Category: Consulting

AMS (Application Maintenance Services) represents a fundamental pillar for ensuring the success of Corporate Performance Management (CPM) solutions within companies. Despite its crucial importance, AMS is often underestimated and considered merely as an appendix to the project without strategic significance. This perception fails to consider the numerous advantages that AM services offer, which go beyond simple on-demand technical support.

In fact, AMS should be conceived not just as a reactive firefighting activity, but as a proactive service aimed at not only providing support in case of malfunctions but also maintaining optimal software performance and adapting the implemented business model to the constantly evolving market needs. The implemented model should not be regarded as a static element but rather a dynamic one, in line with the ever-changing market conditions. That’s why AKC considers and views AMS as an integral part of the project lifecycle, giving AM the same importance as other phases, such as design or build. As a result, AKC approaches and offers the service in a completely innovative way, with the aim of adapting to this different philosophy.

AMS: AKC’s Perspective Shift

Software implementation projects generally follow a conventional path from the design phase to going live. However, the importance of post go-live activities, such as monitoring application functionality and performance, regular and extraordinary maintenance of the implemented model, and potential software updates, is often underestimated. This lack of attention can negatively impact software performance and usability, and maintenance is only acknowledged when bugs or technical issues arise.

AKC has revolutionized this approach by considering the AM phase on par with others and providing dedicated services to regularly monitor software performance, maintain proactive communication with clients, and support natural business evolution. Periodic Service Assurance Levels (SAL) organized with clients allow for assessing the project’s progress and implementing corrective actions to ensure optimal implementation conditions. This innovative perspective is crucial as it enables the anticipation of issues and proper planning, including important software updates that, if not addressed correctly, can lead to system disruptions.

It is increasingly common for clients, recognizing the crucial importance of application maintenance, to include maintenance services in their evaluation alongside implementation services. The growing awareness of AMS emphasizes the need to view it not merely as an additional component but as an essential element for ensuring the success and sustainability of Corporate Performance Management initiatives and maximizing their implementations.

It is not uncommon for even well-implemented solutions to be questioned after a few years due to their inadequate alignment with new business needs or their inability to deliver the performance expected in earlier stages. Only an AM service with proactive characteristics can ensure proper software functionality and adaptation to evolving market conditions while aiming to minimize the overall Total Cost of Ownership (TCO) of the investment.

Choosing the Right Consulting Partner

To achieve efficient and business-aligned results, it is crucial for companies to collaborate with capable partners who can provide adequate AMS services instead of reactive and ad hoc approaches. Application Maintenance Services (AMS) should be regarded as a highly valuable element, not just a necessary evil addressed through consumption-based contracts focused solely on resolving daily operational bugs. When selecting a partner, it is essential to choose a company that recognizes and values this service, rather than treating it as an add-on without dedicated internal support.

By selecting a structured and reliable partner with a competent Support team capable of providing well-planned and governed services, additional benefits can be obtained, including:

• Customizable contracts tailored to specific needs and required services.
• Structured and well-defined Service Level Agreements (SLAs) ensuring quality and timely AMS activities.
• Operational coverage 24/7, 365 days a year, guaranteeing continuous and immediate support.
• Ability to provide services in multiple languages to meet the needs of multinational companies.
• Effective and timely ticketing system for request and problem management.

This will lead to significant reductions in the overall Total Cost of Ownership (TCO) of the implementation, ensuring stability and the ability to adapt its configuration to business evolutions over the years, while keeping the user base properly trained and informed about any new functionalities released by the software vendor.

With a trusted and professional partner, it will be possible to address future challenges and ensure long-term success in Corporate Performance Management initiatives.

Today, resorting to Private Debt is very attractive for fast-growing small and medium-sized companies. This form of financing is now well established in the United Kingdom due to its attractive risk/return profile, and it is also expanding in Europe precisely as an alternative source for SMEs.

Flexibility of corporate financial structure

If we analyze the international best practices about the management of the financial structure of non-financial companies we see that numerous researches, conducted in industrialized countries – i.e. Graham, J. and Harvey, C., (2001), Bancel, F. and Mittoo U.R., (2004) and Dallocchio M., Tzivelis D., Vinzia M. (2017) – show that the choices regarding debt are marked by ensuring flexibility in the corporate financial structure, while guaranteeing the best possible Credit Rating (CR). This hinges on the fact that decisions regarding the corporate financial structure are clearly subordinate-and could not be otherwise-to choices regarding the core business and in particular investment policy. Therefore, CFOs (Chief Financial Officers) prefer a sub-optimal financial structure from a cost perspective, but one that is more flexible and therefore less risky.

Basically, in order to optimize the risk-return combination, from the point of view of the net financial position (NFP), companies tend to diversify the sources of debt, although this may entail, at least in the short term, a higher cost of financing (of funding). This aspect in the Italian context appears particularly significant since companies are inclined to raise money mainly by resorting to the banking system.

The problem of reduced diversification of financial sources

This reduced source diversification activity, more often than not, does not manifest itself in the larger entities with investment grade ratings (i.e., BBB- to rise), but in the many viable smaller entities with non-investment grade ratings: in which case the banking system remains the main route and unfortunately often the only one. In relation to the latter entities and in general for SMEs, this phenomenon has then been further emphasized due to the “Liquidity Decree” (ex lege 40/2020 and the Support bis Decree ex lege 73/2021), which allows companies to raise new bank debt, taking advantage of public guarantees. E.g., Mediocredito Centrale offers a guarantee of up to 80 percent of bank exposures of up to a maximum of 10 years to finance new investments and working capital, but also to consolidate existing debt, transforming short-term debt into medium- to long-term debt, while maintaining the lower cost of funding typical of a short-term exposure.

This measure, aimed at coping with the pandemic, meant that banks continued to provide credit to entities for which, for the purposes of the government guarantee, they still have to check creditworthiness. This is not surprising, given that the ability to generate cash flow, and thus to be able to repay debt, is the condition underlying the granting of credit by any financial intermediary.  However, Government support for bank debt does not seem to be able to be a structural tool, and therefore serious reflection is required on the desirability of diversifying sources of funding especially for medium-sized entities, even if they have non-investment grade ratings.

The solution: rely to Private Debt

One avenue that could be considered, in order to diversify financing sources, is that of Private Debt, i.e., resorting to private placements with direct lending and private equity funds, usually owned by institutional investors and/or family offices. 

In this way, it is possible to start the process of diversifying sources primarily to give rise to corporate growth or restructuring operations, thanks to structured access to new forms of ordinary or extraordinary finance. In other words, while large companies with investment grade ratings are normally organized to place debt issues on a continuous basis in the market; for smaller entities these could be more occasional operations and therefore the use of these specialized funds on non-investment grade and higher leverage borrowers could be a solution to effectively diversify financial sources.

The importance of cash planning (cash flow)

Therefore, in view of fading public support in the future, the importance of being able to plan for corporate cash generation, consistently assigning goals to management and measuring their achievement over time, in order to produce a positive cash flow that ensures repayment capacity and in general compliance with the financial covenants included in the financing should be reiterated once again.  Without effective cash flow planning and control, not only does diversification of financial sources become problematic, but continued access to any form of debt, whether bank or private direct lending, becomes complicated.

The expert’s advice

In conclusion, public guarantees to collateralize bank debt cannot be eternal and it pays to move in time. Therefore, in order to continue to tap the debt market, while diversifying financial sources appropriately, it is necessary to have cash generation under control in the company. In fact, without an effective cash flow planning and control process, one runs the risk of not being able to ensure a solid and flexible financial structure to support the core business.

Remuneration policy in businesses

The “Report on the remuneration policy and on the remuneration paid” is not a mere implementation that listed companies must fulfill annually, but rather it constitutes an important piece of the corporate governance model that allows the company to communicate externally and internally how it intends to direct the management’s actions in the direction of sustainable growth for a medium-long period.

This report is based on the guidelines and recommendations indicated in the Shareholding Directive II, in the Legislative Decree 49/19 and Legislative Decree 58/98 (Consolidated Finance Act) and the Corporate Governance Code.

These regulatory guidelines attribute great importance to the variable component of the remuneration, especially for a long-term period, and also recommend the adoption of non-financial targets.

The preparation of the remuneration package therefore appears to be a fundamental step in defining the remuneration not only of the CEO but also of the top and middle management.

Value, risk and sustainability in the remuneration policy: the Enav and Eni case

Here is an analysis of the remuneration policy which shows how “Value”, “sustainability” and “risk” are distributed in the short- and long-term incentives and which are of greater importance when defining the objectives. Let’s take into consideration the folowing two Italian companies which work in two different sectors. The first is Enav, it is involved in the management and control of air traffic and the second refers to Eni which works in the sector of oil and gas. In this way, it is possible to observe how the targets (risk, value and sustainability), present in the Remuneration package of the CEO and top management vary in companies of different sectors and different degrees of maturity.

From the analysis of the Report on the remuneration policy and remuneration paid in 2019 of the companies mentioned above, the following information emerges:

• In the case of Eni it is possible to find that a significant importance is given to the variable component with respect to the fixed component, with prevalent incidence of the Long-Term Incentive (LTI) component;
• measures relating to value creation carry greater weight than non-value financial measures financial (especially for ENAV) and are in line with the best practices of marketing at both a Short-Term Incentive (STI) and LTI level;
• however, measures relating to sustainability show increasing emphasis, furthermore greater for Eni. In particular, the greater weight of the sustainability objectives for Eni would appear to depend on the specificity of the sector in which it operates and also on a greater degree of seniority in relation to these issues.

Risk measures, on the other hand, appear at first to be less represented in the Reports on remuneration policy and the remuneration paid. In light of this last point, it is worthwhile considering further reasoning on risk measures.

Risk Adjusted Performance Measures

First of all, it must be said that Risk Adjusted Performance Measures (RAPM) are typical of entities which manage financial risks (i.e. banks and insurance companies), while in the case of non-financial entities and therefore in the presence of industrial risks, the application of these measures appear to be much more complex and therefore not widespread at all.

However, it should be underlined that Eni indicates a target linked to Net Debt / EBITDA and therefore to the financial discipline, or to the management of liquidity risk (which is not the case for ENAV which highlightsa positive net financial position in 2019).

It is therefore possible to state that the objectives related to risk management are not absent in the remuneration policies of non-financial entities.

Finally, it can be said that when economic-financial objectives are assigned (eg. EBIT, EBT, FCF), these must be planned and implemented ensuring that a suitable amount of resources are allocated (OPEX and CAPEX) for risk mitigation activities and therefore useful to comply with the risk appetite, and that such mitigation activities are effectively implemented.

However, considering the Report on the remuneration policy and on the remuneration paid, often it is unclear how often this actually occurs. This relationship is probably not responsible enough for providing evidence of risk management. A greater emphasis on management measures of the risk, however – especially from a design point of view – could find space in the relationship in the report in question especially if this occurs in the remuneration policy.

On the other hand, this is what is happening in relation to the management of the risks associated with the Covid-19 pandemic, mainly in relation to the STI, as emerges from recent market research.

Therefore, greater disclosure within the report eg. about mitigation projects of the risk, if any, could represent a desirable evolutionary trend.

The previous article was about how value, risk and sustainability influence the choices made by the company,
now it is necessary to verify in reality if these three dimensions have equal roles within the decisions made by the management.

It is important to underline that it is not easy to find a good balance among the three dimensions described because:

• to guarantee a risk exposure consistent with the company’s risk appetite, it is necessary to mitigate or eliminate a series of risks, and this has a cost which corresponds to a benefit that cannot be easily estimated in terms of stabilizing the value creation path;
• Implementing initiatives in the field of sustainability in turn requires a cost, which corresponds to a benefit in terms of reputation and image, but also in terms of the market involving employees, customers, suppliers, financial institutions, investors, consumer associations, public bodies, opinion and media, … which return is neither immediate nor easily estimated.

All of this appears to have a negative impact on the ability to create a shareholder value. But this is not necessarily the case, because it is not a question of sustaining costs, but of making an investment that can generate future benefits. In other words, by giving up a portion of the profits in the short-term we create more value in the near future, precisely through investments.

Value, risk and sustainability: how much do they weigh on Management decision making?

If what is written is generally acceptable, it is necessary to try and understand if in the corporate decisions and behaviour the creation of value takes on a great importance, compared to the efficient risk management and sustainable choices.

To understand this, it may be useful to think about what the objectives assigned to the top management of a company may be. If there is a strong predominance of the value component over any other component, then the aforementioned gap could be wider than expected. In summary, the corporate incentive system is often the “litmus test” that reveals the actual corporate culture in relation to the three pillars mentioned above.

Lets’ take the current “Covid-19” pandemic situation as an example.
Think of a pharmaceutical company that has to develop a flu vaccine, the strain of the virus seems to be identified and is more aggressive in very poor countries. The shareholder can alternatively assign the following objectives to the top management:

1. Develop a vaccine against the specific virus identified to minimize costs and maximise value.
2. Develop a portfolio of vaccines against the strain of the virus to help prevent possible mutations of the gene of the virus and manage the risk of not having the right vaccine. The portfolio of vaccines would be made available only to those countries that were able to pay for it.
3. Develop a portfolio of vaccines against the strain of the virus to help prevent possible mutations of the gene of the virus and manage the risk of not having the right vaccine. The portfolio of vaccines would be available to poor countries and a reasonable price.

It is clear that the first objective maximizes value because only one type of vaccine is developed, and the costs are therefore lower. The problem is that this is a risky choice, because if the virus mutates there is a high probability that the right vaccine will not be available.

The second objective does not maximize the value, because an entire vaccine portfolio is developed and costs are higher, but it reduces the risk of not having the right vaccine and unnecessary spending of money and time, as well as missing a market opportunity and the needs of people.

Precisely because developing a vaccine portfolio is more expensive, there may be a strong temptation to keep the price high, at least initially, to try to maximize the vaccine’s sales margins by supplying it primarily to richer countries. This would create more value, at least in the short-term, but it would make the vaccine unreachable for the poorest countries, resulting in damage and suffering for them. And this would be a corporate behaviour that could not be qualified as sustainable.

In conclusion, a strategic choice – to be reflected upon in the top management company incentive system – should take into account risk management (type 2) and, as far as possible, also sustainability (type 3).

If the type 1 prevails in the company, it would be easy to conclude that the statements on the company’s attention to risk and sustainability are perhaps a bit hasty.

Top management objectives in light of Risk management and Sustainability

If in this moment Italy – as other countries – decides to purchase the production of a vaccine in advance which validation period is still underway, it would incur an unnecessary cost in the case that the vaccine is not registered. This is considered as “Risk management“.

Returning to the corporate world, it is no coincidence that the supranational (OECD, European Community, …) and national (Consob and other supervisory bodies) are demanding that the top management be increasingly incentivized, measured and rewarded in relation to objectives that take into account risk management and sustainability and therefore not just the creation of value.
This is not surprising since the creation of value is now understood as value created in the long run; without risk governance and attention to sustainability, sustainable growth would remain just a mirage.

In the next article we will examine some examples of the remuneration policy of listed companies to understand how it is possible to effectively translate what is described here in a real-life situation.

Risk, value and sustainability are the pillars on which the company’s lifecycle is built on.
In fact, the management puts all of its energy into value creation, business risk management and a sustainable long-term growth.

Value creation and risk appetite

If we ask ourselves which is the final objective of a business, one could say that is the creation of value and therefore positive cash flows or even profits (a term used recently).

This approach seems however incomplete because every economic and financial decision made can only result in being a risk-return choice.
A certain level of profit is quite difficult to assess if not in relation to the risk taken to reach a certain result: a greater risk taken should obtain a greater return in terms of profit. Therefore, the value creation may be read in strict relation with the risk appetite that each entity must have.

The final objective of a company cannot be the value creation as such, but the value creation in line with the risk level that the company intends to take (Risk Appetite).

The combination of risk-return

The amount of risk has gradually assumed dignity equal to that of value, so much so that one wonders whether, to optimize the risk-return combination, is it first necessary to define the Risk Appetite and subsequently maximize the value in line with one’s risk appetite, or identify a path to create value and then mitigate the risks encountered along this path to balance the risk exposure according to one’s propensity (in taking a risk).

The second approach is perhaps more obsolete, since it considers the amount of risk as a series of obstacles to be removed along the path of the value creation. Vice versa, the creation of value passes through the ability to select the appropriate risks in terms of size and quality in order to generate sustainable growth over time.

The concept of “sustainability”

The concept of sustainability is considered part of the three dimensions essential for the management of the company. In other words, the combination of risk-return needs to be sustainable over time, and to be sustainable the creation of value must not be orientated only on the basis of a short period and/or at the advantage exclusively of the shareholders.

At the beginning of the 1980’s Robert Edward Freeman was the first to propose the Stakeholder Theory, which paved the way for the development of a common ground of reflection on the importance of all the those who can influence or be influenced by the strategies that the company puts in place (Freeman and Reed 1983).

According to William Evan and R.E. Freeman, the stakeholders – ” are those groups who have a stake in or a claim on the firm. Specifically, we include suppliers, customers, employees, stockholders, and the local community, as well as management in its role as agent for these groups” (Evan e Freeman 1988).

More recently in 2011, Micheal.E.Porter and Mark.R. Kramer published an article called “Creating Shared Value”, in which they introduced the concept of shared value creation: the relation between competitive advantage and social responsibility of businesses. With the concept of Shared Value, Porter and Kramer aim to reinvent capitalism to lead to global growth. In short, the objectives need to be measured in medium-long terms and all of the stakeholders together with the shareholders must be at the centre of the choices made by the company, therefore changing from shareholder value to shared value.

Generally speaking, sustainability means respecting the environment in which the company operates, i.e. natural resources such as energy, water and air, avoiding pollution and the waste management in the field of circular economy. It also means, focusing on society and human rights, the development of human resources, on gender discrimination by guaranteeing equal opportunities for everybody and the implementation of a efficient corporate governance by creating anti-corruption practices, compliance, a correct return model and lastly the risk management of a company.

Social objectives and shared value

The integration of social objectives in the core of the business and the company strategies suggests a necessary movement of the time frame of reference: reaching objectives and the evaluation of the performance must be measured within a medium-long period, keeping in mind not only the immediate profit but also the value produced for the company and the all of the stakeholders.

The IFRS 16 first year of life has just ended and the first financial balances that incorporate the new assets produced by the application of this accounting principle, “the rights of use”, are in closure phase.

Therefore, the assessment of the recoverability of the value of these balance activities pursuant to the IAS 36 is the matter of these days. In fact, the right of use is normally inscribed in the balance sheet in the depreciated historic cost and this requests the necessity to periodically control, pursuant to the IAS 36, the recoverability of the activities object of detection as right of use.

It means that, in presence of impairment indicators, as they are defined by the IAS 36, every entity has to value if the accounting value to which Is inscribed the right of use is superior or not to the recoverable value (i.e. the highest between the value of use and the market value). Whether the accounting value is higher than the recoverable one, it would be necessary to evaluate the asset.

As far as the right of use is concerned, it is necessary to report that it is indissolubly linked to the passivity per leasing.  Such liability lease is qualifiable as a financial passivity, as can be deduced by the IFRS 16 dispositions that forecasts the classification of the relative reimbursements of the cash flows from financing activities pursuant to the dispositions of the paragraph 50.a) of the IAS 36 depending on which the relative cash flows must be excluded from the calculation of the value of use as are all the cash flows connected with the financial passivities. Therefore, in the calculation of the value of use, must be excluded the rent fees because they constitute the reimbursement of the financial passivity that must be excluded in the determination of the value of use.

IFRS 16 and IAS 36: The Impairment Test of Rights of Use

As said above, if on one side the IFRS 16 in paragraph 33 explicitly establishes that the lessee must apply the dispositions of the IAS 36 to verify the recoverability of the detected right of use, on the other side, must be considered the undoubted peculiarities of the right of use that is not only an active contract tightly connected to its passivity per leasing, but that is not even able to produce autonomous cash flows.

It follows that because of the missed generation of autonomous cash flows, the right of use under analyzation must be aggregated to other units generators of cash flows, i.e. it must be configured as a “corporate asset” which recoverable value is connected to the totality of the cash generating units (CGU) that constitute the enterprise.

Such aggregation must occur depending on the capacities of the entity to attribute with a reasonable criterion the right of use to the smallest CGU to which can be aggregated the right of use.

For instance, if a company has rent a building in which are located its three operative divisions, if the company would be able to attribute with a reasonable criterion (for instance surfaces occupied at the condition that they will remain stable over time, that is not easy) to every division the right of use, it follows that the impairment test will be done at the level of single division, i.e. of single CGU.

Instead, whether this criterion does not subsist (something probable whether the surfaces are governed centrally and not by the single directions) then the reference CGU corresponds to the entity in its totality and therefore the impairment at test must be done at level of total entity.

In synthesis, the impairment mechanic determines the comparison between the accounting value (net book value) of the CGU comprehensive of the right of use inscription value with the cash flow actualized produced by the CGU without considering the disbursements forecast for the payment of the leasing fees.

Obviously, in this prospective, also the actualization rate to be adopted for the definition of the value of use must be coherently determined considering the effects coming from the adoption of the IFRS 16; particularly in a model of definition of the discount rate based on the weighted average cost of the capital (Weighted Average cost of capital-WACC) such effects take substance in an increase of the leverage that leads, on one side, to the increase of the “weight” of the component cost of the debt (generally less expensive than the equity one), and on the other side to  the increase of the  levered beta with consequent increase of the equity component’s cost. The combined effect is not easily predictable, therefore the increase of the leverage connected with the application of the IFRS 16 does not necessarily leads (as at first sight we could expect) to a reduction of a weighted medium cost of the capital.

At last a nod to the market value, to be used in the calculation of the recoverable value –whether higher – in alternative to the value of use. A possible way to evaluate it could be to estimate  – even with an adapt survey of a real estate advisor, that will necessarily state a market fee included in a reference range – the rent fee market value on the impairment test carrying out date (i.e. the balance sheet closure date) for a contract comparable with the one that has produced the right of use inscribed in the balance sheet. On the base of such fee should be determined the right of use expressed at market value to be compared with the accounting value. It must be said that such market value – on the base of the mentioned survey – will be expressed in a range, so that it would seem to be hazarded to limit us to compare the range medium value with the accounting value while, if the accounting value would be within the range, (even under its medium value) there may not be the conditions for a devaluation.

So the IFRS 16 has introduced a lot of news, with pervasive effects in the companies’ balance sheets, such as the verification of the recoverable value pursuant to the IAS 36. The balance sheets at the end of the 2019 represent the first proof of the coexistence of the IFRS 16 with the IAS 36.

Mr. Mario Vinzia

In a period in which the acronym ESG (Environment-Social-Governance) has the same importance as the concept of company, seems to be fundamental having the chance to value how much this latter impacts on it. The non-financial statement has this purpose, the non-financial informational communication to the internal and external main characters, going to highlight in which way the company’s performances combine with the ESG dimensions.

The possibility for a company to transmit this type of information must be seen not only as a duty but also as an opportunity to obtain importance and to increase its own profits. In fact, a clear and correct communication is the key for a future company success. Just because a company is composed not only of costs and revenues, it is more and more necessary an overall communication that considers also these aspects that may influence what revolves inside and outside the company such as the environment, the employees an d the territory. And it is precisely the ever more relevant attention to the respect of the environment and to the energy saving, towards the human resources and the territory, a correct governance and the respect of the rules that have brought to the spontaneous arose of the sustainability report or social balance sheet and successively to the introduction of the obligation of drawing up a non-financial statement.

The non-financial statement: what is it for

With the legislative decree 30 December 2016, n 254, entered in force the 25 of January 2017, is forecast that, starting from the financial statement referred to the financial year 2017, the public interested entities (Eip) with specific characteristics report back non-financial specific information within a statement with a non-financial character or “non-financial statement” (Dnf), depending on what forecast in the statement itself.

The statement seems to be a fundamental tool in the transition process towards a global and sustainable economy, combining long-term profitability, social justice and protection of the environment.

Therefore, the Dnf musty at least contain, in addition to a report of a business model, a description of the policies, of the performances and of the risks regarding relevant contents in environmental, social, regarding the staff, the respect of the human rights, the fight against active and passive corruption topics. In fact, in the writing of the Dnf, the legislator asks a set of minimum information necessary , as the usage of the energetic and hydric resources, the greenhouse gas emission and the polluting emissions, the environmental impact, the health and the safety, the anti-corruption measures and the prevention against the violation of the human rights. The legislator gives the statement redactor the charge of finding which other information may have importance to better present his company.

The company, in redacting the non-financial statement, must adopt a methodology that represents the information, i.e. of the reference standards to use in the communication of the contents of the Dnf. These can be the GRI G4 standard, published by the Global Reporting Initiative, an independent organism dedicated to the definition of the models for the non-financial reporting; the company can also decide to adopt an own reporting back methodology having, in this case, the obligation to provide for a <<clear and articulated description of the methodology applied and the reasons of its usage>> (art.3 par 4).

 Considering that the decree, as said, indicates the minimum informative content of the Dnf, the management must, first of all, define the informative perimeter, i.e. value which can be the relevant topics and the relative indicators that must integrate the minimum content requested by the regulation.

The topics indicated beforehand are finally valuated by the management to define those believed to be more representative of the impacts generated by the company in the sustainability sphere, i.e. able to influence the decisions of its own stakeholders regarding such topics.

Once defined the informative content of the Dnf, it is necessary that the company is structured for the gathering of the data, assigning specific responsibilities for the recovering and the certification of the information to the management.

The last step consists in the drawing up of the non-financial statement, that must result a document strongly integrative in the financial informative provided by the company towards the outside. The Dnf –Above all, where drown up, as document separated from the company balance sheet must consider the topics threated in the traditional balance sheet informative and, with it, make a solo informative set.

In this way it is possible to prove that the company’s model blends the profitability and sustainability, i.e. that the company activities done combining long-term profitability, social justice and protection of the environment.

IFRS 16 certainly represents one of the more significant innovations of the international accounting regulatory framework of the last years and it is characterized by a high level of pervasiveness that associated to his complexity raises many points of attention for the operators, being these latter extensors or readers/users of the balance sheet.

A first aspect surely regards the correct finding of the lease contracts that, if in many cases can be carried out immediately, in others- most of all in the sphere of the industrial processes- results more complex and articled.

According to IFRS 16, an accord is, or contains a lease if, paying a predetermined fee, an entity obtains the right to control and use a specific good for an established period of time to obtain, the economic benefits coming from the use of the mentioned good over the established period of time.

A central element is the therefore the possibility to benefit – under the payment of a predetermined fee- of the economic benefits coming from the control of a specific good over an established period of time.

IFRS 16: Is it always easy to find a lease?

In the application area, this definition could not be immediately applicable. A lease contract can be, for instance, easily individuated in case of a real estate lease through which a lessee, under payment of a pre-fixed rental fee, obtains the possibility to benefit of specific real estate spaces put under his control to freely use them in the respect of the regulations in force and the usage conditions aimed to preserve the good.

In other cases, above all in the sphere of industrial processes, this is not immediate. Let’s take as hypothesis the case of a company that has given in outsourcing to a third part a phase of his productive process. The sub-process requires the use of a plant for which we ask ourselves if a lease contract could be configured to the outsourcer or not. In order to have an answer, we are helped by the flow chart described in the paragraph B31 of the IFRS 16 that reports the key questions to ask ourselves in order to value if all the necessary conditions to identify a lease contract have been verified.

First, it is necessary to value if the outsourcee avails a specific asset to accord the subscript contract with the outsourcer. In presence of an accord in outsourcing the plant could be not only specific, but also built or specifically modified to respond to the exigencies of the outsourcer, in such case this first verification would bring towards the finding of a lease contract. However, it happens that the outsourcee could have a productive capacity larger than the one necessary to render the service to the outsourcer and therefore, on his choice, to decide which productive line activate to provide the performance to him requested; in such case, configuring a lease contract would be criticizable.

This second hypothesis is typical of those situations in which the outsourcer is not the only customer of the outsourcee; if the outsourcer does not substantially catch all the benefits coming from the use of that asset, normally there is no configuration of a lease contract. The real distinguishing element to understand if there is the lease contract or not, ends to be the verification of who has the control of the asset.

In a goods and/or services providing contract, the control of the asset is among the prerogatives of the supplier that decides how to make work, on his risk and under his responsibility, the plan to fulfill the contractual obligation assumed with the customer counterpart.

Not even the fact that the customer could have given precise instructions about the characteristics of the requested product has to mislead; this does not mean having the control on the asset used to realize that product depending on the instructions given. Therefore, in presence of an outsourcing contract, even though there is an identification asset and all the benefits are caught by the outsourcer, should not be configured a lease contract to the extent that the operative decisions and consequently the responsibility and the risks of the management of the asset fall on the outsourcee. For that purpose, the paragraph BC123 is very clear, considering that it defines as distinguishing element for the identification of a lease contract, the capacity of the outsourcer of modifying, at his discretion, the operative instructions of the asset use, putting the outsourcer  in the position of the mere executor –that, if at all, could at most pretend a revision of the prescription for an eventual modification of the scope of work – of a will expressed by the outsourcer to which he could not oppose a rejection (BC 117 IFRS 16).

In synthesis, the identification of a lease contract in similar situations is not pacific and arises from a deep analysis of the contract subscripted between the parts and in particular of the respective operating spheres and of the attribution of roles and responsibilities among parts. Therefore the IFRS 16 imposes an accurate analysis of the contracts, taking care that first the requesting organizational units and second the procurement function verify the existence or not of lease contracts within the concluded operations, not assigning this activity only to a subsequent check of the administrative function, however necessary.

Ban Ki-Moon, general secretary of ONU, has been able to summarize the concept of enterprise social-responsibility in a simple sentence:

“Every business has a responsibility to improve our world”.

Ban Ki-Moon refers to an exact responsibility that the companies have, not only towards they shareholders but also towards the entire world. In addition, this statement arise from the obvious observation that every firm relates not only with its shareholders but also with its own staff (employees and third parts), with its financial and commercial counterparts, with the local communities, with the environment…..but indeed, with the entire world.

To the World Economy Forum in Davos, Kofi Anna- predecessor of Ban Ki-Moon- already in 2009 started filling with these contents what lately reiterated by his successor:

“I call on you-individually through your firms, and collectively through business associations- to embrace, support and enact a set of core values the areas of human rights, labor and standards, and environmental practices”.

Enterprise social responsibility: why it is so important

This statement contains the principal fundamentals on which ONU has developed the UN PRI (principles for the ONU responsible investments) i.e. a way of being company that takes consideration not only of the shareholders but also of all the stakeholders, respecting the ESG (Environment, social and governance) dimensions.

In an extreme summarization, the purpose of a company does nor consist only in making profits. It is likewise important how these profits are made.

Depending on this prospective, the environmental, humanitarian and social dimensions get free from the historical role of subjection by the profit objective and, as objectives, they contribute to define the modalities and the restrictions for the achievement of the strictly economic results.

However, being sustainable is not enough. It is also required to communicate it in a proper way.

The social balance arose from the exigence of communicating, on voluntary base, company’s results and conductions in a sustainable key, but sometimes this balance has been characterized by the tendence of underlining the positive aspects, taking off emphasis or, even ignoring eventual criticalities.

As a matter of facts, it is important to communicate, as much as it is necessary to do it respecting rules characterized by completeness and clearness and based on approved standards.

There are some reference specific standards and applicative methods, but the GRI standard, written by the Global Reporting Initiative is one of the principal international standards for the balance sheet presentation of the non-financial report.

The new GRI standards have been officially introduced on the 19^th October 2016 and they have become law stating from the 1^st July 2018 (Fig.: 1).

The content of the guidelines has been restructured in a modular system and in interconnected standards. In this way the system has more flexibility that allows easily updating the standards without interfering with the general system.

THE GRI 101 (Foundation) is the starting point for the introduction of the 10 fundamental principles and it explains how to prepare a report agreeing with those 10 principles. Through the usage of GRI 101 it is therefore possible to identify more aspects that have a stronger impact- positively and negatively- on the stakeholders.

This way, it is possible to identify and apply the standards AD HOC, choosing them among those listed in this series of specific standards per sector.

Simultaneously, it is also necessary two other universal standards: the GRI102 (General Disclosures) and the GRI 103 (Management Approach). The first is helpful to give the contest information inherent the organization and its balance sheet presentation procedures, while the second is helpful to explain the management of those aspects of the own activity that have a more important impact on the stakeholders.

Therefore, the GRI standards represent the cornerstones of the sustainability reporting the application standards universally approved allow better developing a common language for the sustainability balance sheet presentation.

In Italy, the standards have been also approved during the actualization of the Legislation 2013/UE within the Legislative Decree of the 30^th December 2016 nr. 254, which has become law on the 25^th January 20174, which regulates the non-Financial Declaration.

In conclusion, the companies have to show their own distinctive competences also in the sustainability sphere, constructing a winning union with their capacity of creating value in relation to a sustainable growth over time, communicating their own future objectives and the results achieved through a clear, complete and direct sustainability reporting.

In order to improve the economic-financial frankness of the financial statement, the IASB (International Accounting Standard Board) has issued the new accounting precept IFRS16-lease: this precept imposes to the lessee to account, without any difference, the operative and financial leasing contracts.

The IFRS16: the impacts on the lessee

Specifically, the impact of the operative and financial leasing (managed apart from the financial statement) will be clearly visible in the company financial statement. In detail:

• Inscription in the Right of Use financial statement asset against the inscription in the financial statement liabilities of the contracted debt for the usage of goods;
• Registration to profit and loss account, of the interest share and consequent increase of the debt;
• Registration to the profit and loss account of the amortization asset;
• Reduction of the debt due to the payments sustained over time.

The operative, financial and economic impacts can be considerable within the companies processes, considering that they are potentially inherent to a copious number of properties ”hired/rent” by third parts such as:

• Commercial and residential properties;
• Car fleet;
• Computer equipment (servers, photocopiers, printers. Pcs and so on…);
• Industrial equipment (forklifts, machineries and so on…).

Moreover, in strategic terms, the IFRS16 precept imposes reflections on how to have the availability of an asset: purchase or rental?

The keys to analyze and correctly manage these news are:

• Do exact process mapping, identify all the responsibilities involved;
• Take IT tools that allow managing correctly the fundamental contractual dimensions that have an impact on IFRS16;
• Estimate the impacts and the process and infrastructure modifications.

In choosing the IT contractual management tools, the fundamental requirements should be:

• Configurability of the system, in terms of the diverse types of goods/services handled;
• Interoperability among the diverse departments involved: typically, there is not a solo management point of the contract at the level of company, but there is the competition of several company directions;
• Adaptability of the system, considering the variability of the contracts over time.

A perfect tool for the contractual management allows having data and processes coherent at company level, condition necessary to carry out operative and strategic evaluations.