14 August 2013

IFAC: Project and investment appraisal requires greater rigour

The guidance supports the accountancy profession’s facilitation of sustainable organisations, financial markets, and economies by providing guiding principles to manage the complexities of performing a robust project and investment appraisal. Greater rigour in the appraisal and decision process can be achieved by using the principles as a benchmark against which to assess an organisation’s current practice.

“In today’s world, it is no longer sufficient for investment decisions to be appraised on financial criteria alone. While this guidance reinforces the importance of rigorous and robust project and investment appraisal, it does so  with a specific emphasis on facilitating long-term decision making and incorporating economic, environmental, and social considerations”, said Roger Tabor, chair of the PAIB Committee. “The revised guidance also sets out the critical role professional accountants in business play in advising on the application of financial principles and theory that are being tested during this current period of market instability.”

Accountants in business play a crucial role in helping organisations ensure a systematic and analytical approach to project and investment appraisal. In practice, fundamental principles of corporate finance are often breached, leading to the destruction of value for shareholders and other stakeholders. Far too frequently, decisions ignore the costs and benefits associated with wider external impacts—social (e.g. labour practices), economic (e.g. in communities), and environmental (e.g. pollution). By introducing greater rigour, organisations can assess all important aspects of a project or investment.

“Traditionally, project and investment appraisal is taught and discussed in purely financial terms, which helps an organisation focus on decisions that create the most economic value”, said Athalanallur Natarajan Raman, chair of the PAIB Committee Sustainability Advisory Group. “To create sustainable value, it is essential to also take into account every aspect of the project or investment and consider all facets of sustainability.”

Press release

© IFAC