Today’s business decisions are influenced by a rise in remote working, the emergence of digital business models, automation, and data analytics, and the growing importance of environmental, social, and governance (ESG) factors.
Much has changed since AICPA & CIMA issued the first Global Management Accounting Principles (GMAP) in 2014. The second edition reflects these changes. The principles have been substantially revised and updated based on insights provided by CEOs, CFOs, academics, regulators, and finance professionals in 20 countries.
The four updated, revised principles draw on the competencies laid out in AICPA & CIMA’s 2019 CGMA Competency Framework to enhance long-term, sustainable decision-making and global business leadership, and offer a path to higher-value outcomes for organisations. The revised principles are not only relevant within finance functions but also useful to the board and business operations, particularly for major strategic investment decisions. (See the sidebar “How to Leverage the 4 Principles”.)
What hasn’t changed is the definition of management accounting. It remains “the sourcing, analysis, communication, and use of decision-relevant financial and nonfinancial information to generate and preserve value for organisations”.
Sustainability gains importance
In 2014, the ESG reporting agenda was in its infancy. The concept of the integrated report existed, but it was largely conceptual and voluntary in its adoption. The introduction in June 2023 of two new sustainability standards by the International Sustainability Standards Board means that, for the first time, investors and other stakeholders will have access to internationally comparable, assured sustainability information on which to base decisions.
This is reflected in the reference to sustainable value in the revised GMAP. No longer should application of the principles focus solely on the financial aspects of value. Management accounting best practice can now be viewed in terms of long-term sustainable value creation.
The new focus on sustainability and resilience is also made possible by technological advances that allow management accountants to be more effective. Data analytics pull together disparate, contextual, and real-time data for predictive judgements. Automation frees up management accountants to communicate these insights and participate in higher-level activities. And stewardship that aligns sustainability with strategy protects the reputation and the value of the business.
The revised principles refer to existing tools, such as the CGMA Business Model Framework, which can be useful in applying GMAP at a strategic level.
Bolstering performance management
The revisions include suggestions for how the principles can be applied to performance management that provides an incentive for the right level of risk-taking and to measure progress and results. There is a tool to show how the strategy, plan, execute, review (SPER) concept can be applied to the principles using question checklists.
There is also a new section on wider corporate governance, which previously focused on compliance, to reflect the greater strategic role the management accounting profession is playing here. And there is additional emphasis on business transformation rather than mere project management as the pace of business model change has picked up.
The revised principles act as signposts to new key concepts and trends that have emerged, such as value partnering and data visualisation. Together with the CGMA Professional Qualification syllabus and CGMA Competency Framework, the principles form three pillars of the profession. While they may evolve over time, they remain foundational.
How to leverage the 4 principles
The following four principles from the GMAP will help you fuse strategy with the business model:
Principle 1: Communication influences and creates impact
Management accountants who can clearly articulate and communicate information across functions and with stakeholders will bring the most value to their organisations.
Translating financial information into language anyone can understand and explaining why it’s relevant for the business are valuable skills that will lead to better strategic decisionmaking.
External communication is also vital. Past performance, present operations, and forecast expenditures should be communicated regularly, openly, and comprehensively. Clear and transparent reports secure the trust of regulators and bolster the loyalty of investors, lenders, suppliers, and customers.
Principle 2: Information is relevant
With an overwhelming amount of data at management accountants’ fingertips, it’s imperative to determine whether the data is accurate and relevant in order to help execute the appropriate strategy and drive value.
Key decisions in executing strategy are picking the projects to invest in, determining how to raise necessary funds, and allocating the amount of cash that is paid to shareholders as dividends without impeding the business’s cash needs.
In an interconnected world, management accountants need to always keep a finger on the pulse of microeconomic indicators, governmental policies, and sociopolitical factors to recognise risks and opportunities. Adopt a strategic-thinking mindset to focus on your organisation’s future and experiment with various strategic scenarios.
Principle 3: Analysis generates sustainable value
Management accountants have always had to analyse data, but now there is a greater emphasis on analysis that generates sustainable value.
Sustainability in a broad sense includes ensuring financial, environmental, and social elements, and that resources are available for the business on an ongoing basis.
Delivering benefits that meet the needs of stakeholders to the standards required and at the lowest possible cost is the goal.
Principle 4: Stewardship builds trust
Stewardship is about managing relationships, resources, assets, and reputation of the organisation to ensure that value is enhanced.
To promote stewardship, governance structures must be designed to meet the needs of stakeholders. Business processes must be transparent. Strategy implementation and control processes and procedures should be effective, and management accountants should leverage business partnering.
Audits must be carried out and findings shared with individuals responsible for governance. When all is done, lessons should be learned, and recommendations acted upon.
David Hackett is senior manager for technical research at AICPA & CIMA, together as the Association of International Certified Professional Accountants. To comment on this article or to suggest an idea for another article, contact Oliver Rowe at Oliver.Rowe@aicpa-cima.com.
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AICPA & CIMA RESOURCES
Reports
Global Management Accounting Principles, 2nd edition, June 2023
CGMA Competency Framework, January 2019
CGMA Business Model Framework, Global Consultation Paper 2017
Podcast
“Global Management Accounting Principles: The Art of Thinking and Doing”, FM magazine, 6 June 2023