SHELLY-ANN MOHAMMED, head of ACCA Caribbean
The years 2020 and 2021 will be defined as one of the riskiest of times in human history due to the global pandemic, climate change and natural disasters such as the volcano eruption in St Vincent earlier this year.
These risks affect society and economies. Planning for such risks is now an imperative, including the unforeseeable "black swan" events, or the "grey rhino" events which are defined as "a highly probable, high-impact yet neglected threat" by Michele Wucker, author of The Gray Rhino: How to Recognize and Act on the Obvious Dangers We Ignore.
Wucker says the black swan metaphor has done a good job at getting everyone to understand that they cannot predict everything, but that it is often misused because it refers to risks that no one can see coming and, therefore, provides policymakers and business leaders with an excuse for failing to act on climate risk and economic insecurity.
In our recent report Rethinking risk for the future, our global membership told us their experiences of risk management. Through our members’ voices, we have secured a fresh understanding of how risk management is evolving with the practice and principles of accountancy and what ways an accountancy background can shift the mindsets and behaviours needed to address the existential risks our organisations are facing today.
In business and the public sector, this important work can sit within the responsibility of chief financial officers (CFOs), chief executive officers (CEOs), non-executive directors (NEDS) and board chairs, or chief risk officers (CROs) and heads of risk or enterprise risk management (ERM).
But what is also clear from this report and our members’ views is that risk is everyone’s responsibility, with the tone set in the boardroom and from the top.
Effective risk management is about creating a risk-conscious culture, and as such accountancy professionals need to reflect on the different roles they can play in fostering that and supporting their organisations in preparing for uncertainty and in achieving their objectives.
We see the accountancy profession as the guardians of information, the experts who can help organisations not only detect and better understand the emerging risks and opportunities facing them, but also cultivate the mindsets needed to think more long-term.
Accountants have a vital role in building operational resilience through enterprise risk management (ERM), financial reporting and predictive data analysis. Because risk management has been forced to centre stage like never before, the profession now has an unmissable opportunity to reassess how they can add more value in a post-covid19 world where a myriad of pressing environmental, social and economic risks are prevalent.
Because of covid19, we’ve all learned new and vitally important lessons about effective risk management, so that disruption preparedness is now top of organisations' priorities. The challenge is about how this readiness is sustained. Professional accountants are central to all this – that’s why now is the time for the profession to show in real ways how it helps organisations change behaviour, rethink risk, and how accountants can help set the tone from the very top. As such, risk can no longer be managed in isolation.
Accountancy has become a multi-disciplinary profession that can add more value in risk management by incorporating deeper scenario analysis and ‘what ifs?’ to help identify emerging and external risks before they materialise.
Given the information that they gather, accountants can be organisations’ natural storytellers, the ones who understand where the company is and how it can adapt, diversify and progress.
Part of this work is understanding an organisation’s risk appetite, and articulating this in a clear risk appetite statement, agreed by the board and senior management. Such activity has proved to be useful for many organisations during the pandemic because it enables decision makers to accept the risks that align with their organisation’s purpose and strategy and with the available resources required to manage them. The organisation is also more likely to meet its strategic goals when its appetite for risk is linked to operational, compliance and reporting objectives.
Essentially, risk management is about building resilience for the short, medium and long term. It is about adapting and preparing – and as the world slowly and cautiously looks to a new normal due the pandemic, this resilience is needed now more than ever.
And as the guardians of information, accountants are an essential part of this resilience building, to identify risks and mitigate against them,
Rethinking risk for the future can be downloaded here: https://www.accaglobal.com/gb/en/professional-insights/risk/rethinking-risk.html