Topic 9 - SOCIAL & ENVIRONMENTAL REPORTING

Question 1

which industries have the best Corporate Responsibility reporting?

Answer 1

mining and utilities

Question 2

What are 6 examples of assurance and other forms of involvement by accounting, in regards to environmental reporting?

Answer 2

– Sustainability assurance
– Climate change and carbon advisory
– Enterprise risk management
– emission trading carbon market services
– Sustainability performance improvement
– Sustainability strategic advisory services

Question 3

What is the emissions trading scheme and what does it aim to do?

Answer 3

• movement towards adoption of ‘market based’ schemes to control greenhouse emissions
• A limit or ‘cap’ is set on level of emissions over a defined period (e.g., a year)

Question 4

when participants receive emission allowances what can they do with them?

Answer 4

• use amount assignment or bought

- can buy or sell allowances

Question 5

What happens if an entity uses more than it’s emission allowance?

Answer 5

A participant may need to purchase more allowances

Question 6

What happens if an entity does not use all of it’s emission allowance?

Answer 6

may lapse or surplus may be banked to be used for future periods

Question 7

what is the main accounting issue with emissions trading allowances?

Answer 7

Lack of clear guidance on how polluters, governments, financial intermediaries should account for their rights/obligations under these schemes

Question 8

are emissions trading allowances an asset?

Answer 8

-Future economic benefits expected to flow to the entity
• Can the entity use it to settle emission liability or can it sell the allowance?

– Resource controlled by entity as a result of past transaction/event
• Rights established by purchase or grant of emission trading allowance

Question 9

What 4 types of asset could emissions trading allowances possibly be classified as?

Answer 9

• Inventory?
• Financial instrument
• Currency?
• Intangible asset

Question 10

do Emissions Liabilities meet the framework definition? explain

Answer 10

YES
Present obligation arising from past event/transaction:
Obligation to deliver allowances arises from CO2 emissions

Settlement is expected to result in an outflow of resources
The entity is required to deliver emission allowances to ‘pay’ for the emissions

Question 11

What does IFRIC argue for Emissions Liabilities?

Answer 11

IFRIC
- no obligation until ‘obligating event’ occurs. Obligating event is the production of emissions
– Entity could avoid obligation by stopping emissions

Must show gross EA asset and Emissions Liability, no offsetting in the balance sheet

Question 12

What are two alternative views for emission assets?

Answer 12

EA as a right to emit, alternative treatments include:
• an asset that is consumed in the production process, recognise and amortise

OR

• Recognise EA asset and recognise and offset obligation to deliver emissions, with only the net surplus or deficit is presented as an asset or liability

Question 13

What is the correct way to recognise an emission allowance? what is the initial recognition?

Answer 13

as an intangible asset

at fair value

Question 14

when recognised in the books as an Emissions asset, what is the debit/credit entry? when it is used?

Answer 14

deferred income liability

dr deferred income
cr income

Question 15

how is emission liability measured and recorded?

Answer 15

Measured as the best estimate of the expenditure required to settle the obligation, which is usually the current market price of allowances

dr emission expense
cr emission liability

Question 16

if EA and EL don’t match how can this be adjusted?

Answer 16

by changing value of EA and posting to Revaluation gain or loss

Question 17

What is Social and Environmental Reporting?

Answer 17

communicating the social and environmental effects of organisations’ economic actions to particular interest groups

Question 18

what is Triple bottom line (TBL) reporting?

Answer 18

reporting on the economic, social and environmental dimensions of the entity’s operations.

Question 19

what does Sustainability in this topic mean?

Answer 19

refers to sustenance of the natural ecology and the justice and equity; environmental protection

Question 20

what does Sustainable development mean?

Answer 20

meeting the needs of a firm’s direct and indirect stakeholders without compromising its ability to meet the needs of future stakeholders as well

Question 21

at what three levels can Social & Environmental Reporting be applied?

Answer 21

• product level
• entity level
• national level (impact an industry has on a country)

Question 22

list three reasons for Interest in Social and Environmental Reporting?

Answer 22

• understand organisation and how it uses resources
• Constrain entities from acting socially irresponsibly
• motivation for corporation to act with social responsibility

Question 23

list 5 Motivations for Social and Environmental Reporting

Answer 23

increased:
- corporate competitive interests (Benchmarking, competitive advantage, signaling lower risk)
- stakeholder pressure (attract/retain employees, social impact, ethical investment)
- community concern,
- political intervention (carbon tax)
- legitimacy concerns (meeting society’s expectations )

Question 24

What increases legitimacy concerns of an entity? 3

Answer 24

size of the organisation
amount of social and political support it receives
the more visible firms

Question 25

t2 how is legitimacy of a firm achieved?

Answer 25

• communicate compliance with expectation
• correctly represent themselves as legitimate
• influence society’s expectations
• make society think they are legitimate without actually changing

Question 26

t2The entry to record the receipt of the ETAs on 1 July 20X5 includes a credit to:
(A) Unearned income liability
(B) Other comprehensive income
(C) Income (profit/loss)
(D) No entry is required

Answer 26

(A) Unearned income liability