There has been a paradigm shift in strategic organisational thinking owing to the disruptions caused by rapid automation, increased global interconnectivity, and the introduction of a complex legal, regulatory, and taxation regime. In response to this, the role of Chartered Accountants (CAs) has evolved to help organisations build resilience in an uncertain and volatile global economic climate.
Incorporating Enterprise Risk Management (ERM) allows them to remain proactive in the identification and mitigation of risks in pursuit of business objectives. It has emerged as a powerful tool in facilitating organisations to resist, absorb, or adapt to emerging uncertainties. ERM qualifications help accountants to align risk management strategies with organisational goals.
Traditionally, a CA’s task was largely confined to financial reporting. In recent years, however, their ambit has widened to integrated reporting. Instead of focusing solely on an organisation’s net assets, integrated reporting takes into account other intangible factors that create value for stakeholders, such as an overview of the organisational strategy, governance, prospects, and performance.
Integrated reporting is also a useful tool in identifying emerging risks. ERM knowledge provides accountants with the expertise to make a subjective assessment of the risks involved. Once the risks are identified and assessed, risk mitigation strategies are deployed.
Other than integrated reporting, accountants also rely on Environmental, Social, and Governance (ESG) reporting for holistic risk assessment, especially in the case of evaluating investments. For investment accountants, these non-financial metrics are critical in determining growth opportunities and material risks associated with ESG compliance.
For instance, mining companies have to keep a tab on the ESG factors when deciding operational costs, as non-compliance can result in punitive damages that can threaten the business’ smooth functioning. This includes environmental impact on local communities and regulatory compliance that must be accommodated when calculating project costs. Non-compliance with social and environmental commitments can also pose a reputation risk, threatening the viability of an operation.
In the case of financial functions, ESG reporting is an important component of cross-border transactions. CAs typically take into account country-specific risks, from ethnic considerations to regulatory mechanisms and the political environment. In an increasingly interconnected world, these non-financial factors also influence the market expansion.
When raising debts from local and international markets, accountants have to consider multiple risks, such as medium- to short-term inflation, currency fluctuations, and sovereign rating, when determining currency exposure. Other than limiting the fluctuation burden, timely risk analysis can also help us identify opportunities to reduce the overall outflow of resources.
Dealing with tech disruptions
With technology becoming an integral part of every business function today, no organisation can afford to ignore its presence. At the same time, it has also increased risk exposure in multiple ways that must be understood and accounted for. For instance, digitisation has increased the risk of cyber-fraud and data piracy, which can have a damaging impact, ranging from legal sanctions to loss of reputation, and may even affect business continuity.
The impact of technology is yet another aspect that CAs need to consider when determining risk. They need to ascertain whether the organisation is adopting relevant technologies in a timely fashion to assist in achieving key business objectives. Conversely, they also have to be able to assess any potential threats the organisation might face after deploying new technology. For this, it is imperative for CAs to upgrade their understanding of various prevalent and emerging technologies and their implications for business risk.
Building ERM skills among CAs
While every accountant deals with tax compliance and financial risks, their changing role from mere auditors to business advisors, demands additional expertise in risk management.
In response to this, professional bodies such as the Bombay Chartered Accountants' Society (BCAS) have tied up with the Institute of Risk Management (IRM), India Affiliate, for empowering CAs with professional ERM education. Qualifying and working CAs can opt for IRM’s level 1 to 5 ERM pathway, with each successive level ensuring a globally-recognised certification/designation upto certified fellowship in enterprise risk management.
By facilitating risk resilience across organisations, CAs can play a vital role in ensuring regulatory compliance and developing a robust risk-intelligent ecosystem, and by extension, spurring strong growth in the economy.
(Hersh Shah is CEO, Institute of Risk Management, India Affiliate, and Abhay Mehta is President, BCAS.)