ACCT10003 Lecture Notes - Lecture 2: Australian Securities Exchange, Integrated Reporting, Sustainability Reporting
Value Relevance of Non-Financial Information
Expanding domain of accounting
•GPFR (including notes)
-Increased narrative/textual disclosures
-Management Discussion & Analysis (MD&A)
-Risk disclosures
-climate risk
•Sustainability (or CSR) reporting
•Now, integrated reporting <IR>
-Six capitals: financial, manufactured, intellectual, human, social & relationship, natural
-Encompasses last four of the above - in modern businesses the value is so much more than
financial and manufactured
•Australian Stock Exchange (ASX)
-To be listed, must comply with the Corporate Governance Code Principles &
Recommendations or explain why not complying
-Principle 3: a listed entity should act ethically and responsible
-Principle 7: recognise and manage risk
-Recommendation 7.4: should disclose whether it has any material exposure to economic,
environmental and social sustainability risk and how it manages these risks
-More disclosure = more reputable firm
•Objective of providing increased disclosures = improve decision usefulness of information
-Help current and future investors understand financial statements
-Discuss information not fully reflected in the financial statements
-Discuss important trends and risk, including those affecting future performance
-Provide information about the quality (and potential variability) of earnings and cash flows
Dimensions of sustainability
-Environmental (natural resource footprint):
-GHG emissions
-Water
-Social:
-Human Rights
-Product Safety
-Anti-corruption
-Taxation payments
•Financial, environmental and social = Triple bottom line
Value Relevance of Non-Financial Information
•Much empirical research evidence of the decision-usefulness of non-financial information
contained in annual reports
-Tone - positive, negative, neutral
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Reporting Frameworks
•Much activity and many frameworks for sustainability reporting
•Major frameworks:
-United Nations Global Compact (UNGC)
-Global Reporting Initiative (GRI)
•Various environmental frameworks and initiatives:
-GHG Protocol
-ISO Guidelines
-SIGMA Guidlines etc.
•Web-based resources and initiatives and greater data capture
•Greater transparency in reporting - rewarded by the market
Carbon Accounting
•International
-ETS Emissions Trading schemes
-Carbon units are financial assets & liabilities
-Stranded assets
•Australia
-“Direct Action”
-NGER National Greenhouse & Energy Reporting Act
-Mandatory reporting and assurance for large emitters
-Voluntary carbon footprint reporting
•Reporting is only as good as the underlying information system and modelling that is
capturing, measuring, recording the information
•Research focus on how to improve representational faithfulness
Sustainability information in managerial decision making
•Use of a ‘shadow’ carbon price in capital budgeting (carbon cost associated with a budgeted
project)
•Product and process design
•Purchasing and operational decisions
•Cost control, cost allocation and pricing
•Product retention and mix (environmentally friendly products)
•Risk management (more than just financial risk)
•Compliance
•Some tools/techniques used in managerial accounting:
-Value chain analysis
-Understand sustainability impact through whole chain!
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Document Summary
Expanding domain of accounting: gpfr (including notes) Climate risk: sustainability (or csr) reporting, now, integrated reporting Six capitals: nancial, manufactured, intellectual, human, social & relationship, natural. Encompasses last four of the above - in modern businesses the value is so much more than. Nancial and manufactured: australian stock exchange (asx) To be listed, must comply with the corporate governance code principles & Principle 3: a listed entity should act ethically and responsible. Recommendation 7. 4: should disclose whether it has any material exposure to economic, environmental and social sustainability risk and how it manages these risks. More disclosure = more reputable rm: objective of providing increased disclosures = improve decision usefulness of information. Help current and future investors understand nancial statements. Discuss information not fully re ected in the nancial statements. Discuss important trends and risk, including those affecting future performance. Provide information about the quality (and potential variability) of earnings and cash ows.