Today, accounting is much more than just financial management, and it continues to evolve as a profession, in the context of sustainable development. A basic function of accounting is to provide information on an organization’s financial health, but as this can no longer be measured purely by financial metrics; accountants must look to the future as well as analyze the past.
Increasingly, organizations need to account for anything that can affect valuation or resource flows, including issues such as sustainable wealth creation, climate change, and scarcity of resources. Accounting must play a role in measuring and communicating the risks, benefits, and value of these non-financial aspects, and although narrative and sustainability reports are starting to address this issue, further progress is required to measure and account for sustainability risks and opportunities and their effect on the bottom line.
In addition, growing social awareness of sustainability has prompted a discussion of how accounting can help provide a more balanced and complete picture of overall value and performance. Certain accounting systems now reflect this, with two standards (IFRIC 5 and 37) referring to environmental issues. These are not enough, however, and alternative accounting approaches have now been developed which allow for a broader perspective and a longer timeframe.
Although many of these approaches are not new, interest in them is now greater than ever before as it becomes clear that innovative, practical, and robust systems are required to present sustainability factors more effectively in organizational accounts, if decision making is to fully reflect sustainability concerns. The most important approaches are:
Full Cost Accounting
This seeks to improve decision making by identifying, quantifying, and internally allocating all costs associated with an organization’s activities, operations, products and/or services, including environmental, social, and other costs. This multidisciplinary approach requires scientific, technical and operational knowledge, in addition to accounting expertise.
Environmental Accounting
This approach identifies analyses, manages, and reduces costs associated with raw materials, utilities, services, and waste, with the aim of saving money and reducing negative environmental impacts. It is based on the premise that, as good environmental and sustainability management becomes increasingly important, so will supporting accounting techniques.
To Be Continued …….
