Steve Bailey | ACCA Response to the Keynote Presentation | ACCA Workshop

Let me start with a conclusion. The conclusion is pretty obvious, I think, which is that accounting reform absolutely is necessary to adopt risk accounting. There's no question about that at all. But it's very complex, and you've just spent 23 slides trying to show us how complex that is, Peter. And it is going to be quite a challenge. But the whole risk environment is so multi-dimensional, required to be considered to enable us to drive corporate sustainability. It's as simple as that. And there are a number of aspects to this that I would kind of throw into the mix, which is that we're living in a time of fantastically fast change. So I think some of it very good, some of it very bad. But the whole tenor of proactive versus reactive has got to shift. Much of the actual remedies that would have come through have been very reactive, and as you've demonstrated with Basel etc., not being particularly effective. And in environments that are changing, they become very often completely ineffective. We've also got accounting history, if you like, which has been pretty good at looking back in history: 'How did you do last year?' We can kind of just about work out things that we believe to be relevant to today's environment, but we're really poor, in my viewpoint, on the future, the real future. Some of the aspects that need to be quantified, qualified, and we've had the equipment for years - computing technology, regression analysis, etc. - to be able to do a much better job than we do today. And frankly, if you just look at a typical financial report, statutory report, whatever, it's heavy on history and current, and in terms of future, very, very skinny. And that balance has got to flip, surely. And in terms of content as well, much of the environment today, the real value in business is the intangible, not just pure tangible. And really today, the accounting profession is struggling to even recognize or value intangible assets, although look at the biggest five companies in the world and their value is based on intangible assets. So this will absolutely require enabling technology, standards, methodologies, and frameworks to be pulled together. It would be pointless if there are multiple versions of this; there has to be some kind of level of consistency. And I wouldn't abandon all audit principles. The audit principles, if I can take you back a long way: prudency, materiality, going concern, accrual, consistency, and substance over form. So I'll do it again: going concern, prudency, materiality, accruals. Absolutely relevant for risk accounting, but not really considered in many audit functions or reports, and that's just shocking really. So we don't have to throw away the principles; we just have to update them, in my view. How do you do this? I think this is going to bring about a whole new generation of risk professionals. I think we're going to see hybrids, hybrid creatures walking this Earth, and they will typically consist of some accounting knowledge, some technology knowledge, data analytics, regulatory, etc. That's going to require, I think, a lot more collaboration between different organizations, professional bodies, to produce a kind of a matrix qualification: a piece of this, a piece of that, and a piece of the other to actually make it a rounded individual who can look at some of these things specifically. It will be very specialized. I kind of see this as almost akin to a building project: architects can design you a house, but you need a structural engineer to make sure it's not going to fall down. And that is the kind of methodology and role I think that risk is going to throw into the mix. The shocking thing I find more often than not now is when I'm working with, particularly with listed companies, the investment and analytical community have a much better view of the business than the auditors do, and indeed often better than individuals in the actual organization themselves. And that's shocking. But it also says that the investment community, probably particularly analysts, have some value to add to this because they have gone ahead and developed pretty good kind of analytical tools and techniques. And the scary thing out of all this is, certainly with Peter's perspective on futures etc., there are a lot of zombie companies out there right now; they just don't know it, and that's going to hit us pretty bad, pretty bad. So my second conclusion, if you like, is that the reports have to have a much greater emphasis on risk and be much more forward-looking, predominantly forward-looking frankly. There has to be standard technology, standard frameworks, standard methodologies. The fiscal reporting is completely non-aligned to risk in any accounting type accruals; they have to be specific. Well, you can't be specific about a lot of these things, so therefore they're excluded. Well, that's crazy because that throws into question the whole concern about going concern, etc. And I guess a plea in the end: it has to be balanced as well, because the danger is we strangle innovation, and that's the last thing we want to do. We want to encourage innovation, but balanced, risk-aware innovation in any organization. Thank you, Rachel.