You are to write a report that discusses one of the following topics:
1. . ‘Fair value’ is unfair.
2. Harmonization is neither desirable nor achievable.
3. Corporate Social Responsibility Reporting is not worth the paper it is printed on.
4. UK has surrendered the concept of a UK GAAP.
5. Narrative reporting has no real use.
6. It is not possible to account for the either the damage done to the climate or its change.
The report should consider both sides of the argument and be fully referenced using highly relevant sources.
In the recent past, the world has been facing climatic changes. These climatic changes refer to the considerable time variation in weather patterns that occurs over periods ranging from ten to millions of years. Climate change is caused by various factors such as plate tectonics, biotic processes, volcanic eruptions, and variations in solar radiation received on earth. There are various human activities that have led to significant climate change, for instance, global warming (Lieberman, et al., 2007). These changes have significant impact to the environment by either damaging or improving it. Scientists today are actively working to understand and rectify the current climatic changes through observations and theoretical models.
Management accountants play a key role in driving sustainable operational and strategic decisions regarding to climate change. A research conducted by chartered institute of management accountants indicates that even where finance teams are involved in climate change related actions; it has frequently been on an arranged purpose only. Management accountants must change this by equipping themselves with relevant tools and technical expertise that can e1nsure businesses understand the scale of the hitch of climate change (Stoner, et al., 2012). They should come up with possible solutions to control climate change and ensure they are well implemented. Therefore, management accountants play an important role in providing and equipping businesses with intellect to support policy and control long-term decision-making process. This is because organizations face different risks and opportunities presented by the day-to-day changes in climate.
In general, climate change creates a major risk to the global economy. According to the 2006 Stern Report, the global economy has shrunk by 20% in its output. This is due to the effects it causes on resource availability, habitat, and consumption in the organization environment. Handling climate change is not just a task of doing what is right but it involves businesses making fundamental strategic goals. This includes serving their customers, shareholders, and employees to deliver long-term benefits and manage any risks that might arise. Managing and justifying climate change must be implanted in the decision making process of organizations to ensure target goals and objectives are met within the stipulated time. For instance, it is important that businesses apply sustainable procurement principles and take into consideration the long-term repercussions when it comes to capital spending and investment decisions. This should also consider the short-term goals of organization in achieving their objectives.
Sustainability in the normal life of business requires rigidity and commercial insight of the finance section in its functions. Management accountants must get involved in the making of vital decisions like in areas dealing with compliance to new climate change rules and carbon trading. These would otherwise lead to gone opportunities, high costs of business operations and most likely reduced competitiveness in the global market. The Chartered Institute of Management Accountants together with the Accounting for Sustainability through recent international survey of almost 900 finance and sustainability professionals has found out that it is crucial for management to make sound decisions (White, et al., 2013). This has helped in identifying opportunities and devising methods of leading modern companies in the competitive environment. Accountants must be fully involved and exercise quality skills in enhancing climate change strategy, adapting to new circumstances, mitigating environmental impacts, and complying with new regulations. Therefore, it is imperative for decision makers to understand the value of management accountants and the role they play in dealing with climate change.
First, climate change has direct impacts to businesses. A research carried out by the Carbon Trust and Mckinsey2 back in 2008 indicates that by tackling climate change, companies are likely to increase their value by up to 80% and create new opportunities (Schaltegger, et al., 2012). This is not a guaranteed situation as 65% of the same value could be shattered if the firm is poorly located or either affected by climate change. Due to the stiff competition that exists between funding projects and pushing for higher returns on capital investment, it is possible that managing climate change turns out to be a difficult task. Long term and strategic goals play a vital role in ensuring progressive commitment towards the resilient sustainability on climate change. Finance professionals play a key role, as they are well versed with knowledge on risk management. According to the research carried out, it is evident a bigger percentage believe that there is a way of controlling climate change and minimize the environmental impact.
In the world today, only a maximum of 38% of businesses believe that their firms are well versed to deal with the impacts of climate change. However, 58% of the businesses agree that climate change is of importance in their entities (Hopwood, et al., 2010). Criticism on financial return on climate change management is conquered by making sustainability a strategic goal and by organization making it a priority in managing climate change within their operating environments. Many firms are mostly concerned with complying with the rules and regulations enforced by environmental organizations. Nevertheless, it is important for these organizations to take into account the management of the risks posed by climate change and exploit the opportunities that accompany it. Authoritative and well-informed balancing of long-term value against the short-term costs creates sustainable worth for both stakeholders and shareholders.
Organization’s actions should be compelled by detailed evaluation of the risks and opportunities that surround climate change. The external forces available in the modern world are pushing businesses to include climate change in their operation agenda. For example, there are new regulations that are motivated by coordinated legislative efforts globally. These regulations are meant to crystallize the rigid framework to realize long-term goals. Costs such as carbon trading and tax regimes become more material and therefore increase profitability of the organization. Recently, investors’ expectations have also become diverse whereby they demand for more reliable and clearer reports on costs and risks associated with business environment. In addition, although customers and employees may not be so much interested in demanding to get detailed information, they still want to get the idea that there is commitment in checking climate change activities (Condon, et al., 2013).
The global economics majorly contributes to the application of accounting in climate change. Although there are inflation costs, global competition and economic recession have compelled for efficiency in operations. Businesses are currently examining investments in new technologies, equipment, and plants apart from fuel savings that require planned financial appraisal given by the management accountants. An example is companies engaging in steam valve technology. The advancement of an organization’s approach determines its range of motivations and benefits towards the maintenance of sustainability. This is because companies go through different stages in development influenced by stakeholders, historic degree of regulation of the firm and consumer pressure (Carroll, et al., 2014).
A very small number of companies have admitted that climate changes pose significant risks to their businesses. The CIMA is seemingly being more concerned why numerous finance professionals are not putting effort in climate change management while it continues to bring about serious effects (Taplin, et al., 2006). Although finance teams are least expected to carry out a formal role in Climate Change Policy Implementation, in specific countries this is one of their main duties. In many organizations, middle and junior managers focus more on their daily jobs while high rank managers fully support the idea of climate change. Most of these junior managers only comply with the environmental laws and disregard the sustainability agenda as they consider it worthless to the business.
Another common barrier to the adaptation of the sustainability agenda is the belief that it only adds up the costs of operation. Adapting the initiatives to accommodate climate change decreases efficiency, value of money and the economic growth and therefore not seen as an important consideration. In the modern economic climate, it is difficult to strike a balance between short-range expectations of consumers and investors and the measures needed to assure lasting continuity and success (Gray, 2010). Most management accountants focus on long-term benefits rather than the short-term priorities in controlling climate change. There is also lack external pressure to address climate change (Adger, et al., 2009). Most of the firms put less emphasis on climate change initiatives and concentrate on improving the competitiveness of their organizations on a higher scale.
The financial team experiences a number of hindrances in implementing climate change proposals (Garnaut, 2008). One of the major reasons is lack of time where many managers and employees have insufficient time to be indulged in the actions that aid in controlling climate change. Another problem is lack of expertise knowledge and proper skills. These skills and knowledge are crucial in making decisions that rotate around the climate change. For instance, a high number of finance personnel do not know how carbon pricing may affect the decision making process. Another problem affecting the process of dealing with climate change is the fact that sustainability professionals focus on short-term issues rather than the long-term solutions to their business organizations. Climate change is a lasting predicament and therefore requires strategies put in place to cater for its adaptability and mitigation.
In most organizations, the finance managers are not given the role to deal with climate change. Therefore, companies consider this role unfit for them although they are very important in making decisions related to sustainability agenda. There is also lack of proper communication and teamwork (Field, 2012). It is evident that the climate change team rarely consults with the finance team indicating that there is insufficient communication between these experts. It is advisable for both teams to collaborate to drive the climate change agenda forward by combining their personal skills to achieve commercially possible sustainability goals. There is also lack of interest by the finance team in the climate change agenda. Most members of the finance department are perceived to carry out the company’s interests and paying more attention o the overall strategy of the organization rather than being involved in environmental sustainability.
In the business world today, there are conflicts arising in relation to the methodologies used to measure and disclosure requirements of environmental impact. (Searchinger, et al., 2009) Management accountants have the sole duty of providing accurate, comparable, and consistent intelligence to their organizations, pressure groups, regulators, and stakeholders. There is advocacy for proper business planning and forecasting which include the move towards the use of low carbon economy. The degree of uncertainty and the pace of change for decisions of policy makers cause forecasting and planning very significant. Therefore, accountants need to lay more and sophisticated emphasis when it comes to making decisions related to climate sustainability. Management accountants have the duty of advising on the availability and use of capital in the organization (Solomon, 2007).
In conclusion, all organizations in all sectors must indulge in controlling climate change and its related risks and regulations. The implementation of the climate change as a strategic goal will help in making critical decisions viable in the long-term survival of the business organizations (Hoffman, et al., 2013). Both the management accountants and the sustainability colleagues must work in collaboration to achieve the set targets of their entities. Different parties including junior employees should be integrated in the plans of the organization in adapting the initiatives of the business in climate change agenda. With the increase in environmental issues, it has become inevitable for departments to improve their working relationships and focus on this sensitive matter. As climate change is a long-term issue, there is a necessity to come up with lasting solutions. This will help in the long-run survival of business entities even with stiff competition.
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