range of stakeholders will be particularly important to communicate on an organization’s performance and priorities.   

As a Network Partner of the B20, IFAC calls on global bodies—including the G20—to encourage policy-makers, standard-setters, and regulators to facilitate harmonization towards a globally-acceptable approach to reporting ESG metrics and disclosures.

IFAC supports reporting requirements that address both societal and company performance impacts and that anticipate the needs of specific markets. Any jurisdiction-specific reporting requirements need to conform with metrics and disclosures that are part of a globally accepted system so that comparability is achieved. 

The accountancy profession is critical to evidence-based decision making, reliable information gathering, and consistent, comparable corporate reporting. Active engagement by the profession on this topic will maximize the benefits of a global solution to non-financial reporting that best serves shareholders and the broader public interest.

As the global voice of the accounting profession, IFAC remains committed to advocating for a comprehensive approach to non-financial reporting through its contributions to global consultations and engagements.

The no tolerance stance (i.e., outright removal of the materiality threshold) proposed by IESBA for PIEs (and, for some services, also applies to the non-PIEs) is based on the argument that perception of independence in appearance is key, whereas the IESBA’s mechanism has been the application of the reasonable and informed third party test, which was designed for this purpose and is instead being overridden. A third-party test might not lead to the same outcome as a no stance approach in all cases as the former allows for flexibility.

IFAC has responded to the European Commission’s Review of the Non-Financial Reporting Directive (NFRD). The NFRD marks another valuable step in the dialogue and evolution toward relevant, reliable, and comparable reporting of non-financial information.

The IFAC Small and Medium Practices Committee has followed the development of this project and that of the Non-Assurance Services (NAS) since their inception and welcomes the close coordination of IESBA with the International Auditing and Assurance Standards Board. We also concur that the outcome from the work of the Task Force on the definition of Public Interest Entities  and Listed Entities will be equally impactful on this ED. Hence, we support this project being accelerated.

Ms. van Onselen is an experienced, strategic executive with an extensive background across the financial services as a litigation lawyer and with various listed, government and not-for-profit organizations including membership bodies.

Prior to joining Chartered Accountants Australia and New Zealand, Ms. van Onselen held a number of senior roles over six years at Westpac Group, including Managing Director of RAMS, Chief of Staff to the CEO and General Manager of Deposits & Unsecured Lending. She was also the Global Director of Women’s Markets and Inclusion & Diversity.

Ms. van Onselen has more than 20 years’ experience as a non-executive director. She is currently a non-executive director at financial services company Automic and the commissioner of Legal Aid NSW.

Ms. van Onselen commenced her career practicing as a lawyer and ultimately became a partner in a specialist corporate and commercial practice in Western Australia. She holds a Bachelor of Laws and Master’s of Applied Finance, and completed the Company Directors Course at the Australian Institute of Company Directors.