Fast Future Study for ACCA - appendix - 100 Drivers of Change

ACCOUNTANCY FUTURES ACADEMY

100 drivers of change for the global
accountancy profession: appendix

This report was writen for ACCA by Fast Future.

About ACCA
THE ACCOUNTANCY FUTURES ACADEMY
ACCA (the Association of Chartered Certified
Accountants) is the global body for professional The Accountancy Futures Academy contributes to
accountants. We aim to offer business-relevant, first-choice ACCA’s programme of research and insights with
qualifications to people of application, ability and powerful visions of the future. It provides a
ambition around the world who seek a rewarding career platform to look forward, to tune into the
in accountancy, finance and management. emerging trends and discussions in the global
business and policy spheres and the latest reforms
We support our 154,000 members and 432,000 students facing the world of finance.
throughout their careers, providing services through a
network of 83 offices and centres. Our reputation is By looking to the future it helps the profession
grounded in over 100 years of providing world-class stay at the cutting edge. The Academy’s work
accounting and finance qualifications. We champion fosters fresh thinking and innovative discussions,
opportunity, diversity and integrity, and our long identifies the barriers to and facilitators of
traditions are complemented by modern thinking, tomorrow’s successes, and identifies the potential
backed by a diverse, global membership. By promoting strategies that will enable business and finance to
our global standards, and supporting our members navigate the choppy waters that lie ahead.
wherever they work, we aim to meet the current and
future needs of international business. www.accaglobal.com/ri
About IMA®
IMA® (Institute of Management Accountants), the
association for accountants and financial professionals in
business, is one of the largest and most respected
associations focused exclusively on advancing the
management accounting profession. Globally, IMA
supports the profession through research, the CMA®
(Certified Management Accountant) program, continuing
education, networking, and advocacy of the highest
ethical business practices. IMA has a global network of
more than 60,000 members in 120 countries and 200
local chapter communities. IMA provides localized
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About Fast Future
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and consulting firm that undertakes horizon scanning,
scenario planning and in-depth studies on the future of
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them understand, anticipate and respond to the trends,
forces and ideas that could shape the competitive
landscape over the next 5-20 years. Fast Future’s consulting
draws on a range of proven foresight, strategy and
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changing world. These insights are used to help clients
develop innovative strategies, create disruptive business
models and define practical actions to implement them.

© The Association of Chartered Certified Accountants,
September 2012
2010

In this appendix to the main report, each of the 100 drivers are presented with a
short description as well as a time frame for possible impact, stating when the
experts think it could affect at least 20% of the profession globally.

For each driver, its possible implications for, or impact on, business and
accountancy and, in particular, the key questions and uncertainties for the
accountancy profession are identified.

100 Divers of Change for the Global Accountancy Profession,
ACCA, September 2012

In this study, professionals working in and close to the accountancy
profession identify 100 drivers of change shaping the landscape for
businesses and profession accountants over the next decade.
ACCOUNTANCY FUTURES ACADEMY

100 drivers of change for the global
The potential impacts and 10 resulting imperatives are explored.
accountancy profession Opportunities are identified for accountants to adopt a more strategic
and trusted role.

available from
http://www.accaglobal.com/en/technical-activities/technical-library.html

This report was writen for ACCA by Fast Future.

Appendix contents

A1: ECONOMY 44 27. The workplace expectations of Generations Y, Z and beyond 70

1. Stability of the global economic infrastructure 44 28. Level of female participation in the workforce 71

2. The level of economic growth 45 29. Cost and ease of access to higher education 72

3. Public attitudes to pure capitalism 46 30. Uptake of online learning models in education 73

4. Consideration of alternative economic perspectives 47 A4: BUSINESS 74

5. Total scale and distribution of global inequality and unmet needs 48 31. Capitalism next: future governing business and market paradigms 74

6. Globalisation v protectionism in times of economic uncertainty 49 32. Business leader responsiveness to change and disruption 75

7. Standing of the US dollar as the global reserve currency 50 33. Quality and availability of the global talent pool 76

8. Notions of value and currency 51 34. Influence of emerging financial centres 77

9. Broadening measurement of business value and progress 52 35. Choice of global business languages 78

10. Impact of BRIC market development on global accountancy firms 53 36. Scale of global mergers and acquisitions (M&A) 79

11. Freedom of mobility for global labour 54 37. Extent of foreign direct investment in developed and developing
economies 80
12. Extent of mergers of international stock exchanges 55
38. Scale of reverse innovation flow from emerging economies to the
13. Proportion of knowledge-creation activities as a share of the economy industrialised world 81
at the national and global level 56
39. Speed and duration of business cycles 82
14. Stability of national revenue bases 57
40. Experimentation with and adoption of new business models 83
15. Manageability of national and international debt 58
41. Crowdsourced funding for innovation: the consumer as investor 84
16. Level of investment required to maintain national physical infrastructure 59
42. Level of complexity in business 85
17. Number and impact of micro-businesses on the overall health of the
economy 60 43. Adoption of integrated systems thinking to manage business complexity 86

A2: POLITICS AND LAW 61 44. Living wills for businesses 87

18. Focus of global governance institutions 61 45. Enterprise risk management capability 88

19. Rate of democratic transition 62 46. Evolution of corporate governance regulation and practice 89

20. Level of international political volatility 63 47. Extent of social entrepreneurship in social and business sectors 90

21. Pace and extent of cultural globalisation 64 48. Scope and diversity of expectations of external stakeholders 91

22. Governance and delivery of outsourced public services 65 49. Pressure to manage corporate reputation as part of business strategy 92

23. Volume and complexity of legal regulation 66 50. Level of corporate commitment to social responsibility, investment,
philanthropy and volunteer work 93
A3: SOCIETY 67
51. Use of cash for financial transactions 94
24. Scale and distribution of global population growth 67
52. Management of accountability and compliance within the firm 95
25. Spread of cultural diversity in society and the workplace 68
53. The future role of intermediaries 96
26. Workforce age structure 69
54. Emergence of new industry sectors and professions 97

48

A5: SCIENCE AND TECHNOLOGY 98 A7: THE PRACTICE OF ACCOUNTING 124

55. The digitisation of work 98 81. Defining the scope of the accountant’s role 124

56. The use of personal technology in business 99 82. Size and complexity of the CFO’s remit 125

57. Impact of the internet and personal technology upon attention spans, 83. Non-financial information and integrated reporting 126
learning, and knowledge retention 100
84. Clarity in financial reporting and defining the audit function 127
58. Business impact of social media 101
85. Balance between external financial accounting and internal
59. Ease of internet access 102 managerial accounting 128

60. Adoption of cloud computing by business 103 86. Internal audit management 129

61. Creation and valuation of digital assets 104 87. Changing structures and business models for accounting firms 130

62. Cybersecurity challenges for business 105 88. Opportunities arising from adoption of global regulation 131

63. The future of digital publishing 106 89. Evolution of the global accounting supply chain 132

64. Big data: the development and exploitation of large organisational 90. Adoption of globally accepted accounting standards 133
databases 107
91. Impact of size-specific business regulation upon accounting practices 134
65. Data mining and predictive analytics 108
92. Rate of adoption of XBRL as an accounting data standard 135
66. ‘Intelligent’ accounting systems 109
93. Importance of intangible assets in company valuation 136
67. Scale of business opportunities associated with augmented and
virtual reality 110 A8: THE ACCOUNTANCY PROFESSION 137

68. New industries and production models 111 94. Societal expectations and definitions of accounting 137

69. Advances in genetic science 112 95. Flexibility, suitability and cost of accountancy training 138

70. The role of genetics in personalised health care 113 96. Accounting skills capacity in transitional economies 139

71. Advancements in brain science 114 97. Level of entrepreneurial skills in the accountancy profession 140

72. Impact of nanotechnology advances across business sectors 115 98. Public perception and attractiveness of the accountancy profession 141

73. Impact of advances in robotic science across business sectors 116 99. Establishment and recognition of accountancy associations in
developing markets 142
A6: ENVIRONMENT, ENERGY AND RESOURCES 117
100. Impact of competition from entrants outside the profession on the
74. Global climate change 117 provision of accounting services 143

75. Global competition for limited natural resources 118 ENDNOTES 144

76. Carbon tax and other environmental market mechanisms 119

77. Level of trade in environmental finance markets 120

78. Extent of eco-literacy, green practices, and ethical consumption
in business 121

79. Developing materiality of biodiversity impacts on business 122

80. Scale of take-up in alternative energy by business 123

100 DRIVERS OF CHANGE FOR THE GLOBAL APPENDIX CONTENTS 49
ACCOUNTANCY PROFESSION: APPENDIX

A1: Economy

1. Stability of the global economic infrastructure

DESCRIPTION IMPLICATIONS FOR/IMPACT ON BUSINESS AND THE
ACCOUNTANCY PROFESSION
The global economy, trade and financial flows are dependent
on a complex underpinning infrastructure that comprises a Uncertainty will be a dominant paradigm for the
range of key agreements, standards, systems, checks, decade ahead.
balances and governance frameworks. The stability of this
infrastructure has a direct bearing on global business Businesses will increasingly need to factor in the potential for
confidence, investment and spending. partial or total collapse of financial and trade infrastructures
in their strategic and financial planning.
Clear strains are already evident in the global financial
system. For example, the sovereign debt challenges facing Businesses must consider how the risk of partial or total
many European nations are putting pressure on the current infrastructure collapse would affect thinking on the choice of
operating models of both the European Monetary Union and a company headquarters and financial jurisdiction.
the wider European Union. Some analysts even predict that
the very nature of capitalism itself may undergo more than Questions arise as to how the collapse of the global banking
one transformation in the next 10 to 15 years. system would affect organisations, the availability of credit
and the accounting process.
As a result of these pressures, much of the global governance
infrastructure and its supporting systems and processes may IMPACT TIMEFRAME
need to be redefined or completely transformed. This will
require strong intergovernmental and multilateral 1–3 years
cooperation among countries in order to establish a
sustainable set of interconnected systems that can support KEY QUESTIONS OR UNCERTAINTIES THIS RAISES FOR
the global economy through its transition over the next 10 to ACCOUNTANTS
20 years.
What would widespread government-imposed austerity
measures mean for accountants, especially those in the
public sector?

Would the accountancy profession need to grow to handle
the necessary cuts in public spending or would its numbers
be significantly reduced as part of those cuts?

What financial mitigation strategies should and could be
adopted to cope with the potential collapse of the Eurozone?

What advice might the accountancy profession have to offer
to governments and global regulators on the design of the
future global economic system?

How can the profession show leadership during times of
economic instability?

50

2. The level of economic growth

The level of economic growth is a critical driver in any
economy. Growth expectations influence business A prolonged period of negligible or non-existent growth
confidence, consumer spending, government planning and could force governments and businesses to rethink
budgeting, and management of the micro and macro fundamentally their strategies and economic models and
economy. Economists’ views vary on both the likely level of would almost certainly lead to major disruption in the
growth over the coming years, and even whether growth economic and financial system.
remains a realistic and viable option in a turbulent world.
While the majority of economists continue to forecast some If growth slows even more or remains sluggish, the
level of growth, an emerging view is that constant economic importance of accountancy may increase, as accountants
growth can no longer be assumed, and we may have to think could be expected to help maximise the financial output
about and prepare for a world with zero or negative growth. achieved from a dwindling supply of resources.

The Economist Intelligence Unit (EIU) predicts that the Lower levels of economic growth could lead to a closer focus
Eurozone as a whole will return to growth in 2013, with an on the exploration of emerging markets and virtual
average annual growth in real GDP of around 0.8% between world opportunities.
2012 and 2016.1 Meanwhile, the US and the UK are predicted
to see average real annual GDP growth of around 2.1% and Firms might need to adapt their business models to reflect
1.1% respectively over the same period.2 The EIU also predicts new pricing models, eg small margins spread over a large
that the BRIC economies (Brazil, Russia, India and China) will number of clients.
continue to enjoy comparatively rapid growth rates, with
China and India projected to grow on average by 8.1% and Countries may have to adopt new national aims and
7.9% in real GDP annually between 2012 and 2016.3 performance indicators that replace traditional governmental
goals of economic growth.
Conventional wisdom and assumptions on the prospects of
growth are increasingly being challenged. A radical long-term IMPACT TIMEFRAME
economic view, taken by economists such as Richard
Heinberg, is that we could be about to witness the end of 4–5 years
economic growth as we have known it.4 Heinberg and others
argue that increasing stresses on the supply of key finite KEY QUESTIONS OR UNCERTAINTIES THIS RAISES FOR
energy resources, such as oil and natural gas, combined with ACCOUNTANTS
rising prices, will constrain the potential for continued global
economic expansion. Heinberg predicts that, in this resource- What role can accountants play in helping businesses ‘future
constrained world, economic growth will become a zero-sum proof’ themselves against volatile, uneven or persistently
game, where growth for some will be achieved only at the low growth?
expense of other regions, nations, or businesses.5
Are accountants developing the skills required to respond to
The challenge for policymakers and economists is learning a range of economic and market scenarios and modelling
how to plan for possible scenarios ranging from continued their financial impacts?
growth through to a future where progress is still made, but
within a zero or negative growth economic model.6

100 DRIVERS OF CHANGE FOR THE GLOBAL A1: ECONOMY 51

3. Public attitudes to pure capitalism

DESCRIPTION Remuneration packages may come under close public
scrutiny and audit procedures will be subject to heightened
In the wake of the global financial crisis (GFC), attitudes to media interest.
capitalism and the capitalist system appear to have become
more polarised, particularly as regards the Anglo-American There is potential for a tighter regulatory environment and
model of capitalism. Some have argued that while the system transaction taxes (ie Tobin Tax).
has its flaws, it is still functioning effectively and is the best
mechanism for driving growth and wealth distribution. Others Attention will be paid to ‘footloose’ firms, the level of local
believe that the system is in need of a fundamental rethink to taxes paid by global businesses and the motivation for
prevent future crises and ensure a better deal for the poorest relocation decisions.
in society.
A potentially growing trend is a move away from the maximisation
Those arguing the need for total reform point to continuing of shareholder value as the key business objective towards a
public antagonism towards financial services and to focus on wider stakeholders’ interests, even in countries that
developments, such as the occupation of public spaces from have traditionally been shareholder focused.
Wall Street to London, as clear indicators of the level of
dismay at the global economic system. They contend that Disillusionment with the current form of capitalism could
the current system has not addressed global poverty, and has result in the revitalisation and reformulation of alternative
indeed served to exacerbate social inequality, increased economic models based on some hybrid of communist or
environmental risks and created enormous public socialist principles.
budget deficits.
IMPACT TIMEFRAME
Public opposition to the current model of capitalism has led
to social unrest in some countries, and a loss of support for 1–3 years
strongly pro-business governments in other cases. These
worldwide concerns about income disparity created by KEY QUESTIONS OR UNCERTAINTIES THIS RAISES FOR
unfettered capitalism and deregulation have led to growing ACCOUNTANTS
calls for ‘solutions that serve the 99%’.
What impact will public concerns have on expectations of
The challenge facing many developed-economy governments, corporate reporting?
in particular, is how to balance the demands for reform from
How can accountants be equipped to advise companies and
the voting public, with the need to attract and encourage the
governments on more balanced policies that address the
private sector wealth-creators who can help drive growth and
concerns of multiple stakeholders and reduce
economic recovery.
income disparity?
IMPLICATIONS FOR/IMPACT ON BUSINESS AND THE What role will the accountancy profession play in ensuring
ACCOUNTANCY PROFESSION that key performance indicators for state services are met?
Will country policies on business regulation and personal
Not only may standards of behaviour become stricter but, in
taxation influence accountants’ decisions on where to work?
the ‘show me’ world of tomorrow, business could also be
expected to demonstrate it is meeting public expectations by How can accountants distance themselves from the public
reporting to the world on its actual behaviour, eg on carbon criticism faced by other key players in the capitalist system?
footprint, diversity and actual taxes paid.
Can accountants develop measurement systems that are
capable of valuing softer factors beyond money?
Concepts such as justice and fairness could be included in
the reporting expectations being placed on business. Will accountants be able to operate in systems that deal with
estimates of abstract concepts rather than the hard matters
Criticism levelled at business leaders, and finance in of cash and P&L?
particular, could create a hostile social environment
for accountants. Can accountants leverage their reputation as ‘trusted
measurers’ on behalf of society?

52

4. Consideration of alternative economic perspectives

The financial crisis has offered a chance for nations to explore
new economic perspectives and models traditionally A serious examination of alternative economic perspectives
neglected by mainstream economic thought. A serious by firms and nations could lead to a period of economic
examination of these perspectives could help reformulate the experimentation, whereby new business and working models
global economic system along more environmentally could be trialled.
sustainable and equitable lines, and prevent the reoccurrence
of further financial collapses. Accountants could play an important role in a closed-loop
economic model, by keeping track of an organisation’s assets
One such perspective is Collapsonomics, which is the study and ensuring that all forms of waste are recycled.
of economic and state systems at the edge of their normal
social and economic function. The study of systems on the IMPACT TIMEFRAME
verge of or in collapse could help economists and
policymakers to construct preventative measures to avoid the 1–3 years
destructive feedback loops and vicious cycles that can lead to
collapse.7 KEY QUESTIONS OR UNCERTAINTIES THIS RAISES FOR
ACCOUNTANTS
An alternative perspective is Closed Loop Economics, which
takes its inspiration from biological systems in which nutrients How can accountants make use of the ideas generated by
are used in a circular system, so that all waste is reinvested.8 A alternative economic perspectives to provide innovative
circular economy would aim for the elimination of all waste strategic financial advice?
through the superior design of materials, products, systems
and, within this, business models.9 What might be the impact of an increasing overlap with
science and mathematics on the practice and study
The disquiet with most economists’ failure to predict the of accountancy?
financial crisis and the wide range of divergent views about
how best to reignite the global economy could lead to What new, alternative economic perspectives could be
growing calls for other sciences to contribute to the field. generated from sources beyond accountancy?
For example, mathematicians, biologists and physicists all
study complex systems and algorithms whose behaviour may
offer better insights into the behaviour of markets and
economies than traditional economic tools.


5. Total scale and distribution of global inequality and unmet needs

In its 2012 report on global risks, the World Economic Forum
cited ‘severe income inequality,’ as the primary threat facing Polarisation of consumer markets into luxury and budget
the world in the next ten years.10 The OECD notes that there is sectors is becoming a distinct possibility in many countries.
a growing body of research that indicates that higher income
inequality within countries correlates with higher Social and political stability of key markets could become
unemployment, higher crime rates, lower average health, increasingly important factors in analysts’ assessment of a
weaker property rights, limited access to public services, firm’s prospects.
lower social mobility, more social unrest, and less trust within
and across the society, leading to more fragile democracies.11 Margins within many industry sectors may be constrained,
resulting in consolidation.
The Gini coefficient, a measure of the concentration of wealth
within an economy and thus of inequality, is set to rise in IMPACT TIMEFRAME
many major economies. A coefficient of 1.00 (100%)
represents absolute inequality whereby one person owns all 4–5 years
the wealth and 0 represents absolute equality.
KEY QUESTIONS OR UNCERTAINTIES THIS RAISES FOR
South Korea is the only rich country that has succeeded in ACCOUNTANTS
reducing inequality during the last two decades. Oxfam
reports that of the emerging economies only Brazil, Argentina How might social and political instability be factored into risk
and Mexico have done so, though their overall level of assessments of enterprises?
inequality remains high.12
How might accountants address the unmet needs of those
Forecasts from Euromonitor suggest that between 2011 and outside the mainstream?
2020, Pakistan will see the highest relative increase in its Gini
coefficient, rising from 0.389 to 0.417 as a result of a high How might global inequality ultimately affect the markets in
poverty rate and a growing rural-urban divide. Other which global financial services players choose to operate?
countries projected to see significant increases in
income inequalities include Norway, South Korea, India,
Canada and the UK.

The UK’s Gini co-efficient is projected to rise from 0.337 in
2011 to 0.35 by 2020. Despite robust economic growth,
China’s Gini coefficient is forecast to reach 0.521 by 2020, up
from 0.516 in 2011. Meanwhile, income distribution in Latin
American countries, including Brazil and Mexico, is expected
to continue improving.13

54

6. Globalisation v protectionism in times of economic uncertainty

Market-driven mechanisms and globalisation are seen to have
opened up the world to businesses and brought increased Uncertain economic futures create both opportunities and
prosperity and well-being to the world at large. These challenges for domestic firms.
enablers have improved the overall living standards of many
developing nations by increasing economic growth. This ‘free A change in a host nation’s attitudes towards foreign firms
global market’ has also enabled the efficient and effective could lead to a tightening of regulations around investment
use and allocation of resources to achieve enhanced requirements and repatriation of profits.
economic outcomes.
Regular country-risk assessment will become an increasing
Faced with continued economic uncertainty, countries are priority if protectionist tendencies increase.
experiencing more intense competition among themselves
for resources, investment, talent and export markets. There Continuous changes in the speed and scale of fiscal
are signs that these competitive pressures could force regulation and legislation will affect accounting processes,
countries to look inwards and put the short-term concerns financing approaches, the complexity of reporting
and needs of their domestic populations ahead of those of arrangements and the required skill-sets.
the global economy. Could this spell an end to globalisation
or might there be further integration? While globalisation and IMPACT TIMEFRAME
free trade agreements proliferated at a time of growth,
protectionism is no longer a taboo subject in the circles of 1–3 years
power. This comes at a time of increasing criticism of free
trade, and concerns over individual nations’ exposure to KEY QUESTIONS OR UNCERTAINTIES THIS RAISES FOR
unstable global economic conditions. ACCOUNTANTS

Some countries outside the Euro-American nexus have How effective are accountants’ mechanisms for spotting
already displayed signs of adopting increasingly protectionist potential changes to attitudes or legislation that could
measures by, for example, restricting export supply to push directly affect the ability to trade in particular markets?
up the global prices for certain commodities. Already, Russia
has announced a limit on its oil exports and a cessation of Could accountancy firms, if asked to help sustain Western
grain exports and China is limiting exports of rare earth protectionism, face a backlash and restrictions if they attempt
resources and access to its oil.14 to operate in other global markets?

How might increased protectionism affect the internationalisation
of business and trade and the accountants working in
these fields?


7. Standing of the US dollar as the global reserve currency

A critical enabler of global trade is the notion of a strong
global reserve currency, used as the basis for international Uncertainty surrounding the dominant global currency could
pricing of a wide range of commodities, goods and services. create difficulties in the valuation of goods and services.
The reserve currency is held widely by nations and
corporations as part of their foreign reserves. The US dollar Multinational businesses will increasingly have to consider
has served this purpose since the Second World War. accounting in multiple strong global currencies.

In the wake of global financial turbulence and continued Valuable non-renewable resources (particularly oil) and other
economic uncertainty in the US, the role of the US dollar as commodities could increasingly be priced in other currencies
the global reserve currency is increasingly being called into such as the yuan rather than the US dollar.
question. The shift in global financial power to the East is
already being reflected in the broadening range of global Businesses will face uncertainty over the stability of
currencies being held by countries around the world. exchange rates.

Some analysts suggest that the commitment in China to Currency hedging will become an increasingly fine art and
liberalise its capital and current accounts will accelerate high-risk activity, as markets anticipate potential shifts away
demand for yuan globally and could lead the yuan to become from the US dollar to other reserve currencies.
a major reserve currency in the next decade. Others suggest
that a successor to the current euro – with fewer but stronger IMPACT TIMEFRAME
members – could overtake the US dollar to become the
world’s most widely held reserve currency over the next 4–5 years
10 years.
There is a risk that any individual currency aiming to serve as a ACCOUNTANTS
global reserve currency could be susceptible to volatility and
speculative attacks, and be unduly influenced by the policies Would multinational firms move to publishing their accounts
of the country whose currency serves as the in multiple currencies if the US dollar’s standing as a global
super-sovereign reserve. reserve currency were challenged by currencies such as the
euro or yuan?
The International Monetary Fund (IMF) is considering creating
a list of currencies that could serve collectively as a reserve. Would a move to adopt the yuan as a global reserve currency
This could avoid the pitfalls of a single reserve by diversifying lead more firms to publish their accounts in yuan under
the currencies that can be drawn upon, ensuring no single Chinese accounting standards?
currency dominates globally.

56

8. Notions of value and currency

The effective functioning of national and global trading
systems requires commonly accepted notions of value and Demand for new measurement systems may emerge if money
currency that perform as a universal mechanism through is no longer the sole common denominator or measurement unit.
which goods and services can be bought and sold. In an
electronic world, the future of money as a token of exchange P2P and business-to-business platforms that eliminate the
may alter radically. Concepts of what constitutes money may intermediary role could lead to far less dependency on banks.
change as well as what is valued, how it is measured and what
will be important to individuals, communities, businesses, There could be a rise in small and micro-business start-ups
and governments. trading in different forms of currency – such firms might be
rated as ‘high risk’ using traditional assessment techniques.
Examples of transformations of the conceptual notion of
money, debt and currency and new modes of value can be Changing paradigms around who is creditworthy and a move
found in a number of existing and proposed exchange towards ‘inclusion led’ finance and banking may bring many
systems, for example: more people into higher economic strata, which could be
good for business and trade generally.
• the proliferation of virtual currencies, such QQ in China,
which can increasingly be used to purchase goods and Value circulating in the system without being recorded as
services in the physical world auditable currency could create massive complexity for tax
regulators and revenue collection agencies.
• local (sub national) currencies – essentially tradable
vouchers designed to encourage spending in the local New adaptive tax systems could emerge that would be able
economy, eg the Brixton and Lewes pounds15 to account for these new modes of value exchange and
extract some form of tax payment back to the state.
• time banking, built on reciprocal exchange of services and
‘time’ rather than currency IMPACT TIMEFRAME

• peer-to-peer (P2P) credit networks, where individuals who 10+ years
trust each other transact using mutual credit accounting,
rather than money KEY QUESTIONS OR UNCERTAINTIES THIS RAISES FOR
ACCOUNTANTS
• the emergence of ‘guarantee societies’ managing a
two-way system of community credit (lifting from and How will the finance function account for such non-financial
adapting the micro credit model, where pools of users transactions and the resulting assets and liabilities
mediate between the lenders and borrowers) for business?

• trading units, ie tokens redeemable in energy resources How could accountants use their experience and insight to
that are not connected to income or production innovate systems even further to create new non-financial
mediums of exchange?
• hybrid forms of gift and market economies – a society
where the process of giving away valuable goods and Will the range of skills required by accountants need to
services without explicit agreement for immediate or expand even further to reflect the demand for expertise in
future rewards, mixes with the traditional supply and these ‘money 3.0’ paradigms and new methods of exchange?
demand price-based system of the market economy.


9. Broadening measurement of business value and progress

How we assess value, progress and performance for business
is increasingly influenced by the range of measures being How might the reporting requirements on global business
adopted for country comparisons. This range of comparative evolve to take account of wider societal measures
national measures is expanding rapidly to take account of of progress?
non-financial measures of development encompassing
everything from innovation to happiness. As the scope of Will the challenge of presenting this broader more integrated
global businesses become more far-reaching, there is a picture of performance – including non-tangible measures
growing view that multinationals should be measured on like resilience and talent – be seen as the role of the
similar indicators to nations and cities. finance function?

Institutions such as the UN, the IMF, the World Bank and a Could this present competitive opportunities for
range of other bodies now compare countries, regions and organisations that successfully demonstrate positive
cities on an increasingly holistic set of measures. These measures in employee happiness or environmental
comparative indicators range from broad economic measures performance – making them more attractive to stakeholders,
such as GDP growth and unemployment through to factors as investors and customers?
diverse as health, innovation, entrepreneurship, trust,
resilience, talent, happiness, sustainability, and environmental Could businesses that lag behind on the implementation of
performance. and performance against these ‘new measures’ be subject to
increased taxes and compromised reputations?
An example of these broader measures of progress that has
reached the mainstream is the UN Human Development IMPACT TIMEFRAME
Index (HDI),16 which measures development progress by
combining indicators of life expectancy, educational 4–5 years
attainment and income into this composite measure.
ACCOUNTANTS

How will such changes affect the fundamental role of
accountants in business?

How will financial and non-financial information be presented
and weighted in annual accounts?

Will non-financial data be perceived as being of lower
importance?

What are the training implications if accountants are to be
prepared effectively to take on this far broader
reporting role?

58

10. Impact of BRIC market development on global accountancy firms

The global economy is re-balancing. Traditional markets and
zones of economic and political power are experiencing Western accountancy firms must ensure that they develop the
considerable turbulence, while new centres of influence are appropriate cultural awareness of business practices, service
emerging. This shifting landscape will continue to create both delivery expectations and knowledge of the regulatory
opportunities and challenges for global accountancy firms. context to compete effectively in BRIC countries.

The BRIC economies are becoming increasingly important as Economies such as China and India have significant
markets in their own right and as sources of future differences in corporate culture and client expectations with
competition for the traditionally dominant economies. These regard to the conduct of commercial activity and the delivery
nations, and India and China in particular, represent the of business services. Western accountancy firms are likely to
fastest-growing among the emerging large economies need to adapt their practices and employ local or hybrid staff
globally. They are becoming increasingly similar, in terms of who are better able to meet these expectations in
economic power, to the older industrial economies with which BRIC economies.
they are now competing. For example, in 2012, Brazil
overtook the UK to become the sixth-largest global economy New global accountancy firms may emerge from the BRIC
in GDP terms.17 economies (although they may not choose to compete in all
major global markets).
As the 21st century proceeds, growing economic power will
be reflected in the increased significance of domestic BRIC IMPACT TIMEFRAME
firms and the markets they create for services such as
accountancy. The BRIC nations are also nurturing domestic 6–10 years
accountancy firms that will compete increasingly at the global
scale with those from more established economies. These KEY QUESTIONS OR UNCERTAINTIES THIS RAISES FOR
developments will create significant drivers of change in the ACCOUNTANTS
competition for global market share.
How might the nature and expectations of accountancy
Of particular interest is the potential for established service provision change in emerging markets?
multinationals from mature economies to start to transfer part
or all of their business to accounting firms from the BRIC In an increasingly crowded global marketplace, what is the
economies – as is happening in other sectors such as scope for internationalisation of accountancy firms?
information and communication technology (ICT). The
growing importance of emerging economy firms and What are the market penetration prospects in closed or
business practices may also bring about cultural change in highly regulated environments such as China?
how accountancy firms in the G8i economies deliver services
to clients. What will be the level of competition from domestic firms in
emerging markets?

How can accounting firms secure and retain sufficient local
talent and expertise in these rapidly expanding markets?

i. The G8 member countries are Canada, France, Germany, Italy, Japan, UK,
US, and Russia.


11. Freedom of mobility for global labour

Since the 1960s in particular, cheap transport, globalisation of
business and a rise in the number of economic migrants have National employment legislation may make it increasingly
made labour mobility the widespread norm. Many argue that difficult to offer better terms to expatriate workers.
inward migration is and will remain a key driver of innovation
and growth. Nonetheless, questions are now arising about More restricted mobility could lead to major shifts in how
the future global sustainability of widespread migration in a global firms recruit and develop staff.
harsher and potentially more protectionist economic climate.
How will the rise and fall of labour mobility affect xenophobia
With global financial uncertainty and rising unemployment for or even nationalistic and extremist views on and the
nationals in many markets, there is, in some countries, protection of non-national workforces?
increasing pressure to protect local jobs from foreign
workers. Labour market migrants are not always finding a IMPACT TIMEFRAME
warm welcome for their skills and energies. Those working
remotely for national organisations may currently be more 4–5 years
protected but labour laws in some countries are resisting the
increased level of labour mobility even at the highest KEY QUESTIONS OR UNCERTAINTIES THIS RAISES FOR
skill levels. ACCOUNTANTS

The operating model of many global businesses relies on a Will global firms increasingly be expected to report and be
high degree of global labour mobility to allow talent to be evaluated on the geographic distribution and global mobility
deployed where it is most required. This constant global of their top talent?
rotation of talent also helps develop and sustain common
working practices, standards and culture within these How might accounting practices in global companies be
multinational firms. A shift from a globalised to nationalised affected if accounting staff cannot move freely
labour market could have severe implications for many firms. between countries?

60

12. Extent of mergers of international stock exchanges

Stock exchange mergers have been more common since
2007.18 The current wave of mergers between securities Mergers could bring potentially significant realignment of
exchanges was driven by opportunities arising from new financial centres.
technologies and regulatory reforms affecting derivative
instruments in European and American markets. For example, The influence of a given nation’s regulatory environment
Intercontinental Exchange purchased the Britain-based could spread via mergers of capital markets.
Climate Exchange PLC for US$597 million in 2010.19
The world’s capital markets could potentially consolidate into
Following the GFC, regulators began forcing derivatives three or four major world centres.
trading onto exchanges, and since the volume of derivatives
outstanding is a large multiple of world GDP, the revenues IMPACT TIMEFRAME
available became substantial. The other driver behind the
desire to merge has been the emergence of computerised 1–3 years
high-frequency trading. To meet traders’ demands for faster
and more complex deal matching, securities exchanges are KEY QUESTIONS OR UNCERTAINTIES THIS RAISES FOR
constantly required to invest large sums of capital to establish ACCOUNTANTS
and upgrade sophisticated information systems platforms.
Cost pressures and potential economies of scale are Could consolidation among capital markets lead to
contributing to the attractiveness of stock exchange mergers. standardised transaction accounting practices
across regions?
While the attractions are significant, major barriers exist to
driving through these mega-mergers. For example, in 2010, Is a standardised market the best way of inducing
Singapore Exchange Ltd agreed to a US$8.3 billion takeover transparency and visibility? How could such transparency
of Australia’s ASX Ltd in an attempt to create Asia’s fourth- benefit accountants?
largest stock exchange – this was subsequently rejected.
Might accountancy firms similarly cluster around a
Similarly, the proposed €6.8 billion tie-up between Deutsche consolidated global capital market structure (ie in three or
Börse and NYSE Euronext would have been the largest-ever four mega-centres)?
merger between international financial exchanges. The
merger has been blocked by the European Commission on
anti-competition grounds.21 Despite these merger attempts,
the drivers supporting further consolidation and integration
of the world’s capital markets remain intact.


13. Proportion of knowledge-creation activities as a share of the economy
at the national and global level

DESCRIPTION relatively small pool of highly skilled professionals. Hence,
while businesses in these sectors are attractive from a
Conventional wisdom in industrial policy has been that wealth-creation perspective, they do not help address the
innovation is a key driver of economic growth and growing challenge of achieving full employment within
development. The growth of the so-called ‘knowledge-based an economy.
industries’ has been seen as a critical enabler of innovation.
The knowledge economy can be broadly defined as a shift in IMPLICATIONS FOR/IMPACT ON BUSINESS AND THE
investment priorities towards the creation and exploitation of ACCOUNTANCY PROFESSION
knowledge and intangible assets such as R&D, software,
design, development and human and organisational capital. What technology infrastructures should businesses invest in
Nations across both the mature and emerging markets are so as to promote and enhance knowledge creation, sharing
putting the knowledge based industries at the heart of their and innovation for competitive advantages?
future plans and economic development strategies.
There may be a risk of creating an overqualified and
Technological development and globalisation are seen to act underused workforce with a rapid expansion of higher
as accelerators to the growth of the knowledge economy. education that is not matched by an increase in knowledge
Cheap and pervasive ICT and widespread education to work opportunities.
graduate level and beyond are also identified as defining
characteristics of a knowledge-based economy. Conversely, the skills developed in education may not be
those required in the growth of the knowledge economy.
The link between the knowledge economy and job creation is
an important one. A study from the Work Foundation reports As the effect of location is less important, opportunities and
that the number of knowledge workers in the UK and other challenges may emerge for business with the increasing
OECD countries has been growing for the past 25 years.22 The internationalisation of knowledge work.
study also indicates that the knowledge-intensive industries
have been major creators of new jobs in European economies IMPACT TIMEFRAME
for the past two decades. The Work Foundation’s report
showed that between 1979 and 2010, employment in 1–12 months
knowledge-intensive services in the UK increased by 93%.23 In
contrast, the total employment across the UK economy went KEY QUESTIONS OR UNCERTAINTIES THIS RAISES FOR
up by only 13% over the same period, indicating a sharp ACCOUNTANTS
increase in the total proportion employed in knowledge-
creation activities. Do current practices and standards for measuring and valuing
intangible assets match up to the needs of the
There are important geographic issues to consider here, as knowledge economy?
knowledge work can be highly mobile. A British example of
this problem is that markedly less private-sector knowledge What role does the profession have to play in ensuring that
work is being conducted outside the south east of the UK, there is effective government policy on knowledge
with many cities in the north of the country being left creation activities?
behind.24 Furthermore, the phenomenon known as the ‘brain
drain’ might have negative consequences for the economies How can accountants demonstrate ‘in traditional terms’ the
that made the original investment in the education of value of investing in knowledge-enhancing activities?
knowledge workers. ‘Brain drain’ is a risk that faces both
developing and developed countries.

One of the big concerns emerging around the knowledge-
based industries of tomorrow is that they are not creating the
same number of jobs as the declining sectors that they are
replacing. Many of these new information age and ‘biological
era’ businesses rely on a high degree of automation and a

62

14. Stability of national revenue bases

DESCRIPTION For countries with unstable economic bases, a priority is to
establish a diversified tax structure that reduces dependency
The stability of national revenue bases is considered a on any one source of revenue.
prerequisite for the economic well-being of countries as it
affects governments’ ability to provide public services. IMPLICATIONS FOR/IMPACT ON BUSINESS AND THE
Research from the University of Kentucky (2008) suggests that ACCOUNTANCY PROFESSION
the stability of a nation’s revenues depends on the level of
economic development and the robustness of its tax In countries with an unstable economic base and
systems.25 The challenge globally is to ensure that sufficiently underdeveloped tax systems, there is a risk that an undue tax
diverse revenue sources and robust collection mechanisms burden may be placed on the corporate sector, as it is easier
are in place to enable sustainable growth and development to assess and collect taxes from businesses than from other
of emerging economies. parts of the economy.

Generally, government revenues are derived from direct In countries with unstable revenue bases, there may be
taxes paid by households (mainly personal income tax) and increased risk of sudden and dramatic changes in revenue
corporations; and indirect taxes, social contributions and policy and taxation rates – particularly for foreign firms.
revenues from state owned assets and enterprises.26 In OECD
member countries, taxes other than social contributions have IMPACT TIMEFRAME
generally increased over the past decade and represent the
largest share of government revenues.27 For OECD member 1–12 months
states, grants and other income revenues such as fees and
sales of natural resources represent between 10% and 15% of KEY QUESTIONS OR UNCERTAINTIES THIS RAISES FOR
total revenues. By generating revenues from multiple sources, ACCOUNTANTS
governments can distribute the burden across different
groups of citizens and sectors of the economy. How should the relative stability of a nation’s revenue base be
factored into country risk assessments?
A major concern for many economies is the scale of the
so-called black or shadow economy. This comprises a largely What role can accountants play in crafting effective tax
cash-based, illegal, unlicensed and untaxed set of activities systems for developing countries to help ensure the stability
ranging from trade in counterfeit goods to narcotics, of revenue bases?
prostitution and human trafficking. The total value of illicit
trade in what is believed to be, in effect, the world’s fastest-
growing economy is now estimated at US$10 trillion globally
– making it the second largest global economy after the US.28
The OECD projects that, up to two-thirds of the world’s
workers will inhabit the shadow economy, or ‘System D’ii by
2020.29

ii. Robert Neuwirth in his article the ‘The Shadow Superpower’ <http://www.
foreignpolicy.com/articles/2011/10/28/black_market_global_economy>
explains that ‘System D is a slang phrase pirated from French-speaking Africa
and the Caribbean. The French have a word that they often use to describe
particularly effective and motivated people. They call them débrouillards. To
say a man is a débrouillard is to tell people how resourceful and ingenious he
is. The former French colonies have sculpted this word to their own social and
economic reality. They say that inventive, self-starting, entrepreneurial
merchants who are doing business on their own, without registering or being
regulated by the bureaucracy and, for the most part, without paying taxes, are
part of ‘l’economie de la débrouillardise’ or, sweetened for street use,
‘Systeme D’. This essentially translates as the ingenuity economy, the economy
of improvisation and self-reliance, the do-it-yourself, or DIY, economy.’


15. Manageability of national and international debt

The manageability of national and international debt is
important for macroeconomic stability, business confidence If fiscal consolidation fails to reduce debt to GDP ratios, the
and future economic development prospects. Levels of debt interest burden could rise to a point that affects
public debt also have important ramifications for citizen sovereign creditworthiness.
well-being, unemployment levels and the provision of social
welfare services. Globally, the economic outlook is In the countries with the highest debt to GDP ratios, how will
increasingly influenced by the views of policymakers, central budgetary consolidation and structural reforms affect
bankers and financial institutions on the sustainability of business and financial markets?
sovereign debt – particularly among Eurozone nations.
What might be the subsequent knock-on effects if public
The OECD reports that government debt as a percentage of debt issues overwhelm capital markets and suppress private
GDP in 2012 is 97% for the UK, 103.6% in the US, 102% in sector lending?
France, 128.1% in Italy and 181.2% in Greece.30 The total for all
OECD countries is 105% in 2012, and is predicted to rise to IMPACT TIMEFRAME
108% in 2013.31 Deutsche Bank’s own baseline scenario, which
assumes gradual fiscal consolidations, projects that public 1–12 months
debt in the developed market economies will rise to around
126% of GDP in 2020, up from roughly 104% in 2010.32 KEY QUESTIONS OR UNCERTAINTIES THIS RAISES FOR
Deutsche Bank also warns that if policy action for managing ACCOUNTANTS
and reducing the levels of public debt is not successful, it
could feasibly rise to well above 150% of GDP in the OECD What mitigating strategies are being put in place to address
developed market economies by 2020.33 potential default by highly indebted countries?

Dealing with potentially rising levels of sovereign debt is likely What planning is in place to deal with the potential collapse
to dominate the global economic agenda for a decade or of the Eurozone in the event that one of its major
more. The challenges faced by highly indebted countries in economies defaults?
servicing increasingly high interest rates on their debt raise
the prospect of further expensive bailouts and a growing risk
of debt default. The concern is that default by a major player
such as Spain could lead to a ‘domino effect’, with markets
losing faith in other highly indebted nations – resulting in a
major global economic collapse or a serious downturn.

64

16. Level of investment required to maintain national physical infrastructure

Physical infrastructure forms the economic backbone of all
economies. The quality and resilience of a national Are the market conditions appropriate to attract private
infrastructure has a direct influence on the growth, finance to provide equity capital for large complex
competitiveness and attractiveness to inward investment of a infrastructure projects?
nation’s economy. The standard of economic infrastructure,
encompassing water, waste, transport, energy and What new opportunities arise for the private sector with a
communications, affects the quality of life for citizens as well possible expansion of public-private partnerships for
as the ability to meet objectives and commitments regarding infrastructure investment?
sustainability and reducing carbon emissions.
Will direct foreign government or private investment in
Globally, increased levels of investment will be required to domestic national infrastructure projects disadvantage
maintain and modernise existing infrastructure and meet the national firms?
new challenges arising from population growth, economic
development and sustainability challenges. The funding of IMPACT TIMEFRAME
major infrastructure investments is becoming a major
problem for governments in an uncertain global economy. To 1–12 months
put the requirement in context, the OECD estimates that total
cumulative world infrastructure investment requirements from KEY QUESTIONS OR UNCERTAINTIES THIS RAISES FOR
2011–30 will be in the region of US$200 trillion.34 ACCOUNTANTS

For the UK, data from HM Treasury shows that investment in What specifics in accounting and business expertise will be
UK infrastructure was £150 billion over the five-year period required to navigate the sometimes complex combinations of
between 2005 and 2010.35 The demand for future investment partnerships across sectors that increasingly will be used to
in the UK’s economic infrastructure is estimated to be in the finance infrastructure development?
range of £40 billion to £50 billion or more a year until 2030.
HM Treasury suggests this scale of investment required is How will the regulatory and policy frameworks of private
significantly above historic levels. procurement affect the operating context for the financing
and auditing of large long-term infrastructure investments?
A growing number of competing priorities for public funds, a
negative economic outlook and the credit crisis means that
governments are under pressure to be creative in raising the
money for infrastructure needs. Governments worldwide are
looking at a range of proven and innovative new financing
models and a portfolio of hybrid approaches. These are likely
to include a variable range of public–private partnerships
(PPP), private finance initiatives (PFI),36 flotations, community
funding models, total privatisations and
securitisation models.


17. Number and impact of micro-businesses on the overall health of
the economy

Micro-businesses are an increasingly important part of the
economy because they diversify national employment risk, Inuit’s The Future of Financial Services 2020 Report predicts
can be started relatively quickly and are often in key intense competition to serve smaller businesses – leading to
knowledge-based industry sectors. The standard EU lower margins.41
definition of a micro-business, and the one also accepted by
the UK government, is a company employing fewer than ten Inuit also suggests that the small business sector will continue
people and with a turnover of less than €2 million (£1.6 million; to expand driven by growth of personal (one person) and
US$2.4 million). Under this definition, 95% of UK companies micro- businesses (fewer than five employees). This will create
qualify as micro-businesses.37 opportunities for financial institutions that can serve these
small firms efficiently.
With high rates of structural unemployment in many OECD
economies, the argument that the number of micro- Increasingly, the internet is enabling micro-businesses to be
businesses will increase seems compelling. During 2010, global from day one – creating a different set of support
Americans started an average of 565,000 businesses a requirements than for those serving purely domestic markets.
month.38 Whether out of necessity, choice or strategy, the
confluence of technology and globalisation is enabling a IMPACT TIMEFRAME
whole new generation of global micro-business. Estimates
suggest that 40% of the US workforce could comprise 4–5 years
contract workers by 2020,39 highlighting the increasing allure
of starting a micro-business and hiring out your labour to a KEY QUESTIONS OR UNCERTAINTIES THIS RAISES FOR
range of firms. While the focus is typically on firms in the ACCOUNTANTS
knowledge economy, many micro-businesses are in sectors as
diverse as catering, construction and personal services. How can accountants provide a customised, value-adding
service for micro-businesses?
Analysis from Booz & Company predicts that, by 2020,
870 million women who have not previously participated in How can accountants adapt to potentially
the mainstream economy will gain employment or start their decreasing margins?
own business. Most of these are expected to come from
emerging economies, while roughly 42 million are forecast to What business model could be adopted to serve large
come from North America, Western Europe and Japan.40 The numbers of micro-business clients efficiently?
challenge for governments is creating the right policies,
support infrastructure and incentives to encourage the
growth of micro-businesses.

66

A2: Politics and law

18. Focus of global governance institutions

A network of governance institutions operating at the
international level largely took shape during the first half of Businesses will need to pay increasing attention to the
the 20th century to regulate economic, political and social policies and attitudes of a growing range of regional
dynamics and foster international collaboration. Questions groupings when looking at regional and country strategies
are now being raised over how well these institutions can and risk assessments.
govern and steer the emerging world order and respond to
the pace of global change. Western-dominated institutions that set global economic
standards could see control gradually transfer to the East, or
Institutions such as the World Bank, IMF, World Trade find themselves marginalised by entirely new
Organization (WTO) and the UN could face intensifying international organisations.
pressure to adapt their structures to the reality of the
changing world. These organisations were created in a Could Western countries accepting bailouts from newer
previous era when a different set of rules existed, set by the global institutions following Eastern economic standards be
West, and they still largely reflect a global order that existed forced to remodel their economies using Eastern
immediately after the Second World War. With economic economic practices?
power increasingly shifting eastwards, many parts of the
world now look to China, in particular, for direction Emphasis on national economic measurements based on
and support. intangible financial and monetary markets could lessen in
favour of tangible goods and services market measurements.
Global institutions are evolving at a relatively slow pace in
response to a changing global landscape, with more diverse The face and nature of globalisation could change, with China
centres of political and economic power and influence. An and India advancing (and possibly protecting) domestic
example of this is the continuing UN negotiations in respect knowledge industries, while helping them to export their
to granting a permanent Security Council seat to India. offerings globally.

The G20 grouping has become an increasingly prominent IMPACT TIMEFRAME
forum for bringing together leading developed and
developing nations. There is, however, still a belief among 10+ years
developing nations – such as the G77 grouping – in particular
that they need a stronger voice in the wider set of global KEY QUESTIONS OR UNCERTAINTIES THIS RAISES FOR
governance institutions. ACCOUNTANTS

While existing institutions are proving themselves slow or What would the implications be of greater influence of the
reluctant to change, the argument that the number of developing economies on global accounting standards?
micro-businesses will increase seems compelling and other
groupings are emerging and becoming more influential. For Could accounting talent follow the shift of global
example, the Shanghai Co-operation Organization, the Gulf governance eastwards?
Cooperation Council, and the Association of Southeast Asian
Nations (ASEAN) have all assumed increasing prominence in
the last decade. There is concern in some quarters that there
could be a dilution of value and influence of the Western
nations as developing economies seek to pursue their own
agendas in these newer regional groupings.

100 DRIVERS OF CHANGE FOR THE GLOBAL A2: POLITICS AND LAW 67

19. Rate of democratic transition

The rate of democratic transition can be important to
businesses for many reasons. Political changes may open up Firms may find public sector contracts being reviewed or
the economy, attract foreign investment, create business cancelled if regime change brings in a government that wants
opportunities and drive the growth of domestic segments to distance itself from the commercial dealings of its
but swift changes in power can be violent and disruptive – predecessor and start with a clean sheet.
causing economic downturns and depressing consumer and
business activity. Changes may also create political and Regime change may create fresh opportunities for
economic instability, or bring changes in legislation that are foreign business.
unfavourable to business, all of which contribute to an
uncertain business climate. If China entered a period of swift political reform that
reduced domestic growth, this could have global economic
The consequences of swift changes in political power have repercussions.
been demonstrated in Egypt since 2010. Within 12 months of
the initial social and political citizen protests, ex-President IMPACT TIMEFRAME
Mubarak was ousted in 2011 and replaced by a military
junta.42 For Egypt, high GDP growth rates are essential for 1–3 years
tackling the youth unemployment and poverty issues that
underpinned much of the original unrest. KEY QUESTIONS OR UNCERTAINTIES THIS RAISES FOR
ACCOUNTANTS
In practice, according to the IMF, the impact of the transition
on the Egyptian economy has been largely negative. Annual What risk assessments have been conducted to assess the
GDP growth in Egypt slowed to 1.8% during 2011, and is potential business and financial impact of regime change in
expected to average 1.5% in 2012. This contrasts with growth each core market?
rates of 7.2% in 2008, 4.6% in 2009 and 5.1% in 2010.43
Double‑digit inflation is also expected as a result of the Newly democratised nations may seek to impose higher
political instability.44 standards of financial transparency as part of electoral
promises for greater openness across the economy.
The question arises as to what the social and economic
impact might be of rapid political transition in China? Who How can accounting professionals prepare to take advantage
might be the resulting winners and losers in any new of the opportunities offered by rapid regime change?
governance model that emerges?

68

20. Level of international political volatility

The level of political volatility caused by popular uprisings or
the actions of hostile nations and terrorists groups can pose a Increasing tensions in the Middle East, such as over Iran’s
threat to both the physical and economic integrity of a state. disputed nuclear programme, could result in a spike in oil
Fluctuations in political volatility and concerns over terrorist prices and drastically increase business costs.
activity can affect inward investment and spending in a
country, as well as reducing the confidence of global Increasing political volatility could result in a negative cycle
financial markets. whereby businesses withdraw, worsening economic
conditions, and exacerbating popular unrest.
Statistics from the Center for Systemic Peace show a dramatic
60% decrease in the levels of both interstate and societal New opportunities could arise once stability returns to
warfare in 2011 compared with their peak in 1991.45 volatile states.
Nevertheless, during 2011 there were still 24 states directly
affected by 32 continuing wars, compared with 27 wars at the IMPACT TIMEFRAME
end of 2002. Of these 24 states, more than half (13) were
affected by protracted wars that have persisted for over ten 1–12 months
years.46
Increases in instability can destroy a state’s infrastructure and ACCOUNTANTS
deter businesses from operating and investing, thus seriously
affecting the state’s economic performance. For example, What role can accountants play in constructing resilience
consider the economic impact of the Arab Spring, when plans for firms to deal with potential political volatility in the
popular uprising led to the overthrow of the ruling powers of markets in which they operate?
Tunisia, Egypt, Yemen and Libya. Data from the political risk
consultancy Geopolicity indicates that the economic impact What resilience plans do large accountancy firms have in
of the unrest resulted in a combined cost of over US$55 billion place for their own operations in relation to potential
for the countries involved.47 These states saw an estimated political volatility?
US$20.6 billion wiped off their GDP and public finances were
eroded by a further US$35.3 billion as revenues slumped and
costs rose.48

The actions of states deemed ‘rogue’ can have a wider
regional and even global impact. Reuters highlighted serious
economic repercussions following increased tensions in the
Korean peninsula, in the aftermath of the North’s shelling of
the South in 2010. South Korea’s finances are reported to
have weakened amid chaos in regional stock markets that saw
the value of both the Korean won and Japanese yen tumble.49


21. Pace and extent of cultural globalisation

There is a growing set of voices challenging the notion that
cultural globalisation is an unstoppable force. To date, If governments respond in such a way to draw up legislation
globalisation in the economic and political spheres has been that better reflects cultural traditions, will this negatively
paralleled by cultural globalisation. This has seen the affect the convenience of free trade and present increasing
dissemination and adoption of predominantly Western cultural barriers to international actors?
values-based norms, especially in business. The dynamics of
cultural globalisation are tightly interwoven with economic Whether or not Europe as a whole is consolidating is
globalisation, which until now has flowed outwards from the questionable – the harmonisation of business values,
main economic powers of Europe and the US. Historically, however, presents both opportunities and risks. Similar
economic liberalisation and increased cooperation have harmonisation may be going on elsewhere.
generally assisted the process of inter-regional cultural
harmonisation. Talent flows may increasingly be influenced by shifting sites of
power within cultural globalisation.
In the coming decade, changes in the global economy could
affect the directional flow of cultural influence. The response IMPACT TIMEFRAME
to the GFC shows that some countries are moving back to
culturally protectionist attitudes. The goal is to distance and 1–3 years
protect themselves from the value systems and behaviours
that helped cause the collapse. In line with this, the changes KEY QUESTIONS OR UNCERTAINTIES THIS RAISES FOR
in the global economy also affect labour mobility and social ACCOUNTANTS
dynamics, which bring both opportunities and risks. Are
‘Western’ cultures influencing ‘Eastern’ cultures? Is there How will differentiation or further harmonisation affect global
equal respect for the other or does it present an intensifying accountancy educational programmes?
power play?
What barriers will cultural differentiation present for the
accountancy function in global enterprise?

What can global professional accountancy associations do to
help the profession make sense of cultural differentiation and
harmonisation in different parts of the world?

70

22. Governance and delivery of outsourced public services

The way in which public services are managed, funded,
supplied and consumed is changing fundamentally, in line Changing roles for governments in the specification,
with the financial struggles that nations face. In order to meet monitoring and delivery of services to the public will affect
higher demands with smaller public funds, it is likely that 21st regulatory procedures for businesses taking over these roles
century public services will look radically different in the – placing greater emphasis on the accountancy
future and from what was seen in the 20th century. profession function.

Public sector provision is being moved to the private sector, Tougher regulation and acceptance of international standards
particularly in the West, where, for example, the UK is could become the norm.
experiencing its biggest public service budget shortfall for a
generation. Public-private partnerships are becoming more Questions about where the UK will look, towards America or
attractive and, in some cases, necessary. Public services are Europe, will affect consensus over a more socially focused
looking to the private sector not just for money but also for business culture.
creativity and innovation in the design and delivery
of services. There is a need for a fair playing field so that business can
compete for government tenders with the third sector and
Questions are arising around governance and risk, eg how are public–private partnerships, and provide services with the
public governance agendas going to be defined and same supply costs as those organisations.
enforced with an increasing number of public services being
both specified and delivered by the private sector? What are There is a need for immaculate accounting practices in order
the potential risks where the private sector creates the rules to stimulate investor confidence and ensure the flow of funds
by which it operates, for example as it has done in towards efficient delivery of public services.
financial markets?
IMPACT TIMEFRAME
What are the opportunities for leveraging the efficiency,
creativity and knowledge that the private sector can offer? 4–5 years

ACCOUNTANTS

Accountants are now placed in a position that requires
balancing the bottom line on public service delivery – will a
new type of accounting emerge as a result?

Rewards for accountants in social enterprises or public-
private partnerships could lag behind those of the corporate
sector – what might this mean for talent attraction
and retention?


23. Volume and complexity of legal regulation

The future range and quantity of regulatory requirements and
the subsequent levels of complexity are important In order to continue operating in Western markets,
operational parameters that businesses and financial organisations will have to abide by an increasing number of
professionals must prepare for. Current dialogues among complex legal regulations, placing greater responsibility on
government, civil society and business stakeholders about in-house legal and accountancy departments.
the right levels of legal regulation expose many different
perspectives on the issue. The situation reveals opportunities What are the opportunity costs of doing so for business?
and challenges for both society and business.
Some organisations might move their operations base to
The major trend at the moment is the rising demand for a less-regulated markets in order to escape an increased
regulatory response to the continuing economic crisis. The compliance burden, with subsequent impacts on business
GFC has negatively affected public perception of business processes and operations.
and the whole financial services industry, in particular, in many
countries. In a bid to prevent a repeat of the financial collapse IMPACT TIMEFRAME
and corruption scandals of recent years, Western
governments are increasing regulatory requirements for 1–3 years
transparency and the management and reporting of risk. How
these national mandates mesh with global and regional KEY QUESTIONS OR UNCERTAINTIES THIS RAISES FOR
regulations will be key in shaping the future boundaries within ACCOUNTANTS
which business and the accountancy profession operate.
How will accountants balance their internal role in serving an
organisation with that of acting as a public watchdog to
ensure compliance with legal regulations?

How will accountancy qualifications and continuous
professional development training adapt to incorporate
growing regulatory oversight responsibilities?

72

A3: Society

24. Scale and distribution of global population growth

A number of key trends are shaping the world’s demographic
landscape. The global population is expected to continue to Political impacts at the national and global scale are likely to
grow at least until 2050, when it could reach 9.3 billion.50 At emerge as a result of changing age profiles and attitudes
the same time, overall fertility levels are declining, as is the of voters.
rate of global population growth. These global trends mask
marked differences at the national and regional levels. There Many governments are struggling to address the challenge of
are numerous cultural, social and economic factors that both serving the growing state pension requirements of an
affect and are affected by global demography. ageing population.

Population growth offers economic opportunities. For Time lags in accepting and acting on ageing related issues on
example, India’s economic growth has benefited from a bulge the part of governments and businesses could hinder
in a young workforce that is seeing gradual improvement in economic and social progress.
the access to education and diversified economic
opportunities. Even so, rapidly growing populations also Numerous business opportunities emerge as greater
present economic and capacity-building challenges for numbers of people in growing populations experience
governments seeking to provide public services such as increased household income and move into the
health care and education, as in the case of sub-Saharan consumer category.
African countries.
Population growth also presents difficult challenges of
resource scarcity and environmental impacts, compounding
the effects of economic growth, consumption and
energy use.

IMPACT TIMEFRAME

1–12 months

ACCOUNTANTS

If regulatory changes are imposed to counter the imbalance
and indeed the time delay in action, the toss-up between
compliance versus commitment creates opportunities for
accountants and business, but is it sustainable?

The challenges faced by the state and private pension funds
present a significant opportunity for accountants to rethink
what a pension means. Such new ideas will require new
business and investment models.

100 DRIVERS OF CHANGE FOR THE GLOBAL A3: SOCIETY 73

25. Spread of cultural diversity in society and the workplace

Nation’s migration policies will have a direct impact on the
level of cultural diversity. Cultural diversity may be defined as Businesses and accountancy firms need to do long-term
the inclusion of a variety of cultures and languages in a group workforce planning to assess what skills they will need, and
or organisation. An increase in cultural diversity may occur in determine how they can recruit, develop, and retain the talent
mature economies if these countries need to import a they require globally.
workforce. This may be necessary to maintain or bolster
economic growth in the face of decreasing birth rates and an Mentoring and developing talent may become a fraught
increasing pool of state pensioners. process. Older employees may struggle to mentor and
transfer knowledge to a younger generation that is culturally
In 2011, the UN forecast that Europe may need as many as 1.6 diverse, and whose members may be working in their second
million immigrants per year up until 2050 just to maintain 2011 or third language.
population levels.51 A significant proportion of these are likely
to be drawn from emerging economies, where there is often Engaging with governments on migration policy may become
a much more youthful demographic. It is estimated that an important lobbying issue for accounting firms.
nearly half of India’s 1.2 billion people are under the age of
25.52 A lack of suitable university places in India leads to high IMPACT TIMEFRAME
levels of student migration – with 105,000 Indian university
students in the US alone in the 2009/10 academic year.53 4–5 years

Data from the Pew Research Centre predicts that 51% of the KEY QUESTIONS OR UNCERTAINTIES THIS RAISES FOR
US population are likely to be Hispanic, Asian or Black by ACCOUNTANTS
2050.54 Pew also reports that 19%, or one in five, of the total
population is foreign born, representing the highest What needs to be done to support cultural diversity in the
percentage of immigrants in US history. work place and society?

As a result of the need to attract talented workers to mature Is education on cultural understanding necessary for
economies, governments may have to reassess migration accountants?
policies. Companies that want to attract and retain talented
migrant workers may need to engage increasingly with Are accounting firms finding the human resources they need
governments on issues of migration policy. in mature economies, or do they need to begin to recruit and
develop talent from emerging markets?

74

26. Workforce age structure

DESCRIPTION Employers and governments will have to work together to
enhance the employability of older workers in a way that does
A downward trend in global fertility coupled with an ageing not detract from working opportunities open to
society means that each future generation could be smaller younger generations.
than the previous one. Although the global population is still
growing the average age is also rising. Integrating multiple generations will become an increasingly
difficult workplace challenge.
By 2050, the over 65s are forecast to account for 16%, or
nearly 1.5 billion of the global population.55 Europe in The pension implications are already being felt across
particular is experiencing a significant shift as the population industries, with pension liabilities driving firms’ strategic
ages and the dependency ratio increases. UN data show that choices and mergers and acquisitions decisions.
16% of the European population was aged 65 or over in 2009
and that this is projected to rise to 27% by 2050. This equates Could countries such as Germany and Japan, with an ageing
to three workers for every two pensioners in less than 20 population and low birth rates, embark on a policy of
years.56 promoting inward economic migration to attract and retain
skilled workers in order to secure their economic future?
In China alone, the proportion of the population aged over 65
has been predicted to rise to 28% by 2040, from 11% in IMPACT TIMEFRAME
2004.57 This ageing dynamic has been accompanied by
advances in medicine and health care, improving the quality 6–10 years
of life for older generations, enabling them to stay in the
workforce longer. KEY QUESTIONS OR UNCERTAINTIES THIS RAISES FOR
ACCOUNTANTS
Population ageing has resulted in the abandonment of the
default retirement age in countries such as the UK. There are To ensure fairness, with lengthening lifespans and careers,
currently 20 million people aged 50 and over in the UK. By could the accountancy profession have to institute a
2030 this figure is projected to reach 27 million: an increase of mandatory exam at a certain age to ensure
37%.58 One projection has estimated that a third of all UK continued competence?
workers could be aged over 50 by 2020.59
What responsibilities should employers take to ensure that
IMPLICATIONS FOR/IMPACT ON BUSINESS AND THE their employees do not fall into pension poverty and impose
ACCOUNTANCY PROFESSION a burden on the state?

With the abolishment of the default retirement age and If many senior accountants are staying longer in the top
workers staying in senior positions longer, businesses will positions, what impact will this have on the career ladder of
have to factor in increased salary and healthcare costs. younger and ambitious accountants?

As existing retirees re-enter the workforce owing to a Could a lack of promotion opportunities lead to resentment
combination of low pensions and removed barriers, and inertia from younger accountancy talent?
businesses will have to consider how to attract, retain and
integrate older talent. What provisions will firms make for older accounting workers?

A key question will be whether the labour markets will be
capable of generating ‘good jobs’ for an unprecedented
number of older workers.


27. The workplace expectations of Generations Y, Z and beyond

One of the biggest challenges faced by organisations today is
how to understand and respond to the expectations of What will be considered stimulating and acceptable
generations coming into the workplace. qualifications and career choices for this new generation?

The rate of change at the interface of technology, society and Will employers have to change their working practices to be
environment is expected to accelerate in the next decade. more in tune with a generation that possesses not only a
This could potentially increase the expectation gap between capacity to multi-task over numerous electronic platforms but
existing employees and future generations coming into the also a shortened attention span?
workplace. Emerging generations that are ‘born digital’ grow
up as natives in this environment and are likely to have How will these emerging generations expect new human
different perspectives on work and the workplace. Modes of performance enhancement technologies such as neural
communication, organisational hierarchies and indeed the interfaces, which are currently only in their early stages of
nature of work itself may need to evolve in order to get the development, to be integrated into their working lives?
best out of emerging young talent.
IMPACT TIMEFRAME
Observers note that Generation Y, or the Millennials (born
between the late 1970s and 2000) are characterised as having 4–5 years
different expectations from work, with more interest in
work-life balance, flexible working and ethical careers.60 KEY QUESTIONS OR UNCERTAINTIES THIS RAISES FOR
Generation Z (born between 2000 and 2020) are due to enter ACCOUNTANTS
the workforce within a decade and will face a world of work
very different from that with which even Generation Y What will Generation Z look for in a career and how can
is familiar. accountancy fulfil that? Will accountancy still be a relevant
and attractive profession?

As accountancy processes are automated will this make it a
less attractive profession, or could it enable
greater creativity?

How might different generational working practices and
attitudes affect the way the profession operates?

76

28. Level of female participation in the workforce

Increasing the level of female participation in the workforce is
seen as both an important social goal and a vital way of Could more countries adopt the Norwegian model of setting
maximising the use of available talent to drive economic quotas for gender inclusion? What would be the impact?
development. Internationally there are clear observable
trends for more women to enter the workforce, and for Is the accountancy profession restricted by a gender
increasing numbers of women to reach the highest positions imbalance – if so, it will need to develop ways of attracting
within businesses. more women to take the professional qualification, in the
same way as is happening for science, technology,
Globally, the number of employed women grew by almost engineering and mathematics education.
200 million over the decade to 2007.61 The employed female
population in many markets has been predicted to grow by How might an influx of female employees impact on the
17% overall, and 9.7% in North America by 2020.62 traditional business cultures in many countries?

Goldman Sachs calculates that, leaving all other things equal, IMPACT TIMEFRAME
increasing women’s participation in the labour market to male
levels could boost GDP by 21% in Italy, 19% in Spain, 16% in 4–5 years
Japan, 9% in America, France and Germany, and 8% in
Britain.63 The same estimate suggests that this increased level KEY QUESTIONS OR UNCERTAINTIES THIS RAISES FOR
of female participation in the workforce could boost US GDP ACCOUNTANTS
by as much as 9% and that of the Eurozone by 13%.
What will be the impact of the entry and promotion of more
Women’s access to the highest positions in business is also women in the accountancy profession in countries such as
improving. The percentage of female FTSE 100 board China where men currently outnumber women?
directors in the Financial Times index of the top 100 UK-listed
companies (FTSE100), grew from 12.5% in 2010 to 15% by the Could business values be changed by the increasing numbers
end of 2011, though this is still a long way from a target of 25% of women in senior positions? Could this change accountancy
by 2015.64 practices and the nature of what is valued and measured?


29. Cost and ease of access to higher education

The economics of education is changing as public budgets
shrink and institutions have to compete for funds, raise fees How will HR and recruitment policies need to adapt to a new
and cut unprofitable courses. As a result, concern is rising form of learning and accreditation?
across the developed world in particular about a potential
educational time bomb, with the risk of students being priced Employers will need to decide whether to give equal weight
out of the marketplace. In response, other sectors and players to both traditional and new vehicles of education.
are taking a more central role in educational provision and
technology-facilitated free digital education is booming. This opportunity created by free online courses ensures that
the profession can widen its net in the search for talent, by
The rising cost of higher education in many countries has not disadvantaging those that cannot afford university.
important ancillary impacts for the level of personal debt for
students and their equality of opportunity. There are some IMPACT TIMEFRAME
indications that the next credit bubble to burst will be that
supporting the US higher education market. The concern is 1–3 years
that emerging graduate students will struggle to find work
and re-pay potentially significant loans.65 KEY QUESTIONS OR UNCERTAINTIES THIS RAISES FOR
ACCOUNTANTS
In response, the free education market has flourished. Several
US universities, such as MIT with its OpenCourseWare for Will accountancy firms aim to increase the proportion of entry
example, are now offering a wide range of course content positions through the work/study sponsorship model,
online free of charge.66 Under this model, the user pays only tailoring the talent to the specific needs of the industry?
if they wish the vendor to certify them in some way. Similarly
the Khan Academy provides an ever growing array of free What are the disadvantages to not going through the
educational material online and is constantly expanding sponsored work/study model? Will those of a more generalist
its content. background be less attractive to employers?

In other cases, firms that take in large numbers of graduates, Could people train in accountancy free of charge without
such as PwC and KPMG, are creating hybrid models with taking the qualifications? How will these ‘free’ training options
universities where selected students receive fully funded be viewed and valued?
study and a starter’s salary for working for half the year with
the firm. The goal is to ensure that firms capture an adequate Does the opportunity to train free of charge make
supply of talent as early as possible.67 accountancy a potentially useful add-on skill for students
from different backgrounds?

Could the increasing ‘ease of access’ to accountancy training
materials diminish the value of the qualification in the eyes of
employers, or might it be seen as mirroring developments in
other professional disciplines?

78

30. Uptake of online learning models in education

Professional education may increasingly be demanded and
provided through online channels. This could change the Companies may create a significant advantage over
nature and delivery of professional development, cutting competitors by achieving lower costs and greater efficiencies
company costs and increasing the productivity of employees from online education.
educated online.
‘Gamification’, peer-to-peer learning through social networks,
A 2012 ACCA report68 on the e-professional notes that and mobile platforms may change the way educational
younger generations, who have always known and used the content is delivered. This could challenge education
internet, are forming an increasing proportion of the providers such as associations and in-house training teams to
workforce. These ‘digital natives’ are likely to be more adopt new teaching methods.
comfortable learning online than previous generations. In
contrast to traditional classroom based learning methods, Global adoption of e-learning may allow businesses in
online learning can be tailored to accommodate the time emerging economies to leapfrog traditional learning
challenges created by professional lifestyles, goals and techniques and accelerate professional development. As a
demands. The evidence suggests that such flexible e-learning result, these emerging market companies could become
approaches can boost productivity while providing potential competitors and/or business partners for companies
substantial savings to companies. in mature economies sooner than previously expected.

The ACCA report explains that organisations that have IMPACT TIMEFRAME
implemented learning technologies are reporting an average
cost saving of 18%. Those organisations using more mature 1–12 months
learning technologies are also reporting a 20% improvement
in ‘time to competency’ for the learner. Emerging economies KEY QUESTIONS OR UNCERTAINTIES THIS RAISES FOR
are already embracing e-learning; the 2012 ACCA report ACCOUNTANTS
shows that 52% of Indian companies have trainees spending
up to 25% of their training time online. How will older generations of accountants respond to new
demands for e-learning in continuous professional
Online learning is also increasingly accepted by, and available development?
to, the general public. For example, the Course Hero online
platform offers online classes by compiling collections of How may global accounting associations and companies
educational videos from YouTube and combining them with provide online education and accreditation for accountants
other content. The website offers a rapidly growing range of from emerging economies?
classes in topics such as entrepreneurship, business,
mathematics, and a variety of computer What might be the best models of online learning
programming languages. for accountants?

The uptake of online learning may increase in emerging
economies. Poor infrastructure combined with rapid adoption
of low-cost technology makes e-learning a logical choice for
developing nations. Peer-to-peer learning through social
networks, learning through games (‘gamification’), and
learning materials provided on mobile platforms are all likely
candidates for future developments in online learning,
suggests the 2012 ACCA report.


A4: Business

31. Capitalism next: future governing business and market paradigms

An economic development model predicated on market
growth has prevailed for the last century. Nonetheless, Could changing demands from the labour force for an
fundamental challenges and contradictions have emerged for improved work/life balance and flexi-working become the
markets ranging from systems and regulatory failure through norm as society puts greater emphasis on well-being over
to non-renewable resource limitations and environmental GDP growth?
degradation. Questions are asked about whether the current
model is sustainable, and whether growth will remain the New competitors may emerge, as well as a new landscape of
dominant paradigm. If ‘Capitalism 2.0’ is to emerge, what new innovators demonstrating genuine alternatives to traditional
economic and business paradigms and rules might it bring in? growth paradigms.

Discussion of ‘game-changing’ models and innovations has IMPACT TIMEFRAME
flourished in recent years, as it has become the norm to ask
‘how can we do things differently?’ For many leaders in 6–10 years
government and business alike, incremental modification is
no longer considered the goal. Instead they are looking for KEY QUESTIONS OR UNCERTAINTIES THIS RAISES FOR
ways of turning systems on their head to offer greater public ACCOUNTANTS
protection against the excesses of the market, enable a fairer
distribution of wealth, and create new and higher kinds of Where do accountants fit in these new paradigms and what
value. The GFC has accelerated this thinking, creating space are the key demands on a profession that is designed to
and support for propositions of alternative economic models create growth?
that would previously have been regarded as too fringe or
revolutionary. Could accountants increasingly be asked to develop models
for progressively costing the environmental and social
Emergent economic models receiving attention include: externalities of business in order to generate tax revenues for
socially oriented goals?
• finding ‘solutions for the 99%’ who are seen to have been
left behind over the last two decades What are the implications for accounting specialisms
and skills?
• measuring well-being rather than GDP as the primary goal
of prosperity How can accountants ensure that they stay ahead of the curve
and versatile in their knowledge of new market models?
• circular economics, which seeks to eliminate waste and
produce lasting and stable value across all aspects of
an economy

• marrying ecological principles with economic thinking.

80

32. Business leader responsiveness to change and disruption

Momentous economic and social forces are currently
reshaping the world. At the same time, disruptive More ‘creative destruction’ within industries and increasing
advancements – often enabled by technology – are affecting turnover of business entities is expected.
everything from industry structures, through societal
governance to the nature of human interaction. These Failure to act with a view to the long-term could leave
transformations could take a decade or more to play out and businesses vulnerable to market changes and result in a loss
stabilise. Some suggest that turbulence is indeed the in competitiveness to firms who have adapted to new global
new normal. economic conditions, eg recruited and trained staff with
Asian language and cultural skills to conduct business in new
The ability of organisations to adapt to the new challenges financial hubs such as Shanghai and Singapore.
and opportunities created by change and transformation is
becoming a key determinant of success or failure in a Firms could struggle to attract new talent, young and old, if
turbulent operating environment. Such adaptation depends they are deemed too old-fashioned and unable to keep up
upon the extent to which business leaders are willing to with technological and social advances.
recognise, accept and react to these changes.
IMPACT TIMEFRAME
There is a concern that some leaders are still in denial and are
turning a blind eye to current and emerging drivers of 4–5 years
change. Typically, they believe there is no need to adapt – in
the hope that their firms’ standard operating models are KEY QUESTIONS OR UNCERTAINTIES THIS RAISES FOR
robust enough to see them through. ACCOUNTANTS

How can accountants use the tools at their disposal to
convince others that change is occurring and adaptation
needs to take place?

Are accountancy firms clinging to their old standard
operating models or reinventing them for a new era
in business?

How will accountants cope with a potentially increasing
turnover of clients? Are they well positioned to attract
new clients?

100 DRIVERS OF CHANGE FOR THE GLOBAL A4: BUSINESS 81

33. Quality and availability of the global talent pool

Access to talent at all levels is consistently identified as a
critical future success factor for small, medium and large A clear talent recruitment and development plan must be
enterprises alike. The challenge of securing a suitable flow of articulated to reflect overall business strategy and
talent is increasingly becoming a top priority for CEOs, who geographic ambitions.
are finding growth and development ambitions hampered by
talent shortages. Talent recruitment and retention will become an ever more
important priority, as will the relationship between executive
In early 2011, 34% of companies around the globe reported leadership and human resources (HR) functions. Indeed, HR
difficulties filling positions because of a lack of talent – the changes may be needed to ensure a focus on talent delivery.
highest level in four years.69 This has coincided with an
extended period of higher than average unemployment in Accountancy may need to use newer mediums such as social
many Western economies. Structural mismatches aside, David media and to adapt communications and reward systems to
Heath, of recruiter Alexander Mann, suggests the problem in attract talent.
many mature economies lies with human resources
departments and their bureaucratic procedures rather than IMPACT TIMEFRAME
the quality of candidates.70 Interestingly, research from the
firm finds that positions in ‘Accounting and Finance’ were the 1–12 months
seventh most difficult to fill globally at the start of 2011 and
this discipline has featured in the top 10 every year KEY QUESTIONS OR UNCERTAINTIES THIS RAISES FOR
since 2006. ACCOUNTANTS

In other locations, the quality of education itself seems to be What narrative will the accountancy profession weave to
a critical talent issue. Because of the uneven quality of attract talent and how will public perception of the
education systems, some analysts estimate that only 25% of profession alter?
Indian and 20% of Russian professionals are currently
considered employable by multinationals.71 Business, How might the profession work with educators to ensure a
however, does not appear to be rushing to address the capable and desirable talent pipeline?
problem. Globally, a mere 6% of employers say they are
working more closely with educational institutions to create What international talent management partnerships could be
curriculums that close the gap between what is being taught leveraged for success?
and the expectations of business.72
How much accountancy work will be done in low-cost
economies? What are the talent-management implications?

82

34. Influence of emerging financial centres

Global financial centres are a powerful locus of activity in the
financial services sector and the wider economy. They act as Such global shifts open up a greater possibility for labour
magnets to draw wealth, power and influence to a location. migration to the emerging financial centres.
Hence, they also play an important political and social role.
London, New York and Hong Kong have been the main ones Could this lead to a shift away from the dominant Western
for the last two decades. This may change over the next business models to adoption of Eastern models such as
decade as macroeconomic factors connected to the financial Neo-Confucianism?
crisis and continued uncertainty are influencing where
investors choose to put their money. New challengers, such Such changes could lead to a shift in accountancy practices
as Shanghai, are emerging while incumbents are showing to those dominant in Asia, eg XBRL real-time reporting is an
signs of weakening. established practice in Singapore, so those who wish to
operate there may have to adopt this practice.
Recently, Asian, Nordic and Eastern European centres have
made up significant ground on the secondary centres of IMPACT TIMEFRAME
Europe such as Paris and Madrid.73 Emerging centres such as
Seoul, Mumbai, Dubai, Singapore and Shanghai are growing 6–10 years
at a rapid rate and represent a shift in financial power from
the West to rising economies in the East. Over time, centres KEY QUESTIONS OR UNCERTAINTIES THIS RAISES FOR
in Africa and Latin America can be expected to play an ACCOUNTANTS
increasing role in the global financial services landscape.
To what extent will new Eastern accounting practices
challenge the current dominant practices?

How could the differing emphasis of Asian business models
challenge what accountants focus on, for example, ‘Neo-
Confucianism’ focuses on the real, eg increasing market
share/cash flows, rather than the symbolic, such as Western
notions of profitability.

Could there be an influx of accountants, accounting agencies,
companies and industry bodies from the East?


35. Choice of global business languages

English has, to date, been the language of choice for
conducting global business. A changing economic landscape There will be new demands on professional accountants to be
suggests, however, that this dominance could increasingly be linguistically flexible as non-English business languages
challenged. Parallel to the balancing of economic and become more important.
political power among a larger pool of nations, including
emerging nations, other cultural norms and practices are Would a move to Mandarin as an equally important business
following suit. Mandarin, French, Arabic and Spanish are seen language to English demand a Chinese professional body to
as the biggest contenders to English as key global work in conjunction with English speaking ones?
business languages.
Would auditing standards be regulated in Chinese XBRL?
Mandarin is spoken by 845 million people and currently lies
second after English in terms of global use in business.74 The IMPACT TIMEFRAME
status of Mandarin will remain open to question in a new
multi-polar order so long as Western business practices retain 6–10 years
a significant influence and the dollar remains the global
reserve currency. Increasingly, it is seen as important to learn KEY QUESTIONS OR UNCERTAINTIES THIS RAISES FOR
Mandarin for business use. For example, as new business ACCOUNTANTS
possibilities emerge, British schools are strengthening their
links with China, and students are taking up Mandarin as a Accountants and businesses may increasingly have to adapt
second or third language.75 to the preferred business practices and operational standards
of international customers, investors and employers.

Given the time it takes to master a language to business
standards, how early should a professional body become
involved in advocating widespread tuition of Mandarin or
other languages?

To what extent are accounting staff being taught the different
heritage and culture of China as well as the country’s multiple
languages? Both are an influence on business and
accounting practices.

84

36. Scale of global mergers and acquisitions (M&A)

Mergers, acquisitions, strategic alliances and joint ventures
look set to remain a key part of corporate growth strategies in Increasing national and regional protectionism could be
the decade ahead. For firms entering new markets, these are witnessed in the West, as governments seek to obstruct the
all seen as tools to help minimise risk and reduce the time to takeover of domestic businesses by companies from
achieve profitability. M&A activity often increases in periods emerging markets.
of turbulence as firms seek to acquire troubled businesses,
purchase distressed assets and secure key capabilities The M&A process could be further regulated to limit the level
relatively cheaply. of workforce redundancies, helping to safeguard national
employment levels.
The scale of global mergers and acquisitions remains a
significant economic driver, with statistics from the OECD IMPACT TIMEFRAME
showing that the international M&A investment market
reached US$822 billion for the year to October 2011,76 1–12 months
compared with US$670 billion for the previous year.77 A survey
of takeover professionals by Brunswick Group LLC has KEY QUESTIONS OR UNCERTAINTIES THIS RAISES FOR
predicted that global mergers and acquisitions will remain ACCOUNTANTS
steady for 2012, spurred by deals emerging from faster-
growing markets such as Brazil and China. Furthermore, over What further value and strategic guidance could professional
two-thirds of the professionals surveyed expected an accountants’ add to help steer the M&A process?
increasing trend of Asian acquisitions of US companies.78
What cultural differences could arise in the M&A process
owing to the increasing acquisition of Western companies by
businesses from emerging nations such as the
BRIC countries?

Do accountancy firms have an M&A strategy to help plan for
future growth and stability?


37. Extent of foreign direct investment in developed and developing
economies

Foreign direct investment (FDI) includes mergers, acquisitions
and investments by companies in overseas ventures. FDI Companies in mature economies may start to look to
flows are an important source of investment and economic emerging nations’ financial institutions and companies for
growth for many countries. In an uncertain and highly capital investment and partnerships.
competitive global economy, ensuring that a destination is
seen as a safe location for FDI is becoming an increasing Accountants in emerging economies may develop investment
priority for many countries. protocols, systems and tools that differ significantly from
those that exist in mature economies.
A 2012 research report from FRB St Louis finds that as
emerging economies grow, they are attracting increasing Growth in FDI transactions could accelerate the shift of
amounts of FDI from mature economies.79 However, the economic power towards emerging economies, challenging
established trend of FDI flows moving from mature to the so called ‘Washington Consensus’iii and creating tensions
emerging economies is changing. The World Bank reported over resources and financial rules, for governments,
in 2011 that emerging economy firms are increasingly businesses and accountants.
becoming a major source of FDI, investing in both developing
and mature economies.80 IMPACT TIMEFRAME

Research from the World Bank finds that ‘Between 1997 and 1–12 months
2003, companies based in emerging economies engaged in
outbound cross-border M&A deals worth US$189 billion, or KEY QUESTIONS OR UNCERTAINTIES THIS RAISES FOR
4% of the total value of all global cross-border M&A ACCOUNTANTS
investment for the period. In the equivalent period from 2004
to 2010, that amount had increased to US$1.1 trillion, or 17% Are accountants prepared to become increasingly central to
of the global total.81 cross-border M&A transactions – which place a priority on
building a deep understanding of the relevant regulations in
Outward FDI flows from emerging economies to mature and each market?
emerging economies strengthened during the GFC, when
FDI from mature nations contracted.82 The trend of greater What plans or policies are in place for accounting bodies and
FDI flows from emerging economies is expected to continue. systems to deal with potential changes in the rules that
The World Bank forecasts that the annual value of cross- currently govern cross-border investment transactions to
border M&A transactions by emerging economy firms in reflect the growing influence of emerging economies?
mature and emerging economies will more than double by
2025, rising to approximately 8,000 transactions, compared
with 2,477 in 2011.83

A change in the extent and source of FDI in both emerging
and mature markets could change political and economic
relations between countries. A growing global flow of FDI
from emerging markets could change global power relations.
The influence of mature economies could be challenged still
further if emerging economies increasingly look amongst
themselves for investment.

iii. The term ‘Washington consensus’ was originally coined by economist John
Williamson in 1989 to describe a set of 10 specific policy interventions that
tended to be proposed as part of the reform packages for crisis economies by
Washington-based institutions such as the IMF, World Bank and US Treasury
Department. Subsequently it has been re-interpreted to imply a clear
emphasis on market-based or ‘neo-liberal’ reforms.

86

38. Scale of reverse innovation flow from emerging economies to the
industrialised world

Reverse innovation is the strategy of innovating products and
services in emerging economies and then distributing these Businesses may need to re-examine their services and
innovations in mature markets. The companies that are products, and re-design them to serve mass markets at
undertaking reverse innovation can be from emerging or lower cost.
mature economies.84 An increase in the amount of reverse
innovation taking place could challenge established R&D expenditure may yield better returns if it is deployed in
companies, business models and research centres in emerging economies.
mature economies.
Businesses may need to re-examine the country locations for
For some companies, reverse innovation has led to changes innovation centres.
in business models, design strategies and manufacturing
goals. One impact of reverse innovation can be a change in Reverse innovation will force firms to rethink their business
product strategy. This may involve a shift in emphasis, models for new product development.
providing traditionally high-end products and services at low
prices to a mass market. This is in contrast to the approach of IMPACT TIMEFRAME
seeking a premium pricing for such offerings and targeting a
small number of elite consumers. 1–12 months

A crucial feature of reverse innovation is the maintenance of KEY QUESTIONS OR UNCERTAINTIES THIS RAISES FOR
quality. Prices are typically reduced through innovation and ACCOUNTANTS
design saving, rather than by using lower grade materials or
providing an inferior product or service. For example, the tiny Accounting systems and processes may need to be adapted
US$70 ChotuKool fridge, designed and manufactured in to serve changing business models. For example, new
India, is created out of 20 parts rather than the standard financial services, such as mobile banking.
200.85 The ChotuKool can run on batteries if necessary, and
keeps cool during power outages owing to its high-quality Is there demand for accounting services on a low-cost model?
insulation.
Is there a potential for reverse innovation in accounting
Bringing in new designs at lower prices may present an practices, and how can this be developed?
attractive option for reinvigoration demand in mature
markets. For example, General Electric (GE) created a small,
portable ultrasound scanner in 2002 for the Chinese market.
The new design was created in response to the poor sales
and slow market growth of GE’s traditional expensive and
bulky design. By 2008 the portable Chinese version of the
ultrasound retailed in China for 15% of the cost of a traditional
ultrasound machine, and became the driving force for GE’s
business in China. The portable ultrasound has found new
applications in the US – primarily when space is limited or
patients are immobile. Ultrasound sales have led to significant
growth for GE. From 2002 to 2008, GE’s worldwide sales from
portable ultrasound products saw an average compound
annual growth rate of 50% to 60%.


39. Speed and duration of business cycles

The general perception amongst business leaders in that the
rate of change in business and society is increasing as a result Organisations must increasingly focus on ensuring that they
of competitive pressures to ‘be first or fast to market’. are designed for rapid decision making and fast
Competition, in turn, is shaped by constant innovation, implementation of change.
networked and interconnected lifestyles, instantaneous
communications and shortening business cycles. Firms are Business entities may form quickly and disband after a certain
being forced to think hard about how to operate under such project – individuals may work for multiple organisations
conditions over the next decade. each year.

As technologies such as the internet compress time and Business relationships are more diverse, external contacts
distance, organisations are under pressure to adapt their become critical and are maintained through professional
structures, processes and systems on an almost continuous social networks such as LinkedIn and personal ones such
basis. As a result, there is a growing emphasis on the need for as Facebook.
speed, flexibility, adaptability and responsiveness. These in
turn demand rapid decision making and shortening cycles for Levels of workplace stress and burnout could increase.
execution of business change. New working practices have
evolved to account for shorter project timescales. Gradually Businesses will have to work harder and provide clear
assembled project teams have been replaced by ‘work advancement and/or enrichment opportunities to retain
swarms’ of individuals drawn from within an organisation and younger staff.
from external partners. These swarms assemble rapidly to
work on a time-limited project before dispersing onto IMPACT TIMEFRAME
other activities.
1–3 years
Short business cycles and continuous rapid change are
having a significant human impact both in terms of workplace KEY QUESTIONS OR UNCERTAINTIES THIS RAISES FOR
stress and burnout. These pressures are driving changing ACCOUNTANTS
attitudes towards employers, loyalty and career duration. For
example, research suggests the new generation of What new, agile accountancy models will need to be
‘Millennials’ have an appetite for quick advancement and developed to keep up with shorter business cycles?
have internalised this in their approach to the amount of time
spent with an employer. Some research suggests that the How can accountants help businesses plan sustainable
average Generation Y employee is looking to change jobs futures to ensure that they do not overextend themselves in
and even careers as frequently as every one to two years.87 pursuit of rapid growth?

How can accountancy firms, and the profession as a whole,
ensure that they retain younger staff, keen for rapid
career advancement?

88

40. Experimentation with and adoption of new business models

In an uncertain economic climate, the pace of introduction of
new business models could accelerate as firms seek to In an intensely competitive environment, business models
differentiate themselves from others and remain competitive. may emerge, be emulated and replaced with
increasing rapidity.
These new models have the potential to disrupt and reinvent
industries. The rise of the internet, in particular, has enabled Firms will need to invest time and effort in generating and
firms to experiment with new approaches to raising business experimenting with alternative models in advance of
finance and alternative revenue and pricing models. customer requests to do so.

Examples of such models include the following. Businesses could increasingly be valued and rated on their
capacity to generate a regular flow of new business models.
Asset financing (shifting from ownership to rental)
Businesses are reducing fixed costs through asset rental New models in some instances create new types of value, and
models such as cloud computing. Shell has made the the accountancy profession will have to adapt to in order to
commitment to eliminate its fixed-cost base and has already accommodate them.
divested US$18 billion of assets.
IMPACT TIMEFRAME
Funding innovation
Finance raising platforms such as Kickstarter.com enable 1–3 years
innovators in creative sectors such as music, film, art,
technology, design, food, publishing and consumer goods to KEY QUESTIONS OR UNCERTAINTIES THIS RAISES FOR
eliminate development risk. They raise funding to ACCOUNTANTS
commercialise their ideas by pre-selling the outputs to
interested customers even before producing the product or What impact will the shift from asset ownership to rental have
service. on balance sheet construction and company valuation?

Revenue models How will accounting practices need to change to account for
A range of new revenue approaches such as aggregated business models with highly unpredictable revenue streams?
buying (eg www.groupon.com) and auctions (eg www.
madbid.com) are being used by a wide range of businesses as How can we model and assess the upside potential and
diverse as electronics retail, airlines and universities. downside risk of new business models under consideration?


41. Crowdsourced funding for innovation: the consumer as investor

DESCRIPTION IMPLICATIONS FOR/IMPACT ON BUSINESS AND
ACCOUNTANCY
The internet has facilitated the emergence of new finance
models that allow companies, most often start-ups, to fund Business is becoming more social and collaborative. What are
product development and service delivery in advance via the implications for accounting?
crowdsourcing using online platforms.
Entrepreneurial new businesses can circumvent traditional
One such example is the website Kickstarter, which generates finance models, such as business loans given out by banks
funding from the general public for start-up creative and with their attached restrictions, to take their products and
technological projects. Project owners choose a deadline and services straight to their potential consumers.
a target minimum of funds to be raised, if the chosen target is
not gathered by the deadline, no funds are collected. Businesses can use crowd-funding platforms to generate
Individuals either make a donation or commit to purchase the word-of-mouth buzz and consumer loyalty, as funders have a
resulting product, creative experience or service. financial stake in the project.

Kickstarter takes 5% of the funds raised but claims no By pre-selling the product to ease the financial burden could
ownership. In one instance the developers of an independent this lead to risk-free research and development for smaller
computer game were able to generate over US$1 million of enterprises?
funding in a single day.88
What impact could crowd funding approaches have on the
Over 28,000 business ideas have received funding through innovation economy?
Kickstarter alone and many other similar platforms are
springing up globally. Typically up to 40% of all new ideas find IMPACT TIMEFRAME
the funding they are seeking via Kickstarter – a far higher
success rate than is normally seen for new product launches. 4–5 years

ACCOUNTANTS

How must accounting procedures adapt to accommodate
projects funded by potentially thousands of individuals, who
expect a product or service in return?

If the audit is geared up to public interest and providing
assurance on behalf of the investors, and if the investor is the
public, what role should accountants play in monitoring such
new financing platforms?

What role should accountants play to ensure these platforms
are not exploited for criminal intent, eg being used for
money laundering?

90

42. Level of complexity in business

Complexity is perceived to be increasing rapidly for
multinational firms that operate in multiple legal jurisdictions. Unmanaged complexity could slow an organisation’s ability to
Such firms are faced with a multitude of products, processes, make decisions, serve customer needs and
systems, regulatory requirements, governance procedures, implement change.
differing staff expectations, organisational structures and
operating cultures. Spotting and tackling complexity will become a core
competency, as important as quality management.
Business complexity is perceived to have increased rapidly
over recent years and is set to increase further with important In a drive to reduce complexity, expectations may emerge
ramifications for risk, effectiveness and accountability. that the accountant or CFO should create systems with
Globally, nearly 8 out of 10 respondents to a KPMG survey improved simplicity.
(2010) stated that it was more complicated to do business
then than two years previously.89 Concerns over the risks of complexity could increase the
value attached to clear financial and risk reporting.
How businesses learn to deal with complexity and who takes
responsibility for managing it are emerging challenges. The IMPACT TIMEFRAME
CFO may end up having responsibility for taking complexity
out of the organisation while seeking ways of accounting 1–3 years
for it.
ACCOUNTANTS

Who takes responsibility for tackling and accounting for
organisational complexity?

What impact is complexity having on revenues and profits?

Does complexity represent a business opportunity for
accountants, for example in a consultancy role?

What are the legal ramifications of increasing complexity –
how can accountancy remain transparent?


43. Adoption of integrated systems thinking to manage business complexity

The perceived shortening of business cycles is creating major
challenges in terms of how we design, manage and change Dealing with complexity using traditional approaches may
highly complex, globally interconnected and rapidly evolving become overwhelming and could result in poor decision
businesses. While the timescales for action are shortening, making in business.
the perceived complexity of the task of making change
happen is growing. Working in isolation as a profession will no longer be possible
– there will be an increased need to understand the business,
To address the challenges of managing complex businesses, its stakeholders and the external environment in more detail.
greater attention is being placed on concepts such as chaos
theory and on the use of tools that can help managers take an Both statutory financial statements and management
integrated, systems-thinking approach. Approaches such as accounts will need to change to reflect the parts as well as
Systems Dynamics Modellingiv and the emergent Agent the whole. Traditional thinking and training will not assist and
Based Modellingv are becoming increasingly popular.90 Such there will be an increased need to become systems thinkers.
tools are being applied to help explain and model the
complex connections between numerous phenomena that IMPACT TIMEFRAME
are in dynamic flux in a global firm.
4–5 years
The move towards integrated reporting, compliance and
governance suggests the need to adopt a holistic approach. KEY QUESTIONS OR UNCERTAINTIES THIS RAISES FOR
This, in turn, suggests the need for more sophisticated tools ACCOUNTANTS
for business management and to resolve complex problems.
At present, the use of these integrated systems approaches is What is the current competency of accountants in using
in its infancy within business and the accountancy profession. systems-thinking and agent-based approaches?
They are not yet embedded in the education processes for
professionals or the wider public. What limitations are accountants finding in applying
traditional linear methods to solve current complex issues?

What training is in the pipeline for future accountants to
better prepare them for this new systems approach
to thinking?

Can and should accountants be part of the driving force
behind the adoption of such approaches?

iv. Systems Dynamics Modelling seeks to understand, model and analyse the
behaviours of the natural and artificial components of any system, exploring
the interactions between them, the causes of systems changes, degradation
and failure and how to improve them.

v. Writing in the Proceedings of National Academy of Sciences of the United
States of America (PNAS), Eric Bonobeau describes Agent Base Modelling as
‘Modelling a system of agents and the relationships between them. Even a
simple agent-based model can exhibit complex behaviour patterns and
provide valuable information about the dynamics of the real-world system that
it emulates’.

92

44. Living wills for businesses

One of the key lessons from the GFC is the danger posed by
the collapse of large and complex multi-national financial In order to improve economic resilience, national
institutions and business corporations previously deemed governments and international economic bodies could
‘too big to fail’. A particular challenge is unravelling the affairs mandate that all organisations above a certain size construct
and resolving the liabilities of, and claims against, complex living wills to ensure that, in the event of their collapse, the
global businesses. Such firms typically operate multi-product wider financial damage is minimised.
businesses in a wide range of sectors across geographic
destinations with differing legal and regulatory requirements. Living wills could improve internal resilience within large
To protect against the failure of such entities and assist with organisations, as they would be forced to confront the
the unwinding of their affairs, there is growing demand for possibility of their own demise, and might highlight previously
firms to establish a ‘living will’. unseen systemic weaknesses.

The US$613 billion collapse of Lehman Brothers in 2008 was IMPACT TIMEFRAME
the biggest bankruptcy in US history.91 The wider financial
repercussions and the complex and costly unravelling process 4–5 years
that followed illustrate the need for businesses to adopt a
living will. KEY QUESTIONS OR UNCERTAINTIES THIS RAISES FOR
ACCOUNTANTS
A living will would provide a framework to conduct an orderly
unravelling of globally vast and complex organisations. The What is the role of the accountancy profession in defining and
objective is to avoid damaging the wider financial system as building a living will for businesses?
well as preventing lengthy legal battles over the division of
assets and liabilities. How deeply will the finance function need to be embedded
in the transactions, products, pricing models and market
behaviours of the organisation to appreciate the scale and
detail of what needs to be unravelled?

Will accountants, auditors and analysts assess the resilience
of firms on the basis of whether they have a living will?


45. Enterprise risk management capability

There is growing concern and increasing uncertainty over the
nature and scale of risks to which businesses are – or could be Wild card (low-probability, high-impact) risks or ‘black swans’
– exposed. At the same time, new risks and sources or threaten to destabilise or even trigger collapse for slow-
concepts of risk, such as resource wars, are emerging. Faced moving or inflexible organisations.
with this climate of uncertainty in a globalised, networked
and complex system, it is no longer enough to be reactive, Agility, ie the ability to respond quickly and effectively to
compliant and defensive. There is also recognition that sudden shifts in the market, the regulatory environment and
however robust the early warning system may be, it may not to client needs will become a critical success factor.
be possible to predict fully a firm’s exposure to future
potential risks and shocks. Accountants will play a critical role in shaping and
implementing strategies for ameliorating risk and building
Example sources of risk include: business resilience.

• increasing volatility of input costs IMPACT TIMEFRAME

• supply chain instability and access to natural resources 1–3 years

• increasing vulnerability from complexity KEY QUESTIONS OR UNCERTAINTIES THIS RAISES FOR
ACCOUNTANTS
• increasing socio-economic and political tensions
and upheavals How will accountants help develop new, agile organisational
structures, risk management approaches and resilience
• a ‘perfect storm’ of economic, environmental and social strategies to improve recovery capability in the face of
volatility increasing vulnerability to cyber threats unexpected risks and turbulence?
and attacks.
What new accounting capabilities will be required to embed
In the face of such risks, simply sustaining ‘business as usual’ effective enterprise risk management without hindering an
no longer guarantees survival. Global businesses and their organisation’s ability to innovate and implement change?
accounting professionals must be ahead of the curve in
anticipating the kinds of risk to which they could be exposed.
To address these challenges, enterprise risk management is
increasingly being adopted – shaping the strategic agenda
and driving the need to build resilience.

94

46. Evolution of corporate governance regulation and practice

Traditional structures of corporate governance stem from
legislation, regulation and institutional best practices. They Geographical discrepancies in corporate governance
are intended to oversee the conduct of business and the structures may well affect international competition.
management of relationships among and between internal
and external stakeholders. These governance rules should Could governments globally start to adopt a stronger stance
improve accountability, reduce corruption and avoid conflicts on the failures of corporate governance – such as in the case
of interest. In practice, in the wake of systemic challenges and of the fines imposed on BP in the wake of the 2010 Gulf of
high-profile business failures, the effectiveness of current Mexico oil spill?
governance practices is increasingly coming into question.
In the wake of the GFC, self-governance by individual markets
After a period of deregulation, and the unveiling of examples may become rarer owing to increasing regulation at a national
of abuse of trusted power for corporate gain, there is or regional level, but expectations of responsibility and
increased mistrust in corporate governance structures. integrity may strengthen.
Globally 49% of people surveyed believe that government
does not regulate business enough, while only 53% trust How will business transition to new systems and ways
business.92 of working?

Corporate governance frameworks and standards may need IMPACT TIMEFRAME
to evolve to reflect changes in the relationship between the
governing bodies for individual businesses, professions and 1–3 years
civil society in each country. This will have implications for
future legal expectations of the relationship between KEY QUESTIONS OR UNCERTAINTIES THIS RAISES FOR
executives and non-executives. There has also been growing ACCOUNTANTS
public debate over the need to translate values into practice,
to ensure that individuals’ behaviours reflect stated Will accountants be held liable for poor corporate
organisational values and principles. governance performance, or for not exposing and preventing
weaknesses in internal controls and the release of fraudulent
Finally, a general push for greater transparency in corporate financial statements?
behaviours has driven increased expectations for
accountability and demonstration of robust risk-management Could this signal a growing demand for forensic accounting
policies. skills to disentangle complex company accounts and
financial reports?

How will accountants be expected to participate in the
implementation of governance changes?


47. Extent of social entrepreneurship in social and business sectors

The last decade has seen a growth in ‘social’ ventures. Social
entrepreneurs seek to create commercial ventures to tackle Increased numbers of entrepreneurs solving social problems
challenges that are not being addressed fully by governments could create a much better operating environment for
or the non-profit sector. They typically aim to address social all companies.
problems. This is often achieved by tackling the systemic or
root problems that cause issues such as poverty, inequality, Traditional for-profit companies may be able to learn from
marginalisation, and environmental deterioration. Social social entrepreneurs about ways of using fewer resources,
enterprises seek to generate social returns. The Skoll Center and to create social goods that could cut production and
for Social Entrepreneurship suggests that these solutions for regulatory costs.
systemic change pioneered by social entrepreneurs are
typically innovative and market orientated.93 As the line between for-profit and not-for-profit blurs, taxation
policies may have to change, creating new challenges
The Social Enterprise Coalition reported in 2011 that there for accountants.
were 62,000 social enterprises in the UK. These ventures
contributed over £24 billion to the economy and employed IMPACT TIMEFRAME
approximately 800,000 people.94 A 2012 Forbes magazine
article highlights that social entrepreneurs in the commercial 1–12 months
sector bring innovation, capital, and investment to business
models that seek to tackle social challenges.95 For example, KEY QUESTIONS OR UNCERTAINTIES THIS RAISES FOR
such businesses may be established to achieve social goals, ACCOUNTANTS
invest in marginalised groups of people or use recycled waste
streams or materials in their offerings. How should positive externalities generated by social
entrepreneurs be reflected on a balance sheet?
Forbes suggests that social responsibility is often an
important part of the branding and marketing strategy for Are there social entrepreneurs in the accounting field and, if
social enterprises in the business sector. Social entrepreneurs not, should they be created or developed?
in the not-for-profit or social sector also seek to bring about
social change in a market-oriented manner. Unlike social
enterprises in the business sector, however, they do not seek
a profit.

An increase in the extent of social entrepreneurship in the
social and business sectors could bring about greater
awareness of social issues, and of the power of business
models to solve them. Greater public and government
awareness of the possible social impact of businesses could
increase the pressure on traditional companies to adopt or
extend social goals.

96

48. Scope and diversity of expectations of external stakeholders

The range of stakeholders in business and the breadth of
their concerns and expectations are increasing in the wake of Governance models may have to be reformed to account for
a period of enormous economic turbulence and systematic greater stakeholder participation and expectations.
failures. As a result, regulatory, transparency, ethical and
performance demands of this growing range of external New models for valuing and measuring business performance
stakeholders are expanding for business, the finance function may be required to account for broader social responsibilities.
and the accountancy profession.
New modes of philanthropic investment may emerge that
Regulators and stakeholders across society are asking for make it attractive to invest in businesses that are having
business to demonstrate greater transparency, regulatory positive social impact as well as good financial returns.
compliance and ethical behaviour. At the same time,
shareholders want firms to adhere to all these expectations The perception of each country as a competitive or attractive
without affecting their ability to deliver increasing returns on business environment for investors may be hampered if
investment in tough market conditions. businesses are pushed beyond a primary focus on
shareholder return.
Policymakers, regulators and civil society groups are
reviewing almost every aspect of how the capitalist system IMPACT TIMEFRAME
currently works and how it could be improved to serve all
concerned. Such reviews will inevitably lead to changing – if 4–5 years
not greater – requirements on business for transparency,
ethical behaviour and regulatory compliance. For example, KEY QUESTIONS OR UNCERTAINTIES THIS RAISES FOR
there are clear business implications of tighter regulation of ACCOUNTANTS
the financial sector and a growing emphasis on sharing
non-financial data, with moves towards the practice of In what way will the standard accounting procedures have to
integrated reporting. change to account for new ways of measuring value?

It is clear that business stakeholders are no longer interested What challenges will enhanced stakeholder requirements
in just the financial performance of a company. They are create to established ways of working, cultural values
calling on organisations to address the triple bottom line that and norms?
factors in people and planet as well as profit (the delivery of
shareholder returns). As a result, there is likely to be growing Will accountants feel powerful opposing forces and
pressure for companies to adopt and demonstrate socially contradictory pressures, eg produce profit but do no harm?
responsible positions on issues as diverse as workplace
rights, sustainability, payment of small suppliers and Will accountancy ultimately shift from primarily providing
employee diversity. There could also be governance financial information to shareholders to delivering financial
expectations that performance on these issues will be and non-financial information to a diverse array of
monitored by executive and non-executive directors. stakeholders?

Is there a move underway from balance sheet to
balanced scorecard?


49. Pressure to manage corporate reputation as part of business strategy

DESCRIPTION Given the challenge of making profits while retaining the
support of customers, governments and investors, reputation
Being seen as a responsible business is becoming management will become increasingly central to company
increasingly important for retaining customers, gaining strategies. Every major strategic and operational decision will
access to new markets and attracting investment. The need to be exposed to wide and rigorous scrutiny to reveal
challenge of corporate reputation management has been and address potential reputational impacts.
compounded by the instantaneous nature of the internet and
social media in particular. IMPLICATIONS FOR/IMPACT ON BUSINESS AND THE
Businesses are increasingly making a strategic commitment
to appointing Chief Listening Officers and rapid response Firms may need to increase the level and quality of dialogue
teams. The goal is to monitor and react to both positive and with activist groups, the media, politicians and social
negative commentary about the company on social media media channels.
sites such as Twitter and Facebook. Customers are finding
that the fastest way to get a rapid and satisfactory service Companies may also have to change policies or operating
response is to post their complaints openly on the models in response to public and political concerns regarding
social media. issues as diverse as environmental performance, executive
pay and the social impact of their business.
Public and political confidence in corporate governance has
been damaged by the GFC. The situation has been Social media experts and reputation strategists could take up
compounded by subsequent concerns over issues such as an increasingly important role in corporate strategy,
executive rewards, ethical breaches and clearly illegal government relations, corporate affairs and stakeholder
behaviour by some firms. For example, the ‘Occupy’ protest communications teams.
movement started on Wall Street in the US in 2011 and spread
rapidly around the world. This was driven by concerns over Investor reports could begin to include a ‘sentiment report’
the power of major banks and corporations and the impact derived from social media feedback, similar to ‘twitter
they have on democracy.96 sentiment’. The sentiment report would measure public mood
in relation to the company.
The UK has also seen growing debate on the notion of ‘moral’
or ‘popular’ capitalism, with Prime Minister David Cameron as Setting executive pay or changing operating models may
an active participant in the discussions.97 Public, political and have to become a consultation process, inviting public and
investor scrutiny and criticism of executive salaries and political commentary.
bonuses have become more widespread. For example, in
June 2012, Stephen Hester, the chief executive of Royal Bank IMPACT TIMEFRAME
of Scotland, declined to accept an executive bonus of nearly
£1 million. This followed public and political concerns over 1–12 months
how effectively this state-owned enterprise was allocating its
financial resource.98 KEY QUESTIONS OR UNCERTAINTIES THIS RAISES FOR
ACCOUNTANTS
Social and environmental impacts are another increasingly
important source of pressure on large visible corporations. How can accountants be seen to take a stance on responsible
The pressure typically comes as a result of scrutiny by non- corporate governance?
governmental organisations (NGOs), the media, activist
groups and concerned consumers. For example, as a result of Are new metrics that deal with social media sentiment
a Greenpeace campaign, Timberland began to track where something to factor into financial reports?
its shoe leather came from. The campaign mobilised 65,000
supporters to e-mail Timberland’s chief executive, asking him
to examine its supply chain and its impact on deforestation of
the Amazon.99

98

50. Level of corporate commitment to social responsibility, investment,
philanthropy and volunteer work

ACCOUNTANCY
More and more, firms will be assessed and ranked on their
social responsibility policies. Where once such activities were CSR could become a point of differentiation or a
seen as acts of generosity and good citizenship, they are survival requirement.
becoming key to securing a firm’s legal and moral licence to
trade. Emerging economies are increasingly placing Accountancy may well be at the forefront of initiating change.
significant formal and informal social responsibility and
philanthropic demands on medium-to-large firms seeking to CSR accounting and auditing may rise in prominence.
enter the market.
IMPACT TIMEFRAME
CorporateRegister.com reports that in 2011 over 5,500
companies around the world issued sustainability reports, up 1–12 months
from about 800 a decade earlier.100 This may be attributed
partly to public pressure. For example, at the February 2012 KEY QUESTIONS OR UNCERTAINTIES THIS RAISES FOR
‘Board of Boards CEO Conference’ of the Committee ACCOUNTANTS
Encouraging Corporate Philanthropy (CECP), 59% of CEOs
reported that consumers are demanding greater levels of Is accountancy education inclusive enough of CSR topics?
transparency about a company’s community engagement
initiatives than they were five years before.101 Commercial How can accountants become more strategic, given the
considerations are also a factor here, with 69% of the CEOs information at their disposal? Is a consultancy-type
stating that their companies’ community engagement efforts role feasible?
are rewarded by consumers.
What forms of collaboration with CSR leaders could add value
Forbes reports that a 2010–11 ‘Rate the Raters’ study from to accounting practitioners?
SustainAbility.com found that more than 100 sets of ratings
measures are being used by the most responsible
companies.102 Forbes also notes that ‘All the big four
accounting firms are expanding their practices to audit all of
these disclosures and are also sponsoring the expanded
fourth edition of the Global Reporting Initiative Guidelines,
which outline standard CSR disclosures. In 2012 a new
initiative named the Global Initiative for Sustainability Ratings
will endeavour to standardise the ratings framework.’

A parallel trend is the rise of active philanthropy by those who
have made their fortunes in business and who are now
seeking to apply the same results-driven effort to solving
global challenges. For example, between 1994 and
September 2011, the Gates Foundation funded over US$24.1
billion-worth of projects using the resources of the Microsoft
founder Bill Gates.


51. Use of cash for financial transactions

Physical currency has been the backbone of business and
national economies. Recently, however, the rise of electronic Businesses’ financial affairs could be conducted
payment using credit cards, mobile phones and online electronically, owing to both a wider cultural push towards a
banking has reduced the use of paper money for financial cashless society and increasingly strict government anti-fraud
transactions. The prospect of a cashless society in a few legislation and controls on cash transactions.
decades is now considered a real possibility in
some economies. Some accountants may have to explain sudden increases in
their firms’ or clients’ tax liabilities if cash transactions are
A report from the consulting firm Aite Group LLC, shows that controlled.
in the US, consumers’ use of cash declined by 3% in 2010. It
has been predicted to drop at the same rate through to 2015, IMPACT TIMEFRAME
representing an overall decline of nearly US$200 billion.103
Similarly, in a survey of Canadian citizens, 56% said they would 1–3 years
be happy to never handle money again and use only a digital
wallet. In addition, 34% say they would prefer to use their KEY QUESTIONS OR UNCERTAINTIES THIS RAISES FOR
phones to pay rather than using physical currency.104 ACCOUNTANTS

In practice, cash is still in widespread use globally, owing in What outreach role could accountants play to encourage
part to a lack of electronic infrastructure. Other restraining wider use of electronic finance systems in business
factors include security concerns regarding digital currency and society?
and ingrained cultural attitudes that equate physical currency
with national sovereignty. In many countries, the prevalence How might advice given by accountants to their employers
of cash for financial transactions has led to tax evasion and and clients need to change regarding the use of
financial fraud on both an individual and corporate level. cash transactions?

An example of a cash-based society is Italy, where many
individuals and small to medium-sized enterprises conduct
their financial affairs in physical currency. As a result, an
estimated €100 billion in unpaid taxes is lost by the Italian
government every year. Also, the use of cash incurs a further
€10 billion cost annually from the increased security and
labour needed to process cash transactions. In a bid to
bolster its struggling finances, the Italian government banned
cash payments of over €1,000 in December 2011.105 Other
countries have also followed suit. Spain, for example, has
prohibited cash transactions over €2,500 between
professional businessmen.106

100

52. Management of accountability and compliance within the firm

ACCOUNTANCY
The overall behaviour and accountability of global businesses
is expected to come under ever-increasing scrutiny from The approach to ensuring that current regulatory
regulatory bodies and civil society alike. With respect to requirements are met varies between relying on a tight
regulated behaviour, organisations can choose whether to monitoring and reporting system and ‘special’ compliance
respond to legal requirements through conformance or to staff, and embedding the approved behaviour in the system.
demonstrate progressive leadership by voluntarily adopting
exemplary behaviours. The need for departments of compliance staff may change if
responsibility is distributed across the business.
An increase in regulation can result in a move towards
compliance, which often involves adopting bureaucratic Accountants’ roles may change if the compliance requirement
processes with little commitment to attitudinal or behavioural is reduced or shared across the company.
change. The future nature of the accountancy profession will
be influenced by whether accountability is driven by IMPACT TIMEFRAME
regulated compliance or voluntary leadership and
responsibility embedded as a cultural business norm. 6–10 years

Currently, there are different business cultures with respect to KEY QUESTIONS OR UNCERTAINTIES THIS RAISES FOR
accountability – the US and to some extent Europe have ACCOUNTANTS
become more litigious in nature. In contrast, in parts of Asia
and Latin America trust and values drive work ethics and How ready are accountants to shift the emphasis of their role
approaches. For example, a study with executives in China to supporting organisation-wide accountability and
and Japan reported that, there, business does not exist performance instead of focusing on compliance
primarily to create shareholder value. In Japan, in particular, and reporting?
business cultures are based on a stronger sense of history
and see their purpose as first and foremost to serve society How can this be done? Significant industries and vested
and employees.107 In such cultures, the approach to interests have lots of investments in resources systems to
accountability reflects the very nature of what the company is support the compliance model – what would the financial
trying to be. impact be of distributing the responsibility?


53. The future role of intermediaries

Traditionally, in many sectors, intermediaries and brokers
have acted as a key conduit for goods or services offered by a More businesses, processes and industries will become
supplier to an end consumer. With the move towards online virtual or develop a critical virtual component.
trading and the proliferation of virtual goods and services,
the need for, and role of, the intermediary is being put under Key industry intermediaries, in developed and developing
the spotlight. In many sectors there is an ever-decreasing role markets alike, will increasingly have to adopt advanced
for long supply chains, and the internet is providing an ideal integrated software packages that offer greater choice and
mechanism for connecting buyers and sellers. Buyers can now transparency. This will affect sectors as diverse as insurance,
access the manufacturer directly and use price comparison financial services, travel and logistics.
websites to obtain the best price.
Advances in technology and intense competition will drive
An example of disintermediation can be seen in the intermediaries to be innovate in their offerings, and look for
publishing industry, where the advent of digital distribution new business models and sources of revenue.
has seen the physical copy of a book replaced by a digital
copy downloaded onto an electronic device such as To stand out, intermediaries will need to focus on improving
Amazon’s Kindle. This revolution effectively destroys the the overall service experience and offering solutions, rather
existing supply chain infrastructure of intermediaries involved than just selling the product.
in book printing, warehousing, transportation and retail.
IMPACT TIMEFRAME
In a number of sectors, such as insurance, intermediaries are
being forced to reinvent themselves, offering new advisory 1–3 years
services and taking on tasks from both the supplier and end
customer. Examples in insurance would include product KEY QUESTIONS OR UNCERTAINTIES THIS RAISES FOR
design, development of customer-facing applications, claims ACCOUNTANTS
handling, information management and longer-term
insurance planning. What are the accounting and risk-management implications
where key stages of the value chain are made virtual?

Does decreasing the number of factors in the value chain
make the accounting process easier?

102

54. Emergence of new industry sectors and professions

Advances in science and technology are bringing with them a
number of new industries – many have the potential to be An organisation’s research and development programmes
worth US$1 trillion or more within two decades. These and intellectual property will, in many cases, be its
developments are also spawning new professions such as biggest assets.
biomimicry designers, artificial limb engineers and 3D
printing technicians. Furthermore, many of these new The tangible assets of these new industries may be non-
professions will be fundamentally cross-disciplinary in nature. existent or at the very least, minimal.
For example, the expertise of nanobiotechnologists spans
many scientific fields, including materials science, biology and In an intensely competitive environment, multiple business
computer science. These professions will enable the creation models may emerge within one new sector.
of new products and services that may be offered to
consumers, such as grown houses and augmented Businesses will have to be agile to spot the latest emerging
body parts. developments from these new industries, which could give
them the greatest competitive edge.
These potentially rapid-growth new industries will represent
whole new possible markets for business services such as IMPACT TIMEFRAME
accountancy. The biomimicry industry alone has been
predicted to account for about US$1 trillion of global GDP by 6–10 years
2025 – creating an estimated 1.6 million jobs in the US
alone.108 KEY QUESTIONS OR UNCERTAINTIES THIS RAISES FOR
ACCOUNTANTS

How will accounting practices evolve to cope with an
increased range of cross-disciplinary sectors?

Will accountancy itself become a more
cross-disciplinary profession?

How will accountancy cope with a range of new business
models within a sector, and with rapid model turnover
and experimentation?

How can accountancy aid and assist these new industries,
beyond offering core services?

How do accountants identify and engage with these
new sectors?


A5: Science and technology

55. The digitisation of work

At the heart of business change over the last three decades in
particular has been the digitisation of work. ICT is Technology mastery will be seen as a core competency for
transforming the nature of work and working practices in firms that genuinely see themselves as sector leaders
almost every sector. It is reasonable to assume that task and innovators.
automation will extend to ever-more knowledge-intensive,
analytical and judgement-based work activities over the next The capability of a firm’s ICT management and staff will
decade and beyond. The world is increasingly digital, where increasingly be recognised as a source of
goods, services, social interactions and business transactions competitive advantage.
are moving into the virtual space. Industry value chains are
being transformed and cycle times for completing Greater emphasis will be placed on ensuring a high degree of
transactions are being compressed dramatically for ICT awareness in line management so that firms can adapt
everything from mortgage application processing to airline business models and operational processes to take full
check-in. advantage of new technology.

A parallel phenomenon is the rate at which the internet is The pace of change of technology and the cost of upgrades
helping to bring down business costs by having the are of increasing concern.
customers do their own order processing. At the same time,
social media have placed businesses much closer to their IMPACT TIMEFRAME
customers on a 24/7/365 basis and enabled firms to form
communities around themselves that increasingly act as a first 1–3 years
line of support for service and technical enquiries.
Within and between organisations, ICT is increasingly used as ACCOUNTANTS
the medium of choice for interactions with project teams,
clients and management. For example, interactions that What level of investment will accountancy firms need to make
would previously have required travel for face-to-face in ICT to ensure that they remain competitive?
meetings are now being replaced by voice over Internet
protocol (VoIP) calls using tools such as Skype and high- How can accountants ensure that they stay abreast of the
quality ‘telepresence’ video-conferencing. latest developments in ICT?

How might a shift to greater use of virtual meetings affect the
development of firm-wide cultures in the
accounting function?

104

56. The use of personal technology in business

Businesses increasingly have to accommodate the demands
of employees to use their own devices for work-related tasks. The distinction between business and personal technology
The ‘Bring Your Own Device’ (BYOD) culture is affecting is blurring.
everything from investment decisions to security policy and
development of new computer software applications. How will the personal use of technology on an individual level
mesh with overall company use? If there is a conflict, what
Technology advances are enabling individuals to immerse does this mean for accounting?
themselves in a personal ecosystem of smart phones, tablet
computers, laptops and personalised services and IMPACT TIMEFRAME
applications. The more comfortable people become with
these devices, and the more they adapt themselves to the 1–3 years
ways of working that they facilitate, the more workers want to
use the same tools in the work environment. At the same KEY QUESTIONS OR UNCERTAINTIES THIS RAISES FOR
time, the boundaries between individuals’ work and private ACCOUNTANTS
lives are becoming increasingly blurred. Having realised that
personal technology can boost productivity, some How can the delivery of information and accounting systems
companies, such as Kraft Foods Inc., now allow and provide within and across organisations be personalised?
support for employees to use their own devices in the
workplace.109 How can accountants design for, and adapt to, this increasing
trend towards personalised systems?
Integrating personal devices into the organisation’s
technology infrastructure creates significant challenges. The How can accountancy practices adapt to multi-device
ICT function needs to support a wider range of devices, working environments?
operating systems and functionality. The level of security for
business data and applications provided by these personal What security policies will firms adopt to enable and control
devices can also be a cause for concern. staff access to accounting applications and data on their
own devices?

100 DRIVERS OF CHANGE FOR THE GLOBAL A5: SCIENCE AND TECHNOLOGY 105

57. Impact of the internet and personal technology upon attention spans,
learning, and knowledge retention

24/7 internet access and the proliferation of personal devices
such as smart phones, tablets and laptops have changed Reduced attention spans could have a negative
both people’s lifestyles and the way they process information. economic impact.
Writer Nicholas Carr suggests that the rise of the internet has
‘rewired’ the human brain and reduced individuals’ attention Personal technology facilitates new approaches to capturing
spans.110 As a result, the way people learn and perform in the information, learning and sharing – it might make
working environment has also changed. collaboration in the workplace easier. Business could
capitalise on this as an asset.
The increasing amount of time spent online has made the
internet the preferred source of information. Numerous There might be a need for a new role in the workplace in the
scientific articles confirm that browsing through the bulk of form of information coaches and facilitators who could help
information available online has altered thinking habits. It is employees filter information and deal effectively with
suggested that most of today’s internet use habits that information overload.
promote disorganised and ‘scattered’ thinking.111 Reports also
suggest that the addictive nature of Web browsing has IMPACT TIMEFRAME
reduced attention spans to nine seconds.112 This trend is
compounded by the proliferation of personal devices that are 1–12 months
always connected to the internet. Carr suggests the way
people process information has changed as well – skim KEY QUESTIONS OR UNCERTAINTIES THIS RAISES FOR
reading is replacing in-depth reading, while visual reading (eg ACCOUNTANTS
scanning of images) is being favoured over text reading.
Is workplace collaboration, enabled by personal technology,
Although personal technology can cause distractions at the an asset for organisations and how could such an intangible
workplace, it can also improve performance. A number of asset be valued?
smart phone apps now allow people to capture, organise and
retain information.113 How can we measure the financial losses associated with
shortened attention spans and information overload?

Do the ‘digital native’ accountants qualifying today display
fewer competencies or simply different ones? Are
professional training courses taking this into account?

106

58. Business impact of social media

The rise of social media has reshaped digital communication
and relationships between business and the wider world in a Social media provide opportunities for interacting with a
fundamental and potentially lasting manner. Social tools are broad range of stakeholders, developing business
being adopted by business to raise brand profile, relationships and creating new channels to market.
communicate with customers, provide service and recruit
new staff. The open and random nature of social media can introduce
potential risks. For example, reputational factors are at stake,
Social tools such as Facebook, MySpace and Twitter receive as unhappy customers and stakeholders can mobilise a
250 million or more unique visits a month. The volume of use negative campaign almost instantly.
is rising as bandwidth and internet connections expand in
emerging economies. In some cases virtual currencies have Internal social media platforms could help facilitate
been created to encourage trade between members of a organisational development, for instance the use of internal
social network, eg QQ in China.114 wikis for large companies as a way to share knowledge.

In a socially connected environment, understanding what IMPACT TIMEFRAME
customers feel, think and say about one’s company – in real
time – is ever more critical. Social media are reconfiguring 1–12 months
and challenging the very nature of some industries, such as
broadcasting and print, and presenting new challenges and KEY QUESTIONS OR UNCERTAINTIES THIS RAISES FOR
opportunities for many others. For example: ACCOUNTANTS

• Dell claims to have generated more US$3 million of How will further engagement with social media and trading in
earnings from Twitter posts since 2007 115 virtual currencies affect accounting and audit systems?

• Barack Obama’s 2008 presidential campaign generated What new revenue streams and profit opportunities can social
US$55 million of funding in 29 days using social media media open up for business?
channels.116
How might social media platforms facilitate global networks
of accountants for knowledge sharing and networking?


59. Ease of internet access

The internet is encouraging entrepreneurship and enabling
people with very limited resources to start businesses with a Continuous connectivity, increasing data speeds and the
truly global reach. The reliability and bandwidth of internet proliferation of electronic devices mean that it will soon be
access available are becoming important considerations for possible to conduct business almost anywhere globally.
businesses and individuals when deciding where to locate.
The growth of mobile internet use for social purposes The blurring of business and personal boundaries will change
coupled with increasingly mobile workforces and the need for working patterns, and HR departments will have to help
professionals to be productive at all times are key drivers of professionals, especially the incoming Generation Y staff, to
the demand for continuous connectivity in public places and achieve a healthy and sustainable work-life balance.
on transport systems.
The 24/7/365 global micro-business is becoming a reality.
Access to the internet continues to spread globally, as more
countries recognise it as a key driver of economic growth and IMPACT TIMEFRAME
invest in their telecommunications infrastructure. By 2016, the
number of broadband households has been predicted to 1–3 years
double in Latin America and grow by 75% in the Asia-Pacific
region.117 KEY QUESTIONS OR UNCERTAINTIES THIS RAISES FOR
ACCOUNTANTS
The spread of publically available WiFi means that continuous
connectivity is becoming more of a reality. Gradually, the last How will accountants’ working patterns be affected by the
internet black spots such as public transport and airlines are rise of a more pervasive internet?
providing their customers with a reliable WiFi service.
How will the way in which the working day is structured have
to change if employees are able to access digital work
content 24/7?

108

60. Adoption of cloud computing by business

Cloud computing is the renting of business software
applications, databases and computer servers running Cloud-based solutions enable organisations to cut staffing
remotely over the internet. This enables firms to reduce fixed costs by allowing them to outsource their accounting
costs, increase flexibility and scale their use up or down in line functions to lower-cost locations anywhere in the world, while
with business need. still having easy access to the data via online platforms.

Cloud computing enables individuals and organisations to Concerns over the security of remotely held data will be a key
rent software and the hardware it runs on, rather than owning consideration when deciding on the move to
it. Payment models vary depending on the type of cloud-based solutions.
application. For example, consumer-facing tools and
applications are typically sold on a transactional basis or by IMPACT TIMEFRAME
the minute or the hour. Corporate-facing applications
typically require at least a monthly contract. A key attraction 4–5 years
is that capacity is elastic: users can have as much or as little of
a service as they want at any given time. The service is KEY QUESTIONS OR UNCERTAINTIES THIS RAISES FOR
typically fully managed by the provider. The end user needs ACCOUNTANTS
only a personal computer and internet access.118
As cross-border trading and transactions via the Web
Cloud computing offers the promise of greater flexibility and increase, what are the implications for taxation
agility for businesses that have been able to outsource their and accountancy?
costly ICT infrastructures. The cloud model also means that a
business should be able to provide the same services easily With regular high-profile data breaches and incidences of
to its staff around the globe. cybercrime, will businesses be willing to have their accounting
services and data accessible over the internet?
The cloud model encourages experimentation and
innovation. Firms can try out new business applications and Is it a concern that accountancy may be losing the human
concepts at relatively low cost without having to make costly touch, as entire business relationships move to being
investments in the underlying hardware and software. conducted electronically?
Another perceived advantage is that providers of cloud-
based applications can invest more heavily in the tools than
can any individual customer because the costs are being
shared across multiple users.

The development and use of cloud-based business-to-
business (B2B) applications could facilitate the transformation
of small- and medium-sized accountancy practices and the
way they serve clients. Business-to-business relationships can
be serviced on a 24/7 basis as cloud-based software enables
firms to keep accounting records online, giving on-demand
access. Nearly all services, from stock accounting to payroll
and tax reporting can be provided over the internet.


61. Creation and valuation of digital assets

As the digital universe expands and more services are
created, delivered and consumed online, developing E-assets are hard to value and raise questions of ownership
acceptable standards for the verification and valuation of between the provider and consumer of a digital product.
digital assets is becoming an important issue for the There may be a need for virtual-world standards to monitor
accountancy profession. digital asset transactions.

The volume and value of assets that now exist purely in an New business models and accounting procedures will have to
electronic format online is increasing. Such assets might be created in anticipation of a rise in customer demand for
include music, literature, computer games and other digital assets and the use of virtual currencies.
intellectual property. Trading between players in the virtual
world has led to the emergence of virtual currencies such as Many organisations rely on IP for a high proportion of their
QQ in China – which is now trading millions of dollars in daily income stream. These organisations face challenges to their
virtual transactions between its 700 million active users. The traditional financial and business models.
further development of virtual immersive worlds, and the
expectation of increasing virtual spending within them, New challenges for regulators arise concerning the use of
suggest value creation will become increasingly ‘de-based’ these facilities for criminal activities such as money laundering
from a physical object. or illegal file-sharing.

Within online virtual worlds the creation and sale of virtual IMPACT TIMEFRAME
assets such as land and property is creating real-world wealth
for those involved. An example can be seen in the online 4–5 years
social computer game Second Life, where a Chinese
language teacher named Ailin Graef was able to build and KEY QUESTIONS OR UNCERTAINTIES THIS RAISES FOR
sell a virtual property portfolio worth at least US$1 million in ACCOUNTANTS
real money.119
How will digital asset ownership affect the balance sheet and
The digitalisation of assets has, however, also provided notions of value that accountants audit?
greater opportunities for fraud and the infringement of
intellectual property rights. an example is the proliferation of Will virtual wealth have accounting standards? How could it
peer-to-peer file sharing over the last decade. This has been be measured against real-world assets?
seen to have a negative financial impact on organisations that
rely on the revenues generated by intellectual property (IP) Will legal compliance shift to account for digital assets? How
rights rather than skills, most notably the media and will virtual assets be accounted for and distributed as part of
entertainment industry. an estate after death?

How are accountancy companies and industry associations
assessing and protecting their own IP?

110

62. Cybersecurity challenges for business

DESCRIPTION IMPLICATIONS FOR / IMPACT ON BUSINESS AND THE
The increased reliance on computers in our daily lives and
digitisation of financial services has opened up individuals In order to secure their systems and data, businesses are
and organisations to threats from cyberspace. Threats and investing in increasingly advanced and costly IT systems and
attacks are typically conducted by groups and individuals cooperating with government security agencies.
who hack systems to attain both ideological and
financial goals. Good ‘cyber hygiene’ is increasingly part of corporate
training to help prevent staff accidentally exposing the
Symantec has calculated the worldwide economic cost of organisation to the risks of attack, by training them in such
cybercrime at US$388 billion annually, a figure that is skills as the ability to recognise an attempted phishing attack.
estimated to be US$100 billion greater than the combined
global market for marijuana, cocaine and heroin.120 Companies are having to plan how to react in the face of a
data breach, to a avoid a costly and embarrassing public
New forms of cyberterrorism, cybercrime and cyberfraud will relations disaster, as suffered by Sony in the wake of the
continue to emerge as reliance on technology increases and hacking of the PlayStation Network, which led to the leaking
assets are digitised. Surveillance methods and tactics to of millions of users’ personal details.121
counteract cybercrime will have to evolve rapidly to match the
speed and sophistication with which criminals innovate. IMPACT TIMEFRAME

1–3 years

ACCOUNTANTS

Is cybersecurity being built in as a standard part of the audit
and risk-assessment process?

What is the accountant’s role in identifying cyber risk and
highlighting potential areas of a business that would cause
the most harm if attacked?


63. The future of digital publishing

The rise of the internet and digital publishing are beginning
to place increasing pressure upon traditional publishing There will be winners and losers in digital publishing – it is not
models in sectors such as newspapers, journals, books, music, a ‘zero sum’ situation.
television and films. Each sector is pursuing different
strategies and experimenting with alternative business Could an association’s membership proposition be devalued
models to secure a return on its investment in content. if similar content could be accessed for free from
rival organisations?
Many ‘pay-walls’ still exist in terms of online music, films,
newspapers and access to peer-reviewed journals. Publishers may have to cannibalise their own business
Nonetheless, an increasing number of industries, from models, charge less and accept lower revenues in return for
academic publishing through to television, are moving retaining control over content.
towards providing free open and unrestricted access to their
intellectual content. Information will be more freely and widely available – how to
analyse, capture and act upon it will remain critical.
In the professional and academic disciplines, there is growing
user demand for free and open access to journal content. IMPACT TIMEFRAME
Publishers are clearly reluctant to provide such content free of
charge given the editorial and production costs of providing 4–5 years
high-quality peer-reviewed journals. They have been
experimenting with different models such as ‘author pays’ but KEY QUESTIONS OR UNCERTAINTIES THIS RAISES FOR
there are concerns over the viability of such models. Since the ACCOUNTANTS
year 2000, there has been a growth of 18% in the number of
journals and 30% in the number of articles made available Will more publishers and associations make their content
through the open access route. In 2009 there were an open-access?
estimated 191,000 articles published in 4,769 open access
journals.122 What impact could open-access content have on the training
of accountants and development of best practice?

112

64. Big data: the development and exploitation of large
organisational databases

There is a growing interest in how organisations can exploit
‘big data’ – the large and growing databases of customer and Business and accountancy alike will need to address the need
transactional information being generated through daily for big data analysis skills.
activities. The challenge is to create new toolsets that enable
the management and manipulation of these large datasets The ability to make the right decisions about how to manage,
and to generate powerful predictive insights about future store and act upon data will become a key comparative
customer behaviour. advantage – as well as representing an important legal and
financial management issue.
The world is constantly creating huge volumes of structured,
semi-structured and unstructured (eg video) data through Greater complexity in the accountancy profession is likely –
multiple sources such as customer enquiries and transactions. with more quantitative and perhaps qualitative data to
The scale of data collection is likely to rise exponentially be considered.
owing to the emerging ‘internet of things’ – with sensors
increasingly implanted in everyday objects adding rapidly to IMPACT TIMEFRAME
the flow of information. HP has predicted that by 2020 there
could be four billion people online globally and 30 billion 6–10 years
mobile phones in circulation. As a result, HP predicts the
global volume of data could rise from around 0.8 zettabytes KEY QUESTIONS OR UNCERTAINTIES THIS RAISES FOR
of data in 2009 to 50 zettabytes of data being created every ACCOUNTANTS
year by 2020 (1 zettabyte = 1021 bytes).123
How will accountants cope with the increasing volume and
The volume of data generated and held by businesses has complexity of data to be analysed and audited?
expanded from gigabytes (10 9 bytes), to terabytes (1012 bytes)
and now even to many petabytes (1015 bytes). To cope, Will accountants need to develop new data-mining skills to
businesses have had to invest increasing amounts in their ICT help them analyse and interpret these massive data sets of
infrastructure in order to store and manage their data, and in structured and unstructured data?
staff skilled in maintaining and interpreting large datasets.
What new accountancy service offerings do big data
make possible?


65. Data mining and predictive analytics

The growing databases of business transactions being
created by organisations provides a rich source of data that Advances in data mining will enable the information supplied
can be mined to enhance strategic decision making and in reports to be more user-centric and relevant.
improve customer offerings. Data mining is the process of
using advanced software analysis tools to identify trends, New conceptual categories of auditable business data could
patterns and insights from large datasets. Predictive analytics be created through data mining
uses the patterns derived from data mining to suggest future
behaviours of customers, markets and systems. The aim is to If these software tools are trusted to make predictions, what
maximise growth potential and minimise risk by spotting might the impact be on the role of the CFO and other key
possible future opportunities, shocks, issues and challenges strategic decision makers?
before they happen.
Could risk-taking and innovation be restricted if it was seen to
Emerging data mining and analytic tools can be used to give be contrary to software predictions?
a detailed picture of the overarching trends exhibited in past
sales and production statistics. They can also provide a Regulatory authorities might ask that auditors deploy
‘real-time’ minute-by-minute, up-to-date picture of the predictive analytics to assess the future health of their clients.
present. The concept has already attracted a lot of interest
from intelligence agencies such as the CIA. These agencies IMPACT TIMEFRAME
are exploring the use of data mining and sentiment analysis
of social networks in an attempt to predict global events.124 6–10 years

ACCOUNTANTS

What accreditation will need to be developed to ensure an
industry-wide standard in the quality of data-mining tools
that accountants use?

How can accountants use these tools to help improve the
resilience of an organisation’s finances?

Could SME accountants use these tools to offer a predictive
service for sole traders?

114

66. ‘Intelligent’ accounting systems

Advances in fields such as artificial intelligence and predictive
analytics hold out the possibility of truly intelligent Business bookkeeping and accounting costs could be cut
accounting systems. Such systems would have the capacity to dramatically, although the initial purchase and annual
infer patterns from data. The tools could be used to learn, maintenance costs for the technology could be significant.
adapt, and predict future possibilities and risks. They would
also provide intelligent analysis and commentary on the Intelligent systems may aid the process of forensic accounting
underlying information. or even eliminate the need by highlighting and pre-empting
issues before they become a problem.
Future systems could also make extensive use of technologies
such radio frequency identification (RFID) tags and advanced Profitable market opportunities could open up for the
sensors. These would be used to track the status and value of developers and vendors of intelligent accounting systems.
every physical item in stock, providing real-time updates and
further automating the process of bookkeeping. New accounting regulators will be required to ensure the
quality and veracity of automated accounts.
Artificial intelligence is yielding software tools that display
many of the capabilities we would normally associate with IMPACT TIMEFRAME
trained professional and knowledge workers. Systems are
being developed with the capacity to learn, adapt, 6–10 years
reprogram themselves, interpret data, exercise judgement
and craft narratives. These tools could bring about radical KEY QUESTIONS OR UNCERTAINTIES THIS RAISES FOR
changes in the accountancy profession and open up the ACCOUNTANTS
possibility that non-professionals will enter the sector in
countries where legislation allows it. What might be the implications for accountancy firms and
their profitability if increasing parts of their role can be
performed by intelligent systems?

How will the accountant’s role change in response to the
introduction of intelligent accounting systems?

Will accountants be responsible for managing the automated
process or be elevated to a more strategic role?

If increasing parts of accountancy become automated, will
the profession become less or more attractive as a career?

What are the opportunities for developing and licensing
accounting software?


67. Scale of business opportunities associated with augmented and
virtual reality

DESCRIPTION IMPLICATIONS FOR / IMPACT ON BUSINESS AND
ACCOUNTANCY
Augmented reality (AR) is the enhancement of physical world
experiences by overlaying them with digitally generated Companies will increasingly adapt their advertising to
content. Typically, such content includes maps, text, images, incorporate AR to communicate with consumers in real time.
sound and video. The information is displayed on a mobile
device and – in the near future – on the user’s glasses or AR could help businesses differentiate themselves and
contact lenses. strengthen the relationship between product and service
brands and consumers.
Virtual reality (VR) enables people to interact with an artificial,
3D visual or other sensory environment through computer Accountants could assist in the development of mobile AR
modelling and simulation.125 The opportunities associated apps for businesses. Such developments could be used to
with AR and VR range from the facilitation of customer enhance financial reporting.
communications to reducing the cost of
product development. IMPACT TIMEFRAME

By using AR, businesses can reach out to consumers and 1–3 years
engage with them. For example, the Copenhagen Airport
app allows passengers to navigate around the airport via their KEY QUESTIONS OR UNCERTAINTIES THIS RAISES FOR
mobile devices. It shows passengers where to find retail, ACCOUNTANTS
leisure and dining options, offers way-finding guidance,
reviews and flight-related offers.126 How could accountants use AR and VR applications to make
financial reporting more interactive and immersive?
VR offers the opportunity to test products in the early stages
of development without incurring any costs or risks to Will large accountancy firms increasingly develop such AR
companies. US-based farm equipment maker Deere & Co is and VR applications for their clients and for training their
using VR at its labs to test-drive products not yet built and own staff?
make sure the equipment will be easy to maintain. This
experience helps the company identify problems at the
design stage – thereby reducing the costs associated with
correcting faulty products once they have gone into
manufacture.127

116

68. New industries and production models

Advances in science and technology are yielding radical new
industrial processes that could be the basis of major The rise of personalised production could see the creation of
industries of the future. In many cases, these industries are new business entities, with smaller organisations residing
also introducing new business models and distribution within a larger umbrella company, federation style.
approaches. Examples of these new industry sectors include
vertical farming, synthetic biology, grown buildings, Small start-up firms using new production models could be
laboratory manufactured meat, body part manufacture and global in their reach almost immediately.
3D printing.
It is possible that there could be an emergence of a barter
For example, 3D printing involves the manufacture of objects economy for some goods. Will this prove more logical for
through the layer-by-layer addition of material, in a process certain products in an era of deep personalisation?
termed additive manufacturing. The rise of 3D printing has
been accompanied by open-source design databases. These IMPACT TIMEFRAME
enable customers to download product designs, adapt them
and ‘print’ their own unique 3D objects. Applications 4–5 years
encompass everything from the 3D printing of entire houses,
jewellery, and components for oil rigs through to human KEY QUESTIONS OR UNCERTAINTIES THIS RAISES FOR
blood cells. ACCOUNTANTS

3D printing offers the potential to transform entire industries. How will accounting and audit processes need to evolve to
Designs can be customised and manufactured at the point of address the needs of micro-businesses that can scale rapidly
purchase. Supply chains could be obliterated in many sectors. to become major enterprises?
The price of such devices is falling and they are now available
for less than US$1,000.128 One manufacturer, Origo, has Will new industries and revenue models create
unveiled plans to launch at 3D printer for 10-year-olds to unforeseen challenges?
design and print their own toys at home.129 Although the
majority of 3D printing is currently used for product How will accountants track the global movements of capital
prototyping, the range of final product outputs are expected and ideas when done at a personal level? Do they need to?
to rise dramatically. Many argue that it could be the next
trillion-dollar industry.130 Will a new subset of accounting practices need to be
developed to address these possibilities? Will international
rules apply?


69. Advances in genetic science

Advances in science have revolutionised humankind’s
understanding and control over the natural world and the New industries will emerge offering genetic services, and new
base processes of life itself. Increasingly, scientists will be roles will be established for those that manage and regulate
able to modify and augment the genetic make-up of living such transactions.
matter and even create new forms of life.
Global legal standards on genetically modified life forms will
Cheap and simple services, such as 23andme.com, are regulate their commercial use.
already available that enable individuals to get a map of their
personal genetic profile for as little as US$99. There is The Convention of Biological Diversity and associated articles
expected to be a proliferation of businesses providing of genetic variation might soon be rendered obsolete
genetic services and information. by developments.

Advances in genetic science also offer the potential to create IMPACT TIMEFRAME
a range of new materials and life forms. One such advance is
the race to develop the world’s first commercially viable 6–10 years
lab-grown meat. In the production process, cells extracted
from animals are cultured, grown on a framework and KEY QUESTIONS OR UNCERTAINTIES THIS RAISES FOR
nurtured to look and taste like familiar meat-products.131 If ACCOUNTANTS
accepted by consumers, this could revolutionise food
production and help tackle world hunger as well as reduce How will accounting for new life forms impact tax laws and
humankind’s environmental impact. practices and regional trade patterns?

Genetic engineering of new animals, plants and foods could How do you measure the depreciation of a productive living
become commonplace. Countries, regions and governance entity such as an artificial energy source?
bodies will need to make crucial decisions about how to
monitor, control and tax the output of these artificially Is the way in which agricultural assets are traditionally
engineered entities. accounted for appropriate to situations where living entities
are absorbed into non-agricultural production systems?

118

70. The role of genetics in personalised health care

ACCOUNTANCY
Advances in the field of genetics are opening up the potential
for personalised healthcare treatments, which could in turn As genome sequencing becomes cheaper, within a decade
transform the practice of medicine. The significance of insurers and employers might insist that employees provide
personal health care for society and businesses stems from its genetic CVs in order to help them analyse workforce medical
potential to provide more efficient and effective treatment at risks and manage health care costs.
a lower cost.132
Businesses are likely to face an increasing need to protect the
The genome is the blueprint for each person’s body, privacy and confidentiality of their employees’ most
underlying the genetic predispositions to medical conditions personal data.
and influencing the ability of bodies to fight diseases. A
personal genetic profile can also provide information on the Owing to medical advances, a healthier ageing population is
chance of success of certain therapies. The Human Genome likely to be working beyond the current retirement age, which
Project (2003) identified and categorised nearly three billion might cause increased competition for jobs between older
units of DNA base pairs that make up the human genome.133 and younger generations.
The elements that control the genes are still in the process of
being identified, but personalised medicine is expected to Businesses might be challenged to demonstrate that they do
find clinical applications in the next five years.134 A recent not discriminate on the basis of genetic profiles between
report suggests that the market for personalised medicine employees who have access to personalised health care, and
could grow at 11–12% annually, to reach a total of those who do not.
US$148.4 billion by 2015.135
IMPACT TIMEFRAME
The impact of personalised health care could be significant if
the necessary regulatory frameworks are put in place. 6–10 years
Personal health care could reduce the time, cost, and failure
rate of pharmaceutical clinical trials, thus eliminating KEY QUESTIONS OR UNCERTAINTIES THIS RAISES FOR
trial‑and‑error inefficiencies that increase health care costs. In ACCOUNTANTS
addition, patients would be able to receive more efficient and
customised health care. Although the general cost of medical Will personalised health care give rise to a need for
treatment is likely to reduce, those who cannot afford basic specialised accounting services for doctors?
healthcare services might not benefit from
such developments. Could accountants one day perform genetic audits
on companies?

Are there genes that predispose individuals to be
better accountants?


71. Advancements in brain science

ACCOUNTANCY
The potential for artificial enhancement of human brains and
cognitive functions is moving from the realms of science Revolutionary new human computer interactions will
fiction to becoming a genuine possibility within the next capitalise on advances in brain science and computer
two decades. technologies. These offer the potential to increase personal
productivity and information processing capabilities without
Scientific understanding of the human brain is increasing overloading the central nervous system.
rapidly. This is opening up the potential for major advances in
the treatment of neurological conditions and ultimately for With an enormous scope for increasing memory capacity,
the augmentation of individuals’ mental capacity and education curricula could alter or change to become more
memory. Research is already under way to explore the demanding.
possibility of direct computer interfaces to the brain. For
example, it is already possible to stimulate parts of the brain IMPACT TIMEFRAME
to stop or accelerate certain mental functions. Experiments
to read human brainwaves have successfully identified 10+ years
numbers and interpreted basic moving images.136
Advances in nanotechnology offer the potential to grow ACCOUNTANTS
carbon nanotubes onto brain cells that will then be able to
transmit and receive information. Such developments could Will this be a technology that people seek for competitive
result in augmented human beings. The process of teaching advantage in the careers market?
accountants could evolve to one of downloading modules
directly to students’ brains. Could company valuations be influenced by the proportion of
augmented human beings on the payroll?

How will accountancy firms, and businesses in general, react if
their competitors start to encourage their staff to seek
artificial enhancement of their cognitive functions?

120

72. Impact of nanotechnology advances across business sectors

Nanotechnology is the ‘science of the very small’ and refers
to the methods developed to manipulate matter at the Emerging ‘nano’ firms might need completely new
atomic and molecular level.137 Nanotechnology typically accounting models.
involves working with materials, devices, and other structures
of around 100 nanometres in size. Industries working on Differentiated national regulatory frameworks for the use and
nanoscale applications include energy, biotechnology, development of nanomaterials will affect practicalities of
chemistry, environment, food, electronics, healthcare cross-border business – possibly determining where firms
and space. locate their nanoscale R&D and manufacturing facilities.

Nanotechnology is creating opportunities for product and The inability to evaluate the impact of some nanomaterials on
process innovation,138 and giving rise to completely new human health and the environment could lead to substantial
industries and businesses. Nanotechnology also poses business risks.
challenges owing to the unforeseen risks associated with the
development and production of new materials. IMPACT TIMEFRAME

Innovation enabled by nanotechnology could allow 1–3 years
businesses to diversify or improve product offerings and
manufacture at a lower cost. Better or new materials for KEY QUESTIONS OR UNCERTAINTIES THIS RAISES FOR
application in electronics, construction or medicine are ACCOUNTANTS
already being developed. For example, ‘carbon nanotubes’
(CTNs) are good conductors or semiconductors of electricity. How will accounting practice need to change in order to
CTNs can be used, therefore, to design faster computer serve new emerging nanotechnology businesses that do not
chips, or more efficient solar batteries.139 In the health field, currently exist?
new smart fabrics incorporate active nanoparticles giving
them calm-inducing properties, which can create the sense of How will accountants evaluate risks associated with
well-being for the person wearing them.140 new materials?

Nanotechnology also poses key challenges. For example, Will accountants need to acquire new interdisciplinary skills to
some nanomaterials are difficult to characterise and their assess financial risks associated with nanotechnology?
purity cannot be measured.141 Therefore, some medium- and
long-term effects of nano materials on human health and the
environment are not yet fully understood. In terms of
regulation, it is still unclear to what extent nanomaterials can
be handled under regulations similar to those devised for
‘traditional’ chemicals.142


73. Impact of advances in robotic science across business sectors

Rapid progress in robotic science has led to the development
of sophisticated machines that perform a wide range of With ageing workforces, looming skills shortages and people
industrial and domestic tasks. One field of robotics has unwilling to take low-paid jobs, robots may be needed in a
focused on developing personal devices that increasingly number of sectors.
resemble human beings. Robots that think, behave and look
like human beings are likely to share the workplace in the The growing capabilities of robots are likely to change the
future or even take on some human roles. In medicine, a definition of work or employment and the nature of
major field of study is the development of miniature robots the workforce.
that can be ingested and then repair damaged cells and
organs in the body. Businesses might or might not take responsibility for striking
the balance between cost-cutting opportunities provided by
Most personalised robot research projects aim to advance a ‘robot workforce’ and wider national economic objectives
abilities in the fields of artificial intelligence, effectors and such as creating jobs and guaranteeing enough disposable
mobility, sensor detection, robotic vision, and control income to support growth.
systems.143 As a result, robot capabilities continue to increase
across a range of intrinsically human capabilities. Examples IMPACT TIMEFRAME
include companions for the elderly in Japan144 and robot
prison wardens, which have already joined the ranks of the 4–5 years
South Korean prison service.145 Hitachi’s EMIEW2 might soon
become a valuable assistant across offices around the KEY QUESTIONS OR UNCERTAINTIES THIS RAISES FOR
world.146 Furthermore, robots already possess many ACCOUNTANTS
capabilities that human beings lack, which makes them ideal
for repetitive, delicate and dangerous tasks. Will robots be able to perform basic accounting services thus
forcing accountants to upgrade their skills?
Manufacturing has seen the most significant impact of
developments in robotics. For example, the Chinese What will be the implications for accounting firms if some of
electronics manufacturer Foxconn has announced plans to their operations are performed by robots?
more than double its use of robots in the workforce to reach
one million by 2014. Forecaster NBF predicts that there might Will clients expect a reduction in fees if tasks are performed
be one billion robots of all kinds worldwide by 2020.147 by unpaid robots?

As research is progressing and robots acquire more
sophisticated skills, they might take on roles that require
human levels of judgement – in banks, the military or even the
government.148

122

A6: Environment, energy and resources

74. Global climate change

Argument continues to rage over the veracity and accuracy of
climate change predictions. There is, however, increasingly Businesses will have to factor in increasingly strict
widespread agreement that the planet faces a real and environmental regulations imposed upon them
growing risk from dangerous climate change. Debate is also by governments.
increasing over the impact of globalisation on climate
change. The issue is whether the evolving trade and resource Firms will have to change their business models as the public
consumption patterns of global business are contributing to are increasingly aware of, and campaigning against,
the problem. ecologically unsustainable commercial practices.

Climate change describes the significant and lasting change Climate-fuelled tensions between countries may make it too
in weather affecting the global environment. The OECD has dangerous to do business in some parts of the world.
predicted that by 2050, without global policy change,
average global temperatures could rise 1.7–2.4°c higher than Businesses will need to build resilience into their organisation,
pre-industrial levels as result of pollution.149 to adapt to extreme weather events that threaten to disrupt
supply chains.
The impact of climate change manifested itself in rising food
prices and increasing instances of drought. The OECD IMPACT TIMEFRAME
predicts that 47% of the world’s population will live in high
water stress areas by 2030.150 4–5 years

Both globalisation and climate change are highly complex KEY QUESTIONS OR UNCERTAINTIES THIS RAISES FOR
and potentially closely interrelated global forces and their ACCOUNTANTS
impacts are unpredictable. New environmental risks – such as
hereto unforeseen extreme weather events – will come to the How can accountants use their expertise to help businesses
fore as both forces develop and evolve. It is difficult to predict and governments identify and reduce the environmental
the true extent of the impact of climate change. This creates impact of their current operating models and meet
worldwide uncertainty around the nature of environmental regulatory requirements?
risks, their likelihood, their timing, and their scope.
How could environmental risks and potential impacts be
explored further in company financial statements?

How can accountants help create new, sustainable
operating models?

How will accountancy qualifications and continuous
professional development training adapt to reflect
understanding of the impacts of climate change and
social sustainability?

Will accountants be trained to provide ‘environmental
economics’ solutions for organisations to adopt, including
risk identification and management?

100 DRIVERS OF CHANGE FOR THE GLOBAL A6: ENVIRONMENT, ENERGY AND RESOURCES 123

75. Global competition for limited natural resources

ACCOUNTANCY
The need to sustain rising populations and fuel economic
growth is set against a planet of finite resources. Until the Scarcity and rising natural commodity prices could make
connection between resource consumption and economic government intervention in resource markets the norm. This
growth is broken, global demand for scarce commodities could either help facilitate global cooperation or stoke
such as oil and rare earth metals is likely to increase. international tensions.

There is growing evidence that we may soon face a serious Business input costs may rise owing to resource scarcity.
imbalance of supply and demand for several key resources.
For example, global energy demand is predicted to rise by There could be intense international resource competition
20%–30% over the next decade. With only a very slow between countries and also among large businesses whose
reduction in oil dependency and growth in the number of revenues and reserves exceed those of some countries.
petrol-driven vehicles around the world, the price of oil is
predicted to continue to rise. Some analysts argue that we The use of oil for fuel and petroleum based products, ie
have already reached or passed the maximum of total plastics, underpin the functions of business. How quickly can
available reserves – known as ‘peak oil’. There is also an we become less reliant on these and adopt alternative
increasing economic and environmental cost for exploring sources of energy and materials?
and extracting what is left.
Could scarcity lead to possible resource wars, or create
Global businesses are acutely aware of the need to secure the avenues for further international co-operation?
long-term supply of scarce and critical natural resources at
affordable prices. Energy, minerals, water and rare earth IMPACT TIMEFRAME
elements have all become a prime focus in recent years.
Concerns over security of supply and rising long-term pricing 6–10 years
trends are driving the search for natural and
artificial alternatives. KEY QUESTIONS OR UNCERTAINTIES THIS RAISES FOR
ACCOUNTANTS
Precious metals are becoming a key international trade
battleground. Particular attention is being paid to 17 chemical What would be the financial impact if the prices of energy and
elements or rare earth metals that are used in consumer other key resources rose by 10%, 20% or 50% over the next
electronics devices and a range of industrial applications. 5–10 years?
China is believed to produce around 95% of the world’s rare
earth resources and is restricting exports to conserve What role will accountants play in ensuring that their
supplies. Other nations have recognised the threat this poses companies have access to scarce resources?
to continuity of supply and this has led to stockpiling and a
search for alternative sources and substitutes. How can accountants take the long-term sustainable view of
business and push organisations in the direction of alternative
Resource nationalism is not inevitable, and numerous energies and materials?
examples surrounding shared water sources could be cited as
a counterpoint. Nonetheless, there does appear to be the
distinct possibility of increasing resource competition
between countries and organisations.

124

76. Carbon tax and other environmental market mechanisms

There is a growing move by governments to use taxation and
market mechanisms to encourage more environmentally Some businesses will be hit harder than others, especially
sound behaviour and provide the funds to finance those that are the core emitters.
environmental protection and clean-up costs.
The conduct of international trade will become more
Among the most widely adopted environmental market bureaucratic and expensive because the tax will be levied on
mechanisms are carbon taxes and ‘cap and trade’ policies. the producer rather than the consumer. The situation is made
These recognise that the true cost and impact of greenhouse more complex because many resources are imported from
gas emissions are situated in the future, where the cumulative high-emitting countries.
impacts from emissions in the past will compound to
potentially damaging effect. Making emitters pay is Accountants and CFOs will be expected to double up as
effectively an insurance policy against future impacts. This is environmental directors. In this role, the CFO must have
also seen as a powerful way of bringing down the greenhouse detailed knowledge of all the environmental externalities of
gas emissions from industry and companies. the business in order to measure and account for them.

While some countries are adopting these mechanisms, Accounting for carbon will become increasingly complex, as it
currently in the UK they are only being tested on an represents a volatile market commodity with fluctuating costs.
experimental and voluntary basis. As policy becomes more
coherent and emissions targets loom even more urgently, a IMPACT TIMEFRAME
practical carbon tax scheme may be rolled out legislatively.
10+ years

ACCOUNTANTS

How will accountants be expected to steer companies
through this demanding adaptation?

Will accountants be expected to develop a specialism in
border tax adjustment?

Will professional accountancy qualifications require thorough
sustainability literacy?


77. Level of trade in environmental finance markets

Environmental finance markets allow for trading in
greenhouse gas emissions, ecosystem services, and other The rise of environmental finance markets presents possible
natural resources. They have grown significantly over the past new revenue streams for businesses in new markets for
decade and are likely to expand further in the near and currently unrealised assets.
medium term.151 The key distinction from other markets is that
emissions markets provide ‘dematerialised’ allowance Will the difficulties associated with designing international
certificates, as opposed to a physical commodity. Investors markets that are practical and well-functioning present
and businesses have opportunities to trade in voluntary and myriad complications for accountants and investors
regulated markets to address the present and future to navigate?
challenges of a carbon- and resource-constrained world.
What new and unanticipated risks will environmental finance
A range of environmental finance markets span resources and markets open up for investors?
services such as forestry, biodiversity, bio-carbon, agro-
ecology, watershed services, ‘ecosystem services’ and carbon IMPACT TIMEFRAME
trade. One of the key challenges is establishing the correct
‘pricing’ of these forms of natural capital. Despite pricing 4–5 years
issues, the markets continue to operate and grow. In 2010, the
World Bank estimated the total global value of the growing KEY QUESTIONS OR UNCERTAINTIES THIS RAISES FOR
carbon market at US$142 million.152 ACCOUNTANTS

There is no consensus currently over whether environmental Currently no International Financial Reporting Standards exist
markets will have any discernible effect in reversing the for the accounting of allowances and permits for
current rate of environmental damage. Opponents argue that environmental finance markets. How does this complicate the
reducing conservation to the logic of the market reinforces a accountants’ role?
paradigm of economic growth that primarily is responsible for
the environmental destruction in the first place. Other What additional knowledge and competencies will be
concerns are associated with the fact that environmental needed by CFOs who are expected to account for traditional
finance markets are also subject to the vulnerabilities and and environmental finance markets in parallel?
risks inherent in traditional financial markets. Hence, they are
not seen as responsible mechanisms for managing scarce What value can accountants offer to business to help reduce
global resources. trading risks in the environmental finance markets?

126

78. Extent of eco-literacy, green practices, and ethical consumption
in business

There is growing evidence that companies worldwide are
adopting greener and more ethical practices. Nonetheless, Businesses have a window in which to decide whether they
the bulk of activity is still driven by regulatory requirements will voluntarily engage in meaningful action towards
rather than by proactive internal moves towards sustainability sustainable and responsible behaviour. The alternative is to
goals. Some take the view that the business case for being wait for external triggers through legislation. The latter would
proactive in the short term is to pre-empt an increasing almost certainly confer no competitive advantage on anyone.
likelihood of externally imposed and penalising restrictions in
both the near and longer-term future.153 Furthermore, the Changing expectations from new generations of employees
increasing pressure for business transparency also reinforces could disadvantage some companies that are not perceived
the rationale of investing in ethical behaviours and employee to be meaningfully engaging with environmental
sustainability literacy.154 sustainability practices.

A 2011 MIT Sloan Management School global survey of IMPACT TIMEFRAME
sustainable practices in business, found that 90% of the
survey respondents reported that their companies were 4–5 years
addressing sustainability in some way. However, the majority
said that these actions were limited to those necessary to KEY QUESTIONS OR UNCERTAINTIES THIS RAISES FOR
meet regulatory requirements.155 ACCOUNTANTS

The Sloan review of more than 4,700 executive-level Could accountants have a central role to play in embedding
respondents also reported that between 2009 and 2010, 43% sustainable practices and environmental performance audits
more companies increased their commitment to sustainability into all of the firm’s processes, systems and audits?
goals than in the previous year. The World Business Council
for Sustainable Development (WBCSD) is a CEO-led network To what extent are accountants equipped to initiate
organisation of 200 of the world’s largest companies. organisational eco-literacy? What partnerships will empower
WBCSD’s research indicates that there is a strong, if still them to be such a voice?
peripheral, interest among businesses in voluntarily engaging
with sustainability and building it into central Are accountants who display competencies in these areas
business strategies. likely to be much better suited to a more eco-centric
future‑operating business context?
It is uncertain how rapidly it will become the norm for
companies to foster eco-literacy and corporate citizenship How can accountants ensure they are knowledgeable about
voluntarily. One proposal designed to accelerate the process ecological and ethical issues and how can professional bodies
is to increase the level of tax levied on companies that ignore support them?
the views of their stakeholders.156


79. Developing materiality of biodiversity impacts on business

The connections between finance and business risk and
biodiversity and ecosystem services are becoming What are the consequences for institutions that do not
increasingly apparent.157 Growing resource scarcity, understand how biodiversity and ecosystem risks affect their
biodiversity loss and the degradation of ecosystem services investments, lending and insurance portfolios?
present financially material risks and opportunities to
investors, shareholders and insurers, given corporate reliance Can businesses or financial service providers create a
upon these natural assets.158 competitive advantage by addressing biodiversity and
ecosystem service risks in their products and services and
The United Nations Environment Programme (UNEP) Finance adjusting their business models accordingly?
Initiative commissioned a study to analyse and measure the
magnitude of global environmental externalities.159 The study IMPACT TIMEFRAME
shows that human use of environmental goods and services
caused an estimated US$6.6 trillion in environmental costs in 4–5 years
2008. Estimates show that this would grow to US$28.5 trillion
a year by 2050 if business continues its current pattern of KEY QUESTIONS OR UNCERTAINTIES THIS RAISES FOR
use.160 If these environmental costs become priced in a way ACCOUNTANTS
that encourages their sustainable use, as many suggest is
inevitable, business will be highly exposed to rising What additional competencies will accountants require to
input costs. help them assess risks related to biodiversity and ecosystem
services?
The environmental externalities of business activities present
material risks now and into the future. These risks derive from How can accountants communicate the risks and
probable increased regulatory and pricing regimes. These will opportunities associated with material risks of biodiversity
be imposed by governments to limit and try and reverse loss to provide added value to the clients and firms with
environmental damage. Businesses also face the risk of which they work?
increased disruptions to supply chains due to resource
scarcity. The heightened attention from media, consumers What contribution can accountants make towards the
and activists could also compromise corporate reputations development of systems and processes that help to quantify
for those seen to be shirking their full biodiversity these risks and provide frameworks to address them?
responsibilities.

128

80. Scale of take-up in alternative energy by business

The use of alternative energy sources is seen as one route to
reducing dependency on carbon-based fuels. The Accountants could increasingly be asked to identify areas of
emergence of an increasing number of alternative forms of energy wastage and the best alternative energy investments
green energy, such as solar, wind and biogas, has given firms in an effort to fulfil an organisation’s green power
a wider range of options for fulfilling their energy needs. In its commitments.
Global Energy Outlook, BP reported that renewable forms of
energy accounted for 3.3% of global power generation in Excess energy generated by organisations through their own
2011 and are predicted to increase to 11% of the total by wind turbines or solar panels could be sold to the national
2030.161 grid and become a source of ancillary revenue.

The increasing availability of cheaper green energy, along The take-up of alternative energy could be accelerated as
with a cultural shift towards sustainability is leading many companies strive to be seen by the public as ethical,
organisations to purchase their energy from green suppliers. responsible and sustainable. This could be a competitive
The US Environmental Protection Agency (EPA) produces an advantage in a socially conscious marketplace.
annual Green Power List. This shows that an increasing
number of large retail, financial and manufacturing IMPACT TIMEFRAME
organisations are fulfilling part or all of their energy needs
through renewable energy. For example, Intel uses more than 4–5 years
2.5 billion kilowatt-hours of energy generated by renewable
sources, predominantly solar and wind, to fulfil 88% of its KEY QUESTIONS OR UNCERTAINTIES THIS RAISES FOR
energy requirements.162 HSBC North America has ben ACCOUNTANTS
highlighted as a top performer, sourcing 112% of its power
needs through the purchase of wind power.163 Will accountants increasingly be expected to be aware of
different forms of green energy to help make the best
To counter the risk of market price fluctuations, many financial and sustainability choices for companies?
businesses are building their own power infrastructure to
generate electricity. Typically, this is done through the What structures or auditing processes could be developed to
installation of solar panels and wind turbines on company ensure a higher uptake of more sustainable energy sources?
property. The retailer Wal-Mart is listed by the EPA as
generating 1% of its requirements, or 37 million kilowatt- As an increasingly technology-intensive industry, how will the
hours, through the use of on-site biogas generation and solar accountancy services sector ensure that its energy comes
panels.164 In 2011, East Midlands Airport became the first UK from sustainable sources?
airport to install two commercial-scale wind turbines on site.
These are able to generate over 5% of the airport’s
electricity.165 Advances in piezoelectricity could lead
organisations to install floor panels that can generate
electricity by capturing the energy expended by people
walking on them. For example, there are already dance clubs
in London and Rotterdam that use piezoelectric floors to
generate electricity from their patrons’ dancing.166


A7: The practice of accounting

81. Defining the scope of the accountant’s role

DESCRIPTION IMPACT TIMEFRAME

Definitions of the accountant’s role vary around the world. 4–5 years
Common features include maintaining a record of a company
or individual’s assets, transactions and financial activities, KEY QUESTIONS OR UNCERTAINTIES THIS RAISES FOR
carrying out audits and ensuring compliance with financial ACCOUNTANTS
and tax regulations.
Will the current global financial turmoil strengthen the
Definitions and expectations of their role may become more position of accountants within businesses and as external
diverse as accountants become more involved in strategic service providers?
decision making, enterprise risk management, value creation
and the development of new business propositions.167 Will accountants be key in reforming business and its assets
Opportunities are arising for accountants to help explore the so that they can compete in an age of continuous
merits of potential new business models and markets. They economic uncertainty?
are also being tasked with helping companies minimise their
environmental footprint by assessing resource allocation and Could accountants find new roles for themselves, for example
ensuring sustainable investment decisions. using their skills to explore the potential of new
business models?
The evolution towards becoming a more strategic partner
within a business or as an external supplier may allow Could there be a role for the CFO as ‘chief value architect’?
accounting to become a more integrated part of
business organisations. What role can professional associations play in creating
awareness of accountancy as a dynamic discipline, and
IMPLICATIONS FOR/IMPACT ON BUSINESS AND THE encouraging acceptance of accountants as strategic
ACCOUNTANCY PROFESSION business partners?

Greater emphasis will be placed by businesses on recruiting What further skill-sets will accountants require to operate in a
and developing accountants with an ever-wider range of skills more strategic environment?
and experiences, and who are able to develop insights and
strategy based on these attributes. Could the evolution of an accountant’s role drive away future
potential recruits owing to an increasingly complex
Accountants will increasingly be asked to be proactive in job scope?
finding ways to create value and to improve business
effectiveness, in order to help navigate a volatile and How might the pace of evolution of the scope of the
uncertain economic climate. accountant’s role vary globally?

Accountants may also need to become better versed in
managing ‘big data’ – the ever-growing volume of data being
amassed by firms.

Business structures and communication channels will need to
adjust, evolve and adapt to allow closer integration of
accounting with other departments.

130

82. Size and complexity of the CFO’s remit

ACCOUNTANCY
Businesses face a series of threats including macro-economic
instability, consumer uncertainty, market volatility and In this context it may be desirable to assess the value of
increasing administrative complexity. At the same time, rising ‘softer’ communication and negotiation skills as well as
energy prices and a reconfiguration of the global business technically focused analytical skills among those working at a
landscape towards the emerging economies also present CFO level.
prominent and persistent challenges. As such, the role of the
CFO is changing rapidly in line with constantly evolving Do the emergent roles and responsibilities indicate that there
expectations, demands and operating contexts. is a growing need for rounded international business literacy
at all levels of the accountancy profession?
The CFO remit is expanding to encompass a new range of
evolving demands and services. The new demands of CFOs IMPACT TIMEFRAME
might involve greater input into corporate strategy, mergers
and acquisitions deals, and interaction with the media and 1-12 months
policy makers. In addition to this, CFOs may be expected to
display greater responsibility for proactive risk management KEY QUESTIONS OR UNCERTAINTIES THIS RAISES FOR
and ensuring that strategic decisions bring about sustainable ACCOUNTANTS
value.
Is the contemporary professional training adequately
equipping accountants with the talents and range of skills,
including negotiation and soft skills, required to operate in an
expanded CFO role at the highest level in business?

With the core responsibilities of financial management
remaining how might these new and evolving demands affect
the activities and priorities of the CFO?

How will these increasing demands change the attractiveness
of working towards the CFO role rather than other strands of
the accountancy profession?

100 DRIVERS OF CHANGE FOR THE GLOBAL A7: THE PRACTICE OF ACCOUNTING 131

83. Non-financial information and integrated reporting

DESCRIPTION How might the EU Transparency Directive evolve and what
might the implications be for business directors in terms of
The challenge of providing a total picture of organisational providing compliance statements and commenting on the
health is driving the move to communicate both financial and future outlook for their business?
non-financial performance data in an integrated
reporting format. Could some form of transparency audit become
commonplace?
Non-financial information is increasingly recognised to be as
important as financial information as a driver of business What are the implications for the role and standing of the
value and risk. This non-financial data could cover corporate accountancy profession if other professions are invited to
governance, talent issues and the innovation pipeline. Such provide independent assurance of non-financial information?
reports might also highlight organisational performance in
addressing wider societal expectations on issues such as IMPACT TIMEFRAME
sustainability. Today, while it may be reported on, much of
this non-financial information currently goes unaudited. 4–5 years

In response to demands for a holistic picture of organisational KEY QUESTIONS OR UNCERTAINTIES THIS RAISES FOR
health, the model of integrated reporting is increasingly ACCOUNTANTS
being adopted. The aim is to communicate performance on a
range of financial and non-financial indicators. Integrated What impact will adoption of integrated reporting have on
reporting may help business to take more sustainable the finance role in organisations, if accountants must have an
decisions and enable investors and other stakeholders to overall view of company strategy, governance and other
understand how an organisation is truly performing.169 non-financial concerns?
Integrated reporting is already required in key developing
economies such as China and South Africa. Similar mandates Will the traditional audit be expanded to include an opinion
are being considered in the UK and Germany and the on key non-financial information?
requirement could spread globally as standard practice.
Is the external auditor the best person –in terms of both
There have already been some examples of companies competence and independence – to provide such an
publishing ‘independent opinions’ about the governance of opinion? Would this erode the role of the traditional auditor?
the company, in addition to the external auditor’s financial
statements. This could increasingly become the norm. Can accountants use integrated reporting as a tool to
promote more sustainable business models?
IMPLICATIONS FOR/IMPACT ON BUSINESS AND THE
ACCOUNTANCY PROFESSION How might a greater focus on non-traditional areas such as
governance and corporate social responsibility affect the
Integrated reporting could be promoted as a tool for services offered by auditing firms? What services could they
corporate transparency and accountability and help restore add and what might they divest? Will these divestitures be
public trust in large corporations and the financial voluntary or mandated by regulators?
services industry.

Integrated reporting may help businesses integrate corporate
social responsibility and sustainable business models into
business strategy.

Non-financial audits may become increasingly popular for
investors to establish the true health of a company.

132

84. Clarity in financial reporting and defining the audit function

The goal of financial reporting is to present shareholders and
regulators with a clear picture of a firm’s financial health. Most Business will come under increasing scrutiny to ensure that it
financial statements are prepared with integrity and present a is presenting a true and fair picture of its financial health.
fair representation of the financial position of the company
issuing them in accordance with Generally Accepted Accountancy firms will be under ever greater pressure to
Accounting Principles (GAAP). There is, however, a concern ensure that their audit processes can trap potential fraud
that innovative consolidating techniques and opaque group buried under complex accounting methods.
structures can lead to financial reporting that is misleading
and possibly fraudulent.170 IMPACT TIMEFRAME

The role of the audit function is to ensure that the accounts 1–3 years
have been prepared in accordance with the regulatory
framework, verify that the underlying procedures are robust KEY QUESTIONS OR UNCERTAINTIES THIS RAISES FOR
and that the organisation’s financial position has been ACCOUNTANTS
clearly represented.
Would situations such as those at Lehman Brothers, Northern
Evidence suggests that financial statements are sometimes Rock, Polly Peck and AOL have happened if financial
deliberately prepared in ways that intentionally misstate the statements were stripped back to the basics and investors
financial position and performance of an organisation. For understood the role of the auditor better?
example, the Court Examiner’s independent report into the
Lehman Brothers collapse found that ‘Lehman put together How can accountants develop a more ‘proactive’ approach in
complex transactions that allowed the firm to sell “toxic”, relation to fraud?
mostly mortgage, securities at the end of a quarter – wiping
them off its balance sheet when regulators and shareholders
were examining it – and then to quickly buy them back’.171
Such failures then call in to question both the integrity of the
firm’s executives in preparing the accounts and the
effectiveness of the independent audit function.

The accountancy profession is being challenged to ensure
that accounting regulations and standards prevent the
recurrence of circumstances such as those at Lehman
Brothers. Equally, the profession must demonstrate that the
audit function is being re-engineered to ensure that such
frauds are captured and exposed at the earliest
possible opportunity.


85. Balance between external financial accounting and internal
managerial accounting

A constant challenge for accountants is striking the right
balance between external financial reporting requirements Accountants will need a better understanding of the goals,
and internal managerial accounting. Both are expected to actions and decisions of users (eg marketing, sales,
become more demanding and complex over time. operations, product development).
Furthermore, as demands grow for a more integrated and
holistic approach to external accounting, so the distinction Accountants will need a better understanding of the
between the two may reduce. microeconomics of an organisation and the relationship
between marginal resources, income and expenditure.
A critical issue here is the quality of the analytical and
interpretative information provided as a commentary that sits Both managers and accountants may need a significantly
above both the financial and managerial accounts. This different skill set from their present one, to cope with rising
becomes even more important when presenting an internal complexity.
integrated view of an organisation. For example, should
reporting highlight the defection to a competitor of a key IMPACT TIMEFRAME
sales person who holds the relationship with company’s main
customers – potentially calling into question the validity of 4–5 years
revenue projections?
Internally, the quality of management information is critical ACCOUNTANTS
for giving business executives the best possible basis for
decision making.172 At the same time, complexity is rising as Can a focus on traditional compliance with GAAP prevent
the volume of data generated increases inexorably. This accountants from being strategic?
clouds the issue of what to focus on and how to analyse,
interpret and act upon the information being captured. How can accountants better understand the goals of
marketing and sales in evaluating which types of customer to
There could be a shortage of the talent that would enable acquire, develop, retain and win back?
organisations to develop enhanced analytical capabilities. By
2018, the US alone could face a shortage of 140,000 to Is too much time spent producing the numbers rather than
190,000 people with deep analytical skills. 173 The same gaining real insight?
research suggests the US may be short of 1.5 million
managers and analysts with the know-how to use the analysis
of big data to make effective decisions.

Data reliability is also often questioned internally, with
two-thirds of employees not trusting information from other
functions in the company. To overcome this distrust,
transparency could be critical, with leaders being challenged
to make clear the information’s original source, as well how it
has been manipulated over time.174

134

86. Internal audit management

Internal audit faces a complex set of often opposing
demands and challenges in today’s business environment. Consensus between management and the board about the
Typically, external stakeholders are pushing for increased future role of the internal audit will be an important
regulatory compliance, while shareholders are demanding a organisational decision.
focus on growth. Operationally, management is also asking
for a more strategic outlook to the internal audit function.175 Competencies such as business insight, communication skills
Meanwhile the pace of global expansion and the shortening and IT proficiency could become increasingly important for all
of business cycles mean that business processes and internal auditors.
procedures are in a constant state of flux. Developing an
effective internal audit function in the face of such challenges Executive management could request more advisory
is becoming an ever more difficult and demanding task. involvement of internal audit, including checks on key
management decisions.
Given the diverse demands, the role of the internal audit
function can take on different appearances. These range IMPACT TIMEFRAME
from an independent assurance function to that of a real
management adviser. Irrespective of which role is selected for 1–12 months
the internal audit function, the ability to add value to the
organisation will be a critical success factor in the coming KEY QUESTIONS OR UNCERTAINTIES THIS RAISES FOR
years.176 Issues such as environmental auditing and integrated ACCOUNTANTS
reporting all potentially add to the scope of the internal
audit role. How can accountants communicate the value of an integrated
internal audit approach?
In contrast to the increasingly compliance-focused external
audit process, the internal audit function has the potential to What could the composition of tomorrow’s internal audit
present professional accountants with opportunities to add function look like in terms of personnel? Will professionals
value aligned with the organisation’s goals and strategies. from outside the industry be needed?

Could staff shortages result in a lack of segregation of duties?


87. Changing structures and business models for accounting firms

ACCOUNTANCY
The operating environment for the next decade is likely to be
shaped by continued economic uncertainty and globalisation Even if there is no forced break-up of the large accounting
of operations. At the same time, market changes, firms, restrictions may be imposed on the types of additional
technological advances, disruptive new business models and service that can be offered to an audit client.
regulatory reforms will all have an impact. In response, firms
in almost every business sector, including accountancy, are The potential for creative destruction within the industry
currently re-evaluating their structures and business models. could rise with the advent of new business models.

For the accountancy sector there is a twin challenge. Clearly, In the longer term, new entrants from outside the profession
a first priority is keeping pace with the speed of change to may see an opportunity to enter the sector in the same way
help clients navigate their own reinvention. At the same time, as non-lawyers are entering the legal services industry.
accountancy firms must manage their own transformation to
respond to client needs. Such a change process may involve IMPACT TIMEFRAME
the redesign of core processes, developing new thinking and
experimenting with new business models to drive growth. In 4–5 years
addition, firms will need to evolve both the structures and a
talent pool that will enable continuous and rapid adaptation KEY QUESTIONS OR UNCERTAINTIES THIS RAISES FOR
to the external environment. ACCOUNTANTS

Regulatory factors could have a significant impact on industry How should the profession and its firms manage the issue of
thinking. For example, in Europe there is still uncertainty over potential conflicts of interest?
the potential impact of the EU’s proposed measures to force
the separation of audit and compliance work from advisory Will the current role of accountants face competition from
services in accounting firms. other actors entering the sector?

Is there a ‘first mover’ advantage, whether in revenue or trust,
to be gained from splitting consultancy and audit roles?

136

88. Opportunities arising from adoption of global regulation

As business globalises beyond traditional boundaries and
more economies open up to adopt global practices and Consulting opportunities may arise for those able to
norms, the need for global regulation increases. Both understand, map out, implement and explain the
opportunities and challenges arise from the implementation changes effectively.
of global regulatory systems.
A lack of choice may emerge if the consolidation of practices
There are a number of significant factors for governments, continues owing to poor SMP adaptability.
firms and accountancy practitioners trying to implement
global regulations. These include the rate of change, the Businesses and accounting firms may reap more international
distance between practitioners and those defining and opportunities as regulation increasingly levels the global
implementing legislation, the operational context, and the playing field.
complexity of regulations required to deal with the range
of issues. IMPACT TIMEFRAME

The need to remain up to date and provide the necessary 4–5 years
level of expertise will remain a critical success factor. Larger
firms, replete with technical units and specialist expertise, are KEY QUESTIONS OR UNCERTAINTIES THIS RAISES FOR
often well placed to deal with the potential challenges while ACCOUNTANTS
also leveraging the opportunities that arise. For small and
medium practices (SMPs) with less specialist resources, there Could market pressure push professional bodies into
is a constant challenge of keeping pace with global providing services for smaller accountancy practices?
regulation. They may need support from professional bodies
or external help from other accountancy firms that have To what extent might accountants become consultants within
successfully mastered the changes quickly. the industry itself?

How can smaller practices retain and build upon their
expertise in order to remain their clients’ preferred
business partner?


89. Evolution of the global accounting supply chain

Despite instances of global regulation, in practice, there are
wide differences between national accountancy systems Global supply chains are evolving in the accounting sector
coupled with large variances in the costs of employing and will continue to do so as skill levels rise in
accountancy staff. These differences are leading some to evolving markets.
complain that the ‘global playing field’ is far from level. They
argue that those who can take advantage of lower-cost Widespread adoption of off-shoring may result in short-term
accounting resources are able to gain a potentially unfair redundancies for finance staff, encourage outward migration
advantage when competing globally. and ultimately lead to a contraction of the long-term supply
of suitably trained professionals accountants.
Variable operating costs between nations are leading to the
off-shoring of lower-value routine accounting tasks. The nature of accountancy may diverge internationally, as
Increasingly, as the skills base grows in emerging markets, many Western accountants increasingly focus on
higher-value analytical and planning tasks are also being management accounting.
off-shored. Such moves offer a twin benefit. Firstly, by
enabling those doing the outsourcing to focus on IMPACT TIMEFRAME
management and strategy. Secondly, these moves create
employment and potential new industries in the 4–5 years
recipient countries.
Remunerative differences between evolving and mature ACCOUNTANTS
markets are driving outsourcing. In addition, currently there
are differing costs and standards of accounting education What lessons can be learned from those who have met the
between emerging and mature markets. As skill levels procedural, cultural and linguistic challenges of globalising
increase in emerging markets, however, wage inflation will accounting supply chains?
reduce the cost gap with developed economies. At that
point, firms will be faced with the choice of switching roles Could the offshoring of routine accountancy work lead to the
back to mature markets or continuing to have them ‘ghettoisation’ of certain skills, limiting the scope for
performed in the new location. Such factors will have an professional development in those countries?
important bearing on the long-term decision making and
workforce planning for global businesses and accounting How can professional accountancy bodies continue to
firms alike. provide international standards of professional support if
member interests around the world diverge?

138

90. Adoption of globally accepted accounting standards

The introduction and global adoption of international
accounting standards is seen by many as a desirable but Global standards could help to increase the level of trust
unachievable goal. Others argue it is an essential prerequisite among stakeholders in different countries.
of true globalisation. The internationalisation of business has
brought with it a growing understanding of the need for, and Global standards could help create a more transparent
value of, common practices and standards. These are seen as environment for investors and regulators.
essential for companies to engage with each other easily,
confidently and transparently. IMPACT TIMEFRAME

Such global standards are also seen as a powerful mechanism 4–5 years
for preventing fraudulent practice and reducing risk in the
system. It is generally recognised that the financial crisis was KEY QUESTIONS OR UNCERTAINTIES THIS RAISES FOR
caused in part by failures in key areas such as regulation, ACCOUNTANTS
oversight and audit. In many cases, there was insufficient
transparency to enable investors to know the risks they were How will this affect labour mobility and competitiveness for
taking. Many argue that it was the role of the auditors to applicants from countries that have not yet adopted
highlight such risks and that common global standards may these standards?
have helped reveal or prevent problems at an earlier stage.
Would limited or ineffective standards allow abuses
In accountancy, steps towards global norms have been to continue?
achieved with the International Financial Reporting Standards
(IFRS) issued by the International Accounting Standards Board What risks are there that poor practices will continue to slip
(IASB). There has also been a continuing trend of through the net? How can accountants address this?
convergence between national standards such the US
Generally Accepted Accounting Principles (US GAAP)
and IFRS.


91. Impact of size-specific business regulation upon accounting practices

In the face of increasing business uncertainty and complexity
there is growing concern around the world that governments What are the economic costs of inappropriate regulation
everywhere are making life harder for SMEs by placing such a regimes for business?
high regulatory burden upon them. Hence, there is a demand
for more size-specific reporting, and for tax and wider Could the burden of meeting compliance requirements
regulatory requirements that acknowledge the limited compromise attempts to be become more transparent?
resources and management time available to the SME.177
Governments often make strong public pronouncements The challenge for accountancy firms is to invest in the
about cutting red tape to encourage the SME sector to development of intelligent systems that can reduce the
flourish. There is, however, sense that the resulting actions do workload associated with compliance for small firms in
not go far enough to help smaller businesses. particular – thus freeing up resources for business
value generation.
The Confederation of British Industry (CBI) argues that
medium-sized businesses are neglected. The CBI believes IMPACT TIMEFRAME
more targeted and specific policy frameworks are required to
realise the true potential value of SMEs to the economy.178 1–3 years
There is growing support for the notion that the fundamental
role of SMEs in the economy needs to be encouraged, as KEY QUESTIONS OR UNCERTAINTIES THIS RAISES FOR
they are recognised as a driving force for growth and wealth ACCOUNTANTS
creation. SMEs in the UK represent 99.6% of all businesses,
account for 50.2% of the economic added value and 53.8% of How well does professional training prepare new accountants
UK private sector employment.179 There is a danger, however, for the needs and challenges of the SME?
that they fall victim to the same rigid burdens as larger global
firms with complex administrative tax burdens. How can the profession innovate its services to improve the
value added for time- and resource-scarce
Businesses groups, accountancy organisations and smaller companies?
individuals will need to work together in a concerted manner
to lobby governments for a genuinely effective reduction of What role is there for accountants to act as a collective voice
the administrative and regulatory burden on SMEs. to support the need for size-specific regulatory frameworks?

140

92. Rate of adoption of XBRL as an accounting data standard

eXtensible Business Reporting Language (XBRL) is a
computer language for publishing financial information in the The automation provided by XBRL could enable firms to
XML format used to exchange documents via the internet. redirect their human resources to more value-added aspects
XBRL allows companies to publish, extract, and exchange of analysis, review, reporting and decision-making.
accounting information and financial statements via the Web
and other electronic means. XBRL has been developed as a If XBRL were adopted universally as an accounting standard,
potential global data standard for financial reporting to globalisation of businesses, talent, production, and sales
enable easier and broader circulation of financial data. This could become easier to manage and, hence, might occur at a
development is a response to the increasing trend of faster rate.
electronic disclosure of businesses’ corporate information.
IMPACT TIMEFRAME
The introduction of so-called ‘XBRL tags’ to documents
enables the automated processing of business information by 1–3 years
computer software. The aim is to cut out the laborious and
costly processes of manual re-entry and comparison. The KEY QUESTIONS OR UNCERTAINTIES THIS RAISES FOR
software can instantly validate the data, highlighting errors ACCOUNTANTS
and gaps which can then be addressed immediately. The
automated production and consumption of large volumes of In contrast to the predicted long-term savings, initial
business performance information allows companies to uncertainty and inexperience with the new technology could
incorporate this directly into their data warehouses and increase the operational costs for businesses during the early
business-decision models. adoption period.

In 2008, the US Securities and Exchange Commission If many reconciliation and review processes become obsolete,
mandated that companies with more than US$5 billion in how will accountants adjust to focusing on strategic
capitalisation file in XBRL by June 2009, and that all publicly value-added activities?
traded companies and mutual funds comply by 2011.180 In the
UK, since 31 March 2011 it has been compulsory for
businesses to file their company tax returns electronically.
As such, tax computations and statutory accounts must be
submitted in the Inline Extensible Business Reporting
Language (iXBRL).181

Over the next few years many expect XBRL to spread to
become the global data standard for business financial
reporting, potentially cutting costs and increasing
efficiency.182


93. Importance of intangible assets in company valuation

Intangible business assets encompass areas such as
intellectual property, licences, digital assets, R&D, software, What are the economic effects of not knowing the level of
design, new product development and managerial returns and risk profiles of past investments in intangibles?
competency. In addition, the quality of a company’s
workforce, its network of business relationships and brand With far from perfect information and difficult non-
equity also constitute its portfolio of non-tangible assets. standardised benchmarks, firms, investors and policymakers
are operating with a lack of information, which has
The growing importance placed on intangible assets and implications for the quality of decisions made.
their role in value creation reflects a greater spread of
knowledge activities in the economy generally.183 Firms are Could a significant market evolve out of the big data
switching to asset-light business models – seeking to rent paradigm to quantify intangible assets?
rather than own an increasing proportion of the physical
resources they use. As a result, intangibles assume an even If the oversight of intellectual capital is often diffused and
greater importance in assessing the real value of a company. uncoordinated, could companies appoint a post-holder to
take overall responsibility for it?
A UK HM Treasury working paper in 2010 shows that business
investment in intangibles was worth about 40% of that in IMPACT TIMEFRAME
tangibles in 1980.184 By 2004, business investment in
intangibles was worth over 120% of such investment in 1–12 months
tangibles. HM Treasury expects this proportion to continue to
rise. The valuation of intangibles, however, will need to evolve KEY QUESTIONS OR UNCERTAINTIES THIS RAISES FOR
to account for the growing range of intangible assets in which ACCOUNTANTS
firms invest. A study by The Work Foundation revealed that
when intangible investment has been recognised in company How should intangible assets be reported on balance sheets
valuation, such recognition is often restricted to scientific and company reports, given the general lack of statistical
R&D. Important though R&D is, it accounts for less than 10% information on many aspects of the knowledge economy?
of all intangible investment by business.185
How can accountants help communicate the value of
There are challenges in accounting for intangible assets. A intangible assets? What are the different challenges for large
significant lack of standard methodologies for measuring multi-nationals and for SMEs?
intangibles prevents the creation of a true financial picture of
an organisation. There is a clear information gap between What frameworks and professional standards will need to be
what is required in the treatment of a growing set of developed and adapted to accommodate a broader scope of
intangible assets and traditional financial reporting methods. intangible reporting?
Currently, audited financial statements and analyst reports
reveal only a fraction of the intangible information relevant to
investors in relation to a company’s future prospects.

142

A8: The accountancy profession

94. Societal expectations and definitions of accounting

One of the big long-term questions for the profession is the
extent to which the definition of what accounting is, and what Continuing global economic and political power shifts
it entails, may change over the next decade or more. The eastwards could reshape the accounting operating
evolving scope and nature of accounting and the role of the environment in terms of corporate culture, business models,
accountant are being shaped by changes in multiple and the financial regulations to be enforced.
influencing factors. These include how the global economy is
regulated, political motivations, disruptive technology Continuing economic turmoil could create a period of
developments and evolving business expectations. uncertainty in which the role of accountancy is elevated,
helping to make businesses more resilient.
The existence of the accounting industry can be traced back
thousands of years. The core role of conducting the process Technological developments could change the way in which
of communicating financial information about a business accountancy is practised, by either aiding or even
entity to stakeholders has remained essentially unchanged. replacing accountants.
In the past, as now, the tasks of recording, summarising and
communicating financial information have been central to the Technology could also alter the definition of what constitutes
role of the accountant. the economy, for example through virtual worlds and
virtual assets.
Technology has played a critical role in the evolution of how
accounting has been conducted. The political, legal, socio- IMPACT TIMEFRAME
cultural and economic environments have also helped shape
its development. These factors have led to many of the 10+ years
variations in practice and standards seen around the world. It
is reasonable to assume that further changes in the macro- KEY QUESTIONS OR UNCERTAINTIES THIS RAISES FOR
environment will continue to shape the practice of accounting ACCOUNTANTS
in future.
How will the practice of accounting evolve as new units of
value emerge?

Will accountancy be driven away from a Western view and
towards models coming out of the new markets?

What skills will accountants require and what new roles will
they play in the strategic decision making of businesses?

What impact will new technology have upon the practice of
accountancy? Will it negate the traditional financial functions
of accounting?

100 DRIVERS OF CHANGE FOR THE GLOBAL A8: THE ACCOUNTANCY PROFESSION 143

95. Flexibility, suitability and cost of accountancy training

In a changing world, the spotlight inevitably falls on the
capability of the education system to respond to the Businesses will need to be assured that accountancy training
continuously evolving training needs of businesses and the leaves their staff nimble and well prepared, with a solid
professions. Economic changes, new business models and understanding of the material issues.
evolving regulatory demands will continue to create new and
additional strategic, accounting, compliance and reporting The content and delivery models for continuous professional
requirements. In this turbulent environment, accountancy will development (CPD) may need to evolve significantly.
need to address concerns about the capacity of the
profession, standards bodies, associations and the finance Those that maintain a broad background awareness of
function to keep pace with the speed of change and business and accounting practice and theory will be able to
accelerating business cycles. The profession must provide better judgements on the materiality of issues,
demonstrate its ability to operate in a state of ‘continuous guiding organisations to respond to solid trends rather than
evolution’. reacting to what is merely transitory.

There are concerns that a gap may emerge between the As firms extend their global footprint and consider entering
training received by professionals and the capabilities new markets, so the range of business and financial risks and
required to operate as an accountant in a turbulent financial challenges to be assessed and managed by the finance
environment. Hence, the whole approach to developing, function will increase.
updating and delivering professional training syllabuses and
curricula may need to evolve. It will need to account for both IMPACT TIMEFRAME
a faster rate of change and possible future reforms in
business practice. 1–3 years

A clear example is the increased emphasis being placed on KEY QUESTIONS OR UNCERTAINTIES THIS RAISES FOR
the need for accountants to play a greater role in strategy, ACCOUNTANTS
enterprise risk management and even business development.
This highlights the need for communication and qualitative How do we ensure continuous learning within the profession
skills alongside technical and quantitative abilities. The need to guarantee that finance staff are genuinely up to date?
for such skills will have a significant impact not only on the
formal curricula, but also on the development of the ‘mindset’ What new methods could be adopted to help accelerate
and worldview of those coming through accountancy learning and development?
training courses.
What is being done to ensure that CPD does not just address
The challenges may be exacerbated by the rising cost of technical matters but keeps members up to date with the
professional education. This problem is made worse in other competencies needed to ensure that they serve their
countries such as the UK that have cut national funding for employers / clients to the best standard?
higher education. A range of solutions will need to be
considered. For example, company-funded degree Will the long-term concept of accountancy as a discipline
programmes, such as those being pursued by PWC and remain much as it is today or could new spin-off
KPMG, may become more common. Other options range professions emerge?
from greater use of distance learning, ‘cheaper’ and shorter
forms of training, adoption of accelerated learning Is there a need to rethink and reinvent accountancy
techniques, and a possible return to direct entry to the training completely?
profession. The concern over the last option is that while it
overcomes concerns regarding training costs, there is the risk
of a self-reinforcing cycle of existing norms within a firm.
There is also a concern that individuals may not acquire new
external ideas.

144

96. Accounting skills capacity in transitional economies

Transitional or developing economies are keen to participate
fully in the global economy. To do this, they must Transparency, efficiency and trust in the public and private
demonstrate that their businesses, accounting firms and sectors in emerging economies may be compromised without
accounting staff are all capable of working to consistent adequate accountancy competencies.
global standards. This means staff must be receiving regular
and relevant training and education to keep them up to date. The development of strong auditing and accountancy skills
To ensure relevance, accounting education in universities and could contribute to more effective regulation and supervision
colleges must continue to adapt to the changes in the of capital markets, private enterprises, and commercial banks
business environment and international accounting in developing countries, supporting the rate of transition and
standards. This may involve the harmonisation of accounting attracting further investment.
education with international competency standards.
Investment could also be attracted if developing countries
Economic globalisation has enabled freer cross-border can demonstrate effective corporate governance. This would
movement of talent. This, in turn, has opened up the ultimately open up more opportunities for
possibility for graduates from transitional economies to enter professional accountants.
mature economies and vice versa. Harmonising accountancy
training with global standards, and especially those of IMPACT TIMEFRAME
Western organisations, is difficult to achieve but has many
potential associated benefits. The development of a skilled 1–3 years
accounting workforce can help both the private sector and
government agencies. Skilled accountants can help ensure KEY QUESTIONS OR UNCERTAINTIES THIS RAISES FOR
that operations are efficient, prudently managed, transparent ACCOUNTANTS
and competitive.
What is the role of bodies such as ACCA in supporting and
Many developing economies are now producing significant accelerating capacity development in transitional economies?
numbers of well-trained professional accountants. Others,
however, may have to undergo a fundamental transformation How can accounting organisations nurture and tap the
of their accountancy education system. Such a transformation emerging talent pipeline from emerging markets?
process would include bolstering higher education course
design and teaching methods. It also requires rigorous Will evolving economies adopt Western standards or will they
measurement of outputs and evaluation of the programmes. propose differing ones?
These will help provide assurances that the right practices
and standards are being taught and appropriate professional
competencies are being developed.


97. Level of entrepreneurial skills in the accountancy profession

The need for entrepreneurial skills in accountants is driven by
three key factors. Firstly, those working accountancy firms Entrepreneurial training could help accountants fill a more
need to understand the entrepreneurial mindset in order to strategic role within organisations by encouraging them to
give their clients the best advice. Secondly, many accountants generate new ideas and products, and develop strategies on
go on to establish their own practices. Finally, many how to engage with existing and potential markets.
accountants who work inside businesses are being asked to
take on a broader strategic and entrepreneurial role. Training in basic entrepreneurship could help reduce the
failure rate of new small-to-medium-sized professional
As their careers progress, many professional accountants go accountancy firms.
on to form their own accountancy firms or to create ventures
in other sectors. Despite this trend, many accountants do not IMPACT TIMEFRAME
develop entrepreneurial skills through their professional
training. They can subsequently struggle in their businesses 6–10 years
– a problem which is common across all types of commercial
venture. Statistics reported by Accountancy Age show that KEY QUESTIONS OR UNCERTAINTIES THIS RAISES FOR
approximately half of the 400,000 overall new business ACCOUNTANTS
ventures that start each year fail in their first 12–24 months.186
How can entrepreneurial skills be instilled through the
At the national level, new entrepreneurial business ventures training and continuous professional development of future
are acknowledged to have a great economic benefit. generations of accountants?
Research from the Kauffman Foundation shows that more
than 95% of all net new job creation in the US comes from What opportunities exist for firms to allow autonomy and
new companies.187 The research also shows that two-thirds of freedom to accountants to nurture their
all newly created jobs come from companies that are entrepreneurial capacity?
between one and five years old.
Does entrepreneurial behaviour represent a conflict of
Entrepreneurship can also come from employees within interest with the accountant’s legal responsibilities?
existing organisations. ‘Intrapreneur’ activities from individual
employees can help to create and develop innovative new
business goods, services and business strategies, from the
bottom up.188 CFOs are increasingly being asked to play a
more commercially focused role and encourage an
entrepreneurial mindset across the business.

A greater emphasis on basic entrepreneurial skills such as
business leadership, creativity, team-building,
communication, negotiation and sales literacy could be
integrated into accountancy training and continuous
professional development. Accountants might then be better
equipped and prepared to carry out a more business-
oriented role within organisations, as well as to pursue their
own business ventures.

146

98. Public perception and attractiveness of the accountancy profession

The public standing of and trust in accountants are critical to
the effective functioning and attractiveness of the Could there be significant structural changes in the length
accountancy profession. Negative perceptions of the and rigour of audits to avoid the ‘too large to fail’ scenario?
profession and the debate over auditors’ duties,
responsibilities and accountabilities have now resurfaced The risk of an erosion of public trust in business and
almost a decade after the Enron scandal. There are concerns accountancy could represent a significant challenge to the
that such issues could hamper the ability to recruit and retain profession since public trust is fundamental to the way
top talent to the profession. accountancy is perceived by policymakers around the world.

The global economic and financial crisis of 2007–9 and the Might there be a greater rationale for creating a culture of
subsequent Eurozone debt crisis have contributed to a ‘engagement’ through job satisfaction rather than simply
negative perception of the financial services industry as a retention through base pay?189
whole. A knock-on effect has been criticism of the role of
auditors in both crises and their perceived failure to highlight IMPACT TIMEFRAME
the relevant issues early enough. These perceived failings of
the accountancy profession have led to growing public 1–3 years
mistrust and greater public scrutiny in many countries.
Standards, accounting practices and the ability of the ACCOUNTANTS
profession to self-govern are again being put under the
microscope. Further accounting rules and regulations are now In the wake of successive crises, will auditors be expected to
proposed for the profession with the aim of preventing future take on a larger responsibility and greater accountability for
crises or developing better early-warning systems. highlighting risks?

Another key consideration for would-be entrants is the level What impact will damaged public trust have on recruitment of
of remuneration. There is a concern that, since the onset of the best and brightest into the profession?
the financial crisis, many accountants in SMPs have received
pay freezes or, at best, a lower-than-average increase. Larger How can accountants regain public trust?
accountancy firms are perceived to offer both higher
remunerative packages and a greater prospect for significant How will smaller firms compete with larger ones – with
salary uplifts over time. The key issues now are around the working culture, work/life balance opportunities or
potential long-term damage to the attractiveness of the other benefits?
profession as a career and whether SMPs can continue to
compete with the larger firms to attract the best talent.


99. Establishment and recognition of accountancy associations in
developing markets

Professions such as accountancy face an important challenge
of ensuring consistent support and respect for the role they Professional associations in developing countries could have
play in business and society, especially in the least-developed a role in introducing and educating professional and trainee
economies. accountants about global accounting norms such as the IFRS,
which are necessary for achieving a global single
Professional associations form to further the occupations they accounting standard.
represent, and act to safeguard the interests of practitioners
as well as the public good. These associations allow industry Will professional bodies’ roles in creating governance and
professionals to engage with each other and devise collective behavioural norms for professions be adopted and accepted
standards of ethics and training, as well as acting as a across emerging economies? Will they still be relevant?
collective voice for members.
In the emerging markets, how can membership of a
Associations can help facilitate the development of a professional association be established as a mark of quality,
professional community, especially in industries such as and an essential requirement for practitioners?
accountancy, which are made up of a large number of
disparate small to medium-sized enterprises. In the advanced What would the impact be on the ethics and standards of a
industrial economies, professional bodies have been profession if there were no professional associations?
established for some time. As a result, they can be taken for
granted and their value is not always popularly felt or IMPACT TIMEFRAME
acknowledged. The professional bodies play a critical role in
developing the infrastructure of civil society and setting the 6–10 years
rules of member behaviour. In other parts of the world, the
value, standing, structure and role of professional KEY QUESTIONS OR UNCERTAINTIES THIS RAISES FOR
associations are only just being established or do not ACCOUNTANTS
yet exist.
Could membership of a professional accountancy body be
made mandatory for the practice of accountancy worldwide?

What role can international accountancy associations play in
defining emerging international standards for the
accountancy industry?

What scope is there for the establishment of professional
accountancy associations in the developing world where few
or none currently exist? Could ACCA act as an incubator?

148

100. Impact of competition from entrants outside the profession on the
provision of accounting services

ACCOUNTANCY
There is growing interest in understanding the potential
impact of opening up the accountancy sector to non- Financial service firms could be granted licences to expand
professionals in a similar manner to changes occurring in the their service offering in a number of key economies.
legal sector. In October 2010, in a move commonly termed
‘Tesco Law’, the UK began to allow groups other than lawyers Accountancy firms may also benefit from the possibility of
to own and control law practices. As a result, some of the expanding their services.
country’s major retailers have begun offering legal services in
their stores and online. Other countries, most notably Accountancy could become commoditised.
Australia, already allow someone other than a lawyer to own a
practice. Calls are increasing for a similar model in the US.190 IMPACT TIMEFRAME

Some legal experts envision a marketplace that would 1–3 years
become more customer-friendly, affordable and accessible
for the average consumer. This could involve one-stop shops KEY QUESTIONS OR UNCERTAINTIES THIS RAISES FOR
on the high street that bundle, for instance, legal, banking, ACCOUNTANTS
accounting and real estate services. In essence, this would
signify a furthering convergence within the financial services How can accountants add value to their work in ways that
industry – allowing non-traditional entities to expand their others within financial services cannot?
offerings to cover accountancy services.
To which areas outside accountancy can accountants apply
their skill-set?

What role might there be for accountants in a hybrid financial
services business model? What might this role look like?


Endnotes

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