Learning Outcomes to be Assessed:
3.Critical understanding of key emerging accounting issues
Harvard References: 15 To 20 In total.
Academic research only.
This is in Report format.
2500 Word Count.
Question 1 825 Words
Question 2 1000 Words
Question 3 675 words.
Q1- Provide a brief background of Sustainability Accounting (concept, importance and national level regulation). Critically discuss and evaluate the costs-benefits of sustainability accounting.
Q2- Critically review the need for Sustainability Accounting education and training in the UK.
Q3- Critically discuss SMEs sustainability in the EU.
Q4- Select an organisation of your choice (SME with 50-250employees located ideally
West Midlands area (UK) which presents a good example of sustainability practices. Compile a report that covers all of the following points in relation to this organisation.
Q5- Discuss what does the term “value creation” mean in integrated reporting and critically evaluate the internal and external benefits of IR.
Q6- Provide a brief outline of the IASBs current project to update the conceptual framework with focus on Chapter 6 Measurement.
Q7- Review IFRS for SMEs and critically evaluate the benefits and international application problems of IFRS for SMEs.
Contemporary Issues in Accounting
Background of sustainability accounting:
Concept – Concerning the need for sustainability throughout a wide range of industry activities and business practices, the concept of sustainability accounting has received enormous attention from scholars and professionals alike. Sustainability accounting involves the inclusion of nonfinancial information disclosing social and environmental impact of business practices and proceedings on the communities, in which the companies are operating (Fries 2010). The fundamental idea behind the emergence of such a concept lies in the efforts made by companies to reduce the costs of unsustainable business practices by replacing those with better, sustainable alternatives. It can be used as a useful tool by organisations from across industries to become more sustainable while offering richer contributions to various environmental issues and concepts globally. In many countries, there are systematic guidelines available in the regulatory environment to complement Global Reporting Initiative (GRI), which necessitates reporting of economic, social and environmental performance by all organisations in a routine manner, comparable as financial reporting (Milne and Gray 2013). The concept is important for value creation throughout the organisation in a particular marketplace.
Importance – As part of the modern business environment, a firm needs to guarantee a suitable integration of sustainability concepts into day-to-day operations of the business. Also known as Triple Bottom Line (TBL) and Corporate Social Responsibility (CSR) reporting, sustainability accounting ensures developing an effective link between sustainability initiatives and company’s strategy for evaluating risks and opportunities alongside offering accounting and performance management skills to manage sustainability (Rankin et al. 2012). From the context of modern society and issues related to quality of life, considerations regarding environmental and social responsibility have become more important than any other perspectives, including assessment of firms’ performance. In line with such an understanding, sustainability accounting and reporting not just serve as an emerging mandate for businesses across the world but also refer to key policies and priorities created by modern organisations. As studied by Smith (2012), sustainability framework can be adopted by entities of all sizes and complexities to consolidate important sustainability factors from strategic, operational and reporting perspectives to facilitate accounting professionals playing an important role in sustainable development of organisation. Apart from identifying its positive contribution to improving green initiatives of a company, sustainability accounting is important for strengthening relationships with clients and investors by fulfilling demands of useful stakeholders with increased transparency and accountability. In a business environment that sees rapid growth in innovation and eco-friendly business leaders, investors are providing more attention to sustainability as a means for shaping a proper business model and advancing from limited practices.
National level regulation – In 2011, with the purpose of developing and disseminating sustainability accounting standards, the Sustainability Accounting Standards Board (SASB) was founded. Due to the growing need for considering social and environmental measures, SASB was established to integrate its standards in the operation of companies, apart from the regulatory guidelines of Financial Accounting Standard Board (FASB). In 2018, in a ceremony at the London Stock Exchange (LSE), SASB introduced the world’s initial set of sustainability accounting standards for industries to cover financially material issues (Patten and Shin 2019). By addressing the financially material impacts on the typical company in a specific industry, industry-oriented standards, introduced by the SASB, aim to help investors and businesses alike to make more informed decisions. With the help of highly qualified and experienced individuals, who used to work at FASB and Securities and Exchange Commission, SASB over the years has been working to develop standards and lead industry adopting highly sustainable accounting policies and practices. In the context of the European market, EU Accounts Modernisation Directive (AMD) provides a strong impetus for corporate to enable reporting on environmental matters through conducting formal business reviews (Hąbek and Wolniak 2013). In the regulatory environment in UK, AMD is enacted in the Companies Act 2006 to provide overriding requirements for company directors to act in the benefits of all stakeholders, including community and environment.
Cost-benefit of sustainability accounting:
Costs – One of the main challenges involving sustainability accounting is based on comparability, which requires a proper assessment of values derived from social and environmental activities undertaken by a company, integration of information in the financial accounting and dissemination of such information to investors and other important stakeholders (Richardson 2013). Companies often struggle to develop and utilise accurate methods to measure and compare data from previous years to determine key areas of improvement. Furthermore, the requirement of excess time and cost associated with collecting, organising and preparing highly informed reports often poses as a challenging task for most organisations.
Benefits – By way of improving sustainability, a company can be supported by gaining a more competitive advantage while achieving the leading position in an industry. Gray, Adams and Owen (2014) find out that sustainability reporting has a great role to play in improving a company’s overall image and reputation among public to increase customer loyalty due to growing awareness of consumers and investors about social and environmental concerns. Additionally, sustainability accounting aids in improved risk management, as the CSR reporting greatly helps investors and other stakeholders to make informed decisions by clearly understanding potential risks facing the company’s operation.
Universities across the world are increasingly required adding sustainability education and training programs as part of their academic course with the aim of developing highly knowledgeable students at both undergraduate and postgraduate levels. As the United Nations has named 2005-2014 as the decade of education for sustainable development, Lodhia (2010) stresses the need for sustainability accounting education for promoting sustainable development while improving capability of individuals to address social and environmental challenges. The concept of sustainability education in tertiary accounting education has received widespread attention in the field of ecological economics, while business roles and functions are fast changing to meet precondition of sustainability challenges. In the context of UK, Botes, Low and Chapman (2014) found out that sustainability education within the accounting courses across universities of the country had been initiated given its importance in modern societies but yet to achieve widespread implementation.
Additionally, these courses were reported to lack the required depth to provide an increased understanding among students, thereby restricting them to contribute efficiently in future professional areas. The study, conducted by Chulián (2011), addresses the need for a significant change in education of future business executives from both academic and political perspectives. The author concludes that the inclusion of accounting sustainability course in the current accounting syllabus will allow students to gain effective lessons from learnings based on intellectual development and dialogical education while leading future managers to re-humanise existing accounting techniques and its contribution to the society.
Introduction to the SMEs sector in EU:
SMEs are usually defined as any business, which employs less than 250 employees for carrying out operations. Small and medium-sized enterprises (SMEs) offer a vital contribution to the foundation of European economy, as they have their useful impact on creating employment opportunities and generating superior wealth for communities. With the SMEs representing almost 99 percent of the total businesses in the EU, it is reported that the flourishing growth over the past five years has contributed to the creation of around 85 percent of new jobs, which are subjected to at least two-thirds of the overall employment in the European private sector (Kurek and Rachwał 2011). SMEs are considered as the focal point for creation of enterprise policies by the EU, as the European Commission provides significant attention of SMEs and entrepreneurship with the aim of facilitating, innovation, job creation, economic growth and social integration across the vast European regions.
Given the research carried out by Ward and Rhodes (2014), there were more than 4.9 million businesses in UK in 2013, among which, 99 percent were SMEs, employing over 14 million people in the country. Based on the estimation of SMEs Performance Review, conducted by the European Commission, the gross valued added (GVA) of SMEs stood at 473 billion euro, which was accounted for almost 50 percent of total UK’s economy. The Small Business Act for Europe (SBA), on the other hand, aims to promote entrepreneurship with the help of its comprehensive policies throughout the EU countries that provides a greater role in creating a highly conducive environment for the businesses (Purcarea, del Mar Benavides Espinosa and Apetrei 2013). Apart from that, the Commission also provides greater priority to encourage SMEs to engage in cross-border activities both in and outside the EU while providing increased access to finance, which has been one of the most pressing issues for many small enterprises. Micro enterprises, which employs up to nine employees, make up the majority of the SMEs sector in EU with totalling around 22.8 million.
Existing EU sustainability accounting and reporting practices, strategies and policies:
The emerging concept of corporate social responsibility (CSR) comes with a significant challenge for modern enterprises due to developing and maintaining increased accountability towards stakeholders. As accountability is a closely knitted notion with the term CSR, providing adequate information to the stakeholders is become a fundamental priority for any business operating in the modern, contemporary business environment. The basic objective associated with sustainability accounting indicates the preparation of accounts involving an organisation’s interactions with society, as well as the natural environment, suggesting the need for establishing a principal framework to reflect economic, social and environment impact of different organisational operations and approaches (Elliott and Elliott 2015). Such a concern has led different international associations and initiatives towards the development of effective frameworks to create and administer different guidelines and standards for sustainability reporting. The examples of GRI, OECED Guidelines, UN Global Compact and ISO 26000 are principally observed across the global territories. Similarly, with the aim of establishing an effective accounting legislation framework that plays a great role in increasing transparency and reviewing performance based on various social and environmental matters, the increased involvement of the European Commission and European Council can be observed throughout the EU (Lozano 2013). The presence of such regulatory bodies has effectively contributed to the long-term economic growth and employment throughout the region.
The scholarly work of Peršić, Janković and Krivačić (2017), for example, analyses EU Directive 2014/95/EU to find out that the particular mandate facilitates disclosure of nonfinancial and diversity information by different large undertakings and groups of certain categories to ensure proper harmonisation of current reporting practices. Furthermore, with the aim of providing more harmonisation of existing sustainability, Sustainable Stock Exchange (SSE) initiative is established to align all policymakers, exchangers and other key stakeholders in line with expected Sustainable Development Goals (SDGs) of UN.
1. Short introduction:
The selected company, known as UNiDAYS, is a global retail technology and marketing company based in Midlands, UK. Employing 160 people across its offices in Sydney, New York City, San Francisco and London, the company is exactly located in Nottinghamshire. The company was founded in 2011 with its operation as an online platform offering discounts to students on several high street brands to evolve as a world’s leading student affinity network.
2. Sustainability strategy:
The principal sustainability strategy behind the company is based on developing an online network to connect students with a wide range of brands and services, thereby increasing their affordability regarding various facilities. It ultimately contributes to social welfare while reducing global footprints to generate a positive contribution to the key environmental concerns (Klewitz and Hansen 2014). Based on the estimation of 2016, the company spent $2.4 billion on its network to improve consequences regarding economic, social and environmental perspectives.
3. Stakeholder engagement:
Students are the primary stakeholder of UNiDAYS, supporting the company to continue and strengthen its operation as a student verification and marketing specialist. With the help of technological innovations, forward-looking thinking and smart use of digital marketing tactics, the needs of modern students are successfully recognised by the company, leading it to become one of the worthy players to anticipate winning ‘Digital Business of the Year’.
4. Evaluation of sustainability practices:
Evaluation of the existing sustainability practices of UNiDAYS suggests that the company addresses the issues concerning social wealth creation and impact of business process on ecological environment. In order address and solve such issues, the company essentially adopts a digital business model since inception to reduce global footprints damaging the ecological environment while providing opportunities for students enhance their knowledge and contribute positively to the economic and social environments. The particular set of operation has enabled the company to win Lloyds Bank Digital Business of the Year, a significant recognition in terms of National Business Award, driving the business to shift its boundaries further (Shields and Shelleman 2015).
5. Examples of good sustainability practices:
After winning the award, which helped the business to gain an increased appreciation and awareness among clients, it has successfully launched a new corporate website that provided more confidence and reliability to the important stakeholders. Such an operational decision also increased accountability and transparency of the company’s future proceedings to contribute to the improvement of existing sustainability practices (Aremu and Adeyemi 2011).
Value creation mainly refers to the generation of financial values or returns in the short, medium and long term. Integrated Reporting (IR) greatly involves integrated thinking, which results in preparation of integrated reports periodically by an organisation to inform the extent and the way business model in the wider context promotes or hinders value creation (Beattie and Smith 2013). The fundamental concept of value creation, therefore, lies at the heart of IR, which plays an essential role in internal decision-making of organisations. IR promotes integrated thinking to provide a better understanding of management about every key aspect of operations, thereby improving internal decision-making. Formulation of integrated reports, on the other hand, helps to develop better communication with external stakeholders, thereby fulfilling their right to access transparent information (Cheng et al. 2014). This, in turn, enables organisations to gain better access to financial capitals.
Concerning the March 2018 issue of IASB, it has published the revised conceptual framework for financial reporting, which critically includes some of the revised definitions of an asset and liability, as well as some new guidelines regarding measurement, presentation and disclosure. As the project was first initiated in 2004, the new conceptual framework, proposed by the IASB dost not include a substantial revision of the document. Instead, the particular revision greatly focuses on the topics that required fundamental improvements to enable overcoming shortcomings. In case of chapter seven, which includes measurement and de-recognition, as well as presentation and disclosure, the conceptual framework discusses the type of information that should be present in the financial statements while specifying clear guidelines for presentation and disclosure. For the purpose of enabling a better understanding of the changes proposed in the draft conceptual framework for financial reporting, IASB staff have prepared a series of web presentation for those with certain interest in the specific framework. As part of the exposure draft, different parts of the walkthroughs are discussed in detail using the presentation, thereby providing further insight to the Board’s thinking alongside establishing rationale behind the proposals (Gornik-Tomaszewski and Choi 2018). In this case, the new chapter related to measurement provides a detailed description of some of the suitable measurement bases using historical cost and current value while including fair value as well. Additionally, some of the key factors considered during selection of measurement basis are also discussed in the newly revised chapter seven.
As part of the Chapter Six: Measurement, measurement measures prioritise financial statements, involving assets and liabilities. The particular project entails measurement of asset or liability using an appropriate measurement basis while determining the exact monetary amount suitable for such basis (Tiron-Tudor, Oprisor and Zanellato 2019). Revision of the existing project also involves reconsideration of monetary amount during the time of certain events to enable proper description of measurement process and explanation of a choice made between multiple measurement techniques available. More clearly, the current project of IASB draws up the financial statements of entities to enable selection of suitable a measurement basis for each category of assets or liabilities by considering either historical cost or current value. Apart from considering the characteristics of the particular asset or liability alongside the circumstance involved, selection of the measurement basis is done in a manner that best serve the objective of financial statements while fulfilling the demands of qualitative features of financial information.
IFRS for SMEs refers to the small Standard designated for small companies. According to Pacter and Wells (2013), it focuses on maintaining adequate information in the financial statements of SMEs to fulfil information needs of stakeholders who are specifically interested in a company’s cash flows, solvency and liquidity. These stakeholders often involve lenders, creditors and other users of financial statements. IFRS plays an important role in these organisations in many countries due to the application of self-controlled global accounting and reporting standard. In addition to IASB, the local legislative authorities in specific jurisdictions are the ones to decide the type of entities allowed or required using IFRS for SMEs while gaining provisions of the standard (Bonito and Pais 2018). In UK, for example, FRS 102, the Financial Reporting Standard is essentially based on the IFRS for SMEs.
One of the major benefits of IFRS for SMEs is its internationally recognised standard. Additionally, the application involves less arduous reporting requirements for the selected organisations, compared to GAAP. Suitable application is reported to increase robustness and quality of financial reporting of SMEs, thereby improving business outcomes in several jurisdictions (Litjens et al. 2012). However, the work of Perera and Chand (2015) highlights numerous issues related to international application of IFRS for SMEs. Lack of regulatory framework and enabling comparable accounting information are two of the major problems facing the businesses due to over-representation of SMEs worldwide, accounting more than 95 percent of global companies.