Huge impact of CAs on businesses can save the world: Julia Penny of ICAEW

In a Q&A, the head of the apex body of chartered accountants in the UK discusses the challenge of sustainability and other issues her tribe faces across the globe

The profession of chartered accountants is facing a transition as they move from helping companies maximise returns on monetary capital to helping them maximise returns on carbon and natural resources. Julia Penny, the president of Institute of Chartered Accountants of England and Wales (ICAEW), who is at the centre of this transition, discusses the challenge of sustainability and other issues with Krishna Kant. Edited excerpts:

How can chartered accountants now help companies maximise returns on scarce natural resources such as carbon?

CAs around the world work with over 2 million businesses and this gives them an ideal position to drive the adoption of the UN sustainability agenda at the corporate level. We can not only help companies change the way they do business but can also use our skills as auditors to provide assurance on the climate and emission related information that companies provide in their annual accounts. It sounds clichéd but it really seems that the chartered accountants can really save the world because we can have an impact on so many businesses. There has been a change in the focus to long-term sustainability of the business rather than profit maximisation as was the case in the past.

Critics say that annual reports have detailed financial information but very little about the damaging effects of a company’s operations on environment….

There is an information gap on environmental damage or resource usage by businesses but change has begun to occur both due to a regulatory push and voluntary action by individual companies. In the UK, for instance, we have tied-up with organisations that reward companies that provide best disclosures about their environmental footprint. In Europe for example we have seen a bunch of legislation coming through which will require companies to make much more detailed reporting about emissions from their operation and resource usage. Incrementally we are moving towards integrated reporting and providing more non-financial data in corporate accounts. Increasingly companies have started to understand that this is what their investors and stakeholders need to know.

Globally there is a fight going on between countries regarding the terminal date for achieving net-zero level of emissions. Are we seeing a similar tussle in the global CA community on environmental reporting standards?

Unfortunately, we are seeing some fight here as well. Each major jurisdiction is pushing for their own reporting standards but we as a profession are trying to consolidate all these recommendations under the international sustainability standards board with the idea of promulgating a common climate reporting standard globally. But what has happened is that the US wants their own standards, the European Union wants some additional standards and here in the UK we want to go with international standards. There has been some tension not only with regard to the extent and scope of reporting but all the pace of change.

But has your fraternity agreed on some reporting standard which investors can expect to see in all corporate annual reports irrespective of the jurisdiction?

We are starting to see some commonality. So the Task Force on Climate-related Financial Disclosures (TCFD) framework is being used for climate reporting has been taken-up very well by companies and auditors all across the world for reporting climate data in their financial reports. The ongoing 27th United Nations Climate Conference (COP27) is helping to make things more global.

In recent years we are witnessing de-globalisation. Will this lead to divergence or fragmentation of accounting standards as well?

There is some risk of fragmentation but ICAEW is very keen to avoid this and we are talking to governments both in our home country and in other jurisdictions to maintain the gains that we made in the past. At the moment, global accounting standards such as IFRS are holding strong but we are aware of the risks. But we need to work consistently to help stakeholders realise the benefits of globalised standards.

Would you recommend a common global regulator for chartered accountants or say a common passing examination?

That is of course a dream but all CA bodies are part of a global federation with nearly 1.8 members across the globe. And the aim of this federation is to maintain as much commonality in the examination and certification process of chartered accountants as possible. So if someone qualifies in one country, they just have to pass a top-up examination say on local taxes to practice in some other jurisdiction. So CA passing examinations are not the same across countries but we work together to ensure that here is some basic commonality across the globe.

India and the UK are working towards a free trade agreement. Are you pushing for the inclusion of a chapter on free movement of CA between the two countries?

We hope that the proposed FTA should have a chapter on accounting professionals and CAs from India and UK should have the freedom to practice in either jurisdiction. We are supportive of open borders and free trade. The global movement of professionals is a good thing and it makes economies stronger and more productive.