CBI Study Guide Module 1 2015 PDF

CONTEMPORARY BUSINESS ISSUES
Module 1
THE ACCOUNTANT AS
STRATEGICBUSINESSADVISER
COURTNEY CLOWES*
Updated by Betty Ferguson and Tui McKeown.
ii
| THE ACCOUNTANT AS STRATEGICBUSINESSADVISER
Contents
Preview
Part A: The need for advice
3
3
5
MODULE 1
Introduction
Objectives
The quest for productivity

Factors leading to demand for advice
Requests for advice: Operationalstrategicglobal

Providing and implementing advice
Accounting roles
Providing strategic advice
11
13
Summary
25
Part B: Advising beyond traditional accounting areas
26
27
29
Soft skillscommunication
The accountant as internal advisera member in business
The accountant as external advisera member in public practice
Physical accounting
Management accounting and the environment
Physical Environmental Management Accounting (PEMA)
Environmental costs and revenues

Integrating environmental measuresextendingthe
balanced scorecard
Summary
30
Part C: Ethical interaction
32
33
35
36
Addressing conflicts between organisational stakeholders

Accountants as facilitators of ethical businessbehaviour
Summary
Part D: Human resource issues andcomplexity
31
31
Managing people
37
37
Managing complexity
47
Summary
59
Review
60
References
61
Contemporary people management issues

Making business sense of people management issues
Role of the accountant in people management issues
Addressing messy and wicked problems
Identifying complexity
Working with complexity
Weick model
Role of the accountant in complexity issues
Optional reading
Module 1:
The accountant as
strategic business adviser
Study guide
Preview
Introduction
In this module, we introduce you to the Contemporary Business Issues (CBI) subject, and present
you with opportunities to consider key business and ethical concepts. You will be presented with
real-life scenarios to illustrate some of the dilemmas and limitations that may be encountered in
applying those concepts.
Many people perceive the role of the stereotypical accountant as sitting in an office or finance
department recording and reporting financial information. However, that is a very narrow
view! Accountants act as internal and external business advisers, carry significant ethical
responsibilities, and have expanded their focus well beyond reporting financial measures
to consider physical and social areas as well. The focus of this subject is to provide you with
a broad range of knowledge that will support you in fulfilling your many and varied roles as
anaccountant.
Accountants not only perform a variety of financial or accounting roles within organisations,
butalso in smaller organisations, they may take responsibility for non-financial/non-accounting
roles. These may include, for example, information technology (IT) and human resources (HR)
functions, as well as contributing strategic advice as part of the executive management team.
For many public practitioners offering accounting services, there is the ability to move beyond
compliance services and offer strategic business support. These practitioners have identified
that they can add more value than simply preparing tax returns and compiling financial
statements. They are well positioned to supply services in financial planning, risk management,
strategicplanning, the explanation of industry trends, and using financial information to
betterguide organisations.
MODULE 1
Study guide |
MODULE 1
Helping organisations adapt to a carbon-constrained economy and corporate social

responsibility (CSR) expectations has expanded the role of the accountant in providing advice
and setting up new reporting structures and systems. Professional accountants are perceived as
credible and reliable sources of financial information. However, it is critical to properly collect,
record and analyse physical data such as energy consumed, raw materials used (and wasted)
and emissions. As such, there are opportunities for accountants to be involved in educating
others about the many issues that organisations face, as well as in shaping the debate within
organisations about how to respond to those issues.
Module 1 aims to broaden your understanding of the many and varied roles that are important
for accountants to fulfil. Specifically, it focuses on accountants as strategic business advisers who
deal with a growing need for advice beyond traditional accounting areas that address issues
such as ethics, human resources and complexities in the business environment. This increase
in responsibility, from being providers of information to being partners in decision-making,
ischallenging. It requires a deeper understanding of the industry in which the accountant
operates, and the economy, as well as global social, environmental and political issues.
This module introduces the CBI subject in terms of accountants demonstrating business acumen
within their rolesunderstanding contemporary business issues and being able to offer alternative
courses of action that reflect an understanding of commercial, ethical, environmental and human
resource constraints, in order to successfully address such issues.
Objectives
After completing this module, you should be able to:
explain the changing role of the accountant and the type of strategic advice that
organisations are increasingly requiring from accountants;
explain the key strategic issues of concern to organisations and propose how the accountant
can provide support in these areas;
determine what actions you would take to facilitate ethical behaviour in a given situation
andwhy;
evaluate how accountants can add value to organisations by enabling sustainable business
decisionmaking;
justify why it is important for accountants to be knowledgeable about current people
management issues and approaches; and
examine how complex, adaptive principles could be applied to make sense of particular
business scenarios.
Study guide |
Professional accountants have a deep body of knowledge and experience that is useful to
businesses and organisations. It is often easier to consult an expert than to develop the
knowledge in-house. So, in addition to the traditional technical areas of financial advice and
taxation, opportunities to provide advice across the whole business arisefrom setting strategies
and business plans through to developing performance measurement systems and rewards,
aswell as reviewing information systems and assessing the environmental costs and sustainability
of the organisations operations.
As a CPA, youll be sought after by employers for the combination of technical accounting, strategy,
leadership and business skills you can bring to any business With skills and knowledge based in
business, CPAs are equipped to make valuable contributions to their organisations in almost every
department, from payroll to strategy Thats invaluable to any employer (CPA Australia 2013).
For example, some concerned small business entrepreneurs who were seeking advice listed the
following nine issues about which they required advice or support (Malach & Robinson et al.
2006, p. 569):
selection of business entity structure;
intellectual property;
liability;
regulation;
contracts;
tax;
employment;
financing; and
real property (land and buildings).
Organisations may also require advice on issues such as business efficiency and productivity
(through business process redesign), management information systems (for improved reporting
and decision-making), as well as risk management and internal controls (including fraud analysis
and prevention). At a strategic level, advice on selecting appropriate growth strategies (based on
acquisition or on organic, internally generated growth), identifying new products and markets,
and establishing a particular market position is also required.
Professional accountants are well placed to provide advice in all these areas. The range of areas
in which advice and support are needed is extensive, and in this module we outline the major
categories for consideration.
The quest for productivity

The need for advice may come about for a variety of reasons. Typically, it arises from the need
for technical or professional expertise where the individual or organisation requesting the advice
does not have the necessary skills, experience or time. However, advice may also be required as
a form of second opinion to objectively analyse information or perhaps verify a decision that is
about to be made. The opportunity to draw on the experience of an external person who may
have seen similar issues in other organisations is an additional benefit.
MODULE 1
Part A: The need for advice
MODULE 1
We can see that there is a wide range of areas where organisations may request specific technical
help or advice. It is important to consider the underlying purpose of the work that will be
performed. In many circumstances, it will be a quest for improved productivity.

Productivity = outputs as a ratio of the inputs
Productivity = how efficient we are at producing items
If we can improve the level of outputs for a given level of inputs we can produce more at a lower
cost. This means that if selling prices stay the same we can then either generate a greater profit
for the same number of sales or, alternatively, try and grow the market by offering lower prices
and capturing a higher volume of sales.
The benefit of productivity can be kept by the owner of the organisation, or shared amongst others:
with employees (higher wages);
with customers (lower prices);
with suppliers (higher prices); and
with government (higher taxes).
Consider the competitive advantage of Toyota versus General Motors based on the following
productivity statistics provided by Geng (2005):

Production time per vehicle:
Improvement since 2003:
Average labour cost:
General Motors
Toyota
34.3 hours
27.9 hours
2.5%
5.5%
$73.73
$48.00
From this, we can start to understand why the average profit per vehicle for Toyota was USD 1488
whilst for General Motors the average loss per vehicle was USD 2331.
Thinking about productivity may help us understand strategic decisions made by organisations
in terms of location of staff and facilities. One way to improve productivity is to increase the
output generated by the same employees. However, an alternative method is to use lower-cost
employees to generate the same level of output. As such, relocating functions to lower-cost
countries (offshoring) may help achieve this improvement. This issue is discussed further in
Module 2.
Dramatic cost cutting and other short-term approaches can lead to false productivity.
TheNational Health Service (NHS) in the UK has recently received significant criticism for
its focus on achieving financial outcomes at the expense of its patients. The pressure to
achieve productivity gains by having fewer staff look after higher numbers of patients has led
to thousands of unnecessary deaths due to poor care. What appeared to be a productivity
improvement has actually created significant harm (Francis 2013).
Successfully achieving long-term productivity often requires investment in employee skills,
training, development and culture, and combining this with new systems, technology and
infrastructure. As such, we consider the importance and complexity of understanding and
managing human resources later in this module. Then, in Module 5 we consider the power of
intellectual property such as patents and licences to help achieve this, and in Module 6 we look
at communication techniques and technologies such as social media, knowledge sharing and
collaboration, which can also be powerful tools for improving productivity.
An example of achieving dramatic productivity improvement is the solar panel industry. Thecosts
of producing a watt of output have reduced significantly over time, and the aim is to achieve
grid parity within the next five years. Grid parity refers to producing electricity through solar
panels at an equivalent cost to fossil fuel generation (e.g. through burning coal). China currently
dominates the industry and is estimated to have production costs per watt that are 25percent
lower than the US, which is struggling to remain competitive. However, innovations and
technology have led experts to predict that production costs in the US will drop by more than
halfleading both to grid parity, and a significantly lower cost base than its Chinese competitors
(Economist 2012).
Productivity is not purely an economic issue. It has an ethical dimension as well. If we view
people merely as resources to be deployed in the most efficient manner, we can dehumanise
them. It may also lead to decisions that have ethical implications, if we choose lower costs
and productivity at the expense of safety, environmental degradation and living conditions.
The importance of this issue was highlighted in 2013 when nearly 400 people died in a fire in a
Bangladeshi garment factory that supplied many of the largest international clothing brands.
Asaccountants we need to consider and advise from a broader, holistic view rather than from
onepurely focused on financial performance.
We can also consider productivity at a national economic level. An important role of government
is to help guide a nations economy towards greater levels of productivity. Different philosophical
approaches can influence the decisions taken to achieve this. For examplethe focus may
be on controlling wages growth (reducing the cost per unit of productivity). Alternatively,
thefocus may be on allowing wage growth to occur, but ensuring it is matched by a higher
levelof skills, ability and outputs (increasing the units produced). This has a significant impact on
government spending priorities (such as on a national broadband network and tertiary education)
andpolicymaking.
High-cost countries are often advised by economists to focus higher up the value chain rather
than trying to compete with low-cost countries by lowering wages. Often, this is because lower
wages in a high-cost country are unlikely to make that country competitive against lower-wage
countries. As such, high-cost countries must innovate and expand into new areas. This requires
investment in the education, skills and ability of the workforce.
Question 1.1
What types of activities or roles could a professional accountant provide to improve productivity
for an organisation?
Factors leading to demand for advice

We need to consider where the demand for advice arises. Important factors influencing the need
for advice include: the firm size, the sector or industry, the geographic location of customers and
the growth strategy of the firm. From a supply perspective, the main variables influencingthe
provision of advice include the availability of professional staff and the referral of clients to
thefirm (Xiao & Fu 2009). This highlights the importance of accountants developing the skills
andknowledge to effectively supply these requirements (capacity and capability) and to establish
strong networks to create new opportunities (marketing and sales).
MODULE 1
Study guide |
MODULE 1
Despite these observations, there is sometimes an interesting disconnection between the need
for advice and actually obtaining that advice. Organisations that most need advice may actually
be the ones less inclined to request it. Entrepreneurs who are self confident, headstrong and
act rapidly, often deny the need for help. In such situations, there are significant opportunities
for professional accountants, whether in business or public practice, to identify these needs and
offer their services in a way that is beneficial to both parties.
Table 1.1 outlines several characteristics that might apply to different-sized organisations.
Thesecharacteristics can be useful in identifying potential areas for advisory services and
highlighting the varying levels of complexity of issues that may arise. As you read through the
table, consider your own organisation, and whether the descriptions accurately depict what you
have personally observed.
Table 1.1: Characteristics of different-sized organisations
Organisation
Small enterprise
Mid-sized enterprise
Large enterprise
Entrepreneur less
dominant, with
small team of other
professionals.
More sophisticated
core business,
but still has basic
support processes
(finance, human
resources).
Intermediate
reaction time to
business changes.
Market data and
business planning
beginning to be
employed, often
with outside help.
Growth is through
new products,
new markets and
integration.
Growth of customer
base.
Moving away from
the direct proximity
of their clients.
Entrepreneurial
leadership.
Focused product/
service range.
Strategy
Reacts quickly to
business changes.
Managing is
intuitive, often no
business plan.
Growth is on a
customer-bycustomer basis.
Customer/community
Few customers
account for large
part of turnover.
Close to their
customers and
customers business
plans.
Separation of
capital and
management.
Wider product/
service range and
multiple locations.
Formal support
functions (finance,
legal advice,
humanresources).
Slower response
time to business
changes.
Formal planning
process and
business/
strategic plan.
Growth is through
merger and
acquisition.
Large, international
customer base.
Success or failure
of the organisation
is felt through the
whole supply chain,
the employee
base and the wider
community.
Financial
Small enterprise
Mid-sized enterprise
Large enterprise
Private funding,
family and/or
employee owned.
Often no formal
budgeting process.
Few conformance
requirements
mostly from the
taxauthority.
External funding
sought.
Annual budget and
operating plan.
Often still weak in
applying accounting
and tax matters with
strong reliance on
outsidehelp.
The entrepreneur
manages and
controls by
observation.
Hands-on
management
andcontrol.
No internal audit.
Advisory board may

be set upmostly
insiders.
Internal control
becomes more
formalised.
Internal audit
function is likely to
appear.
Individuals are
very important:
multifunctional,
cross-trained
andloyal.
External support
services needed
(finance, human
resources, legal
advice, information
technology).
Employees still
wearing several
hats, though there
is recognition
that more formal
functions and roles
are needed.
Some support
services brought
in-house (finance,
human resources,
information
technology).
Technology
implementation is
as needed.
Using more
automation as a
means towards
business leverage.
Likely to have a
disaster recovery
program focused
on information
technology
functions.
Governance

Work force
IT processes
Capitalisation
through public
investors,
exchangelisting.
Detailed budgeting
processes.
Full finance
and accounting
function.
Independent nonexecutive board.
Formal and clear
internal control and
reporting structure.
Full internal audit
function.
Formal and
specialised
functions and roles.
Most support
services brought
in-house unless
specific decision to
outsource.
Internally
self-sufficient
(or function
outsourced).
Has formal
contingency plans
and business
continuity plan.
Source: Adapted from International Federation of Accountants (IFAC) 2008, The crucial roles of
professional accountants in business in mid-sized organisations, IFAC Professional Accountants in
Business Committee, New York, September, pp. 524, accessed July 2012, http://web.ifac.org/media/
publications/7/the-crucial-roles-of-pro/the-crucial-roles-of pro.pdf. Used with permission of IFAC.
MODULE 1
Study guide |
Question 1.2
For each of the characteristics listed in Table 1.1 (i.e. organisation, strategy, customer/community,
financial, governance, work force and information technology processes), list one example of the
type of strategic advice that professional accountants may be able to provide.
MODULE 1
Requests for advice: Operationalstrategicglobal

In many cases, requests for advice are focused on improving operational performance, and the
assessments are typically related or compared to successful business:
Do we have all our policies and processes in place and are they being followed?
Are we practising good cost control and cash flow management?
Are we wasting resources and can we be more efficient or productive?
However, there are also situations where the professional accountant must take on a greater
strategic role, for which many pathways may be available:
Are we servicing the right markets and are these markets growing or declining?
What will our customers future needs be and are we positioned to fulfil those needs?
What are the likely future issues in our industry and are we prepared to face them?
At any point in time, there will always be a number of globally relevant issues with which
professional accountants need to be familiar. At present, the most important of these are:
after-effects of the Global Financial Crisis and eurozone crisis;
human-induced climate change and sustainability;
harmonisation or convergence of accounting standards; and
explosion of social media, live communications and cloud computing.
Organisations are expecting more insightful advice from accountants about future opportunities
and risks stemming from the global attempts to deal with these issues. They are also expecting
increased probity and ethical behaviour. We will explore these global issues throughout
thissubject.
Example 1.1: A business dilemma

Consider the situation of a major oil company that is faced with declining oil supplies, increasing
costs (e.g. carbon prices) and greater consumer awareness of the environment. The community is
shifting away from accepting the continued, uncontrolled use of fossil fuels. In addition to important
operational issues such as strong policies and procedures, efficient production and disciplined cost
management, there are also broader strategic issues:
What do we stand for?
Do we move from oil to other forms of energy or into completely different product areas?
What is the perception of our brand (exploiter or good corporate citizen)?
What will our future customers look like?
Counterpoint
There is a counterpoint or opposing argument, to the idea that accountants should be stepping
out from their traditional role and pursuing advisory-type roles. Some would argue that
accountants should limit themselves to their area of expertisethat is, reporting and auditing
financial information. This line of argument suggests that roles like auditing of environmental
information (e.g. emissions, pollution and waste) require skills in engineering, environmental
science and recording, capturing or auditing physical events, rather than skills in auditing of
financial information. In some circumstances, these claims have been made by professions in
competition with accountants for these types of roles.
Study guide |
So, rather than regulate what accountants can and cannot advise on, the profession places
greater reliance on the professional values, ethics and soft skills of the individual professional
accountant.
Question 1.3
Do you believe professional accountants are well placed to provide strategic advisory
services (outside the traditional areas of cost accounting, financial accounting and taxation) to
organisations? Justify your position.
Providing and implementing advice

So far we have discussed the need for advice and requests for advice. But in many circumstances,
the actual provision of advice, and the usefulness of that advice, can be hampered by the
refusal of the organisation to accept and/or implement it effectively. In addition to technical
skills, theadviser must also have soft skills such as communication, influence and persuasion.
Forexample, it is important to obtain agreement (buy-in) from the organisation by ensuring that
the decision-makers are supportive, and by minimising political resistance or upheavals early in
the process, before they gain enough momentum to cause harm.
Figure 1.1: Providing business advisory services
Review
Issue
Requirement
Implementation
Request
Decision
Advice
Investigation
MODULE 1
The response to these arguments is that the term accountant is incredibly broad, and the
experience and qualifications of accountants span the whole spectrum of business and public
sector activities. While the accounting profession requires its members to abide by a set of
professional standards, two key expectations are that professional accountants:
1. make the right decisions about the services they perform; and
2. deliver services with professional competence and due care.
10
MODULE 1
Rather than disregard or hide from criticisms or different opinions, consideration should be
given to alternative recommendations with justifiable reasons for not pursuing them any
further. Therecommended actions should be well supported and, ideally, the professional
accountant should work with the organisation to implement the advice. The ability to identify
key stakeholders, determine their position and develop a plan to actively engage with these
stakeholders is essential in turning advice into successful action. Figure 1.1 reveals the typical
chain of events in providing business advisory services and Table 1.2 further explores each stage.
Table 1.2: Chain of events for business advisory services

Stage
Example
Commentary
Issue
Lack of expertise
What causes the need for strategic advice?
Requirement
Expert advice
What does the business need to deal with the issue?
Request
To professional
accountant
Some organisations will not proactively make the request,

so accountants need to proactively sell their services and
be in front of the client.
Investigation
Research and analysis
Ethical considerations should be included in the

investigation.
Advice
Recommended action
The accountant needs to make sure that the advice

resolves the issue. Again, ethical considerations are
important here. The accountant may need to actively
influence stakeholders to ensure buy-in and acceptance.
Decision
To follow
recommendation
It is important to be influential in this process, so soft

skills are vital. Make sure the process is timely, such that
inaction or delay is not the reason a particular course of
action must be taken.
Implementation
Actually follow
recommendation
This is the most important step in adding strategic value

to the organisation.
Review
To monitor progress
or outcome of
implementation
Regular monitoring and follow-up can help ensure that

the implementation stage meets its stated objectives.
If the desired outcome is not achieved, the review may
need to feed back to the Issue, Advice or Implementation
stages.
Example 1.2: Succession planplease help

A small financial services organisation brings in an external adviser to give assistance on succession
planning. There are five shareholders who are all executive directors (EDs) and full-time employees of
the business. The managing director (MD), the majority shareholder, is hoping to exit the business as
both an employee and owner. The EDs act as sales staff (known as business writers), but they also fill
the marketing, office manager, operational, administrative and information technology roles.
The key issues that need to be considered include:
valuing the business and therefore providing a value for each share;
determining who should purchase the shares to maintain appropriate balance of ownership;
evaluating the possibility of new shareholders; and
organisational structure of employee responsibilities (this includes considering hiring specialised
personnel for the various operational roles filled by the MD and EDs).
Study guide |
11
While some shareholders accepted the report and agreed with its findings, an inability to gain buy-in
and an agreement between all stakeholders during the decision-making phase delayed the retirement
of the MD by over three years.
This example reveals a common flaw with many small business arrangements; that is, they rarely
encompass succession or exit plans (whether for the overall business, or for individual employees
or shareholders). It therefore highlights the need for strategic advisory services at the earliest
point in business operations, rather than waiting for a difficult situation to arise.
Accounting roles
A broad range of roles that accountants perform is identified in the Ethics and Governance
subject of the CPA Program. As business leaders in an international context, accountants can
perform many diverse roles in the profession, including:
financial accountant;
financial executive supervising a team of accountants (chief financial officer (CFO),
financialcontroller);
management or cost accountant;
internal auditor; and
public practitioner (audit, assurance, financial management, taxation, forensic).
These roles can be matched with the main activities performed by professional accountants
inbusiness as identified by the International Federation of Accountants (IFAC 2005, p. 4):

The generation or creation of value through the effective use of resources (financial and
otherwise) through the understanding of the drivers of stakeholder value (which may include
shareholders, customers, employees, suppliers, communities, and the government) and
organizational innovation.
The provision, analysis and interpretation of information to management for formulation of

strategy, planning, decision-making and control.
Performance measurement and communication to stakeholders, including the financial

recording of transactions and subsequent reporting to stakeholders typically under national
orinternational Generally Accepted Accounting Principles (GAAP).
Cost determination and financial control, through the use of cost accounting techniques,
budgeting and forecasting.
The reduction of waste in resources used in business processes through the use of process
analysis and cost management.
Risk management and business assurance.
Our focus here is on the accountant as a strategic business adviser. This may arise either as an
employee providing advice internally, or as an external service provider advising clients.
From the more traditional areas of finance, right through to supply chain management and
talent management, the ability to review, assess and improve a business in multiple areas is an
increasingly important skill.
MODULE 1
The external adviser provided a business valuation based on the current position and future projections
of the performance of the business. This formed the foundation for a staged transfer of shareholdings
to ensure appropriate proportions were maintained. In order to consider having new shareholders
(whowould likely be EDs), a review of the shareholder agreement as well as the business vision, strategy
and objectives was conducted. This review highlighted a significant difference in opinion (relating to
the future direction of the business) between the existing owners.
12
Example 1.3: The high value of middle men
MODULE 1
Whilst many assume that accountants focus purely on the numbers, the reality is that help can
be provided in a much broader set of circumstances. Consider the example of two professional
accountants, Ross Fyffe and Ivan Boardman, who provide consulting services to mid-sized organisations
under significant pressure.
One assignment involved helping a call centre operation that was struggling. The organisation had
been losing millions and was facing considerable difficulty. The tasks they performed in order to turn
this organisation around involved the following:
Financial skills
Refinancing equipment, restructuring debt, getting the books in

order, and capital expenditure
Broader management skills
Hiring and removing employees and mentoring executives to

help improve the situation
Technical skills
Ensuring that information technology systems were properly set

up and functioning
Fyffe is quoted as saying we worked through the whole financial cycle to see how we could save money
the work also consisted of transforming data into actionable information, and the organisation
ended up turning around from its losses (IFAC 2008, p. 28).
To read more about this and other examples of professional accountants in business please download
The crucial roles of professional accountants in business in mid-sized enterprises, found at:
http://www.ifac.org/about-ifac/professional-accountants-business.
This example demonstrates that accountants need to be able to act quickly in a wide range of
areas that are often seen to be outside the traditional accounting realm (e.g. talent management/
employee skills and supply chain management). It is important to consider the different skills you
would require to hire and terminate employees, deal with fraud, improve sales, refinance existing
assets, restructure debt and turn losses into profits (all within a short timeframe and whilst
managing a variety of stakeholders).
Question 1.4
The business advisory industry thrives during periods of business change and hardship
(IFAC2008, p. 26). Explain why this may be the case.
The variety of advice that can be provided is extremely broad, and is often dependent on the
roles currently being performed, as well as the experience and skills of the individual accountant.
The following example examines two types of specialist accounting roles and suggests ways in
which they can lead to strategic adviser roles.
Example 1.4: Specialist accounting roles

Forensic accountants provide expert witness, investigative or consulting services (APES 215,
APESB2013a). The term forensic refers to a level of assurance that is suitable for legal proceedings
(i.e. use in court). Typically, forensic accountants provide advice on finance-related transactions or
conduct that may be illegal, unethical or otherwise improper (e.g. allegations of fraud or money
laundering). Strategic advice may be in the form of risk analysis and reductionideally provided prior
to any disputes, litigation or allegation of wrongdoing.
Taxation accountants ascertain their clients or employers tax liabilities or entitlements, and satisfy
their obligations under taxation law (APES 220, APESB 2011). We typically think of taxation accountants
providing compliance-related services (e.g. preparation of a tax return). However, the provision of
tax planning and advisory services (e.g. transfer pricing or entity structures) can provide significant
strategic value to the organisation.
Study guide |
13
Question 1.5
2. A contemporary business and social issue is maintaining worklife balance. What risks does
an accountant providing strategic advice face in this area?
3. In the CFO role, how important do you think it is to:
(a) know the organisation and the products/services it offers?
(b) be passionate about the products/services the organisation offers?

Explain your reasoning.
Providing strategic advice

Accounting roles can typically be classed as either reactive or proactive. Traditional
accountingroles and activities are often reactivethat is, they take place after the event.
However, contemporary accounting roles and activities, specifically strategic business advisers,
need to be proactivethey need to forecast future needs, and influence how the organisation
attends tothem.
Example 1.5: First strategic decision

The first strategic decision most small business owners make is the selection of the business structure.
The type of entity that is used will have a serious impact in both the short and long term. Mistakes in
this area can lead to significant problems, such as higher taxation liabilities, difficulties in transferring
ownership and greater risk of liability.
Many small business entrepreneurs have limited understanding of the legal concepts and ramifications
of choosing between a sole proprietorship, a partnership, a limited liability corporation or a trust.
In addition to legal structures, they also struggle with accounting concepts, most importantly the
entity concept. The accounting entity needs to be kept separate from private activities, but in many
situations, the blending of bank accounts, personal withdrawals and business expenses, and lack of
clarity of ownership of assets, all create significant issues.
Research findings based on 513 founders of small businesses have indicated that small business owners
who obtain counsel from accountants and/or attorneys are more likely to consider the full spectrum of
implications of legal entity type and are generally more satisfied that their choice will positively affect
firm profitability (Hertz & Beasley et al. 2009, p. 81).
Some of the types of advice that may be provided by professional accountants are shown
inTable 1.3.
MODULE 1
1. Soft skills, especially communication skills, networking and the ability to manage relationships,
are extremely important to progress to senior roles in accounting/finance. At the CFO level,
how important do you think it is to be technically competent in the finance role, compared
to actually managing the finance role? Explain your reasoning.
14
MODULE 1
Table 1.3: Types of advice provided by professional accountants

Financial management
Cash flows, working capital, fixed assets, capital expenditure, taxation
Productivity and operations
Supply chain management, improving and streamlining activities
Risk and internal controls
Business, strategic, operational, health and safety
Capital and organisational

structures
Funding sources, outsourcing
People management
Succession planning, performance and rewards
Sustainability
Environmental assessments and approaches, social impacts
Communications and
information technology
Management information systems, customer relationship management
To provide this type of strategic advice, accountants need more than technical accounting
skills. They also need a range of soft skills, including the ability to communicate, influence and
negotiate. Empathy, the ability to identify with clients and their needs, is required, and the
hardto-describe skill of execution is also essential. We can describe execution as the ability to
get things doneto break down barriers, meet deadlines and deliver results that are at or above
expectations. It describes the ability to turn knowledge of what could or should be done into
action and results. Execution skills are often the difference between a knowledgeable adviser
anda successful one.
Soft skillscommunication
Many accountants rely on their technical expertise as a sufficient basis for clients to accept the
advice and guidance they are given. However, being right is not enough. Just as important
as having potential answers is to be able to communicate them in a manner that is readily
understood by the receiver of the information, who may not be an accountant.
In Module 6 we explore communication in detail, including evolving ecological models that
have greater interaction between sender and receiver of messages.
In the past, strong communication skills were often categorised as either verbal or written.
But,with electronic communications and the power of the internet to reach so many people
faster than ever before, there is a need to communicate across a much wider variety of mediums.
As part of this change the traditional model of one-way transmission from sender to receiver
is changing to one of simultaneous transmission and reception of messages. That is, you are
not just providing advice and information, you are also receiving feedback, interaction and
information that you must incorporate into your own messages. Ignoring others is unlikely to
lead to successful communication. This is more closely linked with the expected style of todays
accountants, who should be advisers, partners and collaborators, rather than the sole providers
of specialised knowledge that is dispensed to others.
People often feel uncomfortable or fearful when interacting with accountants because they may
not understand the language, concepts or ideas being discussed, and feel vulnerable or foolish
as a result. For this reason, when providing advice, it is helpful to avoid jargon or technical terms
without clearly explaining them. The overarching aim is to make people feel comfortable so that
they are able to understand and act on your messages. If they feel unsure or intimidated, this is
unlikely to occur.
Study guide |
15
Some of the ways accountants can help to demystify accounting information is by communicating
it visually, with diagrams, colours and graphs. Specific examples include traffic light systems,
where results coded as green (good), yellow (caution) and red (bad) help show non-specialists
where to focus their attention, and what the results actually mean. An example of this is shown in
Figure 1.2.
Figure 1.2: Colour-coded traffic light reporting system

Indicators
July
August
September
Total
KPI 1
x%
x%
x%
x%
KPI 2
x%
x%
x%
x%
KPI 3
x%
x%
x%
x%
KPI 4
x%
x%
x%
x%
KPI 5
x%
x%
x%
x%
KPI 6
x%
x%
x%
x%
KPI 7
x%
x%
x%
x%
KPI 8
x%
x%
x%
x%
KPI 9
x%
x%
x%
x%
KPI 10
x%
x%
x%
x%
Status
Trend line
Financial
Environmental
Customer
Employees
Green (good)
Yellow (caution)
Red (bad)
An additional communication issue that affects accountants is effective filtering. Whenwe attempt
to communicate too much data or information we overload the receiver. Toomany reports can
be just as harmful as too few. In Module 6 you will explore a whole range of communication
approaches including communicating with non-accountants and, socialnetworks,and planning
your communication. It also explores knowledge sharing, whichhelps us understand how people
horde and guard their knowledge rather than transferring it to others.
MODULE 1
Other factors that may hinder communication will be clients or employers facing difficult
economic decisions or hard choices between multiple options which may lead to tension and
conflict in the workplace. Understanding where there is, or may be, potential interference,
andadjusting your communication techniques to minimise this, is important.
16
The accountant as internal advisera member in business
MODULE 1
There is a vast range of internal advisory opportunities, from creating strategy to costing analysis
and restructuring, and from new product development to pricing and revenue models for mature
products. Many tools and techniques are presented in the Strategic Management Accounting
and Global Strategy and Leadership subjects of the CPA Program.
Figure 1.3 provides a snapshot of the variety of roles the accountant as an internal employee
mayprovide.
As you review Figure 1.3, consider the meaning of the embedded circles and the significance
ofthe inward and outward arrows for the accountant as an internal adviser.
Figure 1.3: The roles and domain of the professional accountant in business
CEO,
Independent
directors
Other
directors
Educators
Strategic
support
Business
assurance
Risk
management
Business
accounts
Shareholder
communications
Financial
reporting
Business
strategy
Finance
strategy
CFO
Internal
control
Information
strategy
Corporate
finance
Management
information &
analysis
Stakeholder
communications
Enterprise
governance
Treasury
Consultants
IT
Project
management
Member in
other roles
Advisors
Source: International Federation of Accountants (IFAC) 2005, The Roles and Domain of the
Professional Accountant in Business, IFAC Professional Accountants in Business Committee, New York,
November,p.3, accessed October 2012, http://www.ifac.org/sites/default/files/publications/files/
the-roles-and-domain-of-the.pdf. Used with permission of IFAC.
We can see from Figure 1.3 that there are a broad range of roles including high-level finance,
business and information strategy combined with enterprise governance, as well as more specific
roles such as internal control, business assurance, treasury and project management.
A majority of CPA members are employed in business, whether in the corporate, not for-profit,
government or small-to-medium enterprise (SME) sector. As such, this area of internal advice
can be very broad. Larger corporate and government bodies often have whole departments
dedicated to providing support and advice. So, it is in the smaller enterprises that strong internal,
business advisory skills are very critical. For this reason, we will narrow the focus to the role of
the accountant as an employee within the SME sector. We will also describe the SME sector
and explain the importance of good accounting support and advice, and the main issues and
difficulties that arise for many organisations in this area.
Small-to-medium enterprises
There is no single definition of an SME, and while precise definitions may vary between regions,
there are some broad themes that help provide clarity. Usually, SMEs have a low number of
employees relative to large, listed corporations. Ranges are usually zero to 10 employees
for a micro business, 11 to 100 for a small business and up to either 250 or 500 for a medium
enterprise. They also have relatively lower levels of turnover, profits and assets, and find it more
difficult to access external sources of funding. They are often family owned, and family desires
and relationships may be intertwined with the usual profit objective.
Smaller organisations often require generalist staff who have skills across a broad range of areas
and who must perform a variety of tasks within the organisation. While larger organisations
can usually afford to hire specialist staff, smaller firms may not be able to afford (or may not
need) the services of a full-time professional accountant. Where firms do require full-time
support, theaccountant must often be a skilled generalist who is able to perform management
accounting, financial accounting, financial management, taxation, compliance and other services,
or contract out specific pieces of work.
Many SME owners fail to consider a variety of issues, including globalisation (importing,
exporting and foreign exchange), appropriate financing arrangements, intellectual property
protection, the role of the internet and corporate compliance requirements (Calverley 2010).
So,first, it is important for accountants who work for these organisations to be aware of the
critical issues and risks that are faced by the organisation. Second, in order to play a more
valuable role, there is significant scope for advisory services that can help manage risk and
improve results.
It should be noted that many accounting firms also fall into the SME category (i.e. based on
their number of employees and turnover) and so face similar issues to other organisations in this
category. While a person may be technically proficient at accounting-related tasks, this does not
automatically lead to the conclusion that they are able to successfully run their own business,
which also involves sales, marketing, systems, managing staff and other non-accounting skills.
Therefore, it is imperative that accountants focus on running their practices effectively in order
for their advice to have credibility. Example 1.6 helps provide some background to key issues that
SMEs in the AsiaPacific region face, which is useful knowledge when determining what type of
advice is suitable.
17
MODULE 1
Study guide |
18
Example 1.6: Understanding SME issues and focus
MODULE 1
CPA Australia undertakes an annual AsiaPacific small business survey to gauge key business issues
in the region, including growth expectations, access to finance, employment trends and business
management practices. As CPA Australias CEO has noted: Small businesses are key economic drivers
and their state of health are not only indicators of broader economic performance but catalysts for
such performance (CPA Australia 2010).
The latest survey (CPA 2012) found the following:
Confidence and growth
Half of Indonesian businesses expected to grow strongly, whilst

only 6 per cent believed this in Hong Kong. Meanwhile, Australia,
New Zealand and Singapore hovered around the 15 per cent mark,
indicating that a large number of businesses have very low levels of
confidence in achieving strong growth in the short term.
Indonesian business confidence is extremely high at close to
90percent, while Australia, Hong Kong and New Zealand are quite
low on the scale.
Employment trends
Three-quarters of Indonesian businesses expect to grow staff

numbers, with only one in five expecting this in Australia and
Hong Kong. Manufacturers were most likely to have a decrease
in employee numbers during 2012, although confidence in these
businesses is improving.
Access to finance
Small businesses in Australia and New Zealand have a relatively

lower need for finance with around 40 per cent expecting to require
additional funding as compared to Indonesia (94%), Hong Kong and
Malaysia (83%), and Singapore (79%).
Hong Kong and Australia have the lowest reported levels of
businesses (less than a quarter) who believed obtaining finance would
be easy. Nearly half of Indonesian businesses surveyed expected to
easily obtain funding over the next 12 months.
Business advice
Whilst nearly four out of 10 businesses in Australia sought business

advice from an accountant, this number was much lower in Singapore
and Hong Kong (14%). New Zealand businesses saw a noticeable
decline over 12 months (from 38% to 27%). This highlights the
potential growth for accountants, and raises questions about our
ability to interact with clients during difficult times.
To read more about these findings please download The CPA Australia AsiaPacific Small Business
Survey 2012 from: cpaaustralia.com.au/cps/rde/xbcr/cpa-site/small-business-survey-2012.pdf.
Both the need and the opportunity for strategic advice are high. An accountant can add value by
evaluating financial consequences and strategic outcomes of capital investments. An accountant
who can recommend new products and services and help support marketing efforts based on
external economic analysis will be more useful than one who can only provide the estimated cost
structure and basic revenue forecasts.
Study guide |
19
Violinist Andr Rieu, one of the worlds most famous performers, often plays to packed stadiums
around the world. However, behind every good performer, there should be a well-run operation.
Roelvan Veggel is the CFO and concert tour director of Andr Rieu Group. His generalist role covers
a broad range of activitiesfrom dealing with significant internal growth in sales and staff numbers to
obtaining finance to support growth while instilling financial disciplineall done while remembering
to focus on the founders vision.
A large part of an accountants role may focus on adding value. Identifying the success or otherwise
of product lines (e.g. concerts in different countries and stadiums for the Andr Rieu Group),
thestreamlining of revenue collection and more transparent cost information are just some examples
of these valuable services.
By handling your primary accounting responsibilities successfully, it may be possible to expand the
scope of your role beyond traditional boundaries. As Roel van Veggel states: You can create your own
job Youre expected and encouraged to look for potential needs throughout the company; ifyou
see a challenge you can address, you pick it up (IFAC 2008, p. 6).
Some areas of business have often been seen to be outside the area of accounting expertise.
However, Example 1.8 shows that financial analysis combined with business understanding can
be useful in many areas.
Example 1.8: Accountants advising on human resources

Voluntary turnover of employees in Australian SMEs was 12.7 per cent in 2008. This decreased to
9per cent in 2009 and 2010, which was understandable due to the difficult nature of the economy as
a result of the global financial crisis.
Losing nearly one in 10 employees through voluntary turnover is a significant cost to any organisation.
The intangibles include the loss of institutional knowledge and intellectual property, and the risk
that replacement employees may lack appropriate skills and the right cultural fit. Direct and indirect
administrative costs also arise (e.g. holding exit interviews, making payroll adjustments, closing IT and
office security accounts, as well as recruiting and induction processes).
Accountants should be able to provide both an analysis of this situation and strategic advice about trying
to improve the result. For example, nearly two-thirds of those who left an employer cited the need for
new challenges, while more than half desired better pay. This indicates that opportunities to reduce
turnover abound, possibly starting with a focus on higher salaries and appropriate career planning and
training opportunities. The costs of providing these additional benefits can then be weighed against
the cost of doing nothing and continuing to operate with a high staff turnover. Remember though,
the financial and other costs of replacing a new staff member can often be significant, so the savings
from avoiding a bonus or an appropriate pay rise may be false gains indeed (DAngelo Fisher 2009,
p. 41; AIM 2010).
Family-owned business
A significant subset of SMEs is the family-owned business. For example, approximately
threequarters of companies that are registered in the UK are family owned; in some countries
this number can rise to 95 per cent (Cadbury 2000). Research by the Organization for Economic
Cooperation and Development (OECD) found approximately two-thirds of listed companies
in Asia, and almost all private companies, are family run (OECD 2003). In addition to the
issues that arise for many SMEs, there are a number of specific family-based issues that may
affectorganisations.
MODULE 1
Example 1.7: S
upporting growth whilst instilling financial
discipline
MODULE 1
20
While Cadbury (2000) identified that family businesses often demonstrated strong identity and
clear, longer-term vision, there were other problems. Major risks included dissension between
family members, especially when the roles intertwined between being a shareholder and being
an employee. Difficulties also arose as growth occurredfor example, the increasing need for
non-family employees, having to share control with external financiers, and a lack of separation
of strategic and operational issues. Succession planning also became an issue over generations.
Useful recommendations included creating a board of directors, including external non-family
directors, and providing external objective advice to help examine issues when family-member
viewpoints may be clouded.
As advisers, it is important to be able to understand the size, type, purpose and vision of an
organisation. Without a clear understanding of its structure and style, it is unlikely that an adviser
will be able to identify all the relevant issues and provide appropriately tailored advice. Learning
to deal with executives/owners who have a strong emotional attachment to an organisation as
well as a significant financial interest is a valuable skill.
Supporting entrepreneurial activity

The purpose of entrepreneurial activity is to generate new ways of doing things, which can
include starting up a new business venture, changing how a product is produced or sold,
andcreating new services for customers.
A useful definition of entrepreneurship is as follows:
Entrepreneurship is a dynamic process of vision, change, and creation. It requires an application of
energy and passion towards the creation and implementation of new ideas and creative solutions.
Essential ingredients include the willingness to take calculated risksin terms of time, equity,
or career; the ability to formulate an effective venture team; the creative skill to marshal needed
resources; the fundamental skill of building a solid business plan; and finally, the vision to recognize
opportunity where others see chaos, contradiction, and confusion (Kuratko & Hodgetts 2004, p. 30).
What you will notice from this description is the sense of uncertainty or risk, as well as innovation,
energy and change. Whilst many businesses are focusing on streamlining operations and
making sure things are done systematically and in exactly the same manner day after day,
entrepreneurship is about doing completely new things and exploring new territory. This requires
a very different type of support from accountants, with less focus on control and more focus on
successful implementation of new ideas and change, as the following example indicates.
Example 1.9: Six sigma versus rapid prototyping

Six sigma is a management strategy that attempts to minimise deviations in organisational processes
and systems. Achieving six sigma involves having only 3.4 deviations per million (i.e. 99.99966% error
free). This process can be applied to services as well as manufacturing, and examples include trying to
reduce the number of mistakes made in food processing, with customer deliveries, and even during
patient surgeries. A variety of tools are used to pursue six sigma targets, and focus on eliminating
variability in activity by consistently doing things in a correct and identical manner.
Rapid prototyping, on the other hand, is a method of constantly changing a product, service or the
sequence of activities that are performed to provide goods or services. This perspective can be
described by the phrase if it aint broke, break it. Entrepreneurship usually involves taking something
and changing itoften in the face of significant resistance. Changes and refinements are made
continually until the right outcome is achieved, and this involves a willingness to try new things and
take risks.
Study guide |
21
An example of a successful entrepreneurial startup is Airbnb, founded in 2008. Its approach is a

twist on the normal accommodation plans for most travellersinstead of booking into a hotel,
Airbnb has created a matching service that links travellers with individuals who are willing to rent
out their own houses and apartments. By 2011, the company was able to raise USD 112 million in
funding and now claims to have listings in nearly 200 countries (Takahashi 2011).
Entrepreneurial activity requires certain support that accountants may be able to provide.
Accessto funding is normally a very difficult process and accountants can help identify and
guidepeople through different sources (e.g. from family members, banks, angel investors
and venture capitalists). Business plan documentation, revenue and cost forecasting, scenario
analysis, risk management, and identification and management of intangible assets are all
essential components of entrepreneurship where support and advice may be beneficial.
One additional benefit accountants may bring to entrepreneurial activity is the ability to
balance both compliance and performance roles. Risk-taking is important, but it still needs to
be considered and managed carefully. A balance is needed between quick decision-making,
energetic action and rapid change on the one hand, and calm evaluation of the situation and
ensuring legal compliance on the other. Accountants can help provide an objective evaluation
of performance, governance, structures and systems whilst still encouraging innovation.
In Module5, we focus on innovation and managing risk, and we explore the concept of
entrepreneurship in more detail, including social entrepreneurship, and links with economic
development and the global economy.
The accountant as external advisera member in public practice

The ability to act as an external adviser is often a suitable way of providing services to organisations
that need special expertise, but only require that expertise in a one-off or part-time capacity.
Areaswhere accountants have strong skills include:
assessing entity structures and obligations;
developing manual and automated systems, processes and procedures coupled with strong
internal controls, performance measurement and reporting; and
managing working capital operational issues in accounts receivable, accounts payable,
inventory management and cash management.
When deciding to adopt external advisory roles, special consideration must be given not only to
the clients situation, but also to the accountants own organisation. The Practice Management
subject in CPA Australias Public Practice Program provides detailed advice on many of these
issues, including setting fees, obtaining clients, services to offer, systems and procedures,
andsales and marketing methods.
In the following section we discuss an important decision that must be madethe range of
services to be provided and whether that involves partnership with professionals from other
industries. We also explore the need for marketing and introduce ideas for expanding the
advisory services, and offer a tangible example of how that might develop.
MODULE 1
One useful concept that helps explain the different needs of entrepreneurs is the business life
cycle. A traditional life cycle will see an organisation move from formation to growth, thenreach
maturity, followed by decline. Entrepreneurs, who are in the formation and growth phase,
oftenhave a different focus compared to those that are now in the maturity phase with well
established products, services, customers and markets.
22
MODULE 1
Cross-selling and strategic partnering

Accounting roles in public practice are varied, and can include financial accounting (and bookkeeping), taxation, auditing, insolvency, mergers and acquisitions, as well as advisory services.
Often, accountants will specialise in one particular accounting discipline. The opportunity then
arises to partner with other accountants who offer specialised and complementary services
in another accounting discipline. Such partnerships can exploit the benefits of cross-selling,
whereexisting clients are offered additional services, thereby increasing income levels and,
hopefully, further entrenching the client relationship.
Other industries are keen to team up with accountants because of their established client base.
The following extract outlines a scenario where financial planners are encouraged to partner with
CPAs to provide holistic wealth management servicesthat is, accounting, financial planning,
estate planning, mortgage broking, insurance and stockbroking.
one of the biggest challenges CPAs face is one of your biggest opportunities: the desire of
many CPA clients to receive comprehensive financial planning and financial services from their
accountants
The good news is that you can make a compelling case that CPAs can address nearly all of these
difficulties by partnering with the right financial adviserthat is, one who provides comprehensive
wealth management
You also must emphasize that the CPA firms clients would be receiving the comprehensive
wealth management services that they are already seeking and that would keep them as clients.
Yourapproach should be to highlight the win-win-win situation an alliance would create for the
clients, the CPAs and you (Bowen 2009, p. 26).
Partnering with the legal industry can also provide cross-selling opportunities for accountants,
especially for corporate clients. Accountants are often confronted with commercial legal
issues surrounding contract management, taxation, mergers and acquisitions and insolvency.
Havingthe ability to offer a full range of commercial and financial services can be a key
competitiveadvantage.
Marketing
When an accountant decides to step into the strategic advisory role, they need to realise that
there is often more work to be performed than just advisory services. The reality is that an
accountant needs to build up a client basethrough sales and marketing. Current clients may
be used to receiving only the more traditional services. In order to expand the service offering,
accountants need to be able to communicate the new services that they are able to provide
and why these services are useful to the client, and demonstrate that the pricing is appropriate.
Marketing skills and non-billable time building client relationships become essential, and these
skills need to be developed and refined.
Strategic advice
When we talk about providing strategic advice, we are not simply limited to advising on an
organisations strategy. Advice can be strategic in nature, even if it relates to the technical and
operational aspects of an organisation. Strategic advice should, however, have the longer-term
objectives of the organisation in mind, whilst focusing on the various steps and initiatives that are
required to achieve those objectives.
If you are going to provide strategic advice, it is crucial to understand not only what your client
needs and wants, but also your clients state of mind. You need to have a clear understanding
of the how the organisation approaches issuesso that you can effectively guide them
along. Theadvice by itself may not be of much value without guidance towards successful
implementation. Table1.4 outlines some different ways of approaching the provision of strategic
advice in differencescenarios.
Study guide |
23
Client behaviour
Potential approach
Aware of approaching issues but paralysed and

unable to make a decision.
In this situation the client may actually know the

appropriate course of action, but feels powerless
to make it or act upon it. In this case, step by
step guidance through the process will be just as
valuable as making the actual decision itself.
Inability to take decisive action about previously

loved parts of the organisation.
A focus on identifying sunk costs and addressing

the need for innovation and change are crucial
here.
Often called sacred cows, there is a sense that

these items (such as a once popular product or
manufacturing facility) cannot be touched, despite
poor ongoing performance.
Dealing with emotional and cultural attachment

is just as important as the rational or logical
analysis and decision.
Denial and avoidancepretending that

potential issues are not in fact occurring or
serious. Overestimating positive outcomes and
ignoringreality.
A firm focus on technical analysis of financial

results, economic indicators and other factors to
show the severity of the situation may be helpful
here. Moving away from ideas and opinions and
instead relying on numerical data and forecasts
should help remove emotion and move towards
more disciplined action.
A lack of urgency, with positive but slow action

whenfaster, decisive movement is required.
Scenario analysisthat shows the expected

outcomes of different implementation schedules,
may help generate more intensity towards
implementation.
Inaction and limited ability to respond due to lack

ofskills, financial or technical resources.
Support with training and skill development

combined with creating potential future scenarios
and step by step action plans for achieving
outcomes.
However, it is not enough to say accountants should give strategic advice in these areas. To clarify
what this might actually mean, a specific example follows of turning advice into results in the area
of cash flow collectionan area that has been identified as critical for many organisations and yet
is often poorly managed.
Example 1.10: T
urning advice into resultscollecting
receivables
Consider an external accountant who currently creates the year-end financial statements for a client
and is exploring what opportunities may exist to provide additional advice. One of the biggest issues
clients can face in difficult times is slow cash receipts from debtors. This is a significant cost to the
organisation through increased working capital requirements that must be financed. The additional
stress it puts on an organisation to meet its own cash flow requirements (payments to suppliers,
employees and government taxes) can also be high, and may lead to financial distress or even failure.
The accountant should have the knowledge to advise on appropriate debtor management policies
and processes and the skills to successfully execute the implementation of such a system.
Organisations which do not have detailed systems and processes in place can benefit from advice that
identifies the current situation, explores potential solutions and leads to improved systems, collections
and reduced cash flow issues.
MODULE 1
Table 1.4: Provision of strategic advice
24
MODULE 1
Improving collections is a combination of technical understanding and procedural and operational skill.
From a technical side, the accountant can capture and report the structure of accounts receivable or
debtorsthat is, how many debtors are current or 30/60/90+ days overdue. From here, analysiscan
be used to calculate the financial cost of these delayed payments as well as the risk and value of bad
and doubtful debts.
From reporting to advising
The traditional role of just reporting the level of debtors on a balance sheet has evolved. Theinformation
that is provided can help identify potential underlying issuesthat is, the strategic adviser can quickly
provide information to a client about whether there is a problem, such as a negative trend line,
anincrease in bad and doubtful debts or a declining cash balance.
This information could be combined with an analysis of external factors, such as customer industries
that are experiencing economic decline. The next step would involve reviewing the systems and
processes for issues such as:
how and when invoicing is done;
how credit terms are established;
establishing whether statements are provided;
when and how reminders to customers are made; and
how slow payments are followed up.
In many circumstances, formal procedures are either non-existent, or employees do not heed them.
The opportunity then arises to develop and implement systematic procedures for invoicing and
cash collection. Improvements can be measured against the baseline trends that have already been
noted. The financial benefits from improved cash flow collection (lower net working capital financing
requirements) can be easily calculated and the non-financial benefits (such as less stress from having a
stronger cash balance and less time wasted chasing up slow-paying customers) can also be discussed.
The end result is the accountant, working in strategic partnership with the client, creating not only a
set of financial results, but systematically improving profits, cash flows and business efficiency.
The next step: From receivables to working capital
The same type of approach can be taken throughout the organisation with issues such as:
accounts payableensuring all invoices are properly receipted and genuine, discounts have been
taken up where appropriate, and payments have internal controls and match the goods/services
actually received; and
inventoryidentifying holding costs, slow moving and obsolete stock, purchasing processes and
ordering costs, production capacity and scheduling.
The CPA Program Strategic Management Accounting subject outlines a range of tools to provide
strategic advice on pricing, product selection, strategic costing and product life cycle analysis.
CPA Australia also offers a variety of professional development opportunities for members to
enhance their skills in a range of accounting-related disciplines.
The opportunities to add value through advice are also beneficial to the provider, offering more
interesting engagements and the ability to earn greater returns.
Question 1.6
Refer back to Table 1.1. Consider the strategic advice that a professional accountant could give
an enterprise in relation to its customers. Explain how that advice might differ depending on
whether an accountant was advising a small, medium or large enterprise.
Study guide |
25
Summary
The major categories of advice needs were introduced and examined, highlighting the
differences that exist between different types of organisations. The advice could be required at
operational and strategic levels; for example, advice on improving productivity or re-positioning
the organisation to address future customer needs. In meeting these needs, an external adviser
in public practice can offer more than mere compliance services by leveraging the knowledge
they gain from working with a variety ofbusinesses across a variety of industries to provide
extensive strategic advisory services.
Advisory work is not restricted to external consultants alone. The accountant can also perform
many roles as an employee from within an organisation. Indeed, internal accountants are well
positioned to proactively offer strategic advice in addition to the more traditional, reactive
activities. For smaller organisations, it is vital that accountants provide a broad range of advisory
services that stretch across disciplines and functions.
The required skill set for accountants is broad where strategic advisory services are involved.
Inaddition to technical knowledge, key skills include communication and collaboration at all
levels of an organisation.
MODULE 1
In Part A, we considered the role of the accountant as strategic business adviser. As accountants
have a deep body of knowledge and experience regarding business and organisations, they are
well placed to provide a broad range of advice to organisations of all types and sizes.
26
MODULE 1
Part B: A
dvising beyond traditional
accounting areas
Traditional accounting focuses on monetary input, outputs and costs. The expansion of
accounting information and advice to include non-financial, or operational data has accelerated
over the last two decades. There is now a strong focus on internal balanced scorecard reporting,
as well as externally focused triple-bottom-line and sustainability reports. In addition, regulated
environmental reporting now exists in many countries and industries (e.g. National Greenhouse
Energy Reporting in Australia). Accountants as strategic business advisers need to be able to
help explain, capture, communicate, report and act on the whole of the business, including its
monetary, physical and social impacts.
From an internal, management accounting perspective, we are seeing the broadening of focus
from costs to include physical flows (such as inputs of energy, water and oil in terms of volume),
physical outputs (such as volume of waste and emissions) and the costs attributed to these
physical amounts (such as carbon prices). A strategic business adviser needs to be able to advise
on more than just monetary flows and monetary impacts. They must also be able to communicate
about physical flows and impacts.
Example 1.11: Sustainable supply chain management

As accountants, when we think of supply chain management, we typically think of minimising stockouts,
cutting costs, improving data quality and increasing efficiency. However, in recent times, a key focus
of supply chain management has been sustainabilitythat is, the environmental, social and ethical
impact of the supply chain. Key areas to be considered include the level of emissions and waste,
employment practices, and the way suppliers and customers interact throughout the supply chain.
Rather than being a separate, stand-alone focus on sustainability, these measures actually relate back
to, and can improve, the traditional focus of reducing costs and improving efficiency. This is because
unsustainable practices typically involve higher risks that can cause greater damage to reputation,
quality, culture and profitability over the long term.
There are a number of examples of customers using their buying power to instil sustainable practices
throughout the supply chain. For example, Westpac Banking Corporation has a code of conduct
for sustainable supply chain management, and requires suppliers to confirm their compliance
with the standards. However, rather than a simple push-down approach, sustainable supply chain
management can involve consultation with, and active engagement from, all parties in the supply
chain. Suchapproaches can lead to new innovations, greater customer/supplier alignment, increased
efficiency, lower risks and lower costs throughout the supply chain. The Global Reporting Initiative (GRI)
provides guidance for sustainable reporting. For example, the guidelines suggest that organisations
explain specific practices in relation to the supply chain, as shown in Table 1.5.
Study guide |
27
Supplier selection
List the economic, environmental and social criteria used when

selecting new suppliers, and describe how the use of these criteria
isencouraged within the organisation.
Supplier management
Explain:
how expectations are established and defined in contracts with
suppliers to promote improvement in economic, environmental
and social performance (including targets and objectives);
how suppliers are incentivised and rewarded for economic,
environmental and social performance; and
feedback and dialogue mechanisms for suppliers.
Product and service design
Identify changes, and describe their outcomes and progress.
Certifying and auditing suppliers
List the type, system, scope, frequency and current status of

certification and audit.
Supplier termination
Describe systems in place to assess the potential economic,

environmental and social impacts of terminating a relationship with
asupplier, and strategy to mitigate the impacts.
Source: Global Reporting Initiative (GRI) 2012, G4 Developments,
Second G4 Public Comment Period, G4 Exposure Draft, accessed July 2014, p. 45,
https://www.globalreporting.org/resourcelibrary/G4-Exposure-Draft.pdf.
For more details on the G4 Guidelines refer to Module 4.
In the contemporary environment, accountants therefore need to be aware of the focus on

sustainable supply chain management, both from an external reporting perspective and when
providing supply chain management advisory services to organisations.
Physical accounting
Physical accounting involves recording and reporting on the use of different types of physical
materials and the volumes used, consumed or transformed. This includes considerations
of waste, commercial and environmental sustainability, continuity of supply chains, and the
effective use of resources. The social and ethical outcomes of the use of physical resources must
also be considered. Major items that will be included in any analysis will be water, oil, energy,
andnonrenewable resources.
The importance of understanding the source and sustainability of raw materials is demonstrated
in Example 1.12. Changing how raw materials are obtained or processed may have a significant
impact on the long-term viability of an organisations products and profits.
Example 1.12: Sustainable supply chains

Unilever is a global producer of consumer goods, particularly of food, personal care and household
cleaning products. In 2010 it launched the Sustainable Living Plan in which it adopted a vision to grow
its business while reducing the environmental footprint. Unilever has committed to sustainable sourcing
of all its agricultural raw materials by 2020. One of those raw materials is tea leaves (Unilever 2013).
As the worlds largest purchaser of black tea, Unilever supports social change through its
BetterLivelihoods program. It has already trained about 450000 smallholder tea farmers in sustainable
agricultural practices and made high-quality seeds and fertilisers available to them. Farmers have
improved their yield and their livelihood, while the company has a more robust supply chain focused
on smallholders (TELUSInternational 2013).
MODULE 1
Table 1.5: GRI supply chain guidelines
28
MODULE 1
In many circumstances, we will already be collecting data about physical quantities and inputs.
These will be found in purchase orders, bills of material, and standard costing systems (especially
for larger purchases). However, many items are ignored or hidden. These include items treated
as overhead (e.g. unmetered water usage or energy), or regarded as externalities (e.g. the use of
air from the atmosphere). It is important to ensure we have systems in place to collect and collate
this information so that it can be reviewed, analysed and reported quickly and easily.
Nitto Denko Corporation is a Japanese company that manufactures a variety of products
including optical films for liquid-crystal display (LCD) screens, automotive materials and parts,
and electronics. It has produced the following diagram (Figure 1.4), which is a useful example of
how we can capture and report both physical and monetary results.
Figure 1.4: Nitto Denko Corporationphysical flows and volumes

Amount of
materials recycled:
18 186 metric tons
Material recycling
Raw materials purchased

(including solvents):
202 026 metric tons
Waste plastic recycled: 6240 metric tons

Solvents recycled: 11 946 metric tons
Solvent vapors
emitted into the air:
779 metric tons
Products: 171 947 metric tons

Manufacturing
process
Industrial waste disposed outside the company: 45 983 metric tons

Final disposal: 673 metric tons
Solvents purchased: 36 319 metric tons
CO2 emissions:
390 824 CO2
metric tons
Energy purchased:
143 122 kl (in crude oil equivalent)
Energy recycling
(thermal recycling)
Amount of energy
recycled: 43 865 kl
(in crude oil equivalent)
Water consumed: 4 462 787 metric tons
INPUT
Wastewater: 3 888 579 metric tons
OUTPUT
Source: Nitto Denko Corporation 2011, Environmental construction activities: Material flow
inbusinessactivities (non-consolidated), accessed July 2014,
http://www.nitto.com/company/environment/2010/environmental.html.
Figure 1.5 provides powerful information for internal decision-making and advice. For example,
we can see that 87 per cent of water consumed ends up as waste water. It also shows that
33percent of solvents have managed to be recycled. By clearly presenting physical information
as well as costs, we are able to focus attention on process redesign, product changes,
andrecycling efforts to improve profitability, minimise waste and reduce the level of raw
materialsrequired in the first place.
When companies start producing and analysing this information, it can be a catalyst for change.
Consider the following examples:
McDonalds moved away from polystyrene to recyclable packaging for its hamburgers.
Dulux and other paint companies create water-based paints that have low or zero volatile
organic compounds.
MonoSol has developed soluble and even edible packing films that replace plastic.
EADS (the parent company of Airbus) uses three-dimensional printers (additive manufacturing
technology) to print aircraft parts rather than manufacture them, significantly reducing waste of
metal alloys, and cutting weight by up to 50 per cent, which in turn saves fuel costs (Andy 2011).
Study guide |
29
Question 1.7
Management accounting and the environment

Accountants are aiming to improve outcomes for all stakeholders and the focus should be
to obtain and exploit competitive advantages in an ethical and honest manner. Integrating
environmental analysis into management accounting, often called Environmental Management
Accounting or EMA, is a powerful approach that helps achieve this.
EMA uses a combination of tools, some of which focus more heavily on monetary aspects,
whilstothers consider physical interactions. This leads to the following classifications being used:
Physical Environmental Management Accounting (PEMA)

This includes the use of tools to record material, energy and water flows, as well as incorporating
physical amounts into budgets, forecasts and capital investment evaluations. Performance
evaluation in regard to environmental criteria, developing systems that minimise pollution and
waste and improve recycling, are all linked to PEMA.
Traditionally, invoices for utilities (e.g. water, electricity, gas) are received by the finance
department and the amount outstanding is entered into the accounting system, along with the
scheduled payment date. PEMA, on the other hand, would advocate some or all of the following:
capturing the total energy usage for the period and comparing to budget;
identifying the usage between peak and off-peak times and maximising off peak usage;
assessing the emissions from the energy used and identifying ways to reduce emissions; and
retrofitting high-use machinery with meters to assess energy usage and look for efficiencies.
Monetary Environmental Management Accounting (MEMA)

According to a United Nations report (UN 2003), many organisations of all sizes in business and
government underestimate or do not track the costs of energy and materials used or wasted.
There are additional related costs of waste handling for recycling, treatment or disposal,
insurance and possible contamination liability, and regulatory costs current and future. If these
costs are not adequately tracked and estimated then they cannot be managed or reduced.
We need accounting systems to properly capture these costs and report them in the correct
areas, rather than just bundling them into overhead accounts. Once we identify the key
drivers and causes of these environmental costs, we can start devoting attention to making
improvements. MEMA focuses on costs incurred, and costs that may be avoided. Specific tools
that are useful to achieving this include activity based costing and life cycle costing.
These tools are explained in detail in the Strategic Management Accounting subject in the
CPAProgram.
MODULE 1
A business cannot achieve sustainability and profitability at the same timeone must always be
sacrificed for the other. Do you agree or disagree? Explain your answer.
MODULE 1
30
Management activities where EMA may typically be used for internal purposes include:
cost management;
cost allocation;
inventory and production planning;
investment appraisal;
performance evaluation and benchmarking;
product/service design;
product/service mix;
product/service pricing;
purchasing;
supply chain management; and
external financial and environmental reporting (United Nations2003).
If you are interested in learning more about this area, please refer to useful resources on
My Online Learning.
Environmental costs and revenues

Along with the actual volumes of physical items that are used, consumed or wasted, costs are
attached to these items. In many instances, these costs may well be externalities. These are
discussed in detail in the Ethics and Governance subject in the CPA Program. As these externalities
transfer costs from the organisation to society we are likely to see more and more regulations that
aim to minimise these externalities or transfer them back to the organisation. An example is the
cost of carbon. Previously, carbon was a waste by product of many industrial processes, but there
was no cost attached. However, many governments have now put a price on carbon. Essentially,
this has turned an externality, or cost outside the entity, into an internal cost.
There will be a range of consequences as a result of such costs. Some industries may become
unprofitable, and foreign competitors may become more aggressive and able to capture market
share. But, such developments will certainly motivate companies to become more efficient,
andfocus on minimising these costs throughout the supply chain. So the focus will be on the
physical items consumed. Efforts to reduce the level of raw material used, wasted or emitted will
require more analysis, investment and consideration.
An example of reducing environmental costs is motor vehicle emissions. Transport companies are
channelling their attention to areas that they can control to not only reduce emissions but to also
reduce costs through:
more efficient driving;
more efficient vehicles;
designing their routes more carefully; and
using different raw materials (e.g. biofuels).
A simple example of success in this area is provided by South East Water, a water retailer in
Victoria, Australia. It was able to reduce printing waste by 2000 pages per person per annum
and reduced the number of printers from 120 to just 15. This was achieved by a combination of
strategies including having staff walk to the printer and using a swipe card to activate the print
job, printing duplex (two-sided), and printing two pages to a page (Hall 2010).
Study guide |
31
With a growing focus on sustainability and the environment, it is no surprise that organisations have
set performance targets and adopted performance measures in this area. Capturingenvironmental
data and reporting the information has allowed actual performance to be compared to benchmarks
(e.g. internal targets, historical performance or competitor results). As with traditional performance
indicators, environmental performance measures can comprise a range of input, output, outcome
or impact measures, including:
volume or percentage of waste;
number or percentage of suppliers certified;
percentage of waste recycled/re-used;
volume of output per input;
volume or percentage reduction in emissions; and
proportion of non-toxic, dissolvable materials.
Many organisations now use balanced scorecard reporting. By providing detailed results for
leading indicators relating to customers, employees and processes, it is hoped that attention will
be devoted to issues quickly, and that appropriate changes and controls can be put in place to
influence the financial (lagging) results.
Many scorecards are now attempting to incorporate environmental aspects into their structure.
Two main ways of doing this are to create a separate perspective or area for environmental
results. An alternative approach is to integrate measures throughout existing perspectives of
thescorecard.
The benefit of a separately reported area for environmental performance is that it demonstrates
the importance and attention being devoted to this area. However, there is a potential downside.
By separating out environmental action and results it can be seen to be a separate, add-on
and a tokenistic component to the organisationrather than as being integrated throughout
all aspects of the business. Another problem is that it tends to focus on outputs or results,
butnot on the drivers, causes or inputs. This limits the identification of opportunities for change
andimprovement.
Summary
In Part B we discussed that the role of the accountant is a broad one and includes providing
strategic advice outside traditional areas. There has been growth in regulation requiring
environmental and sustainability reporting at both local and international levels, as well as
widespread adoption of the GRI guidelines.
Accounting information should not be restricted to traditional financial matters. It now includes
physical accounting for flows and volumes of materials, and environmental management
accounting for physical usage and environmental costing. There is a growing interest in
sustainability in supply chain management being generated within organisations themselves,
andthe need for sustainable operations is also being influenced by customers, investors and
other stakeholders.
Because accountants have relevant skills and knowledge that can be applied to these new areas
of measurement, recording, analysis and reporting, they are well placed to provide services to
these areas of growing demand.
MODULE 1
Integrating environmental measures

extendingthe balanced scorecard
32
MODULE 1
Part C: Ethical interaction

We now turn our attention to another consideration for the accountant acting as a strategic
business adviser. Ethical decision-making is increasingly important in todays business
environment and is expected in many industries. In this section we explore the ethical
dimensionsinvolved in providing strategic advice, and how the traditional attributes of
professional accountants, including integrity, honesty, credibility and service, form a strong
foundation for accountants to provide appropriate support to organisations.
Professional accountants are much more than just numbers-focused. They are expected to be
able to tie together:
quantitative/financial factors;
qualitative/non-financial factors;
strategic and operational attributes; and
ethical, social and moral implications.
As members of CPA Australia, it is a mandatory requirement to comply with the Compiled
APES 110 Code of Ethics for Professional Accountants (the Code) (APESB 2013b). The Code is
examined in detail in the Ethics and Governance subject in the CPA Program, and requires that
amember act in the public interest and maintain the following fundamental principles:
Integrityto be straightforward and honest in all professional and business relationships.
Objectivityto not allow bias, conflict of interest or undue influence of others to override
professional or business judgments.
Professional competence and due careto maintain professional knowledge and skill
at the level required to ensure that a client or employer receives competent professional
services based on current developments in practice, legislation and techniques, and act
diligently and in accordance with applicable technical and professional standards.
Confidentialityto respect the confidentiality of information acquired as a result of
professional and business relationships and, therefore, not disclose any such information to
third parties without proper and specific authority, unless there is a legal or professional right
or duty to disclose, nor use the information for the personal advantage of the member or
third parties.
Professional behaviourto comply with relevant laws and regulations and avoid any action
that discredits the profession (s. 100.5, APESB 2013b).
The Code also provides a conceptual framework for members to apply as follows:
(a) Identify threats to compliance with the fundamental principles;
(b) Evaluate the significance of the threats identified; and
(c) Apply safeguards, when necessary, to eliminate the threats or reduce them to an acceptable
level (s. 100.2, APESB 2013b).
Question 1.8
The IT snag (adapted from Sexton 2010).
In the face of a recent economic downturn, the board has requested that you, as the CFO,
together with the chief information officer (CIO), produce a business case for outsourcing the
organisations information technology (IT) operations offshore. The CIO sees this as an opportunity
to significantly reduce costs within his business unit, which will help him achieve his substantial
end-of-year bonus. As the CFO, you acknowledge that there is a possibility to reduce overheads
associated with the IT operations and, as a consequence, increase profitability.
What ethical issues need to be considered in this situation?
Study guide |
33
Question 1.9
Fair dealings (adapted from Sexton 2009).
As CFO you have been asked to develop a business plan to support a major restructure of your
organisation. The board is hesitant to approve such a major restructure, so you decide to conceal
the key assumptions contained in the business plan as this would only confuse the board in its
decision-making. At the next board meeting you intend to present your business plan. You are
hoping that no director questions you on the assumptions or limitations of the business plan and
that the decision to restructure is approved.
If you proceed with this course of action, which fundamental ethical principle would you most
likely breach?
Addressing conflicts between organisational

stakeholders
In this section we expand on the concept of ethical behaviour to incorporate the decisions
thatorganisations make. Discussion will focus on how the accountant should behave,
ethicalissues that exist specifically for accountants, and organisational ethics and decisionmaking. Weconsider how the accountant can help organisations make sound, ethical decisions
and manage to consider the needs and interests of various stakeholders. With the increasing
focus on sustainability, the advice given by accountants needs to move beyond financial
analysisto consider people and the planet, as well as profits. Examples 1.13 to 1.15 outline
thepotential conflicts that can arise between economic, social and environmental issues,
andhow accountants providing analytical and advisory services can help organisations identify
and navigate theseissues.
Example 1.13: P
otential conflict no. 1: Societal improvement
from outsourcing?
Outsourcing and offshoring have earned a negative reputation in the developed world. A number of
ethical issues arise when considering transferring work to different geographical locations, manyrelating
to the social and environmental standards to be adopted by vendors. Typically, concerns arise over
the working standards of the outsourced employees, with many arguing that they are exploited by
the disparity in wage rates between the developed and developing worlds. In contrast, some argue
there are real benefits for workers in developing regions.
The pioneer of what is called socially-responsible outsourcing or simply impact sourcing is
DDD (Digital Divide Data), a New York-based nonprofit that operates for-profit data centers in
Cambodia, Laos and Kenya. DDD and its impact-oriented peers set themselves apart because,
they say, they deliberately seek out workers in the some of the worlds poorest places and
provide them not just with jobs, but with the education, training and career counseling they
need to rise into the middle class (Gunther 2014).
MODULE 1
By acting in a professional manner, accountants build trust and are granted further responsibility.
Their ability to put the public interest and those of the client before their own self-interest is
paramount in providing useful and valuable advice. If trust is lost because of self-interest or
unethical practices, it is unlikely that a client will ask for advice because there will always be an
underlying worry that they are at risk of the advice not being in their best interests.
34
MODULE 1
In addition, the idea that outsourcing is merely a cost cutting exercise is countered by the realisation
illustrated in the following extract, that customers are evaluating suppliers on their values as well as
traditional value for money.
The Business Process Outsourcing (BPO) industry was born out of a desire to cut operating
costs. However, the industry is changing considerably. Today, progressive BPOs are focused
on creating an exceptional customer experience while delivering top-line value to their clients
in a way that also addresses social inequities in the countries where they operate. At the same
time, clients are evaluating BPO suppliers on more than the conventional value proposition.
Clients have come to recognize that Corporate Social Responsibility (CSR) is a vital way to
assess the values of a company. By responsibly and ethically employing hundreds of thousands
of people, BPOs have a role to play in shifting the social landscape in emerging economies
around the world (TELUS International 2013).
At the end of the day, the outsourcing dilemma seems to be a double-edged sword. Criticscan
rightly juxtapose domestic jobs loss with foreign exploitation and sweatshops. Yet, thereis
often a greater gain for developing countries that benefit from the resulting economic
development. Creative social enterprises like DDD have found a way to make outsourcing a
winwin proposition for all parties involved. Thus, its fair to say that outsourcing in and of
itself is a morally neutral concept, its the circumstances and implementation of outsourcing
contracts that create the ethical challenges (Schlemmer 2004).
Example 1.14: P
otential conflict no. 2: Oil or ethanol
thelesser of two evils?
The use of ethanol and other biofuels has been touted as the solution to the worlds reliance on fossil
fuels for energy. However, in attempting to solve one problem, a new problem has been created.
Biofuels are made from crops such as wheat and corn. As agricultural land is finite, this means that
products previously used for food are being redirected to create energy. This in turn has had the
effect of increasing global food prices and is expected to lead to significant food shortages in future.
Attempts to provide commercial and ethical advice to organisations on key decisions like the fuel
source of vehicle fleets, sourcing of energy for manufacturing and production, and product packaging
must therefore be carefully considered in order to avoid unforeseen ramifications. (We consider this
issue in more detail in Module 2.)
Example 1.15: P
otential conflict no. 3: Capacity to pay
extracting excess profits
Many companies offer differential pricing (different pricing for the same product in different locations),
which is often a factor of capacity to pay (of the customer) and lack of competition in the market.
An important point to consider is the long-term consequences of stakeholder relationships when
extracting the maximum amount of profit in the short term. Potential examples include the following:
The selling price for an item in an online store being based on the users estimated location.
The differentiated pricing may be based on average house prices in the users suburb/town, or
perhaps even how close the user is to a competitors physical store. Variations on this theme
include differential pricing based on the users browsing history, the web browser used and even
the type of device or platform being used. For example, some websites charge higher prices if
you access them with an Apple computer because they assume you have greater capacity and
willingness to pay higher prices.
Apple iTunes routinely charging more in Australia versus the United States. For example,
the Apple iTunes store in the United States sells most albums between $9.99 and $12.99, while in
Australia albums are frequently sold for $16.99 and higher. The price differential is not explained
by Australian license fees, currency exchange rates, taxes or consumer protection regulations.
Consumer group Choice believes that it is international price discrimination which has no place in
the globalised market (Bender 2012).
The latest brand name running shoes (e.g. Brooks, Nike) in Australia can cost more than
double the price of those purchased directly from the United States (even after postage costs).
Tocompound the issue, US shoe companies are attempting to protect their Australian distributors
by preventing the international postage of shoes from US stores directly to Australian customers.
Study guide |
35
Accountants as facilitators of ethical

businessbehaviour
The focus of many organisations has been largely on improving results for owners or
shareholders. However, there has been an increasing focus on stakeholders that is reflected in
external reporting requirements (such as with sustainability reports), and also in internal systems
(with the rise of non-financial measurement systems such as balanced scorecards). Leaders realise
the deep interactions that are required between the various groups to effectively achieve goals
and objectives. Those who act with a short term mindset and ignore the needs and desires of the
different groups will be exposed to long-term problems as this type of approach is becoming
less acceptable. The need to consider employees, customers, suppliers and, more broadly,
communities, the environment and the government, is essential. As such, there is a formal or
informal need for the role of ethical adviser to review decisions that make great commercial
sense, but may be not be in keeping with societal norms and values.
Accountants are well placed to facilitate ethical business choices. In addition to reporting and
analysing financial performance, accountants are also designing non financial performance and
operational measurement systems. These systems capture the impact of organisational behaviour
on various stakeholders and enable reporting both internally and externally. They highlight areas
for improvement and offer the opportunity to celebrate successful improvements.
Julian Clarke (IFAC 2008), an Ireland-based professional accountant in business (PAIB),
furtherexplains why accountants are viewed as beacons of ethical business behaviour:
One of the more difficult challenges facing PAIBs is when they encounter an integrity issue within
their own organization. As one of the few professionally qualified managers in [a mid-sized
organisation], PAIBs have the professional standards and the responsibility for responding quickly
and appropriately when issues of integrity arise. PAIBs understand the rationale for business
integritynot integrity for integritys sake, but because of its strong link with reputation and
longerterm business success, based on mutual benefit, fair play and trust (IFAC 2008, p. 10).
Clarke believes that trust, reputation, integrity and professionalism are powerfully interlinked,
andcan be a guiding force for organisations:

Organizations that conduct their affairs with integrity are trusted;
Trusted organizations gain a good reputation;
Organizations with a good reputation are consistently successful; and
The public expects higher standards of integrity from members of professions

(IFAC2008,p.10).
Accountants therefore need to demonstrate ethical business acumencombining technical

competence with a detailed knowledge of broader issues affecting industries, the economy,
theenvironment and society.
MODULE 1
These examples demonstrate that accountants face difficult moral, social and commercial
decisions on a daily basis. Balancing the needs of stakeholdersthe need to retain financial
viability and the desire to work in a sustainable manner, in a global and fiercely competitive
environmentis extremely challenging.
36
Summary
MODULE 1
In Part C, the importance of ethical decision-making for strategic business advisers was
considered. Ethical behaviour is a founding principle of professionalism, and for members
of CPAAustralia there is a requirement to comply with The Code of Ethics for Professional
Accountants. The Code provides a conceptual framework for members to apply when dealing
with threats to compliance with the fundamental principles of ethics.
The professional accountant is not only concerned with ethical personal behaviour but also has
a role in addressing issues within organisations and between stakeholders. This is particularly
relevant in the emerging areas of environmental and sustainability concerns where accountants
are applying their skill set to non-financial performance and operational measurement
considerations.
As you continue to explore contemporary business issues in this subject, the challenge is for
you to develop a robust framework that helps you to analyse and reach appropriate decisions.
Byexposing accountants to these issues and building related competencies, we increase the
understanding of members and create new opportunities for them to provide valuable service
and advice.
Study guide |
37
Accountants often focus their attention on their technical role. However, to provide useful
strategic advice and guide the successful implementation of new plans and strategies, it is
important to carefully consider the people that will be involved or affected by changes within
organisations. In Part D we address a number of aspects of people management that are relevant
to the viability and profitability of organisations. The ability to analyse and assess employeebased issues and include these in formal recommendations and plans is an additional set of skills
that accountantsrequire.
Organisations in the 21st century are becoming increasingly complex as they depend more and
more on their employees and the knowledge their employees hold and create. An additional
factor contributing to this complexity is the increasingly rapid change in technology. This part
of the module also presents a number of models which highlight the important role that the
accountant plays as a strategic partner who has both the hard and soft skill sets required to assist
organisations to manage this complexity.
Managing people
There are significant and obvious reasons why accountants should develop and maintain a
current view of the people management issues that are relevant to their own organisation,
theircustomers organisations and their industry. In this section we describe some of these
reasons under the categories of cost, assets and knowledge, and relationships.
Cost
People represent a large proportion of an organisations costs. In many organisations this cost
is also regarded as fixed, as employees are on long-term contracts. Attempts to make this cost
more controllable include moving more employees into short-term contract and casual positions
and lobbying governments to make it easier to remove employees. Employees may resist these
moves as it makes them more vulnerable (due to job insecurity). Accountants need to ensure that
financial calculations are combined with stakeholder analysis to ensure strategies in this area are
carefully designed and implemented.
A major cost that often has limited visibility is employee turnover. Hiring new staff and training
them so they can contribute productively takes time and the cost can be significant, so initiatives
focused on employee retention should be developed. Accountants should develop reporting
tools that report on employee turnover and highlight the cost of this to the organisation,
ratherthan letting it be hidden in salary or overhead accounts.
Assets and knowledge

Despite being a significant cost to the organisation, people are also an enormous organisational
asset. As mentioned in the earlier discussion on productivity, well-trained and highly skilled
employees are able to improve an organisations productivity well beyond that of its competitors,
and provide a significant advantage in the competitive business environment.
MODULE 1
Part D: H
uman resource issues
andcomplexity
38
MODULE 1
People represent a crucial capital resource. Human capital is the primary component of
intellectual capital and vital to the creation of organisational value. Without it, all the other
investments made by the organisation in buildings, plant and equipment, information systems
and marketing might remain inert and ineffective (Cuganesan & Carlin et al. 2006).
Employees also bring knowledge and diversity to an organisation through an almost infinite
variety of attitudes, work histories, prejudices, skills, achievements, failures and expectations.
Thepotential for continued innovation and creativity is just one of the benefits for organisations
who effectively manage their human resources. Organisations that succeed in building a
corporate culture that engages, unifies and motivates its employees to achieve corporate
goalsare those most likely to be profitable (Gordon 2008).
Relationships
Employees are constantly interacting with other people, both inside and outside an organisation.
Developing these relationships between organisational areas and with customers, suppliers,
lenders and owners is an essential part of building and growing a successful organisation.
Thequality and strength of these relationships has been shown to have a marked effect
on business performance and productivity (Lock Lee & Guthrie 2008). The relationship with
customers is especially important. This is because an organisations employees provide the
human face of an organisation to its customers, and these interactions will often determine
the customers perceptions of the organisation. The link between employee engagement and
customer engagement are intimately connectedand, taken together, they have an outsized
effect on financial performance (Fleming & Coffman et al. 2005).
These points show the mutual dependence that exists between the management of an
organisations human resources and business profitability, which justifies the interest of the
professional accountant.
Complete the Cashing in on corporate culture quiz at: http://www.camagazine.com/archives/printedition/2008/january-february/regulars/camagazine5413.aspx. Share the results with your manager
orhuman resources partner.
Contemporary people management issues

In Table 1.6 we briefly outline some high-profile people management issues that contemporary
business leaders face. Accountants who want to add value to their organisations beyond the
immediate delivery of accounting services need to be knowledgeable about these issues. What is
more, accountants who want to become CFOs will need to understand not only that these issues
exist, but how to work in partnership with human resources (HR) staff and the rest of the business
to manage them.
Table 1.6: Some people issues faced by contemporary business leaders

Issue
People dimension
Business dimension
Innovation
Determining and building skills

required to drive innovation; handling
employee ideas and suggestions;
building a corporate culture that
rewards innovation.
Keeping ahead of competitors;

exploring for new ideas; exploiting
the right ideas for new products and
services; innovation through mergers
and acquisitions.
Business ethics
Determining how best to train

effectively in business ethics; dealing
with grey areas; preserving levels
of trust in workforce; selecting and
establishing an ethics arbiter.
Costs of unethical behaviour; damage

to corporate image; measuring and
reporting ethics compliance.
Issue
People dimension
Business dimension
Offshoring
Impact of domestic job losses on

current workforce; redundancy costs;
management of remote workforce;
overcoming language issues; morale
issues for continuing local staff;
industrial action.
Requirement to reduce cost base;

gauging customer satisfaction
with offshored capability; dealing
with privacy and security concerns;
consequences of industrial action;
increased risk of business disruption;
damage from disgruntled staff.
Teleworking and
virtualwork
Increasing the talent pool;

incorporating flexible working
hours; supervision and performance
evaluation of virtual workers; setting
and enforcing virtual work policies;
remote location health and safety;
engaging virtual workers in corporate
activities and culture.
Reducing infrastructure costs;

insurance and workers compensation
liability; quality control of virtual work
outputs; productivity improvement.
Talent management
acquisition and
retention
Accessing scarce skill sets; identifying

critical skills; identifying talent within
the workforce; keeping talent;
managing age profiles for critical
skills; succession planning; long-term
effects of reliance on contractors.
Marginal costs of scarce skills;

costsof skills gaps; costs of
workforce turnover; acquiring skills
via mergers and acquisitions (M&A);
outsourcing or insourcing recruitment;
financial incentives to keep key
staff from leaving the company
(goldenhandcuffs).
Skills maintenance
Balancing business requirements

with personal interests; identifying
skills that need to be updated or
are becoming obsolete; motivating
people to retrain; dealing with
redundant skill sets.
Maintaining operational capability

while training for innovation;
costsand benefits of training to keep
skills up to date; certification costs;
outsourcing or insourcing training.
Career management
Building career paths in flat structures;

balancing generalists and specialists;
effective performance management
and reporting; succession planning;
deciding when to advertise externally;
evaluating whether qualifications or
experience provide better leaders.
Costs of career management;

outsourcing or insourcing career
management; protection from
head-hunting; facilitating access to
professional associations; golden
handcuffs for key staff; significant
financial rewards (golden parachute or
golden handshake) and non-compete
contracts for leavers.
Equal opportunity
andemployment
Attracting the best employees

because the company is fair
and just; ensuring access to the
best talent is not compromised
through bias; complaint handling;
staffdevelopment.
Complying with legislation; equality

of opportunity as an employment
differentiator; productivity
enhancement at individual and
teamlevel.
Occupational health
and safety
Creating a safe place to work;

showing that the company cares
about its workers; avoiding unsafe
practices; handling employee
suggestions and observations.
Complying with legislation; reduced

down time; better productivity;
reduced compensation costs;
healthywork environment as an
employment differentiator; incident
reporting and management.
Managing diversity
Recognising that different

perspectives are required to optimise
engagement and productivity;
managing sub-cultural tensions;
managing language issues;
staffdevelopment.
Complying with legislation;

international recruitment; working
visas and sponsorship; productivity
enhancement at individual and
teamlevel.
39
MODULE 1
Study guide |
40
MODULE 1
Review Table 1.6 with your HR partner and identify which people issues your organisation is currently
dealing with. Volunteer to assist in an area that:
is not being dealt with satisfactorily;
you find interesting; or
you have little knowledge of.
We now provide a detailed examination of virtual work, or teleworking (the fourth issue in
Table 1.6). As you read Example 1.16, you should consider the organisational and accounting
implications of this issue.
Example 1.16: Teleworking

People management issues are not just about managing the skills, knowledge and abilities of an
organisations human resources (HR). It is also about increasing the flexibility of how and where people
work. Teleworking is an example of a current HR issue which is specifically focussed on increasing
flexibility. The emergence of teleworking or virtual working in various forms is having a major effect
on both the work and personal lives of many people.
What is teleworking?
Telework is defined as the use of information and communication technology to support work activities
away from the office (Campbell & McDonald 2009, p. 3). This can include working independently at
home (often referred to as telecommuting), or working remotely from the normal office at any other
locationfrom another office or business place, a caf or public building, or while travelling. This may
also be referred to as mobile working.
Virtual working is a more general term, and can be defined in several ways. It can be used to mean
teleworking, but can also relate to virtual teams, formed across organisations, across departments
within organisations or across geographically diverse locations, where technologies similar to those used
for teleworking may be employed. This includes organisations engaged in offshoring or regionalisation
where virtual teaming is established (discussed later in Module 2).
The defining issuetrust
An important consideration for organisations and individuals in moving to teleworking arrangements is
that it requires the management of an organisation to have trust in the individuals involved. The rules
of trust are both obvious and well established, but they do not sit easily with a managerial tradition
that believes efficiency and control are closely linked and that you cant have one without a lot of the
other (Handy 1995, p. 41).
Many organisations are today quite familiar with trusting some defined groups of staff to work
remotelythis is particularly the case where sales people work by travelling to visit clients. In order
to gain the efficiencies of teleworking or other forms of virtual working, this same trust must also be
extended to other staff.
To establish an environment of mutual trust, the staff involved must honour the trust extended to
them, but the initiative needs to be taken by management. Managers need to show confidence in their
peoplein their competence and in [their] commitment to a goal. Define that goal, and the individual
or the team can be left to get on with it (Handy 1995). The results can then be assessed after the
event, based on achievement of the goal. Accountants play a valuable role in creating structures that
help demonstrate trust. This includes switching the focus away from supervising workers to focusing
on establishing goals and measuring performance against targets.
Why organisations choose teleworking
Telework has been in use in some organisations for at least the last twenty years, and was initially applied
as a way to reduce energy use in office buildings, reduce the use of public and private transport for
commuting and to improve work/life balance for the affected workers (US OPM 2001).
As part of the National Digital Economy Strategy, the Australian Governments (2014) stated aim is to
at least double the level of telework to at least 12 per cent by 2020. Achieving this objective would
see Australia becoming one of the worlds leading digital economies.
Does it actually work?

There are important barriers to achieving this objective. A traditional view is that allowing staff to
work remotely from the office would create communication problems and cause lower productivity
or work quality, yet the US OPM report (2001) found that initial reservations about communication
were unfounded, and that productivity in fact increased. In the later study reported on by Campbell
and McDonald (2009, p. 6), teleworkers reported that they worked three hours extra per week on
average [than non teleworkers]. This study also found that 90 per cent of teleworkers regarded their
remote work as being as good as, or better than, work done in traditional workplace environments
(Campbell & McDonald 2009, p. 7).
The research findings on productivity and work quality suggest that where trust is shown to people,
it tends to be honoured. Professional staff in general will tend to work well when given the tools
and resources they need to do their job effectively, and are left to do it without direct supervision.
Thesepeople are measured on the results they deliver when working either in the traditional office
setting or outside it. The Australian Governments Department of Communications provides an
interactive return on investment (ROI) tool for both employers and employees to assess costs,
savingsand benefits of teleworksee: http://www.telework.gov.au/roi_tool.
The opposing view
There is another side to the flexible work debate, which is illustrated in the 2013 decision of Yahoo
CEO Marissa Mayer to bring people back into the office. The now famous email announcement of
the initiative explained that:
To become the absolute best place to work, communication and collaboration will be
important, so we need to be working side-by-side. That is why it is critical that we are all
present in our offices. Some of the best decisions and insights come from hallway and cafeteria
discussions, meeting new people, and impromptu team meetings. Speed and quality are
often sacrificed when we work from home. We need to be one Yahoo!, and that starts with
physically being together (Mayer, cited in Swisher 2013).
This highlights the tension between the benefits of teleworking and the need for face-to-face
interactions. The spontaneous interactions, as well as the information-rich non-verbal communication
provided when people work together in person, need to be reproduced in some way for telecommuting
to become fully accepted. Several technologies helping to address this issue include videoconferencing,
monitor sharing, and cloud-based file sharing, which allow teleworkers to interact seamlessly with
colleagues.
The impact on employees
Teleworkers report more job autonomy, greater organisational commitment, and less intention
to leave their current organisation. However, they also report more work/private life conflict
(Campbell & McDonald 2009, p. 3).
The benefits of teleworking for employees range from improved worklife balance and a reduction in
the stress of commuting to the ability to live where you want (Australian Government 2014). Campbell
& McDonald (2009, p. 6) found that while a majority of teleworkers saw the availability of teleworking to
be important, many non-teleworkers were reluctant to take it up, possibly due to perceptions about
increased workloads, [and] potential for work/private life conflict.
The impact on employers
There are a number of employer benefits from providing telework including:
reductions in operational costs;
increases in the level of productivity;
being a driver for innovation;
improved recruitment and retention outcomes, particularly when telework is implemented to help
overcome skill shortages caused by geographical barriers; and
a reduction in absenteeism associated with short-term staff family issues and through improving
worklife balance for staff (Australian Government 2014).
41
MODULE 1
Study guide |
42
MODULE 1
Evaluation
Just as teleworking is important to accountants for their own work purposes, it is equally important
for accountants to understand the importance of teleworking for other staff within the organisation.
Accountants must be able to evaluate teleworking and virtual working initiatives appropriately,
takinginto account the full picture of the benefits gained from these, as well as any costs involved.
The focus should be much broader than focusing on inputs (i.e. hours worked) with a greater focus
on outputs and outcomes (i.e. work performed and results achieved).
Consider your working environment. Are you working in an environment where you believe that
teleworking would be advantageous for yourself or for other staff, but management is resisting it?
Read the article Winning support for flexible work at: http://blogs.hbr.org/hmu/2010/12/
winning-support-for-flexible-w.html. Examine the case studies in this article to see if any are similar
toyoursituation.
Question 1.10
Assume you are a senior accountant in a construction organisation that undertakes large-scale
projects. In your role to date, you have learnt a lot about the project management staff. Youknow
that they are predominantly highly professional engineers, who work quite autonomously,
andshow a strong work ethic and dedication to their job role.
Your organisation has recently deployed a knowledge sharing system and telecommunications
infrastructure that can effectively support teleworking. The project managers have demonstrated
a strong commitment to the knowledge sharing system, and it has become a key part of their
collaborative working.
Your organisation is now considering the introduction of teleworking for project management
staff. You have been asked to provide advice on the likely costs, risks and benefits of this proposal.
What would be your main considerations?
Making business sense of people management issues

In this section we expand on a number of concepts of people management. Figure 1.5 contains
a summary of these concepts and their interrelationship. Following Figure 1.5 we provide
explanations of the concepts in the diagram that will provide both theoretical and practical
assistance in making sense of these issues.
Figure 1.5: People management concepts

Corporate
social capital
Financial soundness
Intellectual capital
External
partner networks
Relational capital
Human capital
Structural capital
Human sigma
Corporate culture
Sense-making
Vision
Values
Leadership branding
Study guide |
43
The notion of human capital lies at the centre of people management. As Figure 1.5 shows,
human capital is a component of intellectual capital and refers to the skill, training and
education, and experience and value characteristics of an organisations workforce (Cuganesan
& Carlin et al. 2006, p. 2). While human capital is an intangible resource, there are a number
ways organisations measure its value to themranging from a market-based evaluation of
the capability of the organisations HR to an activity-based costing approach (Chen & Qiao
2008, p.55). However it is measured, it is important that accountants understand that an
organisations human capital represents an important resource which has real and tangible value.
Thisunderstanding helps accountants provide advice and make decisions that consider this
broader perspective rather than simply treating labour as a cost.
Intellectual capital
Intellectual capital is closely tied to the notion of human capital. It is usually described as
a combination of human capital (human competences and know-how), relational capital
(anorganisations external relationships) and structural capital (an organisations internal
procedures and structures). The human contribution to organisational success is one where:
Skilled and engaged employees are required to drive innovation and both create and subsequently
realise the benefits of favourable customer, supplier and broader external relations (Sveiby 1997,
cited in Cuganesan & Carlin et al. 2006, p. 2).
Again, the accountant will benefit from recognising the broader notion of value to be
derived from understanding the situation of the business within its external environment
andincorporating the capabilities provided by its people and configuration.
Corporate social capital

As Figure 1.5 shows, the sum total of individual employee intellectual and human capital provides
an important contribution to corporate social capital. It is the social capital of an organisation that
provides a unique combination of intellectual capital, financial soundness and an organisations
ability to operate in alliances with, and absorb knowledge and capabilities from, anetwork of
external partners (Lock Lee & Guthrie 2008, pp. 37). Familiarity with this concept will assist the
accountant in providing advice and making decisions that draw on both the organic and the
structural capabilities of an organisation as well as acknowledging its ability to access and absorb
additional value from its external relationships.
Human sigma
The concept of human sigma builds on the six sigma concept discussed earlier, and is a means by
which an organisation can measure and monitor the employeecustomer encounter, particularly
for organisations with decentralised customer transactions (Fleming & Coffman et al. 2005,
p.108). Like six sigma, human sigma focusses on reducing variability and improving organisational
performance through addressing the human aspects of organisational performance. Thisnotion
explores the contributing factors behind the claim that fully engaged customers deliver
a 23percent premium over the average customer in terms of share of wallet, profitability,
revenueand relationship growth (Fleming & Coffman et al. 2005, p. 110). Thepath to fully
engaged customers is through fully engaged employees, who consistently and professionally
present customers with the best face of the organisation, irrespective of their location. These staff
will persevere with problems experienced by customers, and follow them through to completion.
MODULE 1
Human capital
44
MODULE 1
Cialdini (cited in Ostergaard 2009) reports that it is not the customers who have a problem-free
experience who reported the highest satisfaction ratings and future loyaltyrather, it was those
who experienced a service stumble that was immediately put right by staff.
Human sigma techniques allow accountants to produce hard data and, therefore, tangible
measures of employeecustomer encounters. This data will assist the accountant in providing
authoritative advice and assist management in making informed decisions that will affect
customer-facing employees.
Corporate culture
Corporate culture is another intangible but important concept as there is strong evidence that it
plays an important role in both employee engagement and customer satisfaction (Gordon2008).
Corporate culture can be described as containing: three main components: vision, values and
leadership branding (Gordon 2008). It is important that accountants appreciate the role of
corporate culture and acknowledge its role in sustained organisational profitability.
Sense-making
The notion of sense-making is the process by which people give meaning to experience.
Itfocusses attention on how people think through experienced situations and frame them as
meaningful. It is a collaborative process of creating shared awareness and understanding out
of different peoples perspectives and varied interests. In a general business context, sensemaking involves building a shared understanding of a current situation and a desired objective.
In practice, this is not as simple to achieve as it might soundwhat is understandable to an
accountant might be completely incomprehensible to a plant operator.
Approaches such as narrative techniques (Callahan 2006, p. 1) can help to develop shared
understanding and map a way forward through sense-making. Narrative techniques
are anecdotes of peoples lives at work, how they get things done, who they work with
(Callahan2006, p. 1). These stories can usually provide a more accurate picture of the realities
oforganisational life than analytical techniques or compliance evaluation.
Understanding the sense-making of an organisation provides an accountant with a powerful tool
for understanding a business problem in a way where the solutions they offer will support and
assist others. One approach to sense-making (the Weick model) is discussed later in the section
Managing complexity.
The value of sense-making can be illustrated through the example of a conventional
employeeengagement survey, which provides no clear area to address or plan for action.
Forinstance, while:
63% of staff agreed or strongly agreed with the statement I am proud to work for this company
and this might be down 6% from the previous survey. On its own, however, the data doesnt help
with the question what does this mean and what should be done? (Schenk 2009).
Adopting a sense-making view allows organisations to discover and organise information

that a survey will not usually uncover. These techniques can also assist in developing a shared
understanding amongst all members of the organisation.
This enhanced understanding provides accountants with a stronger base from which to make
decisions and offer advice.
Study guide |
45
While the previous sections outline some of the challenges of the 21st century and the changing
role of the accountant, an important question is whether it is enough for accountants simply
to be aware of people management issues in their organisations? There are immediate shortterm benefits in developing awareness, including better-informed responses to management
questions and better preparation of accountants for senior management roles. Adopting a more
proactive role will see accountants go beyond awareness, and able to add far greater value to
their organisations. This section outlines five possible avenues by which accountants can achieve
such awareness; these are summarised in Figure 1.6.
Figure 1.6: Accountant role concepts

Providing advice
Evaluating initiatives
Communication
Role of the
accountant
Decision-making and
issue resolution
Employee
engagement
Providing advice
The traditional expectation of an accountant being asked to provide advice on an issue is that
the response will be financial in nature. The reality today is that the professional accountant will
not only provide the advice requested, but will also advise on additional issues such as people
management issues, which could influence the situation being considered. A key driver of this
change is the realisation that the accountant cannot assume that someone else will provide this
additional advice, particularly if its absence constitutes a risk.
However, there can be organisational resistance to accountants providing this kind of additional
advice. This is where the advising accountants need to ensure that advice is channelled through
a conduit that is acceptable to the organisation. This may be an HR manager, the CFO, a close
colleague with operational responsibility for an area affected or even a staff suggestion scheme.
Communication
Ensuring good communication is another role for the accountant in people management.
Itis a role which sees the accountant operating as an individual employee, as well as in their
professional capacity. As an employee, the accountant will interact with and hear stories from
other employees which indicate that there are unresolved people management issues within
the organisation. The accountant is in the privileged position of understanding the financial
and business impacts of such issues, and can therefore appreciate the importance of initiating
processes for their discovery and resolution. This moves the accountant into their professional
capacity and might involve confidential and tactful discussions with an appropriate HR manager
or business leader. Alternatively, it might involve initiating management action to employ
specialists who use approaches such as narrative techniques to engage the workforce and
uncover issues which might not be identified by traditional internal attempts. The accountants
role in organisational communication is discussed further in Module 6.
MODULE 1
Role of the accountant in people management issues
46
MODULE 1
Employee engagement
The professional accountants understanding of the links between employee engagement and
business profitability provide an important opportunity to contribute positively to employee
engagement. This might occur through the use of sense-making as noted previously, orthrough
similar techniques that ensure business strategies resonate and become embedded in employee
behaviour. Alternatively, employee engagement might come about through using theaccountants
professional network to increase enthusiasm for initiatives that will boost business profitability.
Again, the professional aspect of the accountants role within an organisation interplays with the
role as an employee. The accountant has the advantage of access to information about benefits of
an initiative that help make it real for those in the business who might otherwise see a policy or
initiative as a disconnected managerial whim.
Decision-making and issue resolution

Direct involvement in decision-making and resolving issues that affect profitability has been a
traditional strength of the contribution accountants make to an organisation. To the extent that
the accountant has the flexibility to initiate action and allocate resources, this mode of adding
value can pay the greatest dividends to the organisation through being deliberate, targeted and
informed. It requires accountants to exhibit courage, initiative and judgment, to be realistic in
their plans, and to set and manage expectations.
Above all, accountants who choose to take direct action must be committed to delivery.
Thenumbers will still need to be managed and the financial reports compiled, but accountants
who make decisions and solve issues can provide additional value that will enhance profitability
for the entire organisation.
Evaluating the impact of hard-to-measure initiatives

A key challenge in business today is trying to determine return on investment for initiatives
which promise intangible benefits that are difficult to measure. Such projects are often dropped
because there may be no easy way to justify the measurement of expenditure.
A tool such as the Most significant change technique (Callahan 2007; Dart & Davies 2003)
can be readily used to provide decision-makers with the kind of feedback that validates their
determination to take a chance on a hard-to-measure initiative. The process consists of:
collecting stories from the people affected by a particular initiative about the most significant
change it brought to them;
feeding those stories back to decision-makers who need to know the impacts of the initiative
and getting them to select the most significant change story; and
propagating the stories and the selection results back through the organisation.
Example 1.17: Accountants advising on human resources

Voluntary turnover of employees in Australian small and medium-sized enterprises (SMEs) was
12.7percent in 2008. This decreased to 9percent in 2009 and 2010, which was understandable due
to the difficult nature of the economy as a result of the Global Financial Crisis. The 2014 Sensis SME
Business Index results places turnover at around 11 per cent, with employment expectations at a
similar level (Sensis 2014).
Losing nearly one in 10 employees through voluntary turnover is a significant cost to any organisation.
The intangible costs include the loss of institutional knowledge and intellectual property, and the risk
that replacement employees may lack appropriate skills and the right cultural fit. Direct and indirect
administrative costs also arise (e.g. holding exit interviews, making payroll adjustments, administering
IT and office security accounts, as well as recruiting and induction processes).
Study guide |
47
Managing complexity
Organisations are complex adaptive systems. They are complex in that they are comprised of:
human beings, markets and industries;
customer expectations, products and services, partners, competitors, geographical and
legislative environments;
technologies, plans, strategies and tactics;
communications, assets and infrastructure;
policies and procedures; and
corporate societal and individual cultures.
They are adaptive in that their elements interact in combinations and directions that cannot
be predicted, and these interactions in turn change the system itselfcomplex adaptive
systems are self-modifying. When trying to make sense of organisational complexity, it is easy
to be overwhelmed. The temptations then are to either drastically simplify ones view of the
organisation, attempt to simplify the organisation itself, or to simply guess or concentrate only
on your own area. (Interestingly, simply guessing can be a good strategy if you have had lots of
experience in the domain of guessing.)
If you are interested in finding out more about complex adaptive systems, watch the YouTube
presentation by Dr Javier Livas, an expert in cybernetics, here: http://www.youtube.com/
watch?v=3QrPxTUWt8A.
Please note that this resource is provided for additional information and is not examinable.
For the following discussion on complexity, complex adaptive systems will be referred to more
briefly as complex systems.
A key challenge for organisations operating today is that relying on past experience and
specific approaches may no longer offer the same assurance of success as they once may have.
The trouble is that approaches must now be designed to account for an increasingly complex
business environment (Klein 2009).
The next section looks at the issue of complexity as an increasingly prevalent feature of the
modern organisational landscape, and offers some guidance for accountants about how they
might not only deal with it, but also thrive on it.
MODULE 1
Accountants should be able to provide both an analysis of this situation and strategic advice about trying
to improve the result. For example, nearly two-thirds of employees who left an employer cited the need
for new challenges, while more than half desired better pay. This indicates that opportunities to reduce
turnover abound, possibly starting with a focus on higher salaries and appropriate career planning and
training opportunities. The costs of providing these additional benefits can then be weighed against
the cost of doing nothing and continuing to operate with a high staff turnover. Remember though, the
financial and other costs of replacing a new staff member can often be significant, so the savings from
avoiding a bonus or an appropriate pay rise may be false gains (DAngelo Fisher 2009, p. 41; AIM 2010).
48
MODULE 1
Addressing messy and wicked problems

Before addressing complex systems directly, we explore some of the factors that cause systems
to become complex. Probably the most basic notion of organisational complexity relates to
variety, which describes the number of possible states in a situation. Variety is generated in
many ways, especially as organisations try to differentiate themselves from their competitors.
There is variety in the:
products or services that are developed and supplied to customers;
way each customer interacts with the organisation;
way leaders and managers respond to problems and opportunities; and
way that employees perform similar roles.
Some of these differences are helpful and lead to new and better ways of doing things. At other
times, the variations indicate a lack of control and disorder, leading to unnecessary complexity.
Research by Beer found that for a group of just seven people, there are in the order of 4.5 million
possible states for their interactions in time (cited in Espejo 2000, p. 1). Ashbys Law of Requisite
Variety states essentially that to control a situation the variety of response actions must at
least match the relevant variety of the situation (cited in Espejo 2000, p. 2).
In other words, it is a mathematical impossibility for any leader to have the requisite variety to
control all the possible states of a large organisation.
Messy problems
One particular example of organisational complexity is a phenomenon known as a messy
problem (Checkland 1981, p. A3)a typically ill-structured managerial problem that resists
logicbased attempts to solve it. Messy problems often look simple and straightforward initially
but as they are investigated they reveal complex interrelationships and connections that defy
both linear methods of investigation and logical solutions.
The idea of messy problems was developed as part of the discipline of systems thinking.
Examples of messy problems can be seen in modern cities, where local government
organisations attempt to cope with infrastructure degradation and urban and societal decay
issues they are ill-equipped to address (Watson & Hassett 2003, p. 344). A messy problem has
thefollowing eight attributes:
1
Its boundaries are unclear. Its beginning and end are not obvious.
The exact nature of the problem is ill-defined. There are many different perspectives and
definitions of the problem.
Messy problems are comprised of a number of smaller, interrelated problems whose

interactions are often fuzzy or unknown.
Actions to remedy a messy problem often have unforeseen consequences, some of which can
be negative.
Messy problems overlap in obvious and in unknown ways with other messy problems.
Messy problems cannot be solved in isolation from other messy problems.
The solutions to messy problems require a mix of technological, social, economic, paradigm
shift and value examination activities.
The solutions to messy problems require paradoxical solutions at micro and macro levels as
well as redefinitions of institutional and personal responsibility. Messy problems cannot be
solved from the inside, nor can they be solved unless individuals take responsibility for them
(Watson & Hassett 2003, p. 344).
Study guide |
49
Wicked problems
You dont understand the problem until you have developed a solution
Wicked problems have no stopping rule
Solutions to wicked problems are not right or wrong
Every wicked problem is essentially unique and novel
Every solution to a wicked problem is a one-shot operation
Wicked problems have no given alternative solutions (Conklin 2003, pp. 78).
An example of a wicked problem is the development of a modified car design. Each change
in the design will impact on other design elements; each change has cost trade-offs; not all
endresults can be estimated; and success or failure cannot be known until the car is released to
the market. The design also involves the expertise of a range of disciplines, including designers,
engineers and marketers (Conklin 2003, pp. 89).
It is not necessary to be able to sharply distinguish between a wicked problem and a messy
problemthese are different types of complex problems that require a different approach to
solve than simpler problems. Solutions for wicked problems, like those for messy problems,
are only evident and comprehensible when they emerge, and not before. This is obviously a
challenge for leaders and managers faced with such situations. How does one show leadership?
How does one maintain managerial control when there is no observable way to identify and
work towards a selected future? As Satell (2013) observes, in order to manage effectively in the
modern world, we must not only hold ourselves responsible for those things that are within our
control, but also account for that which is not.
The answer lies in having judgment, experience and skill, not only for traditional problem-solving
and decision-making approaches, but also for other possible approaches which are more likely to
succeed in dealing with complexity.
Identifying complexity
Managing complexity is challenging. We can describe complexity in different ways to help
understand it more clearly. Satell (2013) provides a useful description of three aspects of
complexity:
1. The complexity of an entity
The activities and processes within organisations are very complex and detailed. A significant
amount of information is required to describe particular events and support decisions within
the organisation, and the volume of information required to do this is increasing.

Successful managers need to bring order to chaos. It is a task accountants are used to
dealing with. As accountants operate with numbers and data that include complex and
difficult-to-understand financial concepts (such as derivatives), the accountant must be
able to take abstract terms and put them into concrete communications that others in the
organisation can understand.
MODULE 1
A different but related concept is that of wicked problems as instances of organisational

complexity. The concept of wicked problems was originally used in social planning, and is also
often used in the field of design. Wicked problems have the following six attributes:
50
MODULE 1
Operational excellence is strongly correlated to the ability to simplify complex entities

(Satell 2013) and the key role of the accountant in providing clear information based on data
and facts is therefore increasingly important. There are a range of accounting tools that are
used to understand complexity and simplify activity, including:
business process analysis and redesign, which focuses on mapping, analysing and
simplifying the sequence of tasks and activities throughout the organisation;
balanced scorecard reporting, which highlights causeeffect relationships between
different facets of performance; and
activity-based costing, which focuses on providing more accurate costing data to
support understanding of the resources consumed by products, services, customers and
departments.
2. Nonlinearity
People often assume that the future will unfold in a linear and predictable manner based on
the results of the past. Examples of where this assumption is held is when predicting future
financial results based on past performance, and forecasting industry growth trends based on
historical data. Budgets and sales forecasts are often set in this manner, by just extrapolating
the past.

In reality, most data and information does not follow a linear logic that is straight and
predictable. Rather, there is a lot of variability over time and a wide range of factors and
inputs need to be considered. Accounting tools that support nonlinear analysis include
product life cycle and organisational life cycle analysis. These demonstrate that sales results
will not follow a predictable straight-line path, but will involve periods of exponential growth
followed by a plateau, and then decline. Budgets and performance targets that reflect this
complex reality will be more reliable and accurate as a result.
Productivity improvement and innovation, both within the organisation and by competitors,
is also nonlinear and may lead to an accelerating return or rapid decline. What is important
to note here is the speed and size of change possible and the benefits or risks that will result
from this. This is highlighted by the rapid ascent of the Apple iPhone and the equally fast
decline of the Blackberry in the smart phone market. We need to ensure we are aware of
both the people-focussed concepts, as well as the external influences, which featured in
Figure 1.5.
3. Emergent complexity
Activity and interactions between factors that are under our control can often lead to results
or phenomena that are difficult or even impossible to predict (Satell 2013). This complexity
emerges and while we may attempt to plan and expect the unexpected, the challenge of
doing this is similar to wicked problems.

The challenge here for the accountant is moving from just presenting facts in black and
white to demonstrating that the information being presented may have a number of
interpretations. The value of the accountant is in being able to convey the options and ideas
to management clearly and in such a way that managers can see the bigger picture.
Working with complexity

Messy and wicked problems, as well as the increasing complexity of the issues organisations
face, mean traditional approaches to problem-solving and decision-making are unlikely to
be consistently effective. Leaders and managers need to develop a broad understanding of
complexity and also behave differently when confronted with complexity:
A deep understanding of context, the ability to embrace complexity and paradox, and a willingness
to flexibly change leadership style will be required for leaders who want to make things happen in
atime of increasing uncertainty (Snowden 2007).
Study guide |
51
There are several approaches that can be considered in managing complexity in organisations.
Accountants are in the position to provide information and advice that allows managers to apply
their judgment and experience to determine which approach might best suit a given situation.
An important contribution the accountant can make is to ensure that the data and information
supplied deals with the nature of complexity in a way which means that a number of different
approaches might be tried before any progress is made.
While a large variety of models and frameworks exist for dealing with complexity, common
elements focus on the need of leaders to:
open up the discussion to generate ideas and additional perspectives;
set barriers to keep the situation within broad limits;
stimulate attractorshints or suggestions or possibilities that resonate with people
toprovide confidence and momentum;
encourage dissent and diversity to build robust ideas; and
manage starting conditions and monitor for emergence.
As the author of one such model (the Cynefin framework), Snowden (2013) offers the cautionary
advice that leaders and managers will need to resist the urge to take control and drive a solution
as they might in another context. They will also have to set and manage expectations within the
business about how and when a solution might emerge.
Online resources such as the Global Simplicity Index provide organisations with quick and simple tools
to benchmark their business against a set of complexity drivers. This allows them to identify good
from bad complexity so that they may take action.
For an explanation of the Global Simplicity Index, see the following link:
http://www.simplicity-consulting.com/research_items/global-simplicity-index-2/.
You can access a simple explanation of the Cynefin framework at:
http://www.youtube.com/watch?v=5mqNcs8mp74.
Please note that these resources are provided for additional information and are not examinable.
Weick model
The concept of sense-making raised in Figure 1.5 has been developed by management
researcher Karl Weick to provide for the practical application of complexity in everyday working
life. The Weick model draws on the three aspects of complexity noted previously:
the increasing amounts of information required to describe a situation (complexity of anentity);
the nonlinear and increasingly wider range of factors and inputs to be considered; and
the need to expect and plan for the unexpected (emergent complexity).
The model then applies an approach of organised sense-making to deal with them.
Applying sense-making requires the accountant to look for explanations and answers in terms of
how people see things rather than structures or systems. This adds an important dimension and
understanding to the tools an accountant has available, as sense-making recognises that terms
such as strategies, change and goals are intangible and that the source of these intangibles
is peoples way of thinking. In other words, these intangibles are part of an individuals thoughts,
experiences and motivations, and the combination of these has joined to uniquely shape them.
The notion of sense-making attempts to capture these intangibles and explain how people give
meaning to experiences. It explains that people make sense of things by seeing a world on which
they have already imposed what they believe.
MODULE 1
The need for people management skills becomes very important as leaders and managers must
retain the trust and confidence of their employees when they start to behave differently from
their established practice.
52
MODULE 1
The Weick sense-making model takes a step-by-step approach to understanding the way
that humans respond to complex situations. Weick and Sutcliffe et al. (2005) describe a nurse
responding to an uncommon medical condition in a child patient to illustrate the process
of creating situational awareness (an awareness that something seems to be wrong) and
understanding in situations of high complexity or uncertainty (confirming that something is
wrongand what the options are) in order to make decisions (and select the best option).
The Weick model has been adapted as follows to provide guidance as to how an accountant can
use it as a practical tool for addressing complexity. We will use the following scenario to outline
the eight steps in the Weick sense-making model.
An organisation is experiencing a significant decline in revenues. People throughout the
organisation are attempting to explain or make sense of the decline by blaming it on the actions
of other areas and departments within the business.
1. Sense-making begins with chaos.
The accountant must have some awareness of this greater pool of information that is
essentially raw data. It is from this that we may then become aware of certain cues within this
stream of activity that need closer attention.
Revenue decline example: Other than the information showing declining revenues,
thereis no clarity about what the underlying cause or problems are. The accountant will
start developing ideas about which data to obtain and analyse to help identify the issue.
2. Sense-making starts to actively occur with noticing and bracketing.
This is a natural way in which people simplify a situation. Some of the observed events
from the chaotic situation described previously are perceived as significant, and meaning is
attributed to them, even if these events are not yet fully identifiable or named. The human
brain tends to ignore much of the chaotic stream of events of everyday life in order to avoid
being overwhelmed. Professional training, pastexperience and intuition allow us to filter
or extract significant information and events out of this background noise (noticing) and
to then search for other related or similar phenomena that may help make sense of these
observations (bracketing).
Revenue decline example: Key considerations to be noticed here will include
understanding competitor behaviour and reviewing quality levels. Issues such as
customer loyalty, customer satisfaction and employee engagement may be relevant
but are not generally the domain of the accountant. However, when placed within the
contextof understanding the decline in sales, they can become important. Theseissues
can then be bracketedthat is, thought of in relation to other similar current or
pastissues.
3. Sense-making then moves to labelling.
Attaching a meaningful name to a phenomenon allows us to place it in our categories
of experience and refer back to it, and helps to give us clues about what to expectand
more importantly, what actions are possible. The accountant who has taken the human
considerations into account in Steps 1 and 2 will be in a much stronger position to
offeradvice and recommendations.
Revenue decline example: In our example of diagnosing the cause of declining revenues
and identifying solutions to restart growth the role of the accountant will include working
with other areas, such as operations, HR and marketing. The ability to move the analysis
away from blaming to labelling provides a meaningful name to unite all participants in
the exercise. Labelling in this case sees the analysis moving from an unknown cause of the
decline to naming the cause or causes (with a label); that is, the cause may be increased
warranty claims and customer dissatisfaction due to a faulty part. Giving the cause a name
makes it easier to develop strategies for improvement.
Study guide |
53
Revenue decline example: Our example of declining revenues provides an illustration

as to how an accountant can usefully draw on prior knowledge to identify causeeffect
relationships between different parts of the business which may explain the decline.
Theycan also provide metrics to help measure both the causes and the effects.
Thisprovides support to others performing an otherwise subjective exercise in trying
to establish the reasons and impact of different activities within the organisation.
Italso provides an objective baseline to start measuring the results of any action
takentoresolve the issue.
5. Sense-making is about presumption.
The concrete action involved in the iterative nature of sense-making is explicitly acknowledged
in this step. Once we have an idea about something, sense-making requires that we connect
it to an object of experience (a phenomenon in the real world), either to make sense of it or
discard it.
Revenue decline example: The dynamic nature of establishing and then measuring
specific aspects of the business such as quality, customer satisfaction, competitor prices
and employee engagement, and demonstrating the monetary value linked to this based
on revenues, may see these items become an important part of the annual activities of
the accountant. So in this case, you might use the quality, customer satisfaction and
employee engagement information, but discard the competitor prices information.
6. Sense-making is social and systemic.
The wider context, both human and those imposed by the structure an organisation operates
in, are part of the decision-making process. Social discussions with colleagues may inspire
alternative solutions to business problems. The human brain works to a great extent by
pattern-matching, and we can match patterns from any previous experience. Sense-making
then allows us to include those unlikely personal influences in describing and understanding
phenomena in our organisation.
Revenue decline example: This step in the model provides for the accountant to keep
an active view on the social inputs into the organisationsproviding a proactive aspect
to their role. Uncovering stories from the past where similar situations have arisen and
been resolved is useful. In this case, you might talk to technical or customer service
staff who are close to the issue and may be able shed further light on the cause of the
quality problems. Other important factors here may include discussions with customers
and analysis of external factors such as the state of the industry, broader economy and
behaviour of competitors.
7. Sense-making is about action.
Much of the focus of the previous steps has been on talk and recognising the human side
involved in decision-making. This is because acting is an indistinguishable part of the
swarm of ux until talk brackets it and gives it some meaning. Action is not inherently any
more significant than talk, but it factors centrally into any understanding of sensemaking
(Weick&Sutcliffe etal. 2005 p. 413). Action provides us with often incremental, oftencyclic
opportunities to hone our understanding of what is going on in a complex situation
throughtrial and error.
MODULE 1
4. Sense-making is retrospective.
How can I know what Im seeing until I see what it was (Weick & Sutcliffe et al. 2005 p.412).
As we filter information, we look back at the preceding patterns to determine how things
have changed and then attempt to re-categorise the phenomenon accordingly. The iterative
nature of dealing with complexity is a feature of sense-making.
54
MODULE 1
Revenue decline example: Reporting the percentage decline and actual dollar figures
provides an example of action. Further reporting on qualitative factors that may have
influenced this result also describe action. Lists of tasks that are prepared to address the
issue also become an opportunity to take action.
8. Sense-making is about organising through communication.
Communication with the people in the organisation about the current interpretation of a
situation provides others with the opportunity to notice, bracket and label, and to gradually
uncover the path through the complexity. The strong focus on the human dimension,
andexplicitly on the role of talk in this process, provides for a powerful alignment between
individual presumptions about the future, articulation concurrent with action, and projects
that become increasingly clear as they unfold (Weick & Sutcliffe et al. 2005, p. 413).
Revenue decline example: This would see the accountant providing a clear description
of the decline in revenues in dollar and percentage terms. This would be followed
by a detailed and objective simple explanation of the root causes of this event,
includingreporting on metrics in all relevant areas. The objective metrics underlying
whatmany have traditionally seen as more subjective and intangible areas, such as
customer satisfaction and quality, provides an increasingly important contribution that
only those with professional accountancy training can make.
Figure 1.7: Illustration of the Weick model
1. Chaos
2. Bracketing
3. Labelling
{ }
{}
5. Presumption
{ }
{ }
{ }
{ }
(discarded)
6. Social and
systemic
7. Action
8. Communication
4. Retrospective
Dysfunctional autonomy
The Weick model works well when organisations are functional but there are situations where this
is not the case. Dysfunctional autonomy develops when an organisation becomes so complex
that different business units are driven by conflicting goals. When this happens, autonomous
units may self-organise. This self-organisation is often well-intentioned, as units try to contain the
amount of variety or uncertainty they can deal with, but eventually they diverge in purpose from
the overall organisations primary goals (Espejo 2000, p. 4). Leaders and managers faced with
dysfunctional autonomy are encouraged to develop a framework of corporate values to reinforce
the necessary common elements that support a single organisational purpose, while providing
greater levels of flexibility and autonomy in areas that are not essential to the overall business
purpose of the organisation (Espejo 2000, p. 5).
Complexity value matrix

There is also another perspective to complexity. Not all complexity can be seen as a problem
to be solved. One approach to complexity has focused on advantageous complexitythat
is, where the product or service offered by an organisation reduces the complexity being
experienced by its customers (Mead 2006, p. 19).
Study guide |
55
Role of the accountant in complexity issues

Creating order out of complexity is a natural role for the accountant. Managing the numbers
and compiling the financial reports are organising activities that allow the remainder of the
business to understand the visible measures of financial performance. However, these figures
are a summary of the vast and complex detail which sits in accounts, depreciation schedules,
fixedasset registers and budgets.
Four areas in which accountants can assist their organisations in the management and resolution
of complexity are outlined in the following sections.
Modelling
One of the approaches to complexity involves conducting experiments that are safe-to-fail,
sensing what the results are indicating and cautiously responding. Thenotion of safe-to-fail
has become increasingly important to many organisations since the Global Financial Crisis
(GFC). While an organisation cannot be made fail-safe, they can make elements of their
operation safeto-fail so that their failure does not disrupt or put at risk the entire organisation.
Thisapproach encourages a leader to move forward incrementally, conducting experiments that
are safe-to-fail (probing), sensing what the results are indicating and cautiously responding.
Inthis way, thepatient leader allows the path forward to emerge from the many possible states.
In this approach, experiments that do not lead to desirable results can be shut down without
major impact, and those that prove to be effective can be reinforced and expanded.
An accountants familiarity with financial and operational models can be seen by a leader as
providing a safe basis with which to experiment. When building any model, skill is involved in
identifying and representing the minimum necessary elements for the model to consistently
simulate reality. This is the concept of bracketing noted in the Weick sense-making model.
Modelling for complexity is no different.
Like the leader who must behave differently in the face of complexity, the accountant will also
need to modify expectations in modelling for complexity:
1. Models do not need to be completely accuratethey must just be able to support a decision
to make an incremental step forward.
2. Models will need to change over time so they should be designed with modification in mind.
3. Models will be more or less useful. Sometimes there will be no identifiable reasons for past
events; sometimes there will be equally probable future outcomes. The accountant should
not get discouraged if the model is discarded, because getting to the stage where a model is
discarded is a significant and progressive step when dealing with a complex problem.
Making decisions
One of the challenges managers often face in complex situations is how best to make decisions
when there are high degrees of uncertainty and unpredictability. While most managers and
leaders are comfortable with some level of uncertainty, few enjoy making decisions without
the necessary information. So, how do you develop the professional judgment necessary to
make sound decisions in uncertain and unpredictable environments? The key is being able to
recognise complexity and then use an appropriate approach for moving forward.
MODULE 1
Understanding the problems that your customers are struggling to solve can be an advantageous
market differentiator and value proposition for an organisation, providing it has the tools and the
skills to deliver simplifying services to those customers. This is one of the major roles increasingly
played by large accounting and consulting firms, where traditional services such as accountancy
and management advice expand to include consulting and advice on enterprise-wide technology
solutions and sustainability issues.
56
MODULE 1
Some of the ways to develop good professional judgment include:

seeking out and hearing the stories of how other accountants have encountered and
successfully dealt with a complex situation;
being an opportunistic learner from mistakes (Cialdini, cited in Ostergaard 2009); and
participating in or sponsoring decision games (Klein 2009, p. 281) where key leaders are
presented with a scenario or story of seemingly intractable problems and talk through what
they might do.
All of these opportunities are about building a repertoire of patterns the accountant can sense
and respond to.
Decision Games provide useful practice at considering what to do when there is no obvious way
forward. For an overview, have a look at the article titled Will Wrights new game Spore and decision
games here: http://www.anecdote.com.au/archives/2007/07/will_wrights_ne.html).
An interesting example of the use of decision games to help build experience and understanding
in a challenging business environment can be found in the article Complex learning online at
Green Chameleon (Patrick Lambes website) here: http://www.greenchameleon.com/gc/blog_detail/
complex_learning_online/.
A challenge for the accountant is that the mindset that might be useful in making decisions in a
complex environment is not necessarily the one that is most useful in tackling normal accounting
problems. The accountant must learn to deal comfortably with ambiguity, to deliberately
propose an action which does not solve the problem completely: to embrace the blur and
make a decision based on little knowledge of the problem, let alone the solution, but make a
decisionanyway.
An entertaining exercise is to discuss sophisms and paradoxes with your friends and colleagues.
Trythe following websites:
http://www.buzzfeed.com/moerder/17-mind-bending-paradoxes-that-will-hurt-your-brain.
http://brainden.com/paradoxes.htm. Refer also to Sorensen (2003).
Please note that the online resources referred to are provided for additional information and are
notexaminable.
Skill development
As business becomes more and more complex, accountants need to learn new skills in order to
cope, especially since the required skills may not be present in the organisation, even within the
leadership team. Skills can be acquired through professional development and through specific
skills training.
A good example of the type of specific skills training that accountants could undertake to
prepare them for dealing with complexity is to learn to use a narrative technique known as
Three journeys, which employs a journey metaphor in the conduct of incremental organisational
change (Callahan & Drake 2008, pp. 35). This is shown in Table 1.7.
Study guide |
57
Table 1.7: The Three journeys technique
The Second Journey

In this stage, the rest of the organisation (or a representative subset)
plans how they will get to the desired state, determines what may impede
their progress, and prepares themselves for what they need to do. This
journey involves understanding the current capacity, culture and business
environment based on stories collected, and developing the best possible
map based on current information and resources available to guide them
on the trip
anywhere here
is good
Journey 1
Journey 2
The Third Journey

In this stage, the organisation embarks on the actual venture, implementing
the planned (and unplanned) activities over a defined horizon. Through
a combination of small initiatives and larger projects, new behaviours are
encouraged and new opportunities are engaged in moving toward the
vision. The third journey enables staff to sense and respond to change,
persist and innovate as needed, and keep their eye on the desired goal.
planned route
actual route
reflection point
Journey 3
Source: S. Callahan & D.B. Drake 2008, Three journeys: A narrative approach to successful
organisational change, Anecdote, pp. 24, accessed May 2013,
http://www.anecdote.com.au/papers/Anecdote3JourneystoChange_v1s.pdf.
The Three journeys technique was inspired by the story of Lewis and Clark, two early American
explorers. Read the outline of their journey and lessons to be learned from their experiences here:
http://www.anecdote.com.au/papers/Anecdote3JourneystoChange_v1s.pdf, then reflect on how your
organisation undertakes change projects and initiatives.
Does your organisation jump straight to Journey 3? Do projects begin without having been envisioned
by the leadership (Journey 1)? If so, how have such projects turned out? Develop a sense of how a
Three journeys approach to change could benefit your organisation, and share it with yourmanager
or another change leader.
Policy and procedures

The accountants final opportunity to assist in the organisations management of complexity is to
get involved in the articulation of policy and procedures, bringing to that task an understanding
of the organisational role of policy and procedures in coping with complexity.
MODULE 1
The First Journey

In this first stage, leaders in an organisation develop a vision of what they
would like to achieve and define this end-state in broad terms. It involves
setting the destination, the crusade, and mapping out how to get there
based on the available informationwhile recognising that detailed plans
are unlikely to be achieved at this stage (the world is too unpredictable
for a simple, linear view). It is critical to clearly articulate the mission, the
criteria for success, and the leadership parameters in order to create a solid
framework for thinking about the venture
58
MODULE 1
Organisational politics, power, influence, change, interpretation and interaction between people
create increased complexity by expanding the possible options and outcomes from events within
the organisation. Policy and procedures can restrict the possible states of the particular situation
(variety attenuators) and increase the possible states of the leaders response to the situation
(variety amplifiers).
For example, accountants will be familiar with the type of procedure that requires employees
to use a form to collect data. In these procedures, the range of data that can be used for each
field in the form is usually defined and restricted in order to minimise errors. However, as the
environment becomes more complex, the number of response types appropriate for the form
might increase, so the procedure must be amended to allow for the increase in the number
of possible states. If this does not occur, then the procedure is increasing complexity in the
organisation, rather than allowing the organisation to manage complexity, because the system
has to deal with a form that does not capture the distinctions required to deal with a variable
environment.
Accountants should start with their own policies and procedures to ensure that the needs of all
stakeholders are balanced in the current environment.
Watch the video How to organise a childrens party on YouTube here: http://www.youtube.com/
watch?v=Miwb92eZaJg. In the video, Snowden characterises the complexity approach to this
situation as comprising boundaries and catalytic probes to create attractors. Attractors may be
positive or negative. Positive attractors can be stabilised and amplified, and negative attractors can
be dampened (Snowden 2009).
Please note that this resource is provided for additional information and is not examinable.
With the approach presented in Snowdens video in mind, and given what you have now learned
about complexity, read the following business case.
Example 1.18: QNH Ltd

QNH Ltd is a large Australian high-technology manufacturer. Historically, it has been a market leader
in its field, but as newer technologies have been developed, QNH has started to lag. New, smaller
competitors have begun to outstrip it in a number of niche technology areas.
Some of QNHs product managers have been able to make some headway in developing competitive
products for the emerging market, but the sales force has not been able to keep pace. Product
management staff are frustrated that sales staff do not seem to be paying attention to the new products
or to be showing any understanding of the newer technologies.
The systems and processes that product managers use to keep sales staff informed of product
developments are running on legacy platforms, and have not been updated for some time. Content
on the management product information database is out of date, and the system does not adequately
represent the newer products.
Sales staff receive little training or communication on the newer products, and they struggle to find
the information they need on the database. The information that they do receive is usually written
in technical jargon, and they have difficulty explaining the products to their customers. However,
theydo hear a lot of questions from their customers about the new technologies and suggestions for
improvements to products that they feel unable to act upon.
The product managers performance-based salaries reward them for delivering low-cost products.
Sales staff are paid commissions based on number and value of sales.
Some traditional management approaches to this situation may include setting higher targets for
the sales force to increase sales, commencing a major IT project to replace the product information
system, or rolling out a detailed technology training course for sales.
Study guide |
59
Question 1.11
Summary
The traditional role of the accountant has tended to operate outside of people management
concerns. The reality today is that the human resources of an organisation often provide both the
greatest resource as well as the greatest challenge. Cultivating people management qualities in
the accounting profession is critical to the ongoing viability and success of organisations.
Part D has revealed that the people management skills and knowledge of the professional
accountant can be adapted to provide organisations with enhanced insight and ability into
managing their human resources and to successfully deal with the complex and dynamic business
environment of the 21st century.
MODULE 1
What alternative approaches would complexity theory suggest that may lead to a more effective
result in the case of QNH Ltd?
60
MODULE 1
Review
In this module we provided an introduction to the CBI subject by outlining the various roles
of accountants and the ways in which they can provide strategic advice. The opportunities to
provide advice are not limited to external providers of accounting services, and we have seen
that accountants within organisations should be expanding their areas of influence well beyond
the traditional finance function.
With the broadening role of accountants there is a need to demonstrate a much broader
set of skills than ever before. In addition to the technical skills and knowledge that are
required to perform this role, it is important to demonstrate a wide range of soft skills as well.
Theimportance of effective communication skills cannot be overstated.
We considered strategic advice outside traditional areas, including physical accounting and
environmental management accounting. There is a growing focus on sustainability whereby
reducing the environmental and social costs of business is a key priority. Accountants are well
placed to provide services in these areas, including the recording and reporting of physical
information, identifying cost and waste reduction opportunities and expanding performance
measurement frameworks to capture environmental and social outcomes.
We also considered the ethical dimensions involved in providing strategic advice. While
members of CPA Australia are expected to adhere to the Code in providing services to clients
and employers, the need to consider broader ethical issues arises. The need to evaluate business
decisions concerning products, services, location, staffing and the use of raw materials raises
commercial andethical considerations. Giving advice in this area must extend beyond an analysis
of the financial implications of a business decision to include the impact on various stakeholders,
longterm sustainability and the brand and reputation of the organisation.
The module concluded by exploring the ways in which people management is relevant to the
viability and profitability of an organisation. Providing advice in this area has created a need to
understand terms such as human and corporate social capital as well as examining the issue of
complexity. People management sees the role of the professional accountant increasing moving
into more innovative, dynamic and people-orientated areas where the demand requires the need
for qualities related to being a multiskilled business partner and advisor, a leader, a change agent
and a decision-maker.
References |
61
References
MODULE 1
References
Accounting Professional and Ethical Standards Board (APESB) 2011, APES 220 Taxation Services,
APESB, Melbourne, October, accessed August 2014, http://www.apesb.org.au/attachments/
Revised%20APES%20220%20Taxation%20Services%20(March%202011)%20-%20Final.pdf.
Accounting Professional and Ethical Standards Board (APESB) 2013a, APES 215 Forensic
Accounting Services, APESB, Melbourne, December, accessed August 2014, http://apesb.org.au/
attachments/Revised%20APES%20215%20-%20December%202013.pdf.
Accounting Professional and Ethical Standards Board (APESB) 2013b, Compiled APES 110
Codeof Ethics for Professional Accountants, APESB, Melbourne, November, accessed July 2014,
http://www.apesb.org.au/attachments/Compiled%20APES%20110%20Code%20of%20Ethics%20
for%20Professional%20Accountants%20-%20Nov%202013.pdf.
Andy 2011, Aircraft parts manufactured on a 3D Printer, 3D Printing is the Future, 19 July,
accessed July 2014, http://www.3dfuture.com.au/2011/07/aircraft-parts-manufactured-on-a-3dprinter.
Australian Institute of Management (AIM) 2010, AIM national salary survey 2010Small company
release, accessed July 2014, http://www.aimwa.com/Advocacy/Media_Releases/2010/AIM_
National_Salary_Survey_-_Small_Company_Release_2010.
Australian Government 2014, What is telework?, How does telework work?, What are the
benefits?, Department of Communications, accessed June 2014, http://www.telework.gov.au.
Bender, A. 2012, Why do Australians pay more for digital music?, accessed July 2014,
Computerworld, http://www.computerworld.com.au/article/432058/why_do_australians_pay_
more_digital_music_.
Bowen, John J. Jr 2009, Culture clash, Financial Planning, June, vol. 39, no. 6, pp. 256,
accessed July 2014, http://search.proquest.com/docview/210937283/46F87BA4C4BE4FC9PQ/4?a
ccountid=40355.
Cadbury, Sir A. 2000, Family Firms and Their Governance: Creating Tomorrows Company from
Todays, Egon Zehnder International, London.
62
Callahan, S. 2006, How to use stories to size up a situation, Anecdote, accessed May 2013,
http://www.anecdote.com.au/papers/AnecdoteStoriesSizeUpSit.pdf.
MODULE 1
Callahan, S. 2007, Most significant changeA primer, Anecdote, 19 September, accessed May
2013, http://www.anecdote.com.au/archives/2007/09/most_significan_1.html.
Callahan, S. & Drake, D.B. 2008, Three journeys: A narrative approach to successful
organisational change, Anecdote, accessed May 2013, http://www.anecdote.com.au/papers/
Anecdote3JourneystoChange_v1s.pdf.
Campbell, J. & McDonald, C. 2009, Impact of telework on work practices in the accounting
profession, CPA Australia, Melbourne.
Checkland, P. 1981, Systems Thinking, Systems Practice, John Wiley & Sons, Chichester,
UnitedKingdom.
Chen, L. & Qiao, Z. 2008, Measuring human capital with activity-based-costing and economic
value added, International Journal of Business and Management, July, pp. 559.
Conklin, J. 2003, Wicked Problems and Social Complexity, CogNexus Institute, Napa, California.
CPA Australia 2010, AsiaPacific survey shows small business confidence on the rise,
Mediarelease, 9 November, accessed July 2012, cpaaustralia.com.au/cps/rde/xchg/
SID-54A2BC60-0B1DCEB7/cpa-site/hs.xsl/11245.html, accessed July 2014, http://www.
asianmediacentre.com.au/Asia-Pacific%20survey%20shows%20small%20business%20
confidence%20on%20the%20rise%20_media%20release.pdf.
CPA Australia 2013, What could you do as a CPA?, accessed August 2014, cpaaustralia.com.au/
become-a-cpa/what-could-you-do-as-a-cpa.
CPA Australia 2012, The CPA Australia Asia-Pacific Small Business Survey 2013, accessed July
2014, cpaaustralia.com.au/professional-resources/business-management/small-business/asiapacific-small-business-survey.
Cuganesan, S., Carlin, T. & Finch, N. 2006, The practice of human capital reporting among
Australian financial institutions, Journal of Finance and Accountancy, accessed May 2013,
http://www.aabri.com/manuscripts/09176.pdf.
DAngelo Fisher, L. 2009, Management update: SME employees dig in, Business Review Weekly,
915 July, p. 41.
Dart, J. & Davies, R. 2003, A dialogical, story-based evaluation tool: The most significant change
technique, The American Journal of Evaluation, vol. 24, no. 2, p. 137.
Economist 2012, The boomerang effect, Special report: Manufacturing and innovation, 21April,
accessed July 2014, http://www.economist.com/node/21552898.
Espejo, R. 2000, Giving requisite variety to strategic and implementation processes: Theory and
practice, Proceedings of the JAIST Conference, Ishikawa, Japan.
Fleming, J.H., Coffman, C. & Harter, J.K. 2005, Manage your human sigma, Harvard Business
Review, JulyAugust, vol. 83, no. 7, pp. 10614.
Francis, R. 2013, Report of the Mid Staffordshire NHS Foundation Trust Public Inquiry, The Mid
Staffordshire NHS Foundation Trust, accessed July 2014, http://www.midstaffspublicinquiry.com/
report.
References |
63
Geng, D. 2005, GM vs. Toyota: By the Numbers, National Public Radio, 19 December, accessed
July 2013, http://www.npr.org/news/specials/gmvtoyota/.
Gordon, C. 2008, Cashing in on corporate culture, CA Magazine, JanuaryFebruary, accessed

May 2013, http://www.camagazine.com/archives/print-edition/2008/january-february/regulars/
camagazine5413.aspx.
Gunther, M. 2014, Using outsourcing to help alleviate poverty in Africa and South Asia,
TheGuardian, accessed July 2014, http://www.theguardian.com/sustainable-business/2014/
jun/19/outsourcing-extreme-poverty-africa-south-asia-call-centres-ddd.
Hall, D. 2010, It all adds up, Business Review Weekly, 1016 June, p. 39, accessed July 2014.
http://www.brw.com.au/p/sections/focus/it_all_adds_up_xImOXSwoFQ18z LER5FUDZN.
Handy, C. 1995, Trust and the virtual organization, Havard Business Review, MayJune, accessed
July 2014. http://hbr.org/1995/05/trust-and-the-virtual-organization/ar/1.
Hertz, G.T., Beasley, F. & White, R.J. 2009, Selecting a legal structure: Revisiting the strategic
issues and views of small and micro business owners, Journal of Small Business Strategy, vol. 20,
no. 1, Spring/Summer, pp. 81101, accessed August 2014, http://search.proquest.com/docview/2
01477075/6DCD79A56DF64EA5PQ/1?accountid=40355.
International Federation of Accountants (IFAC) 2005, The Roles and Domain of the Professional
Accountant in Business, IFAC Professional Accountants in Business Committee, New York,
November, accessed July 2014, https://www.ifac.org/publications-resources/roles-and-domainprofessional-accountant-business.
International Federation of Accountants (IFAC) 2008, The Crucial Roles of Professional
Accountants in Business in Mid-Sized Enterprises, IFAC Professional Accountants in Business
Committee, New York, September, accessed July 2014, https://www.ifac.org/publicationsresources/crucial-roles-professional-accountants-business-mid-sized-enterprises.
Klein, G. 2009, Streetlights and Shadows: Searching for the Keys to Adaptive Decision Making,
The MIT Press, Cambridge, Massachusetts.
Kuratko, D.F. & Hodgetts, R.M. 2004, Entrepreneurship: Theory, Process, Practice, South-Western
Publishers, Mason, Ohio.
Lock Lee, L. & Guthrie, J. 2008, The role of corporate social capital in business innovation
networks, Paper presented at the International Forum on Knowledge Asset Dynamics, Matera,
Italy, 267 June.
Malach, S., Robinson, P. & Radcliff, T. 2006, Differentiating legal issues by business type,
Journalof Small Business Management, October, vol. 44, no. 4, pp. 56376.
Mead, K. 2006, Having strategic conversations, Leading Edge Forum Journal, no. 17.
Nitto Denko Corporation 2011, Environmental conservation activities: Material flow in
business activities (non-consolidated), accessed July 2014, http://www.nitto.com/company/
environment/2010/environmental.html.
MODULE 1
Global Reporting Initiative (GRI) 2012, G4 Developments, Second G4 Public Comment Period,
G4 Exposure Draft, accessed July 2014, https://www.globalreporting.org/resourcelibrary/G4/
G4Exposure-Draft.pdf.
64
Organization for Economic Co-operation and Development (OECD) 2003, White paper on
corporate governance in Asia, OECD, France, accessed July 2014, http://www.oecd.org/daf/ca/
corporategovernanceprinciples/25778905.pdf.
MODULE 1
Ostergaard, K. 2009, Mistake handling, Random Information, 14 October, accessed May 2013,
http://www.kurtostergaard.com/improvement/mistake-handling.
Satell G. 2013, Management Has To Change In An Increasingly Complex World, Business Insider,
accessed July 2014, http://www.businessinsider.com.au/how-to-manage-complexity-2013-6.
Schenk, M. 2009, Narrative or story-based approach to employee engagement, Anecdote,
8August, accessed May 2013, http://www.anecdote.com.au/archives/2009/08/narrative_or_
st.html.
Schlemmer, D. 2004, The outsourcing dilemma: In Cambodia, Digital Divide Data exemplifies
the social enterprise alternative, The Harbus, 15 November, accessed 2014, http://www.harbus.
org/2004/The-Outsourcing-Dilemma-2938/.
Sensis 2014, Sensis Business Index, accessed 2014, http://about.sensis.com.au/IgnitionSuite/
uploads/docs/SNS14255_SBI_June2014_WEB_FINAL.pdf.
Sexton, T.-L. 2009, Fair dealing, INTHEBLACK, CPA Australia Ltd, November, p. 63.
Sexton, T.-L. 2010, The IT snag, INTHEBLACK, CPA Australia Ltd, April, pp. 601.
Snowden, D. 2007, Leadership & Complexity, Cognitive Edge, 6 September, accessed May
2013, http://cognitive-edge.com/blog/entry/4176/leadership-complexity.
Snowden, D. 2009, How to organise a childrens party, YouTube, accessed May 2013,
http://www.youtube.com/watch?v=Miwb92eZaJg.
Snowden, D. 2013, Cynefin, Wikipedia, accessed May 2013, http://en.wikipedia.org/wiki/Cynefin.
Sorensen, R. 2003, A Brief History of the ParadoxPhilosophy and the Labyrinths of the Mind,
Oxford University Press, New York.
Swisher, K. 2013, Physically together: Heres the internal Yahoo no-work-from-home memofor
remote workers and maybe more, All Things Digital, accessed August 2014,
http://allthingsd.com/20130222/physically-together-heres-the-internal-yahoo-no-work-fromhome-memo-which-extends-beyond-remote-workers.
Takahashi, D. 2011, Apartment-sharing startup Airbnb raises $112m at $1.3b valuation, 25 July,
accessed July 2012, http://venturebeat.com/2011/07/25/apartment-sharing-startup-airbnb-raises112m-at-1-3b-valuation.
TELUS International 2013, Outsourcing for Social Good: A BPO Perspective, CSR Insight Paper,
accessed July 2014, http://www.telusinternational.com/socialpurpose.
Unilever 2013, Unilever Sustainable Living Plan 2013: Making progress, driving change, accessed
July 2014, http://www.unilever.com.au/sustainable-living-2014/unilever-sustainable-living-plan.
United Nations 2003, EMA makes $EN$S!!! Clean and competitive: Environmental management
accounting for business, United Nations Division for Sustainable Development, accessed
Sept2014, http://sustainabledevelopment.un.org/content/documents/EMABusiness.pdf.
US Office of Personal Management (OPM) 2001, Telework works: A compendium of success
stories, accessed July 2013, http://www.opm.gov/studies/FINAL-TELEWRK.htm.
References |
65
Watson, D.J. & Hassett, W.L. 2003, Local Government Management: Current Issues and Best
Practices, M.E. Sharpe, New York.
Xiao, J. & Fu, H. 2009, An empirical study of usage of external business services by Chinese
SMEs, Journal of Enterprise Information Management, Bradford, vol. 22, no. 4, p. 423, accessed
July 2014, http://search.proquest.com/docview/220032197/7DABAA066AD94A47PQ/5?account
id=40355.
Optional reading
360e 2005, Virtual working, 360e Fact Sheet, accessed July 2013, http://www.ebusinessclub.biz/
media/factsheets3/Virtual_Working.pdf.
American Management Services Inc (AMSERV) n.d., Family business statistics, accessed August
2014, http://www.amserv.com/index.cfm/page/Family-Business-Statistics/pid/10715.html.
Airbnb 2014, About us, accessed July/2014, https://www.airbnb.com.au/about/about-us.
Barcelo, Y. 2009, Ten ways to add value, CA Magazine, August, accessed May 2014,
http://www.camagazine.com/archives/print-edition/2009/aug/features/camagazine28582.aspx.
Calverley, J. 2010, SMEs changing role, Standard Chartered Bank, Special Report, 4 October,
accessed November 2011, http://www.standardchartered.com/sme-banking/en/SMEs_
changing_role_30_09_10_05_29.pdf, accessed July 2014, https://members.bccthai.com/asp/
view_doc.asp?DocCID=1742.
Electronics Business Journal via NewsRex.com 2014, Martifer Solar Delivers First Grid
Parity Project in Italy to IKEA, 21 May, accessed August 2014, http://search.proquest.com/
docview/1524282909/abstract/5D6268F83BFE4CCFPQ/2?accountid=40355.
Faris, S. 2011, Self-serving stewardship: How manufacturers help the planet, TIME, 6 June,
accessed July 2014, http://www.time.com/time/magazine/article/0,9171,2074156,00.html.
International Federation of Accountants (IFAC) 2011, Competent and VersatileHow Professional
Accountants in Business Drive Sustainable Organizational Success, accessed August 2014,
http://www.ifac.org/publications-resources/competent-and-versatile-how-professionalaccountants-business-drive-sustainab.
International Federation of Accountants (IFAC) 2012, Professional Accountants in Business (PAIB)
Strategy and Work Plan 20132016, accessed August 2014, http://www.ifac.org/publicationsresources/professional-accountants-business-strategy-and-work-plan-2013-2016.
International Federation of Accountants (IFAC) 2013, The Role and Expectations of a CFO:
AGlobal Debate on Preparing Accountants for Finance Leadership (and its summary Role of the
CFO at a glance), accessed August 2013, http://www.ifac.org/publications-resources/role-andexpectations-cfo-global-debate-preparing-accountants-finance-leaders, https://www.ifac.org/
sites/default/files/publications/files/Role-of-the-CFO-At-a-Glance.pdf.
Joint Accounting Bodies 2013, Independence Guide, 4th edn, February, accessed July 2014,
cpaaustralia.com.au/~/media/corporate/allfiles/document/professional-resources/auditingassurance/independence-guide.pdf.
MODULE 1
Weick, K.E., Sutcliffe, K.M. & Obstfeld, D. 2005, Organizing and the process of sensemaking,
Organization Science, vol. 16, no. 4, pp. 40921.
66
Lunden, I. 2014, Airbnb has closed its $500m round of funding at a $10b valuation, led by TPG,
TechCrunch, accessed July 2014, http://techcrunch.com/2014/04/18/airbnb-has-closed-its-500mround-of-funding-at-a-10b-valuation-led-by-tpg.
MODULE 1
NSW Business Chamber n.d., How to grow a businessfunding strategies, accessed July
2014, http://www.nswbusinesschamber.com.au/Business-Solutions/business-life-cycle-planning/
Knowledge/How-to-finance-business-growth.
Organization for Economic Co-operation and Development (OECD) 2011, Corporate
governance in Asia 2011progress and challenges, OECD, France, accessed August 2014,
http://www.keepeek.com/Digital-Asset-Management/oecd/governance/corporate-governancein-asia_9789264096790-en#page3.
Pleiter, S. 2012, Erin Crowe stick-handles the Ottawa Senators finances, OSB Magazine,
accessed July 2014, http://qsb.ca/magazine/winter-2012/profiles/big-league-cfo.
Snowden, D. 2002, Complex acts of knowing: Paradox and descriptive self-awareness, Journal of
Knowledge Management, special issue, vol. 6, no. 2, pp. 10011.

CBI Study Guide Module 1 2015 PDF

Transféré par

Informations du document

Description originale:

Titre original

Copyright

Formats disponibles

Partager ce document

Partager ou intégrer le document

Options de partage

Avez-vous trouvé ce document utile ?

Ce contenu est-il inapproprié ?

Droits d'auteur :

Formats disponibles

CBI Study Guide Module 1 2015 PDF

Transféré par

Droits d'auteur :

Formats disponibles

CONTEMPORARY BUSINESS ISSUES

Updated by Betty Ferguson and Tui McKeown.

| THE ACCOUNTANT AS STRATEGICBUSINESSADVISER

Part A: The need for advice

The quest for productivity

Requests for advice: Operationalstrategicglobal

Part B: Advising beyond traditional accounting areas

Physical Environmental Management Accounting (PEMA)

Environmental costs and revenues

Part C: Ethical interaction

Addressing conflicts between organisational stakeholders

Part D: Human resource issues andcomplexity

Contemporary people management issues

| THE ACCOUNTANT AS STRATEGICBUSINESSADVISER

Helping organisations adapt to a carbon-constrained economy and corporate social

The quest for productivity

Part A: The need for advice

| THE ACCOUNTANT AS STRATEGICBUSINESSADVISER

Productivity = outputs as a ratio of the inputs

Productivity = how efficient we are at producing items

Factors leading to demand for advice

| THE ACCOUNTANT AS STRATEGICBUSINESSADVISER

Table 1.1: Characteristics of different-sized organisations

Advisory board may

| THE ACCOUNTANT AS STRATEGICBUSINESSADVISER

Requests for advice: Operationalstrategicglobal

Example 1.1: A business dilemma

Providing and implementing advice

Figure 1.1: Providing business advisory services

| THE ACCOUNTANT AS STRATEGICBUSINESSADVISER

Table 1.2: Chain of events for business advisory services

What causes the need for strategic advice?

What does the business need to deal with the issue?

Some organisations will not proactively make the request,

Research and analysis

Ethical considerations should be included in the

The accountant needs to make sure that the advice

It is important to be influential in this process, so soft

This is the most important step in adding strategic value

Regular monitoring and follow-up can help ensure that

Example 1.2: Succession planplease help

The provision, analysis and interpretation of information to management for formulation of

Performance measurement and communication to stakeholders, including the financial

Risk management and business assurance.

| THE ACCOUNTANT AS STRATEGICBUSINESSADVISER

Example 1.3: The high value of middle men

Refinancing equipment, restructuring debt, getting the books in

Broader management skills

Hiring and removing employees and mentoring executives to

Ensuring that information technology systems were properly set

Example 1.4: Specialist accounting roles

Explain your reasoning.

Providing strategic advice

Example 1.5: First strategic decision

| THE ACCOUNTANT AS STRATEGICBUSINESSADVISER

Table 1.3: Types of advice provided by professional accountants

Cash flows, working capital, fixed assets, capital expenditure, taxation

Productivity and operations

Supply chain management, improving and streamlining activities

Risk and internal controls

Business, strategic, operational, health and safety

Capital and organisational

Part B: Advising beyond traditional accounting areas

Part D: Human resource issues andcomplexity