IFAC PAIB exposes revised good practice guide

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30 Nov, 2012

The International Federation of Accountants (IFAC) Professional Accountants in Business Committee (PAIB) has released for comment an exposure draft of an updated International Good Practice Guide 'Project and Investment Appraisal for Sustainable Value Creation'.

The proposals would update the existing guidance which was issued in 2008 by reinforcing the importance of rigorous project and investment appraisal, and include a specific emphasis on facilitating long-term decision making and incorporating sustainability related impacts.

The introduction to the proposed guide notes:

Organizations with explicit sustainable value-creating strategies typically emphasize techniques such as DCF and real options and downplay the role of other short-term measurement criteria, such as payback and earnings per share (EPS) growth.  Research shows that a significant number of organizations do not prioritize such techniques when perhaps they should, especially in assessing strategic investment decisions and taking a long-term view.

The paper sets out seven key principles in project and investment appraisal and provides guidance on how the principles should be implemented, including special considerations for the public and not-for-profit sectors.

The key principles include such things as considering the time value of money, the opportunity cost of capital, systematic risks related to the project being assessed, and decision making of in the context of understanding the organisation's business and strategy, and its economic, social, and competitive position.  As such the requirements have much in common with topics such as the determination of 'value in use' under IAS 36 Impairment of Assets, and more broadly in terms of integrated reporting.

The exposure draft is open for comment until 28 February 2013.  Click for press release (link to IFAC website).

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