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Australia CPA October Report: In the near future, small and medium-sized enterprises may need to calculate their carbon footprint. Here are the assistance your skills can provide.
Consider this situation: You have a small and medium-sized enterprise customer in the fields of food production, related transportation, and logistics, who is facing unexpected challenges.
They need to start carbon reporting as part of the environmental, social, and governance (ESG) pressure exerted on them by their main customers, large chain supermarkets.
Your client is requesting assistance in understanding the concept of carbon footprint, the steps to measure carbon footprint, and potential solutions to address this new market demand.
Ashley Bleeker, director of Element Advisory, a leader in the field of sustainable development consulting services, said that this situation is a reality faced by many practitioners.
Although Coles Group (Australia's largest retail group) may surprise some with its new target of supplier participation in Scope 3 emissions (indirect emissions occurring on the value chain), Bleeker predicts that carbon accounting will soon become a normal business for large companies and small and medium-sized enterprises.
Bleeker believes that the willingness to provide carbon accounting for small and medium-sized enterprises may quickly mean the difference between retaining customers and transferring to other companies that can help solve ESG problems.
Previously, major market participants such as Coles Group and Amazon have increased their commitment to pursuing net zero goals, which will have a trickle down effect on many of Australia's over 2.5 million small businesses.
Bleeker said, "These companies will seek the help of a startup accountant who has decided to start providing carbon accounting services.
Coles Group hopes to achieve carbon neutrality by 2050. Amazon is committed to achieving net zero carbon by 2040, which means it must encourage businesses in its vast global supply chain to achieve operational decarbonization.
According to research from the Climate Engineering Center, the 23 largest companies in Australia have set long-term net zero emission targets.
This includes BHP Billiton Group, Blackmores, GrainCorp, Origin Energy, Qantas Airways, SEEK, and Orica.
Bleeker said, "These companies and other large enterprises are in a leading position in addressing carbon emissions from suppliers.
Carbon reporting legislation is about to be introduced
Although corporate carbon reporting is currently not regulated, the government hopes to introduce mandatory climate related reporting obligations for the largest companies and financial institutions starting from July 2024, except for companies exceeding the annual emission threshold of 500000 tons of carbon dioxide equivalent (thousand tons of carbon dioxide equivalent).
According to the latest consultation document from the Ministry of Finance, Bleeker stated that regulations affecting corporate business are likely to be introduced in the next fiscal year, followed by regulations targeting small and medium-sized enterprises.
These measures aim to help Australia achieve its national contribution under the Paris Agreement, including reducing emissions by 43% from 2005 levels by 2030 and achieving net zero carbon dioxide emissions by 2050.
Bleeker stated that regardless of legislation or not, consumer sentiment is shifting towards companies that take ESG seriously, and companies have been looking for partners in their supply chains to provide data on the impact of their products and services on greenhouse gases.
He said, "Purchasing preferences are changing, and small and medium-sized enterprises that do not recognize and adapt to these preferences will lose customers.
In Australia, data shows that small and medium-sized enterprises play an important role in reducing carbon emissions. Currently, their annual emissions are approximately 146.5 million tons.
By industry, the construction industry (76%) has the highest emissions, followed by the retail industry (11.9%), professional services industry (6.7%), and accommodation and hotel industry (5.7%).
Use your existing skills
Just as accounting standards are formalized, so are sustainable development standards. Bleeker pointed out, "Carbon emission reports are very similar to financial performance reports.
You need to prepare information to high standards based on principles such as relevance, completeness, consistency, transparency, and accuracy.
Accountants already have this set of skills, they only need to apply it to different topics. For carbon accounting, the steps include establishing inventory boundaries, determining greenhouse gas emission sources, collecting activity data, and applying emission coefficients (mainly generated by government departments/organizations).
ESG measurement, reporting, and assurance is just one of the e-learning modules provided by the Australian Institute of Certified Public Accountants, aimed at helping accountants start reporting on the ESG impact of their business and small and medium-sized enterprise clients.
Bleeker reiterated that carbon accounting is a growth opportunity for accountants who face the risk of 'significant customer leakage' if they continue to bury their heads in the sand.
At the same time, he believes that the continuous pressure from large and small companies in ESG is already changing the way small and medium-sized enterprises operate.
We are moving towards a dual speed economy, with some companies making significant and meaningful commitments in this area (for reasons other than compliance), while others are just beginning to stick their heads out of the railing
The Impact of Blockchain on Audit and Assurance
On November 7th, the International Accounting Bulletin reported that the Big Four have been gradually integrating blockchain technology into their services, but progress has been somewhat slow.
Since 2017, people have been discussing how blockchain can benefit auditing and assurance processes by accelerating methods, improving transparency, and validating transactions. At the same time, with the increasing use and circulation of cryptocurrencies, there is also a demand for auditing the blockchain environment, and companies such as Deloitte have been working hard to promote this demand.
A report by McKinsey&Company estimates that by 2027, "10% of global GDP may be related to blockchain transactions," indicating an urgent need for accounting firms to become familiar with the blockchain environment and utilize this technology. Although blockchain technology can significantly accelerate the audit process, it has inherent immutability and transparency characteristics, which have revolutionary significance for authentication.
How relevant is blockchain?
As a digital distributed ledger, blockchain has the potential to generate more trust and transparency in accounting practices, as it can resist modifications and validate transactions faster than traditional accounting practices.
ICAEW's report on the future of this technology and accounting states that "the name blockchain essentially describes the way this technology works - through a complex encryption process, new transactions are collected into a block and added to the chain of all previous transactions, but it is easy to confirm that the history of all transactions is true“
It is crucial that it is a shared digital transaction record, which means that all parties have equal access to the same record. The invariance of blockchain is very helpful for auditing as it reduces the risk of fraudulent transactions and human error.