Local Keynote Address (Shirley Olsen, SAIPA)

Charting the FutureAccounting and HR

Shirley Olsen

Chairman of the South African Institute of Professional Accountants

August 2014

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Overview

• Accounting and the HR Profession

• History and the Importance of Accounting Standards in the Profession

• The Triple Bottom Line

• Valuable Journey for the HR Profession?

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Accounting and the HR Profession

Accountants when asked

• To think of two adjectives that describe the human resources professionals in their organization?

• Most often the words that leap to mind

• “unnecessary” and

• “mathematically impaired”

• That is yesterdays thinking !!!!

Todays HR Department• Is becoming

• a sophisticated bottom-line business partner that requires more input and collaboration from the finance department than ever before.

• From sharing relevant employment data

• to maintaining joint responsibility for projects,

• HR and finance should be great pals, not warring adversaries.

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Strategy to identify careers

• Place 400 bricks in a closed room.

• Put your new employees in the room and close the door.

• Leave them alone and come back after 4 hours.

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If they are:- Put them in:-

counting the bricks Accounting

recounting them Auditing

have messed up the whole place with the bricks

Engineering

arranging the bricks in some strange order

Planning

throwing the bricks at each other Operations

sleeping Security

have broken the bricks into pieces Information Technology

sitting idle Human Resources

have tried different combinations, they are looking for more, yet not a brick has been moved

Sales

have already left for the day Marketing

staring out of the window Strategic Planning

talking to each other, and not a single brick has been moved, congratulate them and move them into

Top Management.

Analyse the situation you find

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Attributes

Accountants• Use History to Predict the future

Human Resources• Use the Present to Inform the Future

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History and Importance of Standards in the Accounting Industry

• Early 1970’s - South African GAAP ( General Accepted Accounting Practice )

• Accounting standards for the domestic context were nevertheless not developed in isolation from international accounting standards

• Reciprocity agreements with professional accounting associations since the 1950s resulted in a very international footprint of the accounting profession in South Africa

• Whilst International sanctions limited business links, these where never entirely shut out and there were still international investors

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History and Importance of Standards in the Accounting Industry

• Access to reliable financial information on South African businesses was vital for international investors.

• This depended on the availability of ‘decision useful’ financial information, which was premised on high accounting standards and internationally accessible and comparable accounting information.

• The integration of accounting knowledge internationally was beginning to take shape through the initiatives to establish the International Accounting Standards Board .

• The South African accounting profession joined those initiatives from the inception of the IASB onwards

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The Accounting Practices Board ("APB")

• 1973 to consider and issue what should be generally accepted accounting practice

• Private sector body consisting of a number of accounting and industry bodies

• 1990’s IFRS standards were adopted and approved for use by SA companies

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Financial Reporting Standards Council (FRSC)

• Establishment in late 2011

• Legally constituted standard-setter for South Africa

• The APB became redundant and the need for SA GAAP had to be re-evaluated.

• SA GAAP are effectively the same as IFRSs with the exception of

• IFRS 1 - First-time Adoption of International Financial Reporting Standards

• new IFRSs/IFRICs and amendments to IFRSs that were issued by the International Accounting Standards Board (IASB) after May 2011.

• Working closely together, the APB and the FRSC jointly agreed to withdraw SA GAAP for financial periods commencing on or after 1 December 2012.

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1950Reciprocity

Agreements with International Professional Accounting Associations

1970Gaap

Accounting Practices Board

1990APB approved

IFRS for SA Use

2011FRSC

Financial Reporting Standards

Council

2012IFRS

The Time Line of our Standards

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Some of the Players in the Accounting Profession -Regulators, Standard Setters and Associations

National

• The Accounting Standards Board (ASB)

• Financial Reporting Standards Council (FRSC)

Global

• The IFRS Foundation

• The IASB (International Accounting Standards Board) is the independent standard-setting body of the IFRS Foundation.

National

• South African Institute of Chartered Accountants (SAICA)

• South African Institute of Professional Accountants (SAIPA)

Regional

• Pan African Federation of Accountants (PAFA)

Global

• International federation of Accountants (IFAC)

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• SAIPA is the leading Professional Accountancy institute in South Africa for the suitably qualified Professional Accountant(SA).

• The Professional Accountant(SA) performs a wide range of accounting and tax related services and is regarded as the business advisor to the SME ( Small Medium Enterprise)offering tailored advice on business challenges and creating opportunities of business success for their clients .

• The requirements to earn the designation are:• Academic: A Degree with a major in financial accounting and with tax,

management accounting, auditing and commercial law as subjects.• Practical training or experience: at least 3 years under a SAIPA recognised

Learnership, or 6 years of relevant verifiable experience.• SAIPA Professional Evaluation: This is a 4 hour examination offered twice

yearly covering [1] Financial Accounting, Auditing, Taxation, Commercial Law, Management Accounting and Practice Management.

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Why International Standards?• Soccer can be played anywhere in the world, irrespective of

language, laws or culture

• Soccer transcends national borders, operating within an internationally agreed framework of rules which has nothing to do with nation states, sovereignty or local jurisdiction. International soccer tournaments and transnational matches are controlled and managed by the soccer profession and its ruling body.

• The accounting equivalent of soccer's rules is International Accounting Standards.

• 2 linked sets of standards.

• International Financial Reporting Standards (IFRS)

• International Public Sector Accounting Standards (IPSAS)

• These standards apply throughout the world and are not under the control of Governments: they are not instituted by legislation or ratified by international treaties.

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Nature of Corporate Reporting Evolution

• The nature of corporate reporting has evolved enormously over the past few years

• Inception of King III in March 2010

• Stipulates that listed companies should submit an Integrated Report

• Many have subsequently dubbed Integrated Reporting as a complex process.

Nature of Corporate Reporting Evolution

• Rationale behind Integrated Reporting was not to complicate reporting on business operations.

• It was rather created to stimulate integrated corporate strategies that are driven towards truly sustainable businesses.

• Companies that fully understand these King III principles and incorporate it in their core business strategies, will have no trouble at all with providing an Integrated Report on their business activities.

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The meaning of Integrated Reporting

• King III is the abbreviated name for the King Report on Corporate Governance for South Africa published in 2009, which officially came into effect on the 1st of March 2010.

• King III specifies that companies should issue an annual Integrated Report that provides a reliable, comprehensive and holistic overview of the company, from both a financial and a non-financial perspective.

• A key aspect of Integrated Reporting is that companies should be able to outline the impact of their businesses on all three the spheres within which it operates: economic; social and environmental.

• These three elements are known as the Triple Bottom Line.

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History of 'Triple Bottom Line'

• A phrase coined in 1994 by John Elkington and later used in his 1997 book "Cannibals With Forks: The Triple Bottom Line Of 21st Century Business" describing the separate financial, social and environmental "bottom lines" of companies.

• A triple bottom line measures the company's economic value, "people account" – which measures the company's degree of social responsibility and the company's "planet account" – which measures the company's environmental responsibility.

• Elkington argued that companies should prepare three bottom lines – the triple bottom line – instead of focusing solely on its finances, thereby giving consideration to the company's social, economic and environmental impact.

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Challenges of Triple Bottom Line• The Triple Bottom Line concept developed by John Elkington has

changed the way businesses, non-profits and governments measure sustainability and the performance of projects or policies

• Became a standard in America Accounting

• Beyond the foundation of measuring sustainability on three fronts—people, planet and profits—the flexibility of the TBL allows organizations to apply the concept in a manner suitable to their specific needs.

• There are challenges to putting the TBL into practice.

• These challenges include measuring each of the three categories

• finding applicable data

calculating a project or policy's contribution to sustainability

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Triple Bottom Line

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Integration Thinking

• Integrated reporting is defined as “a process founded on integrated thinking that results in a periodic integrated report by an organization about value creation over time and related communications regarding aspects of value creation”.

• The integrated report and integrated reporting is very much based on integrated thinking.

• This is defined as “the active consideration by an organization of the relationship between its various operating and functional units and the capitals that the organization uses or affects.

• Integrated thinking leads to integrated decision-making and actions that consider the creation of value over the short, medium and long term”.

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Valuable Journey for the Profession?

• The move from traditional HR policies and programs to more sustainable standardised ones

• Standards will encourage HR professionals to broaden their thinking about how they can contribute to sustainability

• Standards will assist in integrating the way people think

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More advantages• Alignment to accounting concepts of consistency,

relevance, usefulness, comparability etc.

• Demonstrating the return on human capital investments

• Easier measurement across organisations

• Potential Inclusion in the annual integrated report in future

• Being taken seriously by their financial counterparts in the boardroom!

• Defending HR decisions around pay and performance

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• https://www.youtube.com/watch?v=fUXdrl9ch_Q

Examples of Poor Integrated thinking and Good Integrated Thinking

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“You can have the best strategy and the best building in the world, but if you don’t have the hearts and minds

of the people who work with you, none of it comes to life.”

– Renee West, Luxor and Excalibur Hotel

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Shirley Olsen

Professional Accountant, Trainer and Mentor

[email protected]

Thank you SABPP for giving a SAIPA member the opportunity to be the 1st accounting body to present at such a high profile event,

I am confidents Professional Accountants will be excited and willing to walk with HR on this journey.

I wish you every success in todays case studies of making these standards meaningful for all you and that you will be able to go back next week and start to implement them into your workplace