New auditing standards promote transparency and bottom line

New auditing standards promote transparency and bottom line How much has the meaning of the term ’doing business transparently’ changed? Is it now enough that a company publishes financial reports for a limited number of people? No, and looking at it from today’s perspective, it was never enough. A soaring number of companies realize that we live in a world of limited resources where energy and even water shortages are to be expected in the not so distant future. Forward thinking companies today acknowledge that along with dwindling resources we also do business in a world where more consumers have become aware of the environmental and social impact of companies’ operations. These citizens are ready and able to act and demand that their governments or the international community also take action against businesses threatening the environment, the survival of local communities and the planet. They are part of an expanding global “middle class” emerging as a result of economic development – the new citizens of bustling Brazilian, Chinese and Indian megacities. Just like their European or North American peers, these new global citizens have access to enough information and wealth to choose their business allegiances in their social role of consumers. It is safe to claim that balancing these two factors is the key to business survival in a modern world and especially in the business world of tomorrow. That is exactly why a “standard” financial report will not cut it anymore. It may not even be able to satisfy potential investors or business partners, as they will increasingly look to cooperate only with responsible businesses in order to safeguard their investments. Companies will have to prove that they are equally successful at increasing their bottom line as they are at protecting the environment, upholding the rights of their employees and improving their local communities. In a word, that their business model is sustainable. What kind of corporate information is gaining importance and are CSR reports slowly becoming part of financial reports? Stakeholders today demand to see proof of the long-term sustainability of a business. Consumers, citizens, employees and, increasingly, regulators and business partners are today looking for five major types of information from businesses, though not with equal interest. First – since it is the beginning of all business operations – is the bottom line. However, a business is not successful simply because its bottom line has an impressive number of digits – it is the long-term sustainability of the business operation that counts, too. Second, regulators and lawmakers, motivated by growing pressure from voters, are interested in seeing how a business affects its environment. It is important to show the steps taken to mitigate environmental hazards or protect public health in the event of a crisis. Third, regulators also share citizen and consumer interest in how workers are treated or, for example, if a business is inclusive of minorities and its treatment of women workers. Fourth, potential investors and business partners want to see that a business is addressing the question of resource scarcity as they prefer doing business with companies that will stay in business longer than five of 10 years. Finally, consumers want to know if and how a business is sharing its good fortune for the advancement of the local community. These are all types of information that a business should share. This need gave birth to several global reporting standards of which the most used is the Global Reporting Initiative (GRI). This is a tool that enables companies across the globe to communicate their readiness to operate under a sustainable model. Today “standard” financial reports are increasingly supplemented with GRI standardized sustainability reports. Together they give a full picture of a company’s operations and performance. James Thornley (AmCham Perspective Magazine) Is CSR reporting compulsory in EU countries? Is Serbia lagging behind? We still do not have an EU-wide consensus. Some countries do make CSR reporting mandatory in accordance with GRI standards, some do not. Of all the different reporting standards, for example various national standards or Global Compact, GRI is most business-minded as it provides most information of interest to the business world. What we have is a trend towards compulsory reporting. The good news for Serbia, while we wait for the topic to surface on lawmakers’ agendas, is that we have companies today that serve as excellent role models on how to take care of all aspects of business including ecology and sustainable development. The Serbian business community is also growing in awareness of the importance of sustainable development for its survival and how these models lead to better business results. This process is led by companies such as NIS, the first ever Serbian company to officially verify its sustainability report. We at KPMG can be satisfied with the rising number of inquiries we receive, as it shows a growing interest among local companies for this model of socially responsible business. It would be important to focus on aligning our legal framework with global standards as it could have a positive impact on the general business climate. How many auditing houses provide this service and by what standards? We are happy to see that KPMG is no longer the only company among the Big Four offering the service as increased competition will bring further improvements in the area. The evident growing interest among the Big Four auditing companies to introduce the service and implement the highest global standards will further improve the Serbian economy and put the country more in line with global trends. Does KMPG provide this service for Serbian companies? KPMG has the expertise and experience to verify and help its clients develop sustainability reports according to Global Reporting Initiative standards, the prevailing global standard in the area. We also have a whole range of other specialized services that help companies to adjust their business operations to become sustainable. We are the first auditing house in Serbia to have verified a sustainability report according to GRI. As leaders in the area, we are happy to offer our expertise and help clients to become leaders in their respective fields. What do these reports contain? What benefits can they bring to a company? Reports, for example, contain analysis that allows companies to cut overhead costs for everything they take, make, and waste and place the savings directly on the bottom line. They also allow companies to build a successful enterprise that they can be proud of. This leads to increased employee attraction, productivity and retention, which also go straight to the bottom line. The reports under GRI standards are perhaps the best tool to increase work process efficiency. Finally reports allow companies to build a reputation for being good corporate citizens. This results in loyal consumers and possibly loyal fans that can determine questions of zoning, taxes and community support. How can CSR be prevented from becoming an advertising tool? We should not prevent that at all. If a company is doing all it can to increase its bottom line while at the same time using resources responsibly, protecting the environment, improving the local community, and upholding employees rights – then by all means it should advertize and set a good example. Raising awareness on the issue among the business community, regulators, legislators and civil sector is key. If they can all identify sustainable business operations and behavior, and act accordingly, then we will have succeeded in preserving the world for generations to come. This is achievable through adopting sustainable business models and by reporting on them using globally developed reporting standards. This can ensure that our CSR activities are meaningful. Interview with James Thornley, Senior Partner and Head of Audit, KPMG in Serbia, published by the AmCham Perspective Magazine "Increased shareholder and consumer awareness of the importance of corporate sustainability has increased the popularity and use of such international auditing standards as Global Reporting Initiative as a meaningful companion to standard financial reports."

New auditing standards promote transparency and bottom line

How much has the meaning of the term ’doing business transparently’ changed? Is it now enough that a company publishes financial reports for a limited number of people?

No, and looking at it from today’s perspective, it was never enough. A soaring number of companies realize that we live in a world of limited resources where energy and even water shortages are to be expected in the not so distant future. Forward thinking companies today acknowledge that along with dwindling resources we also do business in a world where more consumers have become aware of the environmental and social impact of companies’ operations. These citizens are ready and able to act and demand that their governments or the international community also take action against businesses threatening the environment, the survival of local communities and the planet. They are part of an expanding global “middle class” emerging as a result of economic development – the new citizens of bustling Brazilian, Chinese and Indian megacities. Just like their European or North American peers, these new global citizens have access to enough information and wealth to choose their business allegiances in their social role of consumers. It is safe to claim that balancing these two factors is the key to business survival in a modern world and especially in the business world of tomorrow.

That is exactly why a “standard” financial report will not cut it anymore. It may not even be able to satisfy potential investors or business partners, as they will increasingly look to cooperate only with responsible businesses in order to safeguard their investments. Companies will have to prove that they are equally successful at increasing their bottom line as they are at protecting the environment, upholding the rights of their employees and improving their local communities. In a word, that their business model is sustainable.

What kind of corporate information is gaining importance and are CSR reports slowly becoming part of financial reports?

Stakeholders today demand to see proof of the long-term sustainability of a business. Consumers, citizens, employees and, increasingly, regulators and business partners are today looking for five major types of information from businesses, though not with equal interest. First – since it is the beginning of all business operations – is the bottom line. However, a business is not successful simply because its bottom line has an impressive number of digits – it is the long-term sustainability of the business operation that counts, too.

Second, regulators and lawmakers, motivated by growing pressure from voters, are interested in seeing how a business affects its environment. It is important to show the steps taken to mitigate environmental hazards or protect public health in the event of a crisis.

Third, regulators also share citizen and consumer interest in how workers are treated or, for example, if a business is inclusive of minorities and its treatment of women workers.

Fourth, potential investors and business partners want to see that a business is addressing the question of resource scarcity as they prefer doing business with companies that will stay in business longer than five of 10 years. Finally, consumers want to know if and how a business is sharing its good fortune for the advancement of the local community.

These are all types of information that a business should share. This need gave birth to several global reporting standards of which the most used is the Global Reporting Initiative (GRI). This is a tool that enables companies across the globe to communicate their readiness to operate under a sustainable model. Today “standard” financial reports are increasingly supplemented with GRI standardized sustainability reports. Together they give a full picture of a company’s operations and performance. Is CSR reporting compulsory in EU countries? Is Serbia lagging behind?

We still do not have an EU-wide consensus. Some countries do make CSR reporting mandatory in accordance with GRI standards, some do not. Of all the different reporting standards, for example various national standards or Global Compact, GRI is most business-minded as it provides most information of interest to the business world. What we have is a trend towards compulsory reporting. The good news for Serbia, while we wait for the topic to surface on lawmakers’ agendas, is that we have companies today that serve as excellent role models on how to take care of all aspects of business including ecology and sustainable development.

The Serbian business community is also growing in awareness of the importance of sustainable development for its survival and how these models lead to better business results. This process is led by companies such as NIS, the first ever Serbian company to officially verify its sustainability report. We at KPMG can be satisfied with the rising number of inquiries we receive, as it shows a growing interest among local companies for this model of socially responsible business. It would be important to focus on aligning our legal framework with global standards as it could have a positive impact on the general business climate.

How many auditing houses provide this service and by what standards?

We are happy to see that KPMG is no longer the only company among the Big Four offering the service as increased competition will bring further improvements in the area. The evident growing interest among the Big Four auditing companies to introduce the service and implement the highest global standards will further improve the Serbian economy and put the country more in line with global trends.

Does KMPG provide this service for Serbian companies?

KPMG has the expertise and experience to verify and help its clients develop sustainability reports according to Global Reporting Initiative standards, the prevailing global standard in the area. We also have a whole range of other specialized services that help companies to adjust their business operations to become sustainable. We are the first auditing house in Serbia to have verified a sustainability report according to GRI. As leaders in the area, we are happy to offer our expertise and help clients to become leaders in their respective fields.

What do these reports contain? What benefits can they bring to a company?

Reports, for example, contain analysis that allows companies to cut overhead costs for everything they take, make, and waste and place the savings directly on the bottom line. They also allow companies to build a successful enterprise that they can be proud of. This leads to increased employee attraction, productivity and retention, which also go straight to the bottom line. The reports under GRI standards are perhaps the best tool to increase work process efficiency. Finally reports allow companies to build a reputation for being good corporate citizens. This results in loyal consumers and possibly loyal fans that can determine questions of zoning, taxes and community support.