The Professional Accountants in Business (PAIB) Committee of the International Federation of Accountants (IFAC), the global organisation for the accountancy profession, has released the International Good Practice Guidance, Project and Investment Appraisal for Sustainable Value Creation.
The guidance supports the accountancy profession’s facilitation of sustainable organizations, financial markets, and economies by providing guiding principles to manage the complexities of performing a robust project and investment appraisal.
Greater rigor in the appraisal and decision process can be achieved by using the principles as a benchmark against which to assess an organization’s current practice.
“In today’s world, it is no longer sufficient for investment decisions to be appraised on financial criteria alone. While this guidance reinforces the importance of rigorous and robust project and investment appraisal, it does so with a specific emphasis on facilitating long-term decision making and incorporating economic, environmental, and social considerations,” says Roger Tabor, chair of the PAIB Committee. “The revised guidance also sets out the critical role professional accountants in business play in advising on the application of financial principles and theory that are being tested during this current period of market instability.”
The PAIB Committee notes that accountants in business play a crucial role in helping organisations ensure a systematic and analytical approach to project and investment appraisal.
In practice, fundamental principles of corporate finance are often breached, leading to the destruction of value for shareholders and other stakeholders.
Far too frequently, decisions ignore the costs and benefits associated with wider external impacts—social (e.g., labor practices), economic (e.g., in communities), and environmental (e.g., pollution).
By introducing greater rigor, organisations can assess all important aspects of a project or investment.
“Traditionally, project and investment appraisal is taught and discussed in purely financial terms, which helps an organisation focus on decisions that create the most economic value,” said Athalanallur Natarajan Raman, chair of the PAIB Committee Sustainability Advisory Group. “To create sustainable value, it is essential to also take into account every aspect of the project or investment and consider all facets of sustainability.”