Sustainability Accounting - Example

Sustainability Accounting Report Name: Unit: Professor: Submission Date: Table of Contents Sustainability Accounting Report 1 Table of Contents 2 Transmittal Letter 3 Executive Summary 4 1.0. Introduction 6 2.0. Discussion 7 3.0. Present Elements Of Sustainability Accounting. 8 4.0. Summary, conclusions and recommendations 9 5.0. References 12 Transmittal Letter (Student name and address) (Company name and address) (Date) Dear sir/madam, I hereby submit a report on the viability of the establishment of sustainability accounting division in the Australian accounting practice organization. The report aims to respond to Martha Mc Gregory’s curiosity on whether establishing a sustainability accounting division in your company is beneficial, to settle John Jackson’s worries on the cost effectiveness of sustainability accounting and to support the arguments of your partner who believes sustainability accounting is of great advantage to your company. Sustainability accounting approach is of growing significance and relevance in the contemporary business world. The incorporation of the approach in your company will not only inform the management decision making process but also enhance the formulation of a viable corporate strategy. Sustainability accounting will, therefore, facilitate higher economic performance of your company, enhance societal welfare as well as promote environmental and sustainable development. Executive Summary Our firm offers consultancy services to medium and large accountancy practices around the world. It has a reputation of expertise in innovation and latest trends in business practices. The purpose of this report is to respond to the Australian accounting practice’s request to provide them with a detailed analysis of the viability of establishing sustainability accounting division in their firm. The report is segmented into four major sections. The first section provides definition of sustainability and sustainability accounting. Sustainability entails proper use of resources to ensure they benefit not only the current but also the future generations. Sustainability accounting is a subset of accounting that deals with the collection, recording, analysis and communication of relevant information to make business operations sustainable. The second section details the vision for sustainability accounting, the relationship between sustainability corporate strategy and the role of sustainability accounting in sustainable development. Sustainability accounting plays a key role in the formulation of an effective and sustainable corporate strategy as well as ensuring sustainable development. The third section details the present elements of sustainability accounting which include the purpose of operating a sustainability accounting system; the requirements and principles of operating the system; methods and devices for data collection, data record, measurement and analysis; sustainability accounts and reports; and the qualitative characteristics of the resulting information according to Lamberton, 2005 p.12. Finally the report provides summary conclusions and recommendations to the Australian accounting practice. The report identifies that sustainability accounting approach is of growing significance and relevance in the contemporary business world. It is a modern development in accounting with two perspectives: Philosophical perspective, where it is viewed as a strategy to enhance financial, social, environmental and economic sustainability, and management perspective, where it is seen as an accounting tool that informs managerial decision-making process and enhances transparency and accountability in accounting practice. The report, therefore, concludes that it is of utmost importance to establish a sustainability accounting division in their firm as this will not only benefit the internal stakeholders but also the external ones. 1.0. Introduction 1.1. Definition of Terms 1.1.1. Sustainability Sustainability in general terms is the satisfaction of the current needs in a way that does not compromise the ability of the future generations to satisfy their own needs. Sustainability in a business environment means strengthening the operations of the business to ensure the business operates to the unforeseeable future while utilizing the available resources in a sustainable manner. It consists in finding ways to sustain the provision of goods and services without depletion or deterioration of the business environment (Kazooba&Kakuru, 2015 p.85). 1.1.2. Sustainability Accounting Sustainability accounting involves incorporation of sustainability initiatives to company strategy, in the evaluation of risks and opportunities involved, and providing measurement, accounting and performance management skills to ensure that sustainability is embedded into the daily business practices. It is simply the process of collection, analysis and communication of sustainability-related information to the relevant parties (Alnafea, 2014 p.9). One of the most widely accepted definition of sustainability accounting is that given by Schaltegger and Burritt (2010) “Sustainability accounting describes a subset of accounting that deals with activities, methods and systems to record, analyze and report: First, environmentally and socially induced financial impacts, second, ecological and social impacts of a defined economic system (e.g., the company, production site, nation, etc.), and third, and perhaps most important, the interactions and linkages between social, environmental and economic issues constituting the three dimensions of sustainability (p830).” 2.0. Discussion 2.1. Vision for sustainability accounting According to the Sustainability Accounting Standards Board (SASB, 2014), the vision of sustainability accounting is to enhance social, economic and environmental sustainability by facilitating informed decision making by the business practitioners. SASB envisions a world where a shared understanding of corporate sustainability performance allows companies and investors to make informed decisions that drive value and improve sustainability outcomes in the entire society. 2.2. The relationship between sustainability corporate strategy and sustainability accounting. Sustainability accounting systems support sustainability corporate strategies. They provide appropriate, reliable and real information on the sustainability results of the company that support managerial decision-making. The information provided by sustainability accounting systems, therefore, has major corporate as well as micro- and macro-environmental benefits (Alnafea, 2014 p.12) 2.3. Sustainability accounting and sustainable development. Sustainability accounting ensures that development meets the needs and desires of the present generations without compromising those of the future generations. It complements the relevant legislations which alone are not adequate to empower environmental preservations (Kazooba&Kakuru, 2015 p.87). 3.0. Present Elements Of Sustainability Accounting. The development of a sustainability accounting system includes five elements. These elements are: the purpose of operating a sustainability accounting system; the requirements and principles of operating the system; methods and devices for data collection, data record, measurement and analysis; sustainability accounts and reports; and the qualitative characteristics of the resulting information (Lamberton, 2005). 3.1. The purpose of sustainability accounting systems These systems are designed to evaluate the performance of the economic organization in terms sustainability. These involve paying special attention to its economic, social and environmental aspects. The sustainability accounting information systems provide internal stakeholders and the management with information relevant to the decision-making, thus playing an important role in strengthening the internal management of the organization. This therefore, enhances good planning and control. The external stakeholders’ need for information focuses on the accountability of the organization’s operations both in social and environmental terms. 3.2. The requirements and principles of operating a sustainability accounting system Important principles and requirements should be taken into consideration that specifies the methods and devices applied in the course of data collection, measurement, and evaluation, as well as the content and the process of reporting. An essential requirement is the selection of the proper period for accounting, evaluation and analysis, that is, the determination of the period in which the company is evaluated in terms of sustainability. 3.3. Methods and devices for data collection, data record, measurement and analysis There are various sources used for collecting and recording data. However, in the selection process some cost benefit aspects should be considered. Other factors which should be considered include input-output analyses, life cycle analyses, and the mapping of social and environmental impacts. Prior attention should be given to the evaluation of environmental protection measures, social costs and environmental liabilities in order to make the business enterprise accountable in terms of sustainability. 3.4. Sustainability accounts and reports This element concerns distribution of information to users. The information can be quantitative or qualitative. It should be of the appropriate form and contain the right content of a sustainability accounting. The frequency of reports preparation should be determined. Such reports should be made regularly through the entire lifetime of a product. It is reasonable to present and publish the company’s accounting information related to sustainability on its website and update it continuously. 3.5. The qualitative characteristics of information on sustainability The information provided by sustainability accounting systems has to be transparent, accountable and controllable. Further, sustainability information should be complete, credible, neutral, clear, material, timely, comparable and ready for interpretation in the context of sustainability. 4.0. Summary, conclusions and recommendations 4.1. The need, merits and demerits of sustainability accounting Sustainability accounting connects the companies' strategies from a sustainable framework by disclosing information on three dimensional levels; environmental, economic and social levels. Sustainability accounting in managerial accounting is used for internal decision making and the creation of new policies that will have an effect on the organization's performance at economic, environmental and social fields. It is a tool used by organizations to become more sustainable. Sustainability accounting in managerial accounting tries to contribute in development that meets the needs of the present generation without compromising the ability of future generations to meet their own needs (Khozein, 2013 p.731) Sustainability accounting, reaching far beyond environmental accounting, examines business operations by putting all three-economic, social and environmental-dimensions into its focus, and most importantly, it emphasizes the interaction of these dimensions in accordance with corporate sustainability. It is therefore not only beneficial to the company but also to the society at large (Tawfic, Dorgham & Rababah, 2014 p.142). In practice, however, it is difficult to put together policies that promote simultaneously environmental, economic and social goals. Comprehensive strategies, therefore, must be put in place to achieve sustainability in any organization and this can be facilitated by sustainability accounting. 4.2. Conclusions and recommendations Based on the on the facts presented in this report, sustainability accounting is of paramount importance in the business world today. It is an accounting tool that does not only inform the management on formulation of corporate strategy but also enable the company to set appropriate policies and procedures that enhance best operations in the company, promotes the welfare of the society as well as uphold sustainable development. This report, therefore, strongly recommends the incorporation of sustainability accounting by the partners of the large Australian accounting practice in their company. Despite its initial setup and implementation costs it has long term benefits. 5.0. References Alfanea, F.S.M., 2014. Developing the conceptual framework of sustainability accounting reporting: Field study in Saudi commercial Banking sector. Global Journal of Management and Business Research, Accounting and Auditing 14(4):8-39. Kazooba, C.T. &Kakuru, W. 2015.Exploring environmental impacts and responses in the conduit to sustainability accounting in an African country. International Journal of Environment and Pollution Research 3(2): 84-117 Khozein, A.,2013. Sustainability accounting. What it is and is not. International Journal Of Accounting And Financial Management, 13(2): 726-736 Lamberton, G. 2005. Sustainability accounting- abrief history and conceptual framework, Accounting Forum 29(1): 7-26. Schaltegger, S. & Burritt, L.2010. Sustainability Accounting and Reporting: Fad or Trend? Accounting, Auditing and Accountability Journal 23(7): 829-846. Tawfic, O.I., Dorgham, T.H., &Rababah, M., 2014. The role of sustainable accounting on the uphold of sustainable development at the Jordanian Industrial Sector. International Journal of Economics and Finance 6(12):134-147. Read More