Question

How Managerial Accounting helps firms in their sustainability goal? (1000 word essay)

Answer 1

Managerial accounting is the practice of identifying, measuring, analyzing, interpreting, and communicating financial information to managers for the pursuit of an organization's goals. It varies from financial accounting because the intended purpose of managerial accounting is to assist users internal to the company in making well-informed business decisions.

How Managerial Accounting Works

Managerial accounting encompasses many facets of accounting aimed at improving the quality of information delivered to management about business operation metrics. Managerial accountants use information relating to the cost and sales revenue of goods and services generated by the company. Cost accounting is a large subset of managerial accounting that specifically focuses on capturing a company's total costs of production by assessing the variable costs of each step of production, as well as fixed costs. It allows businesses to identify and reduce unnecessary spending and maximize profits.

Managerial accounting can be used in short-term and long-term decisions involving the financial health of a company. Managerial accounting helps managers make operational decisions–intended to help increase the company's operational efficiency–while also helps in making long-term investment decisions

Sustainability accounting (also known as social accounting, social and environmental accounting, corporate social reporting, corporate social responsibility reporting, or non-financial reporting) was originated about 20 years ago^[1] and is considered a subcategory of financial accounting that focuses on the disclosure of non-financial information about a firm's performance to external stakeholders, such as capital holders, creditors, and other authorities. Sustainability accounting represents the activities that have a direct impact on society, environment, and economic performance of an organisation. Sustainability accounting in managerial accounting contrasts with financial accounting in that managerial accounting is used for internal decision making and the creation of new policies that will have an effect on the organisation's performance at economic, ecological, and social (known as the triple bottom line or Triple-P's; People, Planet, Profit) level. Sustainability accounting is often used to generate value creation within an organisation.^[2]

Sustainability accounting is a tool used by organisations to become more sustainable. The most known widely used measurements are the Corporate Sustainability Reporting (CSR) and triple bottom line accounting. These recognise the role of financial information and shows how traditional accounting is extended by improving transparency and accountability by reporting on the Triple-P's.

As a result of triple bottom level reporting, and in order to render and guarantee consistency in social and environmental information, the GRI (Global Reporting Initiative) was established with the goal to provide guidelines to organisations reporting on sustainability. In some countries, guidelines were developed to complement the GRI. The GRI states that "reporting on economic, environmental and social performance by all organizations is as routine and comparable as financial reporting".^[

There are six main motivations for practicing sustainability accounting

1. Greenwashing
2. Mimicry and industry pressure
3. Legislative pressure
4. Stakeholder pressure and ensuring the "license to operate"
5. Self-regulation, corporate responsibility and ethical reasons
6. Managing the business case for sustainability

Möller and Schaltegger add that another motivation is to assist in decision-making.^[17] They state that making decisions solely based on financial information is superficial at best. They add that there are certain business areas that financial data cannot precisely evaluate, such as customer satisfaction, organizational learning, and product quality. They propose that a mix of financial and nonfinancial info can help make well-informed decisions.

Shareholders say that they want to see more sustainability reporting because it translates to increased corporate financial performance.This is because sustainability requires a long-term vision, which is reflected in strategic planning. Strategic planning is manifested in long-term visions and a wider range of responsibilities toward its stakeholders. Companies that place emphasis on sustainability practices have higher financial performance, as measured by profit before taxation, return on assets, and cash flow from operations, than their counterparts