Accountants are no longer mere bean counters. In strategic roles in the private sector, they advise on risk and bring clarity to management by improving transparency. However, the widespread digitisation of economics and challenges around sustainability are forcing the industry relook at what it means for accountants to foster transparency and risk management in a changing landscape.
Dr In-Ki Joo is the President of International Federation of Accountants (IFAC) and Professor, Emeritus, of Accounting at the Yonsei University School of Business in the Republic of Korea. He has also held leadership roles, including on the board of LG Electronics. As an academic and company director, he witnessed South Korean businesses rise to become global leaders and the challenges economywide and in the corporate sector during the Global Financial Crisis. During an interview, he discussed the disruption brought on by digitalisation, emerging trends, leadership, and how accountancy as a profession should adapt to these changes. Excerpts of the interview follow.
How does an accounting body adapt when the global economy and business is transforming so rapidly?
Joo: I’m visiting Sri Lanka for the third time, and I see amazing development. A crucial thing Sri Lanka should mind is to handle unfavourable situations such as economic downturns well. Not only in Sri Lanka but all the other countries too should become better at managing risk. This is where I think CA Sri Lanka, the professional accountant body of Sri Lanka, should come in to play by exposing the risks to their clients, companies and the country and helping them manage these. Accountants must be very transparent about the risk a company faces. Situations are not always favourable, so accountants must be very transparent to their clients about the market conditions.
This reminds me of the 9% economic growth South Korea had for 20-years, but then it suddenly crashed. Before the 2008 Global Economic Crisis South Koren companies borrowed foreign currency at LIBOR plus 1%. Everybody was willing to lend money to us; we didn’t even have to ask. However, after the economic crisis, no one was willing to lend, not even at exorbitant interest rates. So, the country came to the verge of bankruptcy. Every company back then was grappling with the fallout and figuring if they should stuf some of thier business units. It’s often very difficult for companies to turn around their debt. On the other hand, a collapse of the industry will impact the market, thereby triggering a market economy collapse. So that is why accountants have a very critical role to play to make risks transparent.
Transparency isn’t so simple because financial transactions are complicated. They must be interpreted. On top of that, global corporations shift risks across the world.
What are the challenges that you see in bringing about transparency in this increasingly complicated world?
Joo: It’s becoming increasingly complicated, which leaves a lot of loopholes to justify a decision. If situations were simple, you could not justify your compromise. That’s why we insist accountants live by integrity, professional judgement, prudence and a code of ethics. I would emphasise that all professional accountants should live by the code of ethics for professional integrity and professional judgement.
We see economies digitise fast. It has happened to a great extent in South Korea too. How is IFAC and the profession responding to these changes?
Joo: We have formed a sub-committee and are working with vendors like IBM to understand how these emerging trends impact the profession. The committee views how technology impacts the profession, and how the profession, can add value and how it can be a link between the profession and technology.
Do you do think that the accounting profession is challenged by technology’s rapid upheaval?
Joo: The traditional accounting role has changed from one of measurement only to value creator because we know the value of data. IFAC clearly says accountancy should be a future-ready profession. Continuous education and training, regardless of the student being a beginner or a professional, is the tool to transform our profession.
You were a board member of LG electronics, and now you sit in Korean Airlines’ board. Have you seen a shift in the discussion around transparency and risk in your time at these large corporations?
Joo: Yes, of course. I remember at the time I was serving on LG Electronics’ board, LG’s flip phone was hugely successful. Our net profits on feature phones were significant, and we competed with Nokia and Samsung. At one of the board meetings, we discussed a new phone launched by Apple Inc, and we estimated its sales would be four million phones a year because the technology was too complicated for older people to use. Therefore, we decided to wait for two or three more years to adapt. We concentrated on our feature phones because we were making billions. But six months later, we were proved wrong. It was not about four million unit sales for Apple. It was a new trend. Trends change; we saw it, we felt it, but we were too late. Apple hired all the world-class people. If you ask me if I have a solution? No. I don’t. The only way to tackle this is by listening to ideas and inputs of others, no matter how stupid those may sound. We should also encourage people to voice their opinion. A person at the top of the hierarchy should be a great listener rather than trusting her experience and capabilities only. Also, another thing is transparency because now the board has more responsibility. So everything the company decides should be very transparent to everyone.
Another area where risk management and transparency will apply is the government. Government is a big economic player. Do you think it’s easier to manage the challenges faced by the government than a company?
Joo: In a company, it’s easier, because every day we get a consumer vote, so we know if we make a wrong decision, we get the reaction right away, so it saves time. But the government is slow in acting. That’s why we should rely on the market economy because the market economy reacts, but the government when they make a mistake, how do they even know its a mistake?
So accountants have a greater role in highlighting issues and requirements. I wouldn’t say that the accountant in government has a responsibility. Still, I think accountants have a responsibility to be braver and more transparent in highlighting what is right and wrong.
What do you think, besides the ones we discussed are the other challenges for the profession globally?
Joo: The public sector is one big challenge we have, climate change and the sustainability shift is another. We are moving away from the traditional financial statement into integrated reporting. So, the report not only includes financial performances but measure how sustainable a company’s business is. This is also an opportunity to give value to our reports. Reporting sustainability is a big challenge. The market needs the information and the opinion of the accountant, but the concept of audit does not fit here.
Integrated reporting or adding sustainability reporting is not information that is easily auditable and verifiable. How do we bring credibility and transparency to this?
Joo: We must understand the characteristics of both. With integrated reporting, it is about the future and its a subjective form of judgement. You should understand what the character of an integrated report is and what it means. That understanding is very important.
In Sri Lanka, there is a reasonably high level of female participation in the accounting profession, although female participation across the economy is fairly low. But somehow the same proportion of women don’t rise to senior accounting roles. Have you seen this trend anywhere else in the industry?
Joo: It doesn’t happen automatically. You know, IFAC has more female board members than male from this year. Out of 22 directors, 12 are female. So, it’s changed. How do we achieve that diversity? It was because we were determined to bring gender diversity.
We shouldn’t leave it for free competition; it is not enough. We should outreach and look for good talent without compromising the quality. Women have less opportunity to be exposed. So, you should be determined to look for female participation. Female participation in the Sri Lankan accounting profession is high, but career continuity is the biggest challenge. Female liberation first came from washing machines. Now we should liberate women from child-raising. Child raising is not a women’s job, but both men and women should participate and share responsibility equally. Therefore, her career should not be disrupted after she starts a family.
But in the short-term, we should do outreach to improve female participation, and gradually in the long-term they should be liberated from exclusive household and child-raising responsibility.