Beyond GAAP

This is a position paper on accounting reform. See also monetary reform and Canadian Public Accounts Reform - a timely proposal. The latter, and this, are on the list of position papers.

Beyond GAAP by Dan King and Craig Hubley

what GAAP does

The Generally Accepted Accounting Principles separate capital asset from total cost of operations expenses.

For this reason alone, it's worth adopting. But it does not in itself specify a way to audit other aspects of an organization such as off balance sheet structures that hide liabilties or the comprehensive outcomes of an organization's choices.

what ISO 19011 does

The ISO 19011 standard combines the ISO 9001 standard for quality management and the ISO 14001 standard for environmental management into a single generic audit protocol that is suitable for organizations that seek to move towards sustainability. This helps prepare for a day when nature's services are being treated as actual contributors to the economy.

Such measures fall short of Genuine Progress Indicators, full cost accounting and triple bottom line auditing.

But they go well beyond GAAP to address some of the more serious non-financial questions.

what throughput accounting does

The throughput accounting approach is not an auditing but a management accounting principle that argues that labour efficiency, indeed any efficiency, is not a fit goal of managers - but of workers and designers. The latter should cooperate to find breakthrough ways to save overall time to market or conserve energy or conserve material inputs, but must not over-focus on small-scale savings without considering the whole context of the organization and it's overall goal. It is up to managers to determine the overall constraints imposed by a finite ecosystem, society, and customers, but they should avoid the temptation to micro-manage any operating process.

extraction, stewardship, waste

These are all necessary innovations and should be the first steps to any accounting reform. But they are not enough.

Mike Nickerson says "economy is three-fifths of ecology": as important as the economic three-fifths (resource supply, production process, consumption demand) are, they still ignore the resource extraction and waste disposal that are implied by any industrial process. As a sixth element we must also consider the feedback loop of nature's services that treat waste as a resource - for example, the consumption of CO2 and production of oxygen by plants.

beyond GAAP and ISO

Advocates of monetary reform and accounting reform have challenged purveyors of GAAP and ISO to write another chapter in their standards manual that truly incorporates stewardship and ownership of the waste stream of bads as well as the inventory of goods. This might imply treating all commodities and products as services - see service economy and the consumable/recyclable/unsaleable distinction.

advocating zero waste

A zero waste society in which our accounting systems provide for stewardship of all of the outputs of the production process is some time off. The rigor of the requirements of GAAP and the necessary regulatory and accounting framework makes this difficult. In Canada the Public Sector Accounting Board of the Canadian Institute of Chartered Accountants would do this if requested by the Government of Canada. The Green Party of Canada advocates this in its some of its list of platform proposals.

Beyond that, the Civic Efficiency Group has advocated to the City of Toronto at the Mayoralty level and the Government of Canada at the Cabinet level that there be a comprehensive review of network infrastructure, its total cost of operations, use in emergency preparedness and overall environmental impact. Since the Government has already committed to green procurement and municipal rules already specify it and aggressive waste diversion goals, it seems that zero e-waste hardware, for instance, ought to be a priority for both federal and municipal govenrment. e-waste has become a major toxic waste problem - see healthy telecom for an overall strategic to get rid of it.

There are numerous efforts in Canada, including some new ones at the Federation of Canadian Municipalities and in the office of the Auditor General that seek to apply ecological and social indicators in auditing. This however must ultimately mesh with global standards efforts in the same direction. The International Telecommunications Union, for instance, is the right body to approve of healthy telecom as a basic industry direction even for developing nations. The United Nations might specify for instance that the rebuilding of signal infrastructure in humanitarian relief efforts should follow the least energy, least materials path we suggest.

true stewardship

A true stewardship approach implies dealing directly with nature's services and state services as the foundation of a service economy that is itself the foundation of a more complex Experience Economy composed of creative work - and elevating a Collaboration Ethic and even Play Ethics.

Present accounting creates a low value of life by undervaluing labour and seeking to displace it wherever possible with energy and materials wasting machines, encouraging this by generous Capital Cost Allowance deductions. The green tax shift should eliminate all such deductions that remove a creative element - individual capital - to replace with more machines. Greens should be first to oppose the "cheap labour conservative" approach of taxing labour to destroy jobs and encourage more automation.

nature's examples

Consider finally the price of Earth - as if we could replace it!

If we treat waste disposal and resources as free then we are in effect pricing the Earth as if it were just a garbage dump or recycling depot. All the aesthetics and industrial design value of its biodiversity counts for nothing - even though today's biomimicry techniques draw design breakthroughs often from nature's best examples. As one of the worst examples, deforestation and other environmental security threats destroy thousands of species a year to feed commodity markets with wood that is far better left in place as capital. In Haiti and Indonesia deadly mudslides caused productive land and homes to be destroyed, doing far more damage than the value of the wood. Yet this is not accounted.

Nature's examples are not just of clever design in the small. They show us also interdependence and redundancy and the web of life in the large. And they show that extinction is the symptom, and the consequence, of ignoring the links.

Seattle's warning

It may be that our linear, Western, Christian, culture played the largest part in making it hard to see feedback loops - and considering that which we destroy to create not to matter.

As Chief Seattle apparently actually did say:

"Your dead cease to love you and the land of their nativity as soon as they pass the portals of the tomb and wander away beyond the stars. They are soon forgotten and never return. Our dead never forget this beautiful world that gave them being. They still love its verdant valleys, its murmuring rivers, its magnificent mountains, sequestered vales and verdant lined lakes and bays, and ever yearn in tender fond affection over the lonely hearted living, and often return from the happy hunting ground to visit, guide, console, and comfort them. ... Every part of this soil is sacred in the estimation of my people. Every hillside, every valley, every plain and grove, has been hallowed by some sad or happy event in days long vanished. ... when the last Red Man shall have perished, and the memory of my tribe shall have become a myth among the White Men, these shores will swarm with the invisible dead of my tribe, and when your children's children think themselves alone in the field, the store, the shop, upon the highway, or in the silence of the pathless woods, they will not be alone. In all the earth there is no place dedicated to solitude. At night when the streets of your cities and villages are silent and you think them deserted, they will throng with the returning hosts that once filled them and still love this beautiful land. The White Man will never be alone. Let him be just and deal kindly with my people, for the dead are not powerless."

This is as true of species as of peoples, as true of ruined forests as of towns. Let us close the circles, and move beyond a simple linear accounting for our limited time on this Earth. Let us accept the debts that arise from what we make extinct - and let us recognize that we cannot afford any more extinction.