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PAIBs: Meeting the Challenges of Performance and Conformance

Graham Ward, CBE | IFAC President (November 2004 to November 2006)
Jun 21, 2006 | Las Vegas, United States | English

Thank you very much for inviting me to speak to you today. It is a great pleasure to be here for this event, which has enabled me to experience a new aspect of the United States and most importantly, has given me the opportunity to meet with management accountants from all across your country. Over 50 percent of the members of IFAC’s 159 member bodies are employed in business. A personal priority of mine over the past eighteen months has been to meet with as many professional accountants in business as possible, for two primary reasons. First, I have wanted better to understand your interests, your challenges and your needs so that we at IFAC can be more responsive to you. At the same time, I also wanted to make you aware of the IFAC initiatives that are focused specifically on and for you.

Before I do that, I would like to recognize Paul Sharman, IMA President, for his leadership at both a national and an international level in supporting and raising the profile of professional accountants in business. Paul has participated in our annual Chief Executives’ meeting and has provided significant input and insights.

The Institute of Management Accountants (IMA) has long been a leader of and champion for professional accountants in business and industry. The IMA also has a long history of support of and participation in the international profession. It has been an active member of IFAC since 1980 and its representatives have served with distinction on the IFAC Professional Accountants in Business (PAIB) Committee, which is dedicated to supporting and raising awareness of the vital role that you play. Specifically, I would like to recognize Bradley Kaplan, who joined the IFAC PAIB Committee in January 2006, and William Brower, who served on the committee from 2001 to 2005.  I congratulate Bill on being elected your Chairman from 1 July 2006.

The service of these professional accountants and of other volunteer members of IFAC boards and committees is vital to achieving our objectives and to supporting professional accountants in all sectors of the economy worldwide. It is also through your support and that of IFAC’s member bodies in 120 countries around the world that we are able to achieve our global mission, which I will state for you now:

To serve the public interest, IFAC will continue to strengthen the worldwide accountancy profession and contribute to the development of strong international economies by establishing and promoting adherence to high-quality professional standards, furthering the international convergence of such standards and speaking out on public interest issues where the profession's expertise is most relevant.

In achieving this mission, IFAC is focused on developing high quality standards and guidance that serve the public interest and on ensuring that professional accountants in all fields have access to the resources that they need to fulfill their roles and to contribute to economic growth and stability. Within IFAC, four independent standard-setting boards develop international standards: the International Auditing and Assurance Standards Board, which develops international standards on auditing, assurance and quality control; the International Ethics Standards Board for Accountants, which establishes IFAC’s international Code of Ethics for Professional Accountants; the International Accounting Education Standards Board, which sets standards and guidance on the pre-qualification and continuing professional development of all professional accountants; and our International Public Sector Accounting Standards Board, which sets International Public Sector Accounting Standards, designed to improve the transparency and accountability of public sector financial reporting. In addition, IFAC has established committees to address the needs of accountants in developing nations and to support the work of small and medium practices. 

A major IFAC committee, which was established more than 25 years ago to support the work of management accountants, is our Professional Accountants in Business Committee. The professional accountants in business constituency is one that is central to the development and growth of our profession.  The diversity of this constituency is, I believe, one of our unrecognized strengths and IFAC has been working to get it recognised. Because professional accountants in business work in a wide variety of roles, at every level of organizations across all industry sectors, we collectively have a perspective that extends well beyond “the numbers.” Professional accountants in business – or PAIBs as we call them at IFAC – understand the drivers behind a business and, therefore, play a fundamental role in contributing to the creation of shareholder value. Few other professionals have such a diverse and significant role in the day-to-day operations of businesses and of other organizations.

My topic today is meeting the challenges of performance and conformance. But to comment on this, I need to begin with what it is that we are expected to perform.

Keeping Pace with Change

First, we are expected to keep up with change and to perform accordingly. As professional accountants, our value to society and our effectiveness is determined in great part by our ability to address the changing environment in which we operate. The last twenty years have witnessed a massive transformation in business organizations, driven by intense competition, the globalization of markets and the continual need to redefine strategies, structures and processes. Changes in political regimes, new conceptions of management controls, the effect of globalizing forces on commercial affairs, shifts in notions of effective knowledge management, of governance and of ethics, and technological advances have affected all areas of our profession including, most notably, management accounting.

Let us consider for a moment the changing nature of the finance function and the effect on professional accountants in business. In efficiently providing the goods and services that society wants, high performing organizations competing globally demand a unified service delivery model based on achieving a common technology platform, common business processes and common data. To deliver this, finance function initiatives include global strategies for centralizing process-based activities, under either or both of the shared services and outsourcing umbrellas. This involves dealing with challenges such as process improvement and possible relocation to lower cost regions. 

This trend calls for smaller finance functions, but more effective PAIBs. “World-class” organizations have a finance cost well below one percent of revenue. On the supply-side, firms such as IBM and Accenture have expanded their business process outsourcing up the value chain to include more strategic activities, and there is ongoing high demand from companies for outsourcing their routine accounting services to external, and often overseas, service providers.

As well as achieving greater process quality and efficiency, and cost reduction, reorientation of the finance organization has the potential also to support value creation in organizations. A key objective is to deliver enhanced analysis, insight, and involvement in decision making. To be successful, to remain relevant and to be considered vital in the value creation of organizations, PAIBs need to challenge their roles and participation in their organizations and be prepared to review and change structures, accountabilities and incentives. Above all, we may need to dig deeper to understand what customers of finance require from the finance organization and how business partnering can be most effective in a variety of contexts. This is true whether we work in a large corporation or in a small or medium enterprise.

PAIB’s are frequently taking central positions in the role of framing, supporting and executing decisions in organizations and are involved in such areas as strategic management, research and product development, brand management, human resource (HR) measurement and reporting, and operations and supply chain.

Managing for Growth

In corporate strategy, a second area of PAIB performance, PAIBs are increasingly expected to be involved in developing strategies for managing value and growth. Their involvement can include such activities as developing a robust decision process, advising on major investments, product development, acquisitions and divestments. PAIBs can also use a range of investment appraisal techniques and more advanced approaches such as active portfolio management and option pricing to improve decision making in the uncertain environments that usually characterize the research and product development functions. PAIBs can also be active in working with marketers and others to assess brand and marketing effectiveness, working with HR managers to help connect investments in people to the performance of the business and working at the operational interface on continuous improvement initiatives to improve both quality and efficiency.

Meeting the Challenge of Globalization

The effect of globalization on organizations is a major area of consideration in corporate strategy and one that PAIBs cannot afford to ignore. Globalization has brought with it a number of well-documented and profound shifts, affecting both organizations and the accountants they employ – from economic liberalization, relocation of economic activity, both to other geographies, such as China and India, and within geographies, to technological advances and significant demographic changes. To make any business a global business means more than finding new customers or suppliers in other countries. It requires an openness to change among both the owners and the management team. This change requires taking well-informed risks, opening up the company’s culture and making a serious commitment to ongoing learning. It is for this latter reason that IFAC’s Education Standards Board has mandated a requirement for all professional accountants, including those in business, to undertake continuing professional development. None of this change happens spontaneously, but requires planning and clear leadership. Hence, the planning of these internal changes should be part of the planning for international activities.

As organizations expand their global activities to exploit competitive opportunities, businesses large and small are coming under increasing scrutiny. Organizations will only be able to build the trust of a range of stakeholders through greater openness, transparency and accountability. The challenge then for professional accountants in business is to serve as an ethical gatekeeper – to be a champion of integrity, transparency and expertise – the three core values of IFAC. IFAC’s Code of Ethics for Professional Accountants, which is applicable to all professional accountants, including those in business, industry, government, academia, and public practice, embraces these core values.  It is through these values and through a commitment to ethics, transparency and accountability that we build the trust that is so vital in business today, whether at the global, regional, national or local level.

The IFAC Board has recognized that PAIBs are the front-line professionals who could and should be an accelerator for ethical business practice and a brake on inappropriate actions taken by their organizations, with that brake extending, in some situations, to whistleblowing. Acknowledging that is it often extremely difficult for a PAIB, in isolation, to know what is the appropriate action in a particular situation, the International Ethics Standards Board for Accountants has begun a project to provide greater guidance for accountants in business with respect to whistleblowing. You can expect to see this published in 2007. 

This new guidance will also help professional accountants in business to carry out one of your most important responsibilities: setting the tone at the top in your organization. Earlier this year, the PAIB Committee issued an exposure draft, Guidance for the Development of a Code of Corporate Conduct, proposing guidance to assist professional accountants and others in establishing and implementing codes of conduct in their organizations. The publication draws greater attention to the need for corporate codes of conduct and provides practical guidance on the scope and implementation of such codes. The goal of the proposed new guidance is to support sound corporate governance policies worldwide. The proposed guidance highlights the benefits of an effective code of conduct and identifies the professional accountant's role in the development, monitoring, reinforcement and reporting of such codes in their organizations. To assist in the creation of codes of conduct, the guidance includes information on presentation and content, on organizational and management challenges and on implementing a code of conduct in a global organization.

Effective codes of conduct are a vital component of an organization’s control system. This new publication will enable professional accountants, who have a significant role in internal control and risk management, to work with senior management to develop and review such codes, which, in turn, will help to support the control, direction and evaluation of their organizations’ performance.

Focusing on Decision Making

A fourth area of performance for PAIBs, which is separate from, although related to, strategy and trust is decision making. To ensure effective decision making, one must have access to the best available information from a variety of sources.

To help PAIBs to obtain access to information that can help them to meet these challenges, the PAIB Committee has spearheaded the development of a web-based knowledge resource, called the “IFAC KnowledgeNet for Professional Accountants in Business”. The new KnowledgeNet is a unique web project that aims to publicize and consolidate the valuable information produced by IFAC and its member bodies for the benefits of professional accountants worldwide. It will enable member bodies to offer their professional accountants one-stop access to increased, relevant and high quality information resources, including helping them to deal with ethical leadership and public interest challenges such as corporate responsibility. Current plans are for the KnowledgeNet to be launched in early October 2006. I would like to take this opportunity to thank the Institute of Management of Accountants for their support of and involvement in every step of the development of the KnowledgeNet. I do believe that this new resource will be a very valuable source of information for members of the IMA and for professional accountants in business around the world.

PAIBs will be able to access the new KnowledgeNet when looking for information or guidance on key issues which they face, such as enterprise governance. Enterprise governance is an area of increasing focus for organizations and for PAIBs.  Indeed, it is an area in which PAIBs must be adroit if they are to meet the challenges identified above:  keeping pace with management and environmental changes, addressing globalization, managing for growth and improving their decision making. 

Enterprise governance considers both the conformance and performance aspects of the organization and emphasizes that the two need to be kept in balance. Following corporate scandals, such as Enron and WorldCom, the emphasis has been on improving standards of corporate governance. While it is critical to consider and further enhance such standards, there is a danger that companies might lose sight of the need to create wealth and to ensure that they are pursuing the right strategies to achieve this. At the heart of enterprise governance is the argument that bad corporate governance can ruin a company, but good corporate governance cannot, on its own, ensure its success.

Enterprise governance balances this important debate on corporate governance by recognizing that:

  • Good corporate governance is a hygiene factor – it can prevent failures – but it does not guarantee success;
  • Effective strategy and execution is essential for success; and
  • Enterprise governance is a framework that encapsulates both.

To provide professional accountants in business with guidance on governance issues, from both a conformance and performance perspective, the PAIB Committee, in conjunction with the Chartered Institute of Management Accountants in the United Kingdom, published a report, Enterprise Governance – Getting the Balance Right. It explores the emerging concept of enterprise governance, which incorporates organizational performance into a business governance framework, especially in terms of decision making, strategy formulation and execution. The report, which is available on the IFAC website (, argues how both perspectives must be in place in order to support high performance in organizations. This publication highlights the role of PAIBs in these processes.


As part of the project, we undertook 27 case studies from 10 countries in 10 different sectors. We considered what goes wrong in companies and, more important, what must be done to ensure that things go right.

The countries covered included the UK, US, Canada, Australia, France, Italy and Hong Kong. Although the report looked at companies such as Enron and WorldCom, it also considered success stories such as Southwest Airlines in the US and Tesco, the grocery chain in the UK.

No single issue dominates corporate governance failure, rather a combination of interrelated issues. Key issues included failure of:

  • Culture or tone at the top. Those at the top of a company, by their own poor example and failure to uphold high ethical standards, allowed a culture to flourish in which secrecy, rule-breaking and fraudulent behavior became acceptable. In some cases, performance incentives created a climate where employees would seek to generate profit at the expense of the company’s stated standards of ethics and strategic goals. In terms of culture, Enron provides a good example – although the company professed values of respect and integrity, employees quickly learned that the only thing that really mattered was how much profit they could report. 
  • CEO dominance that often bordered on the celebrity. The report found numerous examples of dominant and charismatic CEOs who were able to wield unchallenged influence and authority over other executives and board directors, for example, at WorldCom and Vivendi.
  • Boards of Directors, especially weak boards or those that failed to take necessary actions at the right time. This includes failing to adopt a questioning and independent approach to the material presented by management.
  • Deficient internal controls. This is a logical outcome of the above three factors and, in the case of Enron, allowed too much emphasis on reported earnings growth. Inexperienced staff were let loose without any of the usual corporate checks and balances.

The report also found that, in the extreme cases, heavy pressure to achieve aggressive earnings targets combined with poorly-designed rewards packages could only have one eventual outcome.

Strategic failures came down to poor choice and lack of strategic clarity, poor strategy execution and slow response to abrupt changes or fast changing market conditions. The most significant issue arising from the case studies was unsuccessful mergers and acquisitions.

The report also looked at success stories. Strategic success demonstrated by companies such as Southwest Airlines, the UK retailer Tesco, Li and Fung in Hong Kong, and Unicredit Group in Italy depended on the following:

  • Choice and clarity of strategy and effective strategy execution;
  • Competency in mergers and acquisitions, especially in terms of well-executed post-deal integration;
  • Responsiveness to environmental shifts, customer requirements and information flows to management to support the decisions that need to be made and presented in an appropriate way; and
  • Effective risk management so that there is a performance focus to risk management, so that it is not simply a peripheral activity focused on the prevention of physical and financial loss at an operational level. 

Thus, enterprise governance provides an integrated framework to help companies to focus on both the value-creating drivers that move a business forward and the need to ensure adequate control and oversight. The IFAC report provides guidance to organizations on adopting enterprise risk management, to ensure that strategic risks are considered at all times in the strategic process and to pull together all the elements required to integrate the consideration and management of risk with the everyday management of the business. The report also provides advice on how to improve the acquisition process.

Within the framework of enterprise governance sits internal control, not only on the conformance side but also contributing significantly to performance through the provision of relevant, proactive information that determines whether strategic objectives can be achieved.  The PAIB Committee is currently developing an information paper that will review current developments and some of the latest thinking in the area of internal control, while setting out the context of recent US legislation. It will discuss a number of key internal control frameworks, such as the Committee of Sponsoring Organizations of the Treadway Commission, or COSO, in the US, Turnbull Guidance in the United Kingdom, and the Criteria of Control or CoCo in Canada, as well as the effect of recent legislation such as  the Sarbanes-Oxley Act.

COSO’s Internal Control Integrated Framework (1992) and Turnbull’s Guidance on Internal Control (1999) both take a much broader approach to internal control than Sarbanes-Oxley, in terms of scope, objectives and approach. They focus on all controls covering the company’s entire range of activities and operations, not just those directly related to financial reporting. An interesting fact emerged from the recent UK Turnbull Review, which stated that:

It was felt that those companies that viewed internal control as sound business practice were more likely to have embedded it into their normal business processes, and more likely to feel that they had benefited as a result, than those that viewed it primarily as a compliance exercise.

The PAIB Committee’s new paper will advocate a principles- and market- based, risk-focused approach, in recognition of the need for an organization to develop an internal control system particular to its internal and external environment. We encourage those organizations required to comply with Section 404 of Sarbanes Oxley to do so within a broader enterprise governance framework – thus ensuring that the business benefits outweigh the, often substantial, perceived costs of compliance. A principles-based, non-prescriptive approach has rightly been advocated in recognition of the need for organizations to develop an internal control system particular to their own specific internal and external environments.

The preference is for an internal control system that sits within an enterprise risk management approach, enabling organizations to manage risk upwards as well as downwards. There is consensus that internal control needs to be embedded within the organization, with all employees fully informed as to how it affects their roles and their requirements in terms of monitoring and reporting. The importance of the tone at the top and of the culture and ethical framework throughout the organization is fully acknowledged and is considered essential to the successful implementation of an internal control system.

To help professional accountants worldwide to meet these and other challenges, IFAC’s PAIB Committee has this year begun developing a series of principles-based good practice guidance statements. This development is one that is happening through the leadership and support of the IMA. The guidance will promote and support consistent and high quality practice across the global community of PAIBs. Covering topics in the areas of management control, costing and corporate finance and financial management, this new guidance will also help to raise understanding of the role of the PAIB. It will recommend objectives in relation to the role of the PAIB and define key principles, which are widely accepted features of good practice and which support the achievement of the objectives of the PAIB, and will provide practical guidance to support application of the principles.

In conclusion, it is important to recognize that business has a central role in driving economic and social welfare but that it requires high quality information for the effective management of resources and sound corporate governance to achieve these objectives. PAIBs, as the primary providers of business information and reporting, play a crucial role in contributing to the growth and the development of business.

Our recent publication, The Roles and Domain of the Professional Accountant in Business, was developed to build understanding of the diverse roles, competencies and value PAIBs contribute to organizations. Pointers from this document include:


  • As managers of value, PAIBs should understand that delivering sustained shareholder and stakeholder value (or “best value” as it has sometimes been described in the public sector) is the main goal when assessing alternative options. PAIBs have a key role in developing strategies for managing value and growth and in moving other functions towards these goals;
  • PAIBs have a responsibility to ensure that the organization understands fully its key performance drivers and that these are communicated in both internal and external reporting; and
  • PAIBs should ensure there is a relentless pursuit of efficiency and effectiveness from the investment base, particularly in areas such as capital expenditure, working capital management, brand management and R&D.

Specifically, the IFAC PAIB Committee’s role is to enhance the role of PAIBs by helping them to think and to act strategically and globally and to develop the necessary knowledge and competencies to deliver sound decision making in organizations. PAIBs need to be in a position to deal with the increasing complexity of managing business. For example, the move to modular design and platform development, to enable organizations to deal with considerably shorter product and service life cycles, requires a more sophisticated approach to planning, costing, risk and control.

The challenges for both IFAC and its member bodies, such as the IMA, are to sustain the relevance and reputation of professional accountants in business, continually to investigate and adopt new concepts and new learning models and to increase awareness of the PAIB’s capabilities. There are awareness gaps, in closing which IFAC is having a significant effect, for example, in improving accounting information in the public sector and highlighting the role of PAIBs in driving economic activity and their contribution to the governance agenda. This is coupled with IFAC’s role in supporting trust and credibility in both the wider accountancy profession and in capital markets, which is central to its mission of protecting the public interest.

Over the past few years, IFAC has stressed its public interest objective. While some might think that that objective is confined to public practice and auditing, that is an unacceptably narrow conception of what is in the public interest and of our profession’s contribution to it. The public interest is served when organizations produce products and services that have a value greater than the resources consumed in production. Economic growth and development is in the public interest. So when we talk about the public interest, PAIBs are front and centre in meeting it. 

 IFAC’s leadership, its Board and the members of the IFAC PAIB Committee all recognize the role of PAIBs in protecting the public interest and in contributing to economic growth and stability. Through their daily work in organizations around the world, PAIBs contribute to the growth of their businesses and organizations and to greater economic prosperity for all. I would like to thank the Institute of Management Accountants for its 87 years of dedication to supporting the work of professional accountants in business and for its active involvement in IFAC over the past 25 years. It is through relationships such as ours that we can continue to focus attention on the vital work of management accountants and provide them with the resources, guidance and information that they need to ensure high quality, reliable reporting by their organizations. As the Chinese proverb says, “Careful accounts make for long friendships.”  I trust that the long friendship between IFAC and the IMA will continue, for the next quarter century and beyond, and that together we will help to support professional accountants in business as they ensure that there are careful accounts.

Thank you very much for your attention and for your great commitment as members of our great profession.