An international forum of experts on 13 February adopted a "position paper" which contains the most comprehensive guidance ever issued by UNCTAD for green accounting. This was the main outcome of a three-day meeting of UNCTAD’s Intergovernmental Working Group of Experts on International Standards of Accounting and Reporting (ISAR) which brought together 148 representatives from 66 countries, 9 professional associations and 15 international organizations.
The purpose of the position paper, entitled Accounting and Financial Reporting for Environmental Costs and Liabilities, is to provide assistance to enterprises, regulators and standard-setting bodies on what is considered best practice in accounting for environmental transactions and events in financial statements. The position paper, which will be widely disseminated, should help unify practices and prevent countries and companies from devising different solutions for the same problems.
The focus of the position paper is on the accountability of the management of an enterprise for the financial implications of managing the environmental resources entrusted to it. It provides guidelines for accounting for, and reporting of, environmental costs and liabilities arising from transactions and events that would affect, or will likely affect, the financial position and results of an enterprise and, as such, should be reported in an enterprise’s financial statements.
Before agreeing on the final text, the Group grappled with such issues as:
- the expansion of corporate obligations beyond purely legal obligations to include "equitable" obligations;
- disclosure to shareholders of contamination on one’s own property even though the company has no legal obligation for cleanup;
- gradual provisioning vs. immediate provisioning for long-lived assets such as nuclear power plants.
The expansion of corporate obligations beyond purely legal ones is particularly important to developing countries and economies in transition. Very often transnational corporations account for, and report on, their environmental liabilities arising from legal obligations in developed countries but are silent on such liabilities elsewhere in the absence of legislation. The concept of equitable obligation closes a loophole where companies were reporting only when they had "no discretion" not to report such as in the case of a legal obligation.
Towards a global accounting curriculum
The Group also decided to accelerate its work on developing a benchmark for professional qualifications in view of the fact that the World Trade Organization (WTO) could conclude its work on accountancy services as early as this spring. An important component of this work is the design of a global accounting curriculum for closing the educational gap between developing and developed countries and for use as a benchmark in evaluating national systems for professional qualifications. The Working Party on Professional Services of the WTO has produced guidelines for mutual recognition agreements for professional qualifications. The benchmark would cut the time and cost of negotiating such agreements.
Accounting for SMEs
The Group decided to start work on accounting for small and medium-sized enterprises (SMEs). Developing countries and economies in transition doubt that international accounting standards should be applied to SMEs in their present form, and argue that a simpler system is needed. The UNCTAD secretariat has been requested to analyse the needs of SMEs and to begin work on an accounting and reporting model for use by SMEs in all countries.
Asian crisis and disclosure
Finally, the Group, in response to a request by Asian developing countries, has asked that the UNCTAD secretariat look into the Asian crisis from the perspective of improving accounting and auditing systems in Asia. The contribution that better financial disclosure can make to the prevention of financial crises was stressed by the Secretary-General of UNCTAD, Mr. Rubens Ricupero, in his opening address to ISAR on 11 February (see TAD/INF/PR/9805).