Accountability – it’s a word often thrown around. We want to hold management accountable, government accountable, students accountable and NGOs accountable. But what about holding ourselves accountable?
Accounting is, at its core, a mechanism of accountability. History has numerous examples where a lack of accountability led to economic, financial and even political crises. But why, as Jacob Soll argues in his book The Reckoning, has humanity been so hard-pressed to learn this lesson despite many opportunities? Failing to truly incorporate companies’ environmental impact into their financial statements seems to be history repeating itself.
Accountants have enormous power – particularly when it comes to promoting positive change.
As SAICA’s CEO Freeman Nomvalo points out, the following example demonstrates the power of accountants as the ‘storytellers’ of business to promote positive change.
Let’s assume there are two paper companies that are alike in every way except for one thing: their environmental impact and conscience.
Company A cuts down trees and moves on to the next area with no consideration of the environmental destruction it causes. Its business model is highly profitable, as all capital is spent solely on income-producing activities. Company B, in contrast, develops a sustainable rotational model that involves replanting and caring for trees after cutting. This requires additional expense but reduces the total environmental area used for its operations.
If accountants tell Company A and B’s story using financial metrics only, then clearly A is the ‘better’ company as it is more profitable. But, if accountants develop the tools to bring on the balance sheet the environmental impact of each company, Company B is viewed more favourably. By telling a more complete story, investors are better able to determine the risk profile of each organisation. Customers are more likely to do business with Company B, which also finds it easier to attract and retain the most talented staff.
Armed with more holistic knowledge of companies’ total value creation, society shifts what it will accept from organisations.
So the question is, why are accountants not already telling better stories?
One reason is that good storytellers must be trained: they are not just born with the ability to explain how organisations create value. Interconnected with training is the required skill set. Universities do an excellent job at preparing the next generation of accountants to construct income statements and balance sheets with less emphasis on how social, environmental and economic factors should be incorporated into business models and the value creation story. Put simply, you will find hundreds of books on, for example, double-entry bookkeeping, the definition of an asset, consolidation accounting techniques and the determination of fair value. In contrast, there are no generally accepted standards for implementing what Professor Mervyn King describes as ‘integrated thinking’. For example, we cannot answer questions regarding environmental impact such as: what to recognise in the ‘balance sheet’, at what date and at what amount.
Inititaives such as the UN Sustainable Development Goals, Finbiz2030 (with One Young World and Chartered Accountants WorldWide) and the International Integrated Reporting Council1 have done extremely well to provide the foundation for more holistic corporate reporting and accountability. But the journey is long and requires time and money to develop the tools to bring environmental assets, liabilities, income and expenses into corporate reporting.
There was a time when people couldn’t imagine bringing share options (IFRS 2), certain intangible assets (IAS 38) and right-of-use assets (IFRS 16) into the financials. They did not have the tools to measure or identify some assets with the result they remained unaccounted for.
But now we do.
Similarly, with perseverance, we can develop the technology to identify, measure and recognise environmental impacts to improve corporate reporting, assurance and accountability.
In July, Wits Accounting Professor Kurt ‘Indiana Jones’ Sartorius, his son Professor Benn Sartorius, a Brazilian local and I will be paddling 1 100 km down the Rio Madeira in the Amazon Basin because we believe in the power of accounting. We want to raise awareness and funding to fight climate change. Because we know change is slow, we hope our story of two accounting professors, one 73 years old and one a CA(SA), will inspire other accountants to start having conversations within their organisations to lay the foundation for more holistic corporate reporting. We want accountants to see the value of integrating environmental risks and opportunities into their risk management frameworks. We want society to start demanding more integration of financial and extra-financial performance so that they can make more informed decisions.
No donations received will be used to fund the expedition. Funds raised from this initiative will be used to fund reforestation initiatives in the Amazon Rainforest. This is to emphasise that climate change is a borderless fight. As the ‘world’s lungs’, we all benefit from the Amazon and cannot leave the burden of fighting deforestation only to Brazil. Funding will also be used to develop the tools business needs (and wants) to be able to tell their value-creation story and be recognised for the good work they are already doing. The sooner we have the means to identify, measure and recognise environmental performance and position, the better.
If you would like to donate to this cause, please follow the link to the Wits Foundation’s donation page. and use the Accountants Can Save the Planet option (AccountantsCanSavePlanet). The fund is administered by Wits’ Development and Fundraising Office and Section 18A tax certificates are available on request.
To follow our journey as we battle mosquitoes along the river bank to make the 1 100-km journey, follow us on Twitter at ResearchSoa and Instagram at WayneVanZijl. Signal permitting, we will post pictures and update along the way.
We wish to thank SAICA and Wits for their tremendous support of this initiative and hope others will help to make it a great success!
About the Author
Professor Wayne van Zijl is a CA(SA) and Associate Professor in the School of Accountancy at Wits University. Wayne is predominately a qualitative researcher in corporate reporting, with a focus on technical accounting. He is currently busy with his PhD, where he is investigating the evolution of accounting drawing on concepts of biological evolution and dynamic systems.
Wayne teaches on Wits’ CA programme as well as honours and master’s courses.
1 Now Value Reporting Foundation after a merger with the Sustainability Accounting Standards Board.
Professor Wayne van Zijl CA(SA), Associate Professor in the School of Accountancy at Wits University