Accounting and Business Performance Measurement

Accounting and Business Performance Measurement

In the business world, ‘keeping track of where you are’ involved, among other things, the development of bookkeeping and accounting disciplines. First, accounting standards were developed to ensure businesses, investors and governments could understand what was happening in increasingly complex situations (e.g. foreign exchange, banking, insurance, etc.). Then, stock exchange rules required public companies to publish accounts audited by professional accounting firms. Audited accounts are intended to provide ‘reasonable assurance’ that the statements give a fair and true picture of a company's health at a given point in time for the benefit of current and potential future shareholders.

More recently, there have been growing requirements for greater transparency in corporate reporting, including disclosure requirements about the principal risks facing an organisation and the viability of the organisation as a going concern;[5] beyond this, disclosures regarding environmental, social and governance (ESG) matters are increasingly expected.[6]

In parallel with financial accounting and corporate governance developments, we have seen an evolution in management accounting.[7] This involves, among other things, analysing the viability of investment proposals and ensuring there is appropriate cash and credit available to fund business activities.[8]

But many board members and senior executives expect a more holistic picture of performance beyond the financial and management accounts. So, in the 1990s, ‘balanced scorecards’ were developed, combining financial and non‐financial information.[9] Nowadays, managers often run their organisations using key performance indicators (KPIs), to show whether things are on track (e.g. with customer satisfaction), and key risk indicators (KRIs), to flag any impending problems (e.g. the level of outstanding debts).[10]

Executives and managers recognise they need to see clearly where they are and where they are going and to understand any difficulties ahead. However, it's still easy to lose track of things. Sébastien Allaire, founding partner of Finaction & Associés, explains:

‘I've seen many occasions when a lack of reliable data and information has caused issues to fester until they have blown up. In response, I have seen organisations embracing “digitalisation” and dashboards that are good in many ways. Here, you can “drill down” to interrogate information in detail. However, not all data in systems are high quality, so interrogation of what the data says can result in asking for data to be “cleaned” so it has the correct coding, for example.

Even when the data is clean, it's easy to see managers becoming overwhelmed by the amount of data at their fingertips. Sometimes I liken it to a blizzard, and when you are in a blizzard, you can't see so clearly. In my opinion, it's easy to suffer from “too much of a good thing”.’[11]

The excerpt ends before the promised list of challenges in choosing how much information to give decision-makers.