Sustainability accounting links sustainability initiatives to company strategy. The evaluation of risks and opportunities, providing measurement and accounting and performance management skills are all part of sustainability accounting. Sustainability should be embedded into the day-to-day operations of an organization.
Cape Town’s Day Zero has been postponed—for now. That’s the term being used to describe the impending extreme water crisis in my native South Africa. I’ve seen how it affects the people who live there, as they scramble to hold off what seems inevitable. My friends in Cape Town only shower twice a week and save their shower water to water their gardens. Local pools around the city are empty, hotels can’t wash linens as often as in the past and the agriculture sector has been hit. The severe water shortage threatens employment, tax revenues and municipal credit ratings. The trickle down (a term that has never been so literal) reaches business owners and investors as they consider the rising costs of a resource they once took for granted.
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Sustainability assurance is a growing field for CPAs. While reporting on this topic remains voluntary, over 82% of the S&P 500 publish some type of sustainability report, up from 20% in 2011. Furthermore, 73% of portfolio managers and research analysts take sustainability matters into account when making investment decisions and 69% of them believe it is important that such information be subject to independent assurance.
Sustainability reporting encompasses information about an organization’s environmental, social and governance performance and can range from a full sustainability report to a greenhouse gas statement to information about select sustainability topics. As companies look to increase the credibility and reliability of their reported sustainability information, they are engaging CPAs to provide assurance on this information.
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What would happen if you had to make decisions about your company using only a portion of the financial information that is available to you? Without a holistic understanding of your company’s financial situation and value drivers, it would be tough to assess the organization’s performance, risks, challenges, and opportunities and drive long-term growth. Planning without all the information could potentially put the company at a competitive disadvantage and expose the company to greater risk.
However, that’s what happens in many organizations when they fail to fully consider the operational and financial implications of environmental, social, and governance (ESG) risks. Examples of how these risks can play out in the market include:
- A beverage company’s production drops or they lose their license to operate due to drought conditions in water stressed regions in which the company operates.
- A technology company faces employee turnover and sinking revenues because it fails to encourage or accept the innovative ideas of its highly skilled labor force.
- An apparel company experiences a stock price drop after reports allege its suppliers are committing human rights violations.
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What’s on the horizon? How are changes in the business marketplace creating new opportunities for the accounting profession? What are the implications of up-and-coming technologies like blockchain? These, among a host of other emerging trends were discussed recently at the AICPA’s Assurance Services Executive Committee (ASEC) meeting. The committee, composed of the profession’s leaders in assurance and advisory services, engaged in an insightful discussion about issues that are gaining traction internationally and in the United States.
In addition to discussing ideas for potential future projects, the committee also spoke about the projects they have currently underway that facilitate new opportunities for practitioners to provide value-added services to clients. These include five emerging service opportunities:
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Integrated reporting <IR> is receiving a growing amount of coverage worldwide lately, from both academics and from the accounting profession, and this trend shows no sign of slowing down. Books, research articles, presentations and other publications that highlight the potential opportunities of integrated reporting are becoming commonplace. The International Integrated Reporting Council has developed a plethora of resources including case studies and reports that provide a solid introduction to this topic. But a fundamental question remains unanswered. In terms of day-to-day implementation and data that can be acted upon, what exactly is an integrated report, and what does it mean for the CPA profession?
What is it?
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