07 November 2019

IIRC: Accounting for value creation and encouraging the rise of the Chief Value Officer

Accounting for value creation needs rethinking. Value is created through knowledge and creativity. Digital disruption is threatening entire industries. Financial markets are fraught with geopolitical and economic volatility. The deepening climate emergency, and other environmental issues, mean that business as usual is not an option.

In this world, achieving a resilient and sustainable business model has never been more challenging. Viewing value creation only through the lens of shareholders means undermining trust in the organization, compromising its reputation, and even threatening its license to operate. A broader set of data, information and insights is needed to provide a bigger picture of how value is created.

In contrast to financial reporting, integrated reporting provides a broader foundation for accounting for value creation. It enables greater corporate accountability, communication, and transparency. It allows the organization to better understand and communicate value creation.

Importantly, we know that adopting integrated reporting enables an organization to think in an integrated way, which leads to better business outcomes. Too often, information is siloed, and decisions are made without complete knowledge or context for their ramifications. The more that this integrated thinking is embedded into an organization’s activities, the better the connectivity of information flow into management reporting, analysis, and decision-making.

Integrated thinking requires the Chief Financial Officer (CFO) and their finance team to move from accounting for the balance sheet to accounting for the business and value creation. As Mervyn King, Chair Emeritus of the International Integrated Reporting Council, put it, “the CFO should be known as the CVO – chief value officer.” She or he must be a change-maker inside the company.

The CVO role must ensure that all relevant aspects of value creation and destruction are accounted for and communicated to boards, management, and external stakeholders. To achieve this, the CVO will require deep knowledge and insights about the business to inform discussions on purpose, values and strategy, risks and opportunities, the business model, and relevant resources or capitals that the business depends on or affects.

Full article on the IIRC

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