Question

In: Economics

You are a graduate working for the Chartered Accountants firm, Smart and Associates. The managing partner...

You are a graduate working for the Chartered Accountants firm, Smart and Associates. The managing partner of the firm, John Smart is aware of increasing interest by clients on the issue of climate change, as well as related developments in corporate reporting. He has asked you to prepare a short report, which could be used to brief clients on the issue of climate change, why it could be important to them and the main financial accounting and reporting considerations.

Required:

Prepare a short report, which briefly explains:

  1. What is meant by the term ‘climate change’,                                                     
  2. Why climate change has become a business issue and how financial accounting and financial reporting initiatives are seeking to address this,                       
  3. How cap-and trade schemes work and some of the accounting issues associated with these schemes for participating companies,                                                     
  4. New Zealand’s emissions trading scheme (NZ ETS) and its role regarding climate change;                                                                                                                       
  5. The main features of the NZ ETS that are likely to be most useful to clients of Smart and Associates, who are considering their potential obligations and opportunities.                                                                                                                                               

Solutions

Expert Solution

1.Climate change is seen as one of the burning topic in the recent scenario mt occurs when there is a change in the weather conditions from many years or decades. Climate change comprises of 5 parts-

Atmosphere, hydrosphere, cryosphere, biosphere, lithosphere.

One of the major problem seen in the present situation is Global warming It results in climate change all over the world. The string heat waves and extreme weather conditions are seen as a threat to not only human beings but to all living organisms. Adverse climatic conditions is due to human activities like burning of fossil fuels and many other activities.

Example :The extinction of species results from global warming We can see the number of tiger declined due to poaching and loss of habitat

2.In present scenario, environmental issues and climatic conditions are given vital importance in running the business Form must adapt itself to climate change if it want to sustain in the market. Presently, consumers are so aware that they want to use environment friendly products . But climate change is seen both as a risk and opportunity. It is risky because if a business does not adapt itself to climate change and policies made to protect environment then it leads to business failure.

Example :Insurance sector has the asses natural disaster risk.

A change in climatic conditions results in occurrence of flood, droughts rising sea levels. All this effect the business on a global scale  

If developing countries are concerned which are dependent on agriculture then if there will be shortage of water supply it will automatically reduce food production It results on price rise and sometimes inflationary conditions in the country  

As far as financial reporting is concerned,, in order to meet the financial risk and to maintain financial stability,a Task force on climate related Financial Disclosures(TCFD) was set up by financial stability board in 2015. But in 2017 also, some recommendations were added in it :

1 Governance :it states the risk associated with climate change in business.

2.Strategy:It stated that if the present risk is known then in future proper strategy should be made to minimise the loss.

Example:if water shortage will be predicted in the future then sturgeon should be done to meet future needs.

3.Risk management :It states the type of risk involved in a business and how to minimise it.

4.Metrices:finally the targets to meet the risk and to increase the opportunity.

As far as financial accounting is concerned, in order to minimise green House effects it is necessary to introduce carbon emissions price mechanism to reduce threat which global warming is creating. Such reports should also be prepared in case of green gas emissions Even the effect of theirs price mechanism on tax also need to be accounted.


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