What comes after the final GASP?
27 March 2017
GASDGP - right now it sounds like gibberish. But by the end of this blog, not only it will make perfect sense, but you’ll also be inspired.
This story runs over 400 years from the time when a monk pioneered the bedrock of every accounting system on the planet - double entry book keeping. In all earnestness, accountancy hasn’t changed much since. Recording its inputs and outputs, business has the data to understand if the numbers add up, if the books balance and if it’s breaking even, making a profit or a making loss. Accountability and comparability came later when investors arrived on the scene and wanted to know how the money had been used, and how the investment proposition compared to others. And these investor demands for comparability gave rise to standards on disclosure and measurement - filling the gap between confidential management accounts and conformed, comparable publicly available financial accounts- with GAAP (Generally Accepted Accounting Principles) at centre stage.
You’ve just read the potted history of management accounting and financial reporting. The key take-away is that the publicly available information is derived from the detailed data collected and used for decision making within the organisation.
But why is this relevant? Well, things are changing. There’s a decisive shift towards corporates disclosing more and more non-financial information, and invariably this is more disparate and varied – often focussed on impacts and outcomes. Whilst inputs and outputs are the building blocks of accounting, they are only part of the story - it’s now recognised they’re not the whole picture. In the past, I’ve talked at length about the role of business in society, the relationship and interconnectedness of business, society and government, with the ultimate scenario that works for all being a thriving society in a thriving environment. Measuring, monetising and managing impact on society, the economy and the environment are increasingly part of the new business mix – this information helping to direct resources to reduce risk, increase resilience, limit reputational damage and drive growth opportunities.
It’s becoming important to business and we’re starting to see companies expand the systems they use to capture these new forms of data. They’re having to hunt for the data though. Putting a value on social and environmental impact is in its infancy, not like the aged veteran that is accountancy. But new models and methodologies are coming through along with cross party agreement on valuation techniques and requirements. It means there is a new lens through which to view business performance that reflects the impact of the organisation across society and the environment, as well as the cash-flow and balance sheet.
Investors will want to see the same rigour of approach here as they do for financials. GAAP needs to move forward. GAAP to GASP is the obvious next step - swap Accounting for Sustainability and there is automatically a big picture view of business performance. But is Sustainability the rightful end point? Being sustainable, is certainly a valid goal. Or is there a natural fit with an even higher order?
In 2015, 193 governments gave us the solution - The Sustainable Development Goals. They are a fantastic dashboard for business and, in my view, prove invaluable in this situation. Introducing ‘Generally Accepted SDG Principles’ in which companies align to the SDGs and report their activities through that lens, could move business to the next level. Reviewing business results against a backdrop of impact on society, the environment and the economy, would give it greater awareness of the consequences of actions as well as the means to measure and manage them. When 193 governments have come together to agree and achieve 17 goals tackling major world issues, it only seems sensible that business aligns its reporting against the same objectives and demonstrates whether it is helping or hindering them, and utilising impact analysis to drive optimal decision making.
So my vote is for GA SDG P. Create the tools and techniques so that business can view management accounts through an SDG lens and conform their financial accounts to do so, too. Maybe this way business can avoid creating products or services that hinder the achievement of the SDGs and work harder to find new solutions that have more positive outcomes and drive a thriving society in a thriving environment.
Theme addressed by Malcolm Preston, speaking at the launch event 'Reporting on the SDGs action platform' at The Hague at the invitation of the UN Global Compact and Global Reporting Initiative.