ACC320 Contemporary Issues in Accounting

Answer:

Introduction

The negative effects of climate change and the increasing carbon footprints has diverted the attentions of companies as well as people towards the measurement of this carbon footprint and taking measures accordingly to reduce it. Because of this the concept of carbon accounting has gained momentum and a lot of research is being undertaken towards the development of its theoretical framework. In simple words, carbon accounting can be understood as measuring and monitoring as well as reporting the Greenhouse Gas Emissions (GHG) of an organization and to present it in a fixed reporting period. This is a major issue as the emissions released from the organizations are in huge amount and is responsible for climate change to a great extent (Stechemesser & Guenther, 2012). Hence, this issue is of great relevance and therefore, I have selected this topic for my research.

Practical motivation

This issue is of great importance to organizations, accountants, as well as to the general public. This is so because the knowledge about the carbon footprint will help the decision makers to take decisions accordingly which are directed towards reducing the GHG emissions and protecting the environment. The customers of the organizations are the main stakeholders of the company and, it has been seen that there is an increase in the concern of general public towards the environment. Hence, this puts a lot of pressure on the management as well as the administration of the organization to reflect their contribution towards saving the environment by reducing their carbon footprints through their activities (Schaltegger & Csutora, 2012). Hence, it has become very important to drag the attention of the decision makers towards this accounting issue.

Theoretical motivation

This research will contribute in the carbon accounting literature and will be of use to accountants, students, organizations, management accountants, scientists, etc. this research will focus on the gap in the research related to the methods and techniques used in carbon accounting as well as the auditing of carbon accounting which is very limited in the present researches. This research will also reflect the relationship shared between the carbon accounting activity and its impact on organizations performance and on the CSR activities of the company. This research includes secondary data collection method in order to collect information on the research topic.

Literature review

The following paper has critically analyzed the theoretical framework related to carbon accounting in previous studies and researches. This literature will help in analyzing the different reasons and techniques used by organizations towards carbon accounting. The literature will help in providing a holistic framework including the other interrelated factors attached to carbon accounting like corporate social responsibility and organizational performance. This theoretical framework will help in analyzing the carbon accounting in an effective manner and how this can be undertaken by the organization effortlessly.

Many organizations are disclosing their greenhouse gas emissions in their annual reports because of the increasing concern towards the climate change and the organizations contribution towards this. The organizations are disclosing these details as it is directly or indirectly related to the organizational performance as well as the corporate social responsibility (CSR) of the organization. Many researches have been conducted in order to analyze the relationship being shared between the carbon accounting and organizational performance and CSR activities of the company. According to Samuel and David (2017), it has been found out that the organizations disclose their carbon emissions either in response to their financial incentives or because of the social pressure or due to regulatory compliances towards the environment. This is the main driving factor because of which the organizations are taking efforts towards improving their environmental performances. This also adds value towards the CSR activities of the company. It has been proved that a positive link is their between the carbon accounting and the organization performance. In this research it has been mentioned that though carbon reporting is a non financial reporting still it has the ability to facilitate the organizational performance (Tang & Demeritt, 2017). Hence, carbon accounting is a major issue in front of the management accountants and hence, it becomes very necessary to tackle this in a strategic manner.

According to Adriana (2017), carbon accounting forms a very important part of the CSR strategy of the company. This is so because the companies aim towards reducing their carbon emissions in order to reflect a positive and encouraging CSR report at the end of the year. Many stakeholders of the organization largely depend on the CSR report of the firm to take decisions regarding the organization and their future plans and contributions towards the organization (Galanta & Cadez, 2017). While accounting for carbon footprints the organization reflects their carbon reduction practices and strategies and the success that they have achieved by reducing their emissions. This helps the other organizations to learn and improve also this provides a competitive edge to the organizations in the market (Cadez & Czerny, 2016). Though, it has been argued by Jongmin (2017), that on the basis of the research conducted by him no positive relationship is shown between the efforts towards greenhouse gas emissions and the CSR index of the Korean companies. The research has reflected that an increase in the GHG emissions has not impacted the Korean companies CSR index. This reveals that social contributions other than reduction in GHG emissions play a major role in CSR index despite of the fact that, an actual environmental influence is seen because of the reduced GHG emissions from the companies. Hence, it can be said that carbon accounting is still being underestimated by many companies despite of its environmental importance (Yu & Lee, 2017).

Maria and Gabor (2018), has revealed that carbon accounting is an emerging field in the economics of business. It revolves around activities like calculating, measuring as well as reporting the carbon footprints of the company. Carbon accounting also extends to include the auditing of GHG emissions at the organizational level as well as at the process and supply chain level. The author has included that in carbon accounting the two best methods adopted by organizations include Greenhouse Gas Protocol as well as the Carbon Disclosure Project. With the help of these initiatives the organization is able to account for their carbon footprints as well as in reporting their achievements in this field. The author has also discussed about the methodologies that are used by the organization in carbon accounting. These methodologies include bottom-up method, top-down method, and the hybrid method. With the help of these methodologies the organizations are able to quantify their carbon emissions. The author has also emphasized on the need to integrate the carbon accounting issue with different areas of business in order to achieve the corporate as well as the climate goals and objectives of the organization (Csutora & Harangozo, 2018). Carbon accounting framework is related to different dimensions of the organization and helps in knowing the relationship being developed in the financial and non financial matters and how it impacts the success and performance of the organization. Carbon emission related issue is computed through carbon accounting and this information is used by the carbon management team in order to take further decisions (Tang, 2018).

Francisco (2014) has said that carbon reporting has many different faces and aspects that can be studied from the point of view of philosophy, discussion, science, etc. The study of carbon accounting helps in the addition towards the social and environmental accounting literature. And hence, will be of great importance for future researchers to learn about this issue and to contribute their work in order to fill any gap. This research will be of great importance to new researchers for developing interdisciplinary cooperation as well as for facilitating mutual learning. This research will add to the social and environmental literature (Ascui, 2014).

Hypotheses

• H0: There is a direct impact of carbon accounting on organizational performance
• H1: There is a relationship between carbon accounting and companies CSR activities

Conclusion

The research has largely focused on carbon accounting and it’s important in today’s world. The reasons behind the rise in this concept and the importance of carbon accounting have been discussed in this research. On the basis of the literature review conducted it can be said that there is a direct relationship between carbon accounting and organizations performance as well as the CSR activities adopted by the company. On the basis of the research it has been found out that not much has been discussed about carbon accounting and its impact on the financial performance of the organization. Hence, this research leaves a scope for future research that will focus on filling the gap by analyzing the carbon accounting and its impact on the financial performance of the company.

References

Ascui, F., 2014. A Review of Carbon Accounting in the Social and Environmental Accounting Literature: What Can it Contribute to the Debate?. Social and Environmental Accountability Journal, 34(1), pp. 6-28.

Cadez, S. & Czerny, A., 2016. Climate change mitigation strategies in carbon-intensive firms. Journal of Cleaner Production, Volume 112, pp. 4132-4143.

Csutora, M. & Harangozo, G., 2018. Twenty years of carbon accounting and auditing – A review and outlook. [Online]
Available at: https://unipub.lib.uni-corvinus.hu/3415/1/01_Csutora_Harangozo.pdf
[Accessed 2018].

Galanta, A. & Cadez, S., 2017. Corporate social responsibility and financial performance relationship: a review of measurement approaches. Economic Research, 30(1), p. 676–693.

Schaltegger, S. & Csutora, M., 2012. Carbon accounting for sustainability and management. Status quo and challenges. Journal of Cleaner Production, Volume 36, pp. 1-16.

Stechemesser, K. & Guenther, E., 2012. Carbon accounting: a systematic literature review. Journal of Cleaner Production, Volume 36, pp. 17-38.

Tang, Q., 2018. The Role of Carbon Accounting in Corporate Carbon, Penrith: Western Sydney University .

Tang, S. & Demeritt, D., 2017. Climate Change and Mandatory Carbon Reporting: Impacts on Business Process and Performance. Business Strategy and the Environment, 27(4).

Yu, J. & Lee, S., 2017. The Impact of Greenhouse Gas Emissions on. Sustainability, Volume 9, pp. 1-15.