Management Accounting essay
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This essay will discuss accountants' role in supporting the adoption of a strategic approach in sustainability to ensure a sustainable development in strategic discussions.
What is Sustainability?
The idea of enterprise sustainability is usually in the context of a wider concept of sustainable development. Sustainable development is described as that development which will meet the present demands without compromising the future needs. Therefore by the definition it means taking into account the long-tem consequences of the decisions; the impact of economic activities o what to buy as an investment, wastes, pollution generated not only on the natural but also on the human resources on which they depend. (IFAC 2006).
Sustainability is at the heart of what Proske, an accountant, does and explains that it is the basis of the company's role. Accountants therefore are the agents of change in sustainability in the organization. The strength of one's accounting skills enables them to talk the business language. Thus it acts as the bridge between the two cultures and acts as a translator. Sustainability therefore becomes a powerful tool which is embedded in everything the accountant does. It is a partnership about providing loans to low-earning people who the bank would normally decline. It is about low esteem. It is going back to how to interpret sustainability and make it relevant to the business the company is in. and in this example enable provision of credit facilities.
In a sense each group's support gives the enterprise a license to operate without which, the enterprise may find its ability to operate effectively impaired and its performance damaged over the long term. Thus a company that misbehaves may face a doomsday scenario in which they will find fewer and fewer trading partners, consumers will stop buying their products, host nations will withdraw their license or impose fines, local communities will withdraw their support and possibly become hostile, and workers will become de-motivated and unproductive. In addition, investors will stop buying their stock, existing shareholders will sell, banks will increase their lending rates and the cost of capital will increase.
British Telecom, in their 2003 sustainability report point out that, "our environmental program, which includes energy efficiency and fuel savings, has saved BT more than £600 million over ten years." BT also point out that their strong focus on social and environmental issues has been a crucial factor when it comes to bidding for new contracts: £900 million in their 2004 financial year. It follows, therefore, that accountability and transparency, governance and reporting, risk management, and finding sources of competitive advantage are the primary business drivers of sustainability. (IFAC 2006).
Role of the Professional Accountant in Business Sustainability
The Accountant's role is varied in; understanding, demonstrating and achieving the efficiencies that organizations can gain from sustainable business practices. Sustainability pursuit depends on the generation, analysis, reporting and assurance of robust and accurate information on both financial and non-financial reports. The Accountant therefore, directly or in a supportive capacity, can help organizations embed sustainability issues into strategic planning and its execution. The Accountant can also help overcome the various organizational, cultural and economic impediments to sustainability. For example, decisions are often made on a short term basis and typically on the basis of incomplete or imperfect information which excludes external and intangible costs and benefits. (IFAC 2006).
The specific roles that accountants' play in the sustainability will vary from one organization to the other and these roles may include:
- Sustainability management involves the accountants managing risk, measuring and managing performance, and reporting performance internally and externally through various voluntary and compulsory initiatives. This plays to the strengths of professional accountants working in finance functions;
- Professional accountants understand the need for quality data and robust systems to capture, maintain and report performance. This is because external reporting of sustainability information requires that relevant, accurate and complete data are externally assured
- Professional accountants can help assess and improve non-financial systems like those capturing sustainability performance data which have usually poor controls compared to the financial systems.
- Through incorporating sustainability considerations into business cases, capital expenditure decisions, cost allocation and integration with remuneration and strategy the finance function can easily influence the behavior of the organization.
- They are used to developing policies to address sustainability issues and their application and the monitoring of them across the organization and also to manage the associated operating risks.
- Involvement with the design, operation and monitoring of purchasing policies, standards and management systems relating to the supply chain.
- Support stakeholder engagement processes with readily accessible and reliable information and as well as assisting with the collation and analysis of stakeholder feedback;
- Identifying those voluntary environmental or social codes appropriate to their business or integrating operation of the codes with an existing management information system;
- Supporting benchmarking by providing relevant and reliable information in accessible, meaningful and comparable ways;
- Providing effective support for businesses affected by emission trading schemes, by collecting and interpreting information, monitoring and controlling market activities;
- Maintaining and expanding their knowledge of regulations, taxes and subsidies applicable to the business with which they are involved, so as to provide timely information about relevant environmental and social issues; and
- Supporting the data preparation and reporting mechanism and contributing to the associated interpretation and decision-making.
The Framework provides professional accountants with an opportunity to consider themselves as knowledgeable change agents. Thus Professional Accountants are in a good position to help organizations interpret the sustainability issues in a relevant way for their organizations, and to integrate those issues into the way they do business. (IFAC 2006).
The challenge has always been to ensure that Accountants are fully equipped to measure, record and interpret sustainability related information issues and are sufficiently informed about sustainability to preserve their place in the mainstream of business decision-making. Accountants have the skills in information collection, analyzing and reporting and an understanding of the assurance process and they are thus well-placed to help organizations meet the challenges of sustainability. Accountants are therefore to recognize this and assume their role, build their knowledge of sustainability and drawing on other expertise where necessary. (Gould S. & Scaletta T. 2009).
Sustainability presents both new challenges and new opportunities for the Accountants. With the increasing importance attached to environmental protection and social responsibility, many of the issues raised by the quest for sustainable development are business risk issues, an area commonly of concern to the professional Accountants.
Accounting expertise will be required to manage devices such as tradable permits and other mechanisms. Accountants, especially those working for organizations with significant environmental or social impacts, will be involved with the measurement, recording and interpretation of sustainability-related information. Future management information systems and controls will need to include environmental and social data; this will emphasize the benefit of an integrated approach. The Accountant will then provide the necessary coordination. But Accountants may find it very difficult to get a coherent view of all the various perspectives of this topic that organizations embracing sustainable development must understand. (PAIB Committee Theme Booklet).
For regulatory and compliance mechanisms to be most effective, the ethical and responsible corporate governance and control must reside within the organization. The roles that Accountants perform are in implementing and maintaining operational and fiduciary controls. They also provide analytical support for planning and decision making this ensures that effective risk management processes are in place and in setting the tone for ethical practices which are critical to the reputation and the credibility of the organization in its management and the accountancy. (Pricewaterhouse Coopers 2008).
Taking a strategic approach, there is need to adopt a strategic approach, so that sustainable development is a part of strategic discussions, goals, objectives and targets, and is integrated with governance and accountability arrangements and risk management. This ensures that sustainable development is featured at a strategic level and supported by leadership and envisioned. This is the only way to ensure that its integration into all parts of the operational plan-do-check-act management cycle is effective. Sustainable development can be achieved by businesses taking a business strategy approach as opposed to an-add on luxury that encourages rhetorical opposed to sustainable business models and practices. (Epstein M J 2008)
Making it happen, the internal management part of the Framework focuses on all those areas covering performance and change management that help an organization to deliver on its strategy and specific sustainable development objectives and targets. In many organizations; enhancing performance evaluation and measurement, changing behaviors and introducing sustainability and environmental accounting as an extension of existing accounting information systems to accommodate organizational plans for sustainable development. This can be a challenge for organizations, and can take time to achieve. Therefore, this perspective also includes advice on how organizations can achieve relatively simple quick wins to improve energy efficiency and reduce waste, that can help them improve environmental performance while reducing their costs, all in a relatively short time frame. (PAIB Committee Theme Booklet)
To inform the investors on organizations that are well developed in the internal management perspective are usually in the best position to deliver high-quality information about their sustainability and corporate responsibility performance to investors. The Framework offers advice on both incorporating environmental and other sustainability issues into financial statements in a way that supports an organization's stewardship role and enhanced reporting to investors in financial reporting, including narrative reporting using management commentary. (IFAC 2006)
For wider transparency; the final perspective considers an evolving part of sustainable development that builds on the development of stakeholder relationships which is usually covered in the business strategy perspective and helps to improve transparency and non-financial reporting against a broader set of expectations. Such reporting commonly takes the form of separate sustainability or Corporate Social Responsibility (CSR) reports. This is based on the global reporting initiative, (GRI) whose perspective includes sustainability assurance which helps to improve credibility and trust. (ICAEW 2004).
To become relevant in today's society, the accountancy profession has to embrace sustainability. The most fundamental issue for the accounting profession is getting the point across that there is a link between financial performance and sustainability in terms of a return in investment. It is about the ability to stay in business as an enterprise. Professional accountants in all types of organization have a significant role in: challenging conventional assumptions of doing business, redefining success, establishing appropriate performance targets, encouraging and rewarding the right behaviors and ensuring that information flows to support decisions and to monitor and report performance go beyond the traditional ways of thinking about economic success. Being sustainable requires an organization to take full account of its impact on the planet and its people.
The Accountant is well placed to encourage longer term thinking and provide a more complete information package to decision makers. Most people feel that a great deal more effort is required to ensure that accountants in business are up to speed in this field, to understand the role they could occupy and to make a difference. They also stress the need for teamwork across different disciplines. There is the argument for the traditional accountant to learn to think in other ways than money said. For example, an accountant may be used to the accuracy of counting money but if it is measured in environmental issues there is need to understand statistics, variances and scientific measures. Therefore there is need for a multi-disciplinary team. It thus involves the transition part of adding up from the monthly figures to being more involved in the management of the business. Hence the need for Accountants to get more involved for the opportunity which lies in helping organizations address sustainability issues, supporting organizations' efforts to engage, build and maintain relationships with stakeholders and managing sustainability related risks for investment purposes.
But Social and environmental responsibility cannot stand in isolation from economic viability. For profitability and growth to create jobs and wealth; organizations need therefore to continue providing products and services that people want. Although organizations pursue a commercial imperative, organizations must deal with social and environmental issues to ensure that they generate added value not only for the organization but also for its stakeholders.
Management Accounting. Custom Management Accounting Essay Writing Service || Management Accounting Essay samples, help
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