EDITION 16a

CONTEMPORARY
BUSINESS ISSUES
TUTOR MATERIAL
MODULE 1: THE ACCOUNTANT AS
STRATEGIC BUSINESS ADVISER

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CONTEMPORARY
BUSINESS ISSUES
MODULE 1: THE ACCOUNTANT AS
STRATEGIC BUSINESS ADVISER

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INTRODUCTION

Module introduces Contemporary Business Issues (CBI),

and presents opportunities to consider key business and ethical
concepts, including:
• real-life scenarios
• stereotypical perception of the role of the accountant—a narrow
view
• accountants acting as internal and external key strategic business
advisers
• in smaller organisations, accountants taking responsibility for
non-financial/non-accounting roles
• financial planning, risk management, internal controls, strategic
planning, explanation of industry trends, and using financial
information to better guide organisations.
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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 and why
• evaluate how accountants can add value to organisations by
enabling sustainable business decision-making
• 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.
CONTEMPORARY
BUSINESS ISSUES
MODULE 1: THE ACCOUNTANT
AS STRATEGIC BUSINESS ADVISER
PART A: THE NEED FOR ADVICE

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INTRODUCTION

• Professional accountants have knowledge and skills organisations need—

often easier to consult an expert.
• Nine key issues on which small business entrepreneurs require advice
or support:
− Selection of business entity structure
− Intellectual property
− Liability
− Regulation
− Contracts
− Tax
− Employment
− Financing
− Real property (land and buildings)
Also:
− Business efficiency, productivity, information technology (IT), risk management,
and reporting
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QUEST FOR PRODUCTIVITY

• Advice often needed to improve productivity.

• Benefits of improved productivity―General Motors versus
Toyota example.
• Lower-cost employees (offshoring) used.
• Short-term approaches can lead to false productivity—
National Health Service (NHS) (UK) example; ethical issues.
• Long-term productivity improvement often requires investment.
• Dramatic productivity improvement―solar panels example.
• Productivity not purely economic—also ethical.
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FACTORS LEADING
TO THE DEMAND FOR ADVICE
• Provision of advice influenced by availability of professional
staff and referral of clients to the firm (Xiao & Fu 2009).
• Disconnect exists between need for advice and obtaining
the advice.
• Review Table 1.1 on characteristics that apply to organisations
of different sizes.
• Characteristics useful in identifying potential areas for advisory
services.
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REQUESTS FOR ADVICE:

OPERATIONAL—STRATEGIC—GLOBAL
Operational requests
• Do we have all of 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?

Strategic requests
• 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?

Global issues
• After-effects of the Global Financial Crisis (GFC) and eurozone crisis
• Human-induced climate change and sustainability
• Harmonisation or convergence of accounting standards
• Explosion of social media, live communications, cloud computing and big data

Counterpoint—role of accountants
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PROVIDING AND IMPLEMENTING ADVICE

• Usefulness of advice can be

hampered by refusal to accept
or implement advice
• Communication skills required
• Obtain organisation’s agreement
(buy-in)
• Consider criticism and feedback
• Consider alternative
recommendations that have
justifiable reasons for not
pursuing them
• Work with organisation to
implement advice
Source: CPA Australia 2015.
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ACCOUNTING ROLES

• Six main activities performed by professional accountants in

business identified by the International Federation of Accountants
(IFAC 2005, p. 4; IFAC 2013)
• Focus is on accountant as a strategic business adviser.
• Variety of advice that can be provided is extremely broad.
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PROVIDING STRATEGIC ADVICE

• Accounting roles can typically be categorised as either reactive

or proactive.
• Accountants require a range of soft skills.
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SOFT SKILLS—COMMUNICATION

• Ability to communicate is as important as being right.

• Explain any jargon or technical terms when providing advice.
• Demystify accounting information by communicating visually.
• Use effective filtering.
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THE ACCOUNTANT AS INTERNAL ADVISER—

A MEMBER IN BUSINESS
• There is a vast range of internal advisory opportunities.
• Small-to-medium enterprises (SMEs)
− Smaller organisations often require generalist staff.
• Family-owned business
− Specific family-based issues may affect organisations.
• Supporting entrepreneurial activity
− Definition
− Activity
− Support
− Compliance and performance risk
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THE ACCOUNTANT AS EXTERNAL ADVISER—

A MEMBER IN PUBLIC PRACTICE
• Strong skills of accountants
• Cross-selling and strategic partnering
• Marketing
• Strategic advice
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SUMMARY

• Role of the accountant as a strategic business adviser

• Broad range of advice to organisations of all types and sizes
• Major categories of advice needs
• Advice required at operational and strategic levels
• Advisory work not restricted to external consultants—role of
internal accountants
• Key skills―communication and collaboration at all levels,
in addition to technical knowledge
CONTEMPORARY
BUSINESS ISSUES
MODULE 1: THE ACCOUNTANT
AS STRATEGIC BUSINESS ADVISER
PART B: ADVISING BEYOND
TRADITIONAL ACCOUNTING AREAS

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INTRODUCTION

• Traditional accounting―monetary input, outputs and costs

• Accelerated use of accounting information and advice that
includes non-financial and operational data
• Strong focus on internal reporting using management tools
• Accountants need to be able to explain, capture, communicate,
report and act on the whole business
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BROADENING THE FOCUS

• Focus of accounting is broadening from costs to:

− physical flows, and
− physical outputs.
• Sustainable supply chain management (SCM) is key focus.
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PHYSICAL ACCOUNTING

• Recording and reporting on use, including volumes, of different

types of physical materials
• Considers waste, sustainability, supply chain continuity and use
of resources
• Physical flows and volumes―Nitto Denko Corporation diagram
• Catalyst for change examples (McDonald’s, Dulux, Monosol,
EADS)
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MANAGEMENT ACCOUNTING
AND THE ENVIRONMENT
Physical environmental management accounting (PEMA)
• Records material, energy and water flows

Monetary environmental management accounting (MEMA)

• Focuses on costs incurred and costs that can be avoided
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ENVIRONMENTAL COSTS AND REVENUES

• Costs are attached to items used, consumed or wasted.

• Costs may be externalities, which transfer costs from the
organisation to society (e.g. cost of carbon).
• Such costs:
− have consequences (e.g. industries may become unprofitable)
− motivate companies to become more efficient.
• Examples include:
− Transport companies
− South East Water.
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INTEGRATING ENVIRONMENTAL MEASURES—

EXTENDING THE BALANCED SCORECARD
• Organisations now set performance targets and measures for
sustainability and the environment.
• Scorecards now attempting to incorporate environmental aspects
into their structure.
• Benefit: separately reporting environmental performance
demonstrates importance and attention devoted to this area.
• Downside: can be seen as an add-on rather than integrated
throughout whole business.
• Downside: tends to focus on outputs or results, not on drivers,
causes or inputs.
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SUMMARY

• Accountants provide strategic advice outside traditional areas.

• Growth in regulation requires environmental and sustainability
reporting.
• Accounting information should not be restricted to traditional
financial matters.
CONTEMPORARY
BUSINESS ISSUES
MODULE 1: THE ACCOUNTANT
AS STRATEGIC BUSINESS ADVISER
PART C: ETHICAL INTERACTION

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THE CODE OF ETHICS

Members of CPA Australia must comply with the Compiled APES 110
Code of Ethics for Professional Accountants (the Code) (APESB 2013b)
principles:
• Integrity
• Objectivity
• Professional competence and due care
• Confidentiality
• Professional behaviour

The Code provides a conceptual framework for members to:

• identify threats to compliance with the fundamental principles
• evaluate the significance of threats identified
• apply safeguards, when necessary, to eliminate or reduce threats to
an acceptable level (APESB 2013b, s. 100.2).
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ADDRESSING CONFLICTS BETWEEN

ORGANISATIONAL STAKEHOLDERS
• Expands concept of ethical behaviour to incorporate the
decisions that organisations make.
• Outlines potential conflicts that arise between economic,
social and environmental issues.
• Examples demonstrate that accountants face difficult moral,
social and commercial decisions.
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ACCOUNTANTS AS FACILITATORS OF
ETHICAL BUSINESS BEHAVIOUR
• Focus of many organisations has been improving results for
owners or shareholders.
• Accountants must consider employees, customers, suppliers and
also communities, environment and government.
• Role of an ethical adviser is to review decisions that make
commercial sense but do not adhere to societal norms and values.
• Julian Clarke (IFAC 2008).
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SUMMARY

• Importance of ethical decision-making for strategic business

• Ethical behaviour a founding principle of professionalism
• Compliance with Code of Ethics for Professional Accountants
• Framework for dealing with threats to compliance with the
fundamental principles of ethics
• Emerging areas of environmental and sustainability concerns
• Develop a robust framework that helps to analyse and reach
appropriate decisions
CONTEMPORARY
BUSINESS ISSUES
MODULE 1: THE ACCOUNTANT
AS STRATEGIC BUSINESS ADVISER
PART D: HUMAN RESOURCE ISSUES AND
COMPLEXITY

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MANAGING PEOPLE

Cost
• People represent a large proportion of an organisation’s costs.

Assets and knowledge

• People are also an immense organisational asset.

Relationships
• Employees constantly interact with other people inside and outside
the organisation.
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CONTEMPORARY PEOPLE
MANAGEMENT ISSUES
• Table 1.6―Some people issues faced by contemporary
business leaders
• Example1.16―Teleworking
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MAKING BUSINESS SENSE OF PEOPLE

MANAGEMENT ISSUES

Source: CPA Australia 2015.

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ROLE OF THE ACCOUNTANT IN PEOPLE

MANAGEMENT ISSUES

Source: CPA Australia 2015.

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MANAGING COMPLEXITY

• Organisations are complex adaptive systems.

• Complex because they are made up 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.
• Adaptive because interaction of organisational elements
is unpredictable.
• Past experience and specific approaches no longer offer
assurance of success.
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ADDRESSING MESSY AND WICKED PROBLEMS

• Variety causes complex situations

• Messy problems
− Eight attributes of messy problems (Watson & Hassett 2003)
• Wicked problems
− Six attributes of wicked problems (Conklin 2003)
• Wicked problem example―car design
• Difference between messy and wicked problems?
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IDENTIFYING COMPLEXITY

Satell (2013) describes three aspects of complexity:

• Complexity of an entity
• Nonlinearity
• Emergent complexity
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WORKING WITH COMPLEXITY

• Messy and wicked problems and increasingly complex issues

mean traditional approaches to problem-solving and decision-
making won’t always be effective
• Need to develop an understanding of complexity
• Models and frameworks to manage complexity exist—example:
Cynefin framework (Snowden 2013)
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WEICK MODEL

• Applies an approach of organised sense-making to deal

with complex situations
• Eight-step sense-making model
• Dysfunctional autonomy
• Complexity value matrix

Source: CPA Australia 2015.

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ROLE OF THE ACCOUNTANT IN

COMPLEXITY ISSUES
Accountants can assist organisations in management and resolution
of complexity in four areas:
• Modelling
• Making decisions
• Skill development
− ‘Three journeys’ technique (Callahan & Drake 2008)
• Policy and procedures
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SUMMARY

• People management concerns have been outside the traditional

role of the accountant.
• Cultivating people management qualities in the accounting
profession is critical to the ongoing viability and success of
organisations.
• Professional accountants’ people management skills and
knowledge can assist organisations in managing their human
resources and to deal with the complex and dynamic business
environment.
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REVIEW

Module provided an introduction to CBI by outlining:

• various roles of accountants and ways they can provide
strategic advice
• broadening role of accountants
• strategic advice
• ethical dimensions involved in providing strategic advice
• relevance of people management to the viability and profitability
of an organisation
• accountant as a multiskilled business partner and adviser, leader,
change agent and decision-maker.