In the Name of ALLAH,

the Most Magnificent, the Most Merciful.

(1) Alif. Lam. Mim .

(2) This Book has no doubt in it - a
guidance for the God-fearing,
(3) Who believe in the Unseen, and are
steadfast in Salah (prayer), and
spend out of what We have provided
them;
(4) And who believe in what has been
revealed to you and what has been
revealed before you; and they have
faith in the Hereafter.

— Translation : Mufti Taqi Usmani

Surah: 01 - Surah Al-Baqara, verses 1 to 4 http://www.quranexplorer.com

Vision
To be the Preference in Value Optimization
for Business

Mission
To develop Business Leaders through imparting
quality education and training in financial and
non-financial areas to bring value-addition
in the economy.

Core Values
Competence Innovation

Ethics Transparency

Professionalism

Journal is also available on ICMA Pakistan’s Website : www.icmap.com.pk

 National Council 2012-14
President and Chief Executive Members Members - Government Nominees
Mr. Zia ul Mustafa, FCMA Mr. Mohammad Ashraf Bawany, FCMA Mr. Tassaduq Hussain
Chairmen: Executive, Education and Disciplinary Committees Chairman: Quality Assurance and Ethics Committee Deputy Secretary (CF-II)
CFO & Business Administrator Chief Executive & Managing Director Finance Division,
Expo Lahore (Pvt) Ltd. Linde Pakistan Ltd. Government of Pakistan
Vice President
Mr. Ghulam Mustafa, FCMA Mr. Sajjad Ahmad, FCMA Mr. Tahir Mahmood, FCMA
Chairmen: Examinations and Technical Support & Practicing Chairmen: Audit and Members’ Social Welfare Committees Acting Chairman
Development Committees General Manager (Cost Accounts) Securities and Exchange Commission
Partner, Tariq Nasir Rashid Shah Pakistan Telecommunication Company Ltd. of Pakistan (SECP)
(TQMS Consulting)
Honorary Secretary Mr. Jawed Mansha, FCMA Mr. Muhammad Abdul Basir
Mr. Abdul Wasey Khan, FCMA Chairman: Corporate Relations & Communications Committee Chairman: Public Sector Coordination Committee
Chairman: Students Affairs Committee Chief Internal Auditor Deputy Auditor General (APR&SD)
Acting Senior Manager - Internal Audit Pakistan International Airlines Corporation C/o Auditor General of Pakistan
Pakistan Telecommunication Company Ltd.
Honorary Treasurer Mr. Muhammad Haroon Rasheed
Mr. Abdul Khalil, FCMA
Mr. Shahzad Ahmad Awan, FCMA Chairman: Continuing Professional Development (CPD) Acting Managing Director, BSC
Chairman: Research and Publications Committee and Seminars/Conferences Committee State Bank of Pakistan
Chief Officer (Billing & Recovery) General Manager Finance
Sui Northern Gas Pipelines Limited (SNGPL) Askari Aviation Pvt. Ltd. / Army Welfare Trust (AWT)

Research & Publications Committee

Chairman/Chief Editor
Mr. Shahzad Ahmad Awan, FCMA

Members
Mr. Nazir Ahmed Shaheen, FCMA
Mr. Anwar ul Haq, FCMA
Mr. Mohammad Iqbal Ghori, FCMA
Mr. Naeem Haider, FCMA
Mr. Muhammad Imran Afzal, FCMA
Mr. Muhammad Yasin, FCMA
Mr. Saqib Masood, ACMA
Mr. Kamran Mahmood Butt, ACMA
Mr. Faisal Mobin, ACMA

Email: rp@icmap.com.pk
URL: www.icmap.com.pk
 Volume : 23.4 l July-August, 2014

MANAGEMENT
ACCOUNTANT
Official Journal of Institute of Cost and Management Accountants of Pakistan

The only Professional Journal in Pakistan with a circulation of over 10,500 copies per issue

WHAT’S INSIDE THIS Interview Section

issue
6 Meritorious Article 38

An Exclusive Interview with

Dr. Sarfraz Bashir
President
15 The Sialkot Chamber of
Commerce and Industry

Six Levels of Financial Knowledge

From the Desk of President and Chief Executive 4
From the Desk of Chief Editor 5
22 Focus Section
— Professional Networking through Social Media - A Useful Tool for
Professional Accountants in Business - A Paper produced by Research and
Publications Department, ICMA Pakistan 9
– The Professional Networking: Business Linkages, Social Media
Networking and New Protagonist of Public Relations
by Salman Masood Sheikh, FCMA 15
— Professional Networking by Wasful Hassan Siddiqi, FCMA 22
24 – Costs and Benefits of using Social Media in Workplace 24
by Sameem Ahmad, FCMA
– Have Some Netiquette…!! by Nafees Rehman, ACMA 27
– Risk of Social Media by Muhammad Salman Danish, ACMA 29
– Is Social Media Marketing the Key to Practice Profitability?
By Stuart Black, Member, IFAC SMP Committee, and
Paul Thompson Director, SMP & SME Affairs, IFAC 31
– Social Networking and its Effects on Companies and their Employees
27 –
By Douglas Baker, Nicole Buoni, Michael Fee, and Caroline Vitale
Social Media for Professional Networking By Philip Lop
32
37

Articles Section
– CFO: From Analyst to Catalyst by Thomas G. Canace and Paul Juras, CMA 43
– Using Financial Models as a Value-Added Management Tool
by Kreag Danvers, CMA, CFM, CPA, and Thomas Oliver 48
29 — State's Role in Business by Dr. Ishrat Husain 52

Updates
– Economic Horizon - SBP’s Monetary Policy 54
– IFAC & IPSASB News 56
Disclaimer: Views expressed herein are author’s own thoughts/viewpoint and do not represent
ICMA Pakistan policy unless so stated. Publication of paid advertising
32 and new product/service information does not constitute an endorsement by the ICMA Pakistan.
Our Next Issue
Cartelization and Market Malpractices
Research & Publications Committee would welcome articles on the
above-mentioned topic before October 10, 2014 for Journal’s forthcoming issue.
Message

From the Desk of

President & Chief Executive

I am delighted to present the July-August 2014 Issue of the 'Management Accountant', for which a very important
and interesting theme has been chosen which is 'Professional Networking'.

A 'social network' is defined as a 'network of social interactions and personal relationships', whereas 'social
networking' refers to the use of dedicated websites and applications to interact with other users or to find people
with identical interests or professional groups. On the other hand, a 'social media' is defined as those online
communication channels which offer community-based interaction, exchange of information and content-sharing
in the form of texts, audio, video, images, podcasts etc. Social media is a way to transmit or share information with a
broad audience.

In the present day world, not only individuals and professionals but also businesses are using different social media
channels to market themselves and their products. Undoubtedly, social media has become one of the most modern
tools and medium for branding of products and engaging with customers and attracting new customers to business.
This is commonly referred to as 'social media marketing' which is aimed at increasing brand exposure and broadening
customer reach. In advanced countries, many larger business entities also hire services of 'social media analytics'
who analyse the data gathered from blogs and social media sites to know about customers' sentiments and trends
which helps them in adjusting their marketing and customer-service activities.

However, it is to be understood here that 'social media' and 'social network' also differs in the sense that social media
is a communication channel and a medium of delivering a message to the target audience. Social networking, on the
other side is a two-way direct communication where like-minded people and professionals engage themselves to
discuss and share views and experiences.

I would advise the cost and management accountants to take full advantage of modern technology and social media
advancement by expanding their professional networking base which would eventually help market themselves as
'strategic leaders' of industry and also as business consultants.

Zia-ul-Mustafa, FCMA

4 | Management Accountant, July-August, 2014

 Message

From the Desk of

Chief Editor

T he basic objective of bringing out this issue of 'Management Accountant' on the theme of 'Professional
Networking' is to highlight the growing importance of networking, especially social media marketing for the
professionals and to encourage our members to make best use of it for their career growth and advancement and
promotion of practice. I hope that members would find this issue quite informative and interesting.

This Issue begins with an exclusive interview of Dr. Sarfraz Bashir, President, the Sialkot Chamber of Commerce
and Industry who has candidly shared his views on critical issues hindering trade and economic growth. He says that
"the present uncertain political conditions are hurting businesses and our country very badly". He has acknowledged
the role of Management Accountants by stating that the industry is already benefitting from their skills and
expertise, especially in implementing techniques to cut production costs.

In the Focus section a comprehensive research paper has been contributed by the Research & Publications
Department on the topic of "Professional Networking through Social Media – A useful tool for Professional
Accountants in Business". This paper particularly looks into the growing use of different social media networks by
the accountants around the world supported by several surveys carried out in this regard. All the surveys concludes
that the accounting profession is strongly embracing social media. I hope readers will benefit and learn from this
paper. In addition, the focus section includes write-ups by five members of the Institute viz. Mr. Wasful Hasan Siddiqi,
FCMA, Mr. Salman Masood Sheikh, FCMA, Mr. Sameem Ahmed, FCMA, Mr. Nafees Rehman, ACMA and Mr. Salman
Danish, ACMA. All of them have highlighted the importance of professional networking and social media interaction
in the present day scenario. In addition to two other write-ups by foreign writers, a brief article by IFAC's SMP
Committee has also been included.

In the Meritorious Article Section, a paper titled “Six Levels of Financial Knowledge" written by George E.
Manners, Jr. has been selected which provides a framework that the management accountants can use to help their
organizations reach new heights of financial understanding and become more profitable.

The "Articles Section” includes informative write-ups on CFO's role as strategic decision maker and importance of
building financial models. The Update section covers a summary of monetary policy decision announced by the
State Bank of Pakistan in July 2014.
Please enjoy reading and do share with us your comments on how to make the Journal more informative.

Shahzad Ahmad Awan, FCMA

Management Accountant, July-August, 2014 | 5

Interview Section
An Exclusive Interview with
Dr. Sarfraz Bashir
President
The Sialkot Chamber of
Commerce and Industry
At the outset, would you like to
share with us brief details about
your education, early life,
business ventures and past and
current positions held by you?
I had the opportunity to pursue higher education in
Medicine and qualified MBBS, MCPS and FCPS
examinations all in the first attempt. I got distinction in
matriculation by securing 9th position in Lahore Board and
was awarded National Talent Scholarship. I was serving as a
Surgeon at Services Hospital Lahore when there was sad
demise of my father in Dec. 1999. He was a prominent
businessman of Sialkot by dint of sheer hard work in
Surgical Instruments industry. After demise of father, I
joined my family business and I have been working for the
betterment of the commerce and industry since then. I
have the honour and opportunity to serve twice as Senior
Vice President earlier and now serving as President of this
Chamber.
Sialkot is one of the biggest industrial cities
of Pakistan and world famous for its surgical
instruments and sports goods. Can you
provide a brief sketch of the other products
manufactured and exported from Sialkot to
the world and how much foreign exchange
this city earns for the country?
Sialkot is an important economic centre and the only
export-oriented city in Pakistan. Development of local
cottage industries in Sialkot has assumed a model status
for the developing world. Thousands of small and medium
enterprises, situated in and around the city, are engaged in
honouring their global commitments for export of value-
added goods. Through export of these items, the city is
earning over US Dollars 1.6 Billion annually.
Sialkot made footballs, field hockey sticks, cricket gear, and
boxing gloves are used in international games including the
Olympics and World Cup. International Sports Goods
brands like Adidas, Grays, Nike, Mikasa, Puma, etc. are
working with different firms in Sialkot. The best cricket and
hockey players of the world prefer to use "Made in Sialkot"
cricket bats and hockey sticks.
Sportswear industry, owing to a skilled workforce, and
entrepreneurial skills of businessmen is also well
6 | Management Accountant, July-August, 2014
established in the international market. Articles of
sportswear include track suits, football, boxing, cycling,
motto sports uniforms, shorts, T-shirts, wind breakers,
judo karate kits, casual wear, stockings.
The Surgical Instruments, Beauty Items, Eye Instruments,
and other Medical Instruments are supplied to practically all
parts of the world. Top hospitals in USA, Canada and Europe
use Sialkot made Instruments in Surgery and other
procedures. Top quality leather goods are also exported
from Sialkot to the international market. Similarly, other
items including Military and Uniform Badges, Cutlery and
Utensils produced in Sialkot are exported worldwide.
It is a great pride and honour for our country
that in the recent FIFA World Cup 2014, the
footballs were imported from M/s. Forward
Sports (Pvt) Ltd., Sialkot. What are your
feelings as the President of Sialkot Chamber
of Commerce on this great achievement?
Amongst the greatest recent achievements of Sialkot
Football Industry stands the manufacturing of "Brazuca"
Football, which has been declared as official match ball of
the FIFA World Cup this year. This is surely a matter of great
honour and pride for our country as this has resulted in
projecting softer image of Pakistan at international level
and would contribute to enhancement of exports from
Pakistan. We invited Brazilian Ambassador to SCCI in a
special ceremony to celebrate this event and urged all
foreign service officers of Pakistan to celebrate and
highlight this achievement to promote positive image of
Pakistan.
The Punjab Government in collaboration
with SMEDA and the Sialkot Chamber of
Commerce has initiated three projects i.e. a
Business and Commerce Centre (BCC),
Sialkot Tannery Zone (STZ) and Sports
Industry Development Centre in Sialkot.
 Interview Section

Would you like to share some details about

these projects and how these would
promote economic development in the
Sialkot?
The Sialkot Business and Commerce Centre is an eight
storey building project having total covered area of 101,823
sq. ft. The project has been endeavored in Public-Private
Partnership between Sialkot Chamber and Federal
Government through SMEDA. SBCC will promote
industrial development through provision of facilities
including Business Facilitation Centre, Convention Centre,
Temporary Office Space Facilities, Meeting Rooms,
Marketing and Library Services. The completion of Sialkot
Business and Commerce Centre will open up a new era of
business promotion and development in Sialkot.
Development of SBCC would provide an excellent
opportunity for marketing of the products being produced
in Sialkot and facilitate trade and commerce by providing
one stop solution to the foreign visitors while they get
exposure of the market dynamics and products under one
roof.
Sports Industries Development Centre (SIDC), Sialkot is a
joint initiative of Ministry of Industries & Production,
SMEDA and Sialkot Chamber of Commerce & Industry to
help sports goods sector to adopt new technology of
mechanized thermo laminated balls by providing training,
common facilities and technical advisory services along
with mold machinery services. The project has been
visualized to facilitate in sustaining Pakistan's position in impact on the economic progress of the
international market of inflatable balls in general and soccer
balls in particular through development of prototype balls
country?
for the industry, training of skilled workers in mold / rubber Government must take all necessary measures to provide
technologies / mechanized thermo laminated balls, competitive edge to the local businesses to help them
provision of manufacturing facilities for SMEs, achieve product specialization and export competitiveness.
development of quality vulcanization and pasting molds, Implementation of rational fiscal policies and provision of
development of imported machinery locally through energy inputs at competitive rates could provide impetus
reverse engineering and provision of assistance in setting for strengthening of manufacturing and export sector of
up mechanized ball production lines in individual industrial the country. The state must play its role to maintain law
units. The project is being implemented on Transfer of and order to promote industrialization and attract foreign
Technology (ToT) basis. direct investment, which would ultimately help overcome
Sialkot Tannery Zone project would help in shifting of social problems through alleviation of poverty and
tanneries located in and around the city to a centralized reduction of unemployment.
location to provide various facilities like Common Effluent I blame lack of education as primary cause of the present
Treatment Plant, Solid Waste Disposal Site and Common situation. The democracy in our country is still in its
Effluent Collection System. This would help in effective inception and due time may be needed to achieve maturity.
control of environmental hazards caused by the tanning At the same time, it is a self-correcting system and make
industry in the region. It is an immensely important project necessary adjustments itself, if allowed to continue. The
ensuring compliance towards corporate social present uncertain political conditions are hurting
responsibility and would be instrumental in sustainable businesses and our country very badly.
growth of the sector while addressing the environmental
concerns to minimize pollution. Are you satisfied with the measures taken
by the government to resolve energy crisis,
What is the consensus view point of the
especially in textile industry. Has the Sialkot
business community about the recent
Chamber presented any strategy to the
political turmoil in the country? Don't you
government in this regard?
think that the ongoing political agitations,
The exporters of Sialkot have, in the past, achieved the
protests and unrest would have a negative distinction for Sialkot as an export city. With necessary

Management Accountant, July-August, 2014 | 7

Interview Section
backing of the government in the shape of assistance in
marketing of the products, friendly policies, uninterrupted
provision of utilities at cheaper rates, lower interest rates,
efficient handling of goods at ports, cheap inland
transportation and international freight, the export sector
of Sialkot has the potential of multiplying its export volume.
In short, the government must create an enabling
environment for business to flourish and grow.
We are not satisfied by the prevailing energy situation. It is
forcing us to use generators to fulfil our commitments with
the international buyers, which is expensive and increases
cost of production. We have constituted Committee on
Power Generation to consider options to overcome this
energy issue. However, generation of electricity in private
sector is a costly option and cannot suit us in the present
economic conditions.
Do you think that the present government's
efforts to improve economic growth;
achieve industrial development and resolve
energy crisis are yielding positive results? If
not, where is the government lacking i.e. in
policy direction; in commitment or in any
other aspect?
The Government is surely moving in the right direction to
promote economic growth, achieve industrial development
and resolve energy crisis. However, these efforts would
bear fruit in few years' time as most of the projects are
based on medium to long term planning. We have observed
improvement in provision of electricity as Government has
been able to curtail circular debt of IPPs and hopefully with
installation and commissioning of new power projects, the
problem of shortage of energy would be done away with on
permanent basis and sufficient energy would be available to
turn economic wheel of the country.
The Chinese government has made an
announcement for investment of around 32
billion dollars which the Punjab government
intends to spend mostly in energy and
textile sectors. Do you have any concrete
suggestions to the government on how to
better utilize this huge foreign investment?
China is our closest ally and a friend that has always helped
us in difficult times. Announcement of economic package
of US $ 32 billion by the Chinese Government is surely a
gesture of goodwill for the people of Pakistan and a great
achievement of the political leadership. This is a sign that
our friends have strong faith in the economic policies of the
Government and they want us to prosper by extending
necessary financial assistance in the form of investment
package. We feel that Government's decision to divert this
investment towards improvement of energy and textile
sector is a wise decision as both these sectors would
ensure economic stability of Pakistan by strengthening
8 | Management Accountant, July-August, 2014
manufacturing and export sectors of Pakistan. We shall
seize this opportunity to develop our country.
Sialkot should be declared by the
government as a "Cottage City' and a
special package of incentives be announced
for upgradation and modernization of SMEs
in Sialkot. Do you agree with this
statement?
Sialkot is undoubtedly a city of cottage industry and grant
of special status of "Cottage City" to Sialkot and proposal
of special package of incentives for upgradation and
modernization of SMEs of Sialkot is fully supported by this
Chamber. We have always championed the cause of
providing necessary facilitation to SMEs of Sialkot and
most of the projects initiated by this Chamber in
collaboration with the Government are focused on
strengthening of cottage industry of Sialkot.
The Management Accountants can offer
special professional expertise to the
industry in remaining cost competitive in
international market by advising them
techniques to cut production costs and
minimize wastages in production. What
role your Chamber can play to highlight their
role in the trade and industry sectors?
Academia-Industry linkages are important for combining
and developing research potential of the two sectors and
promoting activities for new industrial creation and
innovation. Management Accountants can surely help in
implementing techniques to cut production costs and as a
matter of fact, the industry is already benefitting from their
skills and expertise. We welcome any suggestions to
further strengthen this liaison.
What message you would like to give to the
members and students of ICMA Pakistan?
I would say that dedication, hard work and commitment
are a key to success in every walk of life. We should realize
our responsibilities as citizen of Pakistan and contribute
towards its progress and prosperity in whatever capacity
we are serving in. This is our beloved country and we should
seize upon every opportunity to put it on the path of
prosperity. Our efforts should be focused on pursuing
national interest rather than personal gain. Job of every
citizen has its own significance and everyone should
perform his duty efficiently and diligently to contribute
towards development of this country. May Allah guide us to
the right path and endow upon us blessings of this world
and the world hereafter.
The interview ended with a vote of thanks to Dr. Sarfraz
Bashir, President, The Sialkot Chamber of Commerce and
Industry, who spared his valuable time and gave his candid
views exclusively for this journal. – Editor

Professional Networking through Social Media
A Useful Tool for Professional Accountants in Business
A Research Paper produced by the 'Research & Publications Department' ICMA Pakistan
Preamble
Social media has today transformed from just a platform for
sharing family photos and personal updates to a modern
medium for professional learning and experience sharing. It
has become an intrinsic part of our everyday life and one of
the most modern marketing strategies and tools, used not
only by the business entities but also by professionals
working in diverse fields of activities. Social media
marketing has achieved phenomenal growth over the last
decade and has surpassed all other traditional and tested
marketing tools and strategies in view of its cost
effectiveness and extensive outreach. The growing
popularity of social media networking and marketing has
changed the way the companies do business and how they
interact and communicate with their target audiences.
In this research paper, we will be looking into the growing use
of social networking by the professional accountants and
how this is important for them in promoting their business
and practice. The paper is broadly classified under the
following heads:
o Facts and Statistics on Global Social Networking
o Snapshots of Social Media Use by Pakistanis
o Global Surveys reveal that accountancy profession in
strongly embracing social media
o IFAC encourages professional accountants in practice
and SMPs to use social media
o AICPA creates social networking site and develops user
guides for professional use
o Social media networking strategy for professional
accountants
– Building 'Professional Profile' on LinkedIn
– Using “Twitter' for promoting expertise and
Services
– Marketing through 'Business page' on Facebook
Facts and Statistics on Global Social
Networking
Statista Inc. is a leading statistics company on the internet
which maintain the world's largest statistical portal viz.
'Statista' (www.statista.com). This portal integrates global
Focus Section
data on over 60,000 topics from over 18,000 sources onto
a single professional platform. It provides companies,
business customers, research institutions and academia
with direct access to quantitative data on media, business,
finance, politics and wide range of other topics.
We are highlighting below some important facts and
statistics with respect to use of social media and social
networking gathered and analyzed by the Statista.com
portal:
o As of 2014, approximately 1.8 billion internet users
have accessed social networks, out of which 170
million were located in the USA. This figures continues
to grow
o 'Facebook' is the most popular social network in the
world in terms of its scope and reach. Facebook has
surpassed the 'one billion user mark' at the beginning of
2012. It has become an integral part of online
marketing and social advertising.
o Recently, social networking has shown a clear shift
towards mobile platforms such as 'smart phones and
tablet apps', This has increase the use of mobile social
networks and also use of 'Twitter' and blogging.
o The total number of social network users worldwide
has increased from just 0.97 billion in 2010 to 1.82
billion in 2014. It is projected to grow further to 2.33
billion by 2017. (see Table-1).
o China leads the other countries in terms of use of social
media networks with around 366 million Chinese social
Table 1: Number of Social Network Users
Worldwide (2010 to 2017 in Billions)
Year Number of Users
2010 0.97
2011 1.22
2012 1.41
2013 1.61
2014 1.82
2015 1.99
2016 2.16
2017 2.33
(Source: Statista 2014 web portal)
Management Accountant, July-August, 2015 | 9
Focus Section

Table 2: Ranking of Countries with Respect to practices as well for seeking jobs and recruitments. The use
of social media by professional accountants in almost every
Highest Number of Social Media Users (In Millions) country has been increasing which is substantiated by a
Country 2011 2017 number of surveys conducted by different organizations
some of the major survey results are shared below:
China 366.2 525.4
(1) Wolters Kluwer Social Media Survey 2014
USA 163.5 183.8
In January 2014 a research survey was carried out in UK by
India 127.5 282.9 M/s Wolters Kluwer a leading global information services
Brazil 78.3 110 company which concluded that three quarters or 3 out of 4
Accountants in United Kingdom are engaged in social media.
Indonesia 67.2 109.9 This social media survey which was commissioned by
Russia 60.5 75 Wolters Kluwer's CCH Business in the UK, sampled the
views of over 1100 accountants and concluded that 77% of
Germany 32.4 39.4 respondents are now using social media sites which is
(Source: Statista 2014 web portal) almost a 10% increase on figure of a similar survey
conducted in 2011. Each annual survey result is showing a
network users in 2011 (Table-2). It is projected that continuous growth in the use of social media by the
around 525 million Chinese internet users will access accountants. Few other interesting findings of the Wolters
social media networks by 2017. USA and India are at Kluwer 2014 Survey are as follows:
2nd and 3rd positions, respectively in terms of highest
social network users. o Almost two-thirds of the accountants are accessing
social media via their mobile phone/ devices whereas
o As of June 2014, the five top most popular networks are over 40 percent are using tablet.
Facebook, QZone, Google, LinkedIn and Twitter.
Facebook is the market leader with 1280 million active o More than 38% of the accountants who participated in
users.

Snapshots of Social Media Use by The professional accountants in Business are

Pakistanis gradually embracing social media and using it
Zeesocial is a social and digital media marketing to get engaged with their clients, attract new
agency in Pakistan and Trusted Pro-Partner of clients, promote services and practices as well
SocialBakers. It specializes in social media
analytics and helps brands engage with their for seeking jobs and recruitments.
customers. Zeesocial releases every year a
snapshot of Pakistan social media analytics.
the survey were aged over 51 years which shows that
Some of the highlights of the January 2014 social media
older accountants are becoming technology users.
Report on Pakistan is given below:
o Almost 85% of the surveyed women accountants are
o By 31st January 2014, there were 12.6 million active
using social media as compared to 72% of the male
users per month on the 'Facebook'.
accountants who participated in the survey (ratio:
o One million Pakistanis joined the 'Facebook' in the 59:41).
month of January 2014.
o 27% of accountants are visiting social media sites
o More than 50% users of Facebook are in the 18-34 age several times in a day.
bracket.
o FMCG has the highest number of Pakistani fans (17 Table 3: Top Most Popular Social Network Sites
million), followed by Fashion pages (14 million) and (June 2014 - In Millions)
Telecom (10 million).
Social Media Sites No. of Active Users
o Facebook is at top of Pakistani social media with around
10 million users, followed by Twitter with over 3 million Facebook 1280
users. Other to follow in ranking are Google+ and QZone 644
LinkedIn.
Google 343
Global Surveys reveal that Accountancy Linkedin 300
profession is strongly embracing Social
Twitter 255
Media
Tumbir 230
The professional accountants in Business are gradually
embracing social media and using it to get engaged with Tencent Weibo 220
their clients, attract new clients, promote services and (Source: Statista 2014 web portal)

10 | Management Accountant, July-August, 2015


Table 4: Wolters Kluwer Survey 2014 : Most Popular
Social Media Sites used by UK Professional Accountants
Ranking Social Media Websites % age of UK Accountants
using this Site for Professional Purposes
1. LinkedIn 67% (out of total users: 13 million)
2. Twitter 18% (out of total users: 43%)
3. Facebook 12% (out of total users: 80%)
4. Blogs 10% (out of total users: 16%)
5. Google+ 14% (out of total users: 26%)
The above Table-4 indicates that LinkedIn is the most
popular social media channel or website for professional
accountants in UK, with 67% of them using this site for
business or professional purposes. The use of Twitter,
Facebook and Google+ by accountants is also growing
steadily.
(2) SocialCPAs Social Media Survey 2013
SocialCPAs which was founded in 2010 in USA has been
conducting annual surveys on the impact of social media on
the accounting profession. So far they have released four
surveys intended to bring social media insights as to how
the accounting firms are using social media. The last survey
Table 5: SocialCPAs Social Media Survey 2013 : Most Popular
Social Media Sites used by Professional Accountants
Ranking Social Media Sites
1 Linkedin
2 Facebook
3 YouTube
4 Twitter
5 Google+
6 Pinterest
7 Yelp
8 WordPress
9 Instagram
10 Hootsuite
report was released in December 2013 which presented
facts and figures on how accounting professionals are
adopting or avoiding the social media. This survey
interviewed hundreds of CPAs, CAs and accounting
professionals from around the world to learn about their
social media activities.
The SocialCPAs Survey revealed that that more than 90
percent of CPAs are active on LinkedIn, whereas over 75
percent are active on Facebook, 45 percent are active on
Twitter and more than 30 percent are active on Google+.
The survey also revealed that more than 45 percent of these
CPAs spend one to five hours a week on social media about
the same amount of time they spend on traditional
networking activities.
One of the key findings of the Survey is that LinkedIn has
Focus Section
established itself as the most popular site for
accountants and business professionals and it
has remained the top most social media sites
among the survey respondents during the
past four years (see Table-5)
(3) Mergis Group Social Status
Survey 2010
The Mergis Group is a leading professional
placement and recruitment firm in USA. It
conducted an online social status survey in
2010 through an independent third party
which interviewed around 443 financial
professional in the USA with regard to their
social media use. Some of the key findings of this Survey of
US professional accountants are given below:
o 72% of the financial professionals in USA (around two-
third of respondents) have social media account on the
'Facebook' to connect with family and friends.
o Facebook stands as most popular social site for
financial professionals (88 percent) with around
three-fourths (74 percent) listing it as their primary
social site. (Table-6)
o Around 46 percent of financial professional use social
sites to network with both personal contacts (e.g.
friends, family, relatives etc) and business contacts
(bosses, managers, co-workers, colleagues etc).
o LinkedIn is the most popular social media site for job
seekers with around 73 percent of the respondents
visiting LinkedIn. Facebook stands at second position
with 32 percent.
(4) Social Media Examiner's Social Media Study 2014
Social Media Examiner is the world's largest 'online social
media magazine and blog' which helps businesses discover
how to best use social media, blogs and podcasts to
connect with customers, drive traffic, generate awareness
and increase sales. They regularly bring out reviews of latest
industry research, news, articles and other information for
improving social media marketing. The sixth annual social
media study, which interviewed 2800 marketers was
released by the Social Media Examiner in May 2014, which
Table 6: Mergis Group Social Status Survey 2010 : Most Popular
Social Media Sites used by USA Financial Professionals
Ranking Social Media % age Use by US
Websites Financial Professionals
1. Facebook 88 percent
2. LinkedIn 58 percent
3. MySpace 26 percent
4. Twitter 24 percent
5. YouTube 20 percent
6. Classmates.com 20 percent
Management Accountant, July-August, 2015 | 11
Focus Section
highlight as to 'how the marketers are using the social media
to grow and promote their businesses.
Some of the key findings of this social media study are given
below:
o Marketers place very high value on social media: A
significant 92% of marketers indicated that social
media is important for their business, up from 86% in
2013.
o Facebook and LinkedIn are the two most important
social networks for the marketers. Around 54% of
marketers selected Facebook, followed by LinkedIn at
17%.
o At least 89% of marketers want to know the most
effective social tactics and the best ways to engage
their audience with social media.
o Blogging holds the top spot for future plans: A
significant 68% of marketers plan on increasing their
use of blogging, making it the top area marketers will
invest in for 2014.
o Marketers want to learn most about Google+: While
54% are using Google+, 65% want to learn more about
it and 61% plan on increasing Google+
activities in 2014.
The IFAC Guide to Practice Management for
o Only 6% of marketers are involved with
podcasting and 21% plan to increase their SMPs advises the accountants in practice that
podcasting activities in 2014. alongside traditional marketing techniques,
o Only 34% of marketers think that their they should also use social media as a
Facebook efforts are effective.
o A significant 58% of marketers stated that
complementary tool to market their services
original written content is the single most to the existing and new clients
important form of content, followed by
original visual assets (19%).
IFAC encourages Professional Accountants
in Practice and Small and Medium Practices
(SMPs) to use Social Media Networking
The International Federation of Accountants (IFAC) defines
the 'Professional Accountants in Business' (PAIB) as those
who work as 'leaders' and 'strategic partners' within
organizations i.e. in commerce, industry, financial services,
education and the public and not-for-profit sectors with
the aim of building long-term sustainable organizational
success. PAIBs play critical roles in generating sustainable
economic growth and stability worldwide by contributing to
strategy support, planning, decision support and control and
adding value to organizations.
The Small and Medium Practices (SMP) Committee of
International Federation of Accountants (IFAC) represents
the interests of professional accountants operating in
small- and medium-sized practices and other professional
accountants who provide services to small- and medium-
sized entities. In December 2012, the IFAC SMP Committee
published the third edition of 'The Guide to Practice
Management for Small and Medium-sized Practices
(SMPs)”, wherein it has outlined seven tips that can help the
12 | Management Accountant, July-August, 2015
SMPs to build or lay the groundwork for a business advisory
practice. One of the tips relate to 'promoting the practice to
existing and new clients under which it has been advised
that the professional accountants should explore new
channels of marketing their practice / services such as
'social media'.
The Guide to Practice Management for SMPs emphases the
need for adopting best practices in respect of emerging
advanced technologies such as social media, smart phones
and cloud computing to achieve operational efficiency in the
wake of ongoing change, increased regulation and
emergence of global reporting systems. The Guide advises
the accountants in practice that alongside traditional
marketing techniques, they should use social media as a
complementary tool to market their services to the existing
and new clients. For this purpose, a social media strategy
should be developed by them which may include the
following strategies:
o Using social media sites e.g. LinkedIn, Facebook and
Twitter to invite clients to receive updates, participate
in discussions, share case studies and experiences, post
testimonials, establish closed networks and allow
clients to connect with other clients.
o Using blogging sites to share timely updates with the
existing clients and attracting new clients to your
company websites to find more about your services
and business.
o Encouraging the existing clients to post testimonials or
provide positive feedback on the social media sites
such as Linkedin, that would help attract new clients.
o The Guide further advises the professional accountants
in practice that instead of focusing more on technical
understanding of programming or communication links,
they should try to achieve a level of comfort with
technology that would eventually help them in
efficiently screening and reviewing the quality of data to
be processed on behalf of the clients and implement
any application that can deliver benefits to the clients.
AICPA Creates Social Networking Site for
aspiring Accountants and develops User
Guides for Professional use of social
networking sites
The American Institute of Certified Public Accountants
(AICPA) which is the world's largest association
representing the accounting profession and founded in
 Focus Section

1887, has created its own social networking site by the clients and job seekers and connect and communicate
name of 'This Way to CPA', for college students aspiring to with them for any business and employment
become accountants. 'This Way to CPA' has been developed opportunity.
and designed to increase awareness of AICPA and to reach
o Seek recommendations from your existing and former
out to the talented accounting students to invest in
employers for validation of your employment skills and
becoming a CPA by networking on this channel with peers
capabilities that serves as a useful reference.
and professionals. In fact, this online social networking site
supports the personal development of accounting students o Exchange endorsements with professionals;, office and
and the accounting profession and provides a platform for business colleagues and clients for testifying your area
them to discuss career-related topics such as advice for of professional expertise.
passing the CPA exam, building an accounting career path
o Join different professional groups on Linkedin to
etc. This community website is integrated with other social
connect with like-minded people.
networking sites e.g. Facebook, Twitter and YouTube so as to
drive potential and current members to its community for o Create group page of your own firms that is similar to
more in-depth accounting discussions. This Way to CPA has business Facebook page.
become a model for other accounting bodies
and organization on how to create a unified and By posting updates, news and other
manageable strategy for social media and
technology. This would also help in increasing
information on the 'Twitter', the Professional
the member base by building strong bonds with Accountants can use this media to build their
the aspiring accounting students. The weblink to
the AICPA social site is https://www. personal and professional brand and business.
thiswaytocpa.com
o Keep track of those professionals who view your
AICPA Social Media User Guides Linkedin profile and get in touch and connect with them
AICPA has also developed a set of resources in shape of in future for business and employment.
'User Guides' to provide guidance to its members and o Provide opportunity for prospective collaborators and
aspiring students to learn more about the professional use clients to contact you for seeking your professional
and benefits of different social media sites such as services or for merger of accountancy and consulting
Facebook, Twitter, LinkedIn and blogging. Each 'Use Guide' practice.
outlines steps as to how to get started as well as best
practices in a very simplified version. Accounting Professional Network Group on LinkedIn

In addition, the Private Companies Practice Section (PCPS)
of AICPA has also developed a “Social Media Toolkit' to help
CPA and their firms harness the power of social media
marketing. This social media toolkit is intended to encourage
the CPAs as to why social media matters in today's
competitive market and shares tips on getting started and
describe key social media tools in detail for both the new and
experience user of social networking sites.
Social Media Networking Strategy for
Professional Accountants
(a) Building 'Professional Profile' on Linkedin
Linkedin is a one of the widely used professional network
forums and professional accountants, including the
Management Accountants, can take great benefit from
networking on this forum by posting an updated 'Linkedin
profile' - for showcasing their specific professional
expertise to attract clients as well as providing access to
recruiters who are on hunt for new finance talents.
Professional accountants can also use Linkedin to network
with their current and former colleagues as well as friends
and business clients. Other benefits that the professional
accountants can get from having a Profile on the 'Linkedin'
are as follows:
o Get in touch with other professionals, prospective
The professional accountants can also join the 'Accounting
Professionals Network Group' at the LinkedIn site.
Accounting Professional Network Inc. USA is a professional
services firm focused on the small-medium sized business.
They are a team of accounting/finance and operations
professionals who handle a wide range of services from the
bookkeeping to the CFO levels. Most of their consultants
have extensive experience working at the controller level for
small and medium-size organizations. For more information
please visit: www.apngroup.com
(b) Using 'Twitter' for promoting your Expertise and
Services
Twitter is a new online social media networking and micro-
blogging medium which is getting popular. It enables the
users to send and receive text-based messages of up to 140
characters, known as 'tweets'. By posting updates, news
and other information, the Professional Accountants can
use this media to build their personal and professional brand
and business. Twitter can be used as an extension of the
marketing strategy by the accountants to build and
promote their practice; win new clients and collaborate with
like-minded professionals. It can also be used by the
accountants in practice for conducting market research.
However, it is a fact that twitter has not become one of the
preferred options so far for the accountants as it is a
different kind of blogging medium.

Management Accountant, July-August, 2015 | 13

Focus Section
Linkedin is a one of the widely used
professional network forums and
professional accountants, including
the Management Accountants, can
take great benefit from networking
on this forum by posting an updated
'Linkedin profile' - for showcasing
their specific professional expertise
to attract clients as well as providing
access to recruiters who are on hunt
for new finance talents.
The professional accountants in practice can have the
following benefits by using the twitter:
o Interact, communicate, share and exchange ideas
about accountancy news and articles, tax-related
issues; audit practice queries and industry-related
information.
o Build brand loyalty and relationships, establish trust,
attract new clients, generate leads; share
relevant and valuable content; and serve The professional
customers.
well as those in practice can use the 'Facebook'
o Educate existing and prospective clients
about your professional practice and
for their benefit by creating their company's
services such as tweet any new article 'Facebook page' which would help them in
written by you and then engage in
comments. building brand image and attracting new
o Provide tax tips and advice; alerts on potential clients.
personal and corporate tax policy changes
and links to tax-related articles in
newspapers to people, which would help in building your
professional image and it is possible that they can hire
your services as tax consultant.
IFAC's Twitter Channel on Website
For the information of professional accountants, especially
the Management Accountants, it is important to point out
here that Small and Medium Practices (SMP) Committee of
International Federation of Accountants (IFAC) is running on
trial basis a 'Twitter Channel' on website to communicate
with its 159 member bodies and more than 2.5 million
members in different jurisdictions of the world.
The Pakistani professional accountants should also use this
twitter channel to make their presence felt in the global
accounting community and utilize this as a platform for
learning and exchanging ideas on relevant professional
topics and issues. The twitter web-link is
www.twitter.com/IFAC_SMP
The International Ethics Standards Board for Accountants
(IESBA) and International Public Sector Accounting
Standards Board (IPSASB) are also on Twitter! i.e.
@Ethics_Board and @IPSASB_News.
14 | Management Accountant, July-August, 2015
(c) Marketing through 'Business page' on Facebook
Facebook is one of the largest social media networking sites
used by almost 800 million people in the world. The
professional accountants in business as well as those in
practice can use this media tool for their benefit by creating
their company's 'Facebook page' which would help them in
building brand image and attracting new potential clients.
The other benefits and advantages that the professional
accountants can get by using the 'Facebook' are as follows:
o Provide a quick and easy way to personalize your
message and engage with existing and potential clients
and increase loyalty within your client base.
o Reassure the existing and potential clients that your
company is the right choice for them through social
proof in shape of 'Likes', testimonials and referrals
made.
o The number of 'Likes' of your company Facebook page
will help increase the ranking and credibility of your
professional services in the eyes of current as well as
new clients.
o Provide increased visibility of your company's Facebook
page on search engine results page that would increase
visitors' traffic on your company website.
accountants in business as
o Provide a platform and technology to advertise and
promote your company and services for free. Every
status update on your Facebook page appears on your
fans news feeds.
o Upload photos, videos, logos, website links and other
information about your company and services offered
on the Facebook page.
o Provide an easy way to search for and Identify clients
and business contacts who are already using the
Facebook.
References
– AICPA Social Media Matters An introduction to the PCPS
Social Media Toolkit
– Social Media Toolkit Institute of Public Accountant (IPA)
– Guide to Practice Management and SMPs (Third Edition)
IFAC
– The SocialCPAs Social Media Survey December 2013
– The SocialCPAs Social Media Survey December 2011
– Social Media for Accountants A step-by-step Guide SAGE
– 2014 Social Media Marketing Industry Report published by
Social Media Examiner

The Professional Networking:
Business Linkages, Social Media Networking and New
Protagonist of Public Relations
I n this age of rapid growth where
everything is lightning fast no one can
deny the importance of professional
networking. It is always a good option to
have your own professional network in
order to learn from their experiences. It is
one of the most effectual career
development tools which guide an
individual throughout his/her professional
career.
The very idea of networking can make a
man tremble on his feet. It may seem
Salman Masood Sheikh, FCMA terrifying to a lot of people but in reality, it
plays a major role in shaping a successful
professional life. Even if networking is not in
to your genes, it can easily be learned
and improved with practice.
Making and maintaining a
network may not help you
only but will be beneficial
to those who are under
your assistance.
The information given
below elucidates the
notion of networking
and its significance in
building ones career .It
also contains
instructions on forming
a better network around
you.
What is Networking?
Networking is about making acquaintance
with people that can be helpful to you in
terms of good employment, established
companies and better prospects. The
simplest definition of networking is
conversing with people, enlarging your
social circle in order to know more about
people that will prove beneficial to you.
With professional approach, networking
demands people to know about others
with focus on their work and occupation
understanding.
Similar to many first-class associations,
Management Accountant, July-August, 2014 | 15
Focus Section
networking is a give-and-take process in
which everyone as a part of the connection
has to gain and at the same time provide
something to others. In networking, each
club desires to provide and collect
information, recommendation, and
appointment for self-betterment while
keeping in mind the need of providing
benefits to the other club in the network.
Networking has so many false ideas
attached to it. Networking is not about
inquiring all and sundry you meet up for a
job or about request them to forward your
immature resume to their well-established
human resources department. Also it
doesn't signify "using" distinguished
citizens for details you expect they must
have. But it defines edifice associations so
as a result you can sense contented
inquiring for information, suggestion, and
appointment.
In networking, it is significant to appreciate
the diversity of techniques. Even if you're
networking on career exploration or may be
eager to attach with a specific individual, it
is vital that one should understand
his/herobjectives for networking so they
can gain success.
A number of individuals, i.e. students and
people with ideas about changing their
careers, to build set of connections for job
searching. Remember, If one is hesitant
about a key plan, and is curious about
opportunities with a specific degree of
education, or is bearing in mind about
shifting jobs or careers, networking with
suitable folks will help them to attain
answers to their strayed questions and
give them ideas into a precise fields.
Mostly public consider networking while
searching for a new job. Unluckily, most
people do not consider about networking
until they are forced to think about it. They
imagine that chatting to others will help
them get their dream job. As it may seem
dispiriting, it is significant to be familiar
Focus Section

with the idea that it is

idealistic to picture that just Linkages of Professional Networking
by chatting yesterday will
inspire him to hire you the Corporate and Business
very next day. Networking is Linkages
not about receiving a catalog
of citizens to ask for a
occupation. Networking is
about meeting people whom Public Relations Professional Networking
building a strong connection
in order to contact your
preferred information details.
And it is time consuming.
Therefore all those dreaming
Social Media Networking
about new job should start
networking now.
Networking is some times
unintended i.e. chatting to the person sitting beside you in a vacancies, but also about careers, companies, entire
depart line or sitting in the airplane seat beside you. The industries, geographic areas, skills needed for a particular
technique is description to a variety of people but its position, and more.
randomness cannot be as positive to you. Networking is As one person often leads you to another person with new
also purposeful and goal oriented. information, then another and another, you can then
Possibly people fancy to connect with a particular control the knowledge you achieve and be relevant to it
personality or corporation but do not have any straight suitably .Other benefits of professional networking are
associations. You talk to others who are linked to specific international confidence, worldwide relations, trade
person that will build a course that will guide you to them. networking, commitment with consumers and specialized
knowledge.
Why Network?
Who should be in your Network?
People do not network or do not
network well. They confuse In networking one wants to include
networking with job searching. people in network with whom he can
Networking is not about finding a way build relationships through
to get a job. But in reality it is a way of commonalities and who are willing to
rising contacts and switch over share information regarding jobs.
information. Sometimes this swap of Moreover, family and friends, students
information is the first step on the and new graduates should build
career path then can lead to a job. professional connections with other
Others maintain they are painful to classmates, parents of classmates,
set up themselves for people they do professors, current or former
not know, and if they do, they would employers, and alumni. Recognized
not recognize how to start on a profession seekers or those who are
conversation. There are negative changing careers should also consider
views of networking, believing it building relationships through
involves using others to get professional organizations and above
something. mentioned range of people.
Facts and figures prove that the importance of having a
well-established professional network. It has been exposed The role of Corporate and Business Linkages
that at least 50 percent of existing jobs are by no means in the changing Corporate Landscape
publicize. Other learning tells us that it is up to 80 percent.
In Corporate world, globalization has implanted new
Networking allows the workers to fill up vacancy, often
markets and new spirited forces. The regular pressure to
with individuals outside of the company who educate the
reduce costs has obsessed firms to change their supply
open point from someone inside the company.
chain administration strategies. Most large industrialized
I agree that networking is an important for job searches. companies now a day, purchase their contributions of both
But even if you are not looking for a job, networking should supplies and services from other firms, with spending half
still be an important part of one's professional life. It gives of their revenues this way. Supervision of the supply chain
you an opportunity to interact with people outside of your for a finest blend of cost, quality, flexibility, has turn out to
friend list. People are source of knowledge, not just about be an ever more source of competitive advantage.

16 | Management Accountant, July-August, 2014


It is evident that developing countries business
associations with local small-medium enterprises (SMEs)
comprise allocation, and sales which benefit large firms an
opportunity via which they address some of their concerns.
Networking relationships can allow large firms to lessen
input expenditure and rising specialty and flexibility. They
have also chance to increase local incorporation by
providing access to local knowledge and thinking about
positive social and economic impacts in the wider
community.
There are thus competitiveness and commercial public
responsibility urging in goodwill of business association. The
Focus Section
prospective benefits are to large firms, to local business
communities, and to Small enterprises are given in the
diagram below:
Addressing Challenges in the Practice of
Business Linkages
Whereas modernism and testing to date have given way to
many victorious tales on the other hand imitation of
association activity generally has been sluggish to go after
from individual project accomplishments which
fundamentally stay remote trend. Yet corporations with
comparatively glowing recognized agenda face challenge in
Management Accountant, July-August, 2014 | 17
Focus Section
Components of Public Relations (Figure)
Counseling
Marketing
Comm.
Employee
Relations
Publicity
Public
Community Relations
Relations
Public
Affairs
Govt.
Affairs
Issues
Mgt.
their work. These challenges can be regarding equipment
and reputational in nature. Following are variety of
approaches to tackling them for maintaining a healthy
business:
Operational Challenges and Approaches:
Securing internal commitment within the large
firm:
Commerce relation curriculum is long term efforts, often
requiring 5-10 years to complete blow. Reserves of money,
time and expertise and technology and substantial
individual determination by key staff are needed along the
way. Tough inner commitment is necessary to maintain
connection effects through the imitable changes in
leadership, managerial structure and competitive
landscape that occur as a normal part of doing business.
Relationship maintainers need overt hold up so that they
start at senior levels in the company .Come within reach to
the challenges of safe inner commitment to linkages
include policies, performance measures and inducement,
and culture of long term thinking.
Obtaining reliable, actionable information:
For large firms it can be difficult, working in budding
countries to identify SME donation applicable products and
services and to judge their qualifications .Information
which is required to reduce the risk in transacting with
them. This endeavor can be especially costly in linkage
models involving large number of small transactions, for
example when sourcing agricultural products from small-
holder farms or marketing consumer packaged goods
through kiosks or pushcart vendors.
18 | Management Accountant, July-August, 2014
Research
Media
Relations
Special
Events
Multicultural
Relations
Development/
Fund rising
Financial
Relations
Industry
Relations
Approaches to the challenges of obtaining reliable,
actionable information include dedicated staff or
departments, supplier data basis, and network leveraging.
Measuring impact:
Business linkage activities can be difficult to monitor and
evaluate for a variety of reasons.
o Choosing proper metrics, of both business and
development impact.
o Distinguishing the number of local contracts awarded
and as the increase in per capita income attributable
to a linkage program.
The latter are more meaningful, but also much harder to
evaluate. Moreover, many of the impacts occur over the
long term, while stakeholders such as funders,
communities, NGOs and business managers often have
shorter time horizons.
Approaches to the challenges of measuring impact include
participatory monitoring and evaluation agreements.
Reputational and Relationship Management
Challenges and Approaches:
Managing Expectations:
Investments by large firms in low-income communities
can generate very high expectations, particularly around
generation of employment and business opportunities.
While such investments often do have significant positive
impacts, depending upon the industry and business activity
in question, these impacts are not always the ones local
communities expect. For instance, a mining operation may

generate substantial tax revenues for the central
government but create relatively few new jobs, and
therefore translate into little obvious day to day
improvement in local residents lives.
Approaches to the challenges of managing expectations
include social responsibility agreements.
Reducing Dependence:
While large firm's investments often provide important
new sources of jobs and business opportunities,
underdevelopment in the surrounding economy can leave
workers, local businesses, and entire communities
dependent upon them. Such dependence is closely linked
with the challenge of managing expectations. Where it
exists large firms may face resistance when trying to
reduce costs, raise prices or terminate contracts.
Approaches to the challenges of reducing dependence
include market diversification, peer networking and
appropriate exit strategies.
Public Relations
Public relation is best defined as"The deliberate planned and
sustained effort to establish and maintain mutual
understanding between organizational professionals and
its publics."
The British Institute of Public relations explain that Public
relations are the formation or concern of mutual
understanding between organizational professionals and
its publics. It also suggests that public relations are
not a haphazard process. It must be deliberately
designed. Planning calls for attention, deliberation,
research, anticipation, analysis and consequences.
Public relations efforts must ensure that not only
does the organization appreciate its publics; the
publics must equally understand the organization. It
must understand its reasons for whatever actions it
takes. As a public relations officer it is your duty to
make sure that mutual understanding is achieved
between your firm and its several publics. More
often than not, the publics are reactive at
performing this role. Therefore, your organization
must take proactive steps towards achieving it.
'Sustained effort' means that it is not enough to
Focus Section
start the plan; it must be carried through to a logical end.
Another definition states:"Public relations are concerned
with or devoted to creating mutual understanding among
groups and institutions."
The Public Relations Society of America, It recognizes the
place of groups and institutions in the public relations
process. It admits that these entities have benefits that
must be sheltered. It also presupposes a reformation of
this reimbursement for mutual good. The concept of
mutuality in this definition makes you as a public relations
man or woman an intermediary between your organization
and its publics. This implies that you should be able to align
the interests of these two parties for their mutual
advantage. You do this by convincing your organization
those public relations attempts to put the broad interest of
the public first before the special interest of the
organization. By doing this, the organization is indirectly
serving its own interest; hence PR has what is called
"enlightened self-interest".
Frank Jefkins, a British author, in his book Public Relation,
says "Public relations consist of all forms of planned
communication both inward and outward between an
organization and its publics for the purpose of achieving
objectives concerning mutual understanding."
This definition includes a term common to many other
definitions of PR: mutual understanding. Mutual
understanding is a very broad concept which every
organization must seek to establish. 'Inward and outward
communication' implies a two-way communication
involving both the organization and its various publics.
Public relations are a sculpture because it involves artistic
skills, fine arts, language, writing, public speaking, etc. It is a
social science because it uses social scientific instruments
to recognize and forecast human behavior. It attempts to
understand its environment and relates with it mutually.
Public relations monitors, surveys and researches issues
and happenings in the environment. It advises the
organization so that the policies of the organization are in
line with the expectations of its publics. It implements
program that will favor both the organization and the
public's in a win-win outcome.
Management Accountant, July-August, 2014 | 19
Focus Section

Components of Public Relations person, product, or organization by means of a focused

Public relations have divergent parts. According to the
Public Relations Society of America, the components of
public relations include the following:
o Counseling: Providing advice to management
concerning policies, relationships, and communication
with its various publics.
o Research: Determining attitudes and behaviors of
publics through research in order to plan public
relations strategies. Such research can be used to (1)
generate mutual understanding or (2) influence and
persuade publics.
o Media Relations: Working with the mass media in
seeking publicity or responding to their interest in the
organization.
o Publicity: Disseminating planned messages through
selected media to further the organization's interest.
o Employee/Member Relations: you are responding to
concerns, informing, and motivating and
organization's employees or association or club
members.
"happening". They are activities designed to interact
with publics and listen to them.
o Marketing Communications: Combination of
activities designed to sell a product, service, or idea.
These activities may include advertising, collateral
materials, publicity, promotion, direct mail, trade
shows, and special events.
A Word about Social Networking
As we all know, today's youth have never known a world
without the Internet, which is a piece of information adults
must put into context when they think about and compare,
generationally, social net-working to personally
communications. According to the Pew Internet &
American Life Project, more than 93% of both teens (12-
17) and young adults (18-29) in the United States use the
Internet regularly, and more than 70% use social
networking sites. Furthermore, among online teens, 62%
use the Internet to get news about current events and
politics, 48% use it to make purchases (books, clothing, and
music), and 31% use it to get health, dieting, or physical
fitness information.

o Community Relations: Planned activity with a Online social networking presents both opportunities and
community to maintain an environment that benefits risks. What follows is a cursory breakdown of both,
both the organization and the community. followed by a series of lesson plans specifically targeting
online safety.
o Public Affairs: Developing effective involvement in
public policy and helping an organization adapt to Advantages of Social Networking:
public expectations. The term is also used by
o Social skills: Social networking help people get
government agencies to describe their public relations
updates from friends and make new ones. If use with a
activities and by many corporations as an umbrella
positive mind set, social media can increase self-
term to describe multiple public relations activities.
esteem and help someone feel less isolated.
o Governmental Affairs: Relating directly with
o Independence and self-expression: Craft your own
legislature and regulatory agencies on behalf of the
home page allows people to express themselves and
organization. Lobbying can be part of the government
discuss their interests. They can join groups and
affairs program.
support fan pages, and find out about other people's
o Issues management: Identifying and addressing interests.
issues of public concern that affect the organization.
o Financial Relations: Also known as Investor
Relations or Shareholder Relations. It involves
creating and maintaining investor confidence
and building good relationships with the
financial community.
o Industry Relations: Relating with other firms
in the industry of an organization and with
trade associations.
o Development/Fund-Raising: Demonstrating
the need for and encouraging the public to
support an organization, primarily through
financial contributions.
o Multicultural Relations/ Workplace Diversity:
Relating with individuals and groups in various
cultural settings.
o Special Events: Stimulating an interest in a

20 | Management Accountant, July-August, 2014


o Digital competence: Technology is evolving faster
than ever before. As teens and young adults learn to
adapt to new technologies (or new applications of
existing technologies), they will be better equipped to
adapt to future technology.
o Educational development: Young adults in secondary
and post-secondary education will often use social
networking to discuss schoolwork and share
discussions about assignments.
o Research: Young adults can gather information about
topics that are hard to discuss with others, such as
drug use and sexual health.
o Additional advantages for youth with disabilities:
Social networking can open up a new world of
communication, integration, and community
participation. Young adults can express themselves,
including their thoughts and feelings, more easily and
without fear of the rejection or stigma they may
experience in real life. Research also suggests that
these young adults may be more willing to ask for help
online than in face-to-face situations. Furthermore,
young adults who experience difficulty with social
skills can socialize anonymously, and can experiment
with different personas and practice initiating and
maintaining online friendships. They can also respond
to others by taking advantage of having time to review
and edit communications before sending it on.
Ultimately, this skill may carry over into "real life" and
give a sense of new courage to make and maintain
friendships in everyday life.
Risks of Social Networking:
o Sharing one's personal information with the wrong
crowd: Adolescent adults need to be conscious that
information given out online could also put them at
risk of oppression. People looking to do harm could use
posted information to identify them or gain their trust.
They can also be illusory by pretending to know a
young person. Encourage young people to privatize
their online social networking accounts such as
Facebook and Twitter.
o Bullying: Harassment may occur online only cyber
bullying, or it may spill over to offline bullying
committed by a person who has located his victim
online. Cyber bullying can cause significant emotional
harm resulting in depression, anger, school avoidance,
violence, and suicide.
o The permanency of online profiles: Once information
has been shared on the Internet, it's out there -
forever!. Retrieving information that others have read
and captured is nearly impossible. Inappropriate
pictures, captions, and comments could come back to
haunt youth as they start applying to colleges or
looking for jobs.
o Disclosure: People tend to be far bolder and less
discretionary with information shared online versus in
Focus Section
person. This means there is a greater risk of giving out
information including the presence of a disability that,
given a second thought, we might not have wanted to
disclose.
o Additional potential risks for youth with disabilities:
Social networking isolates those who may already feel
isolated or not included, and can ultimately lead to
depression and loneliness. Also, young adults with
disabilities must make important life decisions
regarding disclosure of their disability (if, how, when,
and to whom). Unintentional discovery is possible by
posting pictures or becoming fans of disability support
groups, for example. While this might not be an issue, it
makes the disclosure discussion even more important.
The process of empowering youth to make safe and
responsible decisions online can be compared to the
process by which they may have learned to safely cross the
street. First they hold hands with an adult, and then they
gain a little more independence and might be watched from
afar. Ultimately, they become capable of making safe and
responsible decisions on their own. Educating youth about
social networking communities must be grounded in the
providing of knowledge, skills, and values so that eventually
they can be expected to independently exercise good
judgment.
References:
Becker, L. B., Vlad, T., & Olin, D. (2009). Job market turns much
worse. Retrieved fromhttp://aejmc.org/topics/2009
Bowen, S. A. (2009). All glamour, no substance? How public
relations majors and potential majors in an exemplar program
view the industry and function. Public Relations Review,
35(1),402410.
Council of Public Relations Firms. (2009) Careers in public
relations: A guide to opportunities in a dynamic industry, pp.
118. Retrieved from www.prfirms.org/career_guide.pdf
Jacques, A. (2009, May). Graduating into a recession: The hopes,
fears and job prospects of PR students. Public Relations
Tactics, 1, 1415.
Levco, J. (2009, June). Veteran communicators share advicewith
newbies. The Ragan Report, 2728.
Lukaszewski, J. E. (2007, Winter). What's next? The relationship of
public relations to management, journalism, and society. The
Strategist, 2123.
Toth, E. L. (2009, October). Global graduates: Examining P
Reducation around the world. PublicR elations Tactics, 21.
Barabasi, Albert-Laszlo (2002) Linked: The New Science of
Networks. Cambridge. Mass: Perseus
Capra, Fritjof (2002): The Hidden Connections,London.
Castells, Manuel (2000): The Rise of the Network Society, Oxford.
Castells, Manuel (2002): The Internet Galaxy: Reflections on the
Internet, Business and Society, Oxford.
McCarthy, Helen / Miller, Paul / Skid more, Paul(eds.) (2004):
Network Logic. Who governs in an interconnected world?,
London.
About the Author: Mr. Salman Masood Sheikh, FCMA, FPFA,
ACPA, CA (F), M.Com, MBA, M.Phil, Ph.D (Scholar) is Associate
Dean, Faculty of Business and Management Sciences at Superior
University, Lahore.
Management Accountant, July-August, 2014 | 21
Focus Section
Professional Networking
P rofessionals use networking as a
means to form relationships with
others, in like or related fields, that help
to expand ones' effectiveness in an
organization or industry.
A key element to effective networking is
to make you known. The premise being
that the more people you meet, the
more people there will be to get to know
you and remember who you are. You
should use every professional and social
opportunity to meet and connect with
Wasful Hassan Siddiqi, FCMA
new people.
The purpose of professional networking is
to gain information, increase your
visibility in your field, and establish
personal connections that will help you
advance in your career.
Making friends and letting people get to
know you on a personal level is an
important aspect of networking. It is
important to let the people you meet get
to know who you are, how you think and
what skills you have to offer. Being open,
honest and comfortable with just being
you is the best way to do that.
It is important to leave a positive
impression with everyone you meet and
to send the message that you are not
only competent, but also a pleasant
person to deal with.
Being optimistic and excited about what
you do makes them remember you and
want to maintain a connection with you.
A key to this is to be diligent with
22 | Management Accountant, July-August, 2014
returning emails and phone calls to
maintain your credibility with them.
Networking is increasingly being
promoted as both a business and
personal social skill. There's no doubt
that both the social media form of
networking and personal face-to-face
networking has become a fundamental
part of the modern landscape.
Professional networking has been made
exponentially easier with social media.
Years ago, networking meant asking a
friend at another company to submit
your resume to his HR department. A
particularly assertive person might have
been able to cold-call his way into lunch
with a head honcho. Now, networking
means having the ability to tap into
hundreds of relevant connections with
just the click of a button.
With this free reign comes many
opportunities namely, the chance to
connect with people in your industry,
impress them with your professionalism,
and gather information that can directly
help you. It also comes with the risk of
doing it all wrong, alienating potential
allies and crushing your chances at
career development.
The purpose of professional networking
is to gain information, increase your
visibility in your field, and establish
personal connections that will help you
advance in your career.
Here are some guidelines for networking
successfully in the realm of social media:
Business Leads
Professional networking is a great way to
acquire new business leads. Using the

contacts you make when you meet people can open
doors for business opportunities.
Communicate professionally when you follow up on
leads. People want to help others but aren't interested
in someone badgering them for business. Be sensitive to
timing and use common courtesy when following up
with contacts.
Career Opportunities
Statistics show that networking is the best way to land
a new job. Professional networking can expose you to
jobs that aren't posted online or in newspapers.
Making others know that you are looking for a job, and
what your expertise and experience is, could open career
doors of opportunity.
Personal Opportunities
Professional networking can also be a personal benefit.
Professional relationships you develop can be used for
identifying practical solutions to everyday life.
As an example, you can use your network to identify a
contractor to do a remodeling project on your home or
help you find an athletic club for your children.
Weaving personal conversations into your network
helps others get to know you in an intimate way and
helps build the relationship.
Focus Section
Identify Best Practices
Professional networking is a great way to identify
business best practices or industry benchmarks.
Learning from what others do is a valuable strategy for
all businesses.
For example, if you own a restaurant and you belong to a
restaurant association, you can find out what the latest
software programs are or employee management
practices that you can bring back to your own business.
New Business Trends
Professional networking can help you stay on the
cutting edge of technology and new business trends.
These types of relationships and “inside” information
can give you an advantage over your competitors by
implementing new and fresh ways of doing things.
Having said all of this, networking is a skill and some
people are just naturally more gifted at mingling with
people they don't know and making friends on first
contact.
Practice being friendly and learn the art of striking up
conversations. Learn the trick to remembering people's
names that you meet. Get a system; write something
specific about a person on the back of their business
card so you can remember them when you get back to
your office.
References:
1. http://mashable.com/professional-social-networking/
2. http://thethrivingsmallbusiness.com
3. http://www.letipofmorganville.com/the-benefits-of-networking
About the Author: Mr. Wasful Hassan Siddiqi, B.COM., L.LB.,
FITM, FICS, FPA ,FCMA is a practicing Cost and Management
Accountant. He runs a consultancy firm namely, M/s. Siddiqi &
Company, Cost and Management Accountants, Chartered
Secretaries, Management Consultants, Cost Auditors,
Corporate Law and Tax Consultants.
Management Accountant, July-August, 2014 | 23
Focus Section
Costs and Benefits of using
Social Media in Workplace
W ith the explosion of social media
over the last few years, you might
be hard pressed to find a marketing expert
who doesn't recommend social media as
part of a holistic marketing strategy. We
live in a world where technology has
changed the way people communicate, the
way they are informed and how they do
business. Traditional social networks have
2.
expanded from a few dozen acquaintances
to hundreds of friends, friends of friends,
connections and followers.
Sameem Ahmad, FCMA Benefits of Using Social Media In
Workplace:
The benefits of using social media in
workplace are numerous. Some of those
are given below;
1. Cost Effective- Social media, with its
massive reach and devoted core of
adherents, may be the most effective
way to promote your business online
without investing a ton of money.
Indeed, many small business owners
have found this strategy
revolutionizes the way they do
business. Using social media as sales
3.
24 | Management Accountant, July-August, 2014
and marketing tool is a very
inexpensive mode of advertising
because it reaches a vast audience for
a marginal investment. It is mostly
free advertising, and the only cost to
the business is the time and effort
required to maintain the network and
the official Web site.
Promote new products and services
- Social media is a great way to
interact with your customer base
online and encourage debate and trust
in your brand. Spread the word of new
products and services within seconds
using instant social media updates.
Social networking sites give
businesses a fantastic opportunity to
widen their circle of contacts. For
example, by using Facebook, , a small
business can target an audience of
thousands without much effort or
advertising. With a good company
profile and little in terms of costs, a
new market opens up to do the
business. Sales and marketing
professionals can use social media to
introduce and promote new products
and services in a way that increases a
potential target market exponentially.
Social networking sites allow
consumers to communicate with
each other and to share their
thoughts and ideas about your
company's products. Additionally,
social media sites provide consumers
with the opportunity to “follow” your
products or services or to “tweet”
about their experiences, thereby
creating a more personal connection
while building brand loyalty.
Build strong relationship with
customers - Whatever your company
sells, whether a product or a service, it
has a customer base that can be

engaged through social media. But the manner
of engagement is unique because social media
has revolutionized the style of business-to-
customer communications. Customers no
longer want to be talked at. Instead, they are
looking for organizations to listen, to
appropriately engage, and to respond to them.
Social media sites are now used as a version of
electronic word of mouth and provide a platform
for your consumers to not only speak directly to
your company, but also for consumers to
communicate with each other, sharing reviews
or testimonials about specific products or
services. Companies that join social media sites
are able to create stronger relationships with
their customers and are also able to improve
customer service by utilizing social media to
address customer service issues.
4. Share information- Both customers and potential
employees use social media to reach companies that
they have an interest in knowing more about. Social
media sites provide an excellent medium for
companies to share positive information. Social
networks allow organizations to reach out to select
groups or individuals and to target them personally.
Businesses can encourage their customers to become
connections or friends, offering special discounts that
would be exclusive to online contacts. This personal
touch is not only appreciated but may give the
business access to that customer's own network of
contacts. Building strong social networks can help a
business to improve its reputation with as little
advertising as possible. Social networks can boost
your image as thought leaders in the field and
customers/contacts start to acknowledge your
business as reliable and an excellent source of
information/products that suit their requirements.
5. Take Feedback from Customers- Remember, just
because you aren't listening, doesn't mean people
aren't talking. Conversations about you and your
business may be taking place with you or without you.
By actively taking part in the conversations happening
on the web, you are able to manage these
conversations in a positive manner. Leverage social
media to solicit constructive feedback from both
customers and employees. Social media allows
companies to collect feedback both more quickly and
more cost-effectively than does a traditional email or
phone survey strategy. Many social media sites allow
businesses to create polls, which are posted online and
are viewable to anyone that visits your site. This is a
great way to get invaluable feedback that you can use
to improve your product. Also, by encouraging
employees to participate in these polls you can
improve employment practices or pinpoint
deficiencies in your human capital practices and
strategy.
Focus Section
6. Recruit top talent- The days of simply posting a job on
a job board or running a newspaper advertisement is
long over. Instead, recruiters today are increasingly
turning to social media sites to attract and recruit top
talent. In order to avoid being barraged with hundreds
of resumes submitted by unqualified candidates,
recruiters are choosing to perform targeted searches
on professional social media sites, such as LinkedIn.
Doing so allows recruiters to search for candidates
with specific knowledge, skills and experience.
Prospective employees are also using company
profiles posted on social media sites to develop lists of
companies where they would be interested in working.
By creating a detailed profile, your company will be able
to attract the best candidates and maintain strong
ties with former valued employees who could be
potential candidates in the future.
7. Enhance employee's knowledge base - Social
Networking tools allow organizations to improve
communication and productivity among employees.
Professional social media sites such as LinkedIn, allow
your employees to join specific work groups in order to
engage in conversations with other professionals in
similar industries. This kind of participation can
broaden the employee's knowledge base and help to
generate new and innovative ways of meeting
business challenges. Employees can also use social
networking sites to build targeted professional
networks that can help them stay current with market
trends. Allowing employees the latitude to utilize social
media techniques also promotes trust with employees
and fosters a more collaborative environment.
Costs of Using Social Media in Workplace:
Social networking sites are generally not a problem for
organizations. It is the people who use them that are a
cause for concern. Social networkers are the root of
problems for an organization that allows social networking
at work. Some of the serious threats of allowing usage of
social media at workplace are given below;
1. Online Scams/Hacking of company's data - Now a
Management Accountant, July-August, 2014 | 25
Focus Section
day a large number of people are falling victim to online
scams. This can result in data or identity theft. Users
may be convinced not to give any personal details such
as CNIC/Passport numbers, employment details and
so on. After giving such information, data theft
becomes a serious risk. Some people post personal
and confidential details in their social networking
profiles. This data can be used by cybercriminals which
may result in a big loss to the company and individuals
as well.
2. Reduce productivity - Spending too much time on
social networking by employees for updating their
profiles and sites is another major reason why
organizations are reluctant to give access of social
networking to employees in the workplace. It will
reduce the productivity of the organization to large
extent.
3. Legal consequences - Organizations that employ
social media face several information security legal
issues. These legal risks can be broken down into three
broad categories: i) potential liability due to a breach of
the organization's security as the result of an attack
originating through the use of social media; ii) potential
legal risk associated with social engineering and
spoofing attacks against users or "fans" of an
organization's social media presence, persona or
application; and iii) legal consequences of leakage of
third party confidential information as a result of social
media use. At this time, there have been no major
corporate lawsuits involving evidence from social
networking sites. However, organizations need to
watch for employees who may be commenting
publicly about their employer. What if a disgruntled
employee decided to complain about a product or the
company's inefficiencies in his or her profile? There are
also serious legal consequences if employees use
these sites and click on links to view objectionable,
illicit or offensive content. An employer could be held
liable for failing to protect employees from viewing
such material. The legal costs, fines and damage to the
organization's reputation could be substantial.
4. Viruses and Malwares threat- Presently criminals
have increasingly focused attacks on social
networking users in the last 12 months:
- 57% of users report they have been spammed via
social networking sites, a rise of 70.6% from last
year
26 | Management Accountant, July-August, 2014
- 36% reveal they have been sent malware via social
networking sites, a rise of 69.8% from last year
Computer users are spending more time on social
networks, sharing sensitive and valuable personal
information. The online world is changing. Malware authors
are becoming more and more creative and are frequently
infiltrating our favorite social networking sites with viruses,
spam links, Trojans, spyware and more. In short, some of
your favorite sites are now being used against you. The
dramatic rise in attacks in the last year tells us that social
networks and their millions of users have to do more to
protect themselves from organized cybercrime.
How To Manage Usage Of Social
Networking?
The above issues can be resolved by placing sound internal
controls. Modern technology can be used to control
employee use of social networking tools in work place.
However it is impossible to control what they are posting
at home. The disadvantages and possible repercussions of
sharing company's sensitive information on social media
are too serious to ignore. Every action, every minute spent
on social networking sites may expose an organization to
numerous security threats. An organizations may have the
following options:
1. Ban access to social networking sites and internet.
2. Set limits and restrictions on use.
Banning access to social networking sites and internet is a
good solution for some organizations as can be seen in
banks and government departments. However, many
smaller organizations may feel that banning access to
social networking sites may be unproductive, indicate a
lack of trust in employees and is too restrictive. On the
other hand, they certainly do not want to give unfettered
access to social networking sites. So the best option may
be to allow access to social networking sites while
imposing limits. Regardless of which option an organization
may choose, they must ensure that the basic safeguards
are in place like installation of up-to-date anti-virus
software, a firewall and the ability to monitor the use of the
Internet in general, and ability to monitor social networking
sites in particular.
About the Author: Mr, Sameem Ahmad FPFA, FCMA (F-1187),
is a Deputy General Manager (Finance) at Ittefaq Sugar Mills
Limited / Kashmir Sugar Mills Limited.

Have Some Netiquette…!!
H ave you checked your Facebook
wall today? How many tweets did
you receive today on your cell phone? Did
you get any new connection request on
Linkedin recently? Well these are the
questions with which we are engrossed
daily.
The internet and social media has now
become a permanent feature of our day
to day lives with its effects on almost all
facets of our interactions, whether
Nafees Rehman, ACMA personal or professional.
With the advent of smart cell phones and
tablets with affordable network charges
we now have truly turned into a 24/7
connected society.
So what is Netiquette all about? It can
simply be defined as online manners,
the appropriate behavior which is
expected from a civilized individual
while driving on the internet highway.
The widespread use of social
media has created countless
opportunities and avenues
to explore on one hand and
the same amount of
challenges on the other.
One of the most important
and often neglected of such
online issues is Network
Etiquette or "Netiquette" as
it is often called in short.
So what is Netiquette all
about? It can simply be
Management Accountant, July-August, 2014 | 27
Focus Section
defined as online manners, the
appropriate behavior which is expected
from a civilized individual while driving on
the internet highway.
"Think before you speak" is an equally
applicable quotation for online
demeanor, so whether you are sharing or
posting something on your Facebook
wall or commenting on someone's
blog/post, tagging your friends into a
picture/status or tweeting about some
current affair or approaching someone
on Linkedin in search of new
opportunities, always be courteous and
give due consideration to other person's
emotions, feelings and opinions.
Now let's shed some light on some
important netiquettes to always bear in
mind to be a good internet citizen.
Be polite and courteous
Always stick to same behavioral
standards which are required in real life.
You are not free to write or say anything
just because you are in the cyberspace.
Always practice the golden rule "Do unto
others as you would have others do unto
you"
Be precise and to the point
Try to keep your message focused and
brief. Many people now use cell phones
Focus Section
and other portable devices to interact online, small
screen of these devices make it more difficult to read
lengthy messages.
Use appropriate font
Avoid using all Caps in your writings as
it is equal to yelling; in the same way
don't use unnecessary large and
fancy fonts and colors.
Control flame wars
Flaming can be defined as when
someone strongly opines on
something bluntly. Flame wars start
when two or more people get involved
into angry posts or commenting
between each other. Extinguish these
flames by redirecting the discussion towards
productive direction.
What goes around comes around
Whenever you write something online it usually never
dies and its existence is perpetual. So think twice before
you post something online, you never know who is
reading it and use it against you. Any activity done online
years ago may come in front of you as a nightmare, so be
cautious!
Try to keep it simple
Make your message understandable as much as
possible. Avoid uncommon abbreviations and acronyms
that can potentially create confusions.
Its busy world
Just as you are busy so are other people. Every
communication takes time to read and respond, so
therefore keep your message meaningful and fruitful so
that the reader doesn't feel his/her time as wasted.
28 | Management Accountant, July-August, 2014
Act accordingly
"When in Rome do as Romans do", this
means that you should interact according to
the forum. For instance the type of tone and
words that can be used on Facebook with
friends can't be used on Linkedin when
communicating with professionals.
Be forgiving
Not all people have the same knowledge
about online mannerism. So occasionally
you may see silly questions and comments,
spelling and grammar mistakes or a useless
and unrelated lengthy response. In such
situations practice kindness and let it be if
it's a minor thing but if you feel compelled to correct the
mistake do it in a private message in a positive way
rather than online publicly.
Wrapping it up….
The above mentioned Netiquette rules
are obviously not the only ones to take
care of. The list can be quite
exhaustive and will keep on evolving
as the internet and social media
itself and new issues will continue to
erupt.
The best practice is to keep yourself
abreast of these Netiquette rules and
adhere to them responsibly.
About the Author: Mr. Nafees Rehman is Asst.
Manager Finance at Pakistan Defence Officers Housing
Authority, Karachi.
TREAT
OTHERS
you
the way
want to be
TREATED.

Risk of
Social Media
T he internet is perhaps the quickest
growing platform we have ever seen.
Social Media is a place where people meets
together to share information. According
to An ISACA Emerging Technology White
Paper "Social media technology involves
the creating and dissemination of content
through social networks using the
Internet". A technology related to social
media is web 2.0, a term defined by Tim
O'Reilly and made popular after 2004.
Social media facilitate communication
practices in organizations that differ from
Muhammad Salman
those associated with traditional
Danish, ACMA technologies like e-mail, teleconferencing,
intranets, decision-support systems, and
instant messaging. The use of social media
technologies is proliferating at an incredible
Risk is a function of the likelihood of
a given threat-source's exercising a
particular potential vulnerability, and
resulting impact of that adverse
event on the organization.
pace. Recent research has shown 73
percent of salespeople using social media
outperform those who don't. Social media
comes with many advantages but also
Management Accountant, July-August, 2014 | 29
Focus Section
introduces many risks to the enterprise.
"Risk is a function of the likelihood of a given
threat-source's exercising a particular
potential vulnerability, and resulting impact
of that adverse event on the organization."
The organization should be aware of
information posted about it on social
media which can also cause damage to
organization. Risks related to social media
should be assessed and managed by the
organization. Once risk is assessed, it
should be prioritized, so that critical risks
are addressed as early as possible. The
impact of risk can be addressed either by
Mitigation, Transfer, Avoidance and
Acceptance. Associated risk with social
media should be assessed and managed, a
risk management program may include:
a. A corporate governance structure
b. Policies and procedures around social
media usage
c. Social media training
d. Due diligences process for selecting
and managing relationships with
third-party providers of social media
services
e. Oversight and monitoring process
f. Audit and compliance functions
g. A program to confirm the
effectiveness of the social media
program
Focus Section
The assessment should begin by surveying the
organization's employees. How do employees use social
media for business purposes? How do employees use
social media for personal purposes? What are employee's
understandings of social media risk? Further interviews
with management and key employees who have
involvement with risk management will help determine the
organization's risk and control landscape related to social
media. Severity of risk should be evaluated based on
likelihood and impact of the individual risk. Once
information has been gathered, controls should be
assessed to understand how they impact the risks of social
media. Then consider residual risk with current controls in
place. Gaps identified between the current control
environment and desired environment can be used to
initiate discussions around areas that need improvement.
Solutions should be developed to strategically address the
gaps in the current social media strategy and reduce overall
risk.
Some of risks related to social media that an organization
should consider include:
a. Compliance with regulatory requirements
b. Reputational damage
c, Information leakage
d. Loss of intellectual property
e. Malware attack
f. Copyright infringement
h. Privacy breach etc.
Information is also an asset of organization. If information
is leaked or this asset is breached, it may lead to financial
loss to an organization. It is personally experienced that
information leakage is the most critical hazard to an
organization and it should be highly prioritized risk. An
organization reputation, Goodwill and brand are intangible
assets. If this asset is impacted in negative manner, it may
cause reputation of organization seriously damage or
salvage. An organization should be aware of who is talking
behind their back and talking about them, whether the
discussion is positive or negative. Blogs and customer
30 | Management Accountant, July-August, 2014
feedbacks are considered appropriate in this regard. Data
held by an organization may be at risk. This includes
propriety information such as internal corporate data,
contact list, and confidential data related to organization.
Data loss can include loss of intellectual property. Malware
attack is a wide topic of internet security related to virus
activities and needs special treatment at organization level.
There are many Antivirus software comes with the
Malware detection and treatment solution. Privacy is the
ability of a person to selectively release personal
information about them to whoever they wish. Security
and confidentiality is required in order to protect privacy.
Control over publish data may be subject to the SOP
(standard operating procedure) of the social media site.
Control addresses what the site can do with the data. If the
organization does not own the social media site, then what
is published there is probably controlled by someone.
Control of content is lost once it is published.
There are many solutions which addresses the risk of social
media. Some solutions/practices which are applied in order
to address social
media risk are as
follow:
Encryption
Encryption
reduces the risk of
unintentional
data leakage in
c a s e y o u r
n o t e b o o k ,
removable media
or hard drive is
stolen/lost, or
upon the access
of unauthorized
u s e r s a n d
applications.
Network Access Control
NAC is used to define the rules for accessing network WAN
(internet) from LAN (within organization network). Care
should be taken while giving the rights to use social media
at organization level w.r.t. their use.
Device Control
Nowadays, where the communication devices are rapidly
evolving and advancing like Bluetooth, Infra, Wi-Fi and USB
and other storage media. Data transfer from one media to
another media has become drastically easy. Centrally
device control is one of the controls that may prevent
information to pass on by organization.
Web Control
Most of the solutions are also come with web control in
addition to device control. Internet sites and access is
centrally controlled in order to prevent social media risk
within organization. Data is secured by giving limited
access to web.

Is Social Media Marketing
the Key to Practice Profitability?
By Stuart Black & Paul Thompson
T he acquisition of new clients continues to be a
dominant driver of profitability for small- and medium-
sized practices (SMPs). Indeed, in recent editions of the
IFAC SMP Quick Poll, the largest portion of respondents
identified acquisition of new clients as the main driver of
practice profitability.
The poll results seem to question the wisdom of many
practice management “gurus” who say that the cost of
acquiring a new client is far higher than the cost of
retaining, or selling more services to, an existing client.
While the poll shows that retention is also important, what
those “gurus” may be failing to recognize is the full potential
and cost effectiveness of a marketing campaign that
includes low-cost social media.
Branding
The first step of a marketing strategy is to identify your
target customers and what they need. You then have to
determine how you can satisfy those needs at a profit and,
at the same time, differentiate yourself from your
competitors. This becomes your brand. The aim of your
marketing strategy is to have people associate your brand
with their needs and desires, choose you over the
competition, and, if you do it right, pay a premium for your
services.
Promotion and Marketing
An organic growth strategy involves leveraging promotion
and marketing activities to build brand awareness and
attract new clients or sell additional services to existing
clients. Remember that most businesses in the market are
likely to already have an accountant, which means you will
need to win clients from rival practices. And, in order to do
that, you must offer a compelling reason for them to
switch. This makes promotion and marketing more
important than everand demands that practices build the
capability to proficiently promote and market their brand
and service offerings. You will have to decide if you have the
resources in house with existing staff to do promotion and
marketing, or whether you need to recruit or outsource for
the requisite skills.
Promotion and marketing efforts are most effective when
a number of activities and channels are used
simultaneously: this harnesses the momentum of such
efforts and is likely to be more impactful. There are many
“tried and tested” strategies for marketing but the newest
one, social media, has already broken the mold. Social
media marketing has rapidly grown in prominence and gone
from margin to mainstream in a very short time. Social
media is a low-cost channel with a very wide reach into
your target market.
Focus Section
Social Media Marketing
Social media essentially has taken traditional word-of-
mouth marketing (historically the norm for accountants)
and moved it to a digital space, exponentially increasing
opportunities to influence. It is one of the most powerful
tools to engage customers and drive revenue growth. But
according to Steven D. Strauss, small business expert and
author of The Small Business Bible, while small business
owners recognize how important social media is to their
success, they're not taking advantage of social media's full
potential.[1] And, chances are, the same applies to SMPs:
after all, SMPs are effectively small businesses in the
accountancy sector.
Getting started in social media marketing and deciding
whether it can benefit your practice can be quite
overwhelmingeven scary, at first. Here are some steps to
take when building a social media presence:
1. Set aside preconceived notions – social media
carries risks but the rewards are greater: it will take
time and expense to plan and execute but there are
many tools, resources, and articles to help.
2. Learn about the what, why, and how – take the time
to read and educate yourself about social media,
including Twitter (see Twitter's Small Business Guide),
LinkedIn, Facebook, and blogging, and see what your
peers are doing.
3. Check out the tools and resources available to help
– there is a growing suite of tools, resources, and
guidance available, for example, the AICPA PCPS has
developed a number of resources, many of which are
available for free, including a social media toolkit and
articles.
4. Create a strategy and action plan – define goals,
decide how you will measure success and allocate
responsibility, then start out small by, for example,
pilot testing one of the tools. See “10 Questions to
Ask When Creating a Social Media Marketing Plan.”
5. Implement the plan – aim to provide content that
creates conversation rather than advertises and
involve staff from the millennial generation as they
often have the most experience.
6. Periodically evaluate, analyze, and update the plan
– track your efforts and monitor the return on
investment using common metrics including likes,
shares, followers, traffic, and conversions.
7. Consider the need for a policy – this can help
manage the risks and reap the rewards.
About the Authors: Stuart Black is Member, IFAC SMP
Committee, and Paul Thompson is Director, SMP & SME Affairs, IFAC.
Management Accountant, July-August, 2014 | 31
Focus Section

Social Networking and its Effects on

Companies and their Employees
By Douglas Baker, Nicole Buoni, Michael Fee, and Caroline Vitale

Introduction used to network within a desired professional atmosphere

and allows individuals to build professional, career-oriented
The purpose of this research is to review the rising use of
relationships. “Linkedin is the most business-oriented of
social networks by people while on the job. The popularity of
the four big social networking websites” (Wilson, 2009).
social networks and their increasing use in the workplace
Linkedin has a membership of about 36 million.
present some concerns for employers, but all indications
are that employers cannot hope to prevent social network MySpace was started in August 2003. It is more directed
use during work hours. As an alternative to an attempt to toward the musically inclined. This social networking
prohibit their use, this research leads to the website is no longer solely for social networking. It is more
recommendation that businesses make use of social about connecting different bands and groups, rather than
networks instead. A possible use would be
as a tool of communication between
management and employees to ensure that
Computer servers can only process so much
employees are productive but not information at one time. The use of social
overworked. Another possible use is as a
marketing tool. networking websites, alongside email and
Social networking is an interconnected company computer programs, slows down
system through which alliances are formed,
help is obtained, information is transmitted, the servers. This means that employees are
and actions taken to achieve certain
results. If businesses need to work with
sitting around waiting for their work to be
social networking websites, as seems likely, processed.
they should have a policy on social
networking in the workplace. This
recommendation is based on the assumptions that use of connecting individuals. The membership for MySpace is
social networking in the workplace continues to increase about 126 million.
and that internet security will never be perfect in filtering Joining the social networking trend in March 2006, Twitter
personal or business information on social networks. The is the most immediate of the four big social networking
extent of this problem is ongoing and impossible to predict. websites. It has become a self-promotional tool used by
celebrities. For those who like to “follow” their favorite
The Major Social Networking Websites celebrities, they can get instant updates about where their
There are four major social networking sites in common favorite singer or actor is, what they are doing, how they
use. Facebook, introduced in February 2004, is one of the are feeling, etc. Twitter has around 10 million members.
most popular social networking websites today. This
website was originally Potential Benefits of Social Networks for
open only to students at Business Management
Harvard University, but Contact with employees can be difficult for management.
this no longer holds true. Social networking websites provide an opportunity for
Facebook has reached a management to have faster contact with their
membership of over 200 subordinates. If there is an issue that needs immediate
million. attention, a manager can send a message through social
Linkedin was started in networking websites and the internet to their employees
May 2003, and is less to get the information they need to make a decision.
focused on social According to Swartz (2008), “corporate social networks
networking. This tool is

32 | Management Accountant, July-August, 2014


also cut down on unnecessary e-mail and instant message
among co-workers.” Social networking websites reduce
the amount of time it takes for a job to be completed
because they cut down the amount of time it takes for
employees and management to contact each other.
Information is easily found through the Internet. Social
networking websites can be one of the fastest ways to
obtain information. “Organizations are actively leveraging
the power of social networks to find new business
opportunities, new groups of like-minded individuals and
companies, and new sources of industry specific wisdom,
advice and expertise” (Wilson, 2009). Social networking
websites allow companies to find and share information
about different marketing strategies and techniques.
Among the benefits of social networking in the workplace,
company presence can be maintained. Social networks can
act as an advertising or marketing tool to help the
company reach out to both potential
employees and customers. Wilson (2009)
says “a logical extension of this is to employ
people to spend their entire day
maintaining the sanctioned company
presence on various social network
sites, acting as a company’s ‘voice.’”
Potential Problems for
Employers
According to Wilson (2009),
there are five principle
worries that management
has in regard to social
networking: perceived loss in
staff productivity, data
leakage from staff gossiping
freely in an open environment,
damage to a company’s reputation,
scams practiced by “cyber crooks,” and the
open access to company information because of
outdated passwords. There are many uses for the big four
social networking sites. It is a concern to management and
corporate executive officers that employees spend time on
these websites while at work.
One possible use of the networks that is a source of
concern to management is the possible damage to the
company’s reputation that can be brought about by posts
online. If an employee were to be angry, or have had a bad
day, they might be inclined to take their anger out online.
This behavior could damage a company’s reputation.
“Employers have the right to hold employees responsible
for such conduct if the postings are used to ‘attack the
company’ or ‘harass co-workers’” (Breslin, 2009).
Another concern, from a management standpoint, is the
belief that the use of social networking websites is
detrimental to the productivity of the employees who
spend increasing amounts of time on these websites.
Employees are given access to company equipment, mainly
computers and internet, in order to complete their jobs
effectively and efficiently. According to Peacock (2008),
Focus Section
“employers worry that staff are wasting time on websites
during the day, weakening productivity and increasing
security risks to the company by sharing data externally.”
Computer servers can only process so much information
at one time. The use of social networking websites,
alongside email and company computer programs, slows
down the servers. This means that employees are sitting
around waiting for their work to be processed. “E-mail
usage is upped. This slows down the server and means staff
are not working” (Peacock, 2008).
A company can face lawsuits, bad publicity, and decreased
employee morale because of employee use of social
networks. According to Greenwald (2009), 55 percent of
employees visit a social networking site at least once a
week. Possible areas of company liability include sexual
harassment, bullying, and threats of workplace violence, all
potentially occurring during these visits. Sexual
harassment occurs when one employee or
supervisor makes continued,
unwelcome sexual advances,
requests for sexual favors, and
other verbal or physical
conduct of a sexual nature,
to another employee or
supervisor, against his or
her wishes. These
behaviors can, and do,
happen online.
The increased risk of liability can
decrease productivity and cost the
company a large amount of money,
from dollars spent in defending against
lawsuits and possible revenue lost due to
damage to the reputation of the company.
The figure, below, illustrates employee opinion
on how easy it is to damage a company’s
reputation, using social networking.
Companies have more to worry about from
defamation, harassment, and threats because of social
networking. “Cyber smearing” is a key concern for
employers; that is communications that are considered
libel and defamation that occur online. “An employer could
find itself defending its employee’s unauthorized postings
against claims of defamation, harassment, or trade
disparagement” (Wise, 2009). Companies have to think
about employee privacy but also the risk that goes along
with it.
The Employee View
Employees also have views on the issue of social networks
and work. Many professionals are using social and
professional networking sites to build their personal brand.
A personal brand is the marketing of one’s self through
Facebook, Twitter, MySpace, and LinkedIn. Professionals
use these sites to engage audiences in their on-going
projects. For example, musicians use MySpace to reach
listeners who would normally not have access to the
artist’s music. LinkedIn helps users create a personal brand
Management Accountant, July-August, 2014 | 33
Focus Section
through a webpage creation
tool. It gives users access “to Figure 1: Can Employees Damage a Company
re-connect with past Using Social Networks?
contacts, discover inside
connections when looking for a 74% of employees surveyed say it’s easy to
new job, or new business damage a company’s reputation on social media.
opportunity, and receive advice
f ro m i n d u s t r y e x p e r t s ”
(Wilson, 2009). Twitter is used
throughout the world of sports
and entertainment to give fans
an inside look at 74% of
employees surveyed say it’s
easy to damage a company’s
reputation on social media
current and upcoming projects
that their favorite celebrities
and sports professionals are
engaged in.
There are negatives from the
employee standpoint as well. A
situation that has been arising for the working professional
is going onto Facebook to see what their friends are doing,
only to see that their boss or colleague has messaged them
about an urgent work matter (Available all the time, 2009).
Using these sites has blurred the lines between work and
private time. If the employer requests interaction with, or
wishes to “friend” an employee, how does an employee not
accept that without an issue of etiquette arising, especially
if employer and employee are friendly toward one another
in the office.
This raises the related question of whether it is appropriate
for a co-worker to reach out to another co-worker on a
social networking forum to talk about work matters.
According to Rothbard, “on the one hand, it enables
flexibility. In some ways, it makes you more effective. But it
can also lead to a lot of burnout. In the long term, it may
lead to conflict about how you feel towards your other life
roles and your ability to be fully present in any one domain”
(Available all the time, 2009). This burnout would be
defined as exhaustion of physical or emotional strength
usually as a result of prolonged stress or frustration.
If an employee is in constant contact with superiors and
coworkers through social networking sites, the employee
may eventually feel like there is no line between work life
and a personal life because he or she has become available
all the time. Blackberrys, for example, are often provided to
employees to check their email on the go, or to check their
twitter and face book accounts. This can create exhaustion
in the employee who can never have a clean line drawn
between work and play, especially if that employee has
“friended” the boss. There are two sides to this; “on the one
hand, it enables flexibility. In some ways, it makes you more
effective. But it can also lead to a lot of burnout” (Are you
practicing, 2009).
In the case where an employer and employee are social
network “friends,” nothing is kept secret. The employer will
be able to see how his or her employee behaves outside the
office, which can be seen as an invasion of privacy. As long
34 | Management Accountant, July-August, 2014
Employee respondents…
Strongly agree: 24%
Agree: 50%
} 74%
Disagree: 20%
Strongly disagree: 3%
Don’t know/refused: 4%
Source: Deloitte, 2009.
as the employee is not making the company look bad, there
should not be a problem for the company. According to
McGrath, “as an employee you want to ask yourself, ‘How
accessible do you want to be?’” (Available all the time,
2009). Rothbard notes that “Facebook itself is not likely to
take a role in establishing norms to sort out the conflicts
between business and personal friending” (Available all the
time, 2009).
This sometimes brings up the uncomfortable issue of, if an
employee and employer are friends in the office, why they
cannot be “friends” on a social networking site. If an
employee and employer are friendly at work, and choose to
be “friends” on a social networking site, then both have
access to all areas of each other’s lives.
Many potentially awkward situations can come up around
the use of Facebook and other social networking sites
because too much information is given out. In the
workplace, people are going to think twice about what they
say and the amount of information that is given. Rothbard
thinks “in face-to-face communications, people are much
more careful about the volume and nature of the
information they disclose. However, over the internet there
is a huge lack of awareness, or obliviousness, about who is
receiving this information” (Available all the time, 2009).
“They have to realize there are potential negative
consequences that can flow from coworkers knowing
more about you that is prudent” (Are you practicing, 2009).
Behaviors that might not be problematic between friends
outside of work could be interpreted very differently by
colleagues and employers. In the extreme, the possibility of
sexual harassment could be an issue and repercussions and
could leave an employee out of a job. “If an employer
discovers that an employee has engaged in objectionable
communications online, then discipline is appropriate”
(Wise, 2009). There is liability for the employer relating to
employee communication online so that in certain
circumstances, to protect the company name and the
victim involved, firing the employee is necessary.

In the work environment, an employee has to maintain a
professional image. When the line between work and
private life becomes blurred, an employer might feel free to
explore an employee’s online communications. “Workplace
conflicts have also come up at companies where managers
have limited or banned Facebook for being a distraction and
monitor employees’ personal pages for images or
comments that might reflect poorly on the business
(Available all the time, 2009). When an employee is
“friends” with their boss they have to think twice about the
content they post on their personal page. Even though it
could be an invasion of privacy to check up on your
employee, the employee has essentially given permission
to the employer to see their page by becoming “friends”
with them.
According to Williams, an employee just starting in his or
her career may not have yet developed a sense of his or her
professional self. This individual may be less cautious about
the image he or she projects on social networks, even when
that image may be visible to bosses or clients. Although
this lack of caution is simply a function of inexperience, the
employer has the responsibility of keeping the company
name reputable. This may give the employer the right to
terminate an employee because of something on their
Facebook or Twitter page. This is the ultimate downside to
becoming “friends” with your employer on Facebook
(Available all the time, 2009).
Legal Issues
There are also many legal issues that surround social
networking sites. The main issue is privacy of employee’s
content on work computers. The main piece of legislation
that deals with expectancy of workplace privacy is the
Electronic Communications Privacy Act, or ECPA, (Nord,
McCubbins, and Nord, 2006). The ECPA introduces three
exceptions that release liability for companies that use
spying software to record and prosecute online activity
during work hours (Nord et al., 2006).
The first exception is the “provider exception” which says “if
an employer actually owns and is providing the telephone,
email, or Internet services to the employees being
monitored an employer is released of liability.” The second
exception named referred to as “ordinary course of
business” says “the employer may monitor employee’s
communications to ensure such legitimate business
objectives as assuring quality control, preventing sexual
harassment, and preventing unauthorized use of
Focus Section
equipment, such as excessive telephone or email usage”
(Nord et al., 2006).
The third exception, called the “consent exception” says
that if communication from a personal computer is
intercepted or filtered through a company’s email system,
the employees can be fired over remarks made in that
communication. These exceptions to the ECPA make it
clear that under federal law a company can spy on its
employees and fire these employees if the content is
unlawful or the employee is stealing money by being
unproductive and using company resources (Nord et al.,
2006).
A company is protected under the ECPA to search an
employee’s computer. The company that does this, does
need to develop a policy that informs employees of the
ECPA and, by extension, should inform an employee of any
policies related to social networking sites.
Management Response
The first reaction of management to social networking in
the workplace often is to block access to all social
networking websites. However, this creates a few
problems for management. It creates more work as, if
management blocks access to social networking websites,
they create more work for the Information Technology
administrators. Social networking websites are being
created every week. The task of blocking access to every
social networking website would be tedious and never
ending. There is a very small chance that an Information
Technology technician will be able to know every social
networking website and successfully block access to
everyone.
If social networking were completely blocked, employees
would most likely be able to find ways to get around the
controls. There are many ways to access blocked websites
online. Different websites grant access to blocked
websites. Not only would Information Technology
administrators have to block the main social networking
websites, but they would also have to block the proxy
websites as well.
A more reasonable management response would be to
establish clear and thorough policies regarding use of
various online sites and activities. According to McLain
(2009), companies should consider the difference between
official and unofficial communication. In his view, official
communications consist only of those using the company
logos, and slogans. The policy should include information
regarding:
• Approved communications,
• Authorized users to communicate message,
• Subject matter,
• Separate official account for workers.
Unofficial communications consist of all personal
communications on a social network site. An unofficial
communication policy should include:
• Separate personal accounts,
Management Accountant, July-August, 2014 | 35
Focus Section
• Disclosure of accounts to immediate supervisors,
• Reference to personal affiliation rather than company
affiliation,
• Creation of a disclaimer for employees that use social
networking sites,
• Creation of time and subject matter restrictions.
Companies would benefit from a social networking policy
that provided information to employees about their legal
rights and obligations, so employees know what is required
of them when they are initially employed.
Conclusions and Recommendations
Social networks have evolved into a mix of socializing and
working, and lead to a degree of sacrificing privacy. Many
businesses are struggling with the use of social networking
sites and might benefit from the following changes. A
necessary first step for any company is to create a social
networking policy. By setting a policy, employees know the
company’s rules regarding the use of social networking
sites. In addition to establishing a policy for employees, a
company may want to determine how much use will be
made of social networking sites for marketing purposes.
A company should work with, not against, social
networking websites. Working against social networking
websites is unproductive. Companies that fight the
advancing technology are fighting a losing battle.
Technology is constantly changing the environment in
which a company operates and management should be
aware of these changes. It is in the best interests of a
company to know what websites are available to its
employees, be willing to grant access to certain websites
to keep employees productive, and be able to monitor
usage of social networking websites.
References
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com/2009/09/14/developing-social-media-policies-for-business/
Nord, G., McCubbins, T., and Nord, J. (2006 August) E-monitoring in the
workplace: privacy, legislation, and surveillance software.
[Electronic Version] Communications of the ACM (49)8.
Peacock, L. (2008, April 11). Employers watch Facebook usage.
Employers’ Law. Retrieved from:
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do?docL
inkInd=true&risb=21_T7917082304&format=GNBFI&sort=RELEVAN
CE&sta
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06&treeMa x=true&treeWidth=0&csi=274986&docNo=1
Swartz, J. (2008, October 8). Social networks go to work. USA Today.
Retrieved from:
http://web.ebscohost.com/ehost/detail?vid=2&hid=13&sid=578fc05
a-7ea1-4279-8dc0533f68a0a765%40sessionmgr4&bdata=
JnNpdGU9ZWhvc3QtbGl2ZQ%3d %3d#db=a9h&AN=
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Tahmincioglu, E. (2009, October 11). Your career: tweeting for your boss
MSNBC.com. Retrieved from
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Wilson, J. (2009, June 6). Social networking: the business case.
[Electronic Version] Engineering & Technology (4)10 54-56. Wise, P.
(2009, Summer). Tweet, tweet, you’re fired. Employment & Labor
Relations Law. (7)4 7-12. Retrieved from:
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6aa-f485-4469-8b18-cf75f1506f86%40sessionmgr112&bdata
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22_T7917322976&treeMa x=true&treeWidth=
0&csi=274986&docNo=1

Social Media for
Professional Networking
By Philip Lop
S ocial media presents an almost limitless
opportunity to connect with new people and
therefore forms a valuable part of your professional
network. While career-minded individuals were once
limited to increasing their network based on people they
had actually met, today's online social networks allow
you to reach out to a much wider pool of people. Target
your networking efforts in the right way to see the best
benefits.
Be sensible about the tools you use
There are a host of different social networks out there.
Some will be suited to what you want to achieve,
whereas others may not. Make
sure that you don't waste your
time by trying to hit too many
sites at once. Concentrate your
efforts on those sites that can
make the difference. LinkedIn is
the world's most successful
social network for business.
Facebook is probably more
suited to personal contacts, but
can be a great way to build a
better relationship with people
you already know.
Be generous with your time
Effective networking is not just about seeing what
people can do for you; it's also about identifying things
that you can do for them. Increase your recognition and
reputation on social media by being someone who loves
to share knowledge and experience, wants to learn and
develop, and is prepared to put in an effort for others.
These are the behaviors that will drive the best, most
enduring relationships with the people in your network.
Be consistent but innovative
You are likely to have pages and accounts on a number of
different social networks. Make sure that your presence
is consistent across the various media. Ensure that you
have a consistent profile photo, bio and career history.
Focus Section
Don't post the same content across all sites, however.
Target individuals, businesses or sectors in different
ways and on different sites so that you show a breadth
of content. Be innovative, too. Use photos, polls, videos
and blogs as different ways to connect with other
people.
Be responsive
Digital media creates an expectation that you are always
online. While people will understand that you do have to
get some sleep, taking a long time to respond to
messages will be frowned upon. Manage your time so
that you can monitor and proactively use your social
networking pages daily. Keep up
with messages, and follow up
promptly on any promises you
make.
Be as specific as you can
Idle chat and conversation is
rather limited in scope and isn't
likely to attract the attention of
your network. Approach people
on a specific basis by
demonstrating what you are
thinking and/or what you are
asking for. Talk about specific opportunities and ideas
and try to time a 'general catch-up' with somebody so
that it is prompted by a specified action or objective.
Be appreciative
It's really important to say thank you. That could be as
simple as a tweet or message, but look for other ways to
say thanks, too. Promote other people's content. Look
for ways to market what they do. Take people out for a
drink or meal to show your appreciation. Ensure that you
follow up on requests for positive feedback (such as
recommendations on LinkedIn). It's important that
people see that you acknowledging their efforts, not only
because it is the right thing to do, but because they may
then be inclined to help you again in the future.
Management Accountant, July-August, 2014 | 37
Meritorious Article
Six Levels of
Financial Knowledge
Here's a framework that management accountants can use to help their organizations reach new
heights of financial understanding and become more profitable
By George E. Manners, Jr.
I
n an issue of Strategic Finance, Paul
Sharman made the case for
management accounting. This topic
couldn't have been more timely then, and
it's even more critical now. To the extent
that the financial community can engage
both itself and line management in a soul-
searching look at what they really know
about their businesses, the case for
management accounting can be made
emphatically. With the appropriate
framework to shape financial knowledge,
the management accounting function
should become an organization's principal
decision-support platform.
Few line managers or financial executives
are satisfied with the current state of
decision support because it's too heavily
driven by the financial accounting
template and cost systems motivated by
overhead allocation. But dissatisfaction
usually leads businesses to take a hard look
at themselves and set some tough goals
relative to acquiring more profound
knowledge. What this engagement
process requires is a solid but easily
communicated framework for self-
evaluation and planning, which I'll propose.
With this self-evaluation vehicle, any
company can face brutal reality and begin
the journey toward reaching new levels of
financial understanding.
The framework recognizes that we're on a
cusp of decades of development coming
together in cost measurement and
estimation, data management, business
process modeling, enterprise resource
modeling and planning, mathematical
optimization, raw computing power,
electronic visualization, application
software development, and more. As they
said on The Six Million Dollar Man, “We can
rebuild him. We have the technology.”
38 | Management Accountant, July-August 2014
I term my proposed framework “the levels Figure 1: Levels of Financial Knowledge
of financial knowledge.” As you read the
description of each level, I expect you to 6. OPTIMIZATION ACROSS TIME
ask, “Where is my business?” Any
reasonably sized business may find itself 5. ENTERPRISE OPTIMIZATION
with elements of more than one level
operating simultaneously - depending on 4. THROUGHPUT-BASED UNDERSTANDING
the function, location, or business unit.
Nevertheless, the framework should be 3. SUBSTANTIVE CVP
quite prescriptive for evaluation and
planning. 2. BASIC COST/VOLUME/PROFIT (CVP)
Levels of Financial Knowledge 1. FINANCIAL STATEMENTS
The framework consists of six levels of
financial knowledge, and the word
“financial” is most operative here. I mean
dollars and sense; this is much more than
data and information - I'm talking about
knowledge. First let's take a look at a
synopsis of each level (see Figure 1), and
then I'll go into more detail about each one.
Level 1: The business can count and keep
score in the aggregate sense (business
unit/corporate) by tracking cash, accounts
receivables, payables, etc., and it can
generate periodic financial statements.
Level 2: The business has a traceable
measure of output volume and readily
identifies fixed and variable costs. It has
internalized the basic vocabulary of
cost/volume/profit (CVP).
Level 3: The business has a well-defined
breakdown of CVP elements and
understands how these more detailed
elements relate to working capital
behavior as well as to both Level 1 and
Level 2 templates. It can fundamentally
assess the business profitability drivers
and can generate appropriate policy
statements relative to spending money to
make money.
Level 4: Throughput, as opposed to output,
has become the focus of operational and
financial knowledge. The fundamental

engineering/economic recipes of input / throughput / output
(ITO) are known. The primary transformation constraints
are known, and this knowledge is a principal factor in
planning and resource allocation.
Level 5: At least in a planning sense, but, more importantly,
operationally, the business can optimize simultaneously
across multiple inputs / costs / recipes / constraints /
outputs. Fed by the decision-support system, the
methodology of marginal economics has moved from the
theoretical to the practical.
Level 6: The business can optimize simultaneously across
multiple inputs / costs / recipes / constraints / outputs and
time periods. Managing periodic slack resources, capacity,
and inventory across time is accomplished with profound
knowledge.
Knowledge acquisition is a journey that requires the
appropriate modes of transportation: systems, structures,
and processes. It's a journey that an entire business must
take, not just certain subsystems of it. Most of us are
familiar with businesses that have subsystems that
possess significant knowledge, but until that knowledge is
integrated into the company's overall financial knowledge,
the system's financial knowledge remains at lower levels.
Let's thoroughly investigate the levels by concentrating on
the vocabulary and significant knowledge concepts and
constructs of each one.
Level 1 Financial Knowledge
Too many users of accounting information think of it as “the
incompetent reporting the irrelevant to the indifferent,” but
financial accounting is the language of business. If you don't
have the knowledge to understand the language and speak it
credibly, then you can't communicate with those who are
the source of capital. Thus, the Level 1 knowledge base
connects a business to the outside world.
Since financial accounting constitutes Level 1 knowledge,
every business must pass through Level 1 to move through
the other levels. This is simply because any level of financial
knowledge must possess the systems to tie back to the
financial accounting templates - the standard P&L, balance
sheet, and cash flow statement. The principal concepts
behind Level 1 knowledge are derived primarily from ratio
analysis, which facilitates comparing financial performance
and financial potential independently of industry or asset
base. The significance of return on equity (ROE), Economic
Value Added (EVA®), and other Level 1 concepts, should
never be underestimated. These concepts constitute the
basic analysis toolkit for the suppliers of capital and, thus,
for the ultimate indices of executive performance and
reward.
Level 2 Financial Knowledge
While Level 1 knowledge tells us about a business's
profitability, it tells us very little about the business. In order
to move to a more fundamental understanding, a business
must establish a traceable measure of output (output unit),
a vital stopover on the journey to knowledge acquisition
even for the multi-product business.
Meritorious Article
Table 1: Differences in Level 1 and Level 2
Profitability Templates
Level 1 P&L Template Level 2 P&L Template
Sales Sales
Less: Cost of Sales Less: Variable Cost
Gross Profit Contribution Margin
Less: SG&A Less: Fixed Costs
Operating Profit Operating Profit
An output unit could be a case, a ton, a foot, an invoice, a
gallon, customer count, a transaction - it depends on the
business - but each firm building its knowledge base has
such a construct. Knowledge really begins to grow when the
business can make reliable assessments of how total costs
behave as a function of changes in output. To do this, the
business must attach variable cost to a single unit of output
- a giant step on the journey.
When you have output volume and variable cost per output
unit, you have the basis for Level 2 vocabulary. The first
important concept is Level 2's profitability template, which
is contrasted with Level 1's profitability template in Table 1.
Although these profitability templates appear similar,
they're remarkably different because of increased
knowledge. As the phrase “contribution margin” replaces
the phrase “gross profit” in a business, knowledge has grown
considerably.
Additional key concepts at Level 2 flow from the P&L
template, variable and fixed costs, and contribution margin.
The first is breakeven, the second is operating leverage, and
the third is the idea of decreasing unit (average) cost as a
function of volume. As the business internalizes these
concepts, its knowledge increases enormously. The
business prices and sources more intelligently, it makes
funding decisions more intelligently, it negotiates more
intelligently, and it evaluates opportunities more
intelligently. Simply, it's smarter.
Level 3 Financial Knowledge
When a business transitions to Level 3, it has learned that
return on assets (ROA) must be employed as the
enterprise's guiding profitability gauge. (And, rest assured,
EVA is a form of ROA.) First, business activity and
profitability require funding, and a competitive return must
be generated on those funds.
Second, the business has learned that it must expand the
basic CVP categories to capture more robust activity
descriptors. Not only does it require knowledge of variable
costs, but the business needs to know how they vary per
unit or per dollar and whether or not they are inventoried
(manufacturing or SG&A). Not only does it require
knowledge of fixed costs, but it also needs to know whether
they're inventoried or not and whether they represent non-
cash (depreciation) or not. The business also requires
knowledge about how many times a cost is inventoried, so
categories such as raw materials are imperative for breaking
Management Accountant, July-August 2014 | 39
Meritorious Article

out. Table 2 illustrates the “minimum spec”

categories for Level 3 knowledge.
Table 2: Level 3 Minimum Spec CVP Categories
Third, the business ties these more robust CVP 1. Unit volume. The number of units of output produced and sold (as in Level
categories into elements of assets - 2).
particularly current assets - by applying asset
2. Gross price. The average gross price per unit of volume.
turnover constructs. After it does this, it not
only can plan an activity but the funding of it as 3. Materials cost per unit. For the average manufacturing firm, this might
well. Again, see Table 2. constitute all materials. For firms with one primary material (pulp for paper
making, for instance), we might have two materials categories.
Finally, the business has combined CVP
elements and turnovers into an ROA model, 4. Variable labor costs per unit. Getting a reliable measure on what portion
of direct labor is variable can be challenging but is often critical.
which allows it to understand the constructs
that truly define Level 3 knowledge: 5. Variable processing costs per unit. This could include a variety of
dimensions, but energy and water are prime examples.
o It can fundamentally assess its profitability
drivers (profitability represented by ROA). 6. Fixed manufacturing costs. This measure would include all cash expenses
It now has a knowledge-driven platform that don't generally vary with changes in output.
for evaluating profit-improvement 7. Revenue-variable S&A expenses. This measure includes all expenses that
opportunities, capital-spending vary with dollars of revenue (as opposed to units). Sales commissions and
opportunities, and tradeoffs among royalties are examples. It is important to distinguish here how expenses are
drivers. It can track drivers on a continuing actually incurred vs. how they are budgeted.
basis. 8. Unit-variable S&A expenses. This includes all variable S&A expenses that
vary with units sold, such as freight charges. (The reader should grapple
o It can make very definitive policy
with understanding that separating revenue-variable from unit-variable
statements about the limits of spending expenses has enormous pricing and other business-knowledge
money to make money. These initiatives implications.)
could be R&D, promotion, hiring, training,
9. Fixed S&A expenses. This includes all cash S&A expenses that don't vary
etc.
with unit volume.
o It can apply its business modeling at more
10. Manufacturing fixed assets. This is the end-of-year book value (net of
granular levels such as product-line depreciation) of manufacturing fixed assets.
profitability or customer profitability,
although Level 4 knowledge can be a much 11. S&A fixed assets. This is the end-of-year book value of S&A fixed assets.
more definitive achievement level for true 12. Depreciation rate on ending fixed assets. Note ending vs. beginning.
product-line profitability. 13. Receivables turnover. This is the number of times that customer
Only 10 to 15 years ago, a business that receivables turn over each year, which is defined as sales divided by ending
consistently operated at a Level 3 state of receivables.
knowledge had a distinct competitive 14. Materials turnover. This is the number of times that raw materials turn
advantage. Today, we must raise our sights. over each year and is defined as total annual materials cost divided by the
ending value of materials inventory.
Level 4 Financial Knowledge 15. Work-in-process and finished goods turnover. This is the number of
There's a very distinct increment in knowledge times WIP and finished goods turn over each year and is defined as cost of
when moving to Level 4. This increment goods sold divided by the ending value of this inventory.
recognizes that the business isn't just an
output system but a highly interdependent to the financial reporting and control system.
input / throughput / output system. And this ITO system is Level 4 knowledge also introduces profound understanding
defined much more effectively by the discipline of process of the multiple and interdependent constraints that often
engineering than by the discipline of accounting. define the ITO system capabilities. The business recognizes
Nevertheless, the Level 4 business has married the that its system is composed of interconnected resources
engineering equations with the accounting equations. on which processes are performed. It knows the capacities
An ITO system possesses known physical recipes (or what of those resources and the recipes for performing the
older accountants call bills of material) that are defined by processes and the process speeds. The business knows and
their interdependencies as well as their dependencies. If, say, has documented how costs actually vary as processes are
a manufacturing firm is at least partially self-sufficient in its performed on those resources. (It knows how they vary per
use of energy, it converts fuel and water into steam and input and output unit, as well as resource unit, and how they
then steam into electricity and electricity into machine are impacted by process yields.) And, yes, it knows where
hours. That's the dependency. But electricity is used to run the defining constraints lie.
the steam plant, and manufacturing by-products may be While Level 3 introduces profitability drivers as a key
used as fuel to convert water to steam. The Level 4 business construct, Level 4 dimensionalizes how those drivers really
c a n f u n d a m e n t a l l y s p e c i f y a n d t ra c k t h e s e operate. At Level 4, the business knows that only three
interdependencies. It can deploy them to create a credible relations are required to understand and account for all
operating plan and also a reporting and control system tied operating dependencies:

40 | Management Accountant, July-August 2014


Relation 1. There is stuff in, stuff out, and process yield.
Relation 2. A factor cost per output unit is completely
defined by resource units per output unit, factor
consumption per resource unit, and cost per factor unit.
Relation 3. It isn't contribution margin per output unit that
drives the system - it's contribution margin per key
resource unit. (Thus, Level 4 is a better platform for
understanding product-line profitability than Level 3.)
That's it. That's all there needs to be. At this point some of
you may be asking, “Isn't this activity-based costing
(ABC)?” Well, Level 4 is what ABC wanted to be when it
grew up and before most businesses turned it into an
elaborate overhead-allocation exercise.
Level 4's vocabulary greatly depends on applying
contemporary technology. This knowledge must reside on
an information and decision-support platform that
possesses the following characteristics:
1. An integrated model of the business that can
withstand engineering and scientific scrutiny.
2. The ability to credibly reproduce the firm's Level 1
financial reporting through the model (i.e., it can
withstand accounting scrutiny).
3. The ability to deploy the model to react rapidly to
tactical and environmental changes - not just produce
a plan.
4. The capacity to fundamentally deploy the model for
strategic analysis and decision making.
Many businesses possess enough integrated Level 4
knowledge to create a very credible annual operating plan,
but only a few have truly reached this level on a continuing
basis.
Level 5 Financial Knowledge
The transition into Level 5 financial knowledge is
accomplished only with very contemporary supporting
systems, structures, and processes. You'll know it when
you see it, but there are three primary ingredients for
getting there.
1. Substantive cost / volume / profit knowledge and
supporting information handling structures (i.e., Level
4).
2. Very contemporary business process modeling that
fundamentally maps the input / throughput / output
interrelationships and constraints across the entire
business.
3. A contemporary optimization platform that
accommodates the business model and allows the
business to simultaneously optimize its ITO system in
terms of all flows through the system (product mix,
sourcing, resource utilization, etc.).
Thus, the essence of Level 5 financial knowledge initially is
captured by the capability to fundamentally optimize the
business - at least in a planning mode.
Although business-level financial optimization is only just
getting into the knowledge-management capability of more
sophisticated firms, it will come on quickly. In high-volume
Meritorious Article
process industries it will soon be required to continue
participating in the industry.
Other industry categories may move more slowly, but the
following new best practice is now observable. To enter
Level 5, a company has already taken the following steps:
1. The business has mastered Level 4.
2. The whole business, not just part of it, has been
fundamentally mapped and modeled at a substance
level where modern optimization solvers are imbedded
in the model.
3. The business has thoroughly validated the model. It has
selected real historical time periods and recreated
actual flow volumes and financial reports throughout.
4. The business has “deconstrained” the validated model
and begun to fundamentally learn the optimization
relationships across its systems. A validated
optimization model always creates significant new
knowledge.
5. The business has acted on the more tactical-level
profit-enhancing opportunities the model offers. The
outcomes of these tactical actions are further
reinforced and refined in the model, which is a principal
tool for all continuous-improvement project selection
and justification.
6. The business has internalized the model's use as a
condition for all capital justification and strategic
analyses.
Again, you'll know it when you see it.
The Level 5 vocabulary of optimality includes two other
constructs that greatly facilitate knowledge building. The
first is opportunity cost. In an interdependent, multi-
constraint ITO system, the opportunity cost of another
resource unit, another labor hour, another source of
materials, another unit of saleable product - and so on -
greases the whole decision-making process. To return to
our steam, electricity, and operating machine example, if
each is constrained, which has the highest opportunity
cost? Which one should receive the infusion of capital first?
On which can we go outside for added capacity (OK,
outsource), and which must be internally upgraded?
Knowledge of opportunity cost greatly enhances pricing
decisions and negotiations, and it provides the platform to
vastly improve priority setting and to allocate scarce
resources. Since the marketplace is often a highly binding
constraint in an optimized system, opportunity cost
constitutes an ultimate measure of customer profitability
(e.g., the next customer).
A by-product of opportunity cost is Level 5's second key
construct - decision making at the margin. Although
marginal analysis is done at any level of financial knowledge,
at Level 5 it almost defines the way the system works. For
example, unless a business has reached this level, a decision
to outsource a key process lacks sufficient knowledge for
dealing effectively with all the interdependencies. Or, for
instance, a decision to bring in semi-finished units and avoid
the capital necessary for expanding a constrained resource
has a huge number of impacts across the system. It can
Management Accountant, July-August 2014 | 41
Meritorious Article
radically impact the optimal product mix, the energy
balance, and optimal sourcing. And it can literally change the
whole face of the business when, at the margin, you move
from one optimum to another optimum. Even a Level 4
business has trouble coping with these interdependencies
because it lacks the capacity to specify what is best in an
absolute sense.
You can't overestimate the importance of enterprise-wide
enhancements available to a Level 5 business. Whether it
concerns resource allocation to competing remote sites,
decisions to open/close, intra-system transfers, inventory
swings, etc., the enterprise has more profound knowledge.
And this knowledge allows it to move faster and more
intelligently with the best interests of the entire system in
mind.
I once worked for a CEO who excelled at what he termed
back-of-the-envelope economics. Of course, you can't put
Level 5 knowledge on an envelope. It takes contemporary
technologies supporting the company's desire to get there.
Yet the prize is worth the chase.
Level 6 Financial Knowledge
At Level 6, a business not only exhibits Level 5 knowledge,
but it can apply it across multiple time periods. Is reaching
this level really that big of a jump from the previous level?
The contention here is that the capacity to optimize across
time is a huge increment in at least the application of
knowledge - and most probably knowledge itself.
There are several driving constructs behind the financial
advantages of optimizing across time. The first driving force
is simply the ability to plan through seasonality in a profit-
optimizing fashion. Whether this seasonality is in demand,
factor prices, or resource productivity, the capability to deal
optimally with the seasonality is Level 6's principal defining
characteristic.
A second driver, which is highly interdependent with
seasonality, manages periodically slack or constrained
resources. As a highly interdependent ITO system faces
seasonality, it may use its knowledge to optimally deploy
periodic slack resources to buffer the flows through the
system via buildups and draw-downs in various inventories.
For instance, suppose we have a highly seasonal business,
we possess several similar machines with different run
speeds/yields across product lines, we can deploy some
work-in-process and finished inventory, and we must take
down each machine for preventive maintenance at least
twice each year. A Level 6 firm would know exactly how to
42 | Management Accountant, July-August 2014
simultaneously optimize production (and mix), inventory
buildups / draw-downs, and machine takedowns each time
period across the planning cycle. Businesses have always
had to do this, of course, but at Level 6 they do so with
profound enterprise-wide knowledge rather than within
subsystems. Multi-vendor, multisite, multi-geography,
logistically complicated businesses will be hugely impacted
when they can approach Level 6 capability across multiple
time periods.
Another driving concept is the capability to manage the
uptime/downtime sequencing of key resources across
multiple time periods with the optimality of the enterprise
governing the decision-making process. The interdependent
complexities across a business that has a tricky need for
preemptive maintenance can single-handedly justify the
pain of moving to this knowledge level. I'll even go so far as to
say that to avoid capital spending by more profoundly
managing uptime and downtime across time periods will in
itself pay back the investment in gaining Level 6 knowledge.
A further driving concept behind moving to this level is the
more fundamental ability to manage the complexity of
multi-resource, multi-product / service setup times, run
lengths, and run speeds across time periods - especially in
just-in-time (JIT) environments.
A final driver is that it doesn't take a business leader long to
tune in to an absolutely basic principle of financial
knowledge: Profit flows don't equal cash flows. Yet this basic
principle needs Level 6 business-wide modeling to receive
optimal treatment. Inventory buildups and draw-downs and
the behavior of receivables in a seasonal environment highly
impact the profit flow vs. cash flow principle. It takes very
sophisticated business models that optimize the enterprise
to truly deal with these complexities.
The Level 6 fraternity contains very few members. Those
who have moved past Level 5 into an optimality model with
many time periods have done so primarily within a planning
framework. But Level 6 comes with dramatic, enterprise-
level payoffs to those willing to take the journey.
Collective Mastery
Management accounting can provide a business with the
decision-support environment in which it can evaluate its
financial knowledge level and establish a target-setting
vehicle for continuous improvement. Knowledge, though, is
only the beginning. At each level, we seek to achieve a
greater sense of mastery, which implies that we not only
possess knowledge but have the understanding and
confidence to act on that knowledge in a way that leads to
superior financial outcomes. Knowledge is an absolute
prerequisite, but collective mastery is the ultimate
objective. By “collective mastery” I imply that knowledge is
broadly and deeply shared within the business and that
individuals possess the knowledge, resources, and skills to
master the operating requirements of the interconnected
processes. Moving up the levels of knowledge is well worth
it.
George E. Manners, Jr., is a professor of accounting and
management at Kennesaw State University in Kennesaw, Ga. You
can reach him at gmanners@kennesaw.edu
 Article Section

CFO: to Catalyst
From Analyst
By Thomas G. Canace and Paul Juras, CMA
Do these comments sound familiar? They should because they come from chief financial officers (CFOs) and highlight the
importance of transforming their position from overlord of the finance function to strategic decision maker within their
organization. Indeed, even textbooks like Cost Management: A Strategic Emphasis have begun to address the strategic role of the
accounting and finance functions and better reflect the IMA® (Institute of Management Accountants) 2009 definition of
management accounting in its Statement on Management Accounting titled Definition of Management Accounting, which reads:
“Management accounting is a profession that involves partnering in management decision making, devising planning and
performance management systems, and providing expertise in financial reporting and control to assist management in
the formulation and implementation of an organization's strategy.”

S everal factors have worked together to broaden the

CFO's role in recent years. First and foremost is the
gradual phasing out of the chief operating officer (COO)
competition, which means companies must exploit the
strategic vision and leadership skills of the CFO to help
create and execute business plans.
position. According to the Volatility Report 2013 (summer)
on executive turnover by Crist|Kolder Associates, which Unleashing the Strategic Role
surveyed 668 of America's leading companies, the number Accounting and finance professionals agree that, given the
of companies with a COO continued to decrease - from limited number of workdays per month, along with the
39.1 in 2012 to 36% in 2013 - as more and more increased reporting and compliance requirements,
organizations eliminated the position. This change has becoming a strategic business partner requires broad
altered the relationship between the CEO and CFO, both of changes to the operation of the finance function, a point
whom have jumped into the day-to-day operations to work made by Kishore Bhamidipati in the March 2013 Strategic
closely in implementing business strategy. This allows the Finance article “Productivity Outlook: Poor Visibility and Bad
CFO much more face time with both the CEO, and, Reporting Ahead” and others. The goal is fewer days spent
importantly, the board of directors. Hence, the
CFO role has morphed from analyzing the
financial information of the business to also
“Becoming a business partner sometimes
weighing in on the corporate strategy means taking counterintuitive approaches.”
emanating from the boardroom.
Second, the regulatory environment has “Partnering opens up opportunities to focus
changed substantially over the past decade, on top-line growth rather than just cutting
requiring CFOs to possess a greater
understanding of the business operations. For costs through a 'say no' approach.”
instance, Sections 302 and 906 of the
Sarbanes-Oxley Act of 2002 (SOX) require
producing financial information to allow more days for the
CEOs and CFOs to certify the quarterly and annual financial
CFO and finance organization to spend analyzing the
statements, so many executives have decided that
business results and assisting the front-line managers in
possessing a deeper, nuts-and bolts understanding of the
strategic decision making. Table 1 reports how companies
business offers them better protection when attesting to
perform along several key finance dimensions as well as
the financial results. Moreover, fair-disclosure rules
compared to the best-in-class measure.
implemented by the Securities & Exchange Commission
(SEC) in 2000 under Regulation FD (Fair Disclosure) require According to Table 1, the average company spends more
broad dissemination of company disclosures of public than one business week closing its monthly financial
information. Compliance with Regulation FD has been statements. In larger organizations, especially, more time is
facilitated by web-casts of a company's earnings calls, required to coordinate the closing of payables and
which are typically led by both the CEO and CFO. Being front receivables across various locations, and more time is
and center with the investor community on a quarterly necessary to feed transaction and ledger data across
basis has pushed the CFO from scorecard keeper to key multiple systems, which likely aren't integrated and
player. therefore don't produce real-time information. As a result,
finance professionals may spend half a month just
Finally, rapid economic changes have heightened global

Management Accountant, July-August, 2014 | 43

Article Section

compiling financial
information. Add in the one Table 1: How Well Does Your Finance Team Measure Up?
to two quarters a year that
FINANCE DIMENSION AVERAGE WORLD-CLASS
firms also spend creating
budgets, and there's very Number of processing locations >3 1
little time left for
Number of systems processes 23 1

participating in the
business's strategic Length of closing cycle
decision making. The goal
Length of total reporting cycle
for CFOs and their teams is
to improve their Time compiling reports
performance along these
Length of budget cycle
dimensions, thereby
creating an organization Sources: Cedric Read and Hans-Dieter Scheuermann, The CFO as Business Integrator, Wiley, 2003; Thomas
that becomes more Wunder and Jeff Thomson, “Want to Be a More Effective CFO? Ask the Audience!” Strategic Finance, January
2006; Oracle presentation to the St. Louis Chapter of Financial Executives International, Achieving A World
efficient in producing
Class Close, 2010.
financial reports.
Therefore, the mandate for
CFOs and their teams is to move toward the world-class
standard shown in Table 1. This will allow them more time to
analyze data for decision making and to create and execute
business plans to add more value.
Aligning Business Processes
Admittedly, achieving world-class standards is no easy task
for many organizations. That said, there are several key
considerations that help align business processes to
The use of rolling outlooks throughout
the year provides a natural way to
shrink the budget cycle.
support the CFO's role as strategic business partner. These
alignment “levers” fall under three categories: systems
processes, financial processes, and organizational
processes. Let's examine each one in more detail.
Systems Processes Alignment. The first step for many
organizations looking to reduce transaction and reporting
cycle times is to perform a critical review of their current
systems. The goal is to align the enterprise systems with
the tasks being performed by the finance organization and
eliminate things that don't demonstrate a clear business
need. In the article we mentioned earlier, Kishore
Bhamidipati noted that best-of-breed tools might be
adopted by various segments of an organization, but if they
aren't integrated properly, it's going to take much more time
to produce general ledger and financial information each
month.
Therefore, aligning systems processes requires (1)
producing an inventory of tasks that the organization
performs and critically assessing which ones are relevant or
add value, (2) understanding the systems architecture for
the organization's various transaction cycles, (3) designing
the system to efficiently support the relevant tasks and
transaction cycles that produce financial information, and
(4) considering whether further investments are necessary
to support this new alignment.
44 | Management Accountant, July-August, 2014
PARTNERING
BUSINESS
6 days <2 days
12 days 6 days
35% - 40% <25%
45 months <2 months
Financial Processes Alignment. CFOs who want to
realign their financial processes often have many options.
Because business unit organizational structures can be
complex and fluid, financial processes can easily become
outdated if continuous realignment doesn't remain a
priority.
Some companies recently have addressed the length of
their closing cycles head-on by moving toward soft-close
processes. Rather than perform a full closing cycle each
month, these companies opt to do so only at
quarter-end months when public financial
disclosures may be required; during off-quarter
months, their internal financials are generated
via system-interfaced transactions only.
Performed properly, this procedure should result
in more efficient closings without the loss of
intelligence about business transactions.
Specifically, in off-quarter months CFOs could
report system financials to their business partner with an
overlay of “pro forma” adjustments for review. This process
supports the business partner role by affording an
opportunity to discuss impending adjustments, which can
in turn improve communication, reduce reporting surprises,
and allow the CFO to better understand the business
operations.
Moreover, budget cycles can take on a life of their own. As
shown in Table 1, they may consume up to five months for
many companies, making it an obvious area for
improvement. The use of rolling outlooks throughout the
year provides a natural way to shrink the budget cycle
because the continuous refinement of future outlooks
during the year provides the business with a strong baseline
for next year's budget. For instance, a company that utilizes
a four-quarter rolling outlook process will find that, at the
end of the current fiscal year, it has already established next
year's budget through the quarterly outlook routine and
that the budget has been subjected to critical review
throughout the year.
While aligning budget and outlook platforms with financial
reporting will save time, it requires an integrated financial
report with a single face that matches budget and outlook
information line by line with as-reported actuals. This

seems trivial, but it's surprising Figure 1: Leveraging the C-Framework
how many budget and outlook
systems are maintained on
spreadsheets or in systems that CFO Leading change
don't interface with system “LEVERS”
generated statements, meaning
things have to be fixed manually.
When these platforms aren't well
integrated, it's tough for business
partners to talk intelligently about
the major factors driving
variances, and it impedes the
finance function from better
u n d e r s t a n d i n g o p e ra t i o n a l
performance.
COMPANY
Organizational Processes “LEVERS”
Alignment. It's critical for the
CFO to determine whether there
are more efficient ways to deliver
service to the front-line managers
that will also allow the finance organization to become a
more effective strategic business partner. So another
important step in processes realignment is to reconsider
the people and positions that deliver the financial
information. This may help reduce the time needed to
compile financial reports, the number of processing
locations, and the closing-cycle time. It's also important to
consider how external service providers are being used: Is
outsourcing reducing costs and improving service while
affording the finance function more opportunities to expand
its role as a strategic business partner?
Some companies also attempt to improve the alignment of
their organizational processes by rotating their finance
professionals through the business units so they can gain a
broader understanding of the operations of the company.
Yes, this can result in short-term disruptions and learning
curves that impede development of the strategic business
partner role, but the long-term gain may be a more holistic
business sense to aid their partners' decisions. Other
companies have created “shadow” finance organizations in
which the finance personnel reside within the business unit
as a permanent headcount, maintaining a direct reporting
relationship to its leader and a dotted-line relationship to
the finance/ CFO organization. Ideally, this improves the
business partnering relationship between the operating and
finance functions, plus it offers the potential benefit of
providing the finance staff with a deeper understanding of
the business unit by being more involved in its daily
operations and decision making.
Making the Transformation
Once the CFO aligns the processes that will enable the role
of strategic business partner, the next step is understanding
how to become an effective business partner. Figure 1
provides a tool, the C-framework, that can help smooth the
transition.
At the top of the framework, the CFO can become a partner
at an individual level along several dimensions (called CFO
“levers”). These dimensions serve as inputs. When the CFO
uses these levers to act as a strategic business partner,
Article Section
CATALYST COLLABORATOR CONSULTANT CONSCIENCE
Integration hub Independent, Beyond financial
objective advisor governance; a broader
business conscience
STRATEGIC BUSINESS
PARTNER
CUSTOMERS COSTS CASH
Internal and external Rethinking organizations Optimization at project
for long-term and company level
sustainability drives value
each of the dimensions can impact the company in several
ways (company “levers”). These company levers serve as
outputs. While the CFO shouldn't be constrained by the
levers only, the framework provides a tangible way to
consciously think about the importance of the business
partner role to the overall organization.
CFO Levers as Inputs. At the individual level, the CFO can
improve the business by acting as catalyst, collaborator,
consultant, and conscience. First, the CFO acts as catalyst
by helping introduce and implement new strategies, such as
presenting the economic ramifications of a new venture or
leading the efforts to integrate a newly acquired company.
Second, the CFO can take on the role of collaborator by
serving as a “hub” to integrate the functional aspects of the
business, such as purchasing, sales, human resources, and
information technology. Third, the CFO can assume the role
of consultant by acting as an independent, objective advisor
to his or her team of business leaders. Fourth, recent
corporate scandals have shown that the CFO must be a
conscience for the business not only for the reported
financials but also by considering the broader ramifications
of company initiatives.
Company Levers as Outputs. Also shown in Figure 1, each
dimension of the CFO levers should ultimately impact the
customers, costs, and cash of the business (company
levers). First, each action at the CFO level should positively
impact customersboth the internal partners, who rely on
information and advice from the CFO, and the external,
revenue-generating customers. Second, each CFO lever
should help the business achieve a cost structure that
allows for long-term sustainability. To put it bluntly, no
business can live for the present without considering the
ramifications for the future. And, finally, the first-tier levers
should work toward advancing and benefiting the
enterprise value: namely, cash optimization.
What CFOs Are Saying Now
We solicited information from CFOs who recently at -
tended a roundtable on strategic business partnering in
Charlotte, N.C. The forum was open only to C-level
executives. CFOs were assigned to breakout groups and
Management Accountant, July-August, 2014 | 45
Article Section
asked to talk about business partnering, present their
findings to the larger audience, and submit notes of their
discussion. Forty provided feedback.
These executives largely represented middle-market
companies. As shown in Table 2, a wide array of industries
were represented, the most frequent being financial and
professional services (30%), building and construction
(17.5%), real estate development (15%), and not for profit
(12.5%).
The CFOs were first asked to reflect on the C-framework of
strategic business partnering. Specifically, they discussed
ways in which use of the four CFO levers has enabled their
finance organization to become a better business partner to
impact their business from the perspective of
the three company levers. They talked about
how the transition to business partner has Some CFOs routinely visit their customers'
enabled (or could enable) their finance
organization to rethink its focus on costs, sites to better understand how they can
shape a renewed focus on both internal and
external customers, and elevate the
deliver goods and services to them more
importance of cash optimization at the project effectively.
and company levels to drive business value.
In addition, they were asked to provide insights about how
their financial processes have evolved in recent years to
enable their role as business partner. These discussions
elicited specific examples. Here's some of what they
reported:
Costs. Any discussion of costs typically focuses on cost
cutting. But that's begining to change. Specifically, CFOs
commented that by understanding the operations better as
a business partner, they can focus on how to improve the
top line rather than saying “no” through cost cutting. In fact, their business needs and goals through their eyes. Some
one CFO noted that becoming a business partner helps
ensure his team acts as an objective advisor to the
business, injecting logic without letting emotions get in the
way. Importantly, CFOs who espoused this philosophy
admitted that they're now better equipped to view their discussed the ways in which they can lead change in
partners' costs as investments rather than expenses by
linking spending to revenue growth.
They also discussed how they've learned to sometimes take
Table 2: Where the CFOs Came From
INDUSTRY DESCRIPTION # OF CFOS % OF TOTAL
Financial and professional services 12 30.0
Building and construction 7 17.5
Real estate development 6 15.0
Not-for-profit 5 12.5
Textiles and apparel 3 7.5
Housewares 2 5.0
Housing 2 5.0
Restaurant and food services 2 5.0
Manufacturing 1 2.5
Total 40 100.0%
46 | Management Accountant, July-August, 2014
counterintuitive approaches to costs. As one commented,
giving raises or bonuses to employees may be a heavy cost
burden to bear during difficult economic times, but when
viewed as a positive long-term investment, it may be easier
to justify. For instance, employees may do all the right
things, positioning the company for long-term growth, but
economic forces may limit current results. In this case, it's
important to recognize the connection between current
effort and latent results in explicitly rewarding and
motivating employees.
Moreover, by better understanding the operational
complexities of the business, CFOs can add value by
working collaboratively with the purchasing organization to
better manage vendor relationships and long-term costs to
ensure that the procurement of goods/services and the
associated contract provisions fit the company's overall
strategy. Other CFOs who participated in the roundtable
took a broad view of the role of partner, mentioning that
since the finance organization manages functions such as
payables, it's also necessary to collaborate with vendors to
ensure a productive long-term relationship.
Customers. CFOs addressed the importance of getting
out of the office and visiting their customers to experience
CFOs mentioned that they (or their division CFOs) routinely
accompany business unit leaders on visits to their
customers' sites to better understand how they can deliver
goods and services to them more effectively. Other CFOs
managing customer relationships by acting as
“consultants” to the customersin particular by helping
them better understand pricing implications. Because CFOs
are uniquely qualified to discuss the economic, risk, and
financial models of their business, they can improve
communications and long-term relationships with
customers.
Cash Optimization. Discussions about cash addressed
the broader “business conscience” of the company. Some
CFOs commented that operating in a distinct finance
function without immersion into the operating unit as a
partner inhibits the ability to see how the company's cash
can be used to help communities where their products are
sold. A prime example of doing this the right way is
Starbucks, which connects customers with different
service projects on a local level, such as cleaning up parks,
doing light construction, serving meals, and volunteering at
food banks.
In addition, CFOs pointed out that optimizing the quote-to-
cash cycle requires both internal and external collaboration.
(The quote-to-cash cycle refers to the business processes
involved with creating a quote for a prospective customer,

A CFO's Checklist for 2014
INVEST IN SYSTEMS/PROCESSES
o Critically review current systems
o Minimize and integrate systems
o Close systems before month-end and only require
manual accrual adjustments at quarter-end;
discuss “pro forma” adjustments with partners to
better understand business
o Implement online application of financial reporting
and analysis tools to facilitate variance analysis
CHANGE CFO/FINANCE STAFF MIND-SET
o Revamp budget processes; ensure link between
strategy/budget/outlook
o Move from budgeting to rolling outlooks
o “We” (finance) aren't the outsiders but are insiders
helping to run the business
o View costs as investment in the strategy; focus
on how to improve top line rather than just
cutting costs
MAKE NEEDED ORGANIZATIONAL CHANGES
o Develop cross-training in finance staff
o Consider shadow organizations to breed deep-
rooted business knowledge
o Consider outsourcing to free up internal staff to
become strategic advisors
o Foster involvement in organizational design
INCREASE MARKET AWARENESS
o Meet with customers to understand customer
perspective
o Use business models to help customers
understand the economics of the business
perspective
o Ensure vendor relationships fit with strategy
o Develop awareness of regulations affecting
business/reporting to lead risk management
efforts
order management, demand-driven production scheduling,
invoicing, and cash receipt.) Because many aspects of the
cycle are financial, CFOs believe they can drive the changes
needed to ensure cash optimization. In this sense, the CFO
can act as a hub among various partners, providing
accounting, financial, and economic advice to the sales
organization to assist in pricing decisions, as well as set
payment terms with vendors and manage customer
collections.
A Massive Restructuring
In addition to addressing the levers of the C-framework,
CFOs shared their experiences about how their financial
processes have needed to change to support their role as
business partner. These discussions largely centered on the
common themes of budgeting, systems, and organizational
dynamics.
Article Section
First, participants mentioned how restructuring their
budget processes has cut crucial workdays out of the
budget cycle. In particular, CFOs pointed out that providing
rolling quarterly forecasts has served a dual goal of making
the budget process more efficient and giving leaders a
better handle on the pulse of the business.
Second, they commented about the importance of
revamping the closing process by moving toward a virtual
close to reduce processing time each month. This greater
efficiency provides finance staff with more time to support
their business partners in value-added strategic roles. One
CFO explained that reducing manual intervention in his
organization's monthly close gave his division CFOs time to
help business unit heads redesign their organizational
structures. The trickle-down effect, he said, improved the
company's financial results.
Third, CFOs addressed the importance of investing in real-
time systems, such as enterprise resource planning (ERP)
systems, to replace legacy systems. These systems can
improve communication within various facets of the
organization, regardless of physical location, while also
avoiding the inefficiencies of lagged information, which
drives up closing and reporting times.
As you can see, the roundtable and breakout discussions
were extremely productive and resulted in tangible
examples of how the CFO participants influenced change
within their organizations to support their own
transformation toward a strategic role. A CFO's Checklist
for 2014 summarizes several major themes that emerged
from these discussions.
What's Next?
As we've emphasized, the role of the CFO has been elevated
in recent years. As financial steward of the enterprise, the
CFO is well positioned- and therefore relied on - to act as a
bridge between the CEO and the board of directors in
promoting corporate governance. This transforming role
has required a shift in focus from the production of financial
information to a strategic vision that emanates from the
financials. Most executives would agree that there aren't
enough hours in the day, and many CFOs wish they could do
a better job of allocating their time. We hope the real-world
actions our roundtable participants have taken will set
them - and you and your organization- on the right path.
By focusing on the necessary process changes, CFOs will
take the first step for the finance organization in creating
hours, days, and even weeks to build enhanced intelligence
into the business. Then the conscious use of a tool such as
the C-framework will help these CFOs evolve their role from
analyst to catalyst and earn their rightful place as a highly
valued strategic business partner.
Thomas G. Canace, Ph.D., is an assistant professor of accounting
at Wake Forest University in Winston-Salem, N.C. Tom is a
member of IMA's Piedmont Triad Chapter. You can reach him at
(336) 758-5904 or canacetg@wfu.edu. Paul Juras, CMA, Ph.D., is a
professor of accountancy at Babson College in Babson Park, Mass.,
where he holds the title of chair, Accounting and Law Division. Paul
is a member of IMA's Charlotte Chapter and IMA's Global Board of
Directors. You can reach him at (781) 239-3948 or
pjuras@babson.edu.
Management Accountant, July-August, 2014 | 47
Article Section
Using
Financial Models
Value-Added Management Tool
By Kreag Danvers, CMA, CFM, CPA, and Thomas Oliver
E ffective planning, controlling, and decision making are
necessary to identify and avert problems that can limit
success and contribute to business failure. Within favorable
economic climates, businesses can survive despite
ineffective management. But higher levels of economic
uncertainty exacerbate business risk, which increases the
importance of executing critical managerial functions
effectively and highlights the potential value that
management accountants can add to organizations
through financial modeling.
Building financial models for short-range planning, cost-
volume-profit analysis, and decision making are highly
valued skills for entry-level management accountants as
well as senior-level financial management and consultancy
positions. These are the types of positions held by many
IMA® (Institute of Management Accountants)
members and CMAs (Certified
Management Accountants).
Management accountants
increasingly add value within
organizations by partnering with
managers in strategic decision
making.
Financial modeling is an important
tool that lets management
accountants add value and help move an
organization toward achieving its goals. By
relating critical inputs to performance
outcomes, models support planning and controlling efforts
as well as strategic decision making.
The Importance of Financial Modeling
IMA implicitly acknowledged the role financial modeling
plays within management accounting when it revised the
CMA® exam in May 2010 and reconfigured it from a four-
part exam to a two-part exam. A number of subjects that
can be affected by or improved through financial modeling
are emphasized in the revised exam. Planning, budgeting,
and forecasting make up 30% of Part 1, while decision
analysis and risk management constitute 25% of Part 2. It's
also noteworthy that performance management
constitutes 25% of Part 1. The CMA Exam Handbook, which
provides information on the requirements for CMA
48 | Management Accountant, July-August, 2014
as a
certification, further emphasizes the importance of
financial modeling skills: “The CMA exam aligns with the
knowledge, skills, and abilities that an accountant or finance
professional in business uses on the job today - financial
planning, analysis, control, and decision support. These skills
are critical to the success of finance teams.”
IMA's Conceptual Framework for Managerial Costing
further underlines the need to improve managerial decisions
through more effective managerial costing solutions. While
the Framework reflects current operating conditions for
organizations, it also provides a foundation for
prospectively analyzing alternative courses of action and
associated risk. Indeed, the Framework states: “Internal
management's forward-looking entrepreneurial activities
are the most influential actions in creating and sustaining
value. They can be reflected in monetary terms by
adapting the managerial costing model with
scenarios and assumptions.” By stressing
forward-looking activities, the
Framework emphasizes the
critical role of financial models
in value creation within
organizations.
In Accounting Education: Charting
the Course through a Perilous Future, W.
Steve Albrecht and Robert J. Sack stress that
practicing accountants believe financial analysis
and planning will be ranked first and second as the
services that will be most in demand of accounting
graduates. And the American Institute of Certified Public
Accountants (AICPA) Core Competency Framework, which
defines skill-based competencies students need for
entering the accounting profession, highlights decision
modeling as a functional competency closely aligned with
providing value to business organizations. Specific elements
of this competency include the ability to build models, test
solutions, link data for decision making, and analyze
scenarios. Such skills are integral to financial modeling.
Financial modeling clearly facilitates risk assessment
pursuant to the Enterprise Risk Management Integrated
Framework from the Committee of Sponsoring
Organizations of the Treadway Commission (COSO), a joint

initiative of five private-sector organizations that includes
IMA. COSO defines enterprise risk management (ERM) as “a
process, effected by an entity's board of directors,
management, and other personnel, applied in strategy
setting and across the enterprise, designed to identify
potential events that may affect the entity, and manage risk
to be within its risk appetite, to provide reasonable
assurance regarding the achievement of entity objectives.”
COSO's ERM Framework encompasses risk assessment
and monitoring. Financial models facilitate sensitivity and
what-if analysis such that managers can obtain insight into
possible outcomes without actually assuming risk.
Modifying a model's assumptions can provide information
regarding the elasticity of various input parameters (e.g.,
change in sales mix) with respect to performance outcomes
(e.g., change in operating income). Thus, financial models
support risk assessment in relation to the ERM Framework.
Evaluating actual performance relative to financial model
assumptions also helps organizations fulfill the monitoring
function of ERM.
Financial Model Considerations
Recognizing the relationships among relevant costs,
benefits, value, and risk is essential to understanding the
implications of business decisions. Financial models are
based on a set of assumptions and formulas that seek to
simulate the real relationships among an organization's
operating and financial activities. The assumptions, or
parameters, often culminate in projected, forecasted, or
prospective financial information. Financial models are used
across manufacturing, service, not-for-profit, and
governmental organizations. The basic type of financial
model addresses cost-volume-profit analysis, which
assesses the effects of changes in volume, revenue, costs,
and profits.
Financial models must be developed within a cost benefit
framework. Constructing a financial model from scratch
requires more time, expense, and expertise than purchasing
an off-the-shelf template, but the increased usefulness,
flexibility, and appearance of a customized financial model
often make it a better choice. Moreover, templates are
often too generic and of limited usefulness for highly
specialized operating environments. A few days of model
construction may be sufficient to evaluate decision
alternatives with limited financial consequences. With more
complex strategic moves, such as entering new markets,
many months of ongoing financial modeling work may be
needed to support decision alternatives.
Models are often constructed using Excel. In July 2011,
Strategic Finance published the first article by Jason Porter
and Teresa Stephenson in their three-part series that used
an Excel-based budget to assess a company's performance.
The emphasis of this series was on using the budget to
facilitate planning, controlling, and decision making. An
Excel-based budget such as that presented in the series
essentially represents a financial model that can be used for
a wide range of planning, operational control, decision-
Article Section
support, and risk assessment purposes. Table 1 presents
some basic elements, objectives, design characteristics,
and related risk assessment considerations for financial
models.
For financial models to function effectively, all cells must
articulate, or be linked together across worksheets via
formulas or cell references. Formulas within the model
must reasonably reflect the relations of underlying
assumptions so that expected outcomes are computed
accurately and are updated to provide useful and reliable
information. It's important to provide an accompanying list
of significant assumptions, similar to notes to historical
financial statements, so that managers better understand
the foundation on which the prospective information is
constructed. The financial model should also indicate
sources for all significant assumptions.
It's critical for assumptions to be internally consistent
across the model because the financial model represents a
coherent aggregation of inputs that simulate the economic
model of an organization. Since assumptions provide the
basis for prospective financial information, management
accountants must challenge key assumptions for
reasonableness or the financial plan will provide limited
benefits. For the model to generate flexible budgets and
sensitivity analyses with ease, all components of the model
must be integrated and automatically update upon changes
to inputs.
A Planning and Operational Control Tool
Financial models facilitate basic managerial functions,
including planning, controlling, decision support, and risk
assessment. As a planning tool, financial models are useful
in developing business strategies and establishing short-
term objectives. Significant assumptions must be
sufficiently detailed so that a realistic financial model can be
developed for operating plans and subsequently serve as a
basis for operational control. Therefore, it is especially
important to model sales seasonality, receivable
conversions, inventory requirements, and other key
assumptions realistically.
Within a comprehensive financial model, all assumptions
flow into an integrated financial plan, which can serve as an
operational control tool. From a control perspective,
models can be used to assess a firm's performance going
forward by computing variances in input assumptions and
outcome measures. A financial plan's assumptions and
planned performance outcomes can be compared to actual
performance so that decision makers are held accountable
for decisions that are based on the model (i.e., a post-
decision audit).
For instance, organizations may want to know whether or
not an investment in a new segment of the business
ultimately paid off. Did the project achieve the performance
that was expected when the decision was made?
Information regarding deviations, or variances, from
planned performance helps to identify operational areas
Management Accountant, July-August, 2014 | 49
Article Section

Table 1: Financial Model Characteristics

BASIC ELEMENTS
Input Data, Parameters, or Assumptions. Assumptions are critical and must be examined carefully for validity. The
AICPA Guide for Prospective Financial Information states: “Assumptions are the essence of developing financial
forecasts and are the single most important determinant of such statements.”
Relate Parameters. Assumptions must be tied together with reference links and formulas. Hard-coding (entering
values or embedding assumptions within formulas) must be avoided so that parameters can be readily modified to
support decision making and risk analysis.
OBJECTIVES AND DESIGN CHARACTERISTICS
Decision Usefulness. Financial models need to facilitate decision making with favorable cost-benefit characteristics.
Articulation. The financial model must flow across all schedules and statements so that a change in assumption
updates all other information.
Accurate and Reliable Simulation. Models should reasonably reflect reality.
Flexible and Responsive Analysis. This necessitates the appropriate use of assumptions and formulas.
Separate Worksheets. Organize and structure the financial model for ease of use. Individual worksheets can be used
for assumptions, supporting schedules, and prospective financial information for the organization. Use a separate
worksheet within the Excel workbook to segregate parameters for ease of change and for different types of outcome
results.
RISK ASSESSMENT CAPABILITY
Sensitivity Analysis. Tests the effects that changes in specific model parameters, such as sales price and volume, have
on outcomes, such as income and cash flow.
What-if Analysis. Assesses risk by varying input assumptions.
Elasticity. Relates to the ratio of percentage change in outcome to the percentage change in parameter in order to
identify actions that have the greatest impact on a performance measure. If the impact is greater than one (100%),
then the parameter has a disproportionate effect on the performance measure.
Scenario Analysis. Considers best case, worst case, and most likely case (i.e., the “base” or “baseline” case).
Goal Seek. An Excel feature that can be used for benchmarking key performance indicators within the model.

where resources may have been misused, controls were lax,
or assumptions weren't sufficiently scrutinized in advance.
Although financial systems organize, summarize, and report
actual accounting information, exception reporting and
variance analysis may be limited within smaller
organizations that don't employ standard costing systems.
In such cases, management accountants can use financial
models to facilitate managerial control and add further
value within their organization. Thus, it's desirable to
construct models with sufficient detail to provide
information for control purposes.
One important outcome measure to monitor is projected
vs. actual cash flow. Some common control problems that
impact cash flow include uncontrolled expenditures,
receivables, and inventory levels. Weak managerial control
of one or two of these items can mean the difference
between business failure and success.
A business that encounters cash flow problems may not
clearly understand the underlying causes, particularly if
sales are doing well. Managers may ask, “Where is the cash
from our higher sales volume?” Perhaps gross margins are
suffering because of operational inefficiencies or higher
product costs, or maybe sales growth is consuming cash in
building receivables and inventories. Financial models can
provide a systematic approach to investigating
performance-related questions so that managers can
better understand the impact of assumption variances on
performance measures.
Improving operational efficiency through benchmarking
relates to the control environment, and financial models
can facilitate such efforts. Benchmarking is the process of
comparing an organization's or subunit's performance to
average, key competitor, or best-in-class levels of
performance. Comparisons can be performed vis-à-vis
both internal and external targets, and trends can be
analyzed. For example, a firm may want to review its days in
accounts receivable or inventory turnover and benchmark it
to the industry average, compare it to other subunits within
the organization, or compare it to prior periods. If the firm
has 55 days in receivables and the industry average is 45
days, how does that translate into operating cash flow and
required line-of-credit borrowings?
In addition, unfavorable trends might be identified: Perhaps
there were only 50 days in receivables in the previous
period. Simple or more elaborate solutions, such as credit
terms or collection policies, can be modeled along with
required borrowing. Through Excel's Goal Seek feature, a
financial model can identify specific parameter changes to

50 | Management Accountant, July-August, 2014


achieve benchmark levels and their impact on various
outcome measures. Benchmarking, supported by financial
models, thus supports operational control and continuous
improvement efforts, which in turn add value to
organizations.
A Decision-Support and Risk
Assessment Tool
Financial models can be used as decision-support tools to
guide managers in evaluating competing decision
alternatives and identifying the optimal course of action.
Thus, managers can better evaluate what may, in effect, be
two sides of the same coin: opportunities and risks. For
example, a consumer goods firm may want to determine
the most effective marketing approach from among new
packaging, increased advertising, or increased sales
commissions. As with all decisions, there are potential
downside risks as well as payoffs in sales, profitability, and
cash flow.
Perhaps a hotel chain wants to evaluate the desirability of
constructing an indoor pool that would provide for
increased room rates and occupancy levels. Many
companies in the hospitality industry faced similar decisions
after the 9/11 terrorist attacks in 2001 and again at the
beginning of the economic downturn in 2008. Decisions to
be made included price/rate structure and costs for things
such as amenities and extras. Both situations were
challenging yet quite different. In the first circumstance,
reinvigorating travel demand was critical, hence
adjustments were made in rates and pricing. In the latter
case, costs were addressed as a way of mending the
bottom line.
By changing inputs within the model, management
accountants can assess the impact of assumptions on
various outcome measures, such as operating income or
cash flow. More complex situations can also be modeled.
Perhaps the company operates globally and has receivables
denominated in euros or other currencies rather than the
U.S. dollar. Risk associated with changes in exchange rates
can be factored into the financial model. The financial model
can facilitate hedging these receivables.
A combination of changes to parameters results in a what-
if analysis relative to the status quo, or baseline, scenario.
By combining best-case and worst-case assumptions,
managers can evaluate alternative courses through
scenario analysis. Financial models facilitate risk
assessment through the use of sensitivity and elasticity
analyses, which identify specific parameters that cause
disproportionate changes to performance measures and
may adversely impact business operations. By identifying
critical inputs, managers are in a better position to manage
risk to achieve business objectives. Thus, financial models
enable managers to obtain advance insight regarding the
effects of various factors on performance measures.
Computing elasticity for various parameters provides
insight regarding the relative effects of changes in input
Article Section
parameters on changes in performance outcomes. For
example, a management accountant might be interested in
knowing whether a percentage change in sales mix has a
disproportionate effect on operating cash flow relative to a
percentage change in sales price. Using a financial model to
analyze it creates a better understanding as to which
factors will most readily impact performance measures.
Such analyses relate to the operational control and
improvement use of financial models. To the extent that
management accountants identify parameters with the
greatest elasticity, they better understand how and where
to derive maximum benefit from operational improvements
and benchmarking activities. If operating cash flow has
greater elasticity with respect to days in receivables than
inventory turnover, the organization may want to first
focus on improving the effectiveness of receivables
management before considering inventory control.
As discussed earlier, financial models may be used to
support a wide range of risk management decisions through
sensitivity and what-if analysis, thus assisting with ERM
efforts. Financial models provide insight into possible
outcomes without actually assuming risk and, therefore,
support a proactive risk management strategy that creates
value for an organization's stakeholders. In addition,
evaluating performance relative to financial model
assumptions facilitates ERM's monitoring function and
enables organizations to assess whether they are achieving
their objectives pursuant to their risk appetite and moving
in the desired direction.
A Value Proposition for Management
Accountants
Financial modeling presents tremendous opportunities for
management accountants, both in serving their
organization and profession and in expanding career
opportunities. From the perspective of business and the
profession, financial models provide the means for
management accountants to help managers achieve
business goals and objectives, facilitate control, support
decision making, and assess enterprise risk. From the
individual perspective, developing the requisite financial
modeling skills enables management accountants to build
their own professional repertoire and intellectual capital,
expand their career opportunities, and provide a wide range
of value-added services to make them integral members of
the finance and management team.
Financial modeling allows the management accountant to
be both forward-looking and entrepreneurial. By embracing
the principles of analyzing alternative courses of action and
associated risk, the foundation is provided to create and
sustain value for both the organization as a whole and the
management accountant as a professional.
Kreag Danvers, CMA, CFM, CPA, Ph.D., is an associate professor in the
Sam and Irene Black School of Business at Penn State Erie, The
Behrend College, in Erie, Pa. Thomas Oliver, Ph.D., is a professor in the
Department of Accountancy at Clarion University in Clarion, Pa.
Management Accountant, July-August, 2014 | 51
Article Section
State's Role in Business
T he level of debate and public
discourse on economic issues in
Pakistan follows a binary path. For
example, you can either be a supporter
of privatisation or an opponent. There
are no other alternatives. This kind of
discourse is not helpful and what is
required instead is a more analytical and
pragmatic approach.
The state has three distinct roles to
play in the area of business. First, it can
own the businesses. Second, it has to
Dr. Ishrat Husain
formulate and implement a public policy
that impacts on the formation, survival
and expansion of businesses. Third, it
has to act as the regulator for all private
or publicly owned businesses.
According to a survey that was carried
out in 2007, the federal government had
more than 410 organisational entities of
all types under the control of various
ministries. One hundred of them were
engaged in running businesses. These
included large moneymaking entities
52 | Management Accountant, July-August, 2014
such as the Oil and Gas Development
Company, Pakistan Petroleum, State
Life Insurance Corporation, etc. while
others were losing money such as
Pakistan Steel, PIA, the Pakistan
Electric Power Company, etc.
An in-depth analysis of these
enterprises was carried out and these
were divided into various categories for
action:
o Liquidation and winding up
o Sale of minority shares with
transfer of management
o Sale of majority shares and control
to strategic investor
o Offloading proportion of shares in
the domestic and international
capital markets
o Restructuring by shedding non-
core activities, injecting fresh
capital and infusing new technology
o Retaining ownership, control and
management in the public sector.
A continuum of options is thus available
and these are not only about privatising
an entity or keeping it in the public
sector. A number of enterprises were to
be retained in the public sector for
strategic reasons even if they were
incurring financial losses. For many
others, there was no compelling reason
to keep them under public ownership.
Others were performing well but had to
be given benchmarks to maximise social
profitability or economic value.
Public monopolies cannot be privatised
as this will be economically and socially
harmful. Ownership, thus, is not the
 Article Section

empowered regulator. Although a

regulatory authority is constituted by
an act of parliament it has to work
independently in the larger interest of
consumers, producers and the public
at large.
Except for a few regulatory bodies
most of them are independent of the
sectoral ministries and are placed
under the Cabinet Division. These
agencies have to play an effective role
relevant variable. However, it is established that privately in monitoring the market to promote healthy conditions,
owned businesses add greater value to the economy in a prevent the emergence of cartels and price fixing and
competitive environment. other market abuses. The problem is that the regulatory
The second aspect pertains to public policy. Every policy agencies have not been manned by appropriate skills
has winners and losers but the government should such as law, finance, accountancy, management and
remain neutral towards different owners. The sectoral expertise. They have been made the resting
government cannot favour its own enterprises as this ground for favourite retired officials. Lack of competence
would be discriminatory and go against the basic and courage have made them ineffective.
principles of justice and fair play. The State Bank of Pakistan does not hesitate to impose
For example, if the minister of aviation is also the the same quantum of penalty on the National Bank of
chairman of the board of directors of PIA and the aviation Pakistan as it does on other private banks for violating
policy has been tilted in favour of PIA the
country and its air travellers would be the To exercise the rights of ownership, the
losers. Private airlines will not be able to
compete in the absence of a level playing
government should nominate autonomous
field and air travellers would not benefit. boards and appoint the chief executive but
To exercise the rights of ownership, the the ministry should not interfere in day-to-
government should nominate
day operations.
autonomous boards and appoint the
chief executive but the ministry should
not interfere in day-to-day operations. The government the prudential regulations. This even-handed approach
can communicate the parameters of policy and has restored confidence in the regulator.
performance, as well as hold the company accountable Those opposing privatisation should realise that more
for the results, but it is the board of governors that will damage has been done to the economy by the patronage
monitor and oversee the operations. conferred by successive governments on selected
The procedure for nomination of the board and the persons or firms rather than by privatisation. Licensing,
appointment of chief executives in a transparent way has permits, loans that are not paid back, foreign exchange
been laid down by the Supreme Court while corporations allocations, land at subsidised rates, exemptions,
established under the waivers and reduction in tariff duties, non-payment of
Company Act have taxes and utility bills, inflated contracts and other rent-
their own rules. seeking activities have made more people rich than has
privatisation.
The third aspect of
state responsibility To sum up, there is a need to separate the functions of
focuses on the policymaking, regulation and ownership vested in the
regulator. Markets are government. Then the question of retaining enterprises
neither perfect nor in the public sector or privatising or restructuring or
always efficient. liquidating them should be examined in the light of
Market failures and strategic objectives, the market structure and economic
externalities abound. value creation. A binary way of thinking does not help.
This calls for an The writer is a former governor of the State Bank of Pakistan.

Management Accountant, July-August, 2014 | 53

Pakistan’s Economic Horizons
State Bank of Pakistan’s
Monetary Policy Decision
(Executive Summary - July 2014)
E conomic conditions are certainly better at the
beginning of FY15 than a year ago. The foreign
exchange reserves held by SBP are considerably higher
accompanied by stability in the foreign exchange market.
Growth in broad money is contained due to deceleration in
government's budgetary borrowings from the banking
system. Inflation remains in single digits and private sector
credit is picking up along with moderate economic
recovery. Accordingly, SBP maintained the policy rate at 10
percent during H2-FY14; it was last increased in November
2013.
A detailed assessment of the economy, however, indicates
that challenges and vulnerabilities remain. Continuation of
prudent policies and reforms are needed to build-on
positive developments and to achieve protracted
stability. For instance, only comprehensive tax
reforms can reduce the fiscal deficit and
keep broad money (M2) expansion within
safe limits on enduring basis. Similarly,
energy sector reforms can not only
provide critical impetus to economic
growth but also help reduce import bill
and thus ease pressure on the balance
of payments position.
On its part, SBP is effectively managing
market sentiments by supplementing the
monetary policy stance with calibrated
liquidity operations in the interbank market. Apart
from anchoring inflation expectations, this has contributed
in achieving stability in the foreign exchange market and in
building foreign exchange reserves. This has also facilitated
the shift in banks' investment from T-bills to PIBs, which
has improved domestic debt maturity profile and reduced
the roll-over risk for the government.
Specifically, despite significant injections by SBP, appetite
for liquidity remained sufficiently high in the market. As a
result, short-term interest rates remained on the higher
side, making rupee liquidity more expensive. This reduced
pressure on exchange rate as it discouraged speculative
holdings of foreign exchange and made trade financing
through foreign currency deposits held by banks more
attractive. To contain growth in SBP's Net Domestic
54 | Management Accountant, July-August, 2014
Assets (NDA) and reserve money, SBP will continue to
monitor liquidity conditions in the market.
Nevertheless, year-on-year growth in M2 has decelerated
to 12.5 percent by end-June 2014 the lowest rate of
monetary expansion during last three years. This was
mainly due to a significant reduction in government
borrowings for budgetary support from the banking
system. Specifically, the government borrowed Rs 303
billion from the banking system during FY14; around 21
percent of Rs1446 billion borrowed in FY13. Lower
borrowing and subsequent deceleration in broad money,
projected to be around 12.9 percent in FY15, are
contributing towards low inflationary expectations.
The lower demand for credit by the government also
provided necessary space to the private sector to borrow
from the banking system. Given a stable
monetary policy stance along with improving
macroeconomic conditions, private sector
credit has increased by Rs 328.9 billion
during July-May, FY14 highest in last six
years. A majority of this increase was
availed for working capital though an
amount of Rs83.2 billion was also
utilized for fixed capital formation.
Going forward, an analysis of financial
indicators of major industries along with
persistent energy shortages and
deteriorating security conditions hint
towards some risks to credit demand. However,
given robust profitability, asset quality, and capital
adequacy of the banking sector a reasonable supply of
credit by banks can be expected. Envisaged lower
government borrowings from banks also support this
assessment. Nevertheless, deposit growth of 12.6 percent
in FY14 needs to be improved.
Sustainability of lower government borrowings from the
banking system, including SBP, is contingent upon further
reduction in the fiscal deficit and continuation of external
financing. In this context, the government has set a target
of 4.9 percent of GDP for the fiscal deficit of FY15; about
0.9 percent below the revised FY14 estimate of 5.8 percent
of GDP. Also, a little over 80 percent of the projected deficit
is envisaged to be financed from external and non banking
sources.

From the point of view of monetary policy, evaluation of
fiscal position is important to gauge risks to projected
money growth, private sector credit estimates, and
inflation outlook. A major risk to the fiscal position of FY15
is from the revenue side. In particular, the FBR revenue
target of Rs2810 billion looks challenging given the current
narrow tax base. The target for FY14 has been missed
despite a significant growth of 17.5 percent. Moreover,
growth in total revenues was due to a significant increase
in non-tax receipts during FY14, which may not be the case
in FY15.
Nonetheless, lower fiscal deficit and increase in external
financing in FY14 has already resulted in slower
accumulation of domestic debt. The growth in domestic
debt during FY14 has decelerated to 14.5 percent, which is
significantly lower than the average growth of around 27
percent during the last three years. This bodes well from
the point of view of country's risk perception and could help
in attracting investment in the economy.
The substantial increase in external borrowings since
February 2014 have provided a much needed respite and
short term stability to the balance of payments position.
These foreign inflows have resulted in a capital and financial
account surplus of $6.1 billion during Jul-May FY14, which is
a marked improvement compared to a surplus of only $465
million in the corresponding period of last year. Not only did
this surplus comfortably finance the current account
deficit of $2.6 billion but has also led to a significant
increase in SBP's foreign exchange reserves.
From a low level of $2.8 billion on 7th February 2014, SBP's
foreign exchange reserves have increased to $9.6 billion by
4th July 2014. Similarly, the Net International Reserves
(NIR) also gradually increased, reaching positive 2.7 billion
by end-June 2014 compared to negative 2.4 billion a year
earlier a net increase of $5.1 billion. These developments
brought about a fundamental shift in sentiments in the
foreign exchange market from March 2014 onwards. The
exchange rate has stabilized slightly below Rs99 to USD
after experiencing significant appreciation. More recently,
on 14th July 2014, Moody's Investors Service has revised
the outlook on Pakistan's foreign currency government
bond rating to stable from negative.
The impetus of positive sentiments together with
continuation of IMF program and government's
privatization plan is expected to result in further
strengthening of the external position in FY15. Specifically,
with current account deficit projected to remain around 1
percent of GDP in FY15, SBP expects its foreign exchange
reserves to exceed $13 billion by end-June 2015 on the
back of continued financial inflows. The main risks to this
assessment are uncertainty over international oil prices
and possible delays in planned foreign inflows.
Sustaining this trend in the medium term, especially in the
post IMF program years, would require additional efforts
Pakistan’s Economic Horizons
and reforms. For instance, a trade deficit of over 6 percent
of GDP would need to be curtailed. Improving efficiency and
competitiveness of exports and reducing the share of
imported oil in meeting domestic energy needs are
examples of required reforms. A significant recent
appreciation of the Real Effective Exchange Rate (REER)
would also need to be monitored carefully in this context.
Similarly, improvement in country's security conditions is
also critical in attracting non debt creating financial
inflows.
Despite challenging security conditions and energy
shortages, the real GDP grew by 4.1 percent in FY14.
Encouragingly, this relatively higher growth was led by
recovery in the industrial sector, thanks to better
performance of Large Scale Manufacturing (LSM).
However, investment expenditures as a percent of GDP
have declined to 14 percent in FY14, which indicates
erosion in economy's future productive capacity.
The average CPI inflation in FY14, 8.6 percent, is in single
digits for the second consecutive year. For FY15, the SBP
expects average CPI inflation to remain in the range of 7.5
percent to 8.5 percent. Other than assuming continuation
of current monetary policy stance, this outlook is
supported by (i) continuation of moderate aggregate
demand; (ii) further containment in government budgetary
borrowing from the banking system; and (iii) overall stable
outlook of international commodity prices. However,
international oil price uncertainty and unanticipated price
shocks pose risks to the inflation outlook.
In conclusion, the Board of Directors of SBP has decided to
keep the policy rate unchanged at 10.0 percent.
Henceforth, the Board has also decided to publish the
summary of minutes of monetary policy proceedings of the
Board meeting in four weeks.
Courtesy: www.sbp.org.pk
Research & Publications
Editor/Publisher
Mrs. Ghazala Yunus
Email: ghazala.yunus@icmap.com.pk
Research & Publications Department
Mr. Shahid Anwar
Deputy Director Research & Publications
Email: shahid.anwar@icmap.com.pk
Correspondence Address
ICMA Pakistan Head Office,
ST-18/C,ICMAP Avenue, Block-6,
Gulshan-e-Iqbal, Karachi-75300.
Tel: 021-99243900
Fax: 021-99243342
Email: rp@icmap.com.pk
URL: www.icmap.com.pk
Management Accountant, July-August, 2014 | 55
Update
Update
IFAC and CIPFA Release Important New
Framework for Good Governance in the
Public Sector
T
he International Federation of Accountants® (IFAC®)
and the Chartered Institute of Public Finance and
Accountancy (CIPFA) have together developed the
International Framework: Good Governance in the Public
Sector, to encourage more effective public sector
governance.
Over the past few years, governance in public entities has
become a pressing issue gaining greater exposure as a
result of the financial and sovereign debt crises and a
constant stream of governance failures, including
nepotism, inefficiency, corruption, and poor financial
management.
In response, the Framework encourages better governed
and managed public sector entities by improving how they
set and achieve their intended outcomes. Enhanced
stakeholder engagement, robust scrutiny and oversight of
those charged with primary responsibility for determining
an entity’s strategic direction, operations, and
accountability leads to more effective interventions and
better outcomes for the public at large.
“Public sector governance must focus explicitly on
sustainable economic, social, and environmental
outcomes, and this publication is unprecedented in
highlighting the central role that outcomes and the public
interest should play in the processes and structures of
public sector governance,” said Ian Ball, Chair of CIPFA
International. “Our focus on sustainability is also especially
important as public sector entities, from local councils to
national governments, must consider the long term impact
of their current decisions, especially in safeguarding the
interests of future generations.”
Increased focus on the critical role that good governance
plays in the public sector has been an all-too-recent
development. Growing awareness of the substantial role of
poor public sector governance in the sovereign debt crisis
and other public sector failures has made the appropriate
application of governance standards and arrangements
more pressing than ever.
On the launch of the Framework, IFAC CEO Fayez
56 | Management Accountant, July-August, 2014
Choudhury said, “Good governance in the public sector
requires an eye to the future, transparency, and
accountability—principles that IFAC has consistently
promoted, in particular with respect to the effects they
have on the capacity to attract capital, global financial
stability, and long-term sustainability. While adopting the
International Public Sector Accounting Standards
(IPSASs) is a critical step, improvement of other
governance arrangements is essential if governments
worldwide are to be successful in the sustainable
development of our economies and societies.”
Good Governance in the Public Sector establishes good
practice principles for the fundamental aspects of public
sector governance. The Framework also facilitates the
review and update of national governance codes for the
public sector and, where specific principles and guidance do
not already exist, stimulates improvement.
The ideas and insights outlined in the Framework, which
includes a foreword from Mervyn King, Chairman of the
International Integrated Reporting Council and author of
the King Report on Governance for South Africa, were
developed using a wide-ranging literature review and in
consultation with an International Reference Group. The
Framework is useful for all those specifically involved with
governance, including governing body members, senior
managers, and internal and external auditors. Furthermore,
this Framework provides the public with a resource to
challenge substandard governance practices in public
sector entities.
A digital version of the report can be found at on the IFAC
and CIPFA websites.
IPSASB Publishes Exposure Draft 55,
Improvements to IPSASs 2014
T
he IPSASB has published Exposure Draft (ED) 55,
Improvements to IPSASs 2014, which proposes
changes based on amendments from the International
Accounting Standards Board's annual improvements and
minor scope amendments projects. ED 55 proposes
improvements to four standards (IPSAS 1, IPSAS 17, IPSAS
28, and IPSAS 31). The improvements project allows for
minor unrelated amendments to be exposed together and
approved in a single standard. The deadline for comment is
September 30, 2014.