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2016 | OriginalPaper | Buchkapitel

Calculation of Environmentally Sustainable Residual Income (eSRI) from IFRS Financial Statements: An Extension of Richard (2012)

verfasst von : Paul James Brown

Erschienen in: IFRS in a Global World

Verlag: Springer International Publishing

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Abstract

This chapter presents a flexible approach to evaluating the extent to which an organisation has the capacity to be both environmentally and economically sustainable based on financial statements, namely Environmentally Sustainable Residual Income (eSRI). Problematically, despite International Financial Reporting Standards (IFRS) being a key information source for investors and other stakeholders, they give little consideration to natural and social capital in the construction of financial statements. eSRI builds on the approach to financial statement analysis advocated by Penman (Financial statement analysis and security valuation, 5th edn. McGraw-Hill/Irwin, 2012) and others, whereby users make adjustments to financial statements to derive more informative accounts. eSRI is defined as Net Profit less (i) a capital charge to evaluate economic sustainability, and (ii) environmental sustaining costs. Environmental sustaining costs are an estimate of a charge to replace or restore natural capital degraded in earning the income; essentially an opportunity cost generated by the organisation’s activities. The calculation provides a representation (albeit with error) of how much environmental capital has been destroyed in the generation of income. A key advantage of eSRI is that it allows users to combine non-financial information disclosures (such as carbon emissions) with financial indicators in a theory informed manner. eSRI will be of interest to stakeholders with an interest in estimating the extent to which an organisation has the potential to be both economically and environmentally sustainable.

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Vorheriges Kapitel The Accounting Representation of the Enterprise Entity: An Historical Perspective

Nächstes Kapitel In Search of the Purpose of Accounting Representation

It is beyond the scope of this chapter to debate the meaning of the word sustainability; hence I adopt one of the most common definitions of sustainability from the oft quoted Our Common Future report (Brundtland Commission 1987: 43): ‘Sustainable development is development that seeks to meet the needs of the present without compromising the ability of future definitions to meet their own needs’.

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Whilst in this paper I focus on IFRS, the arguments contained herein have application to Generally Accepted Accounting Principles more broadly.

Neoliberalism is generally characterised by ‘privatisation of public services; the deregulation of labour and financial markets; the opening of markets to free trade; and the shrinking of governments through tax cuts, austerity measures and reduced regulation’ (Harvey 2005, in Zhang and Andrew 2013).

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Titel: Calculation of Environmentally Sustainable Residual Income (eSRI) from IFRS Financial Statements: An Extension of Richard (2012)
verfasst von: Paul James Brown
Verlag: Springer International Publishing
Buch: IFRS in a Global World
Print ISBN: 978-3-319-28223-7

Electronic ISBN: 978-3-319-28225-1

Copyright-Jahr: 2016
DOI: https://doi.org/10.1007/978-3-319-28225-1_11