Hey! What’s New?

  • - Canadian Offer to Host International Sustainability Standards Board Is Well Supported
    - Rethinking Total Reward Strategies
    - Why Cryptocurrency Transactions Matter
  • - AICPA And CIMA Support Expanding IFRS Foundation Constitution to Include    Sustainability Standards

--by Gundi Jeffrey, Managing Editor

Canadian Offer to Host International Sustainability Standards Board Is Well Supported
CPA Canada) is pleased to be among many the private and public institutions, including the Government of Canada, backing Canada’s offer to host the global headquarters for the new International Sustainability Standards Board (ISSB).

Backed by support from both the country’s public and private sectors, the Government of Canada has formally submitted the Canadian offer letter to the IFRS Foundation. The bid incorporates an extensive collaborative effort, known as Canadian Champions for Global Sustainability Standards and facilitated by CPA Canada, that includes the largest pension funds, financial institutions, securities regulators, a leading First Nations organization, accounting firms, insurance companies, and other large Canadian companies, along with the support of the country’s six largest municipalities and a broad cross-sector of Canada’s leading business, academic and environmental stakeholder organizations.

The Canadian offer includes financial contributions for the successful start-up and operations of the ISSB, should the IFRS Foundation decide to take Canada up on its offer.

“The overwhelming support associated with the Canadian offer clearly demonstrates the breadth and depth of this collaborative effort,” says Amanda Whitewood, who chairs CPA Canada’s board of directors. “Collectively, there is strong recognition that sustainability considerations are increasingly driving investment and policy decisions both domestically and internationally.”

Once established, the ISSB will develop a much-needed set of global standards for reporting on environmental, social and governance matters. This is critical, according to a CPA Canada press release, dated July 28, 2021, because there are currently multiple reporting frameworks and standards related to sustainability. “The business landscape has evolved to the point where a consistent approach is required. As the provider of international financial reporting standards in more than 140 jurisdictions around the world, the IFRS Foundation is well-positioned to create a global set of international sustainability standards through the ISSB.”

The press release notes that Canada has long been known both for the quality of its standard setting and for its independent, objective and transparent structures responsible for the delivery of those standards.

The Trustees are expected to officially announce their decision on a new ISSB by the United Nations Climate Change Conference, COP26, in November 2021.

Rethinking Total Reward Strategies
An article in a recent issue of strategy + business, a PwC newsletter, notes that “our proprietary analysis, which uses data collected via TrueChoice Solutions, a preference analytics company headquartered in New York, shows that the relative importance of financial compensation has declined by 11% over the past decade. The importance of other types of benefits – medical, dental, vision, and life insurance; wellness and supplemental health benefits; and child care – has doubled. Work-life balance options and training and career development have tripled in importance. But HR departments, overly concerned with what other companies are doing or what benefits are most cost-effective, are not keeping up.”

According to the article, written by Andrew Curcio and Alastair Woods and posted July 27, 2021, companies need a new approach to understanding the big picture of reward that will allow employees to tailor their options. “Our data suggests that this will cost companies less than their current blanket reward packages while yielding measurable improvements in engagement, satisfaction, retention, and performance. We suggest a four-step approach to designing reward packages that are fit for today’s changing world: start with the data, customize, communicate, and continually monitor.”

In the current squeeze for global and local talent, PwC Australia decided to take a new look at its rewards and benefits options to understand what influenced people to work for the firm and stay. “Like many [other] organizations, we have been challenging ourselves to reimagine how we do things in response to the uncertain global environment,” said Catherine Walsh, head of people and culture at PwC Australia. “This drove us to consider something beyond the usual market analysis, benchmarking, and tinkering with our old systems.”

The resulting data showed clearly that, although financial reward remained important, career development, skill-building, mentoring support and well-being were much more than afterthoughts for most people, Walsh said. The analysis looked at the “whole person” and not just the “person on the job,” taking into account employees’ stage of career and stage of life. Then, using predictive analysis, the organization can restructure the menu of benefit choices.

This approach, she noted, can yield a return on investment that is up to five times by giving people what they want and not paying for things that are not valued. “From pay, bonuses, recognition, career paths, promotions, development, flexibility, and hybrid work to social inclusion and personal impact, our new model truly reflects what our people value most, depending on level and stage of career,” Walsh explained.

Curcio and Woods stress that today’s total reward offerings need to keep up with the dynamic and increasing heterogeneity of preferences and perceived values of employees. “Competitive salaries are important, but they are only one piece of the puzzle. It is critical that companies focus on the needs of the whole person and not the requirements for the job, and offer the benefits employees value.”

For much more advice, check out https://www.strategy-business.com/article/Rethinking-total-reward-strategies.

Why Cryptocurrency Transactions Matter
With the price of bitcoin in the headlines daily, and Tesla very publicly making major investments in cryptocurrencies, CFOs may be wondering if there is an opportunity here for their organization. Justin Wilcox, writing in CFO July 14, 4021, thinks yes, there are two areas where it might be useful for some companies.

Wilcox says that, for companies targeting young, affluent customers with goods such as jewelry, cars, and high-end electronics, “accepting cryptocurrency for payment can be a savvy move.” This market might appreciate not having to convert to a traditional currency to make major purchases.

Payment service providers specializing in cryptocurrencies function almost like credit card processing companies, Wilcox says, “and can enable businesses to accept bitcoin and other digital currencies for payment without having to hold them in a digital wallet. That eliminates exposure to market volatility and greatly simplifies bookkeeping.”

In addition, he points out, “the processing fees charged by cryptocurrency payment service providers are often quite low, typically 1%. That is substantially lower than the rates for credit card processing and just as easy to use once it is set up.”

You might also consider using cryptocurrencies to make payments. Wilcox writes that one of the primary use cases for cryptocurrencies is that they are not subject to foreign transaction fees. “Companies with suppliers and vendors around the world who accept bitcoin for payment may find savings by using digital currency to pay their invoices.” However, he cautions, “doing so doesn’t alleviate reporting requirements and likely means the company will have to keep some cryptocurrency on hand, which presents security and financial risks.”

Whereas banks can reverse fraudulent transactions, Wilcox explains, there is no recourse other than the legal system if cryptocurrencies are stolen. “Closely managing who has access to the company’s digital assets is crucial because, if they are stolen, they won’t be retrieved. For this reason, cybersecurity measures to protect your accounts from hackers are paramount.”

For more advice on what you need to know, see Why Cryptocurrency Transactions Matter - CFO.

AICPA And CIMA Support Expanding IFRS Foundation Constitution to Include Sustainability Standards
The American Institute of CPAs® (AICPA) and the Chartered Institute of Management Accountants® (CIMA) support the IFRS Foundation’s intention to amend its constitution to include the development of globally accepted sustainability standards. As outlined in their response to the IFRS September 2020 consultation, the two bodies believe that “this is an important step forward. We are broadly in favour of the proposed amendments and the consequential changes that are suggested in your consultation document of 30th April 2021.”

In a letter date July 22, 2021, the AICPA and CIMA note that it is their long-standing view that, for any new standard setter to be a success, including the yet to be constituted International Sustainability Standards Board (ISSB), it must adhere to the following criteria:
• Independence – The body should be independent from the undue influence of its constituency.
• Due Process and Standards – The body should follow a due process that is documented and open to all relevant aspects of alternatives. The body’s aim should be to produce standards that are timely and that provide for full, fair, and comparable disclosure.
• Domain and Authority – The body should have a unique constituency not served by another existing Accounting Principles Rule standard-setting body. Its standards should be generally accepted by its constituencies.
• Human and Financial Resources – The body should have sufficient funds to support its work. Its members and staff should be highly knowledgeable in all relevant areas.
• Comprehensiveness and Consistency – The body should approach its processes comprehensively and follow concepts consistent with those of existing standard-setting bodies for analogous circumstances.

According to the letter, “reporting standards derive their legitimacy from the confidence that they are established, interpreted and, when necessary, modified based on independent, objective considerations. The development process must be free – in both fact and appearance — of outside influences that inappropriately benefit any particular participant or group of participants in the financial reporting system. Even the appearance of outside influence could create doubts about the integrity of the system. That’s dangerous because once confidence in the process is lost, then confidence in the standards themselves and the willingness to follow them will erode as well.”

In revising the constitution, the letter continues, “IFRS Foundation Trustees need to ensure that its remit and purpose is expanded to include the creation and work of the ISSB while maintaining adherence to the above criteria. We therefore agree that the expansion of the remit suggested reflects the intended new dimension of the Foundations’ work.”

For a little more, see the whole letter at Comment letter on proposed amendments to IFRS Foundation constitution | News | AICPA.

Keys to a Psychologically Safe Workplace
Employers who recognize and prioritize psychological safety alongside physical safety in their post-pandemic operations can help employees’ mental health and their own efforts to cultivate inclusive workplaces. According to a post on the McKinsey and Company’s webpage July 15, 2021, “this support can have concrete effects on critical workplace outcomes, including employee well-being, satisfaction, productivity, and absenteeism. Employers can take immediate actions to support employees’ safety concerns and need for flexibility in the return to on-site work; over the longer term, they can continue to evolve operating models and workplace culture to support mental health, belonging, and flexible ways of working.”

Consumers who expect going back will have a negative impact on their mental health overwhelmingly attribute it to concern over safety and protection from catching COVID-19, as well as to concerns about scheduling flexibility. These pre-return concerns, says the post, “largely align with the experiences of those employees who have already returned to on-site work. Among those who have experienced negative mental health impacts of returning on-site, the top drivers have been concern about their own safety due to COVID-19 (45 percent) and risk of contracting COVID-19 and transmitting it to unvaccinated or at-risk children and loved ones (29 percent).”

As employees return on-site from remote work, the post cites the survey findings that COVID-19 safety and flexible work arrangements could help alleviate stress. “Among safety interventions, improved air filtration was a core request, with 62 percent of respondents reporting that it could decrease the stress they experienced from returning on-site. Employees also request autonomy in determining when and where work gets done: of those who have returned on-site, a majority report that flexible work schedules (60 percent) and hybrid work arrangements (57 percent) could reduce stress. Overall, in an era characterized by increased demands at work, at home, and in society, the request that employees make most often is more time. Close to two-thirds of employees (62 percent) report that additional time off could alleviate stresses associated with returning to on-site work.”

For more on the survey findings and suggestions as to how employers can design their return-to-work plans to foster the positive impacts of on-site work, see Return to work in a psychologically safer office | McKinsey.

What Are Non-Fungible Tokens (NFTs)?
Increasingly, it's crucial for accounting professionals to be at least somewhat familiar with blockchain, cryptocurrency and other forms of future-focused technology that are quickly changing the way the world does business. In a post on accountingWeb July 22, 2021, futurist Ian Khan encourages you to learn about non-fungible tokens, or NFTs, which are based on blockchain technology.

“An NFT, or Non-Fungible Token, is something that I expect accountants to jump on and understand without being asked,” Khan says near the beginning of his post.

NFT marketplaces offer the ability to create a non-fungible, tokenized version of anything, he explains. “A photo of something is a good example. You could create a painting or take a picture or maybe have a digital piece of art (that was created digitally in the first place). This art can then be sold on the NFT marketplaces as a unique item. Every time you sell a piece of your art, it will be paired up with and tagged with a unique entry on a blockchain, generating a unique digital string that can never be duplicated. This unique string can then be traded for cryptocurrency, and NFTs are born.”

Professionally speaking, Khan says, “my guidance on NFTs is to study the market and understand how digital technology is growing and impacting multiple things, such as virtual reality, cryptocurrency, artificial intelligence and more.”

He also highly recommends that accounting professionals “be aggressive and position themselves as NFT Industry Specialists to gain an edge when attracting new customers and building trust with existing ones. As an accounting professional, your expertise is not just crunching numbers but helping client s understand the disruption in various industries when it comes to numbers. Traditional accounting roles will be taken over by technologies such as AI in the next decade or so, and you will need to start working on acquiring new skills right now to be future ready. Why not start today with NFTs?”

For the fine details, please check out What Are Non-Fungible Tokens (NFTs)? (accountingweb.com).

 

Strengthen Your Business While Preparing for Future Slowdowns
In the aftermath of COVID-19, what should owners and operators do to not only adjust and compensate but to strengthen their businesses while also preparing and being flexible for any future slowdown or shutdown? That’s the big question asked by Kevin Clancy and Cynthia Romano in the July 13, 2021 on-line issue of CFO. They then go on to make some useful recommendations, such as:

Resize operations: As lockdown restrictions lift, CFOs first need to determine, based on current indicators, what demand will be, how much and for what offerings, and resize operations to account for the fact that they may be operating a different size or different model business post-COVID. Importantly, companies need to optimize their cost structures to account for current and near-term demand, not 2019 demand.

Refocus products: The question is, will shopping and consumption habits revert to what they were pre-pandemic? The answer is, probably not. For example, with movie production companies offering consumers in-home streaming of first-run movies during the pandemic, will people be clamoring to go back to the theaters? Nobody knows. But, at least for the near term, it is unlikely that behavior required during the pandemic will immediately (if ever) be abandoned in favor of pre-pandemic patterns of living. So, businesses need to take a close look at their products and services pre-, during, and post-pandemic. Many businesses will find that their value proposition has changed.

Reduce Risks. Many companies that faltered or failed during the pandemic were already unstable. Now is the perfect time to conduct an internal assessment with the results incorporated into a go-forward program that focuses on lowering risk and increasing stability.

We recommend an in-depth financial analysis to reduce balance sheet liabilities, improve P&L bottom line, and maximize free cash flow. This would include an examination of the risk factors connected to each item of each statement with appropriate mitigation steps put in place.

Reanalyze capital: While capital generated from efficient operations is ideal, working capital and expansion capital are often necessary for getting a business up to its flying speed. Whether the business is simply looking to normalize its operations or seeking expansion opportunities post-pandemic, a capital markets transaction may be an ideal approach. Traditional financial sponsors such as private equity firms have been sitting on dry powder for years and, since the middle of 2020, deal-making activity has ramped up considerably. It is presently a very frothy, very busy seller’s market. Take advantage of the timing to divest what is non-core but valuable to someone else. Look for good deals, usually with some hair on them, where the seller’s need to transact drives a more reasonable purchase price.

For all the useful details, go to Your Business Survived the Pandemic – Now What? - CFO.

Resuming Business Travel Is Complicated
While business travelers are looking forward to getting back on the road, many of them have expressed safety concerns, saying that they would feel more comfortable if their company mandated COVID-19 vaccinations for employees who travel. An article in FM Financial Management, written by Teri Saylor July 20, 2021, says that Korn Ferry, a Los Angeles leadership consulting firm, has developed a series of questions to help organizations assess the risks and prepare for a return to business travel.

Monitor Covid-19 restrictions at both destination and home. Saylor notes that post-pandemic business travel requires planning and research to learn what to expect at different destinations. “Business travelers should be prepared to wear a mask in public places, to show proof of vaccination and to add days to your travel itinerary if they must quarantine.”

Create guidelines for office visitors. As business travel ramps back up, you can expect to host people in your office. There are whole new systems around what’s appropriate when you host meetings in your office. According to Saylor, “some measures include establishing guidelines for visitors to follow, such as requiring visitors to wear masks and continue social-distancing protocols to raise comfort levels for both hosts and visitors. Publicly posting requirements can help preserve a healthy workplace.”

Help employees stay healthy. Safety should be top of mind, and employees ought to be encouraged to get a COVID-19 vaccination. “When it comes to travel, the first thing we have to do is protect ourselves and protect those around us,” Saylor quotes an interviewee as saying. Health insurance is also important, she added, and recommended that organizations examine their employee health insurance policies to ensure they are adequate and will cover employees when they travel.

Be prepared to pivot at the last minute. In addition to coordinating travel logistics, having a Plan B is essential, the article advises. “Even though your trip might be three weeks out, a COVID flare-up at your destination could cause you to cancel, and you should already have backup plans in place.”

When a meeting needs to quickly convert to a virtual event, make sure everyone involved knows what to do to facilitate a smooth change. According to Saylor, “many businesses are being proactive and taking a hybrid approach to meetings that combines an in-person component with a digital platform for those who can’t attend on-site.”

For more and the fine details, visit Resuming business travel — it’s complicated - FM (fm-magazine.com).

The Sad State of Accounting Standards
Baruch Lev, a professor with the New York University Stern School of Business, says that “Setting uniform accounting and reporting standards for most of the world is a pretty important job, particularly given the poor quality and low relevance of corporate financial statements. How do I know? A study of mine showed that even if you could predict all the companies that will meet, or beat analysts’ consensus earnings estimates ― an impossible feat, of course — you wouldn’t make real money. That’s how useless earnings numbers are.”

In a July 21, 2021 article in accountingTODAY, Professor Lev writes, that a study, conducted a few years ago by top finance researchers, examined the number of downloads of U.S. annual reports from the EDGAR system. “The results of the study are beyond surprising: An annual report of a public company is downloaded, on average, less than 30 times (28.4 to be precise), on the day of, and the day after it’s made publicly available! Hard to believe that this is the level of interest of millions of investors in newly released accounting information. (And we all know that a download doesn’t mean that the report is actually read and analyzed.)”

Given this sad state of accounting affairs, writes, Lev, you would expect that the International Accounting Standards Board (IASB) – now under the new leadership of Andreas Barckow – would set a bold and imaginative work agenda. “How disappointed I was to read in the (Wallstreet) Journal that the new agenda issues (not yet fully determined) ‘could include accounting for cryptocurrencies, climate risks, income taxes, government grants and inflation.’ The article continued: ‘One project in particular will test Mr. Barckow’s skills … [the rule] which forces companies to remeasure their estimates of future cash flows form insurance contracts.’”

No kidding, says Professor Lev, “accounting for estimates of future cash flows from insurance contracts is the major problem with corporate financial reports? Is insurance accounting, or the accounting for income taxes or government grants the reason why so few investors are interested in just-released financial reports? It seems that the accounting standard setters aren’t even aware of the real challenges facing their work product.”

Professor Lev then offers a few suggestions for a meaningful new agenda for accounting regulators. To see them, check out The sad state of accounting standards | Accounting Today.

Diversifying U.S. Accounting Talent: A Critical Imperative to Achieve Transformational Outcomes
By 2045, populations currently referred to as “minorities” will be the majority, and the racial and ethnic composition of young talent will shift accordingly, says Herschel Frierson, Chairman of the Board of Directors of the National Association of Black Accountants (NABA) in the foreword to a just released study by the NABA, IMA® (Institute of Management Accountants) and CalCPA (California Society of Certified Public Accountants) on Diversifying U.S. Accounting Talent: A Critical Imperative to Achieve Transformational Outcomes.

Frierson writes that it is estimated that nearly 5% of the U.S. adult population identifies as LGBTQIA, and females, who make up half of the U.S. population, now comprise the majority of the U.S. accounting workforce. Each of these groups, however, is underrepresented in U.S. accounting leadership.

According to the study, “one need only look at the face of the U.S. accounting profession’s leadership to conclude that inadequate progress has been made in attracting, retaining, and promoting diverse talent. For every 10 of the profession’s most senior leaders, nine are white, eight are male, and few openly identify as LGBTQIA (lesbian, gay, bisexual, transgender, queer, intersex, and asexual).”

Once closed to persons of diverse demographic backgrounds, the accounting profession in the United States, encompassing public accounting and management accounting (accountants and financial professionals working in organizations), now consists of a majority of female and more than one-fifth nonwhite professionals. This progress, however, the study points out, “is not reflected at senior levels. Men comprise 86% of the CFOs of Fortune 500 and S&P 500 companies and 77% of partners in accounting or finance functions at U.S. CPA firms. More than 90% of the profession’s executive leadership are non-Hispanic white.”

While there is a lack of current research that provides a reliable estimate of the representation of LGBTQIA persons in the accounting profession, and the U.S. Census does not collect LGBTQIA identification, the study did not identify evidence to suggest that the U.S. accounting profession differs materially in this composition from the broader business workforce. According to the study, “the dramatically low demographic diversity within accounting executive leadership raises a question for the profession’s long-term sustainability: Why are persons from diverse demographic groups (other than white men who do not openly identify as LGBTQIA) overwhelmingly underrepresented at the profession’s most senior levels?”

As broader trends toward greater diversity continue, concludes Frierson, “the accounting profession will need to implement recruitment, retention, and career advancement practices enabling the workforce and its leadership to reflect the diverse fabric of our society. Studies show that a 1% increase in diversity can lead to as much as a 9% increase in performance. While we work to transform the way our profession delivers value, this study reveals that closing the diversity gap that exists at senior levels is critical to achieving long-term success.”

For all the telling details, please see the study itself at Diversifying U.S. Accounting Talent: A Critical Imperative to Achieve Transformational Outcomes | IMA - The association of accountants and financial professionals working in business. (imanet.org).

Tips to Beat Physical Working-From-Home Fatigue
A July 12 article in USNews and World Report quotes George Chiang, an ergonomist and chief editor of the ergonomics and office health blog Ergonomic Trends, as saying that one of the best ways to combat the physical effects of remote work fatigue is to do some low intensity workouts. Chiang adds that the types of movements involved in low intensity workouts such as walking and yoga have been shown to be extremely effective.
To incorporate lower intensity workouts into your routine when working at home, Chiang recommends the following:
• Get up and walk around when you're on the phone. "Ten minutes of walking the stairs, for example, has been shown to boost your energy even better than caffeine," Chiang says.
• Move your laptop to the kitchen counter. By using an elevated spot like a countertop for your laptop, you can work standing up from time to time. "Then, just walk in place or use an accessory like a wobble board for more creative exercises," Chiang says.
• Keep moving during virtual meetings. Chiang advises making the best of Zoom meetings by exercising parts of your body that are out of sight, such as your hands or legs. One of his favorite leg exercises is called the seated leg abduction. "Simply wrap a resistance band around your legs at the knees, then open and close your legs slowly for a few reps.”
• Incorporate some yoga. "A lot of times, fatigue is in fact a symptom of stress or depression," Chiang said. Therefore, he suggests leveraging one of the best low intensity workouts that also improves your mood: yoga. "Many yoga poses also gradually strengthen your core and back, reducing the chances of developing back pain from prolonged sitting," Chiang says.
• Take advantage of text to speech apps. Text to speech apps give you the opportunity to exercise while having documents and reports spoken to you. Chiang pointed out that Windows 10, Apple and Android devices now all come with built-in text-to-speech capabilities.
For more tips on fighting this and other fatigue caused by working from home, go to How to Fight Working-From-Home Fatigue | On Careers | US News.

What Tech Races Are Ahead for Accountants?
Derrick Lilly, Assistant Director, Communications & Publications of the Illinois CPA Society, writes in accountingWEB that many of us are already using AI at home and work, and big tech companies Amazon, Apple, Google, Microsoft and Samsung have collectively sold billions of consumer devices enabled with their smart assistants (i.e., Alexa, Cortana, Siri, etc.). “What we don’t always realize is that these devices, and the other smart machines – phones, tablets, TVs, speakers, doorbells, thermostats, appliances, watches, vehicles, applications and more – that we’re connected to and communicating with are learning from us – and for us. As we increasingly, and sometimes obliviously, adopt and interact with AI to assist in our daily lives, so too will the business world.”

The CPA profession is no exception, says Lilly. Throughout late 2019, EY, KPMG, and PwC announced they would invest roughly $9 billion combined in AI, automation, and data analytics solutions to reshape their firms for the future – each firm is set to spend upwards of $1 billion annually developing technologies and their teams over the coming years. “And, while not every firm or company has billions or even millions to invest in new and smart tech, you can bet those who are looking to maintain or gain a competitive edge will be committing as much as they can to the solutions that promise success in their markets.”

Lilly points out that, when the Illinois CPA Society conducted its fall 2019 Strategic Planning Survey of its board of directors and executive and leadership staff, 96 percent of respondents agreed that, by 2027, AI and RPA will permeate businesses of all types and sizes and be utilized in the performance of every function a CPA performs; blockchain will be prevalent in managing large companies’ supply chains and financial systems; and the platform economy will be fully embraced, creating new opportunities where digital business models are favored and underlying computer systems host services that allow consumers, entrepreneurs, businesses, and the general public to connect, share resources, and sell products.

We’re watching all this take shape now, Lilly says. “In the corporate world, nearly half (49 percent) of accounting and finance professionals surveyed by Invoiced and CFO Drive said their companies have already automated accounts payable, and accounts receivable (47 percent) and financial reporting (45 percent) aren’t far behind. In 2021, Gartner estimates AI will create $2.9 trillion of business value and 6.2 billion hours of worker productivity globally.

And, when it comes to implementing digital ledgers, Deloitte’s 2020 Global Blockchain Survey found that 88 percent of business leaders believe blockchain technology is broadly scalable and will eventually achieve mainstream adoption. In fact, market analyst IDC anticipates the U.S. will lead blockchain spending, which is forecast to reach nearly $4.3 billion globally this year – a nearly 58 percent increase from 2019 despite the impacts of COVID-19 – and annual global investments in blockchain could surpass $14 billion by 2023.
“Simply put says Lilly, “the pace of change – and the pace of AI and automation adoption – will only accelerate from here.”

For more, check out What Tech Races Are Ahead for Accountants? (accountingweb.com).

Newly Merged Value Reporting Foundation Moves Forward on Standards
In an item posted by accountingTODAY July 8, 2021, Michael Cohn writes that the Value Reporting Foundation, formed by last month’s merger of the Sustainability Accounting Standards Board with the International Integrated Reporting Council, is advancing development of environmental, social and governance standards as financial regulators press for improved ESG reporting.

The SASB Standards Board held its first public meeting July 8 under the new structure, Cohn reports, “to update members on progress on the latest projects, including content governance, human capital, plastic risks and renewable energy. They also discussed how the new structure for the organization is working, along with the move by the International Financial Reporting Foundation to set up an International Sustainability Standards Board, where the VRF will be participating as part of a Technical Readiness Working Group.”

The group is trying to fit together SASB’s standards, the IIRC’s Integrated Reporting Framework and a broad set of Integrated Thinking Principles on which they agree.

“We’re very excited about the merger,” Cohn quotes SASB Standards Board chair Jeff Hales as saying during an online press conference following the virtual meeting. “From an operational perspective, things are going well. We’re working to have both of these organizations come together in one organization. I think of us less as reconciling the different products that were being produced by the two organizations. I’d rather think about it as helping the market to more efficiently use the three sets of tools, which are Integrated Thinking Principles, the Integrated Reporting Framework for reporting on how the six capitals come together for enterprise value creation, and using SASB standards to promote comparable disclosure related to those business activities.”

For more on the important details, see Newly merged Value Reporting Foundation moves forward on standards | Accounting Today.

Is There a Path to Global Sustainability Standards?
Erkki Liikanen, Chair of the IFRS Foundation Trustees, delivered a keynote speech at CFA Institute’s Global Financial Regulatory Symposium on June 29, 2021, where he noted that interest in ESG, as well as interest in ESG-related investments, have grown substantially.

However, he said, “research also shows that capital flows to sustainable investments are impeded by poor data quality. The data lacks rigour and cannot easily be compared. Many initiatives attempt to improve comparability, but their numbers have led to greater diversity.
When sustainability reporting can be asked to promote broad public policy objectives, the responsibility belongs to elected bodies and institutions and rightfully so.”
An additional question that has been raised, he said, is whether global standards would be needed in the more limited task of providing sustainability-related disclosure for investors. “This question was often put in front of the IFRS Foundation due to its experience in financial reporting. IFRS standards are required for use by more than 140 countries.”

To prepare the reply to the questions raised, Liikanen said, the Trustees started a strategy review, where the focus was on sustainability reporting. The first two questions of the consultation paper in September 2020 were: is there demand for global standards? If so, should the IFRS Foundation play a role in developing such standards?

“Overwhelmingly, responses to our initial consultation show a growing and urgent demand for a single set of global sustainability-related disclosure standards. A great number of commentators also wrote that the IFRS Foundation should play a role in developing these standards.”

Internationally, he noted, there are multi-stakeholder standards, with the GRI Standards being the most well-known voluntary standard, and various sustainability initiatives focused on investors and the capital markets. These investor-focused initiatives include the work of the Task Force on Climate-related Financial Disclosures, the Value Reporting Foundation (incorporating the SASB and the IIRC), and the Climate Disclosure Board.

“The organizations behind these initiatives affirm that consolidation is required. They have welcomed the IFRS Foundation's proposals to establish a new International Sustainability Standards Board within the governance structure of the IFRS Foundation. They are also involved in the preparations.

“Our shared ambition is to introduce a global baseline of standards for sustainability-related disclosures which are focused on meeting the information needs of investors globally when assessing enterprise value. Enterprise value is a key concept, designed to capture expected value creation for investors in the short, medium and long term, and is interdependent with value creation for society and the environment.”

This investor focus on enterprise value is where the IFRS Foundation can contribute most, Liikanen added. “While the proposed board would work on sustainability-related disclosure standards, its work would be complementary to the work of the IASB. Sustainability-related factors are already connected in the financial statements. Investors are interested in information about sustainability irrespective of its location within the financial statements or in broader reporting.”

For more of the speech, see IFRS - Is there a path to global sustainability standards?.

SEC to Consider New “Sustainable” Fund Criteria
In a speech to the SEC’s Asset Management Committee on July 7, 2021, SEC chair Gary Gensler said that the regulator would consider rules to require "sustainable" fund managers to disclose the criteria and underlying data used to support the label.

We’ve seen a growing number of funds market themselves as ‘green,’ ‘sustainable,’ ‘low-carbon’ and so on,” Gensler said. He added that, “while the estimated size of this sector varies, one estimate says there are at least 800 registered investment companies with more than $3 trillion in ESG assets last year. Suffice it to say there are hundreds of funds and potentially trillions of dollars under management in this space.”

But what information stands behind those claims that a fund is “green” or “sustainable”?, he asked. “Which data and criteria are asset managers using to ensure they’re meeting investors’ targets — the people to whom they’ve marketed themselves as ‘sustainable’ or ‘green’?
I think investors should be able to drill down to see what’s under the hood of these funds.”

As there’s not a standardized meaning of these sustainability-related terms, Gensler has asked staff to consider recommendations about whether fund managers should disclose the criteria and underlying data they use. “This work takes place in concert with the agency’s ongoing efforts to update the public company disclosure regimes on climate risk and human capital.”

On a related note, he pointed out that, “as the asset management industry has evolved, the use of third-party service providers has grown. These third-party companies offer tools, such as ratings, which often make sustainability-related claims as well. This raises a number of questions about what data underpin those assertions, whether those service providers are providing investment advice, and what advisers’ responsibilities are with respect to their use of such services.”

Gensler thinks that updates to fund disclosures “could bring needed transparency to the asset management industry, particularly in light of the significant growth in the sustainability area. This gets to the heart of the SEC’s mission to protect investors and efficiently allocate capital.”

For more on Gensler’s thoughts and reasoning, see SEC.gov | Prepared Remarks Before the Asset Management Advisory Committee.

For more survey findings and analysis, go to Global Crisis Survey 2021: PwC.