Risk: ‘A unique opportunity on the table’

Accountants have an opportunity to enable more effective enterprise risk management (ERM) within their businesses, according to a recent International Federation of Accountants (IFAC) report.

Enabling the Accountant’s Role in Effective Enterprise Risk Management, published by IFAC’s Professional Accountants in Business Committee (PAIB), emphasises that accountants need to be “focused on the benefits of intelligent risk-taking in addition to the need to mitigate and control risk”.

The PAIB report has recommendations for CFOs and their teams in three key areas to improve their contribution to risk management:

• Relating risk management to value creation and preservation.
• Driving insights and enabling decisions.
• Enabling integration and interconnectivity.

Stathis Gould, deputy director at IFAC, said that particularly outside of financial services organisations, the way risk is managed is “not particularly mature. It is not really integrated [and] linked with the big decisions that are being made in the business.” There is an opportunity, he said, for finance teams “with their helicopter view of the organisation to drive forward good risk management processes”.

Gould said accountants need a “heads-up” mindset that enables them to understand their external environment and the industry, and the different elements of the business. He added that accountants need knowledge of risk frameworks such as the COSO ERM framework. Referring to the “frameworks, and approaches and tools that help enhance risk management practices”, he said: “You really have to have an understanding of the toolbox needed.”

Developing statistical and technology skills is also important, Gould said. “A lot of advanced risk management techniques are being enabled by advanced analytics and machine learning … to help leverage data about customers, performance, product data.”

Accountants also need the skills to communicate the risk story to others in their organisation, Gould suggested. Plugging skills gaps where they exist is “not all about formal training and certifications. … It’s often about mentoring and coaching, the ability to work in other functions and departments, the networking.”

The Association of International Certified Professional Accountants’ members and staff played a large role in developing the PAIB’s report. The Association’s Gillian Lees, senior director, Governance & Risk Research–Management Accounting, said, “The young professional accountants whom we interviewed for the [PAIB’s] project clearly recognised the need for expertise in risk management combined with human skills such as good communication to be truly effective in this area.” She said “the good news” was that the new CIMA Professional Qualification fully reflects the report’s key messages.

Lees said that digital business models and changing stakeholder expectations “call for a broader approach to risk, requiring data and insights from across the organisation”. Finance professionals, she added, are well placed to be effective business partners in helping organisations deal with uncertainty effectively.

The World Economic Forum’s (WEF’s) recently published Global Risks Report 2019 shows that environmental risks continue to dominate the risk landscape, accounting for the top three risks by likelihood and four of the top five by impact in 2019.

The WEF’s Global Risks Perception Survey 2018–2019 highlighted increased risks in 2019 relating to “economic confrontations [or] frictions between major powers” (cited by 91% of respondents) and “erosion of multilateral trading rules and agreements” (cited by 88%).

The PAIB’s recommendations come at a time when the risk management function — covering both enterprise-wide and operational risks — increasingly reports to the CFO. According to McKinsey, in 2018 67% of CFOs had responsibility for risk management — up from 64% in 2016.

However, Stuart Chaplin, FCMA, CGMA, vice-president, Finance–Risk Management at Shell Trading and Supply, said, “More often than not, accountants do not seize the opportunity to expand into ERM, through lack of business knowledge, lack of the right skills, and lack of confidence in being able to challenge the status quo.” He said ERM remains “a unique opportunity on the table for accountants”, adding, “the question is whether we can step up and take it”.

— Oliver Rowe (Oliver.Rowe@aicpa-cima.com) is an FM magazine senior editor.