It's the sort of day when blogging cannot be high on my agenda. That's because today and tomorrow see the launch meeting of the Time Mirror research project at Copenhagen Business School, in which I am a participant.
In the research application we said of this project:
TIME MIRROR's research objective is to change how Danish firms account for time by empowering accounting agents to develop new green reporting standards and technologies that reflect the longer-term objective of carbon neutrality. Drawing on mixed methods (including social network analysis, sequence analysis, interviews, case studies and document analysis), TIME MIRROR responds to the research question: what accounting agents and technologies are needed to encourage Danish firms to achieve carbon neutrality? TIME MIRROR will map expert pathways to understand processes of standard-setting and rule formation and identify stakeholders, so that we might identify agents supportive of new green accounting standards. The project further aims to develop a new company accounting standard – Sustainable Cost Accounting (SCA) – and supportive technologies developed as a mirror-image to current accounting practice and designed to bring the costs of removing carbon externalities into the present.
As the creator of sustainable cost accounting I am obviously delighted to see this significant academic research backing for the idea. I will be presenting on sustainable cost accounting today.
The Time Mirror concept looks at a number of dimensions to the idea, as is apparent, and will include case studies on feasibility.
At a theoretical level (which is where I will be starting my own input, which will continue for four years) the focus is on the need to reverse the normal idea that a cost deferred is a cost saved because of the use of fair value discounting within International Financial Reporting Standards. We suggest that the exact opposite is true in the case of climate accounting. What is required is upfront accounting by provisioning for costs, and because the costs of tackling climate change increase if not tackled early we are looking at accounting without discounting, because the costs of transition need to be incurred as soon as possible.
If my focus is elsewhere today and tomorrow this is why, but I will be calling in here whenever I can.
And for those worried about the green footprint of the project, I am attending virtually.
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Let’s hope that this grows into something big.
I’m tired of these idiots who over-simplify things in order to avoid being accountable.
I hope one of the other people at the launch asks the Sowell question: “Compared to what?”
There are two simpler and more obvious alternatives to restrain and even reduce emissions:
1. The best practice accounts of a major company that is already out there.
2. A CO2 tax which incorporates prices into the accounts
If there are a number of runners in a field you have to be able to show that you at least might be the best.
Until we have tried the research how will we know?
Are you suggesting we should be clairvoyant?
And how do your two proposals work anyway?
Richard,
Can you please explain the difference between your Sustainable Cost Accounting and the already existing Environmental Full Cost Accounting?
Might you read my paper?
I have, which is why I asked you the question.
SCA seems to be little more than a highly simplified version of EFCA focusing solely on emissions.
SCA offers nothing new.
Hence I was asking if you could explain the difference between them.
I also note your answer to Son Lee Hurst above, where you say “until we have tried the research….”
The manner you refer to SCA in your post suggests that you have already reached your conclusions, at which point either the research is irrelevant or will be led to produce the answer you are looking for – and have already provided. So what is the point of the research in the first place?
There is a great deal about which research is still needed – including what a standard might look like
If you have read my proposal you would know it very different to EFCA which does not in any way relate to accounting for the cost of the elimination of carbon
Well, that’s Son Lee Hurst and Nick sorted out!
Next smirking naysayer or jealous person up please!
And as for Son Lee – do you really believe that we exist in a world where the BEST ideas dominate?
Really? Ouch!
Well, it’s your life mate.
I’m not sure Richard did answer the questions in a meaningful way
I am not sure to what question you are referring
If you offset contingent liabilities against profits it will save companies a lot of tax.
But wouldn’t it be better to account for the contingent investments required to offset
the costs of limiting emissions.
It would focus the companies the companies mind on the specific measures needed rather than on a more vague provisioning process which inevitable distorted by affordability concerns.
Contingencies are not tax deductible
“Contingent liabilities are not tax allowable”
They are if they meet the requirements of FRS 102, section 21.
You would be asking companies to commit to spending money and to provide a reliable estimate of the costs, which means that the contingent liability would meet the requirements.
Indeed as long ago as 1999 HMRC indicated that they would treat any provision required by FRS 12 as being allowed for tax purposes provided it did not contravene any statutory rule.
I would have thought an accountant would know this.
A contingent liability is not deducted in the accounts
That is why it is contingent
As an accountant I know that
And I am arguing this reserve does not go through the income statement
You have not noticed that
“A contingent liability is not deducted in the accounts
That is why it is contingent
As an accountant I know that”
Of course contingent liabilities can be deducted in accounts. Contingent liabilities were included and claimed as tax deductions in (leading cases only) Owen v Southern Railway of Peru Ltd, Herbert Smith v Honour (HMIT) and Johnston (HMIT) v Britannia Airways Ltd and the courts decided the deductions were allowable. FRS 102 deals specifically with when such contingent liabilities can properly be claimed and as mentioned HMRC themselves announced that they accepted that they would treat any provision required by FRS 102 as being allowed for tax purposes.
I suppose the accountants who prepared the accounts in the above cases, the accountancy profession which wrote FRS 102, HMRC and the courts are all wrong.
Those were estimated provisions on balance sheet that been charged through the income statement
They were not contingent liabilities or reserves charged straight to reserves through their own statement
You also seem unaware that most contingent liabilities are not in the balance sheet at all – that is the way to identify them to date
You are quite simply wrong
And yes, I know the cases
If you offset contingent liabilities against profits it will save companies a lot of tax.
But wouldn’t it be better to account for the contingent investments required to offset
the costs of limiting emissions.
It would focus the companies the companies mind on the specific measures needed rather than on a more vague provisioning process which is inevitably distorted by affordability concerns.
Contingent liabilities are not tax allowable