It is not all about profit

For illustration purpose. The township of Klang, one of the country’s oldest manufacturing and shipping hub with three ports in the nearby Port Klang area.
By Panirselvam Ayadurai

Business ecosystems have radically undergone changes in recent times. Many industries such as car manufacturing, oil production, petrol-chemical processes, civil construction projects such as road systems and telecommunications have been created and replaced old industries. There are many other notable economic activities that seemingly have changed the landscape today.

Financial statements of businesses have reported profits/losses for the owners of equity. Working out the bottom-line figure however, is no longer the accounting profession’s sole focus as value creation has taken many forms.

An economy that was built on extracting raw materials from the earth such as natural rubber, tin ore and palm oil and using labour force and machine power to turn them into products for export – commerce and manufacturing have been the mainstay of the Malaysian economy for the greater part of the 20th century. It was the engine that drove economic growth and prosperity and for many decades it was an astonishingly effective model, if you could only ignore the human and environmental degradation that came with it. Today we can draw a contrast – because we are living through a new age that is transforming the economic landscape faster than at any previous time in history.

The old methods of measuring and accounting for economic success are obsolete with the ever growing influence of advanced technology changes in the form of the digital economy. There is a growing tendency that production must be about more than just profits.

Global commerce is shaped by different forces. Where the economy used to be built out of raw
materials such as iron, tin and steel, fuelled by coal and oil, now the most valuable part of any
commodity is the data and ideas that have gone into its production.

Working out the bottom-line figure however, is no longer the accounting profession’s sole focus as value creation has taken many forms.

This economic scenario is by far, the biggest change our world has seen in our lifetimes. The fruits of production used to be tangible. Now they are notional. This has enormous consequences for everyone, including accounting professionals, because it has changed the nature of our work.

When I entered the profession, our job was to keep score. We added up the numbers. We gave clients the figures they needed to see if they were making a profit or a loss. It was black and white. From profit to footprint.

Now the world is a lot more nuanced, and our role is vastly more complex, mirroring the infinitely
more varied pattern of economic activity. The old methods of measuring and accounting for economic
success are obsolete, and there is a growing tendency that production must be about more than just

Profit according to conventional accounting theory is defined as: Revenue less Cost of Sales before deducting Operating Expenses = Profit before Tax. We know now what our forerunners in the past and even much of the 20th century did not – that the headlong pursuit of production in a narrow quest for cash returns (net profit) is unsustainable for the long-term success and even survival of our society.

There is a wider acceptance that we must keep score in a different way, using methods that take into account a business’s impact on the world rather than using the statement of financial position and the statement of comprehensive income as a yardstick alone. Increasingly, businesses stand and fall by the contribution they make to society.

To grow and prosper, they must gain the support of wider interest groups beyond the narrow circle of
people who own their stock (or share capital) If they forfeit that consent, they suffer, as evidence in
recent historical times has shown.

Some notable examples – when it goes wrong. BP’s botched and complacent response to the disastrous Deepwater Horizon oil spill in the Gulf of Mexico in 2010 resulted in motorists boycotting its forecourts and investors running for cover – the company’s share price fell by 50% in 40 days and never completely recovered. Volkswagen has never regained the ground it lost following the fraudulent engine emissions scandal of 2008. Hands up who remembers when accountancy’s Big Four used to be a Big Five, before Arthur Andersen was punished in the courts and the marketplace for its role in the Enron fiasco. The recent Malaysian financial scandals motivated by obsessive greed and corruption is a prime example of pricing policies of goods and services that have grown uncontrollable in many sectors of the economy.

Many Malaysian politicians have contributed to this state of affairs with responsibilities for the common good so far unaccounted for in many cases. It’s like making hay while the sun shines. Some may have even made the hay and passed on with no way for their accounting this lifetime.

In the modern jargon, this wide-vision perspective on a business’s worth has come to be called
stakeholder capitalism, and it is a useful way of reminding by portraying commercial activity that
have gone unwary and by allowing too much of complacency in certain quarters of the corporate
world. A sensitive issue that can be debated without reservations. It is simply as business being for a purpose, not just for profit, and that is the real stamp of authenticity that professional accountancy bodies should bring to reflection in increasingly uncertain world of business today.

It is commendable that ACCA, a leading professional accountancy body has gone further than any other professional body in building a respect for wider society and the environment into its qualification and training program. ACCA has included the United Nations’ Sustainable Development Goals in a 10-year plan through to 2030, with a clear and measurable commitment to reach specific targets across a number of areas including our carbon footprint, our contribution to education, and dedication to inclusion.

While all this appears to be good, what is missing is the spiritual element that is of paramount importance to society.

Panirselvam Ayadurai comes from the accounting profession and has seen many anomalies that exist in the pursuit of profitability, the driving force behind value creation in the corporate world. However, his passion is pure mathematics and currently a reader in financial economics. His days of financial accounting and reporting days are over, he says.

The views expressed here are that of the writer’s and not necessarily that of Weekly Echo’s.