managerial accounting
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sustainabilitypresentation-1.pptxWeek 5-Part 2 Sustainability management accounting
Sustainability and management accounting
Management (or cost) accounting constitutes the central tool for internal decision making and primarily focuses on satisfying the information needs of internal management.
Management accounting practices are not regulated as they are in financial accounting.
Sustainability management strategies should be aligned with sustainability management accounting systems.
Sustainability
World Commission on Environment and Development (WCED) to promote quality of life for the present and future generations.
key goals relating to sustainability and sustainable development are:
live within our environmental resource limits
achieve social justice
foster economic and social progress.
Sustainability management
Sustainability management is a process undertaken by entities striving for a simultaneous improvement of their economic, environmental and social goals.
Sustainability management
Sustainability opportunities can focus on minimising costs by improving current use of resources, or they might present as innovative ways of bringing fresh revenue into the entity.
The measuring, monitoring and integrated control of the materially important capital inputs.
The financial, manufactured, intellectual, human and social and relationship and natural capital dimensions.
Sustainability management accounting
This includes financial accounting, auditing or assurance services as well as the application of management accounting techniques that suit a sustainability management framework.
Organisation’s use of financial, manufactured, intellectual, human, social and relationship, and natural capital performance with strategic management.
Sustainability management accounting
Sustainability reports
Measure and communicate the economic, environmental and social (EES) impacts of an organisation’s activities
Also called:
Triple bottom line
Corporate social responsibility reports
Social audits
Australia: voluntary reporting
Global Reporting Initiative (GRI) framework most widely recognised and regarded as the global standard
GRI Sustainability Reporting Standards will be required for all reports published after 1 July 2018
International Integrated Reporting Framework (IIRF)
Broader focus than sustainability reports but not intended to replace them
Aims to explain how an organisation creates value over time
Integrated report: six kinds of capital
Financial, Manufactured, Intellectual, Human, Social and Relationship, Natural
The value creation process under the IIRF
Benefits of reporting sustainable performance
Identify environmental and social changes
Develop a strategy to manage risk and opportunities
Create innovative new products
Engage in actions to grow their market share
Vehicle for ‘green wash’?
Benchmarking sustainability performance
Standard GRI framework
Dow Jones Sustainability Indexes (DJSI) used to evaluate the sustainability performance of largest global companies
Australian SAM Sustainability Index (AuSSI) assesses Australian companies
Sustainability, ethics and integrated thinking
The flow of capital inputs, processes and outputs to capital outcomes can be measured and monitored.
This leads to outcomes in terms of effects on capitals.
Sustainability, ethics and integrated thinking
The links to conformance and corporate governance are through the adherence to codes.
Sustainability, ethics and integrated thinking
The links to performance and business governance are:
strategy (which strategy is chosen and how clear it is)
how strategy is executed
the entity’s ability to respond to changes, including changing market conditions
the entity’s ability to successfully undertake mergers and acquisitions.
Sustainability, ethics and integrated thinking
Important for enterprise governance are:
Organisational culture and the ‘tone at the top’ (failure to uphold high ethical standards).
The CEO (dominant, charismatic and unchallenged).
The board of directors (weak, poor oversight).
Internal controls (not enough balance in earnings growth, individual initiative, and the CFO’s focus on ‘goal kicking’ versus ‘goal keeping’).
Scope and benefits of sustainability management accounting
Traditional and contemporary management accounting techniques can be used in sustainability management control practices to:
plan and direct management attention to sustainability issues
inform sustainability management decisions
control and motivate behaviour towards sustainable outcomes.
Scope and benefits of sustainability management accounting
Sustainability management accounting is a two-way process of reporting information for decision making:
It can generate information about how the use of resources with sustainability-related impacts can affect the financial performance of the entity.
It can be used to consider how organisational operations might affect environmental and social performance.
Sustainability scope considerations
The process of identifying and measuring costs and revenues associated with sustainability management.
Previously considered beyond the scope of sustainability accounting because they do not affect the statement of financial position.
Carbon accounting involves measuring production efficiencies in relation to greenhouse gas emissions.
Accountant will be required to track and report monthly/annual emission targets as if they were potential revenue or liabilities for the organisation.
Sustainability scope considerations
Carbon accounting will therefore affect processes along the entire value chain including:
the choice of raw materials and suppliers
design or re-engineering requirements
type of energy used in production processes
methods of waste management adopted
in-house or outsourced production
packaging and transportation options
the image and culture represented to suppliers, staff, and potential and existing customers.
Sustainability scope considerations
Scope for sustainability management accounting practices:
Management decisions benefiting from sustainability management accounting
Specific management accounting tools may assist with identifying and measuring revenues and the direct and indirect costs.
Several types of management decisions benefit from sustainability management accounting information.
Sustainability management accounting tools
Widely used tools in sustainability management practices.
Sustainability are typically reflected in operational routines and practices.
Improved decision making, sustainability-related income and sustainability-related costs in particular are traced to sustainability-related pools.
Process of capital budgeting for sustainability can be better managed when sustainability costs.
Sustainability value chain analysis
Sustainability cost allocation and full cost accounting
Sustainability costs tend not to be treated as separate costs within the accounting system.
Circumstances, sustainability costs might also be accounted for as period costs.
Before sustainability costs can be allocated to the cost object, consensus among the key managers is vital.
Sustainability life cycle costing
Sustainability life cycle costing
Life cycle costs of value chain activities pertaining to:
The products manufactured (decisions may be made to drop or outsource).
The preferred sustainability suppliers.
Re-engineering the design of product or service.
Re-engineering operating processes to accommodate changes in:
energy sources
waste disposal
packaging and recycling.
Sustainability and capital budgeting
Recall that capital budgeting involves economic variables relating to:
initial investment costs
discounted operating costs and earnings
profit generated
net present value, return on investment and payback.
Sustainability and capital budgeting
The sustainability categories decision makers should include:
conventional costs (raw materials, utilities, labour)
administration costs (monitoring, reporting and training)
contingency costs (potential clean-up, accidents, compensations, fine)
image benefits and costs (often referred to as ‘intangible’ costs, or goodwill)
Sustainability and capital budgeting
The sustainability categories decision makers should include:
external costs (potentially internalised at a later stage through regulations, taxes, fees, fines or other non-budgeted expenses).
Sustainability balanced scorecard
The balanced scorecard is a performance measurement in four main ways:
Financial
Customer
Internal processes
Learning and growth
Sustainability balanced scorecard
Sustainability balanced scorecard
A sustainability balanced scorecard can be developed in three ways:
The environmental and social aspects can be integrated within the four standard perspectives.
An additional ‘sustainability’ perspective can be added.
A separate sustainability balanced scorecard can be developed.
Sustainability balanced scorecard
The balanced scorecard as a sustainability integration framework:
Sustainability management accounting – issues relating to successful integration
Successful organisations achieve this through recognising the importance of:
adopting a clear, shared vision for the future
building teams, not just champions
using critical thinking and reflection
going beyond stakeholder engagement
adopting a systematic approach
moving beyond expecting a linear path to change.
Sustainability management accounting – issues relating to successful integration
Sustainability management accounting: technical and behavioural issues:
Summary
The concepts of sustainability and sustainability management in corporate practice.
Integrated thinking approach to sustainability for management accountants.
The scope and benefits resulting from sustainability management accounting practices.
Key sustainability management accounting tools.
The issues faced by managers when trying to implement sustainability change processes within their entities.
