tag:theconversation.com,2011:/global/topics/accounting-2876/articlesAccounting – The Conversation2024-03-21T20:35:41Ztag:theconversation.com,2011:article/2253332024-03-21T20:35:41Z2024-03-21T20:35:41ZEthnic diversity is still a serious issue at the top level in accounting firms<figure><img src="https://images.theconversation.com/files/582955/original/file-20240319-24-fiblnj.jpg?ixlib=rb-1.1.0&rect=66%2C41%2C5492%2C3659&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">The accounting profession has suffered from the under-representation of women and marginalized people for many years.</span> <span class="attribution"><span class="source">(Shutterstock)</span></span></figcaption></figure><p>In recent years, there has been a growing concern about the <a href="https://theconversation.com/diversity-in-the-workplace-isnt-enough-businesses-need-to-work-toward-inclusion-194136">lack of diversity in workplaces</a>, particularly in terms of ethnic and gender diversity. To address this, many companies have taken action by adjusting their recruiting policies and setting targets for achieving minimum diversity levels.</p>
<p>The accounting profession has suffered from the under-representation of women and marginalized people for many years. It has long been considered a <a href="https://www.ft.com/content/2f3cdfa4-f3fe-11e9-b018-3ef8794b17c6">white, male-dominant profession</a>.</p>
<p>Accounting firms, especially <a href="https://www.investopedia.com/terms/b/bigfour.asp">the Big Four</a> — Deloitte, Ernst & Young, PricewaterhouseCoopers and Klynveld Peat Marwick Goerdeler — have taken various measures to improve the diversity of their workforce by recruiting and retaining employees of various backgrounds. </p>
<p>Each of the Big Four audit firms, for example, have created the equivalent position of chief diversity officer — a position that develops and implements diversity, equity and inclusion initiatives in the organization.</p>
<p>Despite these efforts, diversity at more senior ranks in accounting firms is still very much lagging, especially with regard to ethnic representation. </p>
<h2>Under-representation in accounting</h2>
<p>A <a href="https://us.aicpa.org/content/dam/aicpa/interestareas/accountingeducation/newsandpublications/downloadabledocuments/2019-trends-report.pdf">2019 survey from the Association of International Certified Professional Accountants</a> found that only nine per cent of accounting firm partners identify as non-white.</p>
<p>Another study from the <a href="https://www.accounting.com/resources/improving-diversity-in-accounting/">Association of Accountants and Financial Professionals in Business</a> found that only 8.9 per cent of accountants and auditors identified as Hispanic or Latino, 8.5 per cent identified as Black or African American and 12 per cent identified as Asian. In total, these group represent almost 30 per cent of The professional accountants, but their proportion in partner levels are much lower than that.</p>
<p><a href="https://www.telegraph.co.uk/business/2020/06/18/big-four-accounting-firms-have-just-11-black-equity-partners/">A similar report from the United Kingdom</a> found only 11 out of almost 3,000 (or 0.4 per cent) of equity partners in the Big Four firms in the U.K. are Black, compared with their population representation of 3.3 per cent.</p>
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<img alt="A group of ethnically diverse people having a conversation around a conference table" src="https://images.theconversation.com/files/582956/original/file-20240319-24-e5nkf5.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/582956/original/file-20240319-24-e5nkf5.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/582956/original/file-20240319-24-e5nkf5.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/582956/original/file-20240319-24-e5nkf5.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/582956/original/file-20240319-24-e5nkf5.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/582956/original/file-20240319-24-e5nkf5.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/582956/original/file-20240319-24-e5nkf5.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
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<span class="caption">Despite efforts, diversity at more senior ranks in accounting firms is still lagging.</span>
<span class="attribution"><span class="source">(Shutterstock)</span></span>
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<p>Although we still don’t have robust enough data about accounting firms in Canada yet, there is research that suggests <a href="https://doi.org/10.1080/09638180.2020.1786420">women and minorities are under-represented at senior positions</a> in Canadian firms as well.</p>
<p>Recognizing the under-representation of ethnic minority accountants at the partner level, my colleagues and I aimed to gain insights into the work environment of ethnic minority accountants who made it to the top of the ladder in U.S. firms. </p>
<h2>New insights from research</h2>
<p>My co-researchers and I used the term ethnic minority in our study to refer to those who are Asian, Black non-Latino, Hispanic Latino and white non-Latino as per the U.S. Census’ taxonomy. We collected data on audit partners in the U.S. from 2016 to 2020 and conducted a comprehensive analysis of various aspects of their work. </p>
<p><a href="https://doi.org/10.1016/j.aos.2023.101440">We found that ethnic minority auditors were less likely to become partners</a> at accounting firms. The ones that did were more likely to become partners at less notable accounting offices. They were more likely to become partners in firms other than the Big Four firms, in offices that did not have prestigious clients, in smaller offices and in offices that earned less fees.</p>
<p>This is despite the fact that, as our research found, they performed better than non-ethnic minority partners. Using various performance measures <a href="https://doi.org/10.1016/j.jacceco.2014.09.002">common in accounting research</a>, we found ethnic minority partners performed better than their white counterparts. It is, therefore, unlikely that the under-representation of ethnic minorities at the partner level is due to their inability to perform well.</p>
<p>Our study also found that ethnic minority partners were more likely to be in charge of audit engagements if a client’s senior leadership also included ethnic minorities. </p>
<p>It also showed that, once an error occurred, white audit partners were more likely to be absolved of audit failures than ethnic minority audit partners. The likelihood of an audit partner being replaced after a material error was discovered in a financial statement was higher for ethnic minority partners (39 per cent) versus white partners (24 per cent). </p>
<h2>Improving ethnic representation</h2>
<p>One of the consequences of ineffective diversity, equity and inclusion practices in the accounting profession is <a href="https://www.imanet.org/research-publications/ima-reports/diversifying-us-accounting-talent-a-critical-imperative-to-achieve-transformational-outcomes">talent drain</a>. Up to 55 per cent of accountants from under-represented groups leave their employers, and up to 18 per cent leave the profession altogether. This raises concerns about the long-term sustainability of the profession’s talent pipeline. </p>
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<img alt="A young Black woman in a grey blazer anda pair of glasses using a calculator while sitting at a desk" src="https://images.theconversation.com/files/582949/original/file-20240319-9963-3izp81.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/582949/original/file-20240319-9963-3izp81.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/582949/original/file-20240319-9963-3izp81.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/582949/original/file-20240319-9963-3izp81.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/582949/original/file-20240319-9963-3izp81.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/582949/original/file-20240319-9963-3izp81.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/582949/original/file-20240319-9963-3izp81.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
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<span class="caption">Research has found that ethnic minority auditors performed better at their jobs than non-ethnic minority partners.</span>
<span class="attribution"><span class="source">(Shutterstock)</span></span>
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<p>Our study points to some major gaps in terms of promotion and treatment of ethnic audit partners in the accounting profession. Diversity at higher levels in the corporate hierarchy appears to be lacking. </p>
<p>Our study also suggests two major benefits of closing these gaps. First, because ethnic audit partners appear to outperform their white counterparts, more ethnic representation at senior positions will translate to higher-quality audits. Second, improving the ethnic diversity in senior accounting positions will help combat talent drainage.</p>
<p>There must be greater efforts to recruit, nurture and promote talented accountants from under-represented backgrounds, including fast-tracking promising audit managers to partnership. Individuals from under-represented groups should receive opportunities equal to those of their white peers when it comes to career advancement and the choice of work environment.</p>
<p>We believe more ethnically diverse accounting leadership will strengthen the profession by attracting and retaining talented ethnic accounting professionals and will position it to deal better with the <a href="https://theconversation.com/everyone-should-have-a-say-on-the-future-of-green-accounting-178764">challenges of the future</a>.</p><img src="https://counter.theconversation.com/content/225333/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>The authors do not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and have disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Ethnic minority auditors are less likely to become partners at accounting firms despite being better at their jobs than their white counterparts.Zvi Singer, Associate Professor of Accounting, HEC MontréalGopal Krishnan, Professor of Accounting, Bentley UniversityJing Zhang, Assistant Professor of Accounting, University of Colorado DenverLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/2207282024-01-12T18:29:42Z2024-01-12T18:29:42ZWayne LaPierre leaves a financial mess behind at the NRA − on top of the legal one that landed him in court<figure><img src="https://images.theconversation.com/files/568942/original/file-20240111-29-i3s8bx.jpg?ixlib=rb-1.1.0&rect=0%2C0%2C4442%2C3072&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Former NRA Leader Wayne LaPierre arrives for his civil trial at New York State Supreme Court on Jan. 8, 2024, in New York City.</span> <span class="attribution"><a class="source" href="https://www.gettyimages.com/detail/news-photo/former-nra-leader-wayne-lapierre-arrives-for-his-civil-news-photo/1917197606?adppopup=true">Michael M. Santiago/Getty Images</a></span></figcaption></figure><p>Wayne LaPierre, the National Rifle Association’s longtime leader, <a href="https://www.nytimes.com/2024/01/05/nyregion/wayne-lapierre-resigns-nra.html">plans to retire by the end of January 2024</a>. He cited “<a href="https://home.nra.org/statements/nra-evp-wayne-lapierre-announces-resignation-from-nra/">health reasons</a>” when he announced his departure three days before the organization’s <a href="https://apnews.com/article/nra-national-rifle-association-wayne-lapierre-lawsuit-42f90bf1690c326afcd0b6cdc4234ef8">civil fraud trial</a> got underway in Manhattan.</p>
<p><a href="https://ag.ny.gov/press-release/2024/attorney-general-james-announces-settlement-former-nra-senior-strategist-eve">New York authorities have accused the NRA</a>, LaPierre and three of his current or former colleagues of squandering millions of dollars the gun group had obtained from its members. </p>
<p>As a <a href="https://fisher.osu.edu/people/mittendorf.3">nonprofit accounting scholar</a> who has <a href="https://theconversation.com/the-nras-financial-weakness-explained-108582">followed the NRA’s finances</a> for years, I believe the organization is not only at a legal crossroads but also at a financial one.</p>
<h2>NRA business model</h2>
<p>To see why the NRA finds itself in this difficult spot, it helps to first see how its business model allows for only a small margin of error. Despite the nonprofit’s <a href="https://home.nra.org/about-the-nra/">long history</a>– it was founded in 1871 by <a href="https://theconversation.com/how-the-nra-evolved-from-backing-a-1934-ban-on-machine-guns-to-blocking-nearly-all-firearm-restrictions-today-183880">Civil War veterans who fought for the Union</a> – the NRA has never had enough money stowed away to inoculate it from financial problems.</p>
<p>Consider the NRA’s circumstances in terms of its <a href="https://theconversation.com/the-nras-financial-weakness-explained-108582">unrestricted net assets</a>, which reflect the money an organization has available to spend after accounting for its commitments to donors.</p>
<p>Comparing this with the scale of an organization’s annual budget can provide a sense of how much of a rainy day fund is on hand.</p>
<p>In 2015, the NRA <a href="https://projects.propublica.org/nonprofits/organizations/530116130/201623149349300602/full">had unrestricted net assets</a> that constituted just 9% of its total expenses. In contrast, that same year, the AARP, another long-standing <a href="https://theconversation.com/hillary-clinton-is-starting-a-social-welfare-group-what-does-that-mean-78221">social welfare organization</a> with millions of members, <a href="https://projects.propublica.org/nonprofits/organizations/951985500/201622429349300037/full">had unrestricted net assets</a> that amounted to 87% of its expenses.</p>
<p>In other words, the NRA’s coffers reflected a circumstance more in line with an employee living paycheck to paycheck than an heir living off a trust fund. For this reason, the NRA has always relied on its members’ annual dues to cover its costs, and it is less able to weather financial storms that can last years.</p>
<p><a href="https://www.cnn.com/2019/07/19/politics/nra-2020-campaign/index.html">The controversies over the NRA’s spending</a> and <a href="https://apnews.com/article/donald-trump-campaigns-gun-politics-election-2020-lawsuits-949361ea529ea37139f401a64c7fa362">the organization’s political entanglements that have swirled around</a> since 2016 constitute that kind of turbulence.</p>
<h2>Declining financial fortunes</h2>
<p>Following its substantial spending spree during the 2016 election cycle, the NRA found itself needing to dig out of a hole, with a budget deficit of <a href="https://www.opensecrets.org/news/2017/11/audit-shows-nra-spending-surged-100-million-amidst-pro-trump-push-in-2016/">more than US$40 million</a>.</p>
<p>Subsequent years saw <a href="https://www.washingtonpost.com/politics/inside-the-nras-finances-deepening-debt-increased-spending-on-legal-fees--and-cuts-to-gun-training/2019/06/14/ac9dc488-8e30-11e9-b08e-cfd89bd36d4e_story.html">fluctuations in spending</a> along with ongoing <a href="https://www.cbsnews.com/news/nra-national-rifle-association-membership-revenue-2022/">challenges to generate sufficient revenues</a> to keep up with spending.</p>
<p>In recent years, the organization’s approach to its budget shortfall has been to cut costs, or at least some of its costs.</p>
<p>Spending on programming went from <a href="https://www.documentcloud.org/documents/4823792-NRA-Audit-FY-2017">nearly $176 million in 2017</a> to just <a href="https://www.documentcloud.org/documents/24074735-nra-audit-2021-2022">$73 million in 2022</a>, its most recent reporting year.</p>
<p>Its traditionally core programs have taken the biggest hit: Spending on education and training fell from <a href="https://www.documentcloud.org/documents/4823792-NRA-Audit-FY-2017">$7.7 million</a> to <a href="https://www.documentcloud.org/documents/24074735-nra-audit-2021-2022">$3.2 million</a>; law enforcement support dropped from <a href="https://www.documentcloud.org/documents/4823792-NRA-Audit-FY-2017">$3.8 million</a> to <a href="https://www.documentcloud.org/documents/24074735-nra-audit-2021-2022">$1.8 million</a>; recreational shooting slipped from <a href="https://www.documentcloud.org/documents/4823792-NRA-Audit-FY-2017">$7.2 million</a> to <a href="https://www.documentcloud.org/documents/24074735-nra-audit-2021-2022">$5.1 million</a>; and field services declined from <a href="https://www.documentcloud.org/documents/4823792-NRA-Audit-FY-2017">$11.9 million</a> to <a href="https://www.documentcloud.org/documents/24074735-nra-audit-2021-2022">$1.3 million</a>. </p>
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<h2>Back in the red</h2>
<p>The NRA hasn’t cut all of its spending, however.</p>
<p>During the same time frame, the NRA’s budget for <a href="https://theconversation.com/nras-path-to-recovery-from-financial-woes-leaves-the-gun-group-vulnerable-to-new-problems-201144">administrative legal costs ballooned</a>, from $4 million in 2017 to over $40 million in each of the past three reporting years, with this amount hitting $43.7 million in 2022.</p>
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<p>The organization’s shrinking programming budget helped eliminate its deficit, at least for a time.</p>
<p>Thanks to its reduced spending, the NRA was able to finish the year with a <a href="https://theconversation.com/nras-path-to-recovery-from-financial-woes-leaves-the-gun-group-vulnerable-to-new-problems-201144">surplus in both 2020 and 2021</a>. However, that surplus, which came from slashing costs – particularly those geared toward core programs for members – proved short-lived.</p>
<p>The organization has also seen the ranks of its members dwindle. Fewer members mean less revenue from dues. In 2022, <a href="https://thereload.com/nra-has-lost-over-a-million-members-since-corruption-allegations-surfaced/">revenues were down by more than $100 million</a> from their 2017 levels, a drop of more than one-third.</p>
<p>The declining revenues meant that, despite its trimmed-down budget, the NRA was back <a href="https://www.theatlantic.com/ideas/archive/2024/01/national-rifle-association-wayne-lapierre-trial/677056/">in the red in 2022</a> and again facing a <a href="https://www.documentcloud.org/documents/24074735-nra-audit-2021-2022">negative unrestricted balance in net assets</a>.</p>
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<h2>What’s next?</h2>
<p>The NRA, in short, is in a financial spiral. Its shrinking budget has begotten a shrinking member base, leading to an even smaller budget. It may be hard to stem.</p>
<p>The organization has <a href="https://www.thetrace.org/2023/11/nra-budget-spending-cuts-4h-boy-scouts/">pared what it spends on its programs</a> to the bone. </p>
<p>While there are no easy answers for what the organization can do about its financial predicament, it’s not the only pressing question the organization faces.</p>
<p>How long will the <a href="https://www.thetrace.org/2023/02/nra-membership-decline-corruption/">NRA’s remaining members</a> stay loyal to it? When will <a href="https://www.bloomberg.com/news/articles/2022-11-05/nra-spending-more-on-lawyers-as-revenue-falls-membership-lags?embedded-checkout=true">high legal costs</a> subside enough to ease the budgetary pressures? What does a smaller NRA mean for its <a href="https://www.theguardian.com/us-news/2017/nov/17/nra-gun-lobby-gun-control-congress">ability to flex its political muscle</a>?</p>
<p>Despite its many challenges, the NRA’s imminent changing of the guard does <a href="https://www.theatlantic.com/ideas/archive/2024/01/national-rifle-association-wayne-lapierre-trial/677056/">offer an opportunity</a> to make more drastic shifts in its priorities, spending approaches and the pitches it makes to members and donors.</p>
<p>Further, with its large legal budget being the last remaining area ripe for cost cutting, perhaps the NRA’s next generation of leaders will set the stage for the organization to <a href="https://www.nbcnews.com/news/us-news/nra-distances-longtime-leader-wayne-lapierre-opening-remarks-civil-tri-rcna133076">rid itself of its oversized legal burdens</a> and refocus on core programs.</p>
<p>What is clear, however, is that financial constraints will dictate much of whatever course the new leadership seeks to chart.</p>
<p><em>Earlier versions of these charts ran in a related article on <a href="https://theconversation.com/nras-path-to-recovery-from-financial-woes-leaves-the-gun-group-vulnerable-to-new-problems-201144">March 23, 2023</a>.</em></p><img src="https://counter.theconversation.com/content/220728/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Brian Mittendorf does not work for, consult, own shares in or receive funding from any company or organization that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>The NRA’s new leaders have to make important decisions as they confront a shaky financial future.Brian Mittendorf, Professor of Accounting, The Ohio State UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/2153892023-10-19T13:18:25Z2023-10-19T13:18:25ZFootball and big money: what some professional players in Ghana told us about handling their finances<p>Footballers are among the best paid sportsmen in most parts of the world. </p>
<p>The unfortunate reality, however, is that the retirement <a href="https://www.theghanareport.com/top-5-players-who-went-broke-after-making-millions-in-football/">experiences</a> of many former professional footballers have been awful. Within the sports media landscape, there have been <a href="https://www.moneynest.co.uk/bankrupt-footballers/">reported cases</a> of once-wealthy footballers who have gone bankrupt soon upon retirement. Notable examples in Ghana are former Black Stars players Sammy Adjei, John Naawu, Joe Odoi, Prince Addu Poku and Amusa Gbadamoshie. </p>
<p>According to some <a href="https://scholar.google.com/scholar?output=instlink&q=info:0Ha1K3SHR4kJ:scholar.google.com/&hl=en&as_sdt=0,5&scillfp=13443085754161180526&oi=lle">academics</a> this unfortunate situation stems in part from the fact that the danger of falling into a professional void is high. This is because, like most sports, football confers skills that are not easily transferable to non-sporting occupations. The availability of jobs in football is also very limited. So most footballers earn a very high income during their active career period and face a high degree of income uncertainty upon retirement.</p>
<p>The lifestyle of footballers (during the active playing period and upon retirement) has also been highlighted by several <a href="https://scholar.google.com/scholar?output=instlink&q=info:cxNwMuOE4DsJ:scholar.google.com/&hl=en&as_sdt=0,5&scillfp=5439326496234156066&oi=lle">reports</a> as a key driver of the financial mess that some footballers have got themselves into. </p>
<p>Again, there have been reported cases of footballers engaging in irresponsible financial behaviour. Examples include gambling, spending on luxurious brands, lavish parties and generally maintaining an expensive and unsustainable lifestyle. A lack of financial knowledge has often been associated with this kind of financial behaviour.</p>
<p>I am a <a href="https://ugbs.ug.edu.gh/ugbsfaculty/profile-faculty_member/godfred-matthew-yaw">professor</a> of accounting who, with others, has conducted a <a href="https://www.tandfonline.com/doi/pdf/10.1080/23750472.2023.2248150">study</a> to investigate the level of financial literacy of professional footballers in Ghana and ascertain its impact on their financial behaviour and financial wellbeing. </p>
<p>We found low levels of financial literacy, and poor financial behaviour, among footballers. The results suggest that to promote responsible financial behaviour among footballers, enhancing their financial literacy is key. We found very strong support for the argument that responsible financial behaviour, proxied in this study by savings and investment behaviour, is key to attaining financial wellness in life.</p>
<h2>The study design</h2>
<p>Financial literacy has been described as the ability to use the needed knowledge and skills to manage one’s financial resources effectively to improve welfare in the future. </p>
<p>Financial behaviour, on the other hand, can be <a href="https://www.grin.com/document/934971">described</a> as the “ability to regulate planning, budgeting, checking, managing, controlling, searching and storing daily funds”. It covers spending and saving habits, borrowing patterns, budgeting and access to financial products. </p>
<p>Using questionnaires, we surveyed 300 footballers who competed in the 2020 Ghana Premier League.</p>
<p>The questionnaire had two sections: one on the demographic details of the respondents; the other on their financial literacy, financial behaviours and financial wellbeing.</p>
<p>Currently, the Ghana Premier League has 18 registered clubs. At the time of the study, these clubs employed 480 registered footballers. Compared with clubs in Europe, England, Asia and even many other parts of Africa, the net worth of Ghanaian clubs is very <a href="https://www.fifa.com/en/media-releases/fifa-publishes-global-transfer-report-2021">low</a>. Revenues from international transfers – an important funding source for most Ghanaian clubs – have been very low over the years. For instance, the Federation of International Football Associations (FIFA) in its 2021 report on international transfers <a href="https://www.fifa.com/en/media-releases/fifa-publishes-global-transfer-report-2021">recorded</a> that Ghanaian football clubs together made a net profit of only US$50 million in the last decade.</p>
<h2>Footballers’ finances</h2>
<p>Our study revealed that the population of footballers was largely youthful. Nearly 90% were 30 years old or below, which is similar to footballers in other countries. This is expected as footballers are mostly active in their prime years. About 86% had some form of education, mainly up to senior high school level. The majority of the respondents were married and close to 58% of them had three or more dependants aside from their nuclear family. Thus, most of the footballers were providers for families although 39% said they lived with their parents or friends. On average, these footballers earned GHS2,000 net monthly income (US$177 at the time of the study), which, compared to other professionals, is low. </p>
<p>Overall, we found that the footballers had a low level of financial literacy. They ranked setting of long-term goals high but their interest in seeking financial knowledge was very low. It was therefore not surprising that most of the footballers seemed uncertain about where their money was spent.</p>
<p>We found that the footballers, generally, did not exhibit responsible financial behaviour. Very few had any interest in products such as bonds, stocks, mutual funds and insurance policies. But they seemed diligent in comparing prices when purchasing a product or service in a shop.</p>
<p>Interestingly, footballers were optimistic about their financial wellbeing. Most of those surveyed were confident in their capacity to meet current financial needs, had a very positive outlook on their future financing needs and made choices to enjoy life. The average footballer is always hopeful of securing lucrative contracts in future. </p>
<h2>Better performance</h2>
<p>Efforts to enhance the financial wellbeing of footballers can begin with investing in training programmes to make them financially literate. Second, football clubs can engage financial coaches to provide practical guidance to players during their active playing days to help shape their financial behaviour. </p>
<p>Given that financial wellbeing is closely <a href="https://www.emerald.com/insight/content/doi/10.1108/JHASS-05-2021-0101/full/pdf">associated</a> with psychological wellbeing, such initiatives could have a positive effect on the performance of players on the field.</p><img src="https://counter.theconversation.com/content/215389/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Godfred Matthew Yaw Owusu does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Most Ghanaian footballers have poor levels of financial literacy and financial behaviour.Godfred Matthew Yaw Owusu, Professor of Accounting, University of GhanaLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/2031282023-04-04T19:07:56Z2023-04-04T19:07:56ZForget Stormy Daniels and Michael Cohen — it’s accountants who could seal Trump’s fate<figure><img src="https://images.theconversation.com/files/519389/original/file-20230404-2515-t8wel.jpg?ixlib=rb-1.1.0&rect=0%2C0%2C7601%2C4005&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Former president Donald Trump sits at the defence table with his legal team in a Manhattan court. He's facing charges related to falsifying business records in a hush money investigation, the first U.S. president ever to be charged with a crime. </span> <span class="attribution"><span class="source">(AP Photo/Seth Wenig)</span></span></figcaption></figure><iframe style="width: 100%; height: 100px; border: none; position: relative; z-index: 1;" allowtransparency="" allow="clipboard-read; clipboard-write" src="https://narrations.ad-auris.com/widget/the-conversation-canada/forget-stormy-daniels-and-michael-cohen-—-it-s-accountants-who-could-seal-trump-s-fate" width="100%" height="400"></iframe>
<p>Donald Trump has been formally charged with <a href="https://www.cnbc.com/2023/04/04/-donald-trump-unsealed-indictment-ny-arraingment.html">34 felony counts of falsifying business records</a> after an investigation into hush money payments to three people, including a porn star.</p>
<p>The former president of the United States <a href="https://www.reuters.com/world/us/trump-faces-day-court-historic-us-first-2023-04-04/">pleaded not guilty</a> to the charges. </p>
<p>The <a href="https://thehill.com/homenews/3933605-read-trump-indictment-and-statement-of-facts/">statement of facts</a> compiled by prosecutors <a href="https://www.nbcnews.com/politics/donald-trump/trump-news-arrested-updated-new-york-court-rcna77707">alleges Trump “repeatedly and fraudulently falsified New York business records to conceal criminal conduct that hid damaging information from the voting public during the 2016 presidential election.”</a></p>
<p>It includes information about payments to adult film star Stephanie Clifford — better known as Stormy Daniels — Playboy model Karen McDougal and a former Trump Tower doorman who claimed Trump had a child out of wedlock with an ex-housekeeper.</p>
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<img alt="The back of a blond man's head is seen as he walks into a courthouse." src="https://images.theconversation.com/files/519381/original/file-20230404-20-tpbne3.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=237&fit=clip" srcset="https://images.theconversation.com/files/519381/original/file-20230404-20-tpbne3.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/519381/original/file-20230404-20-tpbne3.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/519381/original/file-20230404-20-tpbne3.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/519381/original/file-20230404-20-tpbne3.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/519381/original/file-20230404-20-tpbne3.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/519381/original/file-20230404-20-tpbne3.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
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<span class="caption">Trump arrives at the Manhattan District Attorney’s office.</span>
<span class="attribution"><span class="source">(AP Photo/John Minchillo)</span></span>
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</figure>
<p>Trump is facing a slew of other legal dangers, including <a href="https://www.nytimes.com/article/trump-investigations-civil-criminal.html">potential prosecution for allegedly hiding classified government documents at his estate in Florida, trying to change the vote in Georgia following the 2020 presidential election and for encouraging the Jan. 6, 2021 insurrection</a>.</p>
<p>But in the New York case, we already know that there was one payment made to Daniels <a href="https://globalnews.ca/news/9593888/trump-stormy-daniels-hush-money-case-timeline/">because there’s an audit trail of the payment being made by convicted felon Michael Cohen</a>, the former Trump fixer and a key prosecution witness.</p>
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Read more:
<a href="https://theconversation.com/how-the-indictment-of-donald-trump-is-a-strange-and-different-event-for-america-according-to-political-scientists-203100">How the indictment of Donald Trump is a 'strange and different' event for America, according to political scientists</a>
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<p>For years, the payment — issued just before the 2016 presidential election — has raised legal and ethical questions about whether it <a href="https://www.npr.org/2018/03/25/596805368/payment-to-stormy-daniels-may-have-broken-campaign-finance-law">violated federal campaign finance laws</a>, either because it wasn’t disclosed as a campaign contribution or because campaign funds might have been used to pay Daniels off.</p>
<figure class="align-left ">
<img alt="A man in a dark suit walks along a street in the evening." src="https://images.theconversation.com/files/519136/original/file-20230403-24-5kqu35.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=237&fit=clip" srcset="https://images.theconversation.com/files/519136/original/file-20230403-24-5kqu35.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/519136/original/file-20230403-24-5kqu35.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/519136/original/file-20230403-24-5kqu35.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/519136/original/file-20230403-24-5kqu35.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/519136/original/file-20230403-24-5kqu35.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/519136/original/file-20230403-24-5kqu35.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Michael Cohen leaves the New York District Attorney’s office after testifying before a grand jury in New York in March 2023. (AP Photo/Yuki Iwamura)</span>
<span class="attribution"><span class="source">(AP Photo/Yuki Iwamura)</span></span>
</figcaption>
</figure>
<p>Cohen eventually <a href="https://www.justice.gov/usao-sdny/pr/michael-cohen-pleads-guilty-manhattan-federal-court-eight-counts-including-criminal-tax">pleaded guilty to campaign finance charges stemming from his involvement in the payments to Daniels</a> and was <a href="https://www.washingtonpost.com/world/national-security/michael-cohen-scheduled-to-be-sentenced-for-crimes-committed-while-working-for-trump/2018/12/11/57226ff2-fcbf-11e8-83c0-b06139e540e5_story.html">sentenced to three years in prison</a>.</p>
<p>But he isn’t someone who seems altogether reliable given his past crimes. Trump’s defence team is therefore undoubtedly going to do everything possible to discredit the disbarred ex-lawyer, ex-inmate and convicted perjurer.</p>
<p>Does that mean Trump has nothing to fear? Not exactly. So who should Trump fear, especially given the nature of the charges against him?</p>
<p><a href="https://doi.org/10.1080/01900692.2021.2009855">The accountants</a>. </p>
<h2>Follow the money</h2>
<p><a href="https://www.thedailybeast.com/the-bean-counter-who-put-al-capone-in-the-slammer">A dogged accountant brought down infamous gangster Al Capone</a> in the 1920s and the 1970s-era Watergate scandal was largely uncovered by reporters who heeded advice to <a href="https://www.npr.org/2012/06/16/154997482/follow-the-money-on-the-trail-of-watergate-lore">“follow the money.”</a></p>
<p>How might accountants <a href="https://www.thenation.com/article/archive/could-an-army-of-accountants-bring-down-trump/">hold the key to Trump’s fate</a> on the charges he’s facing in New York?</p>
<p>Let’s start with a provable notion: The former president has a pattern of not paying his bills. In 2016, <em>USA Today</em> reported that <a href="https://www.usatoday.com/story/news/politics/elections/2016/06/09/donald-trump-unpaid-bills-republican-president-laswuits/85297274/">Trump “has been involved in more than 3,500 lawsuits over the past three decades” pertaining to allegations of unpaid bills.</a></p>
<p>The newspaper documented the people who accused Trump and his businesses of failing to pay them for their work. They included a glass company in New Jersey, a carpet company, 48 waiters, dozens of bartenders and other hourly workers and real estate brokers who’d sold his properties.</p>
<p>Most critically, Trump allegedly stiffed “several law firms that once represented him in these suits and others,” according to <em>USA Today.</em> </p>
<p>Furthermore, the newspaper reported that “the number of companies and others alleging he hasn’t paid suggests that either his companies have a poor track record hiring workers and assessing contractors, or that Trump businesses renege on contracts … as is alleged in dozens of court cases.”</p>
<p>Even to this day, many bills have allegedly still not been paid — and are continuing to pile up. </p>
<p>For example, <a href="https://www.ctvnews.ca/world/cities-angry-with-trump-over-millions-in-unpaid-rally-expenses-1.5269495">some American cities allege Trump owes them nearly $2 million from rallies dating back to 2016</a>. His Twitter rival, Truth Social, also reportedly <a href="https://www.salon.com/2022/08/26/trump-never-pays-his-bills-truth-social-reportedly-stiffs-contractor-amid-financial-disarray">stiffed a contractor</a> in the latest sign of financial disarray at the troubled social network, according to <a href="https://www.foxbusiness.com/features/trump-social-media-app-facing-financial-fallout">Fox Business</a>. </p>
<figure class="align-center ">
<img alt="A rotund man with raised arms speaks into a microphone at a podium with the presidential seal on it." src="https://images.theconversation.com/files/519135/original/file-20230403-1441-zmvvtn.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/519135/original/file-20230403-1441-zmvvtn.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/519135/original/file-20230403-1441-zmvvtn.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/519135/original/file-20230403-1441-zmvvtn.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/519135/original/file-20230403-1441-zmvvtn.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/519135/original/file-20230403-1441-zmvvtn.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/519135/original/file-20230403-1441-zmvvtn.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Donald Trump speaks during a campaign rally in January 2020 in Wildwood, N.J. The city is still reportedly waiting for him to pay back tens of thousands of dollars in police and security overtime.</span>
<span class="attribution"><span class="source">(AP Photo/ Evan Vucci)</span></span>
</figcaption>
</figure>
<h2>Trump’s cheque to Cohen</h2>
<p>Accountants could simply present this record to the court during Trump’s New York trial and ask a simple question: If Trump constantly refuses to pay his bills and consistently stiffs people he does business with, why did he instantly whip off a cheque to Cohen for US$130,000 without so much as a request for an itemized bill?</p>
<p>In his first public remarks on the scandal in 2018, <a href="https://www.cbsnews.com/news/trump-says-he-was-unaware-of-stormy-daniels-payment/">Trump denied any awareness of the payment to Daniels</a>. Not long after that, he changed his story, acknowledging the $130,000 payout to Daniels, but said a non-disclosure agreement was “used to stop the false and extortionist accusations made by her about an affair.”</p>
<p><div data-react-class="Tweet" data-react-props="{"tweetId":"991992302267785216"}"></div></p>
<p>Regardless of Trump’s change of tune, the case against him isn’t so much dependent upon Cohen’s testimony about the purpose of the $130,000 payment — it’s that Trump failed to ask for any documentation about it. </p>
<p>Cohen would have had to work a lot of hours to drum up $130,000 in billable fees. It stretches credibility that a man like Trump, whose dollars apparently must be figuratively pried from his hands, asked no questions, demanded no details, no breakdown and no documentation about a $130,000 bill and other pricey payments. </p>
<p>Forget Stormy Daniels. Forget Michael Cohen. Accountants will be raising this potentially damning question during the legal proceedings against Trump: Why would a $130,000 bill be so quickly and unquestionably paid and then reported only — and vaguely — as a lawyer’s fee?</p><img src="https://counter.theconversation.com/content/203128/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Jerry Paul Sheppard does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Accountants spurred Al Capone’s downfall and the Watergate scandal was revealed when reporters ‘followed the money.’ Will they also bring down Donald Trump?Jerry Paul Sheppard, Associate Professor of Business Administration, Simon Fraser UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1999522023-04-04T12:17:19Z2023-04-04T12:17:19ZYou can’t hide side hustles from the IRS anymore – here’s what taxpayers need to know about reporting online payments for gig work<figure><img src="https://images.theconversation.com/files/518802/original/file-20230331-14-y6616v.jpg?ixlib=rb-1.1.0&rect=0%2C206%2C5620%2C4022&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Dog-walking income is taxable.</span> <span class="attribution"><a class="source" href="https://www.gettyimages.com/detail/news-photo/professional-dog-walker-holds-the-leashes-for-13-dogs-april-news-photo/670072734?adppopup=true">Robert Nickelsberg/Getty Images</a></span></figcaption></figure><p>Do you rent out your home a few weekends a year through Airbnb? Sell stuff on Etsy? Get paid for pet-sitting? If you, like many Americans, make at least US$600 a year with a side hustle of any kind, the way you pay taxes may soon change.</p>
<p>New rules are going to <a href="https://www.cnn.com/2022/12/23/investing/irs-delays-threshold-increase-for-business-transactions/index.html">make sure the Internal Revenue Service gets more information</a> about payments made to Venmo and other apps often used for informal work. And this new system will enhance the agency’s ability to detect any underreported taxable income.</p>
<p>I am a <a href="https://scholar.google.com/citations?user=m-piTBwAAAAJ&hl=en&oi=ao">tax researcher</a> studying the IRS’ use of technology and how that affects taxpayers. I think it’s important that everyone understand why this may matter to them now or in the near future.</p>
<h2>Why you should care</h2>
<p>For people who earn most of their income through steady jobs, these changes probably don’t make much of a difference. The IRS has received the same information from employers about the income that goes on <a href="https://www.finance.senate.gov/download/1946/03/04/legislative-history-of-the-current-tax-payment-act-of-1943">W-2 and 1099 forms since the 1940s</a>.</p>
<p>However, that’s not true of income from other sources. If you make money cleaning houses, catering out of your own kitchen or through another informal side hustle in exchange for cash, chances are this work has been “<a href="https://www.investopedia.com/articles/markets/032916/how-big-underground-economy-america.asp">under the table</a>.”</p>
<p>It’s been up to you, not your customers, to report any income earned this way to the IRS for tax purposes. And there is a good chance that you didn’t, given that the underground economy makes up <a href="https://www.dickinson.edu/news/article/3136/understanding_the_shadow_economy">at least one-tenth of the overall economy</a>. </p>
<p>That’s changing, in part because of how informal transactions happen. It’s far more common these days for <a href="https://www.pewresearch.org/fact-tank/2022/09/08/payment-apps-like-venmo-and-cash-app-bring-convenience-and-security-concerns-to-some-users/">customers to make these payments through apps</a> like Venmo, Stripe and Square or online platforms such as Etsy, Poshmark, Rover and Upwork than to use cash or checks.</p>
<p>This can even include illicit activities, like drug dealing. And believe it or not, even when you make money through illegal transactions, the IRS still requires these <a href="https://taxfoundation.org/irs-guidance-thieves-drug-dealers-and-corrupt-officials">payments to be reported for tax purposes</a>.</p>
<p>The IRS has long identified informal payments as a significant source of the “<a href="https://www.irs.gov/newsroom/the-tax-gap">tax gap</a>” – the difference between what taxpayers owe and what they pay.</p>
<p>Modern technology makes it easier to get paid for side hustles and odd jobs without having to keep track of stacks of bills and piles of coins. It also better equips the agency to collect taxes on those underreported sources of income. </p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/518803/original/file-20230331-24-zkce9c.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="A person hands another person a stack of cash under a table." src="https://images.theconversation.com/files/518803/original/file-20230331-24-zkce9c.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/518803/original/file-20230331-24-zkce9c.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/518803/original/file-20230331-24-zkce9c.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/518803/original/file-20230331-24-zkce9c.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/518803/original/file-20230331-24-zkce9c.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/518803/original/file-20230331-24-zkce9c.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/518803/original/file-20230331-24-zkce9c.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Unless you’re getting paid in cash for your ‘under the table’ gigs or make less than $600, the IRS is going to find out about them.</span>
<span class="attribution"><a class="source" href="https://www.gettyimages.com/detail/photo/bribery-corruption-collecting-money-from-business-royalty-free-image/1436894263?adppopup=true">Jirapong Manustrong/iStock via Getty Images Plus</a></span>
</figcaption>
</figure>
<h2>What’s changing</h2>
<p>The amount of information that the IRS will receive about traditionally “under the table” work is growing.</p>
<p>That’s because the <a href="https://www.congress.gov/bill/117th-congress/house-bill/1319/text">$1.9 trillion COVID-19 relief package</a> President <a href="https://theconversation.com/the-us-delivers-1-9-trillion-jolt-of-economic-relief-4-essential-reads-156930">Joe Biden signed in March 2021</a> lowered the threshold for what third-party payment companies like Venmo will report to taxpayers and the IRS. </p>
<p>Individuals, businesses and nonprofits that earn more than $600 through various online merchants will receive a summary of that income data on a <a href="https://www.irs.gov/businesses/understanding-your-form-1099-k">Form 1099-K</a> – as of the 2023 tax year – and importantly, the IRS will too. </p>
<p>That means companies like Venmo, Etsy and Airbnb will be required to issue these tax documents to anyone earning more than $600 on their sites.</p>
<p>Through 2022, the threshold for these companies to report income to the IRS was $22,000. The much lower cutoff, starting in 2023, means that many Americans who don’t make much money on these sites – and possibly didn’t feel the need to report it on their tax returns – will be forced to change their ways. Taxpayers were, in fact, always required to report this income, and now the IRS will also receive a summary of these earnings that should show up as well on tax returns.</p>
<p>The change to a $600 threshold was supposed to occur for taxes owed on 2022 income but was <a href="https://www.irs.gov/newsroom/irs-announces-delay-for-implementation-of-600-reporting-threshold-for-third-party-payment-platforms-forms-1099-k">delayed at the federal level by a year</a> because of <a href="https://www.taxpayeradvocate.irs.gov/news/nta-blog-heard-loud-and-clear-irs-postpones-implementation-of-600-form-1099-k-reporting-by-a-year/">taxpayer confusion and a lack of clear guidance</a>.</p>
<p>Companies like Venmo are getting ready to make the change by withholding taxes from business payments as soon as <a href="https://help.venmo.com/hc/en-us/articles/4407389460499-2023-Tax-FAQ">June 2023</a>.</p>
<h2>What taxpayers need to do</h2>
<p>If you use an app like Venmo for both personal and business use, creating a <a href="https://help.venmo.com/hc/en-us/articles/4407389460499-2023-Tax-FAQ">separate business account may ease record-keeping</a>. That way, you can separate the non-taxable money you received from relatives who were chipping in for that group gift you bought your grandma for her birthday from the <a href="https://www.cnbc.com/2022/12/27/what-to-know-about-the-1099-k-tax-reporting-change-for-venmo-paypal-.html">taxable payments you got</a> for mowing your neighbor’s lawn. </p>
<p>Anyone earning more than $600 from a side hustle through an online platform in 2023 should be on the lookout for a 1099-K in early 2024. That form may make record-keeping easier, just like getting a W-2 from an employer does. </p>
<p>If you are a taxpayer with earnings not currently reported to you on a tax form like a W-2 or a 1099, one of the most helpful things that you can do to ensure compliance with tax law is to keep good records of all your income. The <a href="https://www.irs.gov/publications/p525">IRS and other sources publish excellent resources</a> to help you understand what income is and is not taxable.</p>
<p>From now on, as before, you should record all of your earnings from every source – and keep in mind that the IRS is getting more access to data regarding transactions than it used to have.</p><img src="https://counter.theconversation.com/content/199952/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Erica Neuman does not work for, consult, own shares in or receive funding from any company or organization that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>An accounting expert points out that income Americans previously thought was invisible to the IRS will now be tallied up and reported by Venmo and similar apps.Erica Neuman, Assistant Professor of Accounting, University of DaytonLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/2011442023-03-23T12:39:53Z2023-03-23T12:39:53ZNRA’s path to recovery from financial woes leaves the gun group vulnerable to new problems<figure><img src="https://images.theconversation.com/files/516421/original/file-20230320-1979-hex189.jpg?ixlib=rb-1.1.0&rect=21%2C17%2C2818%2C1681&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">The gun group might be less sturdy than it appears. </span> <span class="attribution"><a class="source" href="https://www.gettyimages.com/detail/photo/headquarters-building-royalty-free-image/501683621">Kelly Nigro/Moment Open via Getty Images</a></span></figcaption></figure><p>The <a href="https://theconversation.com/is-the-nra-an-educational-organization-a-lobby-group-a-nonprofit-a-media-outlet-yes-92806">National Rifle Association’s</a> <a href="https://www.businessinsider.com/nra-power-lobbying-statistics-gun-control-2017-10">financial firepower</a>, which arose in part due to its large and loyal <a href="https://thehill.com/business-a-lobbying/business-a-lobbying/354317-the-nras-power-by-the-numbers/">membership base</a>, has long been one of the gun group’s main sources of strength.</p>
<p>But the NRA has in recent years faced a financial tsunami, one that came to light <a href="https://www.npr.org/2018/11/29/671799992/nra-2017-tax-records-reveal-decline-in-income">after the 2016 election</a>. A swirl of disagreements with <a href="https://www.cnn.com/2019/08/30/politics/nra-sues-ad-firm-ackerman-mcqueen/index.html">longtime business partners</a>, accusations of <a href="https://www.newyorker.com/news/news-desk/secrecy-self-dealing-and-greed-at-the-nra">waste and misspending</a>, <a href="https://theconversation.com/financial-woes-are-at-the-heart-of-the-nras-tumult-116146">ballooning debt</a> and lawsuits from the <a href="https://theconversation.com/why-new-york-is-suing-the-nra-4-questions-answered-144108">New York</a> and <a href="https://oag.dc.gov/release/ag-racine-sues-nra-foundation-diverting-charitable">Washington, D.C.</a> attorneys general have triggered one embarrassment after another. The NRA tried <a href="https://theconversation.com/the-nra-declares-bankruptcy-5-questions-answered-153423">to declare bankruptcy</a> to cushion some of these blows, <a href="https://www.cnn.com/2021/05/11/politics/national-rifle-association-bankruptcy/index.html">with no luck</a>.</p>
<p>At this point, the <a href="https://www.reuters.com/world/us/nra-cannot-be-dissolved-by-new-york-attorney-general-judge-rules-2022-03-02/">threat of being forced by the authorities to shut down</a> due to alleged improprieties is minimal. But has the NRA managed to weather its financial storm?</p>
<p>As an accounting researcher who <a href="https://fisher.osu.edu/people/mittendorf.3">focuses on the financial performance of nonprofits</a>, I have been closely studying NRA finances <a href="https://theconversation.com/the-nras-financial-weakness-explained-108582">throughout its crisis</a>. I can say the NRA financial picture is, as of early 2023, a mixed bag. The gun group has shored up its financial position over the last few years. However, the way in which that financial recovery came about risks hemorrhaging the NRA’s core supporters.</p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/516433/original/file-20230320-2154-1vd4wc.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="White men look at a machine gun on display in a crowded room with high ceilings" src="https://images.theconversation.com/files/516433/original/file-20230320-2154-1vd4wc.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/516433/original/file-20230320-2154-1vd4wc.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/516433/original/file-20230320-2154-1vd4wc.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/516433/original/file-20230320-2154-1vd4wc.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/516433/original/file-20230320-2154-1vd4wc.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/516433/original/file-20230320-2154-1vd4wc.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/516433/original/file-20230320-2154-1vd4wc.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">NRA members get to see many kinds of firearms at the group’s annual conventions – even machine guns.</span>
<span class="attribution"><a class="source" href="https://www.gettyimages.com/detail/news-photo/attendees-view-a-canik-m2-qcb-50-cal-machine-gun-displayed-news-photo/1240972741?adppopup=true">Patrick T. Fallon/AFP via Getty Images</a></span>
</figcaption>
</figure>
<h2>Digging out of a financial hole</h2>
<p>The NRA’s financial troubles arose at the same time that <a href="https://www.rollingstone.com/politics/politics-news/nra-chief-lapierre-illicit-gains-report-1096433/">scandalous aspects of the organization’s woes</a> – such as longtime NRA leader Wayne LaPierre’s <a href="https://apnews.com/article/shootings-dallas-parkland-florida-school-shooting-gun-politics-school-shootings-727d30a8cfa50c937012e9de29aa5127">free yacht getaways</a> and <a href="https://www.gq.com/story/nra-ceo-wayne-lapierre-suits">luxury suit purchases billed to an NRA contractor</a> – were drawing public attention.</p>
<p>Perhaps the <a href="https://www.grfcpa.com/2018/09/unrestricted-net-assets-and-key-financial-ratios-help-nonprofits-focus-on-their-financial-health/">best measure of a nonprofit’s financial health</a> is its unrestricted net assets – the money at the organization’s disposal after leaving out amounts it has to spend on activities promised to donors and what it owes to others. A multimillion-dollar unrestricted net asset reserve for an organization the size of the NRA can provide financial security. On the other hand, a negative reserve is typically a sign of serious trouble.</p>
<p>The NRA’s reserve was negative at the end of 2017, with a deficit of <a href="https://theconversation.com/the-nras-financial-weakness-explained-108582">more than US$30 million</a> – a sure sign of the troubles already underway. Such a negative balance indicates that after satisfying donor promises, the organization owes more money to others than the value of its assets.</p>
<p>Things only got worse in the following two years, with the NRA approaching an unrestricted net asset deficit of nearly $50 million in 2019. This degree of weakness even led the organization to suggest that it risked <a href="https://nypost.com/2018/08/03/nra-says-its-broke-and-on-the-verge-of-collapse/">imminent failure</a>. However, there was <a href="https://theconversation.com/the-nras-financial-weakness-explained-108582">time for a turnaround</a>.</p>
<p>And that’s what happened. In 2020, the NRA <a href="https://thereload.com/nra-finished-2020-in-the-black-due-to-massive-spending-cuts-after-revenue-falls-legal-costs-skyrocket/">slashed its unrestricted net asset deficit</a> <a href="https://www.documentcloud.org/documents/21096523-nra-2020-financial-statements">by over $38 million</a>. Ironically, it was shortly after pulling off this marked improvement that it <a href="https://www.cnn.com/2021/01/15/business/nra-bankruptcy-new-york-texas/index.html">filed – unsuccessfully – for bankruptcy</a>.</p>
<p>This financial resurgence continued in 2021, with <a href="https://www.sosnc.gov/online_services/search/by_title/_charities">the organization reporting</a> it had eliminated its <a href="https://www.investopedia.com/terms/u/unrestricted-net-assets.asp">unrestricted net asset</a> deficit, building up a surplus of over $10 million. When also including the money set aside for specific uses stipulated by donors – the group’s <a href="https://www.springly.org/en-us/blog/how-to-record-net-assets-in-nonprofit-accounting/">net assets</a> – the NRA’s total available funds reached over $75 million.</p>
<p>These developments may seemingly bode well for the organization’s ability to withstand its <a href="https://www.bloomberg.com/news/articles/2022-11-05/nra-spending-more-on-lawyers-as-revenue-falls-membership-lags">continuing financial troubles</a>. Below the surface, however, there’s an ominous trend. </p>
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<h2>Selective cost cutting</h2>
<p>How did the NRA get on a steadier financial footing?</p>
<p>It wasn’t through growth. <a href="https://www.thetrace.org/2022/05/nra-member-dues-revenue-decline-houston/">NRA revenue declined</a> in 2020 by 4% from $296 million to $284 million, even without taking inflation into account. Revenue fell another 18% to under $234 million in 2021.</p>
<p>Instead, it cut <a href="https://www.sosnc.gov/online_services/search/by_title/_charities">many core programs</a>, including education and training, field services, law enforcement initiatives and recreational shooting.</p>
<p>Cost cutting can help stabilize faltering companies or nonprofits, depending on which costs they cut. The NRA’s <a href="https://thereload.com/nra-has-lost-over-a-million-members-since-corruption-allegations-surfaced/">over 4 million dues-paying members</a> may tolerate lean spending only on certain things and only for so long. What the <a href="https://thereload.com/nra-finished-2020-in-the-black-due-to-massive-spending-cuts-after-revenue-falls-legal-costs-skyrocket/">NRA spent on programs fell</a> by $45 million – more than a 35% decline – in 2020. The organization was quick to attribute the change to the nation’s response to the <a href="https://www.theguardian.com/us-news/2020/jun/29/nra-financial-crisis-layoffs-furloughs">COVID-19 pandemic</a>.</p>
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<p>However, program spending declined <a href="https://abcnews.go.com/US/nra-membership-dues-spending-continue-shrink-report-shows/story?id=85147897">even further in 2021</a>, when life had begun to return to normal, <a href="https://finance.yahoo.com/news/shooting-range-market-reach-2-130500474.html">especially for gun enthusiasts</a>. The NRA spent just $75 million on its programs in 2021, nearly $53 million less than it had two years earlier.</p>
<p>It didn’t cut all costs during these lean years.</p>
<p><a href="https://www.bloomberg.com/news/articles/2022-11-05/nra-spending-more-on-lawyers-as-revenue-falls-membership-lags">Administrative spending in the “legal, audit and taxes”</a> category skyrocketed, from just over $4 million in 2017 to almost $47 million in 2021. Much of this reflects the money NRA paid for its various legal entanglements, largely in fees to its <a href="https://www.thetrace.org/2022/11/nra-annual-revenue-member-dues/">new legal team</a>.</p>
<p>What once was a member-focused organization has quickly become an organization whose primary growth area is legal fees.</p>
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<h2>Was 2022 a turning point?</h2>
<p>Though the NRA apparently shored up its bottom line, its financial neglect of programs like <a href="https://firearmtraining.nra.org/">firearms training</a>, <a href="https://competitions.nra.org/">competitions</a> and field services could ultimately disappoint its members and donors.</p>
<p>The organization has <a href="https://www.cbsnews.com/news/nra-national-rifle-association-membership-revenue-2022/">seen membership dues decline</a> in the past several years, with a loss of <a href="https://thereload.com/nra-has-lost-over-a-million-members-since-corruption-allegations-surfaced/">more than 1 million members</a> since the start of the crisis. I see a risk of a downward spiral: lower revenue, leading to less spending on programs, which leads to further declines in member dues, donations and so on.</p>
<p>The full NRA financial filing for 2022 is not yet available, but there are early signs that it may have been a turning point.</p>
<p>Journalist <a href="https://thereload.com/about/">Stephen Gutowski has reported at The Reload</a> that NRA membership declines meant that even with its more lean spending profile, the organization was poised to end 2022 at a loss.</p>
<p>I believe that with fewer members and fewer items left to cut, the NRA may take more drastic steps in the years ahead. And, with 2022 having been an election year – prime time for the NRA to take center stage – declining funds <a href="https://www.bloomberg.com/news/articles/2022-11-05/nra-spending-more-on-lawyers-as-revenue-falls-membership-lags?leadSource=uverify%20wall">prevented an all-out political spending blitz</a>.</p>
<p>Though it may once have seemed like the NRA would <a href="https://www.newsweek.com/will-nra-dissolved-who-would-replace-them-1524413">suddenly implode due to its weak finances</a>, its decline today is more of a slow burn that’s diminishing its scale and threatens its future. The growth of other pro-gun groups, such as <a href="https://www.cassidy.senate.gov/newsroom/press-releases/cassidy-crapo-colleagues-reintroduce-hearing-protection-act">Gun Owners of America</a> and the <a href="https://www.politico.com/story/2019/08/18/nra-gun-lobbyist-1466701">Second Amendment Foundation</a>, poses further risks for a shrinking NRA.</p>
<p>In my view, the NRA’s risky strategy of cutting program costs while spending more on legal battles could portend a further and continued weakening of the organization in the years ahead.</p><img src="https://counter.theconversation.com/content/201144/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Brian Mittendorf does not work for, consult, own shares in or receive funding from any company or organization that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>The National Rifle Association is spending heavily on legal fees and slashing programs for its members.Brian Mittendorf, Fisher Designated Professor of Accounting, The Ohio State UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1983442023-02-08T13:15:59Z2023-02-08T13:15:59ZFew of South Africa’s chartered accountants are black: hearing their stories suggests what to fix<figure><img src="https://images.theconversation.com/files/506304/original/file-20230125-18-tcfz60.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">There are ways to make the path to a chartered accountancy qualification less fraught for black candidates.</span> <span class="attribution"><span class="source">Andrey Popov/Shutterstock</span></span></figcaption></figure><p>Chartered accountants can be found in the upper echelons of organisations all over the world as CEOs, directors and senior managers. They are often responsible for an entity’s finances, managing and reporting how funds are sourced and used, and the tax implications. Others are auditors.</p>
<p>Becoming a chartered accountant (CA) is not easy. In South Africa one must complete both undergraduate and postgraduate qualifications, serve a minimum of three years of articles (a supervised practical learnership) and complete two professional exams. </p>
<p>There is also a big racial disparity in South Africa’s chartered accountancy realm: only 8,610 (17%) of the 51,152 <a href="https://www.saica.org.za/members/member-info/membership-statistics">registered CAs</a> are black. That’s in stark contrast to the country’s demographics; <a href="https://www.statista.com/statistics/1116076/total-population-of-south-africa-by-population-group/">nearly 81%</a> of South Africans are black. </p>
<p>This gap is rooted in history. For most of apartheid’s white-minority rule from 1948 to 1994, black citizens were not allowed to become chartered accountants. The first black man <a href="https://www.saica.org.za/about/overview/our-history">qualified in 1976</a> and the first black woman <a href="https://www.accountancysa.org.za/cover-story-winning-women-nonkululeko-gobodo-casa/">in 1987</a>. Though the profession is now open to all, it’s clear that historical disparities persist. </p>
<p>Most of the scientific literature that examines the challenges faced by aspirant and qualified black CAs is presented through the lens of professional bodies, universities, training firms and scholarship funders. Very few studies directly engage the black aspirants to find out what their lived struggles are. </p>
<p>I wanted to fill this gap because when people can share their own lived experiences, as the scholar Cheryl McEwan <a href="https://doi.org/10.1080/0305707032000095009?">puts it</a>, “their agency and sense of belonging is restored”. </p>
<p>So, for <a href="https://uir.unisa.ac.za/handle/10500/29357">my PhD</a>, I interviewed 22 recently qualified black CAs. Their lived experiences brought to light the brutal nature of the challenges they were experiencing – and emphasised that while some of these could be attributed to apartheid’s legacy, others were a manifestation of the complex racial and class divisions in contemporary society. </p>
<p>My findings suggest some easy and practical interventions that can be applied in <a href="http://www.thedtic.gov.za/financial-and-non-financial-support/b-bbee/b-bbee-charters/">the government’s initiatives</a> to transform the profession. The same framework can be applied in higher education and workplace training to promote inclusive learning and training practices. For academics, it lays a foundation for an avenue of research that responds to the practical challenges experienced in the profession. </p>
<h2>No room for failure</h2>
<p>My interviewees all qualified between 2016 and 2022 at different universities across the country. Some had taken more than the average seven years to qualify; a few had temporarily dropped out of their university studies before returning and completing their degrees. </p>
<p>The aspirants spoke of how gaining access to universities accredited by the <a href="https://www.saica.co.za/">South African Institute of Chartered Accountants</a> was a logistical nightmare. Universities must be accredited for their degrees to be recognised by the institute.</p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/university-transformation-the-wrong-research-questions-are-being-asked-67339">University transformation: the wrong research questions are being asked</a>
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<p>Many of the students were based in townships and rural areas, while the accredited institutions are found in big cities like Johannesburg, Cape Town and Durban. Students had to leave the safety provided by their immediate families and communities. </p>
<p>Because accounting qualifications have high entrance requirements and the aspirants had the necessary aptitude, they got merit scholarships which covered the cost of their relocation. But the terms and conditions of those scholarships left no room for failure, irrespective of the reasons. </p>
<p>One of the interviewees described how and why she lost her funding:</p>
<blockquote>
<p>In my third year, I lost my dad and {was} also not feeling well. So, I actually failed my third year. I was on <a href="https://www.saica.org.za/initiatives/thuthuka/apply-to-the-thuthuka-bursary-fund">Thuthuka</a> {a bursary fund} but obviously if you do fail, they do stop your tuition.</p>
</blockquote>
<p>She spent time in hospital and lost her funding. She later got a job, funded her part-time studies and eventually qualified.</p>
<h2>An unfamiliar setting</h2>
<p>University settings also presented some challenges.</p>
<p>Despite most students in a class being black, they felt displaced. Interviewees lamented the displays of cultural and language familiarity between white lecturers and white students in class. This reduced the black students to spectators of their tuition rather than active participants. One said:</p>
<blockquote>
<p>So sometimes I just think the system itself was just not for us … If I can put it that way.</p>
</blockquote>
<p>Another told me:</p>
<blockquote>
<p>… there is a lot of difference between me and a white person … because our education system doesn’t teach you how to learn. It teaches you how to remember. It’s all good and well, but now when you’re required to apply yourself, you don’t remember how to because you’ve never done it before.</p>
</blockquote>
<p>This comment was a reference to the country’s <a href="https://theconversation.com/how-south-africa-can-disrupt-its-deeply-rooted-educational-inequality-48531">extremely unequal schooling system</a>. </p>
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Read more:
<a href="https://theconversation.com/how-south-africa-can-disrupt-its-deeply-rooted-educational-inequality-48531">How South Africa can disrupt its deeply rooted educational inequality</a>
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<p>The kind of knowledge they brought into the system was not fit for purpose and the interviewees found themselves constantly challenged even though they were smart. One reflected:</p>
<blockquote>
<p>I think for me it was an exposure thing. That is why I would do poorly in those tests, or questions, or scenarios I had to solve. I found that for example, if a case study is based on the airline industry, you’re not exposed to that as a black person. So, it makes it difficult to then have that logic, even if something can be very straightforward because you haven’t been in that situation.</p>
</blockquote>
<p>So, although the aspirants had physically gained access to the qualification, there was constant confirmation that they operated on the periphery of it. </p>
<p>I was struck by how important the interviewees’ families were on these tough, sometimes lonely journeys. They consistently referenced their families as the strong pillars that helped them overcome adversity. </p>
<p>Academic research about accounting doesn’t often recognise the role of community in black people’s successful academic journeys. A better understanding of the role of community could help universities to respond appropriately to their students’ learning needs and should form the basis for free mental health support.</p>
<h2>Towards a new framework</h2>
<p>Based on my research, I propose a new framework that aims to narrow the gap between black students’ lived realities and the accounting qualification offered by universities.</p>
<p>For example, universities might adjust their admission requirement in a way that accounts for the inequity in basic education. They can also teach these students the language of business and collaborate with corporate organisations to aid students’ understanding of business practices in South Africa. </p>
<p>A more inclusive curriculum would also use examples that reflect the whole of society, allowing students from different backgrounds to engage with those examples.</p><img src="https://counter.theconversation.com/content/198344/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Sedzani Musundwa receives postdoctoral funding from BANKSETA. </span></em></p>Smart, capable students struggled to navigate cultural and language norms in university accounting classrooms.Sedzani Musundwa, Senior Lecturer in Financial Accounting, University of South AfricaLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1946152022-11-16T13:27:50Z2022-11-16T13:27:50ZFTX bankruptcy is bad news for the charities that crypto mogul Sam Bankman-Fried generously supported<figure><img src="https://images.theconversation.com/files/495432/original/file-20221115-25-iu086m.jpg?ixlib=rb-1.1.0&rect=116%2C125%2C5721%2C3431&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">FTX founder Sam Bankman-Fried has lost the fortune he aimed to give away. </span> <span class="attribution"><a class="source" href="https://www.gettyimages.com/detail/news-photo/sam-bankman-fried-speaks-onstage-during-the-first-annual-news-photo/1241501470?adppopup=true">Craig Barritt/Getty Images for CARE For Special Children</a></span></figcaption></figure><p><em>FTX, an <a href="https://www.npr.org/2022/11/15/1136641651/ftx-bankruptcy-sam-bankman-fried-ftt-crypto-cryptocurrency-binance">exchange for trading cryptocurrencies</a>, quickly became bankrupt and defunct in November 2022. Its founder, <a href="https://www.vox.com/the-goods/23458837/sam-bankman-fried-ftx-sbf-downfall-explained">Sam Bankman-Fried</a>, is broke, and the 30-year-old former billionaire <a href="https://www.theblock.co/post/186175/criminal-charges-against-sbf-on-the-table-after-ftxs-epic-collapse">could be</a> in serious <a href="https://www.yahoo.com/news/could-sam-bankman-fried-prison-171405966.html">legal trouble</a> for his alleged financial improprieties. The Conversation asked <a href="https://scholar.google.com/citations?user=Rap6TboAAAAJ&hl=en&oi=ao">Brian Mittendorf</a>, an accounting scholar at The Ohio State University, to explain the significance of FTX’s implosion for philanthropy and the nonprofits Bankman-Fried supported.</em></p>
<h2>What was the connection between FTX and philanthropy?</h2>
<p>Though FTX was a <a href="https://www.nytimes.com/2022/11/10/technology/ftx-binance-crypto-explained.html">cryptocurrency exchange</a>, <a href="https://www.theguardian.com/commentisfree/2022/nov/15/ftx-cryptocurrency-sam-bankman-fried">Bankman-Fried</a> viewed it as something more: a <a href="https://fortune.com/2022/11/15/what-is-effective-altruism-sam-bankman-fried-wealth-career/">vehicle to change the world</a> through giving. <a href="https://www.marketwatch.com/story/sam-bankman-frieds-philanthropic-fund-halts-donations-amid-ftx-collapse-and-questions-about-legitimacy-11668192531">Bankman-Fried often noted that his goal</a> for his business was to make money in order to donate it to support a variety of social causes like <a href="https://ftxfoundation.org/global-health-welfare/">global health</a> and <a href="https://puck.news/the-s-b-f-pandemic/">investigative journalism</a>. Bankman-Fried was also a major donor to politicians in the Democratic Party, while FTX co-founder <a href="https://www.theverge.com/2022/11/15/23459268/sam-bankman-fried-ftx-bankruptcy-crypto-lobbying-washington">Ryan Salame gave millions to Republicans</a>.</p>
<p>Bankman-Fried was an acolyte of Scottish philosopher <a href="https://www.newyorker.com/magazine/2022/08/15/the-reluctant-prophet-of-effective-altruism">William MacAskill</a> and the <a href="https://fortune.com/2022/11/15/what-is-effective-altruism-sam-bankman-fried-wealth-career/">effective altruism</a> movement, which emphasizes causes that its supporters believe can do the most good. Many effective altruists “<a href="https://fortune.com/2022/11/15/what-is-effective-altruism-sam-bankman-fried-wealth-career/">earn to give</a>,” trying to make as much money as they can in order to maximize their charitable impact. In recent years, a growing number of effective altruists have also championed “<a href="https://www.newyorker.com/magazine/2022/08/15/the-reluctant-prophet-of-effective-altruism">longtermism</a>” – the view that giving to causes that donors believe will greatly benefit future generations is a higher priority than meeting current needs.</p>
<p>The <a href="https://ftx.com/giving">lines between FTX</a>, the <a href="https://ftxfoundation.org/about/">FTX Foundation</a> – Bankman-Fried’s philanthropic collective – and a longtermist offshoot of that foundation called the <a href="https://ftxfoundation.org/future-fund/">FTX Future Fund</a> were blurry. The promises for big giving, however, were clear, with <a href="https://givingpledge.org/pledger?pledgerId=445">Bankman-Fried pledging</a> to <a href="https://www.bloomberg.com/news/features/2022-04-03/sam-bankman-fried-ftx-s-crypto-billionaire-who-wants-to-give-his-fortune-away?leadSource=uverify%20wall">donate the bulk of his fortune to assorted causes</a>.</p>
<h2>What’s the most immediate fallout of FTX’s demise for charities?</h2>
<p>Soon after FTX collapsed, the <a href="https://www.coindesk.com/business/2022/11/10/ftxs-effective-altruism-future-fund-team-resigns">FTX Future Fund’s entire staff resigned</a>. </p>
<p>The team cited concerns about the <a href="https://fortune.com/2022/11/11/team-behind-sam-bankman-fried-charity-ftx-future-fund-have-quit-over-possible-deception-or-dishonesty/">legitimacy and integrity</a> of FTX’s operations. By quitting as a group, the staffers signaled that the fund had halted disbursements, while also attempting to distance the broader effective altruism movement from its most famous adherent. </p>
<p>Though Bankman-Fried and his FTX-affiliated philanthropic endeavors were only getting started toward meeting their lofty ambitions, many charities and other organizations had already received funding, and many had <a href="https://www.propublica.org/atpropublica/bankman-fried-family-donates-5-million-to-propublica">obtained further promises for future funding</a>. Those commitments now seem unlikely to ever be disbursed. Many <a href="https://www.washingtonpost.com/business/ftx-bankruptcy-also-endangers-founders-philanthropic-gifts/2022/11/14/1f8f43d0-63ea-11ed-b08c-3ce222607059_story.html">recipients, including ProPublica</a> – a nonprofit investigative media outlet – are no longer counting on receiving those funds.</p>
<p>All signs point to much of that promised giving being <a href="https://www.forbes.com/sites/johnhyatt/2022/11/14/sam-bankman-fried-promised-millions-to-nonprofits-research-groups-thats-not-going-too-well-now/">unlikely to materialize</a>.</p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/495500/original/file-20221115-22-7x6od4.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="FTX app displayed on a mobile device" src="https://images.theconversation.com/files/495500/original/file-20221115-22-7x6od4.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/495500/original/file-20221115-22-7x6od4.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/495500/original/file-20221115-22-7x6od4.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/495500/original/file-20221115-22-7x6od4.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/495500/original/file-20221115-22-7x6od4.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/495500/original/file-20221115-22-7x6od4.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/495500/original/file-20221115-22-7x6od4.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
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<span class="caption">FTX logo and mobile app ads seen November 10, 2022, one day before the cryptocurrency exchange initiated Chapter 11 bankruptcy proceedings.</span>
<span class="attribution"><a class="source" href="https://www.gettyimages.com/detail/news-photo/in-this-photo-illustration-the-ftx-logo-and-mobile-app-news-photo/1440504670?adppopup=true">Leon Neal/Getty Images</a></span>
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<h2>Can charities be forced to relinquish any donations tied to FTX that they have received?</h2>
<p>What might happen to the money that had already been disbursed is less clear.</p>
<p>The possibility of it being “clawed back” from the causes that received funds from FTX affiliates or Bankman-Fried himself is <a href="https://forum.effectivealtruism.org/posts/o8B9kCkwteSqZg9zc/thoughts-on-legal-concerns-surrounding-the-ftx-situation">real but less likely</a>. Funds given in the 90 days prior to bankruptcy are the <a href="https://www.science.org/content/article/crypto-company-s-collapse-strands-scientists">most likely</a> to be vulnerable to claims in bankruptcy, but other gifts could be at risk too, if the activities of Bankman-Fried or FTX are <a href="https://nonprofitquarterly.org/should-charities-be-protected-from-the-claws-of-fraudulent-transfer-laws/">found to be fraudulent</a>. Even in that case, however, charitable gifts are given <a href="https://www.congress.gov/bill/105th-congress/senate-bill/1244">extra protection</a>, limiting the likelihood of such a “claw back.”</p>
<h2>What will the FTX fallout mean for cryptocurrency donations?</h2>
<p>Charities have become more <a href="https://www.morningbrew.com/daily/stories/2022/08/31/how-crypto-is-changing-philanthropy">adept at receiving cryptocurrency donations</a> over the years, primarily due to a <a href="https://www.devex.com/news/will-2022-be-a-boom-year-for-cryptocurrency-philanthropy-102241">multiyear boom</a> in crypto markets and <a href="https://www.fidelitycharitable.org/giving-account/what-you-can-donate/donating-bitcoin-to-charity.html">tax considerations</a> that can make it advantageous for crypto investors to <a href="https://theconversation.com/charities-take-digital-money-now-and-the-risks-that-go-with-it-103983">give away some of their large, untaxed gains</a>. </p>
<p>In 2022, that boom gave way to a <a href="https://www.cnn.com/2022/11/10/investing/bitcoin-crypto-ftx-gold/index.html">crypto bust</a>, <a href="https://www.wfae.org/2022-11-14/how-ftxs-fallout-impacts-the-world-of-cryptocurrency">which has only gotten worse</a> in the aftermath of FTX’s collapse. I believe it will reduce the flow of crypto to charities to a trickle – at least for now.</p>
<p>The FTX collapse also highlights the inherent risks charities face when they hold onto crypto assets and engage with these largely unregulated markets. The <a href="https://philanthropynewsdigest.org/news/silicon-valley-community-foundation-awarded-2.2-billion-in-2021">Silicon Valley Community Foundation</a>, a charity which pools resources for the benefit of northern California, has seen fluctuations in values of its crypto holdings to the tune of <a href="https://www.sfchronicle.com/business/networth/article/Silicon-Valley-foundation-s-crypto-assets-14029709.php">billions of dollars</a>. Other charities have shown themselves eager to <a href="https://www.coindesk.com/layer2/2022/04/05/how-crypto-is-changing-philanthropy/">join the craze</a> as well. The FTX fiasco may prompt charities to think twice before seeking crypto gifts or holding onto cryptocurrencies instead of liquidating them as soon as possible.</p>
<h2>What does this whole episode say about philanthropy?</h2>
<p>Though the failures at FTX may not indicate similar failures are imminent, either in <a href="https://www.cnbc.com/2022/11/14/cryptocom-ceo-says-will-prove-naysayers-wrong-amid-ftx-contagion-fears.html">crypto markets</a> or in <a href="https://www.nytimes.com/2022/11/13/business/ftx-effective-altruism.html">effective altruism</a> efforts, they do highlight some of the risks. </p>
<p>FTX operated in a <a href="https://www.politico.com/news/2022/11/14/crypto-exchange-ftx-regulation-bankman-fried-00066815">lightly regulated</a> environment, and Bankman-Fried’s <a href="https://www.bloomberg.com/news/features/2022-04-03/sam-bankman-fried-ftx-s-crypto-billionaire-who-wants-to-give-his-fortune-away">brand of effective altruism</a> was praised for being both visionary and disruptive. Together, these features highlighted an ethos of philanthropic giving that, by <a href="https://www.axios.com/2022/11/11/sam-bankman-fried-altruism-failed">favoring big bets</a> and bold goals, adopted the big-tech mantra of <a href="https://www.snopes.com/fact-check/move-fast-break-things-facebook-motto/">moving fast and breaking things</a>.</p>
<p>In my view, FTX’s epic failure highlights the value of being <a href="https://www.coindesk.com/policy/2022/11/10/ftx-collapse-sparks-alarm-from-us-lawmakers/">transparent and accountable</a>, both in business endeavors and giving. Minding the nitty-gritty details, heeding regulatory obligations and <a href="https://theconversation.com/donor-beware-pause-before-you-give-to-any-cause-188117">giving to established organizations</a> may seem humdrum, but it’s worth the trouble and is surely more “effective” than the alternative in the long run.</p>
<p>As details about FTX’s demise came to light, a very different new and highly visible megadonor briefly made one of her intermittent appearances in the news. <a href="https://mackenzie-scott.medium.com/of-and-by-104c6ff53ff0">MacKenzie Scott</a>, a novelist and the ex-wife of Jeff Bezos, announced on Nov. 14, 2022, that she had <a href="https://www.cnn.com/2022/11/14/business/mackenzie-scott-donations">given nearly US$2 billion</a> in the previous seven months to charities that work directly on acute community needs, like many local chapters of Big Brothers Big Sisters of America and the National Urban League.</p>
<p>Although Scott isn’t operating a traditional foundation and she has bucked many philanthropic conventions with her <a href="https://theconversation.com/how-mackenzie-scotts-12-billion-in-gifts-to-charity-reflect-an-uncommon-trust-in-the-groups-she-supports-173496">emphasis on social justice</a>, her approach and record stand in stark contrast to Bankman-Fried’s.</p><img src="https://counter.theconversation.com/content/194615/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Brian Mittendorf does not work for, consult, own shares in or receive funding from any company or organization that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>The founder of the now-defunct exchange for trading cryptocurrencies believed in ‘earning to give.’Brian Mittendorf, Fisher Designated Professor of Accounting, The Ohio State UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1787642022-03-15T16:22:48Z2022-03-15T16:22:48ZEveryone should have a say on the future of green accounting<figure><img src="https://images.theconversation.com/files/451990/original/file-20220314-21-2f44z7.jpg?ixlib=rb-1.1.0&rect=114%2C0%2C5234%2C3268&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Canadians need to get more involved in how accounting practices consider sustainability.</span> <span class="attribution"><span class="source">(Shutterstock)</span></span></figcaption></figure><p>Accounting is widely considered the language of business — its impact, however, <a href="https://doi.org/10.1016/0361-3682(88)90003-7">goes far beyond the world of business, reaching far into all of our lives</a>. </p>
<p>Accounting and corporate reports typically — and incorrectly — assume that value can best be expressed in financial terms. They also assume that value is determined through so-called “<a href="https://www.investopedia.com/terms/f/fairmarketvalue.asp">fair markets</a>” where goods and services are priced accurately and in good faith.</p>
<p>These ideological biases result in more of our lives being understood predominantly in money terms, with <a href="https://doi.org/10.1016/j.aos.2015.10.004">people and the environment being treated as commodities</a>. Increasingly, values cease to exist outside the financial realm. </p>
<p>Accounting and the mysterious language of accountants are important to all of us — citizens cannot leave the reporting to the accounting profession and <a href="https://doi.org/10.1016/S1045-2354(02)00207-1">their assumptions about who and what is important</a>. They assume profits are good, however created, but employee well being and environmental degradation are irrelevant.</p>
<p>It suits accountants to be seen as too technical to be understood by the average person — that way, they don’t have to justify their decisions. <a href="https://www.ircsscanada.ca/en/consultation-paper">Recent proposals on sustainability reporting</a> for all significant Canadian organizations reflects this, and should have us all concerned. </p>
<h2>Sustainability reporting</h2>
<p>Sustainability reporting — sometimes also referred to as environmental, social and governance (ESG) reporting — requires organizations to publicly report on a wide range of performance goals, not just profits. </p>
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Read more:
<a href="https://theconversation.com/what-is-sustainability-accounting-what-does-esg-mean-we-have-answers-150996">What is sustainability accounting? What does ESG mean? We have answers</a>
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<p>Sustainability reporting is useful to employees, customers, citizens and governments to assess the impact and sustainability of an organization’s activities. The most popular ESG reporting system, developed by the <a href="https://www.globalreporting.org/">Global Reporting Initiative (GRI)</a>, highlights environmental issues, employee well being and social contributions made by organizatons.</p>
<figure class="align-center ">
<img alt="A man walking in front of a giant wall of solar panels" src="https://images.theconversation.com/files/452012/original/file-20220314-21-j6r6kg.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/452012/original/file-20220314-21-j6r6kg.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=412&fit=crop&dpr=1 600w, https://images.theconversation.com/files/452012/original/file-20220314-21-j6r6kg.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=412&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/452012/original/file-20220314-21-j6r6kg.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=412&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/452012/original/file-20220314-21-j6r6kg.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=518&fit=crop&dpr=1 754w, https://images.theconversation.com/files/452012/original/file-20220314-21-j6r6kg.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=518&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/452012/original/file-20220314-21-j6r6kg.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=518&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Sustainability reporting requires organizations to publicly report on a wide range of performance goals, not just profits.</span>
<span class="attribution"><span class="source">THE CANADIAN PRESS/Jeff McIntosh</span></span>
</figcaption>
</figure>
<p>But over the last few years, the international accounting profession, led by the <a href="https://www.ifrs.org/groups/international-sustainability-standards-board/">International Sustainability Standards Board (ISSB)</a>, has created its own set of rules that focuses solely on the needs of investors.</p>
<p>This issue has recently come to a head in several countries, including Canada. The Canadian accounting profession supports the ISSB, and, dramatically, is proposing to extend this <a href="https://www.theguardian.com/books/2016/apr/15/neoliberalism-ideology-problem-george-monbiot">neoliberal approach to every significant organization</a>.</p>
<h2>Missing perspectives</h2>
<p>Last December, the Canadian accounting profession quietly released their <a href="https://www.ircsscanada.ca/en/consultation-paper">consultation paper on sustainability standard setting in Canada</a>. </p>
<p>There are clearly some positives: It makes some welcome gestures regarding diversity, equity and inclusion, suggests making the setting of standards independent from the accounting profession and it appeals to the public interest. </p>
<p>But the consultation paper does not define <em>who</em> that public is, nor does it offer substantive proposals in any of the above listed areas. It also ignores Indigenous and feminist perspectives, which <a href="https://www.theguardian.com/commentisfree/2017/mar/27/western-idea-private-property-flawed-indigenous-peoples-have-it-right">question the very core of accounting’s definitions of assets and liabilities</a>.</p>
<p>As public policy expert <a href="https://www.abebooks.com/women-counted-new-feminist-economics-Marilyn/31112417470/bd">Marilyn Waring pointed out decades ago</a>, if women really counted, then unpaid labour, clean water and air and beautiful landscapes would also count. <a href="https://www.cbc.ca/news/indigenous/canada-indigenous-languages-legislation-1.4285633">Canada increasingly recognizes</a> the need to reflect on, and publicly discuss, the important role of language as a tool of colonization and repression. </p>
<p>Language directs our thinking, and the language of business is no exception. Sustainability reporting is an invitation to start discussions about how accounting language <a href="https://doi.org/10.1016/j.cpa.2022.102430">structures society and renders important aspects of life invisible</a>.</p>
<p>The Canadian accounting profession has <a href="https://doi.org/10.1016/S0361-3682(99)00030-6">always prioritized male and colonial-settler views</a>, meaning that it prioritizes private ownership and market transactions. For all its talk, the consultation paper focuses on making sure the ISSB’s financial perspective is implemented in Canada. </p>
<p>The proposed sustainability standard board aims to mirror the ISSB, as shown in the <a href="https://www.ircsscanada.ca/en/consultation-paper">terms of reference section of the consultation paper</a>. It does not recognize its own financial, gendered, colonial biases and ignores multi-stakeholder approaches such as the GRI. Instead it paves the way for <a href="https://www.globalwitness.org/en/blog/what-greenwashing/">systematic greenwashing</a>. </p>
<figure class="align-center ">
<img alt="Four children pulling on the end of a rope" src="https://images.theconversation.com/files/452006/original/file-20220314-103117-1qn3s1j.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/452006/original/file-20220314-103117-1qn3s1j.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/452006/original/file-20220314-103117-1qn3s1j.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/452006/original/file-20220314-103117-1qn3s1j.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/452006/original/file-20220314-103117-1qn3s1j.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/452006/original/file-20220314-103117-1qn3s1j.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/452006/original/file-20220314-103117-1qn3s1j.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
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<span class="caption">The new proposed sustainability standard board neglects the public interest, ignores future generations and the planet’s capacity to meet the needs of our children.</span>
<span class="attribution"><span class="source">(Shutterstock)</span></span>
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</figure>
<p>The Canadian standards will apply to all significant organizations, not just those listed on a stock exchange. Sustainability reporting, as defined by the ISSB, pressures governments, publicly owned organizations, not-for-profit enterprises and most corporations to focus on investors and bankers while ignoring the concerns of everyone else.</p>
<p>Canadian accountants’ woeful neglect of the public interest ignores the impact these standards will have on future generations and the planet’s capacity to meet the needs of our children. </p>
<h2>Now is the time to act</h2>
<p>The rules of the Canadian sustainability standards board will eventually make their way into laws and regulations. The most inclusive and sensible approach to encourage genuine sustainability and inclusion is a perspective that includes multiple stakeholders, including the general public. </p>
<p>But without public intervention and outcry — and without public demand that the accounting profession do something different — people in Canada will be left with ESG rules that <a href="https://doi.org/10.1080/00014788.2013.794411">focus on investors, not the public</a>. </p>
<p>It is important that people in Canada make their voice heard and let the accounting profession (and the government) know that inclusive sustainability rules are essential for Canada. The consultation process is open to anyone to respond until March 31. </p>
<p>The future of ESG reporting, and the future of sustainability in Canada, is at stake. Who makes the rules, and which stakeholders are considered when the rules are set, matter greatly. </p>
<p>The sustainability reporting rules will influence the required disclosures for organizations. This, in turn, will impact decisions and actions relating to sustainability affecting Canadians.</p><img src="https://counter.theconversation.com/content/178764/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>David Cooper has, in the past, received funding from the Social Sciences and Humanities Research Council and the former Certified General Accountants of Alberta. He is affiliated with the Alberta Liabilities Disclosure Project, active in the District Association of the Federal NDP and founder and former editor of the academic journal, Critical Perspectives on Accounting.. </span></em></p><p class="fine-print"><em><span>Daniela Senkl has, in the past, received Institutional Grants from the Social Sciences and Humanities Research Council and currently receives funding from the Canadian Academic Accounting Association. She is a member of Extinction Rebellion.</span></em></p><p class="fine-print"><em><span>Jeff Everett has, in the past, received funding from the Social Sciences and Humanities Research Council.</span></em></p>We cannot leave reporting to the accounting profession and their assumptions about who and what is important. Recent proposals by the Canadian accounting profession should concern us all.David Cooper, Emeritus Professor of Accounting, University of AlbertaDaniela Senkl, Assistant Professor in Accounting, University of GuelphJeff Everett, Professor of Accounting, York University, CanadaLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1720362021-12-09T13:36:25Z2021-12-09T13:36:25ZHow Elon Musk saved big on taxes by giving away a ton of his Tesla stock<figure><img src="https://images.theconversation.com/files/436379/original/file-20211208-137612-m784v2.jpg?ixlib=rb-1.1.0&rect=85%2C57%2C4688%2C2705&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">The Tesla CEO began to sell stock worth billions of dollars in late 2021.</span> <span class="attribution"><a class="source" href="https://newsroom.ap.org/detail/TeslaAnnualMeeting/edc300d7f2df4f8797f608b875c9762f/photo?boardId=37be9465fcce45d283d5431cccb20a6a&st=boards&mediaType=audio,photo,video,graphic&sortBy=&dateRange=Anytime&totalCount=205&currentItemNo=1">AP Photo/Jae C. Hong</a></span></figcaption></figure><p>Tesla CEO <a href="https://www.cnbc.com/2021/11/16/taxes-arent-the-only-reason-elon-musk-is-selling-tesla-stock-.html">Elon Musk liquidated Tesla shares</a>, starting in November 2021, that <a href="https://www.cnn.com/2022/01/02/investing/elon-musk-tesla-stock-sales-spacex-investment/index.html">totaled more than US$16 billion</a>. So far, he <a href="https://theconversation.com/should-elon-musk-try-to-solve-the-problem-of-world-hunger-with-6-billion-5-questions-answered-171187">hasn’t declared plans to donate</a> the proceeds from selling those shares to charity.</p>
<p>Instead, Musk <a href="https://www.cnn.com/2022/02/15/business/elon-musk-charity-donation/index.html">donated $5.7 billion in Tesla shares to one or more charities</a> in late 2021, according to paperwork <a href="https://www.sec.gov/Archives/edgar/data/0001318605/000089924322006240/xslF345X03/doc5.xml">filed with the Securities and Exchange Commission</a>. He has <a href="https://www.marketwatch.com/story/elon-musks-5-7-billion-secret-why-we-may-never-find-out-who-benefited-from-his-tesla-stock-donation-11645050146">not disclosed which charities they were</a>. But based on <a href="https://theconversation.com/the-50-biggest-us-donors-gave-or-pledged-nearly-28-billion-in-2021-bill-gates-and-melinda-french-gates-account-for-15-billion-of-that-total-175778">what’s known about the year’s biggest donors</a>, he is now among the nation’s most significant philanthropists.</p>
<p>As an <a href="https://scholar.google.com/citations?user=yG_t15YAAAAJ&hl=en">accounting scholar</a>, I’m not surprised that he went in this direction. It’s much better – from a tax perspective – to just donate stock directly to a cause a taxpayer supports. That is simpler to do than, say, selling Tesla shares and then donating the proceeds. Donating stock also more sharply <a href="https://www.schwabcharitable.org/non-cash-assets/public-traded-securities">reduced the taxes he owes</a>.</p>
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<h2>The mechanics of the charitable deduction</h2>
<p>Billionaire taxpayers are among the roughly <a href="https://econweb.ucsd.edu/%7Ejandreon/AndreoniDurnford20190715a.pdf">5%-10% of Americans</a> who can significantly trim their tax bills when they give money to charity. This is because they can <a href="https://theconversation.com/whats-the-charitable-deduction-an-economist-explains-162647">deduct the value of their donations</a> from their taxable income when they file their taxes – reducing what they owe Uncle Sam.</p>
<p>Before the tax reforms enacted during the Trump administration, a much bigger share of Americans could take advantage of this arrangement, known as the <a href="https://www.irs.gov/charities-non-profits/charitable-organizations/charitable-contribution-deductions">charitable deduction</a>. But because of those tax changes, many of those people now take the <a href="https://smartasset.com/taxes/standard-deduction">standard deduction</a> instead.</p>
<p>There are usually limits on how big the charitable deduction can be, however. Since 2018, the maximum amount of cash contributions that can be deducted has been 60% of total <a href="https://www.irs.gov/e-file-providers/definition-of-adjusted-gross-income">adjusted gross income</a>. Often called AGI, this is all of the income someone generates minus specific adjustments allowed by the tax code.</p>
<p>The government suspended this restriction in 2020 and 2021 because of the COVID-19 pandemic to encourage support for charities.</p>
<p>Similarly, the government let all taxpayers who didn’t itemize their returns to take a <a href="https://www.cnbc.com/2021/11/30/you-can-deduct-up-to-300-in-charitable-donations-this-year.html">$300 charitable deduction</a>, or $600 for couples who file jointly in 2021, as it did in 2020. However, both of these changes are currently scheduled to expire in 2022.</p>
<h2>Cash, stock, art and real estate</h2>
<p>Wealthy people usually donate cash, just like those of us who don’t have <a href="https://theconversation.com/5-ways-mackenzie-scotts-8-5-billion-commitment-to-social-and-economic-justice-is-a-model-for-other-donors-162829">billions of dollars</a>, <a href="https://milliondollarlist.org/data/donors/index.html">or even millions</a>, to spare.</p>
<p>But there are other ways affluent Americans can use their assets to support the causes of their choice. The law lets them donate any kind of property, as long as it’s with “<a href="https://www.pgdc.com/pgdc/story/rev-rul-86-63">disinterested generosity</a>.” Generally speaking, this means that donors may not obtain any substantial benefits in return for their charitable gifts. Donations may go to nonprofits or, in some cases, domestic or <a href="https://www.devex.com/news/big-concerns-over-gates-foundation-s-potential-to-become-largest-who-donor-97377">global</a> <a href="https://scholarship.law.duke.edu/faculty_scholarship/3731/">government agencies</a>.</p>
<p>The most common way to donate without giving money is by giving away stocks and other <a href="https://www.investopedia.com/terms/a/appreciation.asp">securities that have appreciated</a> – that is, grown in value. The benefit of giving away the stocks directly is that if they were to sell those appreciated investments instead, they would have to pay capital gains taxes on their profits before distributing any remaining cash to the charity. </p>
<p>The tax consequences depend on whether or not taxpayers have owned the stock for at least a year.</p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/435182/original/file-20211201-21-9akkyb.jpg?ixlib=rb-1.1.0&rect=85%2C13%2C2910%2C1585&q=45&auto=format&w=1000&fit=clip"><img alt="Bill Gates, in a green sweater, smiles while Warren Buffett speaks" src="https://images.theconversation.com/files/435182/original/file-20211201-21-9akkyb.jpg?ixlib=rb-1.1.0&rect=85%2C13%2C2910%2C1585&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/435182/original/file-20211201-21-9akkyb.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=423&fit=crop&dpr=1 600w, https://images.theconversation.com/files/435182/original/file-20211201-21-9akkyb.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=423&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/435182/original/file-20211201-21-9akkyb.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=423&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/435182/original/file-20211201-21-9akkyb.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=531&fit=crop&dpr=1 754w, https://images.theconversation.com/files/435182/original/file-20211201-21-9akkyb.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=531&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/435182/original/file-20211201-21-9akkyb.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=531&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Major donors like Bill Gates and Warren Buffett get bigger tax breaks when they give appreciated stock to charity.</span>
<span class="attribution"><a class="source" href="https://www.gettyimages.com/detail/news-photo/bill-gates-and-warren-buffett-speak-with-journalist-charlie-news-photo/632858944">Spencer Platt/Getty Images</a></span>
</figcaption>
</figure>
<h2>A hypothetical example</h2>
<p>Consider the following example:</p>
<p>Imaginary taxpayer Johnny Dollar owns 10 shares of the hypothetical company Veridian Inc. that he purchased for $10,000. This stock’s current market value is $100,000 and he wants to use it to make a donation to his favorite charity.</p>
<p>If Johnny sold the stock he would be taxed on a $90,000 gain. Assuming that he would have to pay a 15% tax rate for the gain, he would owe $13,500 in <a href="https://www.investopedia.com/terms/c/capital_gains_tax.asp">capital gains tax</a>, leaving only $86,500 left to give away.</p>
<p>If Johnny were to instead give that stock directly to the charity, he wouldn’t have to include any capital gain in his taxable income, and the charity would get a bigger boost. Plus, Johnny could deduct the $100,000 from his income at tax time.</p>
<p>This is how it would work if Johnny has owned the stock for longer than one year, which is what the government considers to be a <a href="https://www.investopedia.com/articles/personal-finance/101515/comparing-longterm-vs-shortterm-capital-gain-tax-rates.asp">long-term investment</a>. However, the IRS limits deductions tied to donations of stock and other forms of property to <a href="https://www.irs.gov/publications/p526#en_US_2020_publink100017780">30% of AGI</a>.</p>
<p>Things would work differently for Johnny if he were to give to charity assets he’s owned for less than a year. The authorities see the value of such property – which, if sold, would be subject to a higher tax rate – to be the asset’s purchase price. In this example, that would be $10,000 – even if the asset’s value has soared. The maximum deduction anyone can take for a gift of such assets is <a href="https://www.bkd.com/alert-article/2021/09/enhance-your-charitable-contributions-0">50% of their adjusted gross income</a>. </p>
<p>If instead the value of Johnny’s stock has declined, he would typically be better off if he were to sell first and donate the proceeds. That’s because he could deduct that loss against any other gains he might have from selling property, reducing his overall taxable income. He could then give away the money obtained by selling those shares – getting a <a href="https://www.cancer.org/involved/donate/more-ways-to-give/gifts-of-securities.html">tax deduction</a> that also reduces his taxable income.</p>
<p>There are, of course, other kinds of property that Americans can donate, including artwork, vehicles, real estate and even cryptocurrency. While there are some unique considerations for each of those, the general rules discussed in the example above still apply.</p>
<p>In short, whenever high-income people give away property that is worth more than when they got it, they avoid paying taxes on the gain and they get an income tax deduction for the contribution.</p>
<p>But when they hang on for longer than a year to property they purchased for a relatively low amount and that increased substantially in value, they will reap the <a href="https://www.fidelitycharitable.org/guidance/charitable-tax-strategies/reduce-taxable-income.html">biggest tax benefits</a>. </p>
<p>Should the gift be so large that it exceeds this maximum deductible amount in a given year, it’s possible to spread out this tax break for <a href="https://www.irs.gov/publications/p526#en_US_2020_publink1000229824">up to five more years</a>.</p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/435662/original/file-20211203-15-3lr1rm.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="Oprah Winfrey, speaking into a hand-held microphone against a blue backdrop." src="https://images.theconversation.com/files/435662/original/file-20211203-15-3lr1rm.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/435662/original/file-20211203-15-3lr1rm.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/435662/original/file-20211203-15-3lr1rm.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/435662/original/file-20211203-15-3lr1rm.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/435662/original/file-20211203-15-3lr1rm.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/435662/original/file-20211203-15-3lr1rm.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/435662/original/file-20211203-15-3lr1rm.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Oprah Winfrey has given hundreds of millions of dollars to charity.</span>
<span class="attribution"><a class="source" href="https://www.gettyimages.com/detail/news-photo/oprah-winfrey-speaks-during-oprahs-2020-vision-your-life-in-news-photo/1211002146">Tom Cooper/Getty Images</a></span>
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</figure>
<h2>Taking advantage of big donations</h2>
<p>Timing tends to play a role in terms of how big a tax break donors can get from their charitable gifts. Because the government limits how much income-related tax liability the taxpayers can reduce through their use of the charitable deduction, wealthy donors benefit most in terms of tax reduction when they make large donations in years with especially high incomes.</p>
<p>Going that route avoids the risk of not being able to deduct the full amount of the donation from taxable income in a single year.</p>
<p>Although the taxpayer could carry the extra amount to be deducted into as many as five future years, there would be a risk that they might not have high enough income to make full use of that arrangement because what they earn <a href="https://taxfoundation.org/billionaires-tax-on-capital-gains/">can fluctuate</a> a great deal.</p>
<h2>How and why big donors do this</h2>
<p>There are good reasons that rich people can afford to give away most or even all of their official income. People like Oprah Winfrey and Elon Musk are likely to have other resources to finance their lifestyles, such as investment income, immense amounts of savings or even borrowing.</p>
<p>And to be sure, there are <a href="https://theconversation.com/a-window-into-the-hearts-and-minds-of-billionaire-donors-139161">many reasons wealthy Americans give away large sums</a> to charity that have nothing to do with tax breaks or accounting conventions.</p>
<p>Just like <a href="https://theconversation.com/5-reasons-why-people-give-their-money-away-plus-1-why-they-dont-87801">the rest of us</a>, they may be generous by nature and want to give back by supporting a given cause they care about, whether it’s helping low-income students finish college without piling up lots of debt or increasing <a href="https://www.artplaceamerica.org/">public access to the arts</a>.</p>
<p>[<em>Too busy to read another daily email?</em> <a href="https://memberservices.theconversation.com/newsletters/?source=inline-toobusy">Get one of The Conversation’s curated weekly newsletters</a>.]</p>
<p><em>This article was updated on Feb. 18, 2022, with news about Musk’s 2021 SEC filings</em></p><img src="https://counter.theconversation.com/content/172036/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Eric James Allen does not work for, consult, own shares in or receive funding from any company or organization that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Giving away stock that has soared and that the donor has owned for at least a year makes the biggest dent in what share the IRS takes.Eric James Allen, Assistant Professor of Accounting, University of California, RiversideLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1665812021-09-22T14:15:31Z2021-09-22T14:15:31ZAccountants can reduce the environmental impact of mining: pointers for South Africa<figure><img src="https://images.theconversation.com/files/420455/original/file-20210910-13-1t7p3k3.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Coal processing in South Africa.</span> <span class="attribution"><span class="source">Shutterstock</span></span></figcaption></figure><p>The South African coal mining industry has a long history, dating back to the late 19th century, and contributes significantly to the economy. The <a href="http://www.coalminingmatters.co.za/">coal sector</a> employs 92,230 people and annual earnings are <a href="https://www.mineralscouncil.org.za/sa-mining/coal">R27.9 billion</a> (about US$2 billion). But the industry is causing severe environmental challenges. </p>
<p>For example, Emalahleni, a city in the country’s Mpumalanga province, has been exposed for over a century to the continuous mining of coal. It is <a href="https://ejatlas.org/conflict/coal-pollution-from-eskom-in-emalahleni-mpumalanga-south-africa#:%7E:text=Places%20like%20Emalahleni%20have%20inadequate,diabetes%2C%20birth%20defects%2C%20premature%20deaths">experiencing</a> the sterilisation of land due to underground fires, water pollution, surface collapse, and acidification of topsoil. </p>
<p><a href="https://theconversation.com/mining-activities-continue-to-dispossess-black-families-in-south-africa-125437">Communities</a> in the vicinity of a mine can experience severe health challenges and might even have to <a href="https://www.bothends.org/uploaded_files/uploadlibraryitem/1case_study_South_Africa_updated.pdf">be relocated</a>.</p>
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<em>
<strong>
Read more:
<a href="https://theconversation.com/air-pollution-temperature-and-respiratory-disease-a-south-african-study-141080">Air pollution, temperature and respiratory disease: a South African study</a>
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<p>South Africa has environmental and other regulations which mining companies must comply with. The <a href="https://www.iodsa.co.za/page/KingIVReport">King IV</a> report provides background to how companies can operate regarding the economy, environment and society. The <a href="https://www.esi-africa.com/industry-sectors/finance-and-policy/mining-industry-coming-to-terms-with-the-carbon-tax-act/">Carbon Tax Act</a> and the <a href="https://www.gov.za/documents/national-environmental-management-act">National Environmental Management Act</a> 107 of 1998 are fairly stringent. But the industry still produces acid mine drainage and other waste as part of its daily activities. This has to be managed.</p>
<p>Environmental management has scientific and engineering aspects, of course, but there are also accounting practices which could support greener mining. Management accountants can reduce the environmental footprint of companies while keeping them profitable, by decreasing costs and waste. The original purpose of environmental management accounting was to provide information for internal use. But it can be included in a company’s financial statements and other annual reports for external stakeholders to make informed decisions.</p>
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Read more:
<a href="https://theconversation.com/the-case-for-turning-south-africas-coal-fields-into-a-renewable-energy-hub-138315">The case for turning South Africa's coal fields into a renewable energy hub</a>
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<p>We have been working on a <a href="https://www.mdpi.com/1996-1073/13/18/4897/htm">framework</a> that would guide management accountants in making decisions about these environmental issues. First we came up with a set of propositions about mining and its environmental impacts. Then we surveyed coal mining practitioners to get their views on the propositions.</p>
<p>We found that most of them were unfamiliar with environmental management accounting concepts. They saw various laws as punitive rather than helping to balance company profit and environmental concerns. They also indicated that our new framework would need to emphasise risk management in guiding the decisions of coal mines.</p>
<h2>Environmental management accounting practices</h2>
<p>Environmental management accounting practices are tools that can be used to identify, analyse, manage and reduce environmental costs. They can identify occurrences and activities in mining processes where waste production can be reduced, resulting in cost-cutting opportunities.</p>
<p>These practices include material flow cost accounting, activity-based costing and life cycle costing. The first looks at the flows of materials, energy and water. The second identifies activities that drive costs, those that don’t add value (if the activity is not necessary in the process) and can be reduced. Life cycle costing considers the costs of all activities at the mine from the day it starts operating until the mine closes. It even includes activities after closure if something happens at the mining site that needs to be handled to reduce its environmental footprint.</p>
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Read more:
<a href="https://theconversation.com/how-south-africas-rural-communities-are-getting-a-raw-deal-from-mining-118464">How South Africa's rural communities are getting a raw deal from mining</a>
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<p>To refine our decision-making framework, we interviewed supervisors, senior managers, general managers, chief executive officers and employees of different mining companies. We wanted to know what kind of information they felt they needed to make decisions on environmental impacts. We also held a focus group to identify associations between the different information components of the framework.</p>
<p>We <a href="https://www.mdpi.com/1996-1073/13/18/4897/htm">found</a> that only 27% of the interviewees were familiar with the concept of environmental management accounting.</p>
<p>But all the focus group participants agreed that reduced water pollution, improved health, and improved costing and decision-making would benefit investors, coal mining employees and the natural environment. They agreed that environmental management accounting would add value for all these stakeholders by providing useful information.</p>
<p>In 2019 a <a href="https://www.researchgate.net/publication/336128719_An_exploration_of_the_implementation_and_usefulness_of_environmental_management_accounting-_A_comparative_study_between_Australia_and_Sri_Lanka">study</a> comparing Australia and Sri Lanka showed that environmental management accounting was gaining traction in various companies. The <a href="https://www.researchgate.net/publication/336128719_An_exploration_of_the_implementation_and_usefulness_of_environmental_management_accounting-_A_comparative_study_between_Australia_and_Sri_Lanka">study</a> showed that professional accounting bodies should incorporate it into training programmes to meet industry requirements. They also made the point that this approach to accounting as the basis for decision-making brings new challenges. For example, accountants have to work closely with other departments to track materials and processes.</p>
<p>Our study showed that more training is needed in South Africa. From the interviews it became clear that there is a need for the harmonisation of production and environmental management activities.</p>
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<strong>
Read more:
<a href="https://theconversation.com/climate-change-ditch-90-of-worlds-coal-and-60-of-oil-and-gas-to-limit-warming-to-1-5-c-experts-167494">Climate change: ditch 90% of world's coal and 60% of oil and gas to limit warming to 1.5°C – experts</a>
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<p>Our work showed the value of green industrialisation. We hope that more executives with decision-making powers will use the tools of environmental management accounting in future. More case studies in the South African coalmining industry would help to enhance the framework and determine its industrial scalability.</p><img src="https://counter.theconversation.com/content/166581/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Huibrecht Margaretha (Breggie) van der Poll receives funding from the National Research Foundation as a C3 Rated researcher.</span></em></p>Environmental management accounting can be used to identify, analyse, manage and reduce environmental costs.Huibrecht Margaretha (Breggie) van der Poll, Professor of Management Accounting, University of South AfricaLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1633542021-06-28T09:29:07Z2021-06-28T09:29:07ZAmazon found destroying unsold stock – would better accounting practices help?<figure><img src="https://images.theconversation.com/files/408175/original/file-20210624-15-f5u72s.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">
</span> <span class="attribution"><span class="source">Frederic Legrand - COMEO / shutterstock</span></span></figcaption></figure><p>A recent <a href="https://www.itv.com/news/2021-06-21/amazon-destroying-millions-of-items-of-unsold-stock-in-one-of-its-uk-warehouses-every-year-itv-news-investigation-finds">undercover investigation</a> in an Amazon warehouse in Dunfermline, Scotland, reported the disposal of more than 130,000 “new or lightly used” objects in a single week in just that one location. Public outrage was <a href="https://twitter.com/search?q=%23amazonwaste&src=typed_query">clear</a>. Questions were asked about how Amazon could be so wasteful and why weren’t the usable objects sent to those in need?</p>
<p><div data-react-class="Tweet" data-react-props="{"tweetId":"1406887601647370240"}"></div></p>
<p>Amazon responded to the <a href="https://www.itv.com/news/2021-06-21/amazon-destroying-millions-of-items-of-unsold-stock-in-one-of-its-uk-warehouses-every-year-itv-news-investigation-finds">ITV investigation</a> by saying it is “working towards a goal of zero product disposal”, and that “no items are sent to landfill in the UK”. UK business secretary Kwasi Kwarteng responded to the warehouse story with “surprise” implying that this waste was unexpected (both <a href="https://sustainability.aboutamazon.com/environment/circular-economy">Amazon</a> and the <a href="https://www.gov.scot/publications/making-things-last-circular-economy-strategy-scotland/">Scottish government</a> have circular economy strategies designed to limit waste to landfill). The Amazon whistleblower behind the story claimed “there’s no rhyme or reason to what gets destroyed” suggesting this “surprise” waste was the consequence of a disorganised system.</p>
<p>But waste doesn’t just happen. Trash is the result of <a href="https://discardstudies.com/what-is-discard-studies/">socio-cultural acts of classification</a> in which objects are considered valueless within a particular context. Organisations classify objects within financial accounts. From an accounting perspective, the waste in the Amazon warehouse was neither disorganised nor unexpected but rather was a predictable consequence of accounting designed for a linear economy.</p>
<p>Most objects in financial accounts are classified as stock, a type of asset. Stocks depreciate in value over time, until ultimately – when cost of storage outweighs potential return – that unsold stock becomes a liability. Organisations can choose how to dispose of their liabilities but, in balance-book terms, the stock has become waste: worthless objects to be discarded (in the cheapest possible way).</p>
<p>Society is producing <a href="https://datatopics.worldbank.org/what-a-waste/trends_in_solid_waste_management.html">more waste every year</a> and yet, for most of us, that waste remains out of sight. Most wealthy countries have designed waste management systems that remove perceived worthless objects from our economy quickly and cheaply. </p>
<p>The efficiency of these hidden waste management systems is reflected in financial accounts. Traditional waste infrastructure (landfill and materials recovery facilities) is accessible and reliable enough to still be the cheapest disposal option for many organisations, despite <a href="https://www.gov.scot/policies/taxes/landfill-tax/">landfill taxes</a> designed to encourage alternative paths for unwanted objects.</p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/408422/original/file-20210625-13-1lpc0ee.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="Two men load bins onto a lorry" src="https://images.theconversation.com/files/408422/original/file-20210625-13-1lpc0ee.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/408422/original/file-20210625-13-1lpc0ee.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/408422/original/file-20210625-13-1lpc0ee.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/408422/original/file-20210625-13-1lpc0ee.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/408422/original/file-20210625-13-1lpc0ee.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/408422/original/file-20210625-13-1lpc0ee.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/408422/original/file-20210625-13-1lpc0ee.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Most people in wealthy countries never have to think about where their waste goes.</span>
<span class="attribution"><span class="source">Peter_Fleming / shutterstock</span></span>
</figcaption>
</figure>
<p>What makes the Amazon case particularly alarming is the volumes of waste involved (several million tonnes a year by some <a href="https://www.thecourier.co.uk/fp/news/local/fife/2325205/amazon-dunfermline-probe-suggests-millions-of-unsold-items-being-destroyed/">estimates</a>). Importantly most of this waste is not from Amazon’s own retail business, but rather the unwanted stock from some of the thousands of smaller organisations that use Amazon as a retail platform and distributor. The waste generated by financial accounting is a systemic problem.</p>
<p>The low cost of landfill disposal is another example of the now <a href="https://www.routledge.com/Routledge-Handbook-of-Environmental-Accounting/Bebbington-Larrinaga-ODwyer-Thomson/p/book/9780367152338">well-recognised</a> failure of financial accounts to capture negative environmental consequences. However, in the case of waste disposal, it is not necessarily that alternatives to landfill or recycling cost more. Rather, the associated costs (such as the markets for reuse) are unknown and so difficult to include within financial accounts.</p>
<h2>Accounting in a circular economy</h2>
<p>We should encourage a transition from a linear to more <a href="https://theconversation.com/uk/topics/circular-economy-9017">circular economy</a>, in which resources are reused and the need for landfill largely eliminated. To do this, we must begin to understand the financial costs associated with recycling and reuse, how objects retain some value beyond an individual organisational context and how this value might be reported within accounts. We need to envisage a system of <a href="https://www.routledge.com/Routledge-Handbook-of-Environmental-Accounting/Bebbington-Larrinaga-ODwyer-Thomson/p/book/9780367152338">accounting for circularity</a>.</p>
<p>Accounting for circularity will inevitably require organisations to produce social and environmental reports in addition to financial accounts, and a recognition that organisations cannot become circular on their own. <a href="https://www.sciencedirect.com/science/article/pii/S1045235421000393#b0010">Accounting in a circular economy</a> requires collaborative accounts between organisations that transcend traditional boundaries and extend across supply chains to consider value in production and consumption systems. </p>
<p>Through these accounts we can begin to make waste visible, identify ecological limits to consumption and challenge those organisations and organisational practices that test those limits. In the case of Amazon, this might involve both the platform (Amazon) and its sellers collaborating on publicly available accounts that capture the material value of excess stock.</p>
<p>Efforts to account for the material flow within our production and consumption system are being pursued and Scotland, where I work and the Amazon warehouse is located, is leading the way. This week Zero Waste Scotland <a href="https://www.bbc.co.uk/news/uk-scotland-scotland-business-57575706">publicised its report</a> which found that the total weight of resources used in 2017 by individual Scots (18.4 tonnes) was more than double predicted sustainable levels (8 tonnes). Work is still required to understand the contribution of organisational practices to this national material flow. </p>
<p>Scotland’s proposed <a href="https://www.gov.scot/binaries/content/documents/govscot/publications/consultation-analysis/2020/05/developing-scotlands-circular-economy-proposals-legislation-analysis-responses/documents/developing-scotlands-circular-economy-proposals-legislation-analysis-responses/developing-scotlands-circular-economy-proposals-legislation-analysis-responses/govscot:document/developing-scotlands-circular-economy-proposals-legislation-analysis-responses.pdf">Circular Economy Bill</a> – including mandatory reporting of business waste – was put on hold <a href="https://www.circularonline.co.uk/news/scotlands-circular-economy-bill-will-not-be-progressed-due-to-covid-19/?gclid=EAIaIQobChMI7eCy7Put8QIVATcYCh14jQesEAAYASAAEgJDvvD_BwE">indefinitely</a> in light of the pandemic. However, the Amazon warehouse exposé reinforces that accounting for waste should be put back on the legislative agenda.</p><img src="https://counter.theconversation.com/content/163354/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Lucy Wishart does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Financial accounts don’t currently factor in environmental problems.Lucy Wishart, Associate Lecturer, University of St AndrewsLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1509962021-02-02T21:42:55Z2021-02-02T21:42:55ZWhat is sustainability accounting? What does ESG mean? We have answers<figure><img src="https://images.theconversation.com/files/381832/original/file-20210201-13-1mexsmc.jpg?ixlib=rb-1.1.0&rect=382%2C845%2C5874%2C2977&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">As consumers, we can change our lifestyle, our investments and demand change from our governments. Together — along with accountants — we can get there.</span> <span class="attribution"><span class="source">(Charl Folscher/Unsplash)</span></span></figcaption></figure><p>Sustainability is a hot topic today due to increasing awareness of climate change and inequality, among other pressing issues. </p>
<p>The Earth just recorded a <a href="https://www.sciencedaily.com/releases/2021/01/210115103020.htm">seven-year hot streak</a> and we’re approaching the COVID-19 pandemic’s first anniversary. The crisis has had enormous implications on our mental health, the economy and income inequality. Post-pandemic, we need to build back better, and sustainability will be the key to success. </p>
<h2>What is sustainability?</h2>
<p>There is no universal definition of sustainability, but many point to <a href="https://sustainabledevelopment.un.org/content/documents/5987our-common-future.pdf">the United Nations’ 1987 Brundtland Report</a> that calls for sustainable development that meets our needs today without compromising the needs of those in the future.</p>
<p>This idea of meeting our needs without sacrificing the needs of our children, or our children’s children, tends to form the basis of most sustainability definitions.</p>
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<em>
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Read more:
<a href="https://theconversation.com/huge-government-debts-mean-canada-is-robbing-its-kids-147977">Huge government debts mean Canada is robbing its kids</a>
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</p>
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<p>The definition focuses on the planet’s capacity to meet our needs. Without a healthy planet, we will be unable to meet our needs for food, clean air, shelter and other basics. Those of us who live in the developed world — high income earners in particular — are far more likely to be contributing <a href="https://www.bbc.com/news/business-51906530">disproportionately to climate change, while those who live in less affluent parts of the world are more likely to suffer the consequences</a>. </p>
<figure class="align-center ">
<img alt="A yacht" src="https://images.theconversation.com/files/381836/original/file-20210201-13-norcah.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/381836/original/file-20210201-13-norcah.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=338&fit=crop&dpr=1 600w, https://images.theconversation.com/files/381836/original/file-20210201-13-norcah.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=338&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/381836/original/file-20210201-13-norcah.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=338&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/381836/original/file-20210201-13-norcah.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=425&fit=crop&dpr=1 754w, https://images.theconversation.com/files/381836/original/file-20210201-13-norcah.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=425&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/381836/original/file-20210201-13-norcah.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=425&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Rich people are particular polluters and contribute to climate change much more than everyday citizens.</span>
<span class="attribution"><span class="source">(Pixabay)</span></span>
</figcaption>
</figure>
<h2>Who’s responsible for sustainability?</h2>
<p>We all have a role to play in achieving sustainability, and these roles are interconnected. As consumers, we can make <a href="https://www.leannekeddie.ca/single-post/2019/03/20/can-our-family-of-six-generate-no-carbon-emissions-im-about-to-find-out">changes to our lifestyles</a> to reduce our waste and use cleaner energy sources, but that’s not enough. </p>
<p>We buy products and services produced by companies, so they need to be responsible too. It’s estimated that <a href="https://www.cdp.net/en/articles/media/new-report-shows-just-100-companies-are-source-of-over-70-of-emissions">71 per cent of all greenhouse gas emissions come from just 100 companies</a>, including ExxonMobil and Shell. If these companies produced sustainable goods and services while consumers also took individual responsibility, it could have a powerful impact. </p>
<p>Governments play an important role too, creating and enforcing regulations such as putting a price on carbon to disincentivize its use.</p>
<p>Regulators <a href="https://www.sec.gov/">like the Securities and Exchange Commission</a> in the United States and the <a href="https://www.securities-administrators.ca/">Canadian Securities Administrators</a> in Canada also set rules around what information publicly traded companies are required to disclose. These regulators require audited, financial information from public firms, but the same cannot be said for sustainability information that’s mostly voluntary and typically not audited. </p>
<p>As a result, we are left with missing information, or <a href="https://doi.org/10.1016/j.aos.2011.12.001">subject to volumes of information about what firms <em>want</em> to talk about, likely in an effort to enhance their reputation</a>.</p>
<h2>What is sustainability accounting?</h2>
<p><a href="https://hbr.org/2020/12/the-future-of-esg-is-accounting">Sustainability accounting</a> is the practice of measuring, analyzing and reporting a company’s social and environmental impacts. </p>
<p>Various stakeholders have different interests. Employees may be interested in wage inequality — for example, how much more the CEO makes than the average worker. In the 1970s, <a href="https://www.epi.org/publication/reining-in-ceo-compensation-and-curbing-the-rise-of-inequality/">CEOs made 20 to 30 times more money than the average employee — today, they make 300 times more</a>. </p>
<p>Communities may be interested in how much pollution or greenhouse gases a firm is producing so that their neighbourhoods remain clean and safe. Investors are usually interested in a firm’s financial performance, including ESG.</p>
<h2>What is ESG?</h2>
<p>ESG refers to the environmental, social and governance information about a firm. <a href="https://doi.org/10.1007/s10551-011-1052-1">There is growing evidence that companies that take their environmental and social responsibilities seriously perform better financially</a>. This has naturally made investors sit up and take notice. </p>
<p><a href="https://www.theglobeandmail.com/investing/article-a-guide-to-socially-responsible-investing-and-how-to-get-started/">Sustainable responsible investing</a> (SRI), or ESG investing, uses this information about a company to inform investment decisions. </p>
<p>ESG investors are attracted to companies that meet certain ESG criteria while they avoid investing in companies they believe are unethical, like tobacco or gun manufacturers (<a href="https://www.businessinsider.com/what-are-sin-stocks">known as sin stocks</a>). They also pressure firms to improve their ESG performance, or they divest from some companies completely.</p>
<h2>How do we measure sustainability?</h2>
<p>Measuring sustainability is where it gets tricky. Much of the information used to gauge a firm’s sustainability is provided by the company itself, and it’s not always audited. This makes it very different than financial information, which is subject to detailed audits.</p>
<p>Third-party organizations use this company-provided information as the basis to create different ratings and assessments, meaning there are serious issues with their analyses. While many firms provide this information voluntarily, <a href="https://www.sciencedirect.com/science/article/abs/pii/S0361368211001140?via%3Dihub">many say one thing but do another</a>, burnishing their reputation, for example, while continuing to pollute.</p>
<p>This means that a company’s true sustainability performance is difficult to accurately gauge. Because their ESG disclosures are voluntary, businesses don’t have to divulge anything they don’t want to, and there are few consequences for grand, baseless claims or non-disclosure. </p>
<h2>The need for sustainability accounting</h2>
<p>There is huge potential here, however, for sustainability accounting to play a key role. </p>
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<p>
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<strong>
Read more:
<a href="https://theconversation.com/its-time-to-train-accountants-in-sustainability-102626">It's time to train accountants in sustainability</a>
</strong>
</em>
</p>
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<p>There are currently a number of different ways to report ESG information. Among the most popular is the <a href="https://www.globalreporting.org/">Global Reporting Initiative</a>, which takes a multi-stakeholder perspective. That means that information on how a company’s actions affect many different parties — not just shareholders — is reported. </p>
<p>This can include local communities and employees. This approach captures many different elements of a company’s business operations. That’s more in line with a long-term view of sustainability itself and is one of the features that differentiates the Global Reporting Initiative from other measures.</p>
<p>There are other frameworks and proposals, including <a href="https://www.ifrs.org/projects/work-plan/sustainability-reporting/">a current proposal by the International Financial Reporting Standards (IFRS)</a> — followed by companies in many countries — to create their own sustainability accounting standards. The issue? While the proposal would focus on providing pertinent information to investors, <a href="https://arc.eaa-online.org/blog/open-letter-chair-ifrs-foundation-trustees">those same investors tend to be short-term thinkers and sustainability is inherently a long-term concept</a>. </p>
<p>So while ESG has piqued their interest in making more money, that won’t necessarily lead to the broader, enduring societal sustainability that’s urgently needed in the midst of the climate crisis. </p>
<figure class="align-center ">
<img alt="Flames rise from mountain ridges." src="https://images.theconversation.com/files/382071/original/file-20210202-21-ieygzf.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/382071/original/file-20210202-21-ieygzf.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=343&fit=crop&dpr=1 600w, https://images.theconversation.com/files/382071/original/file-20210202-21-ieygzf.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=343&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/382071/original/file-20210202-21-ieygzf.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=343&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/382071/original/file-20210202-21-ieygzf.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=431&fit=crop&dpr=1 754w, https://images.theconversation.com/files/382071/original/file-20210202-21-ieygzf.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=431&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/382071/original/file-20210202-21-ieygzf.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=431&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Flames rise from mountain ridges as a wildfire burns in Granby, Colo., in October 2020.</span>
<span class="attribution"><span class="source">(AP Photo/David Zalubowski)</span></span>
</figcaption>
</figure>
<p>Right now, the current measurement systems <a href="https://doi.org/10.1177/0007650315576134">are inconsistent and incomparable</a>. Unlike the financial information for public companies that we can compare and rely upon, we do not have the same reliability for sustainability accounting information.</p>
<h2>Why does it matter?</h2>
<p>Sustainability accounting, ESG investing and SRI are not going away any time soon as pressure grows on companies to measure and report their sustainability information.</p>
<p>In terms of environmental sustainability, long-term efforts are critical for the sake of humanity and the planet. <a href="https://www.accountingforsustainability.org/en/index.html">Sustainability accounting can help companies do business differently because what gets measured, after all, gets managed</a>. </p>
<p>To achieve environmental sustainability, we need strong corporate standards that are quantifiably enforced, <a href="https://theconversation.com/its-time-to-train-accountants-in-sustainability-102626">accountants trained to accurately and comprehensively measure sustainability</a> — and we all need to play a role in changing how we live. </p>
<p>Our words and actions matter. As consumers, we can change our lifestyle, our investments and demand change from our governments. Together — along with accountants — we can get there.</p><img src="https://counter.theconversation.com/content/150996/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Leanne Keddie does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>To achieve environmental sustainability, we need strong corporate standards that are quantifiably enforced, accountants trained to accurately measure sustainability — and we must all play a role.Leanne Keddie, Assistant Professor, Sprott School of Business, Carleton UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1527292021-01-25T17:51:53Z2021-01-25T17:51:53ZFinancial professions must pivot to stave off technological extinction<figure><img src="https://images.theconversation.com/files/380334/original/file-20210124-23-1475qga.jpg?ixlib=rb-1.1.0&rect=0%2C0%2C4928%2C3260&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">The accounting profession and others in the financial services industry are at risk of extinction due to technological advances. </span> <span class="attribution"><span class="source">(Adeolu Eletu/Unsplash)</span></span></figcaption></figure><p><a href="https://hbr.org/2017/03/how-blockchain-is-changing-finance">Blockchain technology threatens</a> to upend the financial sector. While this presents an opportunity to reduce costs for businesses and consumers alike, it may also make some professions, like accounting, obsolete. </p>
<p>What can financial professionals do to reposition and rebrand themselves in the face of potential extinction?</p>
<p>They’re not the first to be replaced by technology, after all. Over the past two decades, travel agents have been <a href="https://www.expedia.ca/">replaced by sites like Expedia</a> <a href="https://www.priceline.com/?vrid=5dacfeb1b7a72633bf47e0412cbb04ec">and Priceline</a>, while taxi drivers are being supplanted <a href="https://www.uber.com/ca/en/">by Uber</a>. </p>
<p>What’s different here is that accounting and finance are considered <a href="https://doi.org/10.1177%2F0950017015621480">elite professions</a>. These vocations are highly paid and require high levels of education and training, raising questions about how other professions might fare in the face of technological disruption.</p>
<p>How do professions at risk of extinction reassert their value in order to stand a chance at survival?</p>
<h2>What do they do best?</h2>
<p>The first thing professions need to do is reassess their value proposition. What does their profession do better than anyone else? How can this expertise be repackaged in order to appeal to new clients or customers, or develop new service lines?</p>
<p>As an example, accountants have long been aware that technology has the potential to disrupt their profession. Some are suggesting that blockchain <a href="https://www.aicpa.org/content/dam/aicpa/interestareas/frc/assuranceadvisoryservices/downloadabledocuments/blockchain-technology-and-its-potential-impact-on-the-audit-and-assurance-profession.pdf">may replace</a> auditing altogether. However, auditors have been able to successfully repackage their expertise to expand into new areas like <a href="https://www.emerald.com/insight/content/doi/10.1108/AAAJ-03-2013-1252/full/html">awards ceremonies</a>, <a href="https://doi.org/10.1016/j.aos.2008.02.003">business school rankings</a> or even <a href="https://doi.org/10.1111/j.1911-3846.2011.01108.x">sustainability reports</a>. </p>
<p>To do this, the accounting profession had to figure out where its strengths lie and how these might be combined with other forms of expertise to create something new.</p>
<p>One place auditors are doing so is in the area of <a href="https://doi.org/10.1016/S0361-3682(96)00037-2">sustainability assurance</a>, which <a href="https://www.icaew.com/-/media/corporate/files/technical/audit-and-assurance/assurance/sustainability-assurance-your-choice.ashx?la=en">involves auditing</a> a client’s social, economic and environmental performance. This could mean, for instance, assessing and verifying an industrial client’s reported greenhouse gas emissions. </p>
<figure class="align-center ">
<img alt="Four smokestacks against a blue sky." src="https://images.theconversation.com/files/380446/original/file-20210125-21-yplnvd.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/380446/original/file-20210125-21-yplnvd.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/380446/original/file-20210125-21-yplnvd.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/380446/original/file-20210125-21-yplnvd.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/380446/original/file-20210125-21-yplnvd.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/380446/original/file-20210125-21-yplnvd.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/380446/original/file-20210125-21-yplnvd.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">One area of promise for accountants is sustainability assurance that involves auditing a company’s sustainability claims. An example is ensuring a business is truly cutting back its greenhouse gas emissions.</span>
<span class="attribution"><span class="source">(Leon Gao/Unsplash)</span></span>
</figcaption>
</figure>
<p>Some auditors are recognizing that while they don’t possess the scientific know-how to validate the science behind sustainability reports, they are able to engage experts from those areas so that, together, they can create a new business line.</p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/how-blockchain-can-democratize-green-power-87861">How blockchain can democratize green power</a>
</strong>
</em>
</p>
<hr>
<p>While accountants have been unable to entirely eliminate the threat of technological extinction, some have been able to revive their position in the market by finding new buyers for their services. </p>
<h2>If you can’t beat ’em, join ’em</h2>
<p>Blockchain technology poses a unique challenge because it was designed to upend the traditional financial order. The cryptocurrency <a href="https://link.springer.com/chapter/10.1007/978-3-030-17740-9_3">Bitcoin is created, distributed, traded and stored with the use of blockchain, essentially a decentralized, peer-to-peer ledger system</a> that is changing the way money is exchanged.</p>
<p>More recently, a new blockchain use called <a href="https://academy.binance.com/en/articles/the-complete-beginners-guide-to-decentralized-finance-defi">decentralized finance</a> (also referred to as “DeFi”) has introduced financial applications that aim to <a href="https://www.coindesk.com/what-is-defi">eliminate traditional financial intermediaries</a> like banks. </p>
<p>Although the probability of banks being replaced by blockchain-based applications is unlikely in the short term, the trend could take hold in the long run. As a result, <a href="https://www.coindesk.com/the-big-banks-riding-bitcoins-bull-run">several banks</a> have developed platforms that allow their clients to trade cryptocurrencies like Bitcoin, Ether or Ripple.</p>
<p>Global financial services company <a href="https://www.jpmorgan.com/solutions/cib/news/digital-coin-payments">J.P. Morgan</a> has developed a digital coin that provides instantaneous payments between institutional clients. The high-profile financial institution’s embrace of blockchain-based products represents an abrupt departure from comments made by the company’s CEO in 2017, when he called Bitcoin <a href="https://money.cnn.com/2017/09/12/investing/jamie-dimon-bitcoin/index.html">a fraud</a>. </p>
<p>This <a href="https://cryptonews.com/news/us-banks-offering-crypto-custody-is-insanely-bullish-and-ris-7205.htm">change in sentiment</a> reflects a broader shift in regulators’ and bankers’ attitudes towards cryptocurrencies — and blockchain, more broadly. </p>
<figure class="align-center ">
<img alt="A sign advertises a Bitcoin ATM." src="https://images.theconversation.com/files/380329/original/file-20210124-15-180x2dz.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/380329/original/file-20210124-15-180x2dz.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=440&fit=crop&dpr=1 600w, https://images.theconversation.com/files/380329/original/file-20210124-15-180x2dz.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=440&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/380329/original/file-20210124-15-180x2dz.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=440&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/380329/original/file-20210124-15-180x2dz.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=553&fit=crop&dpr=1 754w, https://images.theconversation.com/files/380329/original/file-20210124-15-180x2dz.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=553&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/380329/original/file-20210124-15-180x2dz.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=553&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">A sign advertises a Bitcoin ATM in Halifax in February 2020.</span>
<span class="attribution"><span class="source">THE CANADIAN PRESS/Andrew Vaughan</span></span>
</figcaption>
</figure>
<p>Recognizing that blockchain technology isn’t going away, bankers are instead looking for ways to leverage their status as trusted financial brokers to provide confidence to customers wishing to experiment with cryptocurrencies. Like the accountants expanding into sustainability assurance, bankers are leveraging their strongest advantage — their reputation as trusted intermediaries — to create a new product for the digital age. </p>
<h2>Upskilling needed</h2>
<p>However, the shift to providing services in the blockchain sector requires a high degree of upskilling in the area of information technology. <a href="https://doi.org/10.2308/ISYS-19-007">My research</a> on auditing suggests that many accountants are refraining from taking on clients in the blockchain sector because they feel they lack the technological competence to do so.</p>
<figure class="align-left zoomable">
<a href="https://images.theconversation.com/files/380331/original/file-20210124-17-1ae2o5.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="A person works on their laptop." src="https://images.theconversation.com/files/380331/original/file-20210124-17-1ae2o5.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=237&fit=clip" srcset="https://images.theconversation.com/files/380331/original/file-20210124-17-1ae2o5.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=434&fit=crop&dpr=1 600w, https://images.theconversation.com/files/380331/original/file-20210124-17-1ae2o5.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=434&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/380331/original/file-20210124-17-1ae2o5.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=434&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/380331/original/file-20210124-17-1ae2o5.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=546&fit=crop&dpr=1 754w, https://images.theconversation.com/files/380331/original/file-20210124-17-1ae2o5.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=546&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/380331/original/file-20210124-17-1ae2o5.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=546&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Some accountants feel unprepared to take on blockchain clients.</span>
<span class="attribution"><span class="source">(Unsplash)</span></span>
</figcaption>
</figure>
<p>Professional groups like <a href="https://www.cpacanada.ca/en">Chartered Professional Accountants (CPA) Canada</a> (the national organization representing the Canadian accounting profession) have called on the next generation of CPAs to become <a href="https://www.cpacanada.ca/foresight-report/en/index.html#page=1">data masters</a>. This may not be realistic. Becoming data experts while maintaining an accountant’s foundational knowledge in tax, financial reporting and auditing may end up producing a generation of jacks-(and janes)-of-all trades who are masters of none. </p>
<p>The reality is that technological disruption threatens all professions and the prospect of extinction is real. The best way to fight back is to focus on what a profession does best — and get even better at it. </p>
<p>While it may be tempting to try to turn finance professionals into data scientists, this could do more harm than good by detracting from what profession’s key areas of expertise, making it even more likely that a profession will become an endangered species. Instead, financial professionals need to focus on finding new uses for their skills.</p><img src="https://counter.theconversation.com/content/152729/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Erica Pimentel receives funding from the Social Science and Humanities Research Council of Canada (SSHRC) and the CPA Québec Foundation. </span></em></p>In the face of technological threats, it may be tempting to turn finance professionals into data scientists. This isn’t the way forward. Instead, they need to find new uses for their expertise.Erica Pimentel, PhD Candidate in Accounting, Concordia Public Scholar, Concordia UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1425982020-07-15T13:15:50Z2020-07-15T13:15:50ZAudit keeps failing – here’s why a fundamental change is needed<figure><img src="https://images.theconversation.com/files/347643/original/file-20200715-17-7vk06i.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">EY's auditors are under fire for failing to spot Wirecard's missing €1.9 billion sooner.</span> <span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/london-uk-19-february-2016-ernst-383643241">James W Copeland / Shutterstock.com</a></span></figcaption></figure><p>A massive shakeup of the UK’s audit industry is on the cards. The Big Four, which audit all of the FTSE 100 and 21 of the FTSE 250, have been told by the accounting regulator <a href="https://www.ft.com/content/4464e0a3-9ba2-47d2-9f85-3f2912a22f25">to separate their auditing practices by 2024</a>. It follows the collapse of Wirecard, a payments firm which recently admitted that €1.9 billion of the cash on its books <a href="https://www.reuters.com/article/us-wirecard-accounts/germanys-beleaguered-wirecard-to-proceed-with-business-after-insolvency-idUSKBN23Y0QQ">probably never existed</a>.</p>
<p>But change has been a long time coming. The frequency with which companies fail – seemingly without any warning signs – has grown in recent years and Wirecard is merely the latest example. <a href="https://www.accountancyage.com/2018/05/16/auditors-in-the-dock-over-carillion-as-report-calls-for-big-four-break-up/">Carillion</a>, <a href="https://www.ft.com/content/89e05efe-6ed0-11e8-92d3-6c13e5c92914">BHS</a>, <a href="https://www.ft.com/content/3bba8a46-f4cc-11e9-b018-3ef8794b17c6">Thomas Cook</a>, <a href="https://www.theguardian.com/business/2019/jul/10/watchdog-finds-work-of-patisserie-valerie-auditor-unacceptable">Patisserie Valerie</a>, and many other companies were given clean bills of financial health by their auditors before collapsing. </p>
<p>We believe that these many failings highlight how the auditing industry is <a href="https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3101057">not fit for purpose</a>. The perception of the public is that it is the job of auditors to go over a company’s books and make sure everything is in order. Surely they should be able to spot a looming disaster or better raise concerns about the direction a company is travelling in? Yet so often they fail.</p>
<p>Separating the Big Four’s auditing arms from the rest of their business is a welcome development. <a href="https://www.researchgate.net/publication/325149300_How_the_Big_4_got_big_Audit_culture_and_the_metamorphosis_of_international_accountancy_firms">Research</a> has <a href="https://www.researchgate.net/publication/327039139_The_auditor_to_client_revolving_door_A_structured_literature_review">repeatedly shown</a> how problematic it is that these firms audit the same companies that they give financial advice to through their wider consulting and tax divisions.</p>
<p>But this is not enough in the fight against financial deception. First, giving the Big Four four years to separate their audit practices is concerning. Fraudulent financial reporting is <a href="https://www.acfe.com/report-to-the-nations/2020/">a huge problem</a> – and likely to grow as the coronavirus-induced recession begins to bite – and this time frame is enough for a worrying number of businesses to fail. But, more fundamentally, there needs to be a change to the approach that auditors take. </p>
<h2>‘Serious and serial failures’</h2>
<p>EY – whose latest audit of Wirecard’s accounts revealed the missing funds – <a href="https://www.bloombergquint.com/business/wirecard-auditors-say-elaborate-fraud-led-to-missing-billions">said</a> it was “an elaborate and sophisticated global fraud” and that EY had been provided false documentation. This defence is revealing of issues in the profession as a whole. </p>
<figure class="align-center ">
<img alt="Payments firm, Wirecard's headquarters in Germany." src="https://images.theconversation.com/files/347644/original/file-20200715-37-1jwudgh.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/347644/original/file-20200715-37-1jwudgh.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=399&fit=crop&dpr=1 600w, https://images.theconversation.com/files/347644/original/file-20200715-37-1jwudgh.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=399&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/347644/original/file-20200715-37-1jwudgh.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=399&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/347644/original/file-20200715-37-1jwudgh.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=502&fit=crop&dpr=1 754w, https://images.theconversation.com/files/347644/original/file-20200715-37-1jwudgh.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=502&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/347644/original/file-20200715-37-1jwudgh.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=502&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Payments firm Wirecard filed for insolvency after admitting that €1.9 billion of cash probably never existed.</span>
<span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/aschheim-bavaria-germany-april-10-2020-1701338905">Rico Markus/Shutterstock</a></span>
</figcaption>
</figure>
<p>Critics say EY should have done more <a href="https://www.ft.com/content/a9deb987-df70-4a72-bd41-47ed8942e83b">to detect the fraud</a>. But the prevailing wisdom in the auditing profession is that auditors are not expected to go looking for fraud and they are ultimately not responsible for detecting it. The <a href="https://www.frc.org.uk/getattachment/94ebc178-98bc-4675-a626-327b11773bea/ISA-(UK)-240_Revised-June-2016_Updated-January-2020_final-With-Covers.pdf">International Standards on Auditing</a>, which sets out global standards for the profession, places the responsibility for the prevention and detection of fraud solely on a company’s managers and directors – not its auditors. </p>
<p>Clearly the current system is not working. The number of fines for negligence in failed audits speaks for itself, with Big Four firms hit with £16.5 million in fines <a href="https://www.telegraph.co.uk/business/2019/12/29/revealed-half-audit-fines-2019-went-one-firm/">in 2019 alone</a>. </p>
<p>PwC was fined <a href="https://www.ft.com/content/8e13a416-8dcb-11e9-a24d-b42f641eca37">£4.6 million in June 2019</a> for “serious lack of competence” when inspecting the financial statements of IT services firm Redcentric. This followed a <a href="https://www.ft.com/content/89e05efe-6ed0-11e8-92d3-6c13e5c92914">£6.5 million fine</a> in June 2018 for misconduct in its audit of department store BHS. KPMG was <a href="https://www.frc.org.uk/news/april-2019/sanctions-against-kpmg-and-others-in-relation-to-e">fined £6 million in 2019</a> for misconduct in relation to the audit of automobile insurer Equity Syndicate Management Limited. Deloitte has just been handed a <a href="https://www.ft.com/content/9b8bc2e9-2a35-40d6-80fd-b7788fe31017">record £15 million fine</a> for “serious and serial failures” in its audits of former FTSE 100 technology group Autonomy.</p>
<h2>Reform roadmap</h2>
<p>Despite the evident problems with the auditing profession, the UK government has been slow to make any serious changes to the way it is regulated or what is expected of auditors. A major review, known as the <a href="https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/852960/brydon-review-final-report.pdf">Brydon report</a>, was commissioned in 2018 but little has been done to act on the proposals it made. </p>
<p>A good starting point is to put the onus on auditors to detect fraud. Auditors, the report said, should be suspicious and “endeavour to detect material fraud in all reasonable ways”. This is very different to the current soft approach.</p>
<p>We believe that auditors should accept full responsibility for detecting fraud in financial statements. Abdicating this responsibility to management negates the very purpose of audit in the financial reporting process.</p>
<p>Once the mandate of auditors has changed, this will shape how auditors are trained. Currently the emphasis is on simply identifying any departures from accounting standards. But they need to go beyond this and adopt <a href="http://shura.shu.ac.uk/25470/">forensic accounting procedures</a>. </p>
<p>This involves a thorough examination of financial information, taking an investigative approach and analysing information as if it would be held up in a court of law. Embedding forensic accounting into their approach will likely save auditors from some of the fines they have been receiving, as they can clearly show what they did, if need be. </p>
<p>Along with separating audit from the Big Four and a better regulator, this is required to restore public trust in the financial reporting process and prevent the seemingly sudden collapse of more businesses – something that is hugely important for the success of any business, as well as the wider economy.</p><img src="https://counter.theconversation.com/content/142598/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>The authors do not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and have disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Big Four firms were hit with £16.5 million in fines for audit failings in 2019 alone.Ifedapo Francis Awolowo, Lecturer in Accounting, Sheffield Hallam UniversityNigel Garrow, Professor, Sheffield Business School, Sheffield Hallam UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1414922020-07-01T09:45:39Z2020-07-01T09:45:39ZCoronavirus deaths and swelling public sector debt share a data-quality problem<figure><img src="https://images.theconversation.com/files/344761/original/file-20200630-103649-dc5an.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Different countries report coronavirus data differently.</span> <span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/epidemiologist-doctor-working-on-laptop-computeranalyzing-1702100308">Shutterstock.com</a></span></figcaption></figure><p>Watching scientists, politicians and journalists struggle to compare national death rates from the coronavirus pandemic, I had an acute case of déjà vu. Though the virus may be novel, the confusion generated by inconsistent data standards is anything but. It’s something I’ve observed closely for many years in studying public sector debt.</p>
<p>Such league table comparisons in both cases are simply not reliable. The pandemic has shown that public health data and economic data share the same flaws and challenges regarding basic accounting issues. Chief among these is how different countries measure data and how to harmonise data that comes from lots of different sources.</p>
<p>Take harmonisation. The UK is widely reported to have the highest number of <a href="https://www.ecdc.europa.eu/en/cases-2019-ncov-eueea">coronavirus deaths in Europe</a>. But what is considered to be a COVID-19 death is, in fact, not commonly defined. Spain and Germany count all deaths where the person had tested positive for COVID-19. As testing capacities were limited at the beginning of the pandemic, this limited the number of COVID-19 deaths actually reported. France (like the UK) first counted only hospital deaths, before adding deaths in elderly homes. Belgium includes untested but suspected persons in its numbers.</p>
<p>Such lack of harmonisation is hardly confined to Europe. In the US, methods <a href="https://theconversation.com/failure-to-count-covid-19-nursing-home-deaths-could-dramatically-skew-us-numbers-137212">vary from one state to another</a>, with lots of states initially not including retirement homes in their reporting. This lack of harmonised data makes it very difficult to compare what’s going on and to accurately study the spread of the disease.</p>
<p>We see the same pattern in public sector debt measurements. The most commonly used numbers from the International Monetary Fund (IMF) or from the Organisation for Economic Cooperation and Development (OECD) – two of the world’s biggest producers of global economic data – are <a href="https://www.youtube.com/watch?v=qFf3mmSAU9w">not reliably comparable</a>.</p>
<p>Yet politicians compare them all the time. And this mixing of apples and oranges will surely grow even more complicated and unreliable as countries around the world massively increase their debt levels by spending to prop up economies decimated by the pandemic. </p>
<p>The IMF <a href="https://www.imf.org/en/News/Articles/2020/04/15/tr041520-transcript-of-the-april-2020-fiscal-monitor-press-briefing">has said governments should</a> “do whatever it takes but keep the receipts” – noting that public funds in response to emergency situations can be subject to corruption. But such receipts, though perhaps thwarting temptation for ill-gotten gains, won’t provide valid comparisons of the impact of public policies on public deficit and debt.</p>
<p><div data-react-class="Tweet" data-react-props="{"tweetId":"1250963450240667652"}"></div></p>
<h2>Building a global data quality index</h2>
<p>Once the pandemic gives way to some degree of normality, this would be an opportune time to assess what kind of reporting system is best suited to a pandemic – and seek to reach agreement in order for this data to be harmonised. A good place to start is with the deaths in care homes. </p>
<p>In many countries, deaths in care homes took a while to be accounted for as their information systems are currently not well integrated with the ones from hospitals. This is very significant considering deaths in care homes represent about <a href="https://www.theguardian.com/world/2020/apr/13/half-of-coronavirus-deaths-happen-in-care-homes-data-from-eu-suggests">one-half of the total COVID-19 deaths in European countries</a>. These are also numbers that are politically toxic and <a href="https://thehill.com/opinion/healthcare/499535-manipulation-of-pandemic-numbers-for-politics-risks-lives">prone</a> to <a href="https://www.bloomberg.com/news/articles/2020-05-13/experts-question-russian-data-on-covid-19-death-toll">manipulation</a>.</p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/344765/original/file-20200630-103683-vo9gvp.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/344765/original/file-20200630-103683-vo9gvp.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/344765/original/file-20200630-103683-vo9gvp.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/344765/original/file-20200630-103683-vo9gvp.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/344765/original/file-20200630-103683-vo9gvp.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/344765/original/file-20200630-103683-vo9gvp.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/344765/original/file-20200630-103683-vo9gvp.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Care home deaths are integral to the coronavirus data problem.</span>
<span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/paris-france-april-24-2020-nurses-1713187714">Tommy Larey / Shutterstock.com</a></span>
</figcaption>
</figure>
<p>More broadly, the crisis has convinced me that for economic indicators as well as health statistics there’s an urgent need for a global data quality index and I’m currently exploring ways to build one. The index would compare the data quality of different countries on all major variables, as the current assessment tools are very limited in terms of specificity.</p>
<p>Such a data quality index would allow voters, investors and other stakeholders to benchmark like-for-like numbers. They could then better hold their governments to account. </p>
<p>For public health issues, such an index would boost reliability and transparency on vital issues such as how the virus spreads, who it affects the most, and the impact of national or regional factors, including temperature, humidity and population density. This information could further inform international bodies such as the World Health Organisation about which countries need help the most.</p>
<p>It is only with comparable data that scientists can assess whether the measures they implement are effective in protecting citizens, and better prepare for future health crises.</p>
<p>Likewise, a data quality index for debt and other economic indicators would help investors decide where to direct their money and to better assess a country’s risk profile. It would help international organisations better monitor situations in order to determine which countries to support and which to sanction, and help researchers perform more robust analysis. All of this would in turn help citizens assess their country’s economy in order to vote based on facts rather than political spin.</p><img src="https://counter.theconversation.com/content/141492/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Marion Boisseau-Sierra does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>It is only with comparable data that scientists can assess whether the measures they implement are effective in protecting citizens, and better prepare for future health crises.Marion Boisseau-Sierra, University Lecturer in Accounting, Cambridge Judge Business SchoolLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1345162020-03-30T14:03:56Z2020-03-30T14:03:56ZFlattening another coronavirus curve: The cash-flow gap<figure><img src="https://images.theconversation.com/files/323483/original/file-20200327-146695-173tvfl.jpg?ixlib=rb-1.1.0&rect=0%2C0%2C8256%2C6179&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Businesses need to take instant action to prevent cash-flow insolvencies in the midst of COVID-19.</span> <span class="attribution"><span class="source">(Annie Spratt/Unsplash)</span></span></figcaption></figure><p>These are tough times for business owners due to the COVID-19 crisis. Experiencing substantial declines in sales or even a complete suspension of operations, they face <a href="https://www.investopedia.com/terms/a/accounting_insolvency.asp">cash-flow insolvency</a> threats. </p>
<p>Indeed, a recent survey of small Canadian companies by the Canadian Federation of Independent Business found that <a href="https://www.cfib-fcei.ca/en/media/nearly-third-small-businesses-may-close-within-month-without-more-covid-19-relief">30 per cent won’t be able to keep their businesses afloat for more than a month if current conditions remain</a>. Why?</p>
<h2>The immediate problem</h2>
<p>When sales drop, the cash wheel, whose function is to generate the required liquidity to operate the business, slows down or even comes to standstill. See below:</p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/323108/original/file-20200326-168907-12lw69g.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/323108/original/file-20200326-168907-12lw69g.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=183&fit=crop&dpr=1 600w, https://images.theconversation.com/files/323108/original/file-20200326-168907-12lw69g.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=183&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/323108/original/file-20200326-168907-12lw69g.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=183&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/323108/original/file-20200326-168907-12lw69g.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=229&fit=crop&dpr=1 754w, https://images.theconversation.com/files/323108/original/file-20200326-168907-12lw69g.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=229&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/323108/original/file-20200326-168907-12lw69g.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=229&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Cash flow wheel.</span>
<span class="attribution"><span class="source">(Matthäus Tekathen)</span>, <span class="license">Author provided</span></span>
</figcaption>
</figure>
<p>The more sales drop, the more the inflow of operating cash dries up. If business owners cannot slow down, at a similar speed, what are known as <em>cash outflows</em> — payments for salaries, raw materials or merchandise, supplies, interest, rent and the like — eventually cash reserves and subsequently credit lines will be used up. A cash-flow insolvency ensues.</p>
<h2>‘No sales without costs’</h2>
<p>Business owners know well: No sales without costs. </p>
<p>A retailer needs to purchase merchandise to sell it. That costs money. But unfortunately, the inverse — “no costs without sales” — usually does not hold. Why? For two reasons: fixed costs and a time delay. </p>
<p>Conceptually, there are <a href="https://www.accountingtools.com/articles/the-difference-between-fixed-and-variable-costs.html?rq=fixed%20cost">variable and fixed costs</a>. If sales drop, variable costs drop because lower sales volumes require, in total, fewer materials and labour and therefore fewer payments.</p>
<p>Yet fixed costs remain in place and are more difficult to alter in the short term. Business owners still need to pay rent, even for a closed store. Depending on the company’s <a href="https://www.accountingtools.com/articles/what-is-cost-structure.html">cost structure</a>, it will therefore have more or fewer possibilities to reduce cash outflows immediately. </p>
<p>Nonetheless, even variable costs will not disappear. Impacted business owners experience a sharp and rapid sales decline. But to offer goods for sale today, they must already have them in stock. There is a time lag: with payment terms of 30 days, say, last month’s bills must still be paid now and in the next few weeks.</p>
<p>Another large cost factor are labour costs. Wages need to be paid. Even with tough decisions to lay employees off quickly, two weeks of salary might still be owed. And at the end of the month or quarter, more bills come in.</p>
<p>As payments neither automatically nor immediately stop when sales stop, instant action is necessary to prevent cash-flow insolvencies. That’s why <a href="https://www.canada.ca/en/department-finance/economic-response-plan.html">federal</a>, <a href="https://www.investquebec.com/quebec/en/financial-products/all-our-solutions/Concerted-temporary-action-program-for-businesses.html">provincial</a> <a href="https://montreal.ca/en/articles/covid-19-support-measures-montreal-businesses">and local</a> governments announced massive liquidity support for business owners.</p>
<h2>What else can business owners do?</h2>
<p>The best scenario for business owners would be if sales returned soon, since they fuel the cash cycle. Wherever possible, business owners search for creative ways to compensate for sales declines by finding alternative sales channels, such as online sales or home delivery options.</p>
<p>However, in many cases the services or products offered don’t allow for this quick shift. And so, besides working on getting sales back, business owners need to flatten or reduce the cash-flow gap to buy themselves some time, as visualized below:</p>
<p>The left side shows a simplified, healthy cash-flow state before the crisis. Cash comes in and out. </p>
<p>The middle illustrates the situation when the sales crisis hits. Cash inflow drops, and if cash outflow does not follow suit, we are in the cash-flow insolvency scenario. </p>
<p>To prevent this, business owners need to reduce the cash-flow gap as depicted on the right through measures that increase cash inflows or reduce cash outflows. </p>
<h2>Closing the cash-flow gap</h2>
<p>That means collecting payments from customers faster, retrieving financial resources from banks, restocking the cash balance through proprietary capital or obtaining government aid.</p>
<p>Postponing the payment of bills, renegotiating payment terms with suppliers, asking for deferrals, halting discretionary spending, downsizing or even closing the business temporarily are some other measures that can lower cash outflows. But before taking those measures, a quick cash diagnosis helps.</p>
<p>The tool that provides clarity about a situation’s severity is the <a href="https://www.investopedia.com/terms/c/cashbudget.asp"><em>cash budget</em></a>, and the indicator that alarms business owners is the <em>cash survival ratio</em>, also know as <a href="https://templates.legal/jpmc-institute-small-business-report/">cash buffer days</a>. It forecasts how many days the business can survive without injecting new cash:</p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/322696/original/file-20200324-155645-1kzn60e.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/322696/original/file-20200324-155645-1kzn60e.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=114&fit=crop&dpr=1 600w, https://images.theconversation.com/files/322696/original/file-20200324-155645-1kzn60e.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=114&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/322696/original/file-20200324-155645-1kzn60e.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=114&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/322696/original/file-20200324-155645-1kzn60e.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=144&fit=crop&dpr=1 754w, https://images.theconversation.com/files/322696/original/file-20200324-155645-1kzn60e.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=144&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/322696/original/file-20200324-155645-1kzn60e.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=144&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">The cash survival ratio.</span>
<span class="attribution"><span class="source">(Matthäus Tekathen)</span>, <span class="license">Author provided</span></span>
</figcaption>
</figure>
<p>Because cash payouts aren’t evenly distributed from day to day, the cash budget is crucial to identify, proactively, cash bottlenecks before it is too late. </p>
<p>In the current context, modifying the cash budget’s structure, as shown below, makes improvements to increase the cash balance immediately visible. It’s a simple tool to help business owners navigate through the cash crisis by identifying, planning and forecasting their company’s immediate cash situation.</p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/322698/original/file-20200324-155645-p2qf7n.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/322698/original/file-20200324-155645-p2qf7n.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=155&fit=crop&dpr=1 600w, https://images.theconversation.com/files/322698/original/file-20200324-155645-p2qf7n.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=155&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/322698/original/file-20200324-155645-p2qf7n.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=155&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/322698/original/file-20200324-155645-p2qf7n.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=194&fit=crop&dpr=1 754w, https://images.theconversation.com/files/322698/original/file-20200324-155645-p2qf7n.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=194&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/322698/original/file-20200324-155645-p2qf7n.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=194&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">A modified cash budget.</span>
<span class="attribution"><span class="source">(Matthäus Tekathen)</span>, <span class="license">Author provided</span></span>
</figcaption>
</figure>
<p>Overall, a company’s cost structure can accelerate cash flow troubles, and the time lag involved in adjusting outflows adds to the financial woes. Furthermore, while usually regarded as an inefficiency to be removed, having large cash buffers serves in these tough times as a valuable safety cushion.</p><img src="https://counter.theconversation.com/content/134516/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Matthäus Tekathen does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Faced by a sales dip, business owners run quickly into a cash crisis. What can be done?Matthäus Tekathen, Associate Professor in Accountancy, Concordia UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1083152019-05-31T20:59:30Z2019-05-31T20:59:30ZThe economic cost of devastating hurricanes and other extreme weather events is even worse than we thought<p>June marks the official start of hurricane season. If recent history is any guide, it will prove to be another destructive year thanks to the worsening impact of climate change. </p>
<p>But beyond more intense hurricanes and explosive wildfires, the warming climate <a href="https://www.huffingtonpost.com/entry/opinion-climate-change-deaths_us_5c101e14e4b0ac5371799b1c">has been blamed</a> for <a href="https://www.ncbi.nlm.nih.gov/pubmed/28663496">causing a sharp uptick</a> in all types of extreme weather events across the country, such as <a href="https://earther.gizmodo.com/this-springs-flooding-crisis-is-part-of-a-bigger-patter-1835092237">severe flooding across the U.S.</a> this spring and <a href="https://www.climate.gov/USdrought2018">extensive drought</a> in the Southwest in recent years.</p>
<p>Late last year, the <a href="https://www.cnn.com/2018/11/23/health/climate-change-report-bn/index.html">media blared</a> that these and other consequences of climate change <a href="https://www.vox.com/2018/11/24/18109883/climate-report-2018-national-assessment">could cut U.S. GDP</a> by 10% by the end of the century – “more than double the losses of the Great Depression,” as <a href="https://www.nytimes.com/2018/11/23/climate/us-climate-report.html">The New York Times intoned</a>. That figure was drawn from a single figure in the U.S. government’s <a href="https://nca2018.globalchange.gov">Fourth National Climate Assessment</a>. (Disclosure: I reviewed that report and was the vice chair on the third one, released in 2014.)</p>
<p>If that sounds scary, I have good news and bad news. The good news is that that figure was drawn incorrectly from a significant misreading of the report - which actually offered a range of a loss of GDP from as low as 6% to as high as 14% by 2090.</p>
<p>The bad news, however, is that a more meaningful assessment of the costs of climate change – using basic economic principles <a href="https://gyohe.faculty.wesleyan.edu">I teach to undergrads</a> – is a hell of a lot scarier.</p>
<h2>Tallying the costs</h2>
<p>First, let’s look at how government agencies, insurance companies and the media calculate and report on the economic costs of disasters. </p>
<p>According to the National Oceanic and Atmospheric Administration, in 2018 hurricanes Michael and Florence each caused about US$25 billion in damages, <a href="https://www.noaa.gov/news/2018-was-4th-hottest-year-on-record-for-globe">contributing to a total toll of $91 billion</a> from that year’s weather and climate disasters. In 2017, the NOAA’s total was even bigger: $306 billion, <a href="https://www.climate.gov/news-features/blogs/beyond-data/2017-us-billion-dollar-weather-and-climate-disasters-historic-year">due to the massive destruction</a> from hurricanes Harvey, Irma and Maria. </p>
<p>But these tallies are not really valid measures of economic damage. Instead, they simply reflect estimates of what people think will need to be invested to rebuild what was damaged or destroyed in the storms, floods or fires.</p>
<p>To really understand the economic costs of an extreme weather event, it’s important to consider all the investment that is being “crowded out” or lost to cover those rebuilding costs. Put another way, there’s only so much money to go around. And that $25 billion being used to rebuild means $25 billion is not being used for other public and private investment opportunities that are more forward-looking or more likely to promote growth.</p>
<h2>Accounting for growth</h2>
<p>Instead, I believe a fundamentally more sound way to do this is to use something called “growth accounting.”</p>
<p><a href="https://economics.mit.edu/files/7183">Growth accounting</a> incorporates the productive use of capital and innovation into the equation. The question we want to ask is what happens to GDP growth when recovery efforts from extreme events crowd out productive investments, like building new factories or roads and bridges? </p>
<p>Returning to NOAA’s estimated losses for 2017 and 2018, productive investment fell about $400 billion in total in those years as a result. That is, had those disasters not happened, investment would have been that much higher. And that diminished investment translates into less growth in gross domestic product – a measure of all an economy produces in a given period.</p>
<p>If similar experiences in extreme events occur for the next 10 years – which is not a bad assumption given that four of the most expensive years in history <a href="https://www.ncei.noaa.gov/news/national-climate-201812">have occurred in the last five</a> – U.S. GDP in 2029 would be about 3.6% lower than it would have been otherwise, based on my calculations using growth accounting. </p>
<p>That amounts to an economy that’s $1 trillion poorer as result of these extreme weather events crowding out productive investment.</p>
<p>This is the real cost of a world in which these types of massively destructive disasters happen more frequently. </p>
<h2>Sooner and scarier</h2>
<p>Returning to our 10% figure, 3.6% is comparatively smaller, of course, but it’s much sooner, which makes it much scarier. </p>
<p>Why?</p>
<p>Because the number of extreme events and their destructive power keeps <a href="https://public.wmo.int/en/media/press-release/state-of-climate-2018-shows-accelerating-climate-change-impacts">increasing at an accelerating rate</a>. If we can expect to take a $1 trillion hit over just the next decade, the costs by the end of the century are hardly fathomable.</p>
<p>So while I may disagree with the numbers The New York Times and others use in tallying disasters, they are right to try to spur readers to action. </p>
<p>The situation is just a lot more dire then anyone realizes. With any luck, the size of the figure will frighten us to do more to stave off the worst.</p><img src="https://counter.theconversation.com/content/108315/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Gary W. Yohe was Vice Chair of the Third National Climate Assessment (2014) and reviewer of the Fourth. He is Co-editor-Chief of Climatic Change, a member of the New York City Panel on Climate Change, and long term senior member of the Intergovernmental Panel on Climate Change. </span></em></p>With hurricane season comes the usual efforts by insurance companies and government agencies to calculate the economic costs. An economist explains how they’re doing it wrong.Gary W. Yohe, Huffington Foundation Professor of Economics and Environmental Studies, Wesleyan UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1136032019-03-15T10:43:24Z2019-03-15T10:43:24ZWhy a college admissions racket would funnel bribes through a fake charity<figure><img src="https://images.theconversation.com/files/263982/original/file-20190314-28502-tm2q7k.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Many people aided by the campus admissions scheme wanted to attend the University of Southern California.</span> <span class="attribution"><a class="source" href="http://www.apimages.com/metadata/Index/College-Admissions-Bribery/5efa4f20c897430cafa584d43d3df007/2/0">AP Photo/Reed Saxon</a></span></figcaption></figure><p>Federal authorities are prosecuting dozens of suspects in the <a href="https://www.cnn.com/us/live-news/college-admissions-cheating-felicity-huffman-lori-loughlin/index.html">biggest college admissions scandal</a> ever exposed. The <a href="https://www.justice.gov/usao-ma/pr/arrests-made-nationwide-college-admissions-scam-alleged-exam-cheating-athletic">joint FBI and IRS investigation</a>, dubbed “Operation Varsity Blues,” uncovered millions of dollars in bribe money wealthy parents are accused of paying to sneak unqualified children into Stanford, Yale and other elite universities on the pretext that they were <a href="http://www.espn.com/college-football/story/_/id/26240641/college-admissions-scandal-fake-athletes-alleged-bribes-aunt-becky">star athletes</a> with <a href="https://lawandcrime.com/high-profile/felicity-huffman-accused-of-paying-15k-to-doctor-her-older-daughters-sat-scores/">high standardized test scores</a>. </p>
<p><a href="https://www.usatoday.com/story/news/education/2019/03/12/college-scam-rick-singer-william-singer-felicity-huffman-lori-loughlin/3142687002/">William “Rick” Singer</a> has pled guilty to committing fraud as the head of a college counseling and preparation business and a <a href="https://www.buzzfeednews.com/article/tasneemnashrulla/william-rick-singer-depaul-donation-college-scam">sham charity</a>, acting as the ringmaster of the entire web of wrongdoing. He is cooperating with the authorities. Among the many interesting details to emerge have to do with how Singer’s company allegedly <a href="https://www.necn.com/news/new-england/Parents-Got-Tax-Write-Off-Amidst-Alleged-College-Admission-Scandal-507055931.html">funneled much of the US$25 million</a> his clients paid in unusually high fees for guidance counselor services through the nonprofit Key Worldwide Foundation, possibly to deflect attention.</p>
<p>We are accounting <a href="https://scholar.google.com/citations?user=TLUVvS8AAAAJ&hl=en&oi=sra">scholars who</a> <a href="https://scholar.google.com/citations?view_op=list_works&hl=en&user=AZdAnBcAAAAJ">research nonprofit fraud</a>. Our data indicate that outright fake charities like this one seem to be less commonly detected than other <a href="https://doi.org/10.1177/0899764014555987">kinds of nonprofit fraud</a>, such as when real charities get swindled through embezzlement schemes by <a href="http://www.spokesman.com/stories/2019/feb/14/meals-on-wheels-former-bookkeeper-faces-wire-fraud/">rogue bookkeepers</a> and the like. Our research also sheds light on why <a href="https://apnews.com/d1ff183590374f08a80487a423cfb289">Singer and his dozens of accomplices</a> allegedly got away with their scheme for years.</p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/264000/original/file-20190314-28468-1ac6f7g.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/264000/original/file-20190314-28468-1ac6f7g.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/264000/original/file-20190314-28468-1ac6f7g.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=451&fit=crop&dpr=1 600w, https://images.theconversation.com/files/264000/original/file-20190314-28468-1ac6f7g.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=451&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/264000/original/file-20190314-28468-1ac6f7g.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=451&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/264000/original/file-20190314-28468-1ac6f7g.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=567&fit=crop&dpr=1 754w, https://images.theconversation.com/files/264000/original/file-20190314-28468-1ac6f7g.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=567&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/264000/original/file-20190314-28468-1ac6f7g.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=567&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
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<span class="caption">Rick Singer has pleaded guilty to charges in the college admissions bribery scandal.</span>
<span class="attribution"><a class="source" href="http://www.apimages.com/metadata/Index/APTOPIX-College-Admissions-Bribery/dec92fd3033f400fb18fb1237d01b9b7/8/0">AP Photo/Steven Senne</a></span>
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</figure>
<h2>Sources of scrutiny</h2>
<p>There are federal and state authorities whose job it is to catch and prosecute fraudulent charities and fake donations. The Internal Revenue Service’s <a href="https://www.irs.gov/government-entities/tax-exempt-government-entities-division-at-a-glance">Tax Exempt Government Entities</a> division is in charge of <a href="https://theconversation.com/the-real-irs-scandal-has-more-to-do-with-budget-cuts-than-bias-95026">granting nonprofit status</a> through reviews of tax exempt status applications. This division also monitors compliance with tax filings requirements and audits of nonprofits. </p>
<p>But as nonprofit scholars like <a href="https://scholar.google.com/citations?user=A8NDlp4AAAAJ&hl=en&oi=sra">Dennis Neely</a> have noted, state attorneys general are at the forefront of monitoring nonprofit activities. However, state budgets for nonprofit oversight and enforcement are too low to effectively monitor all charities within their jurisdictions.</p>
<p>Most states have fewer than <a href="http://www.urban.org/sites/default/files/alfresco/publication-pdfs/2000925-State-Regulation-and-Enforcement-in-the-Charitable-Sector.pdf">three full-time employees working on charitable oversight</a>. This leaves only a few hundred people in the country to oversee some <a href="https://theconversation.com/america-has-1-5-million-nonprofits-and-room-for-more-97528">1.5 million nonprofits</a>, despite the fact that these organizations make up <a href="https://www.bls.gov/bdm/nonprofits/nonprofits.htm">10 percent of our nation’s workforce</a>.</p>
<p>In addition, these systems are set up to catch tax cheats and bring in missing tax revenues. We see a lack of resources dedicated to monitoring the revenue flowing into and out of nonprofits, possibly because the fact that they don’t owe any income tax makes them a lower priority.</p>
<p>Another factor is the presumption that do-good organizations are not going to get swept up in criminal activity like bribery and money laundering. Likewise, regulators may presume that accountants will heed their professional duties if they suspect their clients are breaking laws. However, accountants are more likely to quit to avoid signing off on fraudulent paperwork than blow the whistle.</p>
<h2>Red flags</h2>
<p><a href="https://www.cnn.com/2019/03/14/us/college-cheating-scam-how-authorities-found-out/index.html">This scandal</a> makes us wonder whether the authorities are reading all the paperwork most tax-exempt groups are required by law to file with the IRS, known as 990 forms. Key Worldwide Foundation’s <a href="https://990s.foundationcenter.org/990_pdf_archive/461/461603030/461603030_201612_990.pdf">mission statement</a>, which appears in these tax filings, itself is suspect.</p>
<p>Despite an allusion to providing “education that would normally be unattainable to underprivileged students,” it does not say that the students it helps face economic hardship. Instead, the organization emphasizes how Key Worldwide’s “contributions to major athletic university programs may help to provide placement to students that may not have access under normal channels.”</p>
<p>Even so, what’s the rationale for a charitable foundation to contribute to major athletic programs to enable students regardless of their means to pay for school to enter college if they are eligible for sports scholarships?</p>
<p>IRS documents indicate that supposed donations to Singer’s foundation grew eight-fold from less than half a million dollars in 2013 to nearly <a href="https://www.necn.com/news/new-england/Parents-Got-Tax-Write-Off-Amidst-Alleged-College-Admission-Scandal-507055931.html">$4 million in 2016</a> as Singer’s alleged scheme used money parents pretended to be donating to the charity to pay off coaches, testing proctors and other people.</p>
<p>Key Worldwide’s tax filings also suggest that none of the foundation’s top staff earned money for their work, which is unusual for a charity that big. Gordon Ernst, the only compensated individual listed in its publicly available tax forms is one of the suspects <a href="https://media.wpri.com/nxs-wpritv-media-us-east-1/document_dev/2019/03/12/ernest%20indictment_1552409175484_76971110_ver1.0.pdf">charged with racketeering</a> for allegedly receiving $2.7 million in bribes labeled as consulting fees while coaching the Georgetown University tennis team. </p>
<p>The foundation’s <a href="http://990s.foundationcenter.org/990_pdf_archive/461/461603030/461603030_201612_990.pdf#page=29">tax filings state that it has no records</a> proving that it gave away the grants listed in its paperwork. Nor did the charity say whether it tried to prove that it had determined its grantees’ eligibility by checking a box on its forms. Purported grantees, such as the Bay Area nonprofit <a href="https://www.nbcbayarea.com/investigations/College-Admissions-Scam-Follow-the-Money-Behind-the-Key-Worldwide-Foundation-507070751.html">Friends of Cambodia</a>, are coming forward to deny they got any money.</p>
<p>However, we can’t rule out that some grants could have been real and intended to throw off suspicions.</p>
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<h2>Following up</h2>
<p>It remains to be seen how this scandal will change oversight and regulations at the federal and state level as well as at every step in the college admissions process.</p>
<p>Any clients who were eligible to take advantage of the <a href="https://www.irs.gov/charities-non-profits/charitable-organizations/charitable-contribution-deductions">charitable deduction</a> could have defrayed some of the fees they paid Singer to bribe coaches and testing personnel through a tax break subsidized by the federal government. While it is clear that the foundation broke the law if it used donations for personal gain and not for a charitable purpose, we do not yet know whether the government will treat <a href="https://news.bloombergtax.com/daily-tax-report/parents-in-college-admissions-scandal-could-see-steep-tax-fines">all donations</a> to the foundation as tax evasion or not or what penalties are in store. </p>
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<a href="https://images.theconversation.com/files/264003/original/file-20190314-28479-112luk7.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/264003/original/file-20190314-28479-112luk7.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/264003/original/file-20190314-28479-112luk7.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=403&fit=crop&dpr=1 600w, https://images.theconversation.com/files/264003/original/file-20190314-28479-112luk7.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=403&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/264003/original/file-20190314-28479-112luk7.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=403&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/264003/original/file-20190314-28479-112luk7.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=507&fit=crop&dpr=1 754w, https://images.theconversation.com/files/264003/original/file-20190314-28479-112luk7.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=507&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/264003/original/file-20190314-28479-112luk7.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=507&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
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<span class="caption">The NCAA penalized the University of Louisville men’s basketball program over a sex scandal involving exotic dancers paid to strip and have sex with recruits and players that cost coach Rick Pitino his job.</span>
<span class="attribution"><a class="source" href="http://www.apimages.com/metadata/Index/Louisville-Pitino-Basketball-/dd58f6afa1d04ac4b3c93b08fef7007e/18/0">AP Photo/Timothy D. Easley</a></span>
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<p>The National Collegiate Athletic Association, a nonprofit that regulates college sports, monitors athletic programs carefully. The NCAA constantly looks out for bribery, performance-enhancing drug abuse and ineligible athletes, among other violations. </p>
<p>It has already <a href="https://www.law.com/newyorklawjournal/2019/03/14/poor-overseers-or-victims-ncaa-opens-probe-into-colleges-in-admissions-cheating-scandal-389-61915/">opened investigations</a> into the coaches charged in this scandal. In our view, the NCAA should go further by reviewing its own systems and safeguards to ensure that nothing like this is happening elsewhere and never happens again.</p>
<p>Some universities are beginning to take action too. The <a href="https://www.bostonglobe.com/metro/2019/03/14/six-usc-student-applicants-linked-college-admissions-bribery-scheme-denied-acceptance/8yVrSYe1sxh2VGy1LGMbzM/story.html">University of Southern California</a>, for example, has revoked its acceptance of all future students it suspects benefited from Singer’s services. Universities should also be carefully reviewing their own liability and identifying ways to monitor and prevent admissions fraud rather than just declaring that they are the <a href="https://news.yale.edu/2019/03/12/university-statement-federal-investigation-admissions-bribery-scheme">victims of a crime</a>.</p>
<p>One first step is to closely evaluate any grants they may have received from Key Worldwide, the fake charity. According to tax returns it filed with the IRS, the foundation said it gave the University of Southern California water polo team $100,000 in 2014 and Chapman University $150,000 in 2016, among other major grants. Many if not most of these outlays could be as fake as the charity itself allegedly was.</p>
<p>But we believe that universities would be wise to proactively scour their records to find out if they have this money in their coffers before any new pay-to-play charges are lodged against them.</p><img src="https://counter.theconversation.com/content/113603/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>The authors do not work for, consult, own shares in or receive funding from any company or organization that would benefit from this article, and have disclosed no relevant affiliations beyond their academic appointment.</span></em></p>There is no system in place to detect charitable fraud on the scale allegedly committed by a counseling company and its sham nonprofit.Sarah Webber, Associate Professor of Accounting, University of DaytonDeborah Archambeault, Associate Professor of Accounting, University of DaytonLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1085822018-12-14T11:46:58Z2018-12-14T11:46:58ZThe NRA’s financial weakness, explained<figure><img src="https://images.theconversation.com/files/250572/original/file-20181213-178561-1fxgroh.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Political clout doesn't guarantee a healthy bottom line.</span> <span class="attribution"><a class="source" href="http://www.apimages.com/metadata/Index/Trump-NRA/33f45f136ec641e6a74e4abaf1f8d67f/12/0">AP Photo/Evan Vucci</a></span></figcaption></figure><p>The National Rifle Association’s political <a href="https://www.axios.com/2018-midterm-elections-nra-spending-d82d4b38-045c-4206-b81b-10bfb5336e80.html">spending fell</a> during the 2018 midterm elections. There’s talk of ending small <a href="https://www.thetrace.org/rounds/nra-kills-coffee/">perks like free coffee</a> at its offices and even <a href="https://www.thetrace.org/rounds/nratv-layoffs-employees-ackerman-mcqueen/">employee layoffs</a>.</p>
<p>These and other trends indicate that at a time when the NRA’s clout may seem stronger than ever, its financial power may be faltering.</p>
<p>As a <a href="https://scholar.google.com/citations?user=Rap6TboAAAAJ&hl=en">researcher</a> who studies and tracks the <a href="https://twitter.com/countingcharity?lang=en">finances of nonprofits</a>, I have followed the NRA’s financial disclosures for years. Here’s what I’ve observed lately.</p>
<h2>A negative nest egg</h2>
<p>The best reflection of an organization’s financial cushion is its <a href="https://www.aicpa.org/interestareas/notforprofit/resources/financialaccounting/new-standard-aims-to-improve-not-for-profit-financial-reporting.html">unrestricted net assets</a> – an accounting measure of how much money it has available to spend.</p>
<p>The NRA had negative US$31.8 million on hand at the end of 2017, according to <a href="https://www.documentcloud.org/documents/5300476-NRA-2017-990.html">the form</a> all nonprofits must file with the IRS. The group, which spent an average of $278.3 million a year, had a negative balance at the end of six of the previous 10 years.</p>
<p>In the 2017 financial statements, I’m seeing signs that the problem could be <a href="https://thehill.com/homenews/media/418989-layoffs-hit-nratv-after-gun-rights-group-loses-55m-in-revenue">more serious</a>.</p>
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<p>This is very different from how <a href="https://www.forbes.com/sites/kellyphillipserb/2018/03/08/ask-the-taxgirl-is-the-nra-a-charity/#c68f04017dfd">two other prominent</a> organizations operate. Consider the financial health of the <a href="https://www.aclu.org/finances">American Civil Liberties Union</a>, a civil rights group, and the <a href="https://www.aarp.org/about-aarp/company/annual-reports/">AARP</a>, which advocates on behalf of people who are 50 and older. Like the NRA’s main arm, they are 501(c)(4) social welfare groups that have a national reach and name recognition, and that engage in public policy advocacy.</p>
<p>The ACLU – although its budget is only a third of the NRA’s – had unrestricted net assets worth $140.2 million when 2017 came to a close, according to its <a href="https://www.aclu.org/finances">tax form</a>. And the AARP – whose annual budget is nearly five times that of the NRA – finished with a balance over <a href="https://www.aarp.org/about-aarp/company/annual-reports/">$1.3 billion</a>.</p>
<p>The NRA’s circumstances <a href="http://skoll.org/2018/03/19/how-we-assess-an-organizations-financial-health-a-step-by-step-guide-to-decoding-the-numbers/">stand out</a> by comparison not just with its peers but with all nonprofits. <a href="https://www.irs.gov/statistics/soi-tax-stats-annual-extract-of-tax-exempt-organization-financial-data">IRS data</a>, including for fledgling startups, indicate fewer than 7 percent of American nonprofits ended 2017 with a negative balance.</p>
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<h2>How it happened</h2>
<p>Despite years of thin finances, 2017’s negative $31.8 million balance in unrestricted net assets is notable as the organization’s 10-year low.</p>
<p>Given the growing push for gun control measures on the heels of more frequent and more deadly mass shootings, you might guess that <a href="https://www.huffingtonpost.com/robert-greenwald/nra-convention-dwindling_b_10107208.html">declining membership</a> dues could be to blame. But that’s not the full story.</p>
<p>The NRA does not release <a href="https://www.washingtonpost.com/news/wonk/wp/2018/02/26/nobody-knows-how-many-members-the-nra-has-but-its-tax-returns-offer-some-clues/">membership data</a>. But it does by law have to make its cash flow a matter of public record. The group’s revenue has grown, but by about 0.7 percent a year over the past decade, not enough to <a href="https://data.bls.gov/timeseries/CUUR0000SA0L1E?output_view=pct_12mths">keep up with annual inflation</a>, which ranged between 1 and 2.3 percent over the past 10 years.</p>
<p>As a result, it looks like the organization got into this bind by spending beyond its means. Despite this relatively stagnant income, <a href="https://projects.propublica.org/nonprofits/organizations/530116130">NRA expenditures</a> have been growing by an average of 6.4 percent a year, maxing out at $412.7 million in 2016.</p>
<p>And all nonprofits, just like families and companies, run into trouble when they fail to live within their means.</p>
<h2>No imminent demise</h2>
<p>The financial struggles have even led the organization itself to warn that it could <a href="https://nypost.com/2018/08/03/nra-says-its-broke-and-on-the-verge-of-collapse/">possibly collapse</a> in court filings.</p>
<p>Despite this drama, however, the organization has a robust <a href="https://www.seattletimes.com/nation-world/nation/nobody-knows-how-many-members-the-nra-has-but-its-tax-returns-offer-some-clues/">revenue stream</a> due to a large member base, loyal contributors and the <a href="http://www.nrapublications.org/media/1535172/rate_cards_magazines.pdf">revenue it still gets from ads</a> that run in its print publications and commercials that air on its video channel, <a href="https://theconversation.com/the-nras-video-channel-is-a-hotbed-of-online-hostility-92477">NRA TV</a> – even amid a <a href="https://theconversation.com/why-is-the-nra-boycott-working-so-quickly-92513">successful boycott</a> led by gun control advocates.</p>
<p>That means cutting back on spending can work wonders. Early signs, such as <a href="https://www.axios.com/2018-midterm-elections-nra-spending-d82d4b38-045c-4206-b81b-10bfb5336e80.html">reduced election spending</a> and <a href="https://www.thetrace.org/rounds/nratv-layoffs-employees-ackerman-mcqueen/">job cuts</a>, indicate such parsimony is getting underway.</p>
<p>Though it owes more money to others than it has freely available to pay them back, the NRA isn’t in immediate danger.</p>
<p>Much of what the NRA owes won’t come due for a while. Its two prominent liabilities are services it <a href="https://www.marketwatch.com/story/nra-donors-respond-to-imminent-threat-but-long-term-finances-are-shaky-2018-03-29">owes to members</a> who have prepaid their dues for multiple years and what it owes its <a href="https://www.marketwatch.com/story/nra-donors-respond-to-imminent-threat-but-long-term-finances-are-shaky-2018-03-29">retirees</a> – its pension fund is <a href="https://www.documentcloud.org/documents/4823792-NRA-Audit-FY-2017.html">underfunded</a> by $49.7 million.</p>
<h2>Getting out of trouble</h2>
<p>Despite signs of a more frugal path forward, there are three reasons why the NRA’s financial situation could get worse instead of better.</p>
<p>1) It relies heavily on telemarketers</p>
<p>The use of for-profit telemarketing and donation processing companies to solicit from supporters is often an <a href="https://theconversation.com/when-charities-let-telemarketers-gouge-donors-89426">ineffective way</a> for nonprofits to raise money.</p>
<p>But the NRA is a <a href="https://www.thedailybeast.com/the-nra-is-being-sued-over-its-relentless-telemarketing-campaigns">big fan of these contractors</a>. It reportedly paid one company, Akron-based Infocision $24.3 million in 2017 in exchange for telemarketing and donation processing services. Infocision is <a href="https://publicintegrity.org/federal-politics/high-profile-charities-distance-themselves-from-telemarketer-following-federal-allegations/">no stranger to controversy</a> itself – the company agreed to pay a $250,000 settlement in January 2018 after a federal agency accused it of lying to donors, although it said it did nothing wrong. </p>
<p>The NRA has become so fixated on bringing in new members that its Infocision contracts permit the company to <a href="https://www.marketwatch.com/story/nra-donors-respond-to-imminent-threat-but-long-term-finances-are-shaky-2018-03-29">keep 100 percent</a> of credit card payments collected from new and lapsed members. As a result, increasing its membership may no longer boost the NRA’s bottom line, at least not right away since some of their new members’ initial dues will not make it to their coffers.</p>
<p>2) It borrows money from the NRA Foundation</p>
<p>The <a href="https://theconversation.com/is-the-nra-an-educational-organization-a-lobby-group-a-nonprofit-a-media-outlet-yes-92806">NRA is a 501(c)(4) membership organization</a> but is also closely affiliated with a political action committee and several public charities. The affiliated charities, including the <a href="https://www.nrafoundation.org/">NRA Foundation</a>, don’t face the financial issues that the NRA itself does.</p>
<p>Charity spending rules preclude the affiliated charities from just giving money to the NRA to shore up its funds. But, if the NRA runs out of options for cash, it can borrow from its affiliated foundation. This is precisely <a href="https://www.bloomberg.com/news/articles/2018-11-02/nra-political-spending-drops-for-midterms-after-big-bet-on-trump">what the gun group did in 2017</a>, suggesting that outside cash options were running thin and future options for getting cash may be even thinner.</p>
<p>3) It needs more cash for underfunded pension obligations</p>
<p>Despite the NRA’s pension fund already being <a href="https://www.documentcloud.org/documents/4823792-NRA-Audit-FY-2017.html">underfunded</a>, the organization indicated in 2017 that it had no plans to infuse it with cash that year. Instead, it promised to make a cash contribution of <a href="https://www.documentcloud.org/documents/4823792-NRA-Audit-FY-2017.html">$7.8 million in 2018</a>. </p>
<p>Providing the needed support for an underfunded pension may be wise, but it will force the NRA to scrape up an extra $7.8 million of cash in a time when cash is already in short supply.</p>
<h2>Throwing away its shot?</h2>
<p>Another revenue source – fees earned from <a href="https://www.thetrace.org/rounds/nra-lockton-affinity-lawsuit-carry-guard-insurance/">insurance products</a> NRA members buy – is being threatened due to efforts by New York state to block the group from marketing <a href="https://www.claimsjournal.com/news/east/2018/05/03/284486.htm">firearm liability coverage</a>. These fees, which accounted for <a href="https://www.documentcloud.org/documents/4823792-NRA-Audit-FY-2017.html">more than $14 million</a> in revenue in 2017, would be hard to replace.</p>
<p>In sum, though the NRA’s financial situation does not strike me as immediately dire based on the information available, it is far from healthy.</p>
<p>And while details about the NRA’s wobbly balance sheet are surely less salacious than <a href="http://fortune.com/2018/12/07/trump-campaign-and-nra-illegally-coordinated-during-presidential-election-watchdog-groups-say/">other news</a> about the gun group, such as <a href="https://www.opensecrets.org/news/2018/12/nra-leader-jack-abramoff-gop-operative-russian-spy-maria-butina-lobbying/">allegations and reports</a> that it may have been a conduit for Russia to <a href="https://theconversation.com/what-criminal-conspiracy-charges-against-an-alleged-russian-spy-might-mean-for-the-nra-3-questions-answered-100124">influence the Republican Party</a>, a weak financial footing may ultimately be what saps its political power.</p><img src="https://counter.theconversation.com/content/108582/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Brian Mittendorf does not work for, consult, own shares in or receive funding from any company or organization that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>More often than not, the group owes more money than it has available to spend at the end of the year.Brian Mittendorf, Fisher Designated Professor of Accounting and Chair, Department of Accounting & Management Information Systems (MIS), The Ohio State UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1086632018-12-13T19:11:47Z2018-12-13T19:11:47ZVital Signs: No, Joe, America should not be copying Australia’s ‘asset recycling’ misdirection<figure><img src="https://images.theconversation.com/files/250386/original/file-20181213-110231-1nehgvh.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Asset recycling is a shell game, a way to get around government accounting rules.</span> <span class="attribution"><span class="source">Shutterstock</span></span></figcaption></figure><p>Anyone who has been to La Guardia airport in New York can attest the dire need in the United States for infrastructure spending.</p>
<p>It’s not just crumbling bridges, pot-holed roads and lousy airports that provide the impetus for infrastructure spending. In recent times Harvard economist <a href="http://larrysummers.com/category/secular-stagnation/">Larry Summers</a> has popularised the threat of “secular stagnation” – that near zero real interest rates are becoming the normal condition of the global economy due to lack of demand and profitable investment opportunities. Governments increasing infrastructure spending is a way to combat this.</p>
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Read more:
<a href="https://theconversation.com/this-is-what-policymakers-can-and-cant-do-about-low-wage-growth-101025">This is what policymakers can and can't do about low wage growth</a>
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<p>It is against that backdrop that Australia’s ambassador to the US, Joe Hockey, has been pushing the so-called “Australian model” of <a href="https://www.afr.com/business/infrastructure/hockey-pushes-america-to-use-capitalism-for-its-infrastructure-needs-20181207-h18uma">“asset recycling”</a>.</p>
<p>As Australian treasurer from 2013 to 2015, Hockey championed the idea of the federal government providing incentives to the state government to sell public assets and use the proceeds to build more infrastructure.</p>
<p>The only problem with the idea is that it’s silly.</p>
<p>Its primary purpose is to circumvent arbitrary government accounting rules and pull the wool over the eyes of unsuspecting voters.</p>
<h2>A nice idea, in theory</h2>
<p>Here’s a hypothetical example of how asset recycling is supposed to work. </p>
<p>Suppose the government owns an airport that generates $300 million a year in profits from fees paid by airlines, car-parking revenue and rent from retailers selling $7 lattes and bad $18 sandwiches.</p>
<p>The government decides to “recycle” that asset by selling it off. How much does it get? Well, it is going to be some multiple of the cash flow and profit that the airport generates. </p>
<p>Perhaps the government gets enough bidders together to get a 14-times multiple, and so receives $4.2 billion. With that money it builds a toll road, then sells that off to another private-sector bidder, and off we go again.</p>
<p>One objection to this racket is the exorbitant parking fees and $7 lattes. That is, airports, toll roads and the like are natural monopolies <a href="https://www.abc.net.au/news/2017-03-06/sydney-airport-parking-prices-highest-in-nation/8327528">and their owners have tremendous market power</a>. </p>
<p>The government could, perhaps, try to impose price controls when it sells the asset. But that would depress the sale price meaning less money for other infrastructure. And price controls never work; there will always be a gap in the contract (e.g. it says one can’t charge more than $6 for lattes so the operator only makes flat whites and charges $7).</p>
<h2>Reasons to be sceptical</h2>
<p>But there is an even more fundamental objection. When the government sells the hypothetical airport it gives up $300 million in revenue every year to get $4.2 billion immediately. Unless the private operator values the cash flow stream more than the government does, or can generate more cash flow, there has been no value created. All that has happened is that the government gets money sooner rather than later, over time.</p>
<p>Since the government ought to be at least as patient as the private sector, and can borrow long term at 3%, it is unlikely the government values future cash flows less than some infrastructure fund.</p>
<p>So the only value that might be created is from a private operator running the airport more efficiently. It’s probably true it will – but by how much? Even if it does, will the government cut a good enough deal to capture a good chunk of that value for the public?</p>
<p>There are reasons to be sceptical of the government’s negotiating prowess in such matters.</p>
<h2>An accounting trick</h2>
<p>This is not, by the way, a general argument against privatisation. Qantas is a vastly better run and more profitable airline providing better service to its customers than when it was government-owned. There are plenty of other examples.</p>
<p>But the benefits of privatisation flow from factors such as improved access to capital markets, removal of government interference from management decisions, and the motivating power of market-based competition.</p>
<p>Asset recycling involves few if any of these factors.</p>
<p>What’s really going on is that asset recycling enables politicians to circumvent government accounting rules. </p>
<p>Governments don’t do accounting like private companies.</p>
<p>When a private company make a big investment, it does’t offset the full amount against its profits for that year. Instead it “capitalises” it and depreciates the investment over its useful life (“accrual accounting”). So a $1 billion capital expenditure that’s good for 10 years is charged against profits at $100 million a year.</p>
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Read more:
<a href="https://theconversation.com/highlighting-good-and-bad-debt-will-make-it-harder-to-fund-social-programs-76996">Highlighting 'good and bad' debt will make it harder to fund social programs</a>
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<p>Governments tend to take the full $1 billion hit in year one (“cash accounting”). This makes any budget surplus smaller, or deficit larger. </p>
<p>Since voters tend to focus on headline numbers, politicians are more reticent to make big capital expenditures.</p>
<p>Asset recycling is the perfect fix to this accounting problem. The big capital inflow offsets large expenditures on new infrastructure, at the cost of giving up regular annual income. </p>
<p>It’s an accounting trick. A shell game.</p>
<p>So let’s see asset recycling for what it really is – and take it out with the other rubbish.</p><img src="https://counter.theconversation.com/content/108663/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Richard Holden does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>The so-called ‘Australian model’ of ‘asset recycling’ is no miracle cure for US infrastructure problems.Richard Holden, Professor of Economics and PLuS Alliance Fellow, UNSW SydneyLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1026262018-09-16T14:40:27Z2018-09-16T14:40:27ZIt’s time to train accountants in sustainability<figure><img src="https://images.theconversation.com/files/236208/original/file-20180913-177953-qkltw6.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Why isn't sustainability a part of accounting training?</span> <span class="attribution"><span class="source">(Shutterstock)</span></span></figcaption></figure><p>It seems that everywhere we turn these days sustainability is a hot topic. From individuals to corporations, (almost) everyone is jumping on board with the idea that we all need to live more sustainably. </p>
<p>But forget the grand ideas — when we get into the details, what does it really mean?</p>
<p><a href="https://link.springer.com/article/10.1023%2FA%3A1006129603978">Corporate sustainability</a> includes the financial, social and environmental impacts of an organization. <a href="https://assets.kpmg.com/content/dam/kpmg/xx/pdf/2017/10/kpmg-survey-of-corporate-responsibility-reporting-2017.pdf">Ninety-three per cent of the world’s largest companies now provide sustainability reports</a> to communicate how the firm affects these different areas. </p>
<p>In France, <a href="https://www.legifrance.gouv.fr/affichTexte.do?cidTexte=JORFTEXT000030978561&categorieLien=id">many companies are required by law</a> to provide audited information about its social and environmental performance. Here in Canada, many firms voluntarily provide such information. Accountants are skilled communicators and purveyors of details on how a firm is performing.</p>
<p>This has traditionally related mostly to the <em>financial</em> performance of the firm, and involves the creation of financial statements. Accountants are also the go-to profession for anything audit-related, ensuring that the information faithfully represents reality. </p>
<p>But would it surprise you to know that accountants are not being trained in sustainability accounting as they’re studying to become accountants? Sadly, this is the situation both in France and Canada.</p>
<h2>No sustainability infrastructure</h2>
<p>You’d be forgiven for thinking that Canada and France are more sustainable. After all, Justin Trudeau and Emmanuel Macron are champions of the Paris climate accord, and <a href="https://www.cbc.ca/news/politics/trudeau-jean-paris-environment-1.4621202">recently reaffirmed each country’s commitment to battling climate change</a>. </p>
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<a href="https://images.theconversation.com/files/236209/original/file-20180913-177938-1eke89e.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/236209/original/file-20180913-177938-1eke89e.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=237&fit=clip" srcset="https://images.theconversation.com/files/236209/original/file-20180913-177938-1eke89e.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/236209/original/file-20180913-177938-1eke89e.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/236209/original/file-20180913-177938-1eke89e.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/236209/original/file-20180913-177938-1eke89e.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/236209/original/file-20180913-177938-1eke89e.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/236209/original/file-20180913-177938-1eke89e.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
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<span class="caption">Both Trudeau and Macron are big advocates of battling climate change. So why aren’t they insisting accountants get sustainability training?</span>
<span class="attribution"><span class="source">AP Photo/Evan Vucci</span></span>
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<p>You might conclude from this that each country has established a strong sustainability infrastructure in many sectors to support these lofty goals. And yet, my recent research with Emilio Boulianne from the John Molson School of Business at Concordia University on <a href="https://www.emeraldinsight.com/doi/abs/10.1108/SAMPJ-09-2017-0119">France</a> and <a href="https://www.emeraldinsight.com/doi/abs/10.1108/S1479-359820180000007004">Canada</a> finds that students pursuing an accounting designation in either country will find little to no coverage of sustainability in their education programs. What are we to make of this?</p>
<p>In our study, we examined the <a href="https://www.cpacanada.ca/en/become-a-cpa/cpa-professional-education-program-becoming-a-cpa">Canadian Chartered Professional Accountant (CPA) program</a>. We pored over what’s known as the <a href="https://www.cpacanada.ca/en/become-a-cpa/pathways-to-becoming-a-cpa/national-education-resources/the-cpa-competency-map">competency map</a> that details exactly what the accountants are expected to learn in the CPA education program. </p>
<p>When we compared this to international calls and recommendations for increased sustainability content in accounting training, we found very little. In fact, prior to the <a href="https://www.theglobeandmail.com/report-on-business/canadian-accountants-merge-under-cpa-designation/article19299464/">merger of the three accounting designations into the current designation</a>, one of the previous accounting bodies actually had substantially more sustainability content. In the merger, however, this was mostly lost.</p>
<p><a href="https://www.emeraldinsight.com/doi/abs/10.1108/SAMPJ-09-2017-0119">In our France study</a>, we worked with Maxence Postaire from the Toulouse Business School at Université Toulouse to examine how accountants are trained in France. We were interested in the French situation, because the government of France requires many companies not only to provide sustainability information, but also to have it audited.</p>
<p>Given accountants’ substantial involvement in firm performance communication and audits, we thought we’d find more sustainability accounting in their professional accounting program. Sadly, again, despite calls for more sustainability in accounting, we found very little.</p>
<h2>How it happened</h2>
<p>So what’s caused these two situations to emerge? </p>
<p>In Canada, we believe it’s due to the <a href="https://books.google.ca/books?hl=en&lr=&id=CnAeAgAAQBAJ&oi=fnd&pg=PA211&dq=Frey,+D.,+Schulz-Hardt,+S.,+%26+Stahlberg,+D.+(2013).+Chapter+8:+Information+seeking+among+indivi-+duals+and+groups+and+possible+consequences+for+decision+making+in+business+and+politics.+In+Understanding+group+behavior:+Small+group+processes+and+interperson&ots=97DdZRoABi&sig=ac1zLPsS_oefItZJVjIo5yySNoQ#v=onepage&q&f=false">dynamics</a> surrounding the competency map creation. If there is no one at the table with knowledge of sustainability, no one will push for its presence. </p>
<p>Additionally, while accounting firms and corporations have representatives to speak on their behalf in the competency map discussions, who is speaking on behalf of the planet?</p>
<p>In France, it appears that the cause is different. Education is paid for by the government in France, and while it demands sustainability reporting from firms and requires it to be audited, it does not provide the funds to pay for increased education in this area. </p>
<p>Consequently, individual accountants are left to discover this knowledge on their own only after they’ve received their designation — and at their own cost (or their firm’s). </p>
<p>As a consequence of the lack of coverage of sustainability, accountants are ill-prepared to face the growing needs of sustainability accounting.</p>
<h2>Need data</h2>
<p>Governments and firms need high-quality information to understand the impact on society and the environment and, to date, we just don’t have it. How are we to understand where we’re at or where we need to go if we don’t have the information to make those decisions? </p>
<p>The landscape in accounting is changing. Stakeholders, including governments and shareholders, are demanding more information about how firms are impacting society and the environment.</p>
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Read more:
<a href="https://theconversation.com/from-back-office-to-boardroom-accountants-step-up-in-climate-risk-management-98857">From back office to boardroom: accountants step up in climate risk management</a>
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<p>Accountants have an opportunity to use the skills they already possess: measuring, evaluating and communicating firm performance. Doing this, however, will require a shift in how we educate our accountants. </p>
<p>In line with international recommendations, we must make room for more breadth in our accounting programs. We must consider how firms have an impact on a variety of stakeholders. We must leverage accountants’ skills in measurement and reporting to understand where we’re at on sustainability.</p>
<p>It’s time to dig into the details of what firms are doing on sustainability and how they can go forward. Accountants are ready to play an important role, but we must change our education system to include sustainability.</p><img src="https://counter.theconversation.com/content/102626/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>This research was supported by funds from the CPA Research Centre in Accountability and the Manulife Professorship in Financial Planning at the John Molson School of Business.</span></em></p>Despite the leaders of both countries being champions of fighting climate change, research shows both Canada and France are failing to train their accountants in sustainability. Why?Leanne Keddie, PhD Candidate in Accountancy, Carleton UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/988572018-06-28T03:50:31Z2018-06-28T03:50:31ZFrom back office to boardroom: accountants step up in climate risk management<figure><img src="https://images.theconversation.com/files/225244/original/file-20180628-112628-1py2jx6.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">To properly consider climate risks for their business, directors need the financial expertise of accountants.</span> <span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/troubled-businessteam-working-hard-meeting-businesswoman-48606973?src=uwXwMUOwZIdu6kzCV5DHVQ-1-39">StockLite/Shutterstock</a></span></figcaption></figure><p>The implications of climate change risks for corporate stakeholders are often poorly understood. Possibly least understood within this group is the <a href="https://bit.ly/2jEgDBx">role of those with financial expertise</a>. We investigated and have produced a working paper on factors that influence accountants’ involvement in managing climate change risk in Australia.</p>
<p>Companies have been under greater pressure to disclose their exposure to risks of climate change since the 2014 G20 meeting in Australia. This created the Taskforce on Climate Change-Related Financial Risk Disclosure (<a href="https://www.fsb-tcfd.org/">TCFD</a>. Its <a href="https://www.fsb-tcfd.org/wp-content/uploads/2017/06/FINAL-TCFD-Report-062817.pdf">recommended disclosures</a> were issued in June 2017. </p>
<p>In a <a href="https://cpd.org.au/2018/06/climate-horizons-2/">speech this month</a>, Australian Securities and Investments Commissioner John Price reinforced these recommendations. He made clear climate risk is an ASIC priority. Directors who fail to properly consider and disclose climate risks <a href="https://www.smh.com.au/business/banking-and-finance/asic-warns-on-climate-risk-as-heat-turns-on-directors-20180618-p4zm7j.html">could face lawsuits</a>, he warned.</p>
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Read more:
<a href="https://theconversation.com/company-directors-can-be-held-legally-liable-for-ignoring-the-risks-from-climate-change-68068">Company directors can be held legally liable for ignoring the risks from climate change</a>
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<h2>So where do accountants come into this?</h2>
<p>It can be argued that those with financial expertise, such as accountants, have the tools to provide crucial information to management on potential risks embedded in climate change. </p>
<p>Previous <a href="https://www.emeraldinsight.com/doi/full/10.1108/ARJ-03-2015-0040">research</a> found accountants had a limited role in assessing climate change risk. However, our comparative study reveals shifts in climate management towards those with financial expertise. </p>
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<span class="caption">ASIC commissioner John Price’s warning that directors must consider climate risks is a pointer to accountants’ role in quantifying those risks.</span>
<span class="attribution"><a class="source" href="https://www.youtube.com/watch?v=SXhLoqMbjxo">Lisa Creffield/Youtube</a></span>
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<p>A principal conclusion from our research is that, together with engineers and other technical experts on climate change, those with financial expertise are significantly more intertwined in assessing and mitigating the risk than before.</p>
<p>The study involved semi-structured interviews with managers directly involved in emissions management for some of the largest Australian companies. These took place before and after the 2014 repeal of the carbon tax. In 2013, we interviewed 39 managers across 18 companies. In 2016 it was 14 managers and 11 companies. </p>
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Read more:
<a href="https://theconversation.com/carbon-tax-repealed-experts-respond-29154">Carbon tax repealed: experts respond</a>
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<p>The key finding from the 2013 interviews was that engineers and environmental specialists dominated emissions management. Those with financial expertise had minimal involvement. Many interviewees claimed that, because of the complexity and technicalities, only professionals with engineering or environmental science backgrounds had the relevant expertise:</p>
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<p>Because it’s quite a technical thing … it’s not just a number. You need to understand what’s behind the number, and why it’s there.</p>
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<p>Importantly, in that period, one financial professional leading a team in the field asserted that accountants, as risk management experts, could bring significant value to their companies: </p>
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<p>I think that accountants have a lot of credibility … because when it comes to emissions … I think I can put forward the business case of why it’s important … I think, that means … it’s better received within the company than if I was … an engineer or an environmental scientist.</p>
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<p>Both financial and non-financial experts shared this view. One sustainability professional explained how a limited financial understanding leads to an inability to appropriately use techniques common in finance, such as target setting and performance evaluation.</p>
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<p>Well, I think if you had the accounting knowledge … it [the target] would be far more accurate, and probably a lot higher than what we’ve set. </p>
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<p>Australia’s carbon tax was gone from July 2014. Emissions <a href="https://theconversation.com/one-year-on-from-the-carbon-price-experiment-the-rebound-in-emissions-is-clear-44782">have risen</a> <a href="https://theconversation.com/australias-carbon-emissions-and-electricity-demand-are-growing-heres-why-57649">every year</a> since. At December 2017, <a href="http://ageis.climatechange.gov.au/NGGITrend.aspx">emissions were up 1.5%</a> compared to 2016.</p>
<p>With our commitment to the Paris climate agreement, one might have expected companies to more urgently reduce emissions. In general, though, the second round of interviews reveals that companies’ emissions management (and momentum towards urgent action) has significantly diminished. </p>
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Read more:
<a href="https://theconversation.com/direct-action-not-as-motivating-as-carbon-tax-say-some-of-australias-biggest-emitters-64562">Direct Action not as motivating as carbon tax say some of Australia's biggest emitters</a>
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<h2>Financial expertise now coming to the fore</h2>
<p>However, the involvement of those with financial expertise in climate change risk management has increased. Many viewed this as positive and potentially useful for boardrooms. </p>
<p>Whether it was the carbon tax that brought finance team attention, or organisational learning, more recent interviews found evidence of greater acceptance of climate change as a financial (and other) material risk. The ASIC commissioner’s speech advocating TCFD-type disclosures suggests the issue is not merely one of eco-efficiency, but one of commercial substance of relevance to company directors. </p>
<p>From the interview data, one possible explanation for increased collaboration between technical and financial expertise is greater acceptance of climate change issues as material risks to companies: </p>
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<p>Management of carbon is fundamentally a risk-management exercise … It is a material risk … if we don’t think about the long-term risks … and what are the strategies that we need to mitigate…</p>
<p>The best way to present … climate-related information to … management … is in the risk-management process [including] … in terms of reputational risk, commercial risk, strategic risk … it’s all risk.</p>
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<p>Barriers to collaboration between technical and financial experts still exist. These include geographic co-location and some accountants being unable to step outside traditional roles.</p>
<p>With regulators’ increased interest in measurement and disclosure of climate change risk, the landscape is changing again. We anticipate better integration of the assessment and mitigation of climate change risk with strengthened expertise being brought to bear. This includes greater involvement from the technical expert on the ground through to the boardroom.</p><img src="https://counter.theconversation.com/content/98857/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Jayanthi Kumarasiri received funding from the Accounting & Finance Association of Australia and New Zealand (AFAANZ), and her previous employer, Swinburne University of Technology, to conduct the 2016 interviews.</span></em></p><p class="fine-print"><em><span>Christine Jubb and Keith A Houghton do not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and have disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Company directors have been put on notice about their duty to consider and disclose climate change risks. And to do that properly they need to call on the expertise of accountants.Jayanthi Kumarasiri, Lecturer in Accounting, RMIT UniversityChristine Jubb, Professor of Accounting, Associate Director Centre for Transformative Innovation, Swinburne University of TechnologyKeith A Houghton, Emeritus Professor, Australian National UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/986202018-06-22T03:49:12Z2018-06-22T03:49:12ZYou probably missed the latest national environmental-economic accounts – but why?<figure><img src="https://images.theconversation.com/files/224162/original/file-20180621-137734-1flytkf.JPG?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">The latest Australian Environmental-Economic Accounts tell us waste production is rising with GDP, but the information is incomplete and widely ignored.</span> <span class="attribution"><a class="source" href="https://commons.wikimedia.org/wiki/File:Rusko_Landfill_Oulu_20130626_06.JPG">Estormiz/Wikimedia</a></span></figcaption></figure><p>The Australian Bureau of Statistics released the <a href="http://www.abs.gov.au/AUSSTATS/abs@.nsf/0/9EF05B385442E385CA257CAE000ED150?Opendocument">Australian Environmental-Economic Accounts</a> on June 15. It’s a fine achievement, which shows, among other things, growing efficiency in water and energy use. That’s good for both the economy and the environment. Less good is that waste generation is increasing, broadly in line with GDP growth, as shown below. </p>
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<p>Equally notable, though, is the reaction to the environmental accounts compared to the response to the traditional national accounts, which give us the indicator GDP. </p>
<p>These national accounts are released to much market speculation and commentary. For example, reports of an <a href="https://www.smh.com.au/business/markets/8-eight-asx-set-for-positive-open-ahead-of-gdp-data-20180223-p4z1e9.html">expectation of a rising GDP</a> preceded <a href="http://www.abs.gov.au/AUSSTATS/abs@.nsf/0/52AFA5FD696482CACA25768D0021E2C7?Opendocument">the release of the latest national accounts on June 6</a>. Straight afterwards there was commentary by <a href="http://sjm.ministers.treasury.gov.au/media-release/059-2018/">Treasurer Scott Morrison</a> and many <a href="https://www.smh.com.au/business/the-economy/sorry-scott-it-s-not-clear-the-economy-has-lift-off-20180608-p4zka9.html">media</a> <a href="https://www.theage.com.au/politics/federal/things-are-so-good-we-mightn-t-need-to-cut-company-tax-20180606-p4zjwh.html">commentators</a>. </p>
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Read more:
<a href="https://theconversation.com/why-we-need-environmental-accounts-alongside-national-accounts-58636">Why we need environmental accounts alongside national accounts</a>
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<h2>Four reasons we neglect environmental accounts</h2>
<p>So why no reaction to the environmental accounts? There are at least four reasons for this.</p>
<p>Firstly, few people in government or business are aware of the environmental accounts. While this was the fifth time the ABS has released the environmental accounts, and individual accounts for <a href="http://www.abs.gov.au/AUSSTATS/abs@.nsf/second+level+view?ReadForm&prodno=4610.0&viewtitle=Water%20Account,%20Australia%7E2015-16%7ELatest%7E23/11/2017&&tabname=Past%20Future%20Issues&prodno=4610.0&issue=2015-16&num=&view=&">water</a> and <a href="http://www.abs.gov.au/AUSSTATS/abs@.nsf/second+level+view?ReadForm&prodno=4604.0&viewtitle=Energy%20Account,%20Australia%7E2015-16%7ELatest%7E23/02/2018&&tabname=Past%20Future%20Issues&prodno=4604.0&issue=2015-16&num=&view=&">energy</a> have a longer history, they remain little known. </p>
<p>The second reason is that it is not clear to government or business how the accounts should be interpreted. The ABS <a href="http://www.abs.gov.au/ausstats/abs@.nsf/0/9EF05B385442E385CA257CAE000ED150?Opendocument">commentary</a> is baldly descriptive: </p>
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<p>More recently, between 2014-15 and 2015-16, the economy grew by 3%. At the same time, the population increased 2%; greenhouse gas emissions were up just under 1%; and Australian energy consumption increased less than 1%. Water consumption decreased 7% between these years. If the economy is growing at a faster rate than the consumption of our resources (or generation of waste and emissions), it is an indication that we are using our resources more efficiently, as measured by the Gross Value Added (GVA) of economic production per unit of resource use (or waste generated).</p>
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<p>This is all true, but what does the information mean for the management of the economy and the environment? Of course, it is good that efficiency in resource use is improving. But we also need to understand what the limits are so that we can answer the key question: how much can we extract without risking the performance of the economy or the functioning of the environment? </p>
<p>For this we need other information. For example, to determine how much water we can use without damaging the environment we need information on the amount of water and the condition of ecosystems that depend on water in different places and times. With this information managers could compare the environment stress against the economic benefits or risks. All this can be done in an accounting framework, but is yet to occur. </p>
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Read more:
<a href="https://theconversation.com/australia-must-make-the-environment-integral-to-economic-decision-making-69037">Australia must make the environment integral to economic decision-making</a>
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<p>It is also interesting that the ABS commentary neglects to mention waste. The amount of waste we produce is growing at about the same rate as GDP. Full waste accounts would improve our understanding of the reasons for this and the options for policy intervention. Sadly, while full waste accounts were prepared for 2010-11, they have not continued. </p>
<p>This gets to the third reason – the environmental accounts cover only part of the picture. A summary of the <a href="http://www.environment.gov.au/climate-change/climate-science-data/greenhouse-gas-measurement">greenhouse gas accounts produced by the Department of Environment and Energy</a> is included. The <a href="http://www.bom.gov.au/water/nwa/2017/">water accounts from the Bureau of Meteorology</a> are not. The environmental accounts also do not cover air pollution, biodiversity, spending on environmental protection, and more. </p>
<p>The partial picture means the interactions between the different parts of the environmental and the economy cannot be fully understood or explored. A key feature of the national accounts is that these are comprehensive. All industries and sectors of the economy are covered, with data on income, expenditure and assets. </p>
<p>The fourth reason is no one is quite sure how to use the environmental accounts. The <a href="https://www.aph.gov.au/About_Parliament/Parliamentary_Departments/Parliamentary_Library/Browse_by_Topic/ClimateChangeold/governance/international/unfccc/unfccc">greenhouse gas accounts fulfil an international reporting obligation</a> and the water accounts come under the <a href="https://www.legislation.gov.au/Details/C2017C00151">Water Act 2007</a>. But the ABS environmental accounts are not specifically linked to any government process, although they have been used in <a href="https://www.researchgate.net/publication/296690387_The_accounting_push_and_the_policy_pull_Balancing_environment_and_economic_decisions">modelling and economic analysis</a>. </p>
<p>In contrast, the national accounts are used, for example, by the Department of Finance for forecasting revenue, by Treasury for preparing the budget and economic policy, and by the Reserve Bank of Australia when setting interest rates. </p>
<p>Such use is partly due to the length of time that the national accounts have been produced. The first <a href="http://www.ausstats.abs.gov.au/ausstats/subscriber.nsf/0/C5ACA29422243B56CA257F7D00177D09/$File/52160_2015_.pdf">Australian national accounts were published in 1963. A measure of national income was produced in 1938</a>. </p>
<p>The interest in the national accounts is also due to the understanding by business and the public that the health of the economy is directly linked to their own interests – i.e. profits for business and employment and income for people. </p>
<p>It’s also widely recognised that national accounts, and GDP in particular, are a good indicator of economic health. There is no similar indicator for the environment.</p>
<h2>What can be done about this?</h2>
<p>At present there is little understanding of how the environment contributes to the economy. Government agencies do not have regular information to assess the health of the environment, the adequacy of policies to stop environmental decline, or the economic impacts of environmental degradation. </p>
<p>To fill this information gap, interest in environmental accounting is growing. The recently released <a href="http://www.environment.gov.au/science/environmental-economic-accounting">National Strategy for Environmental-Economic Accounting</a> is a product of this. </p>
<p>How the strategy is implemented, however, will depend heavily on resourcing. This resourcing will need to consider not just the technical aspects of the accounts and related data sources but also the more challenging issue of how information from the accounts can be used in policy. <a href="https://www.wavespartnership.org/en/policy-forum-natural-capital-accounting-better-decision-making">Natural Capital Accounting for the Sustainable Development Goals</a> recently summarised emerging examples from around the world. </p>
<p>One promising example is the <a href="https://www.gov.uk/government/groups/natural-capital-committee">United Kingdom’s Natural Capital Committee</a>, an independent body that advises the government. The committee made <a href="https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/677872/ncc-advice-on-25-year-environment-plan-180131.pdf">recommendations on the development of the UK’s 25-Year Environment Plan</a>. These included recommendations on the type and level of investments needed to achieve the goals of the plan and on the use of pilot demonstration projects. </p>
<p>Australia could establish a similar body to help develop a comprehensive set of environment accounts that meet policy needs. This would put us on the path to better policy, planning and management of both the economy and environment. </p>
<p>We would also get greater public discussion of the environmental accounts. Over time this might even rival the interest in the national accounts and GDP.</p>
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Read more:
<a href="https://theconversation.com/accountants-the-unlikely-environmentalists-16040">Accountants: The unlikely environmentalists?</a>
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<img src="https://counter.theconversation.com/content/98620/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Michael Vardon has previously worked for the Australian Bureau of Statistics and coordinates a course on environmental-economic accounting that is run jointly by the Bureau and the Australia National University. He has received funding from the World Bank and United Nations for work on environmental-economic accounting.</span></em></p>Water and energy use are becoming more efficient, which is good news for both the economy and the environment. But Australia has yet to realise the value of national environmental accounting.Michael Vardon, Associate Professor at the Fenner School, Australian National UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/945782018-04-16T20:49:19Z2018-04-16T20:49:19ZTo value companies like Amazon and Facebook, we need to look beyond dollars and assets<p>Investors and business people usually value companies based on the balance of assets and debts at the end of a financial year. But <a href="https://doi.org/10.1111/auar.12184">our research</a> found they should be valuing their employees’ ability to innovate while using their existing physical assets.</p>
<p>This is what actually creates value for our economy. For example manufacturing, an example of using assets to create value, <a href="https://www.theguardian.com/australia-news/2017/oct/23/census-2016-manufacturing-jobs-in-australia-drop-24-in-six-years">is on the decline</a> in Australia. Contrast this to services, using the skills of employees, <a href="http://www.abs.gov.au/ausstats/abs@.nsf/Latestproducts/5204.0Main%20Features22016-17?opendocument&tabname=Summary&prodno=5204.0&issue=2016-17&num=&view=">which are increasing</a>.</p>
<p>We came up with a <a href="https://onlinelibrary.wiley.com/doi/pdf/10.1111/auar.12227">modified way</a> to predict the value of companies, removing the emphasis on assets and instead using measures of spending on research and development and copyrights. </p>
<p>We tested this revised model with accounting data from companies in countries like China, Malaysia, Russia, South Africa and Turkey. We also tested it with companies in more developed countries like Australia, Austria, Netherlands, Singapore and Sweden. </p>
<p>Research and development was positively associated with return on assets in Australia, Austria, the Netherlands, Singapore, Sweden, China, South Africa and Turkey, according to the model. This means that companies in these developed and emerging economies use their resources more efficiently because of their investments in research and development and copyrights.</p>
<p>For some of the biggest technology companies like Amazon and Facebook, the unique combination of their people, their invented systems and processes, and their physical presence creates value for the company and their investors.</p>
<p>If we can improve how we predict potential economic value, we can help companies and our economy to grow and become more efficient.</p>
<h2>Traditional accounting methods</h2>
<p>Today, the traditional accounting system has lost its relevance, because many of the resources companies use to do business cannot be owned and become an asset.</p>
<p>Traditionally companies calculate how much they own (assets) and subtract how much they owe (liabilities). The remaining amount, or book value, is what the company is worth.</p>
<p>But people are a key resource in any company, yet companies do not own people. The wages paid to them are an expense, but their value cannot be recorded in the company’s accounts. </p>
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Read more:
<a href="https://theconversation.com/why-accountants-of-the-future-will-need-to-speak-blockchain-and-cryptocurrency-if-they-want-your-money-91189">Why accountants of the future will need to speak blockchain and cryptocurrency if they want your money</a>
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<p>Similarly, accounting rules state that most research and development is expensed when it occurs, meaning it is counted as a cost immediately. The problem is that investments in people and research and development may not pay off until the future.</p>
<h2>What this means for long-term investments</h2>
<p>Amazon, for example, is spending <a href="http://www.afr.com/technology/amazon-spends-more-on-rd-than-all-australian-businesses-combined-data61-ceo-20180228-h0ws0u">billions of dollars on research and development</a>. This would involve spending money on intangible resources such as copyrights, market research, branding and designing systems and processes. It will also invest in marketing to potential customers, training staff and hiring managers. </p>
<p>According to current accounting rules, most of these costs are treated as expenses now. It is only physical assets such as buildings, computers, furniture and equipment that are counted as a cost over time.</p>
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Read more:
<a href="https://theconversation.com/companies-may-be-misleading-investors-by-not-openly-assessing-the-true-value-of-assets-61801">Companies may be misleading investors by not openly assessing the true value of assets</a>
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<p>However, Amazon’s investment in its new distribution network is likely to reap significant returns in the future. The fact that accounting reports analyse the past year, six months or quarter, shows how accounting is too focused on the short term. In the long term, <a href="https://ycharts.com/companies/AMZN/price_to_book_value">Amazon is actually worth about 25 times more than accounting suggests</a>.</p>
<p>Because investors are interested in the future returns from their investments, not what was spent in the past, the stock market values most modern companies at several times their book value. This makes <a href="https://www.wiley.com/en-au/The+End+of+Accounting+and+the+Path+Forward+for+Investors+and+Managers-p-9781119191094">modern accounting even less relevant in explaining economic value.</a></p>
<h2>A new approach</h2>
<p><a href="https://doi.org/10.1111/auar.12184">Our research</a> found that to understand how economic value is created, you need to look at what businesses are spending on long term resources such as research and development and copyright and treat it as an investment, rather than a cost. </p>
<p>Even if a company is not making a profit because it is investing in research and development in the short term, this does not mean it is not capable of making money in the long term. </p>
<p>Many companies like Amazon never made a profit in their early years as they burned cash to create their foothold in the market. But their investors were convinced these companies would create economic value by way of profits and increased share prices in the future. </p>
<p>If we look beyond the book value of companies, we can truly understand how they create economic value.</p><img src="https://counter.theconversation.com/content/94578/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>The authors do not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and have disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Traditional accounting calculates a company’s value by measuring physical assets and how much they owe. But we can tweak this for today’s economy by including people and their ability to innovate.John Dumay, Associate Professor - Department of Accounting and Corporate Governance, Macquarie UniversityMaurizio Massaro, Assistant Professor, Università degli Studi di UdineMuhammad Nadeem, Lecturer, Auckland University of TechnologyLicensed as Creative Commons – attribution, no derivatives.