GOVERNANCE
HOLISTIC MANAGEMENT (G 5 ) FULL-COST ACCOUNTING (G 5.2)
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Descriptiontraditional accounting systems deal predominately in actual $ costs in the current year. Matters outside of this, particularly where the $ cost is difficult to determine or has not been valued, are treated as externalities (matters outside the business equation). as consumers, stockholders and other stakeholders become more aware and concerned about the potential environmental and social impacts of business, they are demanding better information about the organizations’ performance in these areas.
this movement began as “triple bottom line“ reporting, demanding that an organization’s performance needs to be assessed in economic, social and environmental terms. reporting performance through financial accounts is the most established method by which stakeholders judge the performance of a business, so it is unsurprising that there are now calls for change in how accounting represents the full performance and impact of an enterprise. Movements such as triple bottom line reporting, social auditing and environmental accounting have all contributed to an emerging field of work which seeks to improve the accuracy and use of full-cost accounting. these initiatives will enable enterprises to make better decisions because they more fully understand the full impact of their decisions. For example, understanding the opportunity cost in environmental and reputational terms may enable an enterprise to justify a more responsible, yet more expensive (in strictly present $ terms), business process. the full-cost accounting process makes transparent both direct and indirect subsidies received, as well as direct and indirect costs. it is widely acknowledged by economists that markets fail to reflect the full value of forests, including biodiversity, climate stabilization, water qualify, wildlife and non-wood forest products. similarly, the livelihoods of millions of forest dwellers are not accounted for in national economic statistics. While this is a complex and difficult subject with no easy answers, analyses of the sustainability of forests and forest enterprises need to find ways to take these important values into consideration. there is not yet an international consensus on an all encompassing standard for full- cost accounting. However, very sound work is emerging with comparable tools for some aspects of the accounts, such as measuring an enterprise’s carbon footprint.
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Relevance to enterprise type and supply chain levelsFull-cost accounting (Fca) is an emerging field. it will be more relevant for the champions of sustainability and those organizations prepared to invest to develop systems. over time, it is likely the principles will become more accessible to smaller organizations, as open source or low cost web based tools are developed. one area where small formal groups may be ahead is in where these are using some of the low technology tools developed by nGos to inform decision-making about rural labour and resource use.
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Unit of measurementBecause there is, as yet, no universal Fca standard, this indicator cannot be usefully metricized for the purposes of external comparison. Progress towards a Fca approach can be measured but the progress will inevitably be subjective because there is no complete standard against which to measure. Moreover, as understanding of social and environmental impacts grow, so will the capacity to include these in accounts. this elasticity will render progress metrics unreliable.
g o o D g o v e r n A n c e g 5 g 5.2
g 5.2.1
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How to measureUsing governance reporting records, there is need to establish:
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that the enterprise is collecting, analyzing and reporting data on each of its economic, social and environmental performance and impacts.» C
the enterprise can describe how it plans to improve its Fca reporting, the obstacles it has faced and how it plans to overcome these.j C
RatingC
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Dark Green score:the enterprise has evidence that it collects, analyze and reports to its stakeholders on its economic, social and environmental impacts and performance, and it understands the emerging discipline of Fca and is actively involved in improving the scope and validity of its Fca reporting.
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Red score:» the enterprise does not account for its impact and performance using any Fca regime; or
» the enterprise has significant costs on the environment and community which are externalized from its accounting systems; or
» the enterprise has Fca reports which are not validated.
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Limitationsas an emerging field, the indicator will become more useful over time. at this point, it is probably formative rather than summative for all but the largest organizations or those with very strong commitment to sustainability and good governance.
A Sources of information
Almihoub, A.A., Mula, J.M. and Rahman, M.M. 2013. are there Effective accounting Ways to determining accurate accounting tools and Methods to reporting Emissions reduction? Journal of Sustainable Development 6(4).
EpA. 1996. Full Cost Accounting Resource Guide. EPa530-r-95_077
McCandless, M., Venema, H.D., Barg, S. and Oborne, B. 2008. Full Cost Accounting for Agriculture - Final Report.
Valuing public benefits accruing from agricultural beneficial management practices: an impact pathway analysis for tobacco creek, Manitoba. iisd.
Slaper, T.F. and Hall, T.J. 2011. the triple Bottom Line: what is it and how does it work? Indiana Business Review.
FAO. 2013. Full cost accounting of Food Wastage. Working Paper for the E-conference on Fca, 21 october-24 november 2013.