Magazine article The CPA Journal

A Message from the Editor-in-Chief

Magazine article The CPA Journal

A Message from the Editor-in-Chief

Article excerpt


Sustainability and sustainability reporting aie still in their infancy and suffering front giowmg pains, such as a lack of definitional clarity, uncertainty about how to measure nonfinandal information, and confusion over new standards by new standards setters with varying ideas about what is important to disclose. Behind this movement is the inference that a more socially responsible company which practices an ethic of sustainability will carry a higher value, deliver greater permanence, and achieve long-tenn stability. Here, I focus on ways to define tins subject from our profession's perspective-as financial executives, coiporate advisors, accountants, and auditors.

We also look at entry into tiie sustainability field as a critically important new growth opportunity. Some members of tiie profession view sustainability as "tiie new practice development opportunity." They realize that sustainability reporting offers innovative, creative opportunities that go beyond standard reporting: It presents entrepreneurial opportunities to develop film expertise in this new area of practice and offers higher incremental billing opportunities. Investors and tiie public who seek additional noil-financial information about a company will embrace tiie resulting reporting and disclosures.

Sustainability Redux

For a clearer definition of sustainability, I suggest tiie one presented by Michael Kraten, in "Reunagirnng tiie Financial Statements" on page 14 of this issue). According to Kraten, sustainability is tiie nexus of financial, social, and environmental facias that impact an entity's ability to ensure its own long-tenn survival. Intellectual capital, workforce loyalty, and a reputation for social responsibility all represent valuable intangible assets that may not be capitalizable under GAAP but significantly impact sustainability. In order to address these factors, entities must consider an extremely broad array of stakeholders. For example, an entity's customers, supply chain vendors, local community residents, and governmental representatives all impact its reputation, and thus must all be addressed by tiie organization Tlius, each entity is not simply responsible for its own sustainable future. It also shares responsibility for tiie sustainable futures of its community and society as well. (Consider, for example, tiie canplicated interrelationships between General Motas and its supplias, labor unions, and tiie city of Detroit.)

If you prefer, a second definition foaises on accounting and balance sheet reporting-or what I might charactaize as tiie "imbalance sheet." According to this approach, most of a coiporate enterprise's value is not on its books. As accountants and auditors, "what is counted oftai does not matta, and what matters is often not counted." This approach suggests that tiie most important assets and tiie most important liabilities aie not recorded on tiie balance sheet of any enterprise-for example, an entity's intellectual property, brand equity, patents, trademaiks (other titan those acquired), invoitions, goodwill, historical reputation, aitical mass, R&D, and quality of management.

Similarly, tiie most important liabilities, tiie ones that can seize markets and lead to global aises (e.g., inadequate resaves to cova liquidity aunches, derivatives, off-balance sheet financing, repurchase agreanents with no reserves booked against titan, mvestmaits in offshore subsidiaries, minority ownership of entities) oftai do not appeal' on tiie balance sheet. Neither, for that matta, do tiie transactions in between quarters that tighten up quarterly reporting. Could these categories of liabilities be measured in tains of their risk to an enterprise's sustainability?

A third definition of sustainability is best explained by example. Most readers would agree that wind and solar power represent tiie greatest sustainable aiagy sources-but are tiie companies that provide this power economically sustainable? …

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