In the given part, the article titled “’Worrying’: Companies’ reporting of climate risks goes ‘backwards’ which refers to the fact that many companies have stopped disclosing the overall impact of the environmental risks that is caused, and that is material and that impacts the company. As per the article the overall disclosures have reduced a lot since 2011, and most of the disclosures are very fragmented and not clear.
The Australian Securities and Investments Commission, have examined the annual reports of 60 companies and of that 17 percent of the total companies have disclosed the climate change as climate risk. Also in case of 200 companies the overall climate change was ‘very limited’. The ASIC has examined the annual report of 1500 ASX- Limited Companies, for the past six years and that can be seen that the climate risk and climate-change related controls have reduced from 22 percent in 2011 to 14 percent. This was due to the existence and then the repeal of the Gillard-era emissions trading scheme legislation. In the following cases, the overall climate disclosures are found to be very general and there is very limited use to the investors. The majorly 100 companies have provided the information that was very fragmented and not clear (Ruth, 2018). The ASIC urged the companies to adopt a proactive approach to combat the emerging risks, including the climate risks. There is a lot of pressure from the investors to make a disclosure on how the changes might impact a business. This ramped up the guidelines that were issued by the G20 taskforce, known as TCFD, that was anchored on the fact that the Paris agreement had pledged to keep the global warming below 2 degrees. The ASIC also stated in the fact, that companies that represent Australian and New Zealand investors, have more than $2 trillion funds for management, should take risk disclosure seriously as that might affect the capital credibility of the company. The overall reporting of the company had gone “backwards”. The main point that is being highlighted that many companies should highlight the climate risk as rigorously as any other financial risk that the company is facing. The ASIC has also stated that company directors should take serious warnings else legal actions would be initiated against them. It is very important that climate reporting should be taken seriously and there should not be any loophole in that. If the company fails there is very difficult for the investors to form an opinion on the company.
Reporting on climate risk is an important point that has been highlighted by the accounting standards and accounting regulations. The AASB has set certain standards that the company needs to meet, and that is a material risk that the company can face. It is important that if the companies cross these materiality level, they need to make it clear in their audit report and steps that they have taken on their part to reduce the environmental risk caused. Environmental risk is a very crucial matter as a lot of activities of these industries are causing a lot of harm to the environment. Environmental risk should be reduced and the companies should take the necessary stand with regards to that. The investors need to understand that environmental risks and as important as financial risks, and thus their disclosures should be there. There are chances that this environmental risk might cause huge loss to the investors. The investors are very important people as they are putting their money in the company and thus it is important that they should get the required information that they need. In case the company does not give proper disclosures then there can be penalty and the management can be held liable. It is also against the corporate governance policies of the company; corporate governance helps the management in framing rules and regulations that helps in balancing the interests of all the stakeholders that are related to the company.
Conclusion
Thus, based on the overall analysis it can be said that companies need to take relevant steps that can help them in managing the environmental risks and providing relevant disclosures with respect to that. The ASIC have stated principle and companies needs to abide by that, else there can be issues with relation to the investors and other related parties.
There are many exposure drafts that are floating every now and then and these are opened for the public to comment and state their opinion on that draft agreement. In the given case the draft exposure with relation to IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors. The main aim of this exposure draft is to make a differentiation between the accounting estimates and accounting policies. It is an important matter because change in the accounting estimates can affect the profit and loss account of the company and accounting policies do not impact the them accordingly (Alexander, 2016).
Accounting Policies are the estimates that helps the company in managing their financial statements and helps in preparation of the same. It includes measure and measurement procedures that helps in disclosure of relevant facts for the company (Ghofiqi, 2018). Accounting estimate is an appropriation of the account that needs to be debited and credited and affects the financials of the company in some way or the other. They are based on judgement and knowledge that is derived from relevant sources. There are many changes that are happening in the accounting estimates now and then. There is a lot of difference between the accounting estimates and accounting policies, but it often becomes difficult for the management to understand what is the accounting estimate and what is the accounting policies (Belton, 2017). If they are not able to understand that the management will not be able to function properly and not able to prepare their financial statements and there is a lot of judgement involved in that. Accounting estimates are very important they affect the accounts directly and accounting policies affects the formulation of the rules and regulations that governs the preparation of the financial statements. General public are allowed to make a comment on these exposure drafts and the same has been provided in this case-
Nandi Uchenna, who is from Nigeria has stated that he does not agree to the amendments made in the estimates. He states the paragraph 32A and 32B are inconsistent. He proposes that selecting FIFO or weighted average method can be considered as a method of accounting estimates.
Segun Adebiyi, has stated that he agrees to the amendments made, expect one where he feels that IAS 2 should form a basis of Accounting Policy, as the inventories are brought in the store and treated accordingly (Abdullah & Said, 2017).
Mr. Hans Hoogervorst, chairman of the IASB IFRS foundation has stated they have agreed to the relevant amendments that have been made with respect to the accounting standards and accounting policies. It was important that formulas are farmed with respect to the IAS 8 with relation to specific rule for treatment of interchangeable inventories (Coate & Mitschow, 2017).
The Australian Council of Auditors have stated in their comment sections that they have stated they are distinguishing the efforts made by the council between the accounting estimates and accounting policies that are made by the company.
Conclusion
Based on the overall analysis and the relevant comments that are made by the parties is correct and it is important for the investors and the management needs to understand the difference between the accounting estimates and accounting policies.
References
Abdullah, W., & Said, R. (2017). Religious, Educational Background and Corporate Crime Tolerance by Accounting Professionals. State-of-the-Art Theories and Empirical Evidence, 129-149.
Alexander, F. (2016). The Changing Face of Accountability. The Journal of Higher Education, 71(4), 411-431.
Belton, P. (2017). Competitive Strategy: Creating and Sustaining Superior Performance. London: Macat International ltd.
Coate, C., & Mitschow, M. (2017). Luca Pacioli and the Role of Accounting and Business: Early Lessons in Social Responsibility.
Ghofiqi, M. (2018). FORMATION OF VIEWS AND INTERESTS TO THE ACCOUNTANTS PROFESSION IN MASTER OF ACCOUNTING STUDENTS OF JEMBER UNIVERSITY FORCE OF 2016 USING STRUCTURATION THEORY ANALYSIS. THE 3RD INTERNATIONAL CONFERENCE ON ECONOMICS, BUSINESS, AND ACCOUNTING STUDIES.
Ruth, W. (2018, September 20). ‘Worrying’: Companies’ reporting of climate risks goes ‘backwards’. The Sydney Morning hearld.
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