Importance of Aligning IFRS with SDGs

Posted: 26 Sep 2017

Date Written: September 25, 2017

Abstract

International Financial Reporting Standards (IFRS) are a set of international accounting standards stating how particular types of transactions and other events should be reported in financial statements. IFRSs are incomplete if crux of SDGs is not interwoven in the framing of accounting standards in the financial reporting. The Sustainable Development Goals (SDGs), otherwise known as the Global Goals, are a universal call to action to end poverty, protect the planet and ensure that all people enjoy peace and prosperity. SDGs are set goals for collective and equitable development with minimum deterioration to environment. Without IFRS, it is difficult to measure if objectives of SDGs are achieved. Reciprocally, SDGs are incomplete if end results are not gauged in financial statement which honour environmental factors. Therefore aligning IFRS with SDGs is sine qua non.

Business enterprises are established for the profit, but as they uses resources supplied by the society/State and environment and hence are responsible to contribute part of the profit to society and environment. Proper practice of Accounting Standards assumes immense importance at micro level, as effective disclosure leads to shareholders’ wealth maximisation and at macro level, they are essential to the efficient functioning of the economy because decisions about the allocation of resources/investment rely on credible, concise, transparent, comparable and understandable financial information about the corporate operations and financial position. It will not be fair accounting if hidden cost of environment is not factored in financial statement of a business entity. The accounting which factor environmental cost and benefit is known as “Green Accounting”. “Green accounting” is a type of accounting that attempts to factor environmental costs into the financial results of operations. It has been argued that gross domestic product ignores the environment and therefore policymakers need a revised model that incorporates “Green Accounting”. The “Green Accounting” is of worth if auditors take into consider environmental aspects in examining effect of accounting transaction on financial statement. This paper thus suggests building Green Matrix to determine value of environmental factors. It is imperative that broad guidelines are churned out after proper research. This paper is an attempt to lead such debate amongst professional accountants, auditors, business and policy makers.

As per OECD principles of Corporate Governance, Accounting Information should be prepared and disclosed in accordance with high quality standards of accounting and financial and non-financial disclosures. The application of high quality standards is expected to significantly improve the ability of investors to monitor the company by providing increased reliability and comparability of reporting, and improved insight into company performance. The quality of information substantially depends on the standards under which it is compiled and disclosed. The Principles support the development of high quality internationally recognised standards, which can serve to improve transparency and the comparability of financial statements and other financial reporting between countries. Such standards should be developed through open, independent, and public processes involving the private sector and other interested parties such as professional associations and independent experts. High quality domestic standards can be achieved by making them consistent with one of the internationally recognised accounting standards. In many countries, listed companies are required to use these standards. This research will lead to find space for environmental cost and benefits into financial statements and in corporate governance. OECD principles of Corporate Governance further emphasize that Board members should act on a fully informed basis, in good faith, with due diligence and care, and in the best interest of the company and the shareholders. In some countries, the board is legally required to act in the interest of the company, taking into account the interests of shareholders, employees, and the public good. Thus in emerging environment under SDGs as an axle of equitable growth, the paper will explore bridging gap in accounting standards, financial statements and corporate governance practice.

Keywords: SDGs, Accounting Standards, Corporate Governance, Green Accounting, Green Audit, Green Matrix

JEL Classification: G30

Suggested Citation

Sapovadia, Vrajlal K., Importance of Aligning IFRS with SDGs (September 25, 2017). Available at SSRN: https://ssrn.com/abstract=3042562

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