Management Accounting Evolution With

Integrated Thinking &Sustainability Reporting

A.N.RamanMember ICAI

Member Advisory GroupNVG on BRR

Structure of the ContentContext Setting

OfThe Global and India

Evolution of Responsible

Business Reporting

Building Blocks of

the Integrated Thinking

and Reporting

driving shifts in the Managemen

t Accounting.

Responses which have started in

the Cost and Management Accounting

at two levels:

• Framework •Professiona

l

The Global and India Evolution of Responsible Business Reporting

Context Setting

DifferentiatingSustainable Development

and Sustainability

•Former is the concern of the Governments.

•Later one is the business entity level perspective

• 20 years ago no-one reported on sustainability or CSR, and now:– Most of FTSE and S&P 100 companies issue a

separate report

– Over 3000 companies produced such reports in 2008

– G250 companies: 197 of 250 produced such reports, rising to 207 for those with an integrated approach.

Sustainability Reporting: A Positive Lens

• Of the 46,000 listed companies, few with any form of sustainability reporting & disclosure

• Specific challenges include:

– While volume up, analysis weak;

– Data consistency is poor;

– Timing is behind main report;

– Engaging professional accountants.

Sustainability Reporting: A Negative Lens

• GRI well established but a number of initiatives to improve integrated reporting:– 2009 King Code on Governance for SA

– Carbon Disclosure Standards Board Reporting Framework

– A4S Connected Reporting Framework

• IASB ED on Management Commentary

Specific Developments to Improve Integration

A4S

• Created by HRH The Prince of Wales in 2004

Why?

• To raise awareness of sustainability within organisations and, especially, among financial professionals

• To embed sustainability into the “DNA” of organisations• To help to improve reporting of sustainability to

stakeholders

ICAI is a member of the ABN network of A4S.

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“To create a globally accepted Integrated Reporting framework which brings together financial,

environmental, social and governance information in a clear, concise, consistent and comparable format. The aim is to help with the

development of more comprehensive and comprehensible

information about organizations, prospective as well as

retrospective, to support transition to a more sustainable global

economy.”

Why the IIRC Was Established

The evolution of Reporting…

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…Integrated Reporting – the Future

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Some Highlights on the NV Guidelines on Responsible Business Reporting

Uniquely Indian --- considers and factors in the critical challenges in India.

Takes into account the best practices from around the world- ISO 26000, etc.

Has been drafted after 12000 man hours of work with experts.

Extensive stakeholder interaction and discussions reveal wide acceptance.

A good starting point to move from a charity orientation to Responsible business and a level playing field for all.

Change Drivers - driving shifts in the Management Accounting.

Page 14 | Confidential and Proprietary Information

... and tomorrowCOMPONENTS OF THE PARADIGM SHIFT

Thinking: Isolated Integrated

Stewardship: Financial capital All forms of capital

Focus: Past, financial Past and future, connected, strategic

Timeframe: Short term Short, medium and long term

Trust: Narrow disclosures Greater transparency

Adaptive: Rule bound Responsive to individual circumstances

Concise: Long and complex Concise and material

Technology enabled: Paper based Technology enabled

Central themesBusiness model & value creation

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Six Capitals and Their MeasurementFinancial Capital Debt, Equity, Grants, etc.

Manufactured Capital Physical Objects such as buildings, roads, ports, etc

Human Capital People skills, experience, capacity, etc.

Intellectual Capital Intellectual property like patents, copyrights, etc.

Natural Capital Water, Land, Minerals, Forests, etc.

Social Capital Community and the related institutions.

Stock and Flow of these capitals need measurement and reporting.

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The Building Blocks

Responses from the Cost and Management Accounting at two levels: Framework Professional

Frameworks for Measuring Stock and Flow

Six Capitals FA Framework Support

CMA Framework Support

Financial Capital IAS/IFRS Cost Accounting GACAP

Manufactured Capital

IAS/IFRS Cost Accounting GACAP

Human Capital ? CMA Guidelines

Intellectual Capital ? CMA Guidelines

Natural Capital ? CMA Guidelines

Social Capital ? CMA Guidelines

THE GUIDELINES ARE UNDER EVOLUTION GLOBALLY

Frameworks for Measuring Stock and FlowSix Capitals STANDARDS CMA TOOLS

Financial Capital GACAP

Manufactured Capital

GACAP Modified Capital Budgeting

Human Capital Human Value Accounting

Intellectual Capital ?

Natural Capital ISO 14051 Environment Management Accounting, True Cost Accounting Models, Real Options.

Social Capital Whole Life Costing

CMA Framework Mapped with NVGCMA Standards/Tools

NVG Principle

Basic Content

Cost Accounting GACAP

NVG Principles 4 and 6.

Responsible use of resources on product safeguarding shareholders and environment.

CAS on Pollution NVG Principle 6

Resources spent on environment.

CAS on Materials NVG Principle 6

Resources spent on environment.

Target Costing NVG Principles 8 and 9

Providing value to customer. Inclusive growth at all price points.

Modified Capital Budgeting

NVG Principle 2

Test for life cycle sustainability.

Whole Life Costing NVG Principle 2

Test for life cycle sustainability.

CMA Role -- Leadership & Business StrategyDefining Sustainability and the Business Case

Establish a business case and financial impact for sustainability action and specific projects

Vision, Leadership, and Commitment

Create a vision and supporting organizational culture that embraces sustainability and sustainable value creationEstablish a systematic and planned approach to stakeholder engagement.

Connecting Sustainability to Strategy

Develop a strategic approach to sustainability including a range of competitive strategies to embrace risk and opportunity.

Effective Risk and Management Control

Integrate sustainability issues into an adaptive risk management approach that helps the interpretation of opportunities, risk factors, and causation.

CMA Role -- Management, Operations & AccountingMinimizing Waste and Energy Efficiency

Identify opportunities for minimizing waste and energy efficiencies and implementing new processesEstablish a carbon footprint for an organization.

Generating Information and Analysis to Support Decisions

Provide environmental and social performance information to support management and operational decisionsIncorporate sustainability factors into financial processes, such as business planning, budgeting .

Reducing the Sustainability Impact of Products and Services

Support the design and delivery of products and services that are aligned with sustainability goalsMeasure innovation and R&D investment in relation to sustainability.

Engagement of Suppliers Collaborate closely with suppliers to improve sustainability performance and procurementIdentify the opportunities associated with sustainable procurement .

CMA Role -- Reporting and DisclosureDeveloping a Business Reporting Strategy and Approach

Connect report content to stakeholder engagement and materialityDetermine the range of users and their needs for various types of reports and disclosures.

Including Sustainability Impacts into Financial Reporting

Incorporate sustainability factors into financial statements so to highlight environmental and social impacts on assets, liabilities, income, and expenditure to enable users to make more well-informed decisions.

Integrating Sustainability Factors into Business Reporting

Understand and reconcile approaches to applying materiality to various reports including sustainability and integrated reportingUse narrative reporting to provide greater transparency on business performance and to ensure that sustainability-related disclosures are useful to investors

Assuring Sustainability Disclosures

Establish an approach to external assurance that adds credibility to an organization's reporting and provides internal benefits, such as helping to improve underlying reporting processes

CMA – As an External Assurance Provider on Sustainability ReportNo legal mandate as of now for any particular

profession to provide the external assurance on sustainability or responsibility reports.

Right time to build competitive advantage by building capacities on sustainability assurance.

ISAE 3000 and AA1000 series can be used in combination to assure a sustainability report.

India has the USP of resting the process on CASB issued only by our institute and NVGs offer the ambience.

Core Competency map of CMA Canada is inclusive of sustainability explicitly.