How ESG Impacts Accounting Standards

Running a business is not always easy. As most business owners know, there is a lot that goes into generating consistent and adequate revenue to keep operations running smoothly. Add to this the regulations within which your business must operate to meet state, accounting and IRS guidelines; and many business owners may feel overwhelmed.

But, despite it being challenging to keep up with, it is important for your business to remain compliant with the regulations. An interesting regulatory issue gaining more and more interest among policymakers, tax experts and investors, is ESG.

What is ESG?

If you do not know what ESG is, it stands for Environmental, Social, and Governance, and it is the disclosure of environmental, social, and governance data, which increases the transparency within a business in order to reduce risks and identify opportunities.

Investors are becoming more concerned with sustainability and how it affects their investments which means that companies too need to think about sustainability, climates and the ever increasing work-from-home agreements on the way they run accounting within their business.

What are ESG Assets?

Now that you know what ESG stands for, let’s look into the environment, social and governance asset material effects on your financial statements. ESG will impact your financial reporting including, indefinite- or finite-lived intangible assets, equipment, plant, or property. Testing indefinite-lived intangible assets for impairment is generally applied under the accounting standards if there are indicators of impairment. Goodwill impairment is another asset that responds to what are ESG assets that can affect financial reporting.

Under the current FASB accounting standards, the useful lives of finite-lived intangible assets, property, equipment, and plant have to meet amortization accounting standards. An outsourced accounting controller will evaluate those assets for amortization purposes and the remaining useful life. Lastly, inventory receives the lowest cost and net realization value for predicting disposal costs. Estimating the inventory net realizable value, the ESG accounting professional considers all relevant circumstances, such as natural disasters and regulatory changes.

Accounting considerations for ESG

ESG accounting is developing as the criteria used by organizations to report nonfinancial risks and opportunities. While its effects on a business vary depending on the industry, regulatory, legal, and contractual obligation, your business should become aware of the economic, social and governance factors that might affect costs and revenue. Considering the ESG factors that that influence your financial statements is imperative for accounting teams to do, as failure to factor in work from home on office expenses, for example, may influence the financial outlook and books within your business. This of course has a ripple effect on tax filing and more.

Benefits of Acquiring ESG Services

Whether you own a public trading or private business, the advantages of outsourcing an ESG accounting firm or ESG analyst comprise:

  • Accurate financial reporting following the ESG accounting standards issued by the FASB.
  • Optimization of operations and strategy to increase profitability and company growth.
  • Implementation of climate change and reporting of financial statements.
  • Reputable ESG accounting services to create sustainable finance.
    Use of technology tools to simplify ESG accounting complexities.
  • Access to technology tools to simplify complex ESG accounting.
  • Thorough industry experience to navigate ESG implementation in your organization.

ESG-trained accounting controllers have the expertise to ensure that you comply when financially reporting and factoring in ESG. You should file your financial statements and report to governmental agencies, including SEC (Securities Exchange Commission), if you own a publicly-traded company, and the Internal Revenue Service (IRS). Consider the latest ESG-related reporting standards, or consult with an accountant that understands the latest developments in this area, to determine how the accounting standards will affect your financial reporting.

ESG

Are you having trouble wrapping your head around governance compliance and understanding how your business can function better, reduce risk and optimize costs considering relevant ESG issues? At Fusion CPA, our controllers understand environmental, social, and governance issues and their impact on businesses. We consult with clients to ensure compliance and best practice throughout the business, considering issues that you may not be aware of that might be affecting your operations or policies. We also analyse your books to help you reduce risk and save money in this regard. Contact us to discuss compliance for your business.

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This blog article is not intended to be the rendering of legal, accounting, tax advice, or other professional services. Articles are based on current or proposed tax rules at the time they are written and older posts are not updated for tax rule changes. We expressly disclaim all liability in regard to actions taken or not taken based on the contents of this blog as well as the use or interpretation of this information. Information provided on this website is not all-inclusive and such information should not be relied upon as being all-inclusive.