Integrated Accounting and Sustainable Development

Question: Discuss about the Integrated Accounting and Sustainable Development. Answer: Introduction In the report sustainability has been discussed and has been embraced in respect to environmental, social and economic aspects. Sustainability reporting endeavors to signify an organizations environmental, social and economic performance and its related impacts on the world around it. The report also discusses the need of accountant in sustainability reporting in the organization. Sustainability proposes opportunities in the accountancy practices and many professionals have involved in recent years to provide advice and assurance services relating to sustainability performance and reporting. The report also considers importance of integrated accounting in Australia. Sustainable Development and Accounting Sustainable development can be defined as the development which can fulfill the requirements of the present generation but not at the cost of future generations need (UN Document, 1987). Three elementary concept of sustainable development are economic growth, environmental protection and social empowerment (Forumforthefuture, 2003). Present accounting framework reviews the requirement of accountability and transparency of accounts and its effect on clients and regulatory bodies. Now a days companies are also including the non financial aspects in their annual reports showing its impact on the society and environment. The drive to become more effective and efficient has forced the business organization towards implementing accounting frameworks which are reporting financial, social and environmental performance together. So to walk on the path of sustainable development it is important to develop a logical and practical tool that makes possible progress in relation to economic, social and environmental goals simultaneously. Companies refer to corporate social responsibility (CSR) or corporate responsibility which can be linked to as corporate governance. (Source: Forumforthefuture.org, 2003) Drivers toIncorporate Sustainable Development in Accounting Money saving: Utilizing the resources efficiently can be done by collecting the information on expenditure relating to environment and social cost and connecting it to the benefits derived from such expenditure. Useful reporting tool has been provided by sustainability management account to track the progress and decreasing the environment and social cost with time due to sustainability. Governance: Since the corporate governance world is changing, there are many laws reviewing the recommendations on the material impacts on environment should be reported in the annual report along with the financial information. Reputation: Many investors are also interested in looking into data other than the traditional accounting while valuing the company. These non financial data includes customer retention, brand valuation, entering a new market. Risk management: Changing environment has also increased the demand to control and report on non- financial risks. This can be done by identifying the risk associated with present financial performance in respect to social and environmental risks. Role of Accountant in Sustainable Development The key feature of corporate structures that is keeping ownership and control in different hands has increased the demand for accountability and created the need of accountants. In response to the changes in the society and increased diversification into non accounting areas has increased the requirement of professional in respect to quality, knowledge of relevant laws, objectivity and integrity of accountant. Many challenges and opportunities are presented by sustainability in front of an accountant. Following are the ways in which a professional qualified accountant can do to enhance the sustainability. Need of increased transparency and extended responsibility has highlighted the importance of corporate policies which can protect and provide competitive advantage to an organization. Accountant can develop policies to address such issues and help the organization in implication of such policies to manage the risk associated with it (Pearce Atkinson, 1993). The challenge of increasing transparency of rating agencies about the environmental protection and need of information about the social and economical performance requires the need of professionals. The accountant can support benchmarking by providing relevant information on timely basis and in a comparable way. An early understanding of the requirements, prohibition and their related subsidiaries and taxes by the accountant can help him to take appropriate actions like providing necessary information applicable to environmental or social issues. Tradable permits and allowances used by the government to restrict the undesirable impact on environment to improve the sustainability has also raised the need of qualified professional who can understand the related schemes and contribute in the implementation of such policies in the organization. Also accountant can take important decisions about the compliances and the impending consequences. Many government and other authorities working in favor of society prohibits some actions to enhance the sustainability, for example child labour is banned by many countries except few, similarly disposal of toxic waste may be prohibited in some countries but not in others. Therefore compliance with the legal requirements needs complete assessment of the policies and disclosure requirements. Hence accountants can play an important role by recognizing and measuring the information required to be filed by regulatory authorities and disclosures required in the financial statements of the company. Integrated Reporting in Australia Integrated reporting is defined as a method of managing the material financial and non financial matters of entity in a consistently which can recognize the dependencies between each other (ACCA, 2011). An organization following integrated approach will have its vision and strategies integrated with each other, performance and operations will have an integrated approach and the reports issued by the organization will disclose the financial and non financial impacts of material risks (Eccles Krzus, 2010). The main rationale of integrated reporting is to express the impact of matters related to social, environmental and governance of organization on its financial performance. The reporting should demonstrate the value created by the organizations financial, social, and environmental management system in a short, medium and long term. The main objective of integrated reporting is to enhance the information quality which is available to the finance providers of the organization. Importance of Integrated Reporting Integrated reporting outlines the risk related to environmental, social and economics and their related opportunities. It also integrates the vision and strategies of the organization over the short, medium and long term (Jensen Berg, 2012). It identifies the key performance indicators with respect to financial and non financial for all the material risk and opportunities. Integrated reporting helps in identifying the current resources and helps the management in to utilize these resources in optimum manner. Integrated reporting helps in making available quality information about the organization to the stakeholders it allows them to take appropriate actions and decisions. It also gives the overview on the future performance of the organization thereby helping the stakeholders to take informed judgments. Integrated reporting also assist in creating long term value of the financial statement by allowing the investors to assess companies sustainability in a given time frame. Integrated reporting can illustrate the link between social, environmental and economical context with the financial performance, strategies and governance of the organization in which it works thus can influence the decision relating to allocation of companies resources. Major problem faced by the present organization is the lack of standard metrics which can provide standards for translating environmental and social issues into business terms. Integrated reporting can help this problem by including Environmental, social and governance metrics (ESG metrics). This will improve healthy competition between the companies to become more sustainable than other. Value creation has been completely reframed by the integrated reporting by providing another model other than corporate social responsibility. Since sustainable reporting does not provide links between the information reported and value creation process in the organization IR can help by ensuring that the organization is reporting material information which can showcase the performance of the non financial information (GAAP, 2014). It also decreases the risk of downfall in reputation as it reduces the expectation-reality gap among the external parties and companies by bringing transparency in the performance, vision and mission in financial and nonfinancial terms of the organization. It can also be used as a platform to improve engagement and relationship with the stakeholders. Also this can promote employee engagement by collaboration and coordination between different departments of the organization since it is required by the IR to produce integrated report (IMA, 2016). Integrated reporting helps in communicating vision of the company and the ways it will face the challenges and opportunities in respect to non financial matters thereby improving the confidence of investors in the organization. Conclusion The report consists of importance of sustainable development and the reasons why the Australian companies are adopting integrated reporting in their business. Need of professionally qualified accountants in the organization for measuring the significant impact of environmental and social effects on the organization has also been discussed. Accountants also play an important role in developing, understanding and operating all the system of sustainable infrastructure. Integrated reporting has opened an opportunity for the companies to accept sustainable model of business to create long term value. Although there are many limitations in the reporting it has potentials to introduce new innovation through integrated thinking and thereby enhancing the productivity, sustainability and profitability. References ACCA, 2011, Adoption of integrated reporting by the ASX 50, Accessed on 24 April from: https://www.accaglobal.com/content/dam/acca/global/PDF-technical/sustainability-reporting/tech-tp-air2.pdf Eccles, R.G. and Krzus, M.P., 2010, Integrated reporting for a sustainable strategy: One Report has the potential to significantly change how companies operate and investors think, shifting the focus from that of meeting short-term financial goals to developing a long-term business strategy that not only makes a commitment to corporate social responsibility, but also to a sustainable society,Financial executive,26(2), pp.28-33. Forumforthefuture, 2003, Accounting for Sustainability, Accessed on 23 April from: https://www.forumforthefuture.org/sites/default/files/project/downloads/accounting-sustainability.pdf GAAP, 2014, you need to know that Integrated reporting is gaining ground, assessed from 24 April from: https://gaap.com.au/Special_GAAP_Report_-_Integrated_Reporting_Oct_2014.pdf ICAEW, 2013, SUSTAINABILITY: THE ROLE OF ACCOUNTANTS SUSTAINABLE BUSINESS INITIATIVE, accessed from 23 April from: https://www.icaew.com/-/media/corporate/files/technical/sustainability/sustainability-the-role-of-accountants-2004.ashx?la=en IMA, 2016, Integrated reporting, Accessed on 24 April from: file:///C:/Users/Akansha%20Sogani_ABSAS/Downloads/Integrated%20reporting.pdf Intgratedreporting, 2014, Realizing the benefits: The impact of Integrated Reporting, Accessed on 24 April from: https://integratedreporting.org/wp-content/uploads/2014/09/IIRC.Black_.Sun_.Research.IR_.Impact.Single.pages.18.9.14.pdf Jensen, J.C. Berg, N., 2012, Determinants of traditional sustainability reporting versus integrated reporting, An institutionalist approach,Business Strategy and the Environment,21(5), pp.299-316. Pearce, D.W. Atkinson, G.D., 1993, Capital theory and the measurement of sustainable development: an indicator of weak sustainability,Ecological economics,8(2), pp.103-108. UN Document, 1987, Report of the World Commission on Environment and Development. Accessed on 23 April from: https://www.un-documents.net/a42r187.htm