| You’re out for a morning walk and all you hear is the low, grumbling hum – or even worse, dark billowing fumes – from the never ending litany of generators. You come home, switch on the television (assume you have power to turn it on), and all you hear about is the war in Ukraine or another equally bad conflict or humanitarian crisis. You’re reading the news and the US is again reached its debt ceiling which threatens to derail the US economy and everyone associated with it.
With the world seemingly in crisis at every turn, it is easy to feel despondent. How can any individual’s contribution make things better? Setting all humanitarian and social efforts aside, accountants have a clear role and responsibility to shed light on how these crises affect our way of life. If it is clear to decision-makers the effect of their decisions , at a fundamental level, maybe we can start making a change.
I start with the US Debt Ceiling. This is “the total amount of money that the United States government is authorised to borrow to meet its existing legal obligations, including Social Security and Medicare benefits, military salaries, interest on the national debt, tax refunds, and other payments.To increase the debt ceiling, Congress needs to approve a revised limit. In January 2023 the debt ceiling was again reached, and as you can imagine, finding a political meeting of the minds was improbable. The solution was to suspend payments to various state retirement and health care funds. This is something that has happened on multiple occasions in the last 28 years according to FAQs on the US Treasury’s website.
While there are all sorts of governance measures that could have avoided this situation, what is important is that people get to know about suspended funding to critical, significant government obligations and the prolonged financial effects. The role of accounting is particularly important in these scenarios. Applying accrual accounting means that the full extent of government’s obligations is reflected on the financial statements, as well as when they are due and what interest and/or penalties are accrued. Rescheduling or suspending payment of government’s obligations would affect both the value of the debt on the balance sheet, but also the information disclosed in the notes to the financial statements. Relevant, credible, timely reporting will aid decision-makers to better understand the consequences of their decisions and take corrective action. In our South African environment, while some entities do apply accrual accounting, we should be advocating for the full adoption of accrual accounting across all of government’s entities to ensure decisions like these are fully and transparently reported.
Moving onto the electricity crisis. By now, the financial position of Eskom is fairly well known. What is a new and developing area is assessing the impact of risks on entities’ operations and society. “Sustainability reporting” is being considered by, among others, the International Sustainability Standards Board (ISSB) and could focus on areas such as reporting on climate and social issues. Most of this information will be reported outside the financial statements. Reviewing the financial statements, with this other information, is useful to assess not only the financial position of entities, but their sustainability and their impact on the sustainability of society.
Using Eskom as an example, sustainability reporting could measure the impact of the electricity crisis on Eskom as an entity, and the impact on the environment and its social effects. As Eskom uses more fossil fuels to run power stations, this results in more carbon emissions which have a detrimental impact on the environment. A knock on effect is that many consumers are themselves using fossil fuels to keep the lights on by using generators. People’s way of life is also severely impacted by, for example, not having water and sanitation as pumps at reservoirs and sewerage plants cannot operate. While Eskom’s sustainability report may not include all of these effects, there will likely be more comprehensive, well considered information available to assess risks and how they are being managed.
While sustainability reporting may require experts in other disciplines to develop strategies, plans and metrics, etc., accountants are experts in analysing information and reporting it in a way that responds to readers’ needs. Accounting as a discipline and accountants as professionals will be critical to the success of sustainability reporting.
It is no accident that the term “accounting” includes the word “account”. By its very nature, accounting is the process of assimilating information in a way that enables scrutiny to hold others accountable. In the tumultuous world we find ourselves, it is important to think beyond the debits and credits themselves, to what they represent in a broader economic and societal landscape. It is also important to understand that “accounting” is not limited to numbers in financial statements.
As we start the new year, it is an opportunity to think about how our seemingly small acts as accountants can contribute to the greater good. [1] US Department of the National Treasury | 