International Financial Reporting Standards (IFRS) are a set of international accounting standards stating how particular types of transactions and other events should be reported in financial statements. IFRSs are incomplete if crux of SDGs is not interwoven in the framing of accounting standards in the financial reporting. The Sustainable Development Goals (SDGs), otherwise known as the Global Goals, are a universal call to action to end poverty, protect the planet and ensure that all people enjoy peace and prosperity. SDGs are set goals for collective and equitable development with minimum deterioration to environment. Without IFRS, it is difficult to measure if objectives of SDGs are achieved. Reciprocally, SDGs are incomplete if end results are not gauged in financial statement which honour environmental factors. Therefore aligning IFRS with SDGs is sine qua non.
Business enterprises are established for the profit, but as they uses resources supplied by the society, environment and hence are responsible to contribute part of the profit to society and environment. Proper practice of Accounting Standards assumes immense importance at micro level, as effective disclosure leads to shareholders’ wealth maximisation and at macro level, they are essential to the efficient functioning of the economy because decisions about the allocation of resources/investment rely on credible, concise, transparent, comparable and understandable financial information about the corporate operations and financial position. It will not be fair accounting if hidden cost of environment is not factored in financial statement of a business entity. The accounting which factor environmental cost and benefit is known as “Green Accounting”. “Green accounting” is a type of accounting that attempts to factor environmental costs into the financial results of operations. It has been argued that gross domestic product ignores the environment and therefore policymakers need a revised model that incorporates ‘Green Accounting”. The “Green Accounting” is of worth if auditors take into consider environmental aspects in examining effect of accounting transaction on financial statement. This paper thus suggests building Green Matrix to determine value of environmental factors. It is imperative that broad guidelines are churned out after proper research. This paper is an attempt to lead such debate amongst professional accountants, auditors, business and policy makers.
As per OECD principles of Corporate Governance, Accounting Information should be prepared and disclosed in accordance with high quality standards of accounting and financial and non-financial disclosures. The application of high quality standards is expected to significantly improve the ability of investors to monitor the company by providing increased reliability and comparability of reporting, and improved insight into company performance. The quality of information substantially depends on the standards under which it is compiled and disclosed. The Principles support the development of high quality internationally recognised standards, which can serve to improve transparency and the comparability of financial statements and other financial reporting between countries. Such standards should be developed through open, independent, and public processes involving the private sector and
other interested parties such as professional associations and independent experts. High quality domestic standards can be achieved by making them consistent with one of the internationally recognised accounting standards. In many countries, listed companies are required to use these standards. This research will lead to find space for environmental cost and benefits into financial statements and in corporate governance. OECD principles of Corporate Governance further emphasize that Board members should act on a fully informed basis, in good faith, with due diligence and care, and in the best interest of the company and the shareholders. In some countries, the board is legally required to act in the interest of the company, taking into account the interests of shareholders, employees, and the public good. Thus in emerging environment under SDGs as an axle of equitable growth, the paper will explore bridging gap in accounting standards, financial statements and corporate governance practice.
In last few decades, importance of international accounting standards is recognized which led to accepting global accounting standards and the regulatory bodies across the world introduced IFRS – fully or partially. IFRS constitute a comprehensive set of accounting standards, formulated for harmonization and unification of global accounting practices. More than 120 jurisdictions require IFRS for most domestic publicly accountable entities like listed companies and financial institutions. The companies in return are struggling to implement IFRS in its true spirit. There are multiple issues that are evident in implementing IFRS. Sufficient resources and trained manpower are the major factors. The companies are also hesitating to implement IFRS in absolute terms because of their anticipation of damaged bottom line, impact on market value and over emphasise on documentation. The companies then resort to mere compliance in form to the regulatory bodies rather than the spirit. The regulatory bodies have neither the will nor tools to ascertain spirit of IFRS from form of IFRS implementation. It is observed that regulatory bodies too have issues of shortage of trained monitoring staff.
In order to align social and economic goal, it is imperative to align SDGs with IFRS. The suggestions discussed hereafter may help in aligning SDGs with IFRS.
Developing framework for Green Accounting
The current accounting system does not consider any value loss outside a business entity’s own financials. In fact, a business entity indirectly consumes social and environmental resources, but the current accounting system ignores ecosystem contributions to human welfare and environmental damage. ‘Green Accounting’ is an emerging sustainable development tool in the decision making process, which provides an alternative and systematic method of incorporating environmental contributions. Green accounting attempts to factor environmental costs into the financial results of operations, and is gaining momentum after the United Nation’s call for SDGs. There is a need to develop country-specific and industry-specific green accounting norms that reasonably reflect true and fair representations of ecosystem contributions. Valuing ecosystem elements requires in-depth research, as there is no direct evidence available to report, nor is there any party to claim. To fulfil this demanding task, various stakeholders need to come on a common minimum program, which can be built through stakeholder consultation. The research will therefore endeavor to define the scope, relevance and reliability of data collection. It should determine methods of recognition, measurement, valuation and presentation of environmental variables. This in long term will help policy makers to channelize resources, determine rationale tax basis, and foster equitable wealth distribution.
Developing ‘Green Audit Framework’ to ensure greater policy coherence in areas with important cross-border dimensions
In 2015, the United Nations adopted 17 Sustainable Development Goals and 169 targets that all member countries will achieve by 2030 through the collective responsibility of governments, the private sector, civil society and citizens. In line with developing green accounting framework, there must be Green Audit Framework to take the task carry forward. The decentralized institutional framework is important to achieve developmental goals, but frequent unit-level independent audits are more important. The goals and targets interplay with each other and have conflicting interests. The ‘Green Audit Framework’ can help to ensure unit-wide results are in synch with set targets, and will also minimize or mitigate environmental losses due to conflicting interests among targets and units. ‘Green Audit Framework’ proposes a qualitative and quantitative tool on measurable indicators, comprised of economic, environmental and social factors. I will develop the sector specific toolset that is based on a 360 degree feedback system, and allow stakeholders to give their objective assessment and feedback for timely corrective measures. This framework is useful to industry, civil societies and governments, and has a great impact on reducing poverty.
Developing tools to track progress on policy coherence by capturing the links between economic, social and environmental values, as well as the effects of policies on the wellbeing of current and future generations
The journey towards SDGs has been long, and the effective implementation of SDGs warrants coordinated actions from different institutions and stakeholders, as well as a control system that tracks the progress in meaningful unit numbers. Multiple actions with inherent complexities are required to coordinate towards the United Nations’ 169 targets and 17 goals. The outcome of actions must consider links between economic, social and environmental values, as well as the effects of policies on the wellbeing of current and future generations. The biggest research challenge is to identify meaningful indicators, and therefore the stakeholders must work unitedly to develop a governance framework using technology that allows sensitivity analysis. It should develop the simulation protocol that can track progress, which may help policy coherence for multiple targets. This framework may be useful to governments and international agencies.
The concerted efforts begins where IFRS and SDGs ends. Unless the impact of SDGs is not measured with an economic yardstick, only policy announcement will not convince that SDGs can bring wonder. Equally, IFRS if measured in isolation ignoring SDGs will bring no wonder as well. Therefore, aligning SDGs and IFRS is need of the hour.