In order for the U.S. economy to remain globally competitive, there needs to be a renewed emphasis on principles-based regulations, rather than “check-the-box” rules-based thinking.  The fallout at financial institutions over the years continues to validate why fundamental changes should be made to help ensure that financial reporting and internal control standards shift to globally accepted risk management methods. 

Understanding and applying globally accepted risk principles is an integral part of professional judgment, a necessity in today’s business world.  Professional judgment enables leaders within an organization to make sound business decisions based on expertise, rather than by checklist compliance processes. Proper training, education and certification are necessary to render professional judgment utilizing the appropriate global body of knowledge in risk, quality and performance management.

Management at a number of financial institutions over the years, however, failed to put into place adequate risk management systems, and had apparently forgotten about acting responsibly.  The thought of big profits overshadowed the level of risk.  At the same time, investors were largely unaware of the high risks of banks’ lending practices.

To avoid future financial disasters, it is increasingly important that the board of every public company adopt best practices in risk management and inform investors about significant risks and how they are managed. Honesty and transparency in financial reporting are the keys to avoiding mistakes, and being in a position to fix the errors before they become fatal to the company’s future. Establishing good principles and requiring U.S. corporations to apply professional judgment will build successful corporations that support our capital markets and create jobs and wealth for every stakeholder. 

The Securities and Exchange Commission (SEC) should play a more vital role in reform as well.   The SEC, Public Company Accounting Oversight Board (PCAOB) and standards/guidance-setters are well intentioned, but should shift from the old paradigm that emphasizes audit, controls and compliance, which are functions that take place at the end of the financial reporting “supply chain.” Today, what is needed is a new paradigm that emphasizes risk and quality management principles at the beginning of the “supply chain.” 

Proper education is also an essential tool for anyone with accounting responsibilities. The Institute of Management Accountants (IMA), a professional trade association dedicated to the career-long training and development of accountants who work inside an organization, recognizes a common denominator for financial disclosure problems – that there is a rapidly growing “skills gap.” Through the Certified Management Accountant (CMA) certification, offered by IMA, finance and accounting professionals inside organizations can obtain the skills and knowledge they need to succeed and help their companies stay compliant. 

The CMA demonstrates proficiency in areas such as performance management, financial reporting, decision analysis and strategic planning with a strong emphasis on ethics. The CMA is the most appropriate certification for professionals on the finance team looking to exert influence in driving business performance, or even who aspire to senior level (e.g., CFO, controller) positions.  The program objectively tests and validates expertise in areas essential to analyzing, managing and evaluating business solutions that contribute to the success of an organization.

IMA has long advanced the need to “build quality within” by building the capabilities of professionals inside organizations and placing more emphasis on risk management and good decision making. IMA research has indicated that very few auditors and management practitioners are explicitly identifying, documenting and directly assessing the controls in place to mitigate major fraud-related risks, such as executive compensation, management overrides, and competency of management staff and audit committees. 

Businesses around the world rely on accountants and financial professionals including CMAs for accounting, finance and information management and most importantly, for the support of strategic planning and business solutions provided by these qualified professionals. Some of the largest companies around the world recognize that employing CMAs helps to improve company performance in an aggressive global business arena where competition for global capital is intense. 

Millions of finance function workers who actually do the work inside U.S. corporations are responsible for often vital judgment calls -- an area that was lacking at many large institutions that have dissolved and are now included on a list of those who had catastrophic system failures. These are problems that will, if not addressed, lead to a continuation of unnecessary compliance costs, an unacceptably high incidence of audit opinion failure and ultimately, the erosion of U.S. competitiveness amid the global economy.

Accountancy is a complex market with a shortage of professionals who can perform as strategic business partners with the proper education, training and certification to fill the “skills gap.” The value-enhancing activities performed by management accountants complement what “financial” accountants do within the accounting “value chain.” They add value to the industry with their ability to work as strategic, value-driven business partners across the entire accounting process within organizations.  
  
Today’s corporations should encourage and develop the capabilities of internal management accounting staff. Building quality from within reduces the reliance upon external professionals to fix problems, thereby reducing cost, maximizing shareholder value and improving competitiveness.