Should Accountants Be Responsible for Reporting on the Sustainability Activities of an Organisation - Essay Example

Running header: Sustainability Reporting Student’s name: Instructor’s name: Subject code: Date of submission: SHOULD ACCOUNTANTS BE RESPONSIBLE FOR REPORTINGON THE SUSTAINABILITY ACTIVITIES OF AN ORGANISATION? Introduction As a result of the global climatic changes, promotion of sustainable practices is seen as a necessary survival tactic. The issue of sustainability has grown out of a number of factors. First, many environmental dangers face the world in addition to there being a huge imbalance in wealth distribution across the world. As such, it is impossible to address environmental degradation without addressing the wealth imbalance in the world. This is known as sustainable development. Sustainability therefore entails a combination of financial, social and environmental strategies. Since 1990s, many environmental incidents have forced many organizations to adopt sustainability in their reporting. In fact, there are numerous codes and legislations that deal with sustainability today. Sustainability reporting has been deemed important as organizations that take sustainability reporting seriously also tend to perform well financially. However, there has been increasing questions as to who should be responsible for sustainability reporting (Gillan, 2010). While some have argued that the accounting function of the organization should adopt sustainability reporting together with financial reporting, others have argued that doing so will overburden the accountants. Furthermore, it has been argued that accountants may not have the required knowledge on sustainability matters and hence sustainability reporting should be left in the hands of sustainability experts. This paper seeks to establish whether accountants should be held responsible for reporting on the sustainability activities of an organization. In so doing, the paper will also examine areas of sustainability reporting where accountants can be of help. An overview of sustainability reporting Sustainability reporting can broadly be defined as an environmental footprint measurement and reporting system for an organization whether profit or non profit making. In other words, its reporting on an organization's activities geared towards sustainable development or development which meets the current needs of the organization without compromising the future generations' ability to meet their own needs. in other words it entails bearing in mind impact of an organization's economic activities on the natural and human resources on which the organization depends on. As such, it entails ensuring that the resources' productive capacity is not irreparably damaged or depleted at a faster rate than it is replenished. As such, sustainability reporting is a useful tool in identifying, evaluating and managing social and environmental risks through identification of resource efficiency and cost savings and linking improvements in social and environmental issues to financial opportunities (Greg, 2004).as such, organizations committed to sustainability reporting look financial performance to returns that can accrue from many years of engaging in social and environmental friendly practices. As such, sustainability reporting can help organizations in -collecting information on social and environmental related expenses and hence link them to financial benefits -decreasing their social and environmental external costs over time as a result of commitment to sustainability -establishing environmental and social risks resulting from current financial performance and manage the risk This shows how important sustainability reporting is to an organization. However, due to the fact that it is a relatively new field, there exists confusion as to who should be held responsible for sustainability reporting with some accountants divorcing themselves from it while others have actually embraced it and their organizations have made great strides in the field. According to Gregory (2008), sustainability reporting is both an opportunity and a challenge to the accountant. As such, accountants should realize that consumers, governments and societies are interested in sustainability reporting more than ever before which greatly increases their role of organizations are to meet these expectations. As such, they should strive to equip themselves with the skills that will help them in sustainability reporting rather than running away from it. Arguments against accountants being involved in sustainability reporting Many arguments have been advanced against holding accountants responsible for sustainability reporting. Bunsen (2005) argues that reporting on sustainability is not mandatory for organizations as financial reporting is. As such, he doesn't view it as a role that accountants have to play but places it on the discretion of the management to decide whether to report on sustainability or not. Furthermore, although various accounting bodies have regularly met to discuss the role of accountants in sustainability reporting, there lacks a clear framework that should guide accountants in reporting. For instance, what should be incorporated in the report is not clear. As such, this creates confusion among accountants in their endeavor to report on sustainability. This calls for accounting bodies to establish clear guidelines on the roles of accountants in sustainability reporting if they are to fully embrace it as their role (Hespenheide etal, 2010) It has also been argued that the traditional role of accountants has been that of reporting on financial matters. Accountants already have enough work as far as financial reporting is concerned and hence incorporating sustainability reporting into their work would be overburdening them as they would lack the necessary tools and resources (Stathis, 2011).Furthermore, sustainability issues are not quantifiable as there is no standard way of quantifying them. This creates confusion on how accountants should incorporate it into financial reporting. Unless a clear way of quantifying sustainability issues is established, sustainability reports are likely to be misreading and hence organizations only need to issue sustainability statements stating that they adhere to sustainability practices. Johann (2010) also argues that accountants lack the required scientific knowledge that would help them in sustainability reporting. For instance how should accountants calculate organization's carbon footprint? Such issues should only be left to organization's CSR/ climate change teams who may have expert knowledge and hence are better placed to be held responsible for sustainability reporting. Otherwise, accountants need to be equipped with such knowledge if they are to be responsible for sustainability reporting. Why accountants should be responsible for sustainability reporting Despite the numerous arguments against accountants being responsible for sustainability reporting, the fact that accounting for sustainability has a direct impact on the financial performance of an organization implies that accountants should be held responsible for sustainability reporting. The accountant has an enormous role in understanding, demonstration and achievement of the efficiencies that organizations stand to gain from adopting sustainable business practices. according to Davidson (2009), achieving sustainability greatly rely s on an organization's ability to generate, analyze, report and provide both financial and non financial information that is both robust and accurate . As such, owing to the fact that accountants form the reporting function of the organization, they should equip themselves with knowledge on the concept of sustainability as well as the challenges associated with it in the achievement of long-term growth in shareholders' value for money (Soldestrom, 2008). Contrary to the widely held view, the role of the accountant goes beyond the traditional one of collecting, analyzing and reporting on financial information. It also goes beyond collection, analysis and reporting on sustainability. Accountants today occupy other roles such senior management in which they have a great influence on strategy formulation and decision making. As such, the accountant has a role to assist the organization either directly or indirectly embedding sustainability issues into strategic planning and execution. Accountants should also help the organization overcome the numerous cultural economic and organizational barriers to sustainability. For instance, the financial information provided by accountants can only help the organization in making short term decision based on the incomplete and imperfect information that does not include intangible and external costs and benefits (Terry, 1997). The accountant is thus well placed to encourage long-term thinking and provide more complete information to decision makers as well. IFAC identifies three perspectives regarding sustainability reporting where different groups of accountants should be fully involved. These include the business strategy, operational and reporting perspective. Accountants in the senior management level have a role of helping the organization integrate sustainability in its business strategy. In this respect, the accountants should ensure appropriate governance structures are put in place aimed at strengthening implementation, monitoring and accountability and to effectively engage stakeholders into adopting sustainability practices. Accountants playing the performance management role should direct their attention to the planning perspective. In this respect, accountants have a role to establish environmental and sustainability accounting plans (Cree, 2010). For instance, they can help the organization develop carbon management plans and hence prioritize carbon reduction projects, quantify them and avail data on project implementation costs and carbon savings. As such, accountants will help by providing environmental, social and financial information necessary for decision making. In addition, accountants at this level have a role of incorporating sustainability performance measures and key performance indicators into the organizations strategic performance management systems (Cairns, 2011). On the other hand, accountants dealing with audit and assurance should help in sustainability reporting. In this respect, accountants will develop reporting and disclosure strategies that will provide high quality reports that have a more complete picture on organization's performance. This could include reflection of sustainability impacts on financial statements including environmental impacts on income and expenditure, assets and liabilities. Although the role that accountants should play in sustainability reporting may vary from one organization to the other, they should play an active role in the following areas; a) Development of policies aimed at addressing sustainability issues, ensure their application and monitor them within the organization and manage associated operating risks as well. b) They should be involved in designing, operating and monitoring of purchasing policies, management systems and standards that affect sustainability. c) They should identify environmental and social codes necessary for their organizations and integrate their operation with the existing organizational management information system. d) They should support benchmarking through provision of relevant and reliable sustainability information in comparable, accessible and meaningful ways. e) They should maintain and expand their knowledge of taxes, subsidies and regulations applicable to their organizations with an aim of providing timely information relevant to sustainability issues. f) They should support sustainability data preparation and reporting mechanism and contribute to the associated interpretation as well as decision making. As such, making accountants responsible for sustainability reporting will be a great step towards making organizations engage in activities that are environmentally and socially responsible (Scerri and James, 2010). This is what is called sustainable development which every organization should endeavor to achieve. Conclusion Whether or not accountants should be held responsible for sustainability reporting has been a contentious issue. As established above, a number of valid reasons have been raised as to why accountants should not be responsible for sustainability reporting. Some reasons advanced against accountants being responsible for sustainability reporting include the fact that accountants are always too busy with other reporting requirements and hence they will be overburdened if sustainability reporting is to be their role (Kamini, 2011). However, the management could establish a department to be solely responsible for sustainability reporting to overcome this barrier. it has also been said that accountants lack the necessary expertise in sustainability reporting and that the skills they posses are considered irrelevant as far as sustainability reporting is concerned. However, organizations and accounting bodies have a role to incorporate sustainability reporting in accountants' training curriculum so as to better equip accountants for sustainability reporting. Therefore, with the impediments being overcome, there should be no reason why accountants should not be responsible for sustainability reporting. If sustainability reporting is to be fully embraced in the modern organization, accountants have to be fully involved. As established above, some of the areas that accountants can play a leading role in the sustainability reporting process include preparing of the sustainability reports, decision making, book keeping and monitoring role and advisory role. In addition accountants will be useful in providing assistance in financial costing which will be useful in decision making. as such, accountants need to broaden their role in sustainability reporting (Cairns,2000) .This is in consideration of the fact that their professional background adequately equip them with necessary skills such as business understanding, knowledge of measurement, numeracy, integrity and objectivity. In addition, they should make themselves aware, appreciate and fully understand the value of sustainability accounting and reporting. As such, there is need for accounting profession, organizations and accounting education system to retrain and re-educate accountants so as to equip them with scientific knowledge of sustainability if they are to effectively play the role they should play in sustainability reporting. References: Greg, S 2004, accounting for sustainability, Australian CPA, vol.74, no.5, pp.8 Hespenheide, E, Katie, P& McElroy, M2010, Accounting for sustainability performance, Financial executive, Vol.26, no.2, pp.52-58. Soldestrom, N2008, Accounting for sustainability, The accounting review vol. 83, no.5, pp.1383-1385. Cree, R2010, Accounting for sustainability: Practical insights, Director, vol.64, pp.17. Scerri, A& James, P2010, Accounting for sustainability: Combining quantitative and quantitative research in developing 'indicators' of sustainability, International journal of social research methodology, vol.13, pp.41-43. Kamini, R2011, Accounting for sustainability, Charter, vol.82, no.3, pp28. 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