Sustainability Accounting
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Transcript of Sustainability Accounting
Roopika Patwa (15131)Sakshi Mahalwal (15141)Sheeza Khan (15151)Sachin Kumar(15134)Sakshi(15139)
By:-
SUSTAINABILITY
ACCOUNTING
CONTENTS# DEFINITION # NEED & USERS# OBJECTIVES# PRINCIPLES# TRILPE BOTTOM LINE# TECHNIQUES
DEFINATION• Sustainability accounting is accounting for social ,
economic and environmental aspect of decision making.• Sustainability accounting is a sub category of financial
accounting that focus on the disclosure of non financial information about the firm.
• Sustainability accounting is also know as social accounting , social and environmental accounting , corporate social responsibility reporting etc.
• Sustainability accounting in managerial accounting is used for internal decision making and the creation of new policies that will have an effect on the organizations performance at economic, ecological, and social (known as the triple bottom line or Triple-P's; People, Planet, Profit) level.
• Investors• Analysts• Auditors• Consultants• Customers• Companies
USERS
NEEDS
OBJECTIVES• To measure performance towards
sustainability• With conventional accounting
information, potential internal users of sustainability information can be distinguished from external users
• To evaluate the environmental, social, and governance performance of companies.
• To inform development of an integrated business strategy for corporate management
• It is intended as a complement to financial accounting
Purpose of Sustainability Reporting
Benefits of sustainability
accounting• Collect information on environmental
and socially related expenditure and link them to financial benefits
• Show how environmental and social external costs can decline over time with commitment to sustainability
• Compliance with laws and standards
• Highlight the social and environmental risks associated with current financial performance and aid risk management
• Identify which stakeholder relationships present sustainability risks and benefits.
• Encourage partnership between stakeholder organizations
Benefits ….
• Efficient governance and management
• Potential cost savings• Comprehensive risk management• Brand management
Benefits ….
SUSTAINABILITY REPORTING PRINICIPLES
PurposeDivision:-
PRINCIPLES FOR DEFINING THE
REPORT CONTENT
PRINCIPLES FOR DEFINING THE
REPORT QUALITY
PRINCIPLES
PRINCIPLES FOR DEFINING REPORT CONTENT:-
STAKEHOLDER INCLUSIVENESS
SUSTAINABILITY CONTEXT
COMPLETENESS
PRINCIPLES FOR DEFINING REPORT QUALITY:-
BALANCECOMPARABILITYACCURACYTIMELINESSRELIABILITY
Triple Bottom Line
TBL“ or "3BL",
Triple bottom line (abbreviated as TBL or 3BL) is an accounting framework with three parts: social, environmental (or ecological) and financial. These three divisions are also called the three Ps: people, planet and profit, or the "three pillars of sustainability".
• Triple bottom line accounting means expanding the traditional company reporting framework to take into account not just financial outcomes but also environmental and social performance.
• Thus the triple bottom line is based on economic, environmental and social measures of performance.
Some key links between sustainability and
business performance are suggested by the
International Finance Corporation (Focussing on
the “triple bottom line” 2005):
1. Save costs by making reductions to environmental
impacts and treating employees well
2. Increase revenues by improving the environment
and benefiting the local economy.
3.Reduce risk by engaging stakeholders.
4.Boost their public reputation by increasing environmental efficiency.
5.Develop human capital through better human
resource management.
6.Improve access to capital via better governance.
7.Create additional opportunities from
community development and environmental products
Economic Indicators
Environmental Indicators
Social Indicators
TECHNIQUES OF SUSTAINABILITY ACCOUNTING• SHADOW PRICE/SHADOW COST APPROACH- Generate information on potential costs, benefits and price changes. Calculates financial impact if organization was sustainable.• OTHER NAMES:- Full cost accounting Or Data capture and measurement techniques Or Life cycle analysis
MULTI DIMENSIONAL ACCOUNTING
• TIMING- It provides snapshot in time of the state of the
stock or it does show the flow of goods and services rising from stock over a period.
• LOCATION- It is within companies financial reporting boundaries(internal) or outside(external).
• TYPE OF IMPACT- environmental/social/economic(TRIPLE BOTTOM LINE ACCOUNTING)
SUSTAINABILITY ACCOUNTING• General name to get the prices right.• Improved market based decision making• External dimension of accounting for an
organization’s impact• Example: COSTS- petrol emissions from transport, acid rain, climate change, adverse health effects, reduced air quality etc. BENEFITS- wider benefits to society by a car run by petroleum,like, Ambulance; fire brigade; truck transporting recycling material.
CONVENTIONAL- PROFIT AND LOSS ACCOUNT
RESTATEMENT OF PROFIT AND LOSS ACOUNT:• ECONOMIC VALUE ADDED- Restates the financial
flows in the P&L to show which different shareholder groups benefitted from those flows. It shows the economic value added to different stakeholders by organization's activities.
• ENVIRONMENTAL VALUE ADDED- environment related costs and benefits can be reflected by Environmental Financial Statement (EFS). EFS is an aggregated cost-benefit statement that attempts to collate and report, in a single statement, total environmental expenditure and any associated environmental savings.
• SOCIAL VALUE ADDED- the presentation of organization wide socially related costs and benefits in Social Financial Statement.
ECONOMIC VALUE ADDED (INTERNAL)
ENVIRONMENTAL VALUE ADDED
SOCIAL VALUE ADDED
EXTERNAL FLOWS: EXTENDING THE PROFIT
AND LOSS ACCOUNT.
To prepare external accounts, an organization must collect new information on external environmental, economic, social impacts relating to organization’s activities.THERE ARE 4 STEPS IN PREPARATION OF EXTERNAL COST ACCOUNTS:1.Scoping impacts2.Determining boundaries3.Monetary valuation of impacts4.The triple bottom line: calculating
sustainable profit
EXTERNAL Environm-entalIMAPCTS
EXTERNAL SOCIAL IMPACTS• Social costs and benefits related to employment• Social benefits of corporate tax• Social benefits of the product
ALCOHOL: ESTIMATING EXTERNAL COSTS• Cost to industry (absence, unemployment, premature
deaths)• Cost of material damage from accidents.• Costs of criminal activities.• A range of international studies indicate that alcohol
misuse costs between 2% to 5% of a country’s Gross National Product.
• The calculated alcohol misuse costs in England was between 10.8 billion – 27 billion euros per year.
EXTERNAL ECONOMIC IMPACTS
• Sustainability accounting includes detailed economic impact of a company’s activities, which may affect a range of stakeholders in both beneficial and adverse ways.
• For example, positive impacts on local suppliers and service providers via the economic multiplier and negative economic impacts on the local community form a redundancy program.
ASSETS AND LIABILITIES: THE ROLE OF THE BALANCE
SHEETFinancial accounting recognizes following on the Balance Sheet :• Fixed Assets- assets which are held for long term.• Working Capital- the inventories, debtors, cash and
creditors which are used in day- to- day operations.• Long Term Liabilities- liabilities which will fall due in the
longer term, including debt which finances the business.In Sustainability Accounting we add additional information in assets and liabilities:• ASSETS- Intangible Assets.• LIABILITIES- Shadow liability Shadow provision