The newest edition of the EQUIS documents includes significantly revised and expanded standards for Financial Performance reporting, Financial Management and Risk Management (EQUIS Standards & Criteria, sections b – d of chapter 7). With these changes, EFMD targets a further strengthening of the EQUIS system by creating more transparency of an applicant school’s financial health, how it manages its financial affairs and how it deals with financial as well as non-financial risks. Peer Review Teams will now be in a position to conduct analyses of greater depth, which will significantly enhance their ability to evaluate a school’s financial and academic viability. As a consequence, it will add to the fruitfulness of the discussions with senior management teams and will ultimately act as a catalyst for the further professionalization of the finance and risk function in business schools. The revised standards were presented to the EFMD membership during the 2013 Deans and Directors Meeting in Istanbul for immediate implementation.
The most eye-catching change is the switch from previously two evaluation items (‘tick boxes’) in the Quality Profile Sheet (Financial Resources, Financial Management) to now three (Financial Performance, Financial Management, Risk Management). A more in-depth look at the Financial Performance section reveals that schools are from now on requested to supply detailed accounting information for the past five years as well as corresponding budget projections for the next three years. The scope of reporting is implicitly aligned with the availability of financial information, which is above all tied to the school’s legal status. The working rule for schools in process should be that whatever is generated as part of regular financial reporting must now also be added to the Self-Assessment Report or the Base Room (see Annexes 4 – 5 of the EQUIS Process Manual Annexes for further details).
The Financial Performance section has in addition been extended to cover potential threats not explicitly captured in the school’s accounts. These could for instance include issues related to the parent institution’s financial health or any contractual commitments with a potential impact on financial outcomes in the years to come (e.g. loan covenants). Schools should view these additional provisions as a reminder that they need to provide Peer Review Teams with a comprehensive picture of their financial situation and to pro-actively highlight problem areas, which may have a tangible impact on the accreditation process.
The section on Financial Management covers the same headline items as before (financial autonomy, financial budgeting process, internal control and reporting systems), but now with somewhat greater depth. Schools are for instance asked to describe the system of KPIs used in performance management, which now needs to be supplemented with corresponding data for the past five years and projections for the next three years. Greater emphasis is also placed on the consistency of the financial budgeting process, in particular the alignment with the strategic plan as well as the consistency of revenue and cost projections.
The section covering Risk Management represents the most important innovation introduced to the Resources chapter this year. Risk is defined very broadly and covers financial as well as non-financial risks, the latter for instance being related to academic quality and reputation. Schools are requested to explain how they organize the risk management function (e.g. assignment of managerial responsibility as well as risk ownership, risk reporting) and how it is embedded into its governance system. They need to further describe the management processes applied to the identification, assessment and mitigation of risks. Finally, Peer Review Teams are to be provided with up-to-date information on the risks currently facing the school as well as the mitigation policies employed to manage these risks. In this context, any pertinent threat with the potential of significantly infringing on quality and viability needs to be flagged up during the review.
Overall, the changes applied to the Resources chapter provide schools with greater clarity on what is expected from them. Peer Review Teams will therefore spend less time on the gathering of information and will devote more of their attention to analysis as well as the provision of advice. Will the 2013 document revisions eventually raise the EQUIS bar in these areas? Probably. But this will go hand-in-hand with the further professionalization of the finance and risk management function in business schools, all in the context of EQUIS’ central mission to encourage continuous quality improvement.
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