Question:
Jonathan Davidson, the director of your firm (which offers consultancy services to medium and large accountancy practices around the world), with a reputation as someone who has expertise in innovation and latest trends requested you to draft a response to the above scenario providing this information in a report format.Make sure that your report includes any information that you think will assist the partners to make these important decisions. The partners want recommendations that they can discuss at their next Board meeting.
Executive Summary
The report provides a vision for sustainability accounting. It provides with brief information regarding the meaning, elements, pros and cons of implementation and the key matters that should be kept in the mind prior setting up a division providing services in the field. The purpose of the report is to come over a decision on the conflicting issue of whether or not to implement and introduce a new division by the firm which would such related services.
Introduction
During the study and analysis of the current position of the firm, it had been found that the most challenging tasks for implementation of the division are:Conflict of opinion between the partners of the firm: Amongst the partners, one of them is against the opinion of introducing the subject and is of the belief that the activity would just add to the cost of the firm in spite of being beneficial in terms of cash flows.Limited Knowledge: The partners are not having proper and enough knowledge of the topic and therefore are not yet in a position to provide services or enter into the market.Uncertainty: There exists a risk of failure of development of the division. The partners are not certain over the outcome of the introduction of the division. The report set forth present with the opportunities that the firm can grab and the issues that could arise.Through the overview of the present scenario of the firm’s internal environment and the external environment that influence the operations of the firm, we come across the finding that there exist a latent market that could be explored provided the prominent inputs needed for the providing of services are developed by the firm.
It is a part of financial accounting which deals with the disclosures relating to non- financial data and information relating to the concerned company’s performance such as environmental, social and other material issues to the stakeholders of the company, i.e. shareholders, creditors, government, financial institutions, etc. It signifies upon the activities of the organization which have a direct impact on the society. (Hannah Jones, 2010).
Sustainability accounting or environmental accounting is a concept that has marked its entry into the literatures nearly a decade ago. In addition to the financial accounting approaches and methods, sustainability accounting can be explained as those methods and activities which records, analyze and report on the economic value of the activities made for environmental protection, etc.basically has two elements, i.e. environmental related expenditure and savings and the impact of company’s operations on the environment. Environment related expenditures and savings deals with the expenses specifically made for the purpose of environmental protection or some social benefit. A company operates in society and thereby the activities of it affect the society.
Environmental accounting, unlike the traditional ways of accounting which only measures the financial aspects of the business, also quantifies these non- financial activities and the same is reported to the stakeholders of the organization.
Thus, there are four areas of sustainability accounting:
At present, the firm is a large Australian accounting practice provider. The work to be done post implementation of the Sustainability Accounting Division is in positive correlation with that of the scope of workings offered by the firm. As Sustainability Accounting is more or less an extension of financial accounting, therefore the services provided by the firm at the point of time is what we can call a general practice whose scope can be advanced and enhanced through the implement of the new division. (Aras, G. & Crowther, D., 2008).
Advantages of introducing a sustainability accounting division within the firm:
Implementation and adoption of Sustainability Accounting practices is not an easy one. The top management needs to plan upon the procedures to be taken for the integration of the standards into the existing disclosures and accounting practices followed by the organization and the processes to be taken by the management for the implementation of the same. A company needs to identify the matters that are of material nature and to be covered under the sustainability accounting and reporting and to disclose the same in such a decision- based manner that it is beneficial for the stakeholders of the organization. The following step can be taken in order to properly implement the program: (Gyula Fülöp & Bettina Bettina Hódi Hernádi, 2013).
The foremost task is to determine the standards applicable to the company. The standards includes the topics that needs to be disclosed, accounting metrics, and technical procedures which needs to be adapted keeping in view the industry in which the company operates.
Assessment of the Business Environment:
Analyze as to whether the disclosure topics mentioned in the standard comprise of material information for the company stakeholders. The term materiality depends totally upon the transactions and the influencing value of them. Materiality, in general, depends upon the fact that whether the information can affect the decisions of the investors, shareholders, lenders, supplier, etc.
Evaluate the company’s present position regarding the knowledge of the disclosure requirements as per the standard. According to the same, identify the difference between the actual and the required.
Assemble documents of the company such as CSR report, Annual Report and other corporate communications where the company discloses the non- financial information. Analyze the quality and quantity of the current reporting status with the required. (Burritt, R. & Schaltegger, S., 2010).
The next step is to prepare a roadmap for the implementation of the standard and to enumerate internal control and managerial requirements.
The next step is to execute and monitor the procedures.
The ways to engage the employees in the program are enumerated as below:
To provide the employees with the examples of best practice, the organization needs to provide training to the employees of the best practices that suit the organization for the standard applicable depending upon the industry/ industries in which the organization operates. (Stefan Schaltegger & Roger L. Burritt, 2010).
It would provide a competitive edge to the firm. The implementation of the division would provide the firm a gateway for entry into the market of other firms providing the same services.
The concept of sustainability accounting is an emerging concept and it can be noticed that slowly and gradually mostly all the developing companies are moving in the same track towards the implementation of sustainability accounting standards which signifies the growth and the emerging market in the field. The firm should try to take the advantage of same in order to foster its future earnings and cash flows.
Through the implementation of the division, the firm can try to propose and influence its existing clients and try to grab the opportunity involved before they goes to some other service provider.
The firm can build up its goodwill through initiating the providing of services in such a segment or division which is in its initial stage of growth. This would in order be beneficial for the firm to build up its brand image.
Disadvantages of introducing a sustainability accounting division within the firm:
Developing a division is a costly affair and hence involves outflow of funds at large scale. The firm therefore before implementing the division should analyze the future cash inflows against the cash outflows and other opportunity costs involved in the same.
A partner in the firm is against the opinion for the implementation of the division. Hence, the same could create conflicts of interests in the future. Also, it could hurt psychologically the partner and therefore the same should be taken into account and further more discussions should be made on the pros and cons before emerging towards any decision.Before the implementation of the division, the firm should itself develop the understanding of the topic as according to the available information, it seems that the partners of the firm are not having full- fledged information of the topic and about how to implement the same. (Stefan Schaltegger & Roger L. Burritt, 2010).
Creation of such a division that provides such services would be undoubtedly in the benefit of the firm’s present clients.
The clients would be able to seek the services from the firm in a more comfortable form as to that compared with some other in the market place.Also, the firm would be able to serve the client in a better manner than to other as it is familiar to the organization’s business environment and other related issues. Also, as the firm itself the provider of financial accounting advisory and related services, it would be able to implement the standard in easier and better form.The name is the reflection of what one is and what one does. The division should be named in accordance with the services to be provided by it. One should easily identify the nature of services the firm provides keeping in mind its name. Therefore, the name of the division should be related to and should include ‘Sustainability Accounting’.
The type of services that might be provided by the firm through the division:
Skills requirement in the staff to be employed in the division:
It has been found through the study on the emerging need of the topic that there definitely exists a market for such services. The firm needs to develop a competitive edge in its workings so that it could present itself in the market. To market it, the firm should:
Present its proposals to the existing clients.
In service sector, mouth publicity is the best, therefore, the firm should try to ensure that it comes out with providing best services so that other companies and organizations get encouraged to take services from them.
The firm can prepare a sort of documentation like report or presentation on the basic information regarding the subject matter and the need to go for it in the emerging global market and try to introduce in it their firm as professional consultants and the brief on the services to be provided. The same could be used to attract prospective client and grab new clients. (Cooper, S., & Owen, D. 2007).
It can be observed that the Sustainability Accounting is an extension of the financial accounting, but one should also understand that the same is a new concept which is not presently acceptable to all the organizations.
Furthermore, the increasing scope of the need and trend of disclosing the related issue cannot be left unseen.
Therefore, the firm needs to understand that with widening scope, there is immense opportunity in the field subject to the nature of business activities and environment of client’s organization.
It can thereby be wrapped up by saying that the firm shall implement the division on Sustainability Accounting so that the present workings and clients are not disregarded and the services to them are not affected. Also, the introduction of new division would lead to maintaining specialization in both the topics, financial accounting practices and sustainability accounting. Further, as the same is a new concept for the firm and the firm also needs a sort of training on the subject, formation of new division would be beneficial for the firm as it would enable them to continue the research and practice part without influencing the working on the present clients. (Lamberton, G., 2005).
Conclusion
We have arrived to a conclusion that given the situation and the present scenario, the firm should properly analyze all the aspects related to the implementation of a separate division on Sustainability Accounting keeping in view the following internal and external factors of the firm:The strengths: the firm is already dealing in the service providing of accounting and therefore it would take a less effort to introduce itself in the market.The weaknesses: the firm is encountering various internal issues such as difference in opinion amongst the partners, lack of sufficient knowledge of the subject, etc.The opportunities: the concept of sustainability accounting is emerging in the global market and therefore the opportunity can be grabbed by being an early bird in terms of responsiveness towards the changes in the external environment and traditional practices.The threats: the firm should properly analyze the demands of the market and the activities of the competitors.
We would recommend the firm:
To have a healthy communication amongst the partners regarding the agreement and disagreement on the matter. It is advisable to come out with a peaceful decision rather than a conflicting one.
To study and analyze the market demand and a comparative analysis over the services and quotations provided by the competitors.
To develop a team of professionals to provide expertise services in the field.
To promote itself in existing, prospective and opportune market.
References:
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