Social and Environmental Accounting Pertemuan 07

2. Social and Environmental AccountingPertemuan 07 Matakuliah : F0122 – Seminar Akuntansi Tahun : 2009

3. Social and Environmental Accounting Accounting Seminar Week 6 Gatot Soepriyanto

4. Understanding Social Accounting • Social Purpose – Social Accounting – Social Audit – Social Report • Social = social + environmental + economic • Financial performance = organisational sustainability • Social Accounting (social accountant) –

5. Understanding Social Accounting • Proving and Improving – and Accountability • Performance (what we did) + Impact (what happened)

6. Principles of Social Accounting • Multi-perspective • Comprehensive • Comparative • Regular • Verified • Disclosed

7. Getting Ready for Social Accounting • Understanding the process • Looking at what you already do • Get commitment • Think about available resources • Make it manageable! • Actively decide to go ahead

8. The Building Blocks of Social Accounting and Audit • Step One – Planning • Mission • Objectives (how we seek to achieve it) + Activities (what we do) + Values (what we believe - how we behave) • Stakeholders – whom we affect and who affect us (intentionally and unintentionally)

9. The Building Blocks of Social Accounting • Step Two - Accounting • Scope • Indicators (narrative, quantitative and qualitative information) • Stakeholder consultation

10. The Building Blocks of Social Accounting • Step Three – Reporting and Audit • Draft social accounts • Social Audit Panel and social audit statement • Social Report

11. Three Step Process CD: Case Study - GFC Introductory OHP/PP Case studies Checklist for Intro'n Diagram of process Information Sheet What you already do SA on One Page! Cycle diagram 3 Step Process CD: Case Study - GFC OHP/PP Examples - techniques Examples of MVOA Examples – S/H maps Lists of MVOA Examples of outputs Templates CD: Case study - GFC OHP/PP Examples - SBKS Examples: Questionnaires Interviews Focus groups PA techniques Alternative methods Planning tools Templates CD: Case study - GFC OHP/PP Examples of using SA Examples - Chair notes Panel criteria/Checklists Example of timetable Templates a Assessment Assessment Assessment GETTING READY… Understanding process What organisation already does Commitment Managing the process Resources Making the decision STEP 1: SEE PLANNING Mission Values Objectives Activities Stakeholders Key stakeholders STEP 2: SEE ACCOUNTING Deciding the scope Agreeing indicators Collecting data Env./economic impact Social account plan Implementing plan STEP 3: SEE REPORTING & AUDIT Drafting Social Accounts Social Audit Panel Process for the Panel Social Audit Statement Using the Social Accounts Disclosure Buy-in Mission etc Stakeholders Consultation - data results Social Audit Report Video Website: Updateable information Open College Network

12. Using Social Accounting and Audit • Proving – demonstrating what we have done and achieved (performance and impact) to all stakeholders (accountability) • Our Objectives and Their Objectives – the 360 degree picture • Common or Shared Objectives – making comparisons • Improving – social enterprise plans

13. Some Contemporary Issues • Mandatory or Voluntary? • A kite-mark for social economy organisations? – the ethical dimension • The cost of social accounting and audit

14. Environmental Accounting

15. Discussion • Environmental Accounting Overview • What is environmental accounting • Why do environmental accounting • What is an environmental cost • System Strategies • Reactive, Proactive, Leadership • Business Purpose and Application • Example - Cost Allocation • Methodologies

16. Environmental Accounting Overview What is environmental accounting? • A flexible tool to provide information not necessarily provided in traditional managerial systems.

17. Goal • Goal of environmental accounting is to increase the amount of relevant data for those who need or can use it. • “Relevant data ” depends on the scale and scope of coverage

18. Scale and Scope • Applicable at different scales of use and scopes (types) of coverage. • Application at an individual process level (production line), a system, a product, a facility, or an entire company level. • Coverage (focus) may include specific costs, avoidable costs, future costs and/or social external costs

19. Scale and Scope • Decisions on scale and scope of application significantly impact ability to assess and measure environmental costs • Process vs Facility • Discreet costs vs Hidden vs Contingent vs Image Costs

20. Why do Environmental Accounting ? • Environmental cost can be significantly reduced or eliminated as a result of business decisions. • Environmental costs may provide no added value to a process, system or product (i.e. waste raw material ) • Environmental costs may be obscured in general overhead accounts and overlooked during the decision making process.

21. Why do Environmental Accounting ? • Understanding environmental costs can lead to more accurate costing and pricing of products. • Competitive advantage with customers is possible where processes and products can be shown as environmentally preferable.

22. Environmental Costs • Major challenge in application of environmental accounting as a management tool is identifying relevant costs. • Cost definition determined by intended use of data (i.e. cost allocation, budgeting, product/process design or other management decision support).

23. Environmental Costs • Types of Environmental Costs • Conventional: material, supplies, structure and capital costs need to be examined for environmental impact on decisions. • Potentially Hidden: • Regulatory (fees, licenses, reporting, training, remediation) • Upfront and back end (site prep, engineering, installation, closure and disposal) • Voluntary (training, audits, monitoring and reporting) • Contingent: penalties/fines, property liability, legal) • Image: Relationship with employees, customers, suppliers, regulators and shareholders

24. Overview Summary • Flexible tool to provide relevant data not ordinarily captured in traditional systems. • Successful application requires up-front understanding of scale and scope of application. • Once identified, information needs to be communicated/distributed to decision makers and considered as a component of management’s decision making criteria

25. System Strategies • Environmental Accounting systems typically fall into one of three categories: • Reactive • Proactive • Leadership

26. Reactive Systems • Typically spread costs (capital and expense) across various overhead categories. • Environmental costs typically not assigned to specific line/process or activity. • Reactive system fails to provide indication or quantification of environmental costs. • As a result it fails to identify cost drivers and minimizes opportunity to develop tactics to reduce these costs.

27. Proactive systems • Costs are categorized and assigned to specific process and activities. • Costs incurred can be identified, classified and quantified but are limited to discreet costs. • Decisions typically focus on incremental activities ( i.e. minimize waste, etc.).

28. Leadership Systems • Includes both financial and non-financial issues in the relevant data used in the business decision process. • Systems are designed to include value chain perspectives. • Both the process as well as the product are evaluated for relationship between inputs and overall value provided to minimize “total costs”.

29. Application • Utilization of data generated from application of environmental accounting tool can be used for a variety of decision classes including: • Cost allocation • Capital budgeting • Product design

30. Cost Allocationan example • Goal - Bring environmental costs to attention of corporate stakeholders. • Four steps in environmental cost allocation: • Determine scale and scope of the application • Identify environmental costs • Quantify those costs • Allocate those costs to responsible product, process or system

31. Traditional Cost System Other Overhead Toxic Waste Product B Allocated Overhead Product A Product B

32. Modified Allocation System Other Overhead Toxic Waste Product B Allocated Overhead Product A Product B

33. MethodologiesRelated Accounting Topics • Application of Environmental Accounting typically used in conjunction with: • Activity Based Costing (ABC) • Total Quality Management (TQM) • Business Process Re-engineering • Balanced Score Card

34. References • www.socialauditnetwork.org.uk • www.proveandimprove.org Assignments • Summarize, Discuss and Present the following paper (see additional material): • Determinants of Corporate Social Responsibility Disclosure: An Application Of Stakeholder Theory (Roberts, 1992)