Maurice Barrett highlights some noteworthy aspects of ESMA’s common enforcement priorities statement for preparers, management and directors. The European Securities and Markets Authority (ESMA) is the Europe-wide body responsible for safeguarding the stability of the EU’s financial system. ESMA achieves this through the protection of investors and promoting stable and orderly financial markets. Co-ordination of accounting enforcement across the EU is part of ESMA’s activity. As part of this accounting enforcement role, ESMA publishes an annual Public Statement setting out the common enforcement priorities (CEPs) for the annual financial reports of listed companies. Together with EU national accounting enforcers – including the Irish Auditing and Accounting Supervisory Authority (IAASA) – ESMA pays particular attention to these CEPs when examining entities’ financial statements. In addition to these Europe-wide CEPs, national accounting enforcers may set additional national priorities. IAASA does this in its annual Observations paper, which is available at www.iaasa.ie. The 2021 ESMA CEPs statement, which is available at www.esma.europa.eu, sets out the enforcement priorities under three headings: Several aspects of the 2021 CEPs statement are noteworthy: The pervasive nature of the impact of COVID-19 across each of the three headings; The identification of climate change as an area of concern for accounting enforcers and the recognition that climate-related matters are something about which investors and other users of financial reports require information; and The focus attached by ESMA – and, therefore, EU national accounting enforcers – to areas other than IFRS financial statements. Of the seven areas included in ESMA’s CEPs statement, only three refer to IFRS financial statements. This is considered significant and is indicative of the direction of travel of corporate reporting and accounting enforcement at the European level. It reflects a trend to consider corporate reporting from a more holistic point of view and a much broader perspective than the more traditional approach of considering only the monetary amounts and disclosures in the IFRS financial statements. Impact of COVID-19 The CEPs statement notes that the impact of COVID-19 has been severe and the path to recovery may be prolonged. The statement repeats the messages included in last year’s CEPs statement regarding the need for a careful assessment of the longer-term impacts of COVID-19 on an entity’s activities, financial performance, financial position and cash flows (such as going concern assumptions, significant judgements, estimation uncertainty, presentation of financial statements, and impairment of assets). Bearing in mind the impact COVID-19 is having on trade and supply chains, the CEPs statement reminds entities to provide transparent disclosures of arrangements that take the form of supply chain financing. The CEPs statement calls for transparency on the criteria and assumptions used in the recognition of deferred tax assets arising from the carry forward of unused tax losses and unused tax credits due to the COVID-19 pandemic. IAS 20 Accounting for Government Grants and Disclosures of Government Assistance requires disclosure of information related to government assistance, including the accounting policy adopted and the methods of presentation adopted in the financial statements. The CEPs statement reminds entities to provide a description of the nature and extent of any significant public support measure received by category (for example, loans, tax relief, and compensation schemes). COVID-19 may impair entities’ ability to meet any pre-determined sustainability-related goals in the short- and medium-term. Accordingly, the CEPs statement recommends that entities provide disclosure as to how the pandemic is affecting their plans to meet such targets and whether any new or adjusted goals have been determined. The ESMA CEPs statement also urges caution if entities adjust APMs used or develop new APMs with the sole objective of depicting the impact that COVID-19 has on financial performance. ESMA contends that, in most instances, the COVID-19 impact should not be presented separately in APMs. Climate-related matters Entities and auditors must consider climate risks when preparing and auditing IFRS financial statements. The identification and assessment of climate-related risks may require a longer-term horizon than that considered for financial risks. Entities should consider climate-related matters by ensuring consistency in the information disclosed across the management report, the non-financial statements, and the financial statements. The CEPs statement reminds entities that, in addition to the information required by individual IFRSs, paragraph 112(c) of IAS 1 Presentation of Financial Statements requires that information on climate-related matters be provided in the notes if not presented elsewhere in the financial statements when such information is relevant. Paragraphs 122 to 124 of IAS 1 require disclosure of the significant judgements management has made in the process of applying an entity’s accounting policies. In this regard, entities need to consider disclosure of management judgements related to climate risks. Entities are also required to disclose information in accordance with paragraphs 125 to 133 of IAS 1 regarding major sources of estimation uncertainty. Entities are expected to disclose in the financial statements how forward-looking assumptions, estimates and judgements applied in preparing the financial statements are consistent with the information included in the management report and the non-financial statement. The CEPs statement notes that ESMA – and, by extension, EU national accounting enforcers – expects entities to consider climate change when assessing whether the expected useful lives of non-current assets and the estimated residual values in IAS 16 Property, Plant and Equipment and IAS 38 Intangible Assets should be revised. In addition, under IAS 36 Impairment of Assets, entities should: Assess whether indications exist that non-financial assets are impaired as a result of climate risk or Paris Agreement implementation measures; Use assumptions reflecting climate risks; and Adapt the sensitivity analysis disclosed to consider climate risks and commitments in the assumptions used. Entities should carefully consider the requirements in IAS 37 Provisions, Contingent Liabilities and Contingent Assets regarding, for example, contingent liabilities for potential litigation, regulatory requirements to remediate environmental damage, additional levies or penalties related to environmental requirements, contracts that may become onerous, or restructurings to achieve climate-related targets. Articles 19a and 29a of the Accounting Directive require the management report of certain entities to include a non-financial statement containing information regarding environmental, social and employee matters, respect for human rights, anti-corruption and bribery matters. Such a non-financial statement must include a description of the entity’s business model and the policies pursued in relation to those matters, the outcome of those policies, the principal risks, and non-financial key performance indicators. In addition, the CEPs statement suggests that entities might apply the European Commission’s non-binding guidelines on reporting climate-related information (available at www.ec.europa.eu). It is ESMA’s view that to provide useful information for investors and other stakeholders in assessing the entity’s performance and position in relation to climate-related matters, the disclosures should not be limited to providing backwards-looking information. Instead, this information should be contextualised in the entity’s broader strategic orientation and the related implementation plans, indicating the expected progress to meet pre-defined targets. Expected credit losses disclosures  The CEPs statement sets out ESMA’s expectations on aspects of expected credit losses (ECL) disclosures, including: Management overlays When material adjustments are used in ECL measurement, entities should provide transparency to fulfil the overarching objectives and principles of paragraph 35B of IFRS 7 Financial Instruments: Disclosures. Such adjustments either take the form of ECL model revisions or are applied outside the primary models (“post-model adjustments”). In complying with the requirements of paragraphs 35G, 35D and 35E of IFRS 7, ESMA expects entities to disclose entity-specific information on its impact on the ECL estimate, the rationale, and the methodology applied. Changes in credit risk (stage transfers) ESMA highlights paragraphs 35F and 35G of IFRS 7 and reminds entities to disclose the basis for the inputs and assumptions and the estimation techniques used to determine whether there is a significant increase in credit risk (SICR) of financial instruments since initial recognition, or whether a financial asset is credit-impaired. Forward-looking information When explaining how forward-looking information (FLI) has been incorporated into the determination of ECL as required by paragraph 35G(b) of IFRS 7, ESMA encourages entities to provide specific disclosures on the main judgements and estimations related to uncertainties that have been taken into account when defining the scenarios and their weight. ESMA recommends that entities disclose quantitative information on the macro-economic variables considered. Effect of climate-related risk on the ECL measurement ESMA expects entities to disclose whether material climate-related and environmental risks are taken into account in credit risk management, including information about the significant judgements and estimation uncertainties. Specifically, to meet the objectives of paragraph 35B of IFRS 7, entities should explain how these risks are incorporated in the calculation of ECL, and any credit risk concentrations related to environmental risks and how those risks affect the amounts recognised in the financial statements. Environmentally sustainable activities The ESMA CEPs statement reminds entities of the disclosure obligations set out in Article 8 of the Taxonomy Regulation (available at www.eur-lex.europa.eu). Article 8 requires non-financial undertakings to disclose: The proportion of their turnover derived from products or services associated with economic activities that qualify as environmentally sustainable; and The proportion of their capital expenditure and the proportion of their operating expenditure related to assets or processes associated with economic activities that qualify as environmentally sustainable. The European requirements in this area continue to evolve ESMA encourages entities to plan and prepare for the timely and correct application of the relevant requirements, as the information to be disclosed may require the collection of data that may not be readily available. Conclusion The topics set out in the ESMA CEPs statement, along with those set out in IAASA’s Observations paper, will be used by IAASA as its reviews financial statements in 2022. ESMA and IAASA emphasise the importance of preparers, management, and directors taking these CEPs into account when preparing and approving their 2021 annual reports and financial statements and discussing them with their auditors at the planning, execution, and completion phases. The messages in the ESMA CEPs statement are directed at entities preparing IFRS financial statements and falling under the remit of national accounting enforcement. However, the topics raised could usefully be adopted by a broader population of entities. Maurice Barrett FCA is Senior Financial Reporting Manager at the Irish Auditing & Accounting Supervisory Authority.

2022 represents a new dawn for boards as the panic brought about by the COVID-19 crisis subsides and businesses learn to live with the associated uncertainty. For many boards, it represents an unprecedented opportunity to transform, writes Kieran Moynihan. The pace of change in boardrooms before the COVID-19 crisis could best be described as glacial, with very little change over many decades in how board directors were recruited and how they functioned. For most boards, COVID-19 has been an acid test of their effectiveness, leadership, and resilience at a time of extreme crisis. It also asks fundamental questions about their core purpose and values in terms of how they treat their customers and employees, how they balance the interests of their shareholders and stakeholders, and their overall contribution to – and impact on – society. While several forward-looking boards are seizing the opportunity to fundamentally transform how they operate and who sits around the table, many boards are still clinging to an outdated model. In short, their composition and functioning are no longer fit-for-purpose. Organisations and their boards face fundamental challenges to their long-term future: how they navigate through a maelstrom of economic headwinds, sector disruption, and rapidly changing customer requirements. Then, there are the existential challenges such as climate change and employees embracing a new flexible work paradigm and who want to work for organisations with genuine purpose and values. Board composition and diversity: breaking the legacy mould The day will come when we will no longer require trojan efforts by initiatives such as The 30% Club and both government and institutional investors to persuade and cajole boards on the value of board diversity (gender, age, sector, ethnic, thinking style and customer demographics). The COVID-19 crisis accelerated this transition. Many boards struggled to demonstrate a diverse mix of non-executive directors (NEDs) who could bring value in the form of creative solutions to severe strategy and business model challenges; an understanding of the impact on customers and employees; and a vibrant range of thinking styles to enable the board – in partnership with the executive team – to imagine a very different future for the organisation. Progressive boards are now assembling “the best board team we can find” where diversity is celebrated. One’s gender, age, sector, ethnic or geographic background no longer matters, provided the end product is an exceptional board team. An exceptional team can be described as one with strategic fire-power, independence of mind, understanding of customers and sectoral trends, and the capability to combine high-quality challenge, debate and oversight with support and value-add to the executive team. In the COVID-19 era, many boards ‘got religion’ regarding the gaping hole in their board composition. There is a dearth of younger NEDs who have digital DNA and truly understand what it means to embrace environmental, social and governance (ESG) criteria and embed it into the fabric of the organisation. I have evaluated and supported some exceptional NEDs in their 60s and 70s who do not understand the evolving digital world, the danger of cybersecurity threats, the mindsets of customers in their 20s and 30s, the values and aspirations of younger purpose-driven employees, and the need in some cases for transformational business models. What boards need is a vibrant mix whereby you get the best of both sets of NEDs, combining the deep experience, leadership and wisdom of the older NED with the dynamic, fresh perspectives and current expertise of younger NEDs. ESG: a defining moment for boards As the dust settles on COP26 in Glasgow, it has dawned on the boards of many organisations that they have a compelling responsibility to tackle climate change and reassess how their organisation contributes to society. There have been some critical foundation stones for ESG. These include the introduction of triple-bottom-line economic thinking, the growth of corporate social responsibility (CSR), and milestones such as the Business Roundtable statement in 2019 that companies need to serve not only their shareholders but all key stakeholders. ESG has become the hottest topic in boardrooms worldwide as institutional investors, customers, employees, governments, and society redefine the role of companies. While the seriousness of the climate change crisis has correctly focused attention on the ‘E’ in ESG, the spotlight on the ‘S’ and ‘G’ has also grown considerably. In the coming decade, ESG could become the single most significant change catalyst for boards of directors. Purpose-driven: an opportunity for servant leadership by the board In evaluating and supporting boards week-to-week across the world, those that impress me most have a triple-helix in their DNA of customer-centricity, employee engagement, and a deep commitment to ESG and ‘doing the right thing’. These boards also have a diverse mix of high-calibre board members, generalists, and sector specialists with a great balance of robust intelligent oversight and outstanding support to their CEO and executive team. However, at the core of these boards is a profound clarity of purpose, a vibrant and healthy culture, and the highest standards of behaviours, ethics and values. In addition, modern progressive boards have a core modus operandi of servant leadership and the most profound respect not only for their shareholders but their employees, customers, and broader partners in society. I believe that purpose-driven servant leadership by the board will become the defining paradigm of organisations that thrive in the coming years. Re-shaping the relationship between the board and its employees One of the not-unexpected consequences of the COVID-19 crisis for many boards was the realisation of the fundamental role and importance of the organisation’s employees. In a recent survey by the Chartered Governance Institute of FTSE 350 companies in the UK, 53% changed their approach to “workforce voice” during the pandemic. In addition, 68% of the boards surveyed now believe that they are more aware of “employee opinion”. But why has it taken a pandemic crisis for these boards to realise that an organisation’s employees are a critical stakeholder, deserving of the utmost respect and support from the board and their voice incorporated into the major decision-making of the company? In reality, many CEOs are culpable for wanting to separate the board from the organisation’s employees to control the narrative and deflect attention away from a poor organisational culture, avoidable turnover of employees, and serious operational or customer problems. In Ireland and the UK, there has been severe resistance to employee representation at the board table. This is understandable when you consider the challenges of finding an employee board member who can bring the employee voice to the table but balance the overall needs of the organisation as well as the complexities of industrial relations. The resistance by boards to genuinely partnering with their employees is also a stubborn hangover from the traditional elitist ivory-tower paradigm where employees did not figure as critical stakeholders. One of the most practical methods to ensure that the employee voice is heard at the board table is a strong non-executive director who understands the employees’ perspectives, with solid support from the board chair. This approach ensures that the employee voice is factored into the overall decision-making of the board. It is another area where improvements in board diversity can help modernise its mindset and attitude toward employees. Customers: the most important stakeholder of all? Ireland has been blighted by some terrible examples of customers being mistreated by companies and organisations for many years. Whether it is the misselling of financial services products, appalling levels of customer care, or the cover-up of negligence in the health sector, we have had – and continue to have – boards with simply appalling attitudes to their customers and the people they serve. In the company sector, the tide is turning. The oft-rolled-out excuse by boards that “we simply didn’t know that our customers were being treated so badly” simply doesn’t cut it anymore. When evaluating boards, I always seek to understand how the voice of the customer or service user is heard and prioritised in the boardroom. Which non-executive directors will stand up to a CEO to say that poor customer treatment is simply unacceptable? Does the board realise what the customer experience actually is? This is what servant leadership at the board level means: putting customers at the heart of the organisation’s functioning. Culture, ethics, and a commitment to do the right thing Despite the continual strengthening of corporate governance codes and company laws, there continues to be a never-ending cycle of boardroom scandals in Ireland and internationally. The introduction of the Companies (Corporate Enforcement Authority) Bill 2021 paves the way for a new independent statutory authority, the Corporate Enforcement Authority (CEA), to investigate and prosecute economic and white-collar crime in Ireland. This is an important stepping stone, building on the solid work of the ODCE. However, unless the right culture and standards of ethics exist in an organisation and you have a sharp board and committees such as audit and risk on its toes, you will always have the potential for boardroom scandals – irrespective of how experienced board directors are. We are slowly starting to move away from some of the worst attributes of the elitist board model in terms of arrogance and disrespect by board directors for their responsibilities – not to mention the shareholders and stakeholders they serve. This is one area that has changed significantly in recent years in terms of the board chair’s critical responsibility to set a very high bar for the organisation’s behaviours, ethics, and values. The board chair has a critical responsibility to set the board’s moral compass, conscience, and commitment to do the right thing. With ESG and society in general setting the bar higher for boardroom standards, today’s boards are under no illusions regarding the high standards expected of them in discharging their legal and fiduciary responsibilities. Resilience, strategic agility, and a new paradigm for risk management From the outset of the COVID-19 crisis, I found it striking to see the difference in the quality of crisis management by highly effective boards compared to ineffective boards. One of the hallmarks of high-performing boards is resilience and the ability to cope with a significant crisis. As we look forward to 2022, most sectors will continue to experience significant headwinds and volatility, requiring continual strategy and business model evolution. Progressive boards are now adopting a far more agile mindset on these issues and have a greater appreciation for risk management. I now see progressive boards take a far more pragmatic approach to risk management, making more use of scenario analysis and learning the lessons from COVID-19 in terms of cascading risks (i.e. how the pandemic and the resulting public health restrictions completely turned the world of work upside down and disrupted the world’s complex but fragile supply chains). Walking the talk on the board’s performance and re-thinking board director tenure I am continually taken aback by the number of boards that put in place the most elaborate performance assessment structures for their CEO, executive team, and employees, but when it comes to their own annual assessment of their performance, both individually and collectively as a board, they either have inadequate basic processes or undertake pointless tick-the-box exercises that add no value. In many cases, I see large companies and organisations where each board chair and director’s performance are not assessed annually. However, there is a strong trend emerging of shareholders, institutional investors and broader stakeholders asking far more searching questions about the effectiveness and performance of the board, the level of value added by the board, and whether the board is walking the talk on assessing and improving its own performance – as well as replacing board directors who are not performing. In the best boards, every board director must continually justify their presence at the board table irrespective of their profile and past glories. One characteristic of many ineffective boards is the bad habit of leaving in place under-performing board directors. This has seriously impacted many boards’ ability to improve diversity and bring in critical new skillsets. However, this is starting to change. You will soon see a greater degree of refreshing the board of directors, with under-performing directors replaced and a more robust performance culture instilled to ensure that the board truly excels for shareholders, employees, customers and stakeholders. Summary One of the unexpected impacts of the COVID-19 crisis is the opportunity presented to boards to reflect on their purpose, how they function, and the value they add. It has also allowed them to consider how they partner with the CEO and executive team, their ability to handle major crises, and the agility required in terms of strategy and business models. There has never been a greater spotlight on the role of the board of directors, the critical leadership it provides to the organisation, and its broader set of responsibilities to shareholders, employees, customers and stakeholders. The boards that will thrive in the years to come will be highly diverse with a great mix of general and sector-specific skillsets. They will also place employees, customers, and the critical needs of society at their core. The current ESG momentum is vital as it is finally breaking the shareholder primacy and profitability-at-all-costs paradigm that has, to be honest, not served society well. Shareholders and institutional investors now understand that you can still drive long-term, sustainable profit and success while simultaneously being a highly ethical and respectful organisation that truly excels for all stakeholders. This enlightened model of servant leadership-centred and highly diverse boards with a solid moral compass and conscience underpinned by a high-performance culture is also key to significantly reducing board failures and scandals. There has never been a better opportunity for boards of directors to look in the mirror and ask searching questions about becoming a modern, progressive and diverse board that is purpose-driven and deeply committed to excelling for shareholders, employees, customers, and stakeholders. Kieran Moynihan is Managing Partner of Board Excellence, which supports boards and directors in Ireland, the UK, and internationally to excel in effectiveness, performance and corporate governance.

The Irish Corporate Governance (Gender Balance) Bill 2021 was presented to Dáil Éireann during the week. Proposals in the Bill include a mandatory 33 per cent of a company’s board must be female after the first year of enactment, rising to 40 per cent after three years. The targets reflect the ambitions of many groups seeking to improve gender diversity on boards, including Balance for Better Business who have set targets of 33 per cent for boards of listed companies and 30 per cent for boards of large private companies by end of 2023. The Bill, due to be debated in the Dáil, proposes to apply the requirements to corporate bodies including: limited and unlimited companies, charities, funds (including UCITS), and all state sponsored bodies and their subsidiaries. Exemptions from the requirements will apply to: unincorporated associations, partnerships, limited liability partnerships, single director companies, micro company, or, other corporate body that has an annual turnover of less than €750,000 or that employs fewer than 20 employees, or both. The Bill proposes a statutory declaration to be made by the chairperson of the governing body, e.g., board, in the Annual Return or annual financial statements that the the gender balance requirements have been complied with. If they are unable to comply then they will be required to disclose the reasons why. Níall Fitzgerald FCA Head of Corporate Governance & Ethics at Chartered Accountants Ireland

 What is executive presence and can it be learned? Paul A. Slattery explains the three pillars of executive presence and how to put them into practice. This enigmatic and elusive notion of ‘executive presence’ (EP) may be a term surrounded by secrecy and shrouded in certain degree of mystique. Many of us may view it as something obscure and elite that is set aside for the use of leaders. How do you acquire it, and how can you project it?  A highbrow concept  What first springs to mind when thinking about executive presence is that it can’t be easily described, but it is recognised immediately when encountered. We all know people who have it. Before coming up with a list of politicians and celebrities, it may be prudent to think of someone we know or have encountered on a professional or personal level. That someone had the demeanour projecting an air of confidence and we are immediately engrossed in their presence. This person had the power of transforming rooms and conversations. That is how we know they had it. The revelation here is that EP can be learned, and it is not such an implausible dream as may be commonly thought.  No one lands a top job or develops a significant following without this subtle but necessary combination of confidence, poise, and authenticity. This amalgam of qualities subtly persuades us we’re in the presence of someone remarkable. In other words, it’s a blend of attributes projecting to others that one deserves to be in charge.  Cracking the EP code means you’ll be given a chance of doing something extraordinary with your life. What is notable about EP is that it steadily proves to be a precondition for success regardless of your social standing and your profession.  The practical stuff The first thing to know about EP is that it is a skill and not a personal characteristic, which means it’s something you can learn and nurture. EP is inarguably attainable for everyone, but as with every skill, it requires regular practice and systematic effort in order to advance. As I mentioned already, you can have all the experience and qualifications of a leader, but without EP, you won’t progress.  That said, expressing those qualities doesn’t come easily. Your topic may be universally interesting and fascinating, but unless you minimise distractions for your audience, you’ll never manage to convey that interest.  In 2013, Chia-Jung Tsay, an associate professor at the University College London School of Management, demonstrated through her piano competition experiment that the most accurate predictor of success in competition was not the musical performance itself, but whether a pianist could communicate their passion through body language and facial expressions.  Then, in 2020, she carried out a similar study, this time in a venture capital pitch competition. The participants were asked to forecast interview winners after reviewing the contestants’ presentations in different ways, which included videos with sound, silent videos, sound recordings, and transcripts. The silent videos most accurately allowed people to identify the winning entrepreneurs, showing that, in the context of entrepreneurial pitches, stage presence is more than crucial – it is fundamentally everything. That being the case, a question arises whether effective communication is more about the medium rather than the message – and EP appears to be the answer. The start Having or projecting EP begins by making the decision to start using EP. Workplace expert and professor, Sylvia Ann Hewlett lists the three areas that form the backbone of EP:  Gravitas – how you act;  Confidence – how you look; and  Communication – what you say and how you say it. She also points to how interdependent these features are: if your communication skills lend you a “command of a room”, your gravitas will proportionally expand.  Gravitas These universal dimensions are not equally important, however. According to Hewlett, gravitas is the very essence of EP. It is gravitas that helps us articulate the qualities that mark us as worthy to be entrusted with accountability and serious responsibility. Without it, you will not be seen as a leader, no matter your credentials. Gravitas is what signals to the rest of the world that we should follow you. In opposition to charisma – the former superstar term in the world of business communication – gravitas is understood as the “ability to appear calm, confident, and steady” in the face of uncertainty, and is vital for every business’s survival.  The importance of appearance As we saw from Tsay’s studies, appearance is our main critical filter. It is quite deceptive and contrary to what people may be articulating. A person’s ‘grooming and polish’ is a key contributor to executive presence. It’s very important to understand that the key to EP in the area of appearance is not a matter of what you were born with, but of what you do with what you have. The good news is that this can be learned and cultivated. The authenticity conundrum The primary struggle between conformity and authenticity is complicated. To what degree should we attempt to fit in and how much should we stand out? This tension can be particularly harrowing for women and minorities, due to the ‘straight white man’ archetype still so prevalent in the professional/corporate world. With age and experience, however, many of us notice that being different and authentic doesn’t necessarily keep us from moving up – on the contrary, it drives our progress. The three pillars of EP This ‘command-the-room and zoom’ quality essentially rests on the following three pillars:  Credibility Credibility can come in the form of your source of information and formal introduction.  When it comes to your source of information, there are a few questions you can ask yourself: where does the information you are sharing with the audience come from? Are you providing information that is current and well-researched? Are the findings and facts true, and from a reliable source? On top of your sources, it’s important when you are addressing an audience to share your background and your experience, and the longevity of your career, especially if you’re talking to external stakeholders. Sharing the credibility of your team is critical in demonstrating the integrity and authenticity that surrounds you.  Lastly, the trustworthiness of the organisation you represent – its values and vision for the future, and how well they align to your own values and outlook – will contribute substantially to yours. Approachability  You engage with the audience through your speaking skills and ability to remain amiable and authentic. Staying true to yourself and letting your enthusiasm speak through your body language connects you to your audience. Being able to look your audience in the eye when speaking and presenting has a transformative effect on your ability to meaningfully engage and inspire. Be mindful of other non-verbal cues: your tone of voice, poise and your attire can also add to, or detract from, your power to hold attention.  Structure EP relies heavily on solid structures, and without proper preparation, rehearsal and a routine that is consistently practiced, EP will become scrambled and non-existent. Thorough preparation leads to more confidence. I believe that we all need to find our own structured routine that will support us prior to connecting with our audience over video, but that also projects our EP in person, such as what social psychologist Amy Cuddy refers to as a power pose. When it comes to handling questions and objections from the audience, your EP is under the microscope. As Leil Lowndes, author of How to Talk to Anyone says, “Every smile, every frown, every syllable you utter, every arbitrary choice of word that passes between your lips, can draw others toward you, or make them want to run away.”  Hence the reasons why a structured response is vital to maintaining approachability and credibility all the way to the end of your presentation. While knowing your topic is a prerequisite, practicing your delivery is crucial.  Building and cultivating your executive presence comes down to three aspects of our behaviour that can be learned with training and practice. The crucial next step is a decision to acquire and cultivate one’s executive presence. It is a choice on how you want to act, how you want to be perceived, what to say, and most importantly, how to say it. For some people it is a strenuous process, more obvious for others. There are no quick fixes; the practice requires commitment and effort. Once you develop awareness of your behaviour, have a personal power pose, know your stuff and constantly practice your delivery, you will be on your way to finding your own EP formula. Paul A. Slattery is Founder & Managing Director of NxtGEN Executive Presence, an education company specialising in executive training, mentoring and coaching services for business leaders and company executives.

Ambrose Shannon explains how CFOs can play a lead role in limiting the future impacts of climate change during what he describes as “the decade of action”. Throughout the summer of 2021, heat waves, wildfires, droughts, and hurricanes served as stark reminders that we should not take our planet for granted. The recently published report from the United Nations’ Intergovernmental Panel on Climate Change (IPCC) has made it very clear that unless immediate and large-scale actions are taken to reduce greenhouse gas emissions, these weather patterns, and the corresponding commercial impacts, will only become more severe. In Ireland, like elsewhere, companies are looking at their own commitments to environmental, social and governance (ESG) objectives (see sidebar) encouraged by both regulatory initiatives and wider societal pressures. For example, the Climate Action and Low Carbon Development (Amendment) Bill 2021 is intended to achieve net-zero carbon by no later than 2050 throughout the entire Irish economy. This entails the introduction of five-year carbon budgets on a rolling 15-year basis. In China and South Korea, where similar measures have been deployed, companies have seen significant impacts on their business models, strategies, and performance. Furthermore, the required Local Authority Climate Action Plans are expected to set out ambitious measures to significantly increase renewable energy production, decrease transport emissions, and reduce the impact of agriculture on the environment. Irish businesses have a critical role in achieving this climate-driven transition. And CFOs can play a pivotal role in areas such as leading strategic reviews, allocating capital investment, securing funding lines, protecting credit ratings and driving sustainable business performance. According to Accenture’s 2021 report, CFO Now – Breakthrough Speed for Breakout Value: 73% of respondents claim that the CFO is best placed to ensure the resilience of the organisation in today’s operating climate; and 68% of CFOs globally are now responsible for ESG monitoring and reporting. And momentum is accelerating. In November, the United Nations Climate Change Conference of the Parties (COP26) will bring world leaders together to accelerate movement toward the goals of the 2015 Paris Agreement. We expect agreement on ambitious goals, meaning that politicians, policymakers, regulators, and investors will need to work together with businesses to deliver on ESG objectives. Failure to act on climate change represents an existential risk to society and the global economy and poses a clear financial risk to businesses themselves. The impetus for business to act is time-sensitive and will likely be driven by four key factors: Governments setting legally binding emission reductions and net-zero targets; Investors and financiers wanting to understand climate-related financial risks and long-term business model viability; Employees placing increased importance on the ESG values and actions of their employer; and Customers placing ever more importance on the sustainability of the products they consume – with many seeking “champion brands”.  For business to meet these demands, CFOs and executives need to create and operationalise a comprehensive ESG strategy. Key considerations Regulators have for some time now warned about the threat that climate change poses to the stability of the financial system. Mark Carney, formerly Governor of the Bank of England, is leading a World Economic Forum (WEF) initiative to explore the risk posed to global financial systems associated with the energy transition. According to the Bank of England, as much as $20 trillion of assets could be at risk from climate change alone. The progress of delivery against ESG transition plans varies greatly from sector to sector and geography to geography. A report by Arabesque S-Ray found that just 25% of public companies worldwide are on track to deliver on their ESG-related commitments. Our research and work in this space suggest that CFOs and the wider finance team are uniquely positioned to guide their organisations in the following ways: Assessing the ESG impact on existing business models. CFOs can play a crucial role in assessing and measuring the potential impacts of ESG on current business operations. For example, identifying and modelling risks could include scenarios on the P&L impacts of a 1.5-degree world, the impacts of a higher carbon tax on profitability, the introduction of subsidies, or pricing signals to parts of the supply chain. Highlighting risks associated with ownership of certain assets. It is rational to expect the valuations of certain assets on the balance sheet to fluctuate as we progress through the transition towards net-zero. For example, we have seen large write-downs in valuations among many of the global oil majors. On the other hand, it is equally rational to expect certain asset classes to rise in value, such as those parts of the economy that support the electrification or home insulation agendas. Either way, CFOs will want to avoid holding stranded assets and will need to make more material bets on a more frequent basis over the coming decade. Identifying where investment will be needed to transition to a sustainable economy. Ireland’s transition to a more sustainable future is expected to have a wide-reaching impact on key sectors of the economy. For example, Ibec’s report, Building a Low-Carbon Economy, suggests that Ireland’s electricity and transport systems will need to reduce emissions from 1990 levels by up to 92% by 2050 and that buildings and factories will need to reduce emissions by up to 99%. Decarbonisation needs to go hand-in-hand with technological innovation, and CFOs will play a key role in identifying where investment is needed to ensure that business outcomes are achieved in a way that is economically and environmentally sustainable. Responding to investor demands and attracting investment. In the US, one-third of the $50 trillion of assets under professional management is invested in ESG strategies, according to research by the NewClimate Institute. ESG considerations are increasingly being adopted in assessing the sustainability and risk of investment decisions. At the same time, investors and pension funds are applying pressure on companies to provide products and services aligned with the UN’s Sustainable Development Goals (SDGs). Turning ESG commitments into action. Credibility is not a new concept to finance but is vital in the ESG space. As a profession, we can help our organisations avoid even the suggestion of ‘greenwashing’. Credibility is enabled by robust transition plans with regular and transparent disclosures on progress against them. Some CFOs are investing now to create enterprise-wide data provisioning and analytics solutions for ESG. This will enable them to model multiple commercial scenarios and inform the optimal pace and sequence of the pivot. Conclusion While executing a successful ESG pivot depends upon a strategy that is unique to the qualities and context of the organisation, there are a few best practices you can leverage: Conduct a materiality assessment. These sometimes behind-the-scenes assessments are a data-driven, holistic view of ESG risks and opportunities to identify gaps and prioritise the issues of focus against business and stakeholder importance. Build an effective communication method for the company’s ESG commitments and progress. This typically takes the form of a disclosure with a newly crafted framework and reporting metrics for standalone ESG disclosures, leveraging industry-leading practices. Formalise ESG governance. Stakeholders must be identified as explicitly responsible for new associated ESG activities. The company needs to craft a defined governance model and roadmap for execution, mobilising internal resources and data for ongoing assessment and reporting. These three steps have helped organisations successfully navigate and focus an ESG pivot and capture the associated resiliency and revenue potential. This is the decade of action to dramatically limit the future impacts of climate change – time is of the essence, and the time to act is now. Ambrose Shannon is a Managing Director at Accenture and CFO and Enterprise Value Lead for Ireland and the UK.

Each year, the Irish Auditing and Accounting Supervisory Authority (IAASA) publishes a paper outlining areas to which entities should give extra attention when preparing their annual financial statements. Maurice Barrett explains the most recent findings. In September, IAASA published its most recent Observations paper, Observations on Selected Financial Reporting Issues – Years Ending On or After 31 December 2021. While directed primarily at the comparatively small number of issuers falling within IAASA’s accounting enforcement remit, the topics covered in the paper are relevant to a wide population of entities. The Observations paper is written primarily from an IFRS perspective. However, most of the topics covered apply equally to entities applying FRSs. To that extent, IAASA encourages the broadest distribution and application of the topics referenced in the Observations paper. Recurring themes There are recurring themes that appear in the Observations paper year after year, the more common of these being: Tailoring of disclosures to the specific circumstances of the entity and avoiding boilerplate disclosures; and Disclosing the significant judgements and sources of estimation uncertainty and changes in the key assumptions underpinning assets, liabilities, income, expenses and cash flows. The objective of financial statements is to provide financial information about the reporting entity that is useful to users of the reports in deciding to provide resources to the entity. That objective is achieved, at least in part, by ensuring that disclosures are tailored to the specific circumstances applying to the entity in the reporting period. The provision of boilerplate information by, for example, repeating large tracts of IFRSs in the accounting policies section of financial statements is unlikely to be seen by users as useful information. Similarly, devoting time to crafting the disclosures around the significant judgements and sources of estimation uncertainty and changes in the key assumptions should result in user-relevant information being given. Judgements and uncertainty vary from entity to entity and over time, sometimes with speed (the COVID-19 pandemic illustrated just how quickly the economic landscape can change and just how flexible and adaptable business models can be). Financial statement disclosures need to be continually examined and adapted to the business environment as circumstances evolve. The disclosures that were appropriate last year may no longer provide users with decision-useful information this year. COVID-19 COVID-19 and the public health measures put in place to contain its spread had different impacts on different sectors of the economy. Similarly, the speed and duration of any recovery are expected to impact various sectors differently. It is important for issuers to clearly explain in the management report both the impact COVID-19 has had on the development and performance of its business and the position of the issuer, and management’s views as to the path to recovery. Depending on the specific circumstances of the issuer, some of the COVID-19 matters that IAASA expects issuers might disclose in their financial statements are: A discussion of the impact of COVID-19 restrictions on the economies or markets in which the issuer operates; The continued impact of COVID-19 restrictions on the entity’s broader financial performance such as raw material price increases, margin reduction, or supply chain constraints; and How financial performance, financial position, and cash flows will likely be impacted by the pandemic and/or the economic recovery. These disclosures should reflect the impact of the pandemic on the recognition, measurement, presentation and disclosures in the financial statements, including impairments (IAS 36), expected credit losses (IFRS 9), going concern (IAS 1) and provisions (IAS 37). Climate change The IASB published Effects of Climate-Related Matters on Financial Statements, highlighting how IFRS require entities to consider climate-related matters when the impact is material to their financial statements. This educational material complements an article that IASB member, Nick Anderson, wrote on this subject in 2019. The IASB paper and the related educational material are available on the IASB website. The educational material contains a non-exhaustive list of examples of when entities may need to consider climate-related matters in their financial reporting. It aims to support the consistent application of IFRS, but it does not add to or change the requirements in the standards. The list of examples provides guidance on how issuers might consider the effects of climate-related matters when applying IFRS, including IAS 1, IAS 2, IAS 12, IAS 16, IAS 38, IAS 36, IAS 37, IFRS 7, IFRS 9, IFRS 13 and IFRS 17. Entities, recognising that investors are increasingly demanding ESG (environmental, social and governance) information, should consider this educational material when assessing the impacts of climate change and risks in their financial statements. This is particularly relevant in the areas of judgements, provisions and measurement of assets (asset lives and recoverable amounts). Impairment Impairment continues to be an area of focus in IAASA’s financial statement examinations and is a recurring theme in our annual Observations paper. IAASA challenged issuers where no impairment testing was performed, yet impairment indicators in the context of COVID-19 restrictions (travel restrictions, non-essential activities closed) were in place; the decline in certain issuers’ revenues, profits and operational activities; and issuers operating at less than normal capacity. IAASA concluded that these happenings were indicators of impairment, and these issuers should have carried out an impairment review. Accordingly, IAASA required such issuers to perform an impairment review in accordance with IAS 36. Management, directors and audit committees must ensure that impairment reviews are performed when indicators of impairment are identified to ensure that an asset or cash-generating unit (CGU) is carried at not more than its recoverable amount. IAASA will continue to challenge issuers on IAS 36-related topics, including: Whether or not CGUs have been tested for impairment at an appropriate level; The discount rate used to measure the recoverable amount and whether or not that rate has been appropriately set; The determination of the key assumptions used, the long-term growth rates used and the disclosure of sensitivities; and Whether or not all key assumptions are realistic and consistent with other information in the financial statements. While the depth and duration of the impact of COVID-19 restrictions and the trajectory of any recovery remain uncertain, there are signs that restrictions are being eased and the Irish vaccination programme is enabling a re-opening of society. Consequently, relief and supports will be unwound over time and the longer-term impacts on expected credit losses will become apparent. IAASA reminds entities to continue to consider ESMA’s public statement Accounting Implications of the COVID-19 Outbreak on the Calculation of Expected Credit Losses in Accordance with IFRS 9. IAASA expects financial institutions to distinguish between measures and reliefs that impact the credit risk of financial instruments over the expected life of financial assets and those that address the temporary liquidity constraints of borrowers and apply IFRS 9 accordingly in preparing their financial statements. Fair values COVID-19 restrictions continue to pose challenges to fair valuation measurement (including the fair valuation of non-financial assets and liabilities) for many entities. The impacts of the pandemic are likely to result in changes to the valuation methodologies used, as well as to fair valuation assumptions. Entities should continue to consider: Changes in valuation techniques; Independent valuation reports and pre- or post-COVID-19 fair value assumptions and transactions; and COVID-19 expanded fair value disclosures – sensitivity. IAASA has noted certain issuers recognising deferred contingent liabilities arising from past acquisitions. It observes that volatility in the expected future EBITDA, forecast cash flows, and/or risk-adjusted discount rate(s) due to COVID-19, Brexit and economic disruption may result in volatility in the fair value measurement of deferred contingent liabilities. IAASA expects issuers to ensure deferred contingent liabilities are measured in accordance with the requirements of IFRS 13 and disclosed in line with the requirements of IFRS 13.93(d). Alternative performance measures ESMA’s Guidelines on Alternative Performance Measures (APM) have been in force since 2016. These APM guidelines are supplemented by a series of questions and answers, which provide guidance on the practical application of the APM guidelines. IAASA continues to examine issuers’ use of APMs and continues to identify shortcomings in the application of, and non-compliance with, the requirements of the APM guidelines, including instances where issuers: Present APMs with more prominence and emphasis or authority than measures directly stemming from the IFRS-based financial statements; Fail to provide reconciliations for all APMs presented; Use incorrect labels to describe APMs (e.g. the expression ‘EBITDA’ is used rather than ‘Adjusted EBITDA’); Fail to define an APM or fail to set out the basis of the calculation applied, including details of any material hypotheses or assumptions used; Fail to explain the use of APMs; and Fail to present prior period comparative amounts for APMs. Conclusion I believe that, to use a saying of our times, “we’re all in this together” and that preparers, management, audit committees, directors, auditors and regulators all can, and generally do, work together to achieve high-quality financial reports. IAASA’s assessment is that the quality of the financial reports it examines is generally high and compares favourably with European issuers. It is hoped that our Observations paper will in some way contribute to that continued high quality. Maurice Barrett FCA is Senior Financial Reporting Manager at the Irish Auditing & Accounting Supervisory Authority. IAASA’s Observations paper is available at www.iaasa.ie.

Dr Margaret Cullen explains the characteristics of good directors, which in turn contribute to board effectiveness and sustainable companies. Although there is no comprehensive definition, the Companies Act 2014 describes a director as “any person who occupies the position of director by whatever name called”. While under previous company legislation, courts recognised some practical differences in capacity, role, duties and responsibilities, the distinction between categories of directors is not widely recognised in the Act. It is within governance codes and guidelines such as the UK Corporate Governance Code, the Code of Practice for the Governance of State Bodies, and the Central Bank of Ireland Corporate Governance Requirements for Credit Institutions that this distinction is made. Executive directors are those involved in the day-to-day running of the company. Non-executive directors, on the other hand, are not actively involved in the day-to-day running of the company. They are typically appointed because they bring particular expertise that can contribute to the company’s success and sustainability. Within the non-executive director element of the board, there are non-executive directors (NEDs) classified as non-independent directors and those classified as independent non-executive directors (INEDs) because they meet the independence criteria specified within the applicable code. NEDs can be further delineated into directors employed within the group to which the company belongs and those who do not work for the group but do not meet the criteria necessary to be deemed independent. A principle enshrined in many corporate governance codes is that at least half the board should comprise NEDs whom the board considers independent. Adam Smith wrote in 1776 that executive directors or managers of companies, “being managers of other people’s money, cannot be expected to watch over it with the same vigilance with which they watch over their own”, thereby articulating the classic agency problem. This agency problem and its solutions constitute the crux of the most articulated corporate governance theory: agency theory. At the heart of agency theory is the assumption of managerial opportunism: that managers are motivated solely by self-interest, not by moral obligation. Thus, agency theorists advocate for monitoring devices, incentive mechanisms, and checks and balances to ensure managers do not abuse power to the detriment of shareholders. INEDs are one such mechanism. The conceptual underpinning of corporate governance codes around the world is the need to respond to this agency problem. Therefore, it is not surprising that principles related to INED representation on boards and INEDs chairing board committees are typically front and centre in these codes. Interestingly, agency theorists assert that the sole objective of a company (de facto the board) is to maximise returns for the shareholders. However, this assertion is inconsistent with directors’ duties under common law. There are, of course, alternative theoretical perspectives that articulate more positive assumptions on the character of managers – stewardship theory, for example. Although they advocate for INED representation on corporate boards, stewardship theorists’ advocacy relates to the advisory and guidance dimension that INEDs bring to the board rather than the need to protect the company from managerial misconduct. Anyone who has sat in my corporate governance class will know that I sit in this camp. I say this not because I am naive as to the propensity for poor behaviour within organisations. On the contrary – we have seen enough corporate governance scandals over the years to know that unscrupulous and greedy people can do bad things. However, for every scandal, thousands of companies survive, prosper, and make significant contributions to society and the economy. I hope that the current gusto in relation to company purpose and environmental, social and governance (ESG) criteria will further influence companies’ societal and environmental footprint to the benefit of all. Sometimes, companies make headlines for a breakdown in controls or sub-optimal risk management rather than any deliberate attempt to defraud the company or customers. Unfortunately, the distinction between the former and the latter is not often made clear by – or to – stakeholders. NEDs are not involved in the day-to-day operations of the company. The entire board should work hard to create a governance framework (across the company and in the boardroom) bespoke to company context, where accountability is created and the board receives the information necessary to do its job. The board is entitled to rely on the integrity of information emanating from within this framework once it has no reason to suspect that the people providing this information are not fit and proper. Wilful blindness to inappropriate behaviour is, of course, not acceptable. If I start as an INED from a position of professional mistrust, however, I am starting from an impossible position. Trust must be at the heart of the board/management relationship. Therefore, the leadership qualities of the CEO/executive directors and the company’s culture are hugely influential on the standards of corporate governance within. INEDs must bring an appropriate balance of trust and professional scepticism to the boardroom. By taking on a pseudo devil’s advocate role, INEDs add an extra governance dimension, enabling the board to make effective collective decisions and/or determinations based on the information to hand that is considered in an honest and responsible way. Getting this balance right is the hallmark of a good director and requires INEDs to understand what being non-executive truly means. Stakeholders must also understand this. Readers of this article will be familiar with the long-standing debate on whether auditors should be viewed as watchdogs (who bark if they see something suspicious) or bloodhounds (who search for something suspicious). Confusion about this distinction serves to undermine the audit process. Equally, considering the collective responsibility of a board, the non-executive nature of INED roles needs to be understood for what it can – and should – entail. To quote my mentor and colleague, Professor Niamh Brennan, it’s “nose in, finger out”. Agency theorists look at corporate governance practices and behaviours through the lens of the agency dilemma. This is an abstraction at the level of the company and its governance structures rather than board behaviour. While recognising the different lenses that categories of directors bring to the boardroom (for example, the knowledge that comes with day-to-day executive involvement versus the information asymmetry attached to being non-executive), the most effective directors demonstrate objectivity and independence of mind. As so much governance is done outside the boardroom, this objectivity across executive directors and executive committee members sets companies up for long-term success. It manifests itself in executive meetings and discussion forums where challenge and debate are encouraged, management information is scrutinised, tactical and strategic opportunities and threats are acknowledged, alternatives are considered, and decisions requiring board approval and areas that would benefit from board-wide input are identified. In short, the executive directors and executive committee can go a long way towards setting the board and the company up for success. Apart from their specific domain of experience, INEDs bring an extra layer of objectivity (with the balance of trust and professional scepticism referred to earlier) to the board to contribute to collective board effectiveness. Group NEDs bring the group perspective (on strategy and risk appetite) and related challenge, requiring equivalent objective mindsets of other board colleagues. This is particularly important, as group NEDs must always act in the interest of the local company. While much is made of the concept of non-executive director independence related to a schedule of criteria, I have always argued that independence of mind across all aspects of governance and all categories of directors is critical to board effectiveness and sustainable companies. There are, however, other behavioural characteristics critical to board success. Several years ago, in the process of designing a governance programme, I had a brilliant discussion with another colleague of mine, Frank Ennis – an experienced independent non-executive director – on what makes a good director. We had previously agreed on the importance of independence of mind (the first ‘I’) for all directors. We explored the importance of technical skill, experience and knowledge to contribute to collective board strength, but determined that it is how these skills are harnessed rather than the skills themselves that are key. We landed on the second ‘I’, intelligence, referring to the capacity of each director not to allow anyone to insult theirs. This second ‘I’ reflects and extends beyond the professional scepticism discussed. Finally, we reflected on corporate governance failures related to fraud and deliberate, inappropriate actions by those in charge and questioned the lack of integrity. We also remembered a keynote speech made by Warren Buffet at Columbia Business School in 2009 when he observed: “Somebody once said that in looking for people to hire, you look for three qualities: integrity, intelligence, and energy. And if they don’t have the first, the other two will kill you. You think about it; it’s true. If you hire somebody without the first, you really want them to be dumb and lazy.” Thus, the third ‘I’ became integrity – never, ever compromise yours. We were mindful, of course, that living by the three ‘I’s can sometimes lead to a fourth ‘I’ in the form of isolation, but we agreed that this is a price worth paying. Dr Margaret Cullen is Founder and Principal of Think Governance Ltd. This article was written in collaboration with Frank Ennis FCA, independent non-executive director.

Digital proved to be a vital tool in helping businesses navigate the upheaval during COVID-19. But now, it needs to move from a tactical response to a key pillar of strategy, writes Cormac Hughes. Businesses crave certainty. After the past year, however, that precious commodity is in short supply. So how can organisations be ready for and respond to uncertainty, both to make themselves less vulnerable to risk and to be prepared to take advantage of opportunities that emerge in unpredictable times? The answer is digital transformation. However, those two simple words disguise a more complex readjustment. Going digital is not just about building a new website. That would be like applying a fresh coat of paint to your organisation’s existing building when in reality, it is a fundamental restructuring from the floorboards to the ceiling. It is a wholesale realignment that touches every part of an organisation and puts digital at the heart of its strategy. In this article, I will outline the benefits of this approach, identify the areas of your organisation most impacted by the change, and provide practical advice on the steps to take wherever you are on the journey. From survival to strategy The first thing to say is that we are not at the starting line for digital transformation; the race is already underway. Many organisations had to rapidly hit their full stride because they had no other choice: the COVID-19 pandemic turned the digital agenda from a marathon to a sprint. The move to remote and distributed workforces at scale was only possible with digital technology. In many cases, online channels became the default means of interacting with customers and suppliers. That so many managed the change so effectively without dropping the baton is a testament to people’s incredible spirit and collective effort. But the swift onset of that crisis meant that many of the solutions put in place were short-term and tactical in nature. Now, as we can all catch our breath and start looking to the future with some optimism, we have an opportunity to evaluate the lessons learned. And the biggest lesson of all is that digital is not an enabler of strategy but a driver of it. We can say this with confidence based on a global study of 2,860 executives in the commercial and public sectors, which Deloitte carried out earlier this year. This research concluded that digital is fast becoming the norm across all sectors. Nearly two-thirds of respondents believe that organisations that don’t digitise in the next five years will be “doomed”, so having the right strategy that takes advantage of digital possibilities and capabilities will ultimately differentiate the winners and losers. Digital maturity confers advantage Deloitte’s research showed that the more digitally mature an organisation is, the better able it is to navigate rapid change and the better it performed financially. 78% of leaders surveyed said that their organisations’ digital capabilities played a significant part in helping them stay resilient as the COVID-19 crisis evolved rapidly. A similar percentage reported that their digital transformation initiatives were already having a significant positive effect on their businesses. Against this backdrop, digital spending is increasing. This might seem counter-intuitive because many organisations came under financial pressure during the pandemic. Yet, according to a CEO survey by the technology research company Gartner, over 80% of organisations planned to boost their investments in digital transformation. The firm forecasts that spending on enterprise digital transformation will grow at a 15.5% compound annual growth rate from 2020 to 2023. The Deloitte study supports this finding: 69% of the leaders surveyed intend to commit more spending to digital transformation in response to the pandemic. Our figures also show that their budgets for digital transformation represent a higher percentage of their annual revenues than in prior years. The agility to react to new opportunities Digital transformation also changes the competitive field and creates new opportunities for organisations to differentiate themselves. With the experience of the past year, it is now clear that digitally sophisticated companies are especially well-placed to react to new customer trends or buying habits. At the same time, our study found that many commercial leaders believe that their main competitor in five years will be an emerging start-up or a ‘digitally native’ company that hasn’t needed to shed the legacy of older technology (more of which later). Fewer than one-third of our respondents believe that their biggest threat will come from a current competitor. It is worth emphasising here that the window of opportunity for embracing digital remains open. For example, several Irish retail banks recently announced plans to form a consortium to develop a money transfer app to compete with emerging fintech providers. The findings above hint at the extent of the dynamic situation, so we dug deeper into leaders’ perceptions of change. More than three in four leaders anticipate that their business will “change significantly” over the next five years and more so than the previous five. Instability, by its nature, brings uncertainty, and it is not surprising that more than half of respondents believe that the fast pace of technology change is “not good” for their organisations. In our opinion, this makes it even more important to take a proactive approach to digital transformation rather than just letting it happen. Against this backdrop, how do organisations further embed digital across the business? We have considered this question across several areas: talent, finance, operations, and customer. Let us look at each of these in turn. The talent opportunity The past year has had an enormous impact on how we think about the nature of work. Business leaders need to consider this from a multifaceted perspective: who does the work? What kind of work do they do? And where do they do it from? From our engagements with clients, many will need to assess the skills they have in their workforces today and map them to the capabilities they will need in the future. This could involve identifying candidates for training so they can take up new roles. The ability to work remotely could be an opportunity to recruit talent that would previously have been unavailable because those people lived beyond a commuting distance to an office. It is also a chance to re-frame HR practices, such as moving to a more flexible team-based model rather than having people work in fixed roles organised along rigid departmental lines. The finance opportunity The finance function plays a vital role in a digitally transformed business, but it too must change to carry out this newly expanded remit. Traditionally, the job of finance was to report on what had already happened. Now, finance must look forward and spend most of its time and resources on planning and forecasting. To do this effectively, it must be able to use powerful analytics tools that can sift through data and deliver the insights the business needs to drive its decision-making. When this is in place, finance can become a strategic business partner and apply analytical thinking to solve challenges. The operations opportunity Operations is the through-line connecting every part of an organisation, from the customer-facing online channels to support, order processing and fulfilment. When the customer engages through a website, online store, app, or chatbot, they judge the success of that interaction on the seamlessness of the experience. How swiftly can they complete a transaction? When is the product or service ready? What updates do they receive about the progress of their order? Data is the glue that binds all parts of an organisation together. Every aspect of the operation needs to be digitally enabled and connected to have the data it needs, in real-time, to fulfil the order and share relevant information with the customer. Then, operations can analyse this data to identify areas where it can continually optimise. These improvements can be internal (streamlining processes that employees must use) or external (delivering a more efficient service to customers). The customer opportunity This leads us neatly to the customer: top-performing digitally-enabled organisations realise it’s not all about them. They put the customer first, delivering an experience that’s easy, convenient, and secure. This helps strengthen customer loyalty and trust. At the same time, they also dig deeper to understand their customers’ needs. They know that although digital may be the default means of engagement in today’s world, there are nuances to different customer segments and groups. Looking closer at the behaviour of those groups uncovers distinctions that enable businesses to target their offerings more effectively, identify up-sell and cross-sell opportunities, and stay competitive at a time when the customer has never had more choice. The cloud imperative The four areas outlined above have one element in common: the cloud. This is fast becoming the dominant model for organisations to avail of IT services. Delivering technology and services through the cloud equips people to work from anywhere. It also enables finance to get data faster and move from historical reporting to forecasting while empowering all elements of operations to work together more effectively and deliver a seamless customer experience. Cloud offers a consumption-based pricing model that links IT spend to the demand for that service. It also offers speed: unlike legacy infrastructure, the cloud enables businesses to test new products and services far faster than before. And when an organisation’s IT platform is adaptable, that means its business is adaptable too. With no data centres or servers to maintain and run, leaders can focus purely on the business and reduce the need to ‘mind’ the technology. Cloud also makes it easier to access the latest technology such as artificial intelligence, machine learning and robotic process automation, and high-powered analytics that can identify new areas for improvement. This is a very wide-ranging agenda for any organisation, so it may be helpful to think of it as follows: first, set the strategic direction for operations, finance, talent, and customer-facing functions from one direction. In parallel, begin a managed transition from the business’s siloed and legacy technology systems today to cloud platforms that provide the agility and flexibility the business will need. Moving to the cloud provides the basis for the strategy to come to life, but it can be complex in an organisation with a lot of existing IT. When creating a roadmap to move to the cloud, four useful stages are: Step 1: Identify the business problem Determine where the biggest burning need exists in your business today, as this will have a strong technology element. Find a problem that is a priority and will let you cut through all the decisions you have to make in your cloud adoption journey. Step 2: Start small and target quick wins Start with a small project, work to tightly defined parameters, and measure business value as you build support at all levels of the business. For example, this might be a non-critical application or a legacy system nearing the end of its support contract. Use cloud’s agility to your advantage. The ability to launch new systems quickly shortens the typical procurement cycle to days. This means you can identify a project that will deliver quick wins, act as a proof of concept, and build momentum from there. Step 3: Apply lessons and expand Use the proof of concept to identify what has been learned, build a business case, and bring stakeholders on the journey as they become familiar with the cloud. Starting small also allows the enterprise to develop the people and process aspects necessary to succeed in cloud adoption. The technology alone is not enough; there needs to be a change in culture and skills in addition to transforming processes in the business to embrace agile ways of working. Step 4: Build capability in the business in parallel to IT As the cloud project develops, ensure that those in charge have identified the necessary skills in the team, whether they exist in the business today, and whether you need to supplement the team with external expertise. That can be achieved by recruiting or working with a partner that can supplement your resources. Bear in mind that the skills for successful cloud projects go beyond technology alone. Your cloud team should also cover governance and operating models so that you implement suitable structures that can evolve as your cloud adoption matures. What’s next? When the cloud underpins digital transformation, scaling becomes easier because the organisation no longer relies on the capacity of technology it acquired at a moment in time. It can be more agile by quickly identifying and responding to customer needs. Growth is returning, and tomorrow’s world is one of expanded skillsets, a workforce that’s no longer tied to one place, and a wide range of opportunity. No matter what change awaits, the digitally transformed business can be ready. Cormac Hughes is Head of Consulting at Deloitte Ireland. Prepare now for the next disruption Despite the COVID-19 pandemic, digital spending is still on the rise. Deloitte’s 2021 Digital Transformation Executive Survey reinforces this expectation of growth, with 69% of surveyed leaders globally planning to increase their financial commitments to digital transformation in response to the pandemic. This vigorous growth in digital transformation investment makes it even more critical for   enterprises to make digital transformation a foundation of their strategy. Organisations should assume that their competitors are just as committed to developing their digital capabilities right now. The winners will be those that successfully move digital from a tactical response to a key pillar of strategy. To do this, CEOs must make explicit choices about their strategy across several areas, including talent, finance, operations and the customer. Doing so will help improve efficiency, power new products and services, enable new business models, and ensure that the customer experience is easy, convenient, and secure. Ultimately, it is about being as ready as possible for what may be next as further disruptions will come.

Plethora of standards and frameworks results in “wild variation” in consistency and reliability of information  Global standards for sustainability reporting critical for sustainable corporate governance and to avoid “greenwashing”  Institute hosts all-island conference with An Taoiseach and Minister Diane Dodds on how boards can embed sustainability within their organisations 22 April 2021 - Chartered Accountants Ireland has reacted to European Commission proposals to amend the current EU Non-Financial Reporting Requirements Directive (NFRD). The proposals form part of a package of measures announced by the Commission to improve the flow of money towards sustainable activities, with a view to making Europe climate neutral by 2050. They are an important step in the EU’s objectives for sustainable corporate governance. Certain companies are required under current EU Non-Financial Reporting Requirements Directive to report how sustainability issues influence the performance, position and development of the company and certain information about the company’s impact on society and the environment.  Commenting, Níall Fitzgerald, Head of Ethics & Governance in Chartered Accountants Ireland, said “Existing EU guidelines have not led to a fundamental improvement in the quality of disclosures by companies. The desire to act is there among company directors and stakeholders, who are committing investment and resources to embed sustainable practices across their organisations.  “Right now, there is a plethora of standards and frameworks that companies can apply for sustainable reporting. The lack of unified global standards means that the availability, consistency, and reliability of information varies wildly across jurisdictions, some more onerous than others. This leaves organisations open to the charge of ‘greenwashing’.  In 2020, Chartered Accountants Ireland, in response to public consultations on the European Commission’s review of NFRD, and on sustainability reporting from the International Financial Reporting Standards Foundation, noted that a common standard would resolve many of the problems with the comparability, reliability and relevance of information being reported by companies. Fitzgerald continued  “It is encouraging to see steps being taken towards more comparable and consistent global sustainability reporting standards. The Commission have stated that the development of EU sustainability reporting standards will also contribute to the global standards development process. However, we need clarity as to who the Commission will engage to develop these standards, as they have to date only suggested this may be the European Financial Reporting Advisory Group (EFRAG). “We also welcome the proposal to digitally ‘tag’ reported sustainability information. This will ensure information is more readily identifiable, providing greater transparency and confidence. A social contract exists between business and the public, and with more companies making public sustainability pledges, these standards will ensure they are held to account for commitments and that empty promises are exposed.”   ENDS  Notes to Editor     About Chartered Accountants Ireland     Chartered Accountants Ireland is Ireland’s leading professional accountancy body, representing 29,500 influential members around the world and educating 7,000 students. The Institute aims to create opportunities for members and students, and ethical, sustainable prosperity for society. An all-island body, Chartered Accountants Ireland was established by Royal Charter in 1888 and now has members in more than 90 countries. It is a founding member of Chartered Accountants Worldwide, the international network of over one million chartered accountants. It also plays key roles in the Global Accounting Alliance, Accountancy Europe and the International Federation of Accountants.          

It is clear why sustainability matters. Added to its obvious importance are the climate action plans rolled out by governments, the global sustainability initiatives lead by agencies such as the UN and NGOs like the World Economic Forum. There is also the increased emphasis on sustainability among deciders of capital allocation, including investors, financiers, grant providers and donors, and the rising environmental awareness in society, which expects higher standards of ethics and governance from institutions. If, as a director, you occasionally feel overwhelmed by the volume of information regarding sustainability, then you are not alone. If you wonder how sustainability is relevant to your role and what difference you can make, take assurance from Socrates that “wonder is the beginning of wisdom”. How Sustainability is Relevant to Your Organisation Whatever an organisation does, regardless of its size, sustainability will impact: its legal and regulatory requirements, how it provides a service or produces a product, whether it retains or attracts talent, whether it is attractive to customers, or whether it is perceived as a viable prospect for banks or investors. The fiduciary duties of directors require them to act in the best interests of the organisation and have regard to other stakeholders. Addressing sustainability issues and looking after the organisation’s business are clearly relevant to these duties. Sustainability may be the ultimate disrupter for businesses. Even if an organisation does nothing to address sustainability issues it will still be impacted by them. For example; What is the risk of a change in regulations challenging current business models? What is the risk of more sustainable technological advancements displacing current products, service offerings or production processes? To what extent can carbon tax increases be passed on to the consumer? What impact will phasing out of oil and gas have on residual values of assets or cost of replacement in the future? Standing still is not an option if an organisation wants to manage the impact of sustainability. Directors, acting as the mind and will of an organisation, have a key role to ensure it is appropriately identifying and responding to relevant sustainability risks. How You Can Make a Difference If you are a director or a member of a board sub-committee wanting to raise the issue of sustainability (even if this is not currently seen as a priority), consider the following approach: Get informed: Find out more about the type of sustainability issues that impact your industry. Sustainability will affect regulatory requirements, consumer demand, availability of resources and all the necessary components of the ability to do business. You do not have to become an expert on sustainability, but a little knowledge or awareness can prompt the right questions. Find Allies: Engage with other board members. Discuss how sustainability impacts the business and how the board might address the issues. You may find that you have more support than you expect. Be Honest: It is important to be pragmatic and constructive as to the reasons why the organisation should address sustainability and how it does so. There may be some immediate measures the organisation can take (‘quick wins’), but more substantive measures may be required to be taken to achieve lasting long-term benefits. Collaborate: Lasting change cannot be achieved alone. If your organisation is not clear on what to do or what direction to take in relation to sustainability, consider collaborating with other organisations on similar journeys. Be curious: Ask questions about sustainability, explore alternatives and respectfully challenge traditional assumptions. Invite others to discuss the issues and embed sustainability objectives in the organisation’s strategy. Questions beginning with ‘What if?’, ‘How?’ or ‘Could we?’ will spark curiosity and give rise to more possibilities and sustainable solutions. Sustainability cannot be achieved alone.  Strategy and know-how shared among organisations and individuals will inform, create awareness and provide confidence for the journey ahead. Directors must be confident to ask advice and seek help from others. If we agree that we all have a stake in sustainability, then we all have a stake in finding solutions to the key risks of our time.     Niall Fitzgerald Head of Corporate Governance & Ethics at Chartered Accountants Ireland 

The fifth annual Good Governance Awards concluded on 19 November 2020 with the announcement of the winners of the annual report awards across six categories. These categories are based on turnover including a new category this year for very small non-profits with an annual turnover of less than €50,000. One of the main aims of the Governance Awards is to improve the overall standard of annual reporting in the charity and non-profit sector and to provide specific feedback to all entrants alongside guidance on how to improve their annual reports, including their financial statements and disclosures.   Each of the annual reports goes through a very rigorous assessment but underpinning the many assessments and checklists there are some key elements or features which are essential in the eyes of the assessors and judges. In the spirit of improving standards, we have compiled a summary of the top ten judges’ recommendations arising from their assessment of this year’s shortlisted annual reports. We have also included the top ten comments from our assessors in relation to annual reports that were not shortlisted. Top ten judges’ recommendations Ensure the annual report tells a story, in a way which is easy to follow and easy to navigate. Make the link between the charity’s purpose, objectives, and expenditure apparent throughout the report. Focus on clarity and conciseness. The length of some annual reports raised questions concerning the additional value being added with very detailed accounts of activity. Use metrics and key performance indicators (KPIs) to describe achievements. Provide context by disclosing the targets against which KPIs are measured and, where applicable, disclose the prior year’s KPIs. Including a trend analysis of KPI performance over, say, a three-to-five-year period, was highlighted by the judges as good practice. Report on the organisation’s governance structures and processes and describe how adherence to good governance is embedded throughout the board and the organisation. This should include disclosing board members tenure and the approach to board succession planning. Avoid generic risk reporting and emphasise the key and specific risks the organisation faces, how these are being managed and expand into detail on what the board consider to be the current fundamental areas of risk. Include a clear explanation of what reserves are held by the organisation, including an indication of whether these are high, low or within expectations of the board. Material movements between reserves should be explained. Provide clear explanation for a deficit, if it arises, including whether this position is likely to persist and what actions or measures are being taken to address the underlying cause(s). For charities and other non-profits organisations that work with vulnerable adults and children, ensure that safeguarding (measures to protect the health, well-being and human rights of individuals, which allow people to live free from abuse, harm and neglect) is addressed in the annual report.There were some excellent disclosures on safeguarding included in some of the shortlisted organisations this year. Disclose how the charity or non-profit organisation is addressing matters relating to sustainability, cyber security, data protection, diversity and inclusion. These matters are of increasing interest to the readers of these reports. Top ten assessor comments on annual reports that were not shortlisted Ensure that there is a link between the non-financial narrative and the financial statements in the annual report. They should not read as two standalone documents. Review the report for consistency. There were notable instances where the financial statements reported a deficit but there is either no mention of this in the narrative of the annual report or a deficit of a different magnitude is referred to in the narrative. Some reports included a very upbeat and positive narrative describing the organisation’s many achievements, with little or no mention of the challenges, but the financial statements presented a different story. Ensure basic governance disclosures are included, such as providing an explanation of the operation of committees and the recruitment, induction and qualifications of board members and their tenure on the board. In addition to describing the organisation’s activities, describe the key risks and challenges faced by the organisation during the financial period. Disclose the organisation’s mission, vision and values and link these with disclosure of the organisations objectives for the financial period, key performance indicators, etc. Ensure the annual report includes transparency in relation to the various sources of funding accessed by the organisation during the financial period. Ensure the income and expenditure account, or statement of financial activities (for those apply the Charities SORP (FRS 102)) is presented showing restricted and unrestricted funds separately. Review, before submission, the financial statement disclosures to ensure they are complete (required disclosures are included), consistent with the information presented in the financial statements and elsewhere in the annual report and provide any additional information necessary to assist the readers understanding of the organisations successes and challenges faced during the financial period. Prepare an annual report that includes both the non-financial narrative and the financial statements to facilitate readers getting a better understanding of the financial position and key drivers for financial performance. Opt-out of the right to prepare financial statements in accordance with Section 1A of FRS 102 or to file abridged or abbreviated financial statements. This is sub-standard to good governance practice for charities and non-profit organisations reliant on government grants, fundraising from the public or other sources of charitable or voluntary donations (e.g. philanthropy or people volunteering their time to help others). We hope that the above observations and feedback comments will help in improving the standard of annual reports, including financial statements next year. Diarmaid Ó Corrbuí, CEO Carmichael. Email diarmaid@carmichaelireland.ie    

Eric O’Rourke explains why organisations should not fear the process of corporate cultural change, and how internal audit can play a pivotal role. “If you can’t measure it, you can’t manage it”. When it comes to changing a company’s culture, this quote from Peter Drucker is something I, as an Internal Auditor, have heard often over the years. However, culture can be viewed as amorphous and, therefore, difficult to define and alter. For an organisation’s governance structure (i.e. the board and senior executives), the inability to measure an existing corporate culture can create an apprehension and some degree of fear around how to best progress to a desired culture. Culture matters for any organisation but from a financial services perspective, a positive culture drives conduct by promoting the benefits listed later in this article and protecting against conduct risk. A positive culture provides a guiding light for an organisation, particularly when it faces challenges and difficult choices. Culture guides what you should do, not what you can do. It helps organisations do the right thing and, in the context of financial services, this involves restoring trust and protecting the industry’s social license. In May 2020, the representative body for the funds industry in Ireland, Irish Funds, published the ‘Irish Funds Culture Guidance Paper’ for its members. The paper aims to provide member firms with guidance on key themes and good practices to measure, monitor and embed culture. It considers the critical factors to take into account when implementing cultural change. They include defining culture (present and desired) in addition to metrics that can be used to measure/monitor culture and related changes.   Existing culture vs desired culture For all organisations, the first step is to evaluate the existing culture while identifying the board’s desired culture, as its members effectively lead the organisation’s strategy. Based on this evaluation, the board can then decide whether a culture change programme is required. Employees at all levels should be engaged to ensure that the echo from the bottom matches the tone from the top. The tone from the top is critical to ensure that culture and values are articulated and hence, can be measured. A ‘cultural roadmap’ should then be created. This task should be championed by the organisation’s appointed culture champion or chief cultural officer from the senior leadership level. The advice of Internal Audit (IA) should also be sought at the outset, as the role of IA extends across organisational structures and can provide unique insight.   The art of measurement To measure culture, multiple cultural touchpoints should be amalgamated to give a full picture to key committees and the board. A ‘corporate culture report card’ should also be compiled every quarter and presented to the board by the cultural champion, as culture change is a long process. The report card should be reviewed thoroughly, and corrective action taken if required. Below are some of the metrics that were published in the Irish Funds Culture Guidance Paper. Evidence from the suggested mechanisms should form the basis of the corporate culture report card (see Table 1). Furthermore, IA should audit these metrics as part of any thematic culture audit, or question auditee culture as part of any audit undertaken.   Benefits of a considered and defined culture Many benefits accrue to organisations that embrace a healthy culture, including:   Sustainable growth and improved profitability; A more engaged and motivated workforce; The ability to attract and retain top talent; Better and more transparent decision-making; Responsiveness to change and risk; Improved customer satisfaction; and A corporate image and identity that others aspire to. So the critical question is: what culture is desired? Determining the desired culture and measuring the existing culture are the first steps. In closing, I note the words of Dale Carnegie: “Inaction breeds doubt and fear. Action breeds confidence and courage”. The time is ripe to review and possibly enhance your organisation’s corporate culture. Do not fear change; instead, focus on what can be achieved. Eric O’Rourke ACA is Head of Internal Audit at Sumitomo Mitsui Trust Group Global Asset Services and a member of the Irish Funds Internal Audit Discussion Forum.