Professional & Ethical duties

Ethical issues facing the professional accountant Introduction
I am an accountant, trust me! Have you got the guts to say this in public? I think not! Why? Public perception and confidence has been ruined by recent massive accounting scandals around the world: Enron, WorldCom, Ahold, and Parmalat to Shell's overstatement of profits at its Nigerian subsidiary and its oil reserves. Does this mean that accountants have no professional ethics? The answer is yes and no as there is a fine line between being honest and being economical with the truth! So all this comes down to ethics/reputation as we have now moved from a period where it's been 'tell me' to 'prove to me' period. What are ethics? They are a set of moral principles to guide human behaviour. Definition of professional ethics: principles and standards that underlie the responsibilities and conduct of a person in performing their function in a particular field of expertise. A distinguishing mark of the accountancy profession is its acceptance of the responsibility to act in the public interest (social responsibility). Therefore, a professional accountant's responsibility is not exclusively to satisfy the needs of an individual client or employer! In acting in the public interest a professional accountant should observe and comply with the ethical requirements ct these moral principles (codes). They have a duty of care written into what they have to do, and unfortunately no one can assume today that everybody will act responsibly! It is no longer acceptable today to say that I am an accountant, trust me!!!! What we need is a Code. This Code will establish the fundamental principles of professional ethics for professional accountants and provides a conceptual framework for applying those principles. The conceptual framework will provides guidance on fundamental ethical principles. Professional accountants will be required to apply this conceptual framework to identify threats to compliance with the fundamental principles, to evaluate their significance and to apply safeguards to eliminate them or reduce them to an acceptable level such that compliance with the fundamental principles is not compromised. The ACCA has its own Code of Ethics and Conduct which is applicable to all students, associates and members. Code of Ethics Fundamental principles and conceptual framework A professional accountant is required to comply with the following fundamental principles:

(a) Integrity (b) Objectivity (c) Professional competence and Due care (d) Confidentiality (e) Professional behaviour

The principle of professional competence and due care imposes the following obligations on professional accountants: (a) To maintain professional knowledge and skill at the level required to ensure that clients or employers receive competent professional service. Objectivity The principle of objectivity imposes an obligation on all professional accountants not to compromise their professional or business judgment because of bias.Integrity The principle of integrity imposes an obligation on all professional accountants to be straightforward and honest in professional and business relationships. . communications or other information where they believe that the information: (a) Contains a materially false or misleading statement. an accountant should not allow bias. (b) Contains statements or information prepared recklessly. A professional accountant may be exposed to situations that may impair objectivity. returns. legislation and techniques. conflict of interest or undue influence of others to override professional or business judgments. A professional accountant should not be associated with reports. Relationships that bias or unduly influence the professional judgment of the professional accountant should be avoided. Integrity also implies fair dealing and truthfulness. Therefore. A professional accountant should act diligently and in accordance with applicable technical and professional standards when providing professional services. or (c) Omits or obscures information required to be included where such omission or obscurity would be misleading. & {b)-To act diligently in accordance with applicable technical and professional standards when proving professional services. conflict of interest or the undue influence of others. Therefore. Professional competence and due care A professional accountant has a continuing duty to maintain professional knowledge and skill at the level required to ensure that a client or employer receives competent professional service based on current developments in practice. It is impracticable to define and prescribe all such situations. A professional accountant will not be considered to be in breach if the professional accountant provides a modified report in respect of that matter. an accountant should be straightforward and honest in all professional and business relationships.

a professional accountant should make clients. Continuing professional development develops and maintains the capabilities that enable a professional accountant to perform competently within the professional environments. A professional accountant should take all reasonable steps to ensure that staff under the professional . Where appropriate. The maintenance of professional competence requires a continuing awareness and an understanding of relevant technical professional and business developments. employers or other users of the professional services aware of limitations inherent in the services to avoid the misinterpretation of an expression of opinion as an assertion of fact. The professional accountant should be alert to the possibility of inadvertent disclosure. Confidentiality A professional accountant should respect the confidentiality of information acquired as a result of professional and business relationships and should not disclose any such information to third parties without proper and specific authority unless there is a legal or professional right or duty to disclose. & (b) Maintenance of professional competence. particularly in circumstances involving long association with a business associate or a close or immediate family member.Competent professional service requires the exercise of sound judgment in applying professional knowledge and skill in the performance of such service. Diligence encompasses the responsibility to act in accordance with the requirements of an assignment. A professional accountant should take steps to ensure that those working under the professional accountant's authority in a professional capacity have appropriate training and supervision. Professional competence may be divided into two separate phases: (a) Attainment of professional competence. Confidential information acquired as a result of professional and business relationships should not be used for the personal advantage of the professional accountant or third parties. A professional accountant should maintain confidentiality even in a social environment. A professional accountant should also consider the need to maintain confidentiality of information within the firm or employing organization. thoroughly and on a timely basis. The principle of confidentiality imposes an obligation on professional accountants to refrain from: (a) Disclosing outside the firm or employing organization confidential information acquired as a result of professional and business relationships without proper and specific authority or unless there is a legal or professional right or duty to disclose. and (b) Using confidential information acquired as a result of professional and business relationships to their personal advantage or the advantage of third parties. carefully. A professional accountant should also maintain confidentiality of information disclosed by a prospective client or employer.

or (ii) Disclosure to the appropriate public authorities of infringements of the law that come to light. and (c) There is a professional duty or right to disclose. an accountant should comply with relevant laws and regulations and should avoid any action that discredits the profession. or (iv) To comply with technical standards and ethics requirements. for example: (i) Production of documents or other provision of evidence in the course of legal proceedings. or (b) Make disparaging references or unsubstantiated comparisons to the work of others.accountant's control and persons from whom advice and assistance is obtained respect the professional accountant's duty of confidentiality. The need to comply with principle of confidentiality continues even after the end of relationships between a professional accountant and a client or employer. or experience they have gained. the qualifications they possess. when not prohibited by law: (i) To comply with the quality review of a member body or professional body. The professional accountant should not. Professional accountants should be honest and truthful and should not: (a) Make exaggerated claims for the services they are able to offer. In marketing and prom themselves and their work. the professional accountant is entitled to use prior experience. however. (b) Disclosure is required by law. When a professional accountant changes employment or acquires a new client. professional accountants should not bring the profession into disrepute. (iii) To protect the professional interests of a professional accountant in legal proceedings. would conclude negatively affects the good reputation of the profession. use or disclose any confidential information either acquired or received as a result of a professional or business relationship. The following are circumstances where professional accountants are or may be required to disclose confidential information or when such disclosure may be appropriate: (a) Disclosure is permitted by law and is authorized by the client or the employer. having knowledge of all relevant information. Therefore. This includes actions which a reasonable and informed third party. (ii) To respond to an inquiry or investigation by a member body or regulatory body. . The principle of professional behaviour imposes an obligation on professional accountants to comply with relevant laws and regulations and avoid any action that may bring discredit to the profession.

If identified threats are other than clearly insignificant. because of a close relationship. A professional accountant should take qualitative as well as quantitative factors into account when considering the significance of a threat. (d) Familiarity threats. (b) Self-review threats. of circumstances or relationships that may compromise compliance with the fundamental principles.Conceptual Framework for Ethical decision making The circumstances in which professional accountants operate may give rise to specific threats to compliance with the fundamental principles. If a professional accountant cannot implement appropriate safeguards. is. evaluate and address threats to compliance with the fundamental principles. depending on the nature and significance of the matter. therefore. which may occur when a previous judgment needs to be re-evaluated by the professional accountant responsible for that judgment. Threats Compliance with the fundamental principles may potentially be threatened by a broad range of circumstances. a professional accountant becomes too sympathetic to the interests of others. which may occur when. evaluate and respond to threats to compliance with the fundamental principles. may not compromise compliance with the fundamental principles provided. requiring the application of different safeguards. Many threats fall into the following categories: (a) Self-interest threats. A professional accountant has an obligation to evaluate any threats to compliance with the fundamental principles when the professional accountant knows. where appropriate. (c) Advocacy threats which may occur when a professional accountant promotes a position or opinion to the point that subsequent objectivity may be compromised. and . Such an inadvertent violation. once the violation is discovered. the violation is corrected promptly and any necessary safeguards are applied. • • • • • Identify threats Evaluation of threats Course of action Testing decision Communication Identify Threats Identify. in the public interest. or could reasonably be expected to know. rather than merely complies with a set of specific rules which may be arbitrary. such that compliance with the fundamental principles is not compromised. apply safeguards to eliminate the threats or reduce them to an acceptable level. the nature of engagements and work assignments may differ and consequently different threats may exist. This Code provides a framework to assist a professional accountant to identify. or where necessary resign from the client or the employing organization. A professional accountant may inadvertently violate a provision of this Code. a professional accountant should. the professional accountant should decline or discontinue the specific professional service involved. In addition. which may occur as a result of the financial or other interests of a professional accountant or of an immediate or close family member. It is impossible to define every situation that creates such threats and specify the appropriate mitigating action.

• Professional standards. Certain safeguards may increase the likelihood of identifying or deterring unethical behaviour. legislation. the profession or a regulator. include. • Corporate governance regulations. as part of the resolution process: (a) Relevant facts. a professional accountant should consider what a reasonable and informed third party. a professional accountant may be required to resolve a conflict in the application of fundamental principles. well publicised complaints systems operated by the employing organisation. but are not restricted to: • Effective. which may be created by the accounting profession. Evaluation of Threats In evaluating compliance with the fundamental principles. The nature of the safeguards to be applied will vary depending on the circumstances. which may occur when a professional accountant may be deterred from acting objectively by threats. • An explicitly stated duty to report breaches of ethical requirements. and (e) Alternative courses of action. employers and members of the public to draw attention to unprofessional or unethical behaviour . Safeguards created by the profession. but are not restricted to: • Educational. communications or information produced by a professional accountant. In exercising professional judgment. Such safeguards. actual or perceived. having knowledge of all relevant information. regulation or an employing organization. (b) Ethical issues involved.(e) Intimidation threats. would conclude to be unacceptable. • Professional or regulatory monitoring and disciplinary procedures. which enable colleagues. When initiating either a formal or informal conflict resolution process. (c) Fundamental principles related to the matter in question. returns. • External review by a legally empowered third party of the reports. either individually or together with others. Safeguards Safeguards that may eliminate or reduce such threats to an acceptable level fall into two broad categories: (a) Safeguards created by the profession. (d) Established internal procedures. • Continuing professional development requirements. legislation or regulation include. and (b) Safeguards in the work environment. training and experience requirements for entry into the profession. including the significance of the threat and the safeguards applied. legislation or regulation. a professional accountant should consider the following. .

a professional accountant should. such as the board of directors or the audit committee. if any. • • . If. & most importantly. the reporting of which could breach the professional accountant's responsibility to respect confidentiality. a professional accountant should determine the appropriate course of action that is consistent with the fundamental principles identified. in particular. where possible. professional accountants should be satisfied that the parties to whom the communication is addressed are appropriate recipients. when the situation involves unsubstantiated facts. in the circumstances. Communication In deciding whether to disclose confidential information. The professional accountant should also weigh the consequences of each possible course of action. and (c) The type of communication that is expected and to whom it is addressed. the professional accountant should consult with other appropriate persons within the firm or employing organisation for help in obtaining resolution. Consequences of unethical behaviour • • • Prison sentence Fines or repayments of amounts fraudulently taken Prevented from acting as an officer of a public entity in the future Being expelled by the professional accountancy body. it is appropriate to withdraw from the engagement team or specific assignment. to the extent it is practicable. an organisation. professional judgment should be used in determining the type of disclosure to be made. concerning that issue. and thereby obtain guidance on ethical issues without breaching confidentiality. the firm or the employing organisation. refuse to remain associated with the matter creating the conflict. incomplete information or unsubstantiated conclusions. loss of professional reputation.Course of Action Having considered these issues. For example. Testing your decisions If a significant conflict cannot be resolved. the ethical conflict remains unresolved. after exhausting all relevant possibilities. If the matter remains unresolved. a professional accountant may wish to obtain professional advice from the relevant professional body or legal advisors. a professional accountant should also consider consulting with those charged with governance of the organisation. Where a matter involves a conflict with. It may be in the best interests of the professional accountant to document the substance of the issue and details of any discussions held or decisions taken. The professional accountant may determine that. could be harmed if the client or employer consents to the disclosure of information by the professional accountant. The professional accountant should consider obtaining legal advice to determine whether there is a requirement to report. or to resign altogether from the engagement. (b) Whether all the relevant information is known and substantiated. professional accountants should consider the following points: (a) Whether the interests of all parties. or within. including third parties whose interests may be affected. a professional accountant may have encountered a fraud.

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There is no single activity that will form the basis for a CSR strategy. consumers and prospective employees are left guessing when it comes to factoring these matters into their decisions. and the European Union. and just about every observer of corporate governance worldwide. environmental. GRI is a long-term. there is no framework for sustainability reporting as this reporting has always been voluntary. Sustainability Definition of sustainability: the process of conducting business in such a way that it enables an entity to meet its present needs without compromising the ability of future generations to meet their needs. such as the introduction of IFRS for listed entities and other legislation regarding environmental and sustainability issues has highlighted the changing needs of users (stakeholders). and social performance of organisations. that system will ultimately fail. the United Kingdom. procedures. you can never escape? A simple definition is that CSR is about how entities manage the business processes to produce an overall positive impact on society. the voluntary and selective nature of corporate social responsibility (CSR) initiatives leaves onlookers in the dark about how well entities are actually performing overall on such matters. an effective CSR strategy requires a pairing of meaningful stakeholder engagement and an effective internal management system. What does "Corporate Social Responsibility" actually mean? Is it a stalking horse for an anticorporate agenda? Something which. Instead. governments in Denmark. like original sin. targets. increasing calls for improved corporate transparency have emanated from: shareholder advocates in the United States. designed to complement rather than displace financial reporting. At the end of the 1980s just three public listed entities issued environmental reports with their corporate reports! However. France. Without objective disclosure of corporate social and environmental performance. The Global Reporting Initiative (GRI) Sustainability reporting is an integral component of any CSR management system. and monitoring. multi-stakeholder organisation and process whose mission is to develop and . the media. It is also a major impetus for stakeholder engagement. However.Social Reporting • • • • Non-financial reporting Corporate Social responsibility Sustainability Environmental reporting Non-financial reporting: A brave new world of reporting (linking numbers with narrative) The operation of capital markets around the world has changed so fundamentally in recent decades that the current model governing financial reporting has gone past its sale by date! Also. investors. in the past decade. the Netherlands. GRI is the steward of that infrastructure. stock exchanges in Johannesburg and Paris. reporting guidelines that address the non-financial aspects of economic. important developments over recent years. But without a feedback loop. Such a system should include policies. It is in this context that the GRI has emerged as the facilitating force in building a new reporting infrastructure. As well.

Benefits of Sustainability Reporting In a systematic approach to CSR. But CSR is focused on people and issues outside the company as well. The Guidelines are designed to assist reporting organisations and their stakeholders in articulating and understanding contributions of the reporting organisations to sustainable development. April 2002 GRI strives to elevate sustainability reporting to exceptional levels of comparability. ο A management commentary must be included to explain the trends and any unusual events. a company does more than become involved in tree planting and educational programs. most recently revised and released in mid-2002. the financial community. the UN. Business. social and environmental advocates. timeliness. GRI continues to work toward excellence of CSR disclosure. including stakeholder involvement GRI content index: a table as required by Part C of the guidelines and where it is located within the entity's report Performance indicators (KPI): a measure of the reporting organisation's impact or effect integrated between three performance indicators: ο ο Economic Environmental Social. and continual enhancement. rigour. By drawing thousands of partners and hundreds of organisations into its multistakeholder process. United Nations. has enabled GRI to bring concrete expression to corporate responsibility. neutrality. and monitoring performance are parts of an internally driven system. To gain more value. credibility. and verifiability of reported information. a company needs to go beyond internal management and put its CSR performance record out for public scrutiny and discussion. and other stakeholders worldwide collaboratively developed the Guidelines. GRI guidelines A sustainability report should include the following five sections: • Vision and strategy: statement by CE a elaborating on the key elements of the report • • • • Profile: overview of the reporting entity's structure and operations and the scope of the report to enable reader to understand and compare the information Governance structure and management systems: overview of entity's governance structure.disseminate globally applicable Sustainability Reporting Guidelines ("Guidelines"). and to fully appreciate its stakeholders' information needs. . rooted in inclusiveness. maximising the value of reporting for both reporting organisations and users alike. policies and management systems. labour. setting policies and targets. "By offering a new framework for corporate reporting. The GRI process. " Kofi Annan Secretary-General. Articulating a vision. the GRI has a unique contribution to make in fostering transparency and accountability of corporate activities beyond financial matters. transparency.

000 tonnes less carbon dioxide being generated in the UK . and employment decisions. the UK government passed a bill requiring mandatory reporting on an entity's social and environmental performance.A recent KPMG survey (International Survey of Corporate Sustainability Reporting 2002) indicated that businesses typically adopt sustainability reporting to: • Reduce operating costs and improve efficiencies. purchasing. Consequently.g. Develop innovative products and services for access to new markets. users who know that financial results tell only a portion of the story will have access to better information to make better investment. and strengthening the contributions of business to sustainable development. and "good" entities will reap a host of internal and external benefits. Improve reputation and brand value. Gain better access to investor capital. Over the next few years. sustainability reporting will become a fundamental method for measuring. there is no disclosure requirement relating to environmental matters under IFRSs. Reduce liabilities through integrated risk management. recognising liabilities -IAS37). Environmental Reporting Definition: disclosure of information in the corporate report of the effect that the operations of the entity have on the natural environment. Current Practice: Currently. BT purchased 12m litres of fuel a year (2006) less than it would have done. . resulting in 54. Enhance the public value of the company. Correspondingly. In 2006. sustainability reporting will become an essential component of any integrated approach to corporate responsibility. • • • • • • As more entities release sustainability reports based on the Guidelines. Publication format: There are two main formats that entities use to publish their environment reports: (a) included within their published annual report (part of CSR). or (b) as a separate environmental report IASB encourages the presentation of environmental reports if they will assist users in making economic decisions. Recruit and retain excellent people. they are not mandatory! Contents of environmental reports This has evolved and improved over the last decade as entities see the unexpected benefits: improving their reputation with huge cost savings e. disclosing.g. any disclosures tend to be voluntary unless it is captured under standard accounting principles (e. advocacy.

Environmental measures: costs of preventing. provisions and contingencies amount charged to profit or loss (legal or otherwise) environmental expenditure capitalised during the financial year details of any provisions or contingent liabilities relating to environmental matters details of fines. • • • • • Financial information: • • • • • accounting policies relating to environmental costs. penalties and compensation paid during financial year due to noncompliance Financial reporting for environmental costs Definitions Environmental costs: these include environmental measures and environmental losses. IAS37 "Provisions. including any material environmental legal issues details of key indicators (KPls) of environmental performance. closures/decommissioning/clean-up costs.A typical environmental report produced by a "dirty" entity will cover the following issues: • • • • use of energy pollution waste management benefits of entity's products on the environment The contents of a “good” ER should cover the following areas: Non-financial information: • • policy towards environment risks to environment from its operations system for managing environmental risks effect of any government legislation on its operation and entity's response ability to respond to any major environmental disasters and an estimate of economic consequences details of any significant infringement of environmental legislation or regulations. reducing or repairing damage to the environment and cost of conserving resources (capital expenditure. development expenditure and costs of recycling/conserving energy. Environmental losses: Costs with no benefits to the entity. contingent liabilities and contingent assets" provides guidance for dealing with environmental liabilities .

reporting on environmental impact has been patchy.Environmental Reporting: Glossing over the issue Climate change may be a hot topic on a personal level. a situation not helped by confusing legislation. the nation's obsession with climate change has reached an all-time high. NGOs and regulators around how to encourage meaningful exchange with financial markets on nonfinancial issues. Cultural Issues 'Companies' risk management processes tend to be quite internally focused information about their environmental impact is not something many want to share externally. it's the cultural issues that have proved the most challenging to business.' The good news is that most companies now recognise that there are sound business reasons for tackling green reporting head on . A lot of performance measures are still finger in the air and need more rigueur behind them. Rachel Fielding. although advice from various sources is freely available (both DEFRA and the Global Reporting Initiative suggests KPls for environmental reporting). introduced in April 2005.' says KPMG's Tangye. ‘The OFR was very prescriptive. 'If you compare the OFR with the Business Review at a high level. policy and performance measures. an adviser in the risk and sustainability team at KPMG.' One issue facing companies is knowing which key performance indicators to focus their efforts on. Brown's u-turn hinged on the idea that the requirements amounted to regulatory 'gold plating'. but the Business Review allows companies to say what's right for them rather than simply box ticking. In reality.' explains Frances Tangye. Accountancy Age. Just last month the government launched an online calculator that allows you to work out your own carbon footprint and compare yourself to the national average of more than four tonnes. The OFR had been the result of several years of consultation with business. rather than covering everything to avoid being criticised. a lack of standards and widespread ignorance. the requirements for listed companies are not very different. remained. meaningful business reporting on green issues is still pretty much a pipe dream. When in November 2005 Gordon Brown announced that the government would not go ahead with plans to require the 1.300 largest companies in the UK to produce an Operating and Financial Review. 05 Jul2007 On a personal level. even though the requirement to produce a Business Review. published last week. 'It's a big culture change requiring cross-functional communication around risk. For business. investors. though.92% of respondents to a survey by corporate reporting agency Black Sun. proving your green credentials has brought out a whole new competitive streak in today's eco-warriors. green campaigners warned of a sidelining of environmental issues and a step back for environmental reporting. said they felt increased transparency in the narratives of their company reports had improved investors and . but business environmental awareness is lagging far behind. Never mind the tie-dye and home-grown veg. but more than a year and a half on. The good thing is you only put in the risks relevant to your company. despite the emergence of a-whole consulting industry dedicated to helping the corporate world gain a competitive edge and deliver value by responding to the green agenda.

but how do you know it's a full and comprehensive picture when companies can provide the information they choose. 'Legislation is a big stick. NGOs and society as a Whole.' An enhanced version of the Business Review for listed companies comes into force in October this year. For the first time. openness and comparability of data you are looking for. But if the ultimate goal is to make UK business 'greener'. it's still very much a PR exercise. 'If you introduce a lot of regulation.analysts' understanding of the company's strategy and performance. it would be very difficult for them not to produce a social and environmental report. says: 'For a credible multinational company. directors' duties have been codified and include the requirement to report on the impact of the company's operations on the environment. What motivates companies is not wanting to improve their social and environmental performance. believes too much environmental reporting today consists of 'huge tomes with nice pictures'. put a figure for this year and a target for next year. isn't so sure that sticks are the answer. shareholders and employees that will drive the green agenda forward. it stifles the innovation of companies. Setting out minimum standards allows for more interesting narrative reporting. it's a desire to show people they're doing something. There are guidelines on which KPls companies should report on.' Friends of the Earth believes a tougher stance from government is the only way to spur companies into producing meaningful and comparable data. but how to report it is a totally different matter. but two out of five consumers consider it the government's-responsibility. There's a general expectation from shareholders. but ultimately it's customers. while enhancing their reputation in the investment community. even environmental optimists struggle to give anything but a cautious outlook.' Mclndoe says. Trucost's research found that putting together an environmental report isn't as onerous as many companies might think. Neil Mclndoe. Similarly. as part of the 2006 Companies Act. It found that 80% of UK companies would have to report on five or less KPls. Hannah Griffiths. an associate at global environmental consultancy WSP Environmental. But overall. But not everyone remains convinced that their efforts are anything more than greenwash. 'These reports need to be subject to the same standards and rigueur as financial reports. 'If it's clarity. There's no shortage of guidance on what to report. for example. you have got a hard search on your hands: he says. corporates campaigner at Friends of the Earth. head of business development at environmental consultancy Trucost. . No escape Emma Griffiths.' For those companies stalling due to the perceived cost and effort of the process. when they report in such different ways.' Griffiths also criticises a lack of standards for rendering reports almost useless. 'How do you make a comparison between Shell and BP. but little in the way of hard facts and figures. that would be far more useful for shareholders and the financial community. and the government needs to set year-on-year targets to force companies to reduce emissions rather than relying on the market to do what's right. according to a study conducted by Oxford University's Environmental Change Institute.' says Tangye. I don't think companies can get away with greenwash anymore because stakeholders and customers are too interested in these issues. The Act will also make it much easier for shareholders to sue directors for breach of duty. Consumer concern over global warming has increased dramatically over the last six months. 'If they take something like C02 emissions and waste water.

'today's reporting requirements aren't making businesses behave in a more environmentally conscious way: says Griffiths at Friends of the Earth. nothing will change. . 'Until they move beyond a report of the impact to a report on how they’ve addressed their impact.

The new criteria were added to the increasingly influential FTSE4Good Index. which just celebrated its fifth anniversary and provides real-time indices designed to reflect the performance of socially responsible equities and offer investors an independent way of identifying companies with good CSR records. transparency in corporate behaviour is a long way from being a reality. And without performance indicators it is difficult to assess the progress a company is making. But without a statutory standard it is very difficult to make a meaningful comparison between companies. The same cannot be said of social and environmental reporting. most of the main oil companies produce social and environmental reports that include emissions information on their positive initiatives and discussion of some of the thorny environmental campaigns the company is facing. and without auditing requirements. through the Business Review and the Companies Act. For this to happen. the motivation to produce these reports generally stems from a desire by the company to present an environmentally sound image. Yet their reports can easily be spun so that this is downplayed or not properly reflected. FTSE index launches climate change criteria Businesses that fail to develop strategies to limit their greenhouse gas emissions could find it harder to attract investment capital after the FTSE Group last week launched new criteria for its CSR index that will exclude firms that fail to do enough to tackle climate change. an Accounting Standards Board report showed that the contents of the narrative style reports that companies are issuing lack clarity. In January.05 July 2007 Society should be able to hold companies accountable for their social and environmental impacts. For example. there is a danger that reports will just be used to check the legal requirement box or as a PR tool. Financial reporting has been standardised so that shareholders and others can review a company's financial management in a meaningful way. This legislation will force companies that are not already producing reports to begin from this autumn. it is essential that shareholders. .Hannah Griffiths Green Reporting: No where to hide Government must push for standards on Green reporting Accountancy Age. They are not produced because they are vitally important to the company. It's up to government and shareholders to demand meaningful standardised reports from companies. Without them. They also lacked an understanding of the key performance indicators to be included. They can also make a profit from operating in a very destructive way. With a few exceptions. employees. Many failed to reveal any risks associated with supplier relationships.a good and very welcome step won after a hard campaign by the CORE (corporate responsibility) coalition. Companies can make a profit from operating in a sustainable way. communities and pressure groups can access information about company activities. But we need to ask how meaningful these reports will be? In the absence of clear statutory standards for reporting. The government has signaled. that publicly listed companies should produce social and environmental reports .

companies must provide full and transparent disclosure of the actions they are taking to address the risks and opportunities of climate change. Mark Kenber.will be rolled out over the next two years with the first deadline for compliance coming in January 2008. especially energy sectors. In related news. and Allegheny Energy. "One company recently said that it was contacted by 38 different fund managers when they entered the index. Mark Makepeace. The FTSE Group said that of these companies less than 50 would currently meet the criteria and as such it will work with them to ensure they are aware of the changes required. "Clearly a lot of companies will have to work hard to meet these new criteria but we are convinced that their efforts will bring positive impacts. oil and gas giants ExxonMobil and Conoco Phillips. chief executive of FTSE Group said the move highlighted the company's commitment to keeping the criteria governing the FTSE4Good Index Series in line with CSR best practice. energy firms TXU.” he said. must act now to assess and mitigate climate change risks. whose office filed resolutions with electric power and coal companies for them to release their climate change policies. and develop and successfully execute policies for reducing emissions .and extend them to cover other medium impact industries such as consumer electronics and house builders." she said. and investors understand these criteria will make an important contribution to helping companies manage their risks. both economic and environmental. coal companies Massey Energy and Consol Energy. the US-based Ceres group of environmentally sustainable investors this week attempted to drive global warming further up the investment agenda with the publication of a flew Climate Watch list designed to name and shame those firms that fail to respond to shareholder inquiries about their climate change policies. policy director at The Climate Group. The new standards will initially effect just over 250 of the companies on the index which have been identified as having the highest impact on climate change. oil and gas." The latest developments further underline the growing importance of environmental issues to institutional investors and come just days after an ethical investment fund from the Co-op was judged to be the best performing unit trust in the UK last year . Dominion Resources." he said. mining and aerospace firms.The criteria . “To enable investors to make informed investment decisions. and retail firm Bed Bath & Beyond. said that climate change now posed a significant business risk and that investors needed to know what firms were doing to tackle the problem in order to make informed investment decisions. New York City Comptroller William Thompson Jr." he said. insurance firm ACE. according to a spokesperson for the FTSE Group." Inclusion on the index is increasingly highly regarded by investors. which helped with the development of the criteria argued that not only would they help drive climate change concerns further up the business agenda but they could also help deliver business benefits to those firms that comply with the standards. 'We believe incorporating sustainable behaviour into business practice will deliver long term benefits to stakeholders.. "Climate change is an important issue for companies and investors alike. The organisation also said that these criteria were just a "first step" and indicated that it planned to introduce far more stringent criteria . The first ten companies on the list are: banking giant Wells Fargo. such as-energy.which oblige firms to disclose their GHG emissions. "Companies in every industry.such as insisting companies publish a GHG reduction target and develop strategies to limit suppliers' emissions .

The business world knows that sooner rather than later it has to get a grip on the inescapable implications of sustainability. for example. that our knowledge of the complexities of life and the consequences of our actions is now far greater. The Prince of Wales said in a speech at the Institute of Chartered Accountants. have generally been more comfortable dealing with the readily quantifiable. for which future generations will pay dearly. as the New York Times recently pointed out. A hectare of rainforest stores about 500 tons and therefore has a potential value of £5. Accountancy Age. As His Royal Highness put it: 'Your profession is one of the key pillars of our economic stability and prosperity. The project has two main elements: 'embedding sustainability' and 'reporting sustainability'. Accountants. and more importantly of the solution. 05 Jul 2007 One ton of carbon dioxide is presently trading on European markets at about £10. and we have tended to handle the future with reluctance and wearing rubber gloves. are given no value in accounts. Life has become more complicated and as a result there are more effects and consequences that need to be accounted for. Almost all of these costs.' He concluded by saying that unless a practical and robust system can be developed to enable broader and longer-term factors to be taken into account more effectively in accounting and decision making. millions of hectares of rainforest are being cut down to create agricultural land worth £100 a hectare. biodiversity to be diminished and climatic catastrophe to be hastened. but that the accountancy profession has yet to provide a mechanism to allow us to assess and quantify these newly apparent complexities and consequences. Surely. the value of dwindling natural resources. . but to ensure that our descendants can experience something of that stability and prosperity there is a very real urgency to adapt our accounting procedures to the critical challenge of minimising the wasteful damage done to the fragile world around us through man's increasingly short-term perspective. These are the issues that The Prince's Accounting for Sustainability Project. but we have now reached the point when further costs and benefits need to be accounted for. the world will continue to live off capital rather than income. to celebrate its 125th anniversary in 2005. for good reasons. but it has attracted considerable support and has already had sufficient impact for the Institute of Chartered Accountants in England and Wales to make His Royal Highness their first honorary member.000. The project has daunting objectives. and what we enjoy today will be at the expense of our children and grandchildren. But at the moment companies and organisations often lack the internalprocesses which would make sustainability a natural part of strategy and day-to-day management. and all at a loss of £4.has been established to address.900 a hectare? There are no easy answers.Accounting for sustainability: future proof The accounting for sustainability project means the profession can make a real difference Sir Michael Peat. is down to us accountants. Apparently therefore the cost of draining a wetland. destroying a rainforest or pumping tons of carbon into the atmosphere is zero. but I am sure that part of the blame. but. and the cost of increasing atmospheric pollution. should be included in the price of what we buy and consume? At the moment these costs often do not appear in anyone's books. Why are we allowing people to be deprived of their natural habitats.

People and managers are concerned about climate change and sustainability but they lack the tools and information to get on and tackle the challenge.They also often lack the reporting model which would ensure that sustainability takes its place alongside other important information that investors. Governments and large companies have announced ambitious programmes to address climate change and sustainability. . employees and consumers want and need to see. whether managers or consumers. and have established commissions and committees to consider and report on these issues but to help realise these objectives more needs to be done to provide dayto-day decision makers. with the tools and information to take suistainability into account more consistently.