Center for Advancing Accounting

Integrating Sustainability Concepts into an Intermediate Accounting Course

• In Event: Integration of ESG/Sustainability into Accounting Courses

Abstract

This proposal is based on a forthcoming paper in The Accounting Educators’ Journal: Integrating Sustainability Concepts into an Intermediate Accounting Course. Given the breadth of topics that are covered in intermediate accounting, this course naturally develops significant overlap with sustainable accounting concepts. The four practical suggestions provided in this proposal (and forthcoming paper) focus on techniques such as brief in class discussions, highlighting real world examples, and incorporating sustainability language into problems and lectures. Instructors may choose to implement these concepts into lectures and class discussions, assign additional readings, or require further research into companies that are involved in the various initiatives described below. Specific examples that will be discussed are as follows:
(1) When the background on the financial reporting environment and conceptual framework is presented, instructors should also incorporate a brief background on the growth in ESG reporting and the organization(s) involved. The instructor can present the mission statements of the FASB, IASB, and ISSB during a class session that covers the foundations of financial reporting. Instructors can then pose a discussion question to the class asking students about their perceptions of the mission statements, including whether or not they believe there is an overlap.
(2) AROs, environmental remediation liabilities and loss contingences are areas where the connection between sustainability and accounting may appear to be the most obvious. These topics allows instructors to delve into an environmental accounting area that is part of existing FASB standards. This allows instructors to highlight the fact that some sustainability issues are not “new” to accountants and current financial reporting guidelines require measurement and disclosure of these issues. Additionally, these topics allow instructors to present the nuances of accounting guidance by referring students to the Codification and either demonstrate, or require students to conduct basic research. If contingent liabilities are part of the course content, then the instructor can ask the students to determine if FASB guidance considers these type of environmental remediation liabilities to be a form of loss contingencies.
(3) There exists a growing market for bonds whose proceeds are meant to be used for projects with an environmental focus, labeled green bonds, and those with a combination of environmental and social objectives, labeled sustainable bonds. The easiest way to integrate this topic into the curriculum is to simply change the wording for examples, assignments or test questions. Rather than stating that a company issues bonds for capital expansion or to grow operations, instructors can use language to indicate the “bonds have been issued for sustainable projects and have been designated sustainable by Moody’s Investor Services”. For a more advanced discussion, instructors can pose questions to students about the pricing of these types of bonds and possible additional debt issuance costs related to certification of their sustainability.
(4) An increasing number of companies are linking executive pay to sustainability targets (Koors, 2019). Similar to the bonds discussed above, this topic opens up a natural way to highlight these issues when providing examples about performance-based share compensation. In lectures, assignments and exams, instructors should utilize sustainability targets rather than more traditional financial targets when discussing performance conditions in share-based compensation contracts. For a more in depth assignment, instructors can require students to find and research companies who have linked share-based compensation to sustainability targets, including examining disclosure as to how the targets are measured and whether they were met. Class discussions on compensation can also arch into disclosure on the ratio of CEO pay to median employee pay per the SEC’s mandate. This topic fits into both the social and governance aspect of ESG reporting as well as intermediate accounting topics related to required disclosures for public companies.

Author

• Kathleen M. Bakarich, Hofstra University