Mary Barth: Accounting information is foundation for better decisions on climate change and crypto assets
On June 16, international renowned specialist in accountancy, Professor Mary E. Barth (Stanford University) will receive an honorary doctorate from Tilburg University with Professor Philip Joos as honorary supervisor. Accounting is crucial to achieving a more prosperous society for example in the field of climate change and digital assets. Academic accountants should work together with practicing accountants and policy makers to ensure that accounting information is the best it can be, says Barth. The question is whether corporate financial reports are losing their role as key source of information to capital providers, such as investors and lenders.
If the firm does not provide the information investors need, investors must either rely on sources outside the firm, or make their own assessments, which often are little more than educated guesses. This situation results in investors facing greater information uncertainty, which increases the firm’s cost of capital.
Two issues on the horizon that could easily end up in the ‘Too Difficult’ Box when setting new accounting and reporting standards are accounting for the effects of climate change and digital assets on the company.
Climate change
The new International Sustainability Standards Board (ISSB) plans to develop a global approach to consider direct or indirect material financial effects of climate change on a company. The EU plans to go even one step further with its new Corporate Sustainability Reporting Directive (CSRD). Under the proposed CSRD, more than 50,000 European companies will have to report not only on how they are affected by climate change, but also on how they are acting to reduce their own impact on the environment. Investors need information about financial risk—such as from a potential carbon tax—and operating risk—such as from potential production interruptions associated with a manufacturing plant that is located near the ocean or the use of fossil fuel to operate the plant. But currently, no climate change assets or liabilities are recognized in financial statements and there is little, if any, disclosure about risks and effects of climate change on a company.
Digital assets
Tesla accepts the cryptocurrency Dogecoin as payment for its cars and recently its CEO Elon Musk announced that he would expand the use of crypto for paying at Supercharger stations. Crypto assets are very risky because their market prices are highly volatile and sensitive to speculative trading; some countries are even considering banning crypto assets. The current accounting treatment for these assets does not reflect all changes in their value, which could result in less comparable financial performance and financial position across companies. In addition, information relating to the risks associated with these assets is important to investors, but currently is largely absent from financial statements.
Digital assets and climate change both reinforce investors’ need for risk information. Insights from research are vital to accounting as a learned profession that faces potentially revolutionary changes in investors’ information needs.
Professor Mary E. Barth is the Joan E. Horngren Professor of Accounting, Emerita at the Stanford University, Graduate School of Business (GSB). Prior to joining the faculty at Stanford in 1995, she was an Associate Professor at Harvard Business School and an audit partner in Arthur Andersen & Co. Professor Barth has published 126 research articles in a variety of journals with 17,500 citations and has won several awards, including the American Accounting Association’s Notable Contributions to Accounting Literature Award. Professor Barth is a recipient of the Stanford GSB’s MBA Distinguished Teaching Award, MSx Teaching Excellence Award, PhD Faculty Distinguished Service Award, and Robert J. Davis Award for a lifetime of service as a GSB faculty member. She served as a Senior Associate Dean for Academic Affairs at the Stanford GSB from 2002 until 2009. Professor Barth was a member of the International Accounting Standards Board (IASB) in London from its inception in 2001 until 2009. She served as the Academic Advisor to the IASB from 2009 until 2011. Professor Barth also served as a member of the International Monetary Fund’s External Audit Committee from 2014 to 2016 and as its Chair from 2016 to 2017. She is currently the Vice Chair of the US Financial Accounting Foundation (FAF).
The views Mary Barth expresses are her own and do not necessarily represent the views of the Financial Accounting Foundation (FAF) or its standard-setting boards, the Financial Accounting Standards Board (FASB) and the Governmental Accounting Standards Board (GASB), or their staff. As a FAF Trustee, she does not participate in setting standards or agendas or speak on behalf of the FASB or GASB.
More information
Apart from speaking at the Dies Natalis ceremony on June 16 at 16.00 in the aula of Tilburg University, Professor Barth will address business practitioners on June 16 in CZ109 at 14.00 and will give an academic presentation on June 17 at 15.00 in K7. For attendance and requests, please contact Hetty Rutten at h.rutten@tilburguniversity.edu or +31 13 466 8288.