Rising gas prices, a declining housing market, the weakening of the dollar and fear of a recession — today’s economic conditions continue to point south, with no light at the end of the tunnel. Critical to these issues is the role of internal accounting and finance professionals, who in large part are responsible for making decisions that contribute to the success or downfall of an organization.For our economy to remain competitive, there needs to be a renewed emphasis on proper regulation and guidance within the profession. The demise of financial institutions over the years (the collapse of Bear Stearns, as an example) continues to validate why fundamental changes should be made to help ensure that financial reporting and internal control standards shift to a globally accepted method of risk management.

As president and chief executive of the Institute of Management Accountants, a professional trade association dedicated to the career-long training and development of accountants who work inside organizations, I’m well aware of the importance of educating today’s young and seasoned professionals to support good decision-making, planning and control functions. More and more new accounting graduates are entering the workforce, yet they aren’t equipped with the skills they need on the job.

Management at a number of large corporations over the years failed to put into place adequate risk management systems, and simultaneously, investors were largely unaware of the high risks of banks’ lending practices. To avoid financial disasters, it’s become increasingly important for the board of every public company to adopt best practices in risk management and inform investors about significant risks and how they are managed. Honesty and transparency in financial reporting are the keys to avoiding mistakes and being in a position to fix the errors before they become fatal to the company’s future.

The Securities and Exchange Commission should play a more vital role in reform as well, and take the much-needed regulatory steps to improve risk management and public disclosure. The SEC, the Public Company Accounting Oversight Board and standards/guidance-setters are well-intentioned, but should shift from the old paradigm that emphasized audit, controls and compliance, which are functions that take place at the end of the financial reporting supply chain.

Today, what is needed is a new paradigm that emphasizes risk and quality management principles much earlier in the process: at the very beginning of the supply chain.

JUDGMENT NEEDED

Risk management, however, is only one part of the solution to preventing financial and accounting problems before they occur. Understanding and applying globally accepted risk principles is an integral part of professional judgment, which should also be applied. Professional judgment is the ability of leaders within an organization to make sound business decisions based on expertise, rather than by binary compliance processes. Proper training, education and certification are necessary to render professional judgment utilizing the appropriate global body of knowledge in risk, quality and performance management.

For example, the cost of health care has prompted the need for properly trained practitioners to focus on preventive medicine, which has helped to prolong the average lifespan and promote healthier lifestyles. The same approach could, and should, be applied to the U.S. accounting profession. Establishing good principles and requiring U.S. corporations to apply professional judgment will build successful corporations that support our capital markets and create jobs and wealth for every stakeholder.

Continuing education is an essential tool for anyone with accounting responsibilities. The IMA recognizes a common denominator for financial disclosure problems — that there is a rapidly deteriorating “skills gap.” Through the Certified Management Accountant certification that is offered by the IMA, finance and accounting professionals inside organizations can obtain the skills and knowledge they need to succeed and help their companies stay compliant, including economics, business finance, cost management, performance management, financial reporting, decision analysis and strategic planning — and a strong emphasis on ethics.

The IMA has long advanced the need to “build quality within” by building the capabilities of professionals inside organizations and placing more emphasis on risk management. The IMA recognizes that practitioners need training to properly identify, document and assess internal controls to mitigate major fraud-related risks, such as executive compensation, management overrides, and the competency of management staff and audit committees.

Millions of finance-function workers who actually do the work inside U.S. corporations are responsible for often-vital judgment calls — an area that was lacking at many large institutions that have dissolved and are now included on a list of those that had catastrophic system failures. These are problems that will, if not addressed, lead to a continuation of unnecessary compliance costs, an unacceptably high incidence of audit opinion failure and, ultimately, the erosion of U.S. competitiveness amid the global economy.

Accountancy is a complex market with a shortage of professionals who can perform as strategic business partners with the proper education, training and certification to fill the skills gap. The value-enhancing activities of management accountants complement what “financial” accountants do within the accounting value chain. They add value to the industry with their ability to work as strategic, value-driven business partners across the entire accounting process within organizations.

Businesses around the world rely on management or “corporate” accountants for sound business decisions and producing right, reliable and relevant financial statements. Today’s corporations should encourage and develop the capabilities of internal management accounting staff. Building quality from within reduces the reliance upon external professionals to fix problems, thereby reducing cost, maximizing shareholder value and improving competitiveness.

Jeffrey C. Thomson is president and CEO of the Institute of Management Accountants (www.imanet.org), a global organization dedicated to furthering the management accounting profession.

Register or login for access to this item and much more

All Accounting Today content is archived after seven days.

Community members receive:
  • All recent and archived articles
  • Conference offers and updates
  • A full menu of enewsletter options
  • Web seminars, white papers, ebooks

Don't have an account? Register for Free Unlimited Access