A CPAs Role in Carbon Accounting and Sustainable Reporting
Recently carbon accounting and sustainable reporting has been making waves in the business community. The practice of corporate social responsibility and how to account for these non-financial indicators in financial statements and annual reports has been a hot topic of conversation among many business professionals. Despite some early adopters, a global standard has yet to be established and the full benefits of reporting such data are still to be realized by many in the CPA profession.
Carbon accounting is generally referred to as the measurement of the amounts of carbon dioxide equivalents emitted into the air by a business entity. It is predominantly used by corporations, but others can benefit from the process as well. When companies use any hydrocarbon fuel (petroleum, natural gas, and coal) carbon dioxide is released into the air causing an influx of greenhouse gases which affect the climate systems on Earth.
Other energy sources such as wind, nuclear power, solar energy, and hydropower do not cause the release of these harmful greenhouse gases. Because of this, a “carbon tax” is gaining steam in the political realm of the U.S. and other parts of the world. Australia passed a “fixed-price” carbon tax that will commence July 1, 2012. In Europe, most countries have introduced energy taxes, including Germany, Italy, Switzerland, the United Kingdom and many more; however none of these countries have been able to impose a uniform tax code for fuels in all sectors. With these countries spearheading a carbon tax, one can assume the U.S. may be in line to do the same. If so, it could affect many businesses. In the future if passed, businesses would most certainly need to cut down on using hydrocarbon fuel and use alternative sources for their energy.
Sustainable Accounting is a sub category of financial accounting that focuses on the disclosure of non-financial information about an entity’s performance to external parties. These represent activities that have a direct impact on society and environment, while still having an impact on a company’s financial statements. Not only is sustainable accounting a branch of financial accounting, but it is also a part of managerial accounting. It is used as an internal decision maker to enhance a company’s performance at an economical, ecological and social level.
A “green” company should definitely be interested in this because they should want to keep their corporate social responsibilities intact. The goal of a corporation’s corporate social responsibility initiatives is to embrace a built-in obligation to encourage a positive impact on the environment, consumers, employees, and stakeholders through their actions.
The evolution of these fields has been immense since the 1970s, in large part due to the technological advancements made in the past forty years. This has caused the job of a CPA to also revolutionize. When referring to sustainable accounting, CPAs are asked to link information collected from different areas within the company with the emphasis on measurement. Certain frameworks for measurement include the integration of the economic, environmental, and social dimensions involved with sustainable development, having sound foundations and to maintain key information needed to enhance sustainable development measurements, and to clarify relationships between different indicators and policies.
Carbon and sustainable accounting fall more into the managerial accounting field rather than the financial accounting field. They are more involved on how a business can reduce costs while not harming the external environment, which would ultimately lead to greater profits. With the greater push for a carbon tax in most areas of the world, these types of accounting practices will become more and more prevalent not only within accounting firms, but also within a majority of major corporations.