ACCT10003 Lecture Notes - Lecture 2: Capital Budgeting, Integrated Reporting, Management Accounting
19 Jun 2018
School
Department
Course
Professor
Accounting Processes and Analysis
Lecture 2: Value relevance of non-financial information
LO#1: Describe the expanding domain of corporate reporting
- GPFR’s (notes included) are having increased narrative/ textual disclosures. Including
Management Discussion & Analysis (MD&A) and risk disclosures (e.g. climate risk).
- Sustainability/CSR reporting
- Integrated reporting where auditors will report financial and sustainability. Includes 6 capitals:
financial, manufactured, intellectual, human, social & relationship, natural.
The ASX has Corporate Governance Code Principles & Recommendations including:
- Principle 3: a listed entity should act ethically and responsibly
- Principle 7: recognise and manage risk. Recommendation 7.4: … should disclose whether it has
any material exposure to economic, environmental (e.g. GHG emissions water use) and social
(e.g. human rights, product safety, anti-corruption, taxation payments) sustainability risk and
how it manages those risks.
The objective of providing increased disclosures to improve the usefulness of information to decisions
is to:
- Help future and current investors understand financial statements
- Discuss the information that is not fully reflected in the financial statements
- Discuss important trends and risks, including those which will affect future performance
- To provide information about the quality (and potential variability) or earnings and cash flows.
Financial, environmental and social- “triple bottom line”
LO#2: Explain why sustainability information is value-relevant
Stakeholders in companies will have a higher interest in the firm’s sustainability reporting than
financial reports.
LO#3: Identify sustainability reporting frameworks
There are sustainability reporting frameworks which set standards and benchmarks/criteria for
entities to report against. CDP and Dow Jones Sustainability Indexes provide companies with ratings
from 1-100. Higher ratings will increase market value. Firms who choose to be recognised, are
recognised publically as reporting sustainably. The SASB aims to standardise sustainability reporting
and make them equal to the accounting standards.
LO#4: Give examples of the application of sustainability information in financial and managerial
accounting
- Internationally there is an ETS (emissions trading scheme). Carbon price creates a market for
firms to buy and sell carbon units- can be financial assets or liabilities. Increased prices of
these units makes pollution more costly and so will reduce it.
- In Australia the National Greenhouse and Energy Reporting Act makes mandatory reporting of
emissions and assurance for large emitters.
- Voluntary carbon footprint reporting means companies can choose which information they
want to include and omit from the reports. Representational faithfulness must be observed for
companies to report emission levels at those which are actually emitted.
- Companies have adopted the use of ‘shadow’ carbon price in capital budgeting. Net present
value and future cash flows will include the price of carbon.
- Companies are also being forced into looking into product design and process for more
renewable sources, product retention and mix, risk management and compliance with rules
and regulations.
find more resources at oneclass.com
find more resources at oneclass.com
Document Summary
Lo#1: describe the expanding domain of corporate reporting. Gpfr"s (notes included) are having increased narrative/ textual disclosures. Management discussion & analysis (md&a) and risk disclosures (e. g. climate risk). Integrated reporting where auditors will report financial and sustainability. Includes 6 capitals: financial, manufactured, intellectual, human, social & relationship, natural. The asx has corporate governance code principles & recommendations including: Principle 3: a listed entity should act ethically and responsibly. Recommendation 7. 4: should disclose whether it has any material exposure to economic, environmental (e. g. ghg emissions water use) and social (e. g. human rights, product safety, anti-corruption, taxation payments) sustainability risk and how it manages those risks. The objective of providing increased disclosures to improve the usefulness of information to decisions is to: Help future and current investors understand financial statements. Discuss the information that is not fully reflected in the financial statements. Discuss important trends and risks, including those which will affect future performance.
