Is There a Value Chain Gap in Financial Reporting?
I came across an article last week in the October issue of Accountancy Ireland (my early training was as a Chartered Accountant), which takes the view that there is increased value in aligning financial reporting to the value chain processes of an organization. These processes included inbound logistics, operations, outbound logistics, sales and marketing and service.
The article made me stop to consider the language, reporting and metrics gaps that exist between our financial and value chain organizations.
Financial reporting is controlled by an ever increasing list of standards to provide a ‘true and fair’ view of an organization’s financial health. In that search for ‘true and fair’ has the accounting profession lost sight of ‘relevant’ and ‘actionable’?
When it comes to driving increased revenue or reducing cost, the value chain organization is critical to making this happen. However, as we have mentioned in prior posts around the AMR Supply Chain Top 25, it is impossible to judge the effectiveness of a company’s value chain based on current financial reports.
We compensate for this with the addition of a management accounting function to our financial reporting functions in organizations. These are the financial interpreters between what is really happening in the business and what is required to report to the outside world.
Would investors benefit from more information around a company’s value chain performance? Can this be done without compromising commercially sensitive competitive information?
Of course there is also a responsibility for the value chain community to reach out and embrace the language of investors. Could this gap be part of the barrier preventing the Chief Supply Chain Officer from becoming a C-level fixture as more of a standard?
Maybe we need to start building that bridge of understanding with our financial colleagues.
I would love to get your thoughts.