Stakeholder Analysis Notes

Chapter 13: Stakeholder Analysis

Lesson 1: Stakeholder Analysis

• Stakeholder analysis helps CPAs provide more effective and efficient services by understanding who the stakeholders are and how their objectives impact or are impacted by an entity.

Enabling Competencies:

• Solving problems and making decisions
• Communicating
• Adding value

Learning Outcomes:

• Define what a stakeholder is.
• Describe how to assess the situation when completing a stakeholder analysis.
• Describe how to analyze issues when completing a stakeholder analysis.
• Describe how to conclude and advise when completing a stakeholder analysis.
• Apply the steps for completing a stakeholder analysis to a scenario.

13.1 Stakeholders

• A stakeholder is an entity, individual, or group that can affect or be affected by an entity’s actions.
• Stakeholder goals, preferences, and needs can be divergent, often with competing interests and expectations.
  • Example: A company building a new factory.
    • Shareholders: Focused on profitability.
    • Community: Concerned with employment opportunities and environmental impact.
• Decisions will favour different stakeholder groups in different situations.

13.2 Assess the situation

• An important aspect of assessing the situation is identifying various stakeholder groups as well as their goals, preferences, and needs.

13.2.1 Identify stakeholders

• Stakeholders come in many forms and include internal and external individuals or groups.
• Stakeholders are directly and indirectly affected by a CPA’s work, to varying degrees.
  • Shareholders and lenders: Directly affected by the financial information provided by a CPA.
  • Environmental group: Indirectly affected by a capital budgeting analysis performed by the CPA.
• Stakeholders can be categorized into three groups:
  • Decision makers
  • Key stakeholders
  • Other stakeholders

Decision Makers

• Those who are responsible for an organization’s actions.
• Important stakeholders for a CPA include the decision makers who rely on the CPA’s advice.
• Often include the executive team of an organization and may include other personnel, depending on the decision involved.
  • Example: A chief executive officer is ultimately responsible for financial accounting decisions; however, the chief financial officer or controller would also be involved in these decisions.
• Hint: In a case scenario, decision makers are usually the people/groups to whom you will communicate
  (for example, your superior in a CPA firm, the owner of a small business client, or the management team of the company where you work).

Key Stakeholders

• Those who have influence over an organization and are also highly affected by the decision under consideration.
• Shareholders and creditors are usually key stakeholders in financial accounting decisions.
• Key stakeholders might also include managers within the organization who are rewarded based on the results of financial accounting measures.
• Hint: If you are having difficulty identifying the key stakeholders in a case scenario, first brainstorm possible stakeholders and then consider which stakeholders are likely to be highly affected by the work you are asked to perform.

Other Stakeholders

• Those who are affected by the decision under consideration in a less direct manner.
• In general, it is not critical for the CPA to identify members of this stakeholder group.
• Example: Virtually all of the employees of a company are stakeholders in financial accounting decisions. However, most employees are affected only indirectly and do not have significant influence over financial accounting matters. Accordingly, employees are not usually viewed as important stakeholders when a CPA provides advice about financial accounting methods.
• Employees may be considered more important stakeholders when providing advice on strategic direction that could impact the day-to-day work and morale of the employee group.

13.2.2 Identify stakeholder goals, preferences, and needs

• The next step is to identify the goals, preferences, and needs of both decision makers and key stakeholders.
• This means understanding where their interests lie.
• Questions to ask:
  • What are their priorities and expectations?
  • How will the action impact them, both positively and negatively?
  • How can they influence the success of the action, both positively and negatively?
  • Do they have interests that will conflict with other stakeholders?
• Asking these questions will help better plan and perform more thorough analysis.
• These questions need to be asked with each potential decision, as each decision may affect different stakeholders.
• You cannot rely on one priority list to assist in making every decision in the organization.
• Hint: In a case situation, you might need to make assumptions about stakeholder goals, preferences, and needs. For example, it is reasonable to assume that a major goal of company managers is to improve profitability.

13.3 Analyze the issue(s)

• A significant aspect of analyzing an issue is identifying key arguments for and against a course of action.
• Include the impact of each alternative on both decision makers and key stakeholders.
• Consider arguments both for and against the course of action.
• Example: A company wants to implement a new custom accounting system to replace an off-the-shelf software package.
  • Arguments for proceeding:
    • It would be more cost-effective, update information immediately, and allow for better decisions to be made (better for shareholders and executive management).
    • It would be a more precise system than the current one, shortening the amount of time it takes to fulfill orders (better for customers).
  • Arguments against proceeding:
    • It could eliminate jobs by automating processes (worse for employees).
    • It would be more complex to use and could initially provide incorrect inventory information (worse for customers).
    • Incorrect information (initially) could lead to poor decisions being made (worse for executive management).
• In this situation, there are pros and cons for the key decision-makers and key stakeholders. However, except for the potential for job loss, the arguments against will resolve themselves through user training. Thus, the pros appear to outweigh the cons.

13.4 Conclude and advise

• For most issues, you will have major arguments both for and against each viable alternative.
• To reach a conclusion, you will need to step back from the details of your analysis and consider the big picture.
• Which decision criteria are most important in this situation?
• To prioritize, you should draw primarily on the decision-maker goals and objectives.
• CPAs often need to make trade-offs among competing decision criteria.
• Sometimes these trade-offs relate to favouring one group of stakeholders over another.
• You will need to prioritize the needs of the various stakeholders in your decision-making.
• Remember, you will not always be favouring one group of stakeholders.
• Your decisions will never please all stakeholder groups all the time.
• You must analyze the facts gathered and make the decision that best aligns with the goals of the organization.
• Once you reach a conclusion, you also need to think about additional advice that you can provide.
• Decision-makers are likely to need advice to manage risks or address other issues that you identified during the stakeholder analysis.
• Example: Decision-makers might be able to improve communication about the benefits of the final decision to minimize employee resistance.