Does an asset have to be controlled to be accurately accounted for?

Does an asset have to be controlled to be accurately accounted for?
2018-04-17

Professor M. Azizul Islam, recently gave a seminar on limitations to traditional (financial) accounting in a socio-ecological context, to a group of social scientists and ecologists at James Hutton Institute. In his latest blog he discusses the limitations to traditional accounting in a socio-ecological context.

 

Traditional accounting disregards ecological and environmental impacts of an organisation based on certain assumptions including entity, controllability and measurability assumptions. The present accounting system suggests that each entity is independent and therefore concentrates upon seeking satisfaction for its own wants, without regard to other entities and the environment. Based on socio-ecological perspective, Professor Islam argues that the effect of an organisation’s activities upon externalities is the organisation's concern, and hence a proper concern for accounting; organisations are accordingly accountable for any environmental and ecological impacts on the society in which they operate.

Professor Islam’s presentation has received significant attention to the seminar participants, and many of his interesting insights have been considered as food for thought. Such insights appear to have a wider implication for future accounting teaching and research.

Professor M. Azizul (Aziz) Islam is Chair in Accountancy and the Director of Post Graduate Research (Accounting & Finance) at the University of Aberdeen Business School.

Published by Business School, University of Aberdeen

Comments

  1. #1
    Dr Scott Allan

    This is a very interesting subject which raises some challenging questions. For example, what is the relationship between accounting and accountability? What do i mean by this? Well, it is one thing to encourage or require organisations to include within thier financial statements a calculation of the harmful effects of its activities on the environment. It is another thing to make that organisation accountable - in monetary terms - for such effects. Indeed, even if rendered accountable, what guarantee do we have that those collecting the money will apply it to making good the harm done (assuming that is even possible)? Is there a risk that, like fines issued by government agencies, the revenue raised becomes part of government funding? Think of arguments about smoking and taxation: we cannot ban the production and sale of cigarettes some say, because of the revenue loss to the government that would follow. So we trade off one harm against another apparent good (that being whateer such revenue is applied to e.g. the National Health Service). So what is my point? Nothing other than this: we need to see each step as part of a wider system, and consider the systemic effects of what we do, and why we do it. Part of that is considering the unintended consequences of apparently laudable acts.

  2. #2
    Aziz

    Very well said Scott. This gives us an interesting input for thought!

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