Craig Y. answered • 06/10/19
Personable Sr VP, CPA for Acctg, Finance, Business, Excel Tutoring
Let me start off by saying that is an incredibly excellent question.
Business sustainability is a relatively new concept also known as the "triple bottom line" which refers to financial, social and environmental accountability, sometimes whimsically referred to as profit, people, and planet reporting,.The term "bottom line" is derived from the last amount listed at the bottom of an Income Statement, Net Income; the final tally of profit or loss for that period. Today, as corporations are increasingly being questioned with respect to their significant potential impact and influence on social, and.increasingly, environmental issues, there is mounting pressure for additional disclosures and transparency beyond just the current standards of financial reporting which are set by the FASB (Financial Accounting Standards Board).
For over 150 years, companies who were subject to an independent audit (e.g..today that would include all public companies, governments, and those contractually obligated to, such as being required by a lender's loan covenant) have been legally required to open their books to auditors, comprised of independent Certified Public Accountants. The CPA's conduct the annual audit for the purpose of providing credible third party attestation that their financial statements are fairly presented. Today, as more corporations embrace the concept of business sustainability, and the resulting disclosures issued to the public, they are also increasingly reporting information pertaining to those non-financial areas, social and environmental.
In 2011, the Sustainability Accounting Standards Board (SASB) was established to create uniform standards to enhance the accuracy, uniformity and consistency of sustainability reports, much like the FASB has done for financial reporting.since 1973, and its predecessor, the APB, since 1959. In 2011, 20% of Fortune 500 companies issued Sustainability Reports. Just 4 years later, in 2015, that number increased over four-fold to 81%.
It is the goal of the SASB to ultimately include Sustainability Reporting within the audited annual 10-K reports that every public company is required to file with the Securities and Exchange Commission.
One problem is that there is another agency that was established back in 2000, the Global Reporting Initiative (GRI) that has also developed standards, however theirs are based on global metrics, whereas the SASB conforming with the methodologies employed by the FASB. and SEC, are formulated by industry and company..Another example is just the unit of measurement, which for financial reporting in the U.S. is standardized to the common unit of measure, the dollar. Sustainability accounting, however, has a multitude of different units of measure. Energy consumption is measured differently around the world; some use gigajoules, while others use kilowatt-hours. Social topics are measured in headcount, training hours, and injury rates, among other factors. There are issues such as Absence of a Standard, Measurement Uncertainty (e.g.difficulties in measuring units of methane and nitrous oxide resulting from the combustion of fossil fuels), determining levels that constitute materiality etc.
These issues have led to disparity between corporate providers and investors.. 60% of companies believe their sustainability disclosures facilitate investors’ comparison of companies, 92% of investors do not agree.
In summary, we are just at the tip of a very big iceberg, but one thing is certain those who are currently in, or about to enter, the professions of accounting and finance, have a voluminous amount of emerging work awaiting them!.
Thanks again for that great question!
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, which has the unprecedented effect of expanding the scope of financial audit work to also perform the attest function on this supplemental non-financial data regarding social and environmental accountability.
At present, there are crippling, potentially lethal, economic and legal ramifications for public companies who do not issue their annual report accompanied by an unqualified audit opinion. Conversely, no such legal deterrents exist with respect to requiring a compulsory audit, or, for that matter, any disclosure at all, of social and environmental accountability. Those disclosures remain voluntary.amidst an unsettling environment of growing concerns centered around burgeoning social and especially, environmental issues. Accordingly, societal pressure could continue to escalate, initiating a potential ripple effect, as more companies adopt business sustainability. That would leave companies that continue to avoid such reporting to become more isolated and more visible, likely garnering more negative attention, which would sully their all important public image. As their exposure increases, there would be greater incentive to pursue influential changes to facilitate favorable public reporting of their advances in business sustainability. That trend would inevitably increase the impact on the accountants and auditors, as they collectively assume additional responsibilities to compile, report and opine on this new non-financial data in annual reports,
