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Principles of Accounting, Volume 2: Managerial Accounting

13.4 Future Issues in Sustainability

Principles of Accounting, Volume 2: Managerial Accounting13.4 Future Issues in Sustainability
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Table of contents
  1. Preface
  2. 1 Accounting as a Tool for Managers
    1. Why It Matters
    2. 1.1 Define Managerial Accounting and Identify the Three Primary Responsibilities of Management
    3. 1.2 Distinguish between Financial and Managerial Accounting
    4. 1.3 Explain the Primary Roles and Skills Required of Managerial Accountants
    5. 1.4 Describe the Role of the Institute of Management Accountants and the Use of Ethical Standards
    6. 1.5 Describe Trends in Today’s Business Environment and Analyze Their Impact on Accounting
    7. Key Terms
    8. Summary
    9. Multiple Choice
    10. Questions
    11. Exercise Set A
    12. Exercise Set B
    13. Thought Provokers
  3. 2 Building Blocks of Managerial Accounting
    1. Why It Matters
    2. 2.1 Distinguish between Merchandising, Manufacturing, and Service Organizations
    3. 2.2 Identify and Apply Basic Cost Behavior Patterns
    4. 2.3 Estimate a Variable and Fixed Cost Equation and Predict Future Costs
    5. Key Terms
    6. Summary
    7. Multiple Choice
    8. Questions
    9. Exercise Set A
    10. Exercise Set B
    11. Problem Set A
    12. Problem Set B
    13. Thought Provokers
  4. 3 Cost-Volume-Profit Analysis
    1. Why It Matters
    2. 3.1 Explain Contribution Margin and Calculate Contribution Margin per Unit, Contribution Margin Ratio, and Total Contribution Margin
    3. 3.2 Calculate a Break-Even Point in Units and Dollars
    4. 3.3 Perform Break-Even Sensitivity Analysis for a Single Product Under Changing Business Situations
    5. 3.4 Perform Break-Even Sensitivity Analysis for a Multi-Product Environment Under Changing Business Situations
    6. 3.5 Calculate and Interpret a Company’s Margin of Safety and Operating Leverage
    7. Key Terms
    8. Summary
    9. Multiple Choice
    10. Questions
    11. Exercise Set A
    12. Exercise Set B
    13. Problem Set A
    14. Problem Set B
    15. Thought Provokers
  5. 4 Job Order Costing
    1. Why It Matters
    2. 4.1 Distinguish between Job Order Costing and Process Costing
    3. 4.2 Describe and Identify the Three Major Components of Product Costs under Job Order Costing
    4. 4.3 Use the Job Order Costing Method to Trace the Flow of Product Costs through the Inventory Accounts
    5. 4.4 Compute a Predetermined Overhead Rate and Apply Overhead to Production
    6. 4.5 Compute the Cost of a Job Using Job Order Costing
    7. 4.6 Determine and Dispose of Underapplied or Overapplied Overhead
    8. 4.7 Prepare Journal Entries for a Job Order Cost System
    9. 4.8 Explain How a Job Order Cost System Applies to a Nonmanufacturing Environment
    10. Key Terms
    11. Summary
    12. Multiple Choice
    13. Questions
    14. Exercise Set A
    15. Exercise Set B
    16. Problem Set A
    17. Problem Set B
    18. Thought Provokers
  6. 5 Process Costing
    1. Why It Matters
    2. 5.1 Compare and Contrast Job Order Costing and Process Costing
    3. 5.2 Explain and Identify Conversion Costs
    4. 5.3 Explain and Compute Equivalent Units and Total Cost of Production in an Initial Processing Stage
    5. 5.4 Explain and Compute Equivalent Units and Total Cost of Production in a Subsequent Processing Stage
    6. 5.5 Prepare Journal Entries for a Process Costing System
    7. Key Terms
    8. Summary
    9. Multiple Choice
    10. Questions
    11. Exercise Set A
    12. Exercise Set B
    13. Problem Set A
    14. Problem Set B
    15. Thought Provokers
  7. 6 Activity-Based, Variable, and Absorption Costing
    1. Why It Matters
    2. 6.1 Calculate Predetermined Overhead and Total Cost under the Traditional Allocation Method
    3. 6.2 Describe and Identify Cost Drivers
    4. 6.3 Calculate Activity-Based Product Costs
    5. 6.4 Compare and Contrast Traditional and Activity-Based Costing Systems
    6. 6.5 Compare and Contrast Variable and Absorption Costing
    7. Key Terms
    8. Summary
    9. Multiple Choice
    10. Questions
    11. Exercise Set A
    12. Exercise Set B
    13. Problem Set A
    14. Problem Set B
    15. Thought Provokers
  8. 7 Budgeting
    1. Why It Matters
    2. 7.1 Describe How and Why Managers Use Budgets
    3. 7.2 Prepare Operating Budgets
    4. 7.3 Prepare Financial Budgets
    5. 7.4 Prepare Flexible Budgets
    6. 7.5 Explain How Budgets Are Used to Evaluate Goals
    7. Key Terms
    8. Summary
    9. Multiple Choice
    10. Questions
    11. Exercise Set A
    12. Exercise Set B
    13. Problem Set A
    14. Problem Set B
    15. Thought Provokers
  9. 8 Standard Costs and Variances
    1. Why It Matters
    2. 8.1 Explain How and Why a Standard Cost Is Developed
    3. 8.2 Compute and Evaluate Materials Variances
    4. 8.3 Compute and Evaluate Labor Variances
    5. 8.4 Compute and Evaluate Overhead Variances
    6. 8.5 Describe How Companies Use Variance Analysis
    7. Key Terms
    8. Summary
    9. Multiple Choice
    10. Questions
    11. Exercise Set A
    12. Exercise Set B
    13. Problem Set A
    14. Problem Set B
    15. Thought Provokers
  10. 9 Responsibility Accounting and Decentralization
    1. Why It Matters
    2. 9.1 Differentiate between Centralized and Decentralized Management
    3. 9.2 Describe How Decision-Making Differs between Centralized and Decentralized Environments
    4. 9.3 Describe the Types of Responsibility Centers
    5. 9.4 Describe the Effects of Various Decisions on Performance Evaluation of Responsibility Centers
    6. Key Terms
    7. Summary
    8. Multiple Choice
    9. Questions
    10. Exercise Set A
    11. Exercise Set B
    12. Problem Set A
    13. Problem Set B
    14. Thought Provokers
  11. 10 Short-Term Decision Making
    1. Why It Matters
    2. 10.1 Identify Relevant Information for Decision-Making
    3. 10.2 Evaluate and Determine Whether to Accept or Reject a Special Order
    4. 10.3 Evaluate and Determine Whether to Make or Buy a Component
    5. 10.4 Evaluate and Determine Whether to Keep or Discontinue a Segment or Product
    6. 10.5 Evaluate and Determine Whether to Sell or Process Further
    7. 10.6 Evaluate and Determine How to Make Decisions When Resources Are Constrained
    8. Key Terms
    9. Summary
    10. Multiple Choice
    11. Questions
    12. Exercise Set A
    13. Exercise Set B
    14. Problem Set A
    15. Problem Set B
    16. Thought Provokers
  12. 11 Capital Budgeting Decisions
    1. Why It Matters
    2. 11.1 Describe Capital Investment Decisions and How They Are Applied
    3. 11.2 Evaluate the Payback and Accounting Rate of Return in Capital Investment Decisions
    4. 11.3 Explain the Time Value of Money and Calculate Present and Future Values of Lump Sums and Annuities
    5. 11.4 Use Discounted Cash Flow Models to Make Capital Investment Decisions
    6. 11.5 Compare and Contrast Non-Time Value-Based Methods and Time Value-Based Methods in Capital Investment Decisions
    7. Key Terms
    8. Summary
    9. Multiple Choice
    10. Questions
    11. Exercise Set A
    12. Exercise Set B
    13. Problem Set A
    14. Problem Set B
    15. Thought Provokers
  13. 12 Balanced Scorecard and Other Performance Measures
    1. Why It Matters
    2. 12.1 Explain the Importance of Performance Measurement
    3. 12.2 Identify the Characteristics of an Effective Performance Measure
    4. 12.3 Evaluate an Operating Segment or a Project Using Return on Investment, Residual Income, and Economic Value Added
    5. 12.4 Describe the Balanced Scorecard and Explain How It Is Used
    6. Key Terms
    7. Summary
    8. Multiple Choice
    9. Questions
    10. Exercise Set A
    11. Exercise Set B
    12. Problem Set A
    13. Problem Set B
    14. Thought Provokers
  14. 13 Sustainability Reporting
    1. Why It Matters
    2. 13.1 Describe Sustainability and the Way It Creates Business Value
    3. 13.2 Identify User Needs for Information
    4. 13.3 Discuss Examples of Major Sustainability Initiatives
    5. 13.4 Future Issues in Sustainability
    6. Key Terms
    7. Summary
    8. Multiple Choice
    9. Questions
    10. Thought Provokers
  15. A | Financial Statement Analysis
  16. B | Time Value of Money
  17. C | Suggested Resources
  18. Answer Key
    1. Chapter 1
    2. Chapter 2
    3. Chapter 3
    4. Chapter 4
    5. Chapter 5
    6. Chapter 6
    7. Chapter 7
    8. Chapter 8
    9. Chapter 9
    10. Chapter 10
    11. Chapter 11
    12. Chapter 12
    13. Chapter 13
  19. Index

Sustainability reporting is still relatively new and its use is not yet mandatory. But from the standpoint of materiality, companies should disclose information if it has become important enough to influence the decisions of users of financial information.

The focus on sustainability has led to some notable innovation. For example, Tesla Corporation has become the United States’ premier electric car manufacturer and is planning an electric semi-trailer to compete with diesel semi-trailers. The company has also made huge strides in the development of economically viable battery and solar technologies, and developing affordable attractive glass solar tiles that can provide all the electricity necessary for the typical home. The Tesla Gigafactory, located in Sparks, Nevada, expects to be able to produce more lithium ion batteries in one year than were produced in globally in 2013.

If industries reduce carbon emissions and improve social responsibility, what issues remain to guide the quest for sustainability in the future? One possibility is the need for security against cyberattacks, which not only harm the company’s functioning but also dent consumer confidence. Another issue will be whether companies can continue to become or remain global in their operations, as political winds shift and the potential arises for backlash against the resulting economic changes in industrialized nations.

A third issue is the role of artificial intelligence (AI). As AI gains prominence and robots become more capable of undertaking complex tasks, white-collar workers of the 21st century may find themselves losing jobs like their 20th-century manufacturing counterparts did. This result will raise a number of ethical questions, such as whether corporations have a greater responsibility to society than to shareholders, and whether the use of robots should be taxed in order for governments to provide retraining to displaced workers and a universal basic income87.

AI can herald positive change as well. It is expected, for instance, that 10 million self-driving cars will be on the road by 2020,88 most of them electric and rechargeable using wind or solar power. In fact, you may not even need to own a vehicle at all! Instead, you can be taken to work in a driverless car that will drop you off and then collect other passengers.

These changes are examples of what some call the technological revolution.89 To maintain relevance, today’s worker must learn to be multi-skilled, more innovative, and have a good analytical mind that is able to think critically and creatively. These types of shifts can increase stress for employees and means that the business will be subject to high degrees of scrutiny by stakeholders. As a result, stakeholders will demand that companies be more accountable than simply providing financial reports.

Think It Through

Robot Tax

In 2017, Microsoft founder, Bill Gates called for a “robot tax” to be introduced to offset the inequality expected to result from automation.90 He called for the robot tax to finance a Universal Basic Income (UBI). A universal basic income is the concept by which citizens would receive a regular and unconditional amount of money from the government that is sufficient to meet basic needs. Another similar concept is that of a Universal Basic Dividend (UBD) by which a portion of the initial public offerings (IPOs) of a company would go into a public trust that generates an income stream to pay the UBD.91

  • What are the costs to society of increased automation?
  • How might a robot tax be calculated and implemented?

The discussion of the environmental and social responsibility in this chapter only touched on some of the issues that affect our world. Sustainability reporting allows companies to not only report what they are doing to be good global citizens, it also makes them more aware of areas in which they need to improve. Awareness of the areas that need improvement allows companies to create a plan to continually improve their role in society. In addition, as more and more companies assess their own social responsibility and move to improve their sustainability, it draws attention to unreported sustainability issues as well as to companies that are not being socially aware. Social responsibility reporting has moved us a long way from merely reporting the financial results of businesses. It provides a foundation that links all businesses to all citizens, whether they are shareholders or not, and it helps bind us all in a way that says we are all truly part of a single, global environment that is determined by the actions of both businesses and citizens.

Footnotes

  • 87Catherine Clifford. “Automation Could Kill 2× More Jobs Than the Great Depression—so San Francisco Lawmaker Pushes for Bill Gates’ ‘Robot Tax.’” CNBC. August 24, 2017. https://www.cnbc.com/2017/08/24/san-francisco-lawmaker-pushes-forward-bill-gates-robot-tax.html
  • 88Business Insider Intelligence. “10 Million Self-Driving Cars Will Be on the Road by 2020.” Business Insider. June 15, 2016. http://www.businessinsider.com/report-10-million-self-driving-cars-will-be-on-the-road-by-2020-2015-5-6
  • 89Klaus Schwab. “Are You Ready for the Technological Revolution?” World Economic Forum. February 19, 2015. https://www.weforum.org/agenda/2015/02/are-you-ready-for-the-technological-revolution/
  • 90Yanis Varoufakis. “Robot Taxes and Universal Basic Income.” Acuity. June 16, 2017. https://www.acuitymag.com/technology/robot-taxes-and-universal-basic-income
  • 91Yanis Varoufakis. “Robot Taxes and Universal Basic Income.” Acuity. June 16, 2017. https://www.acuitymag.com/technology/robot-taxes-and-universal-basic-income
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