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Management Notes

Meaning, Definitions, Characteristics, Functions and Importance of Sustainability accounting

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Sustainability focuses on meeting the needs of the present without compromising the ability of future generations to meet their needs. The concept of sustainability is composed of three pillars: economic, environmental, and social also known informally as profits, planet, and people. Increasingly, companies are making public commitments to sustainability through actions like reducing waste, investing in renewable energy, and supporting organizations that work toward a more sustainable future.

Sustainability accounting (also known as social accounting, social and environmental accounting, corporate social reporting, corporate social responsibility reporting, or non-financial reporting) was originated about 20 years ago and is considered a subcategory of financial accounting that focuses on the disclosure of non-financial information about a firm’s performance to external stakeholders, such as capital holders, creditors, and other authorities. Sustainability accounting represents the activities that have a direct impact on society, environment, and economic performance of an organisation. Sustainability accounting in managerial accounting contrasts with financial accounting in that managerial accounting is used for internal decision making and the creation of new policies that will have an effect on the organisation’s performance at economic, ecological, and social (known as the triple bottom line or Triple-P’s; People, Planet, Profit) level. Sustainability accounting is often used to generate value creation within an organisation.

Sustainability accounting is a tool used by organisations to become more sustainable. The most known widely used measurements are the Corporate Sustainability Reporting (CSR) and triple bottom line accounting. These recognise the role of financial information and shows how traditional accounting is extended by improving transparency and accountability by reporting on the Triple-P’s.

As a result of triple bottom level reporting, and in order to render and guarantee consistency in social and environmental information, the GRI (Global Reporting Initiative) was established with the goal to provide guidelines to organisations reporting on sustainability. In some countries, guidelines were developed to complement the GRI. The GRI states that “reporting on economic, environmental and social performance by all organizations is as routine and comparable as financial reporting”.

Measuring environmental-economic-social interrelationships requires a clear understanding of the relationships that exists between the natural environment and the economy. It is not possible without understanding the physical representation. The physical flow accounts are helpful in showing the characteristics of production and consumption activities. Some of these accounts focus on the physical exchange between the economic system and natural environment.

Wealth-based approaches to sustainability refer to the preservation of stock of wealth. Sustainability is observed as the maintenance of the capital base of a country and therefore potentially measured. A number of environmental changes are also contained in these financial statements that are measured during an accounting period of time.

The GRI offers advanced material to help organisations of all types to create their accountability reports. This published material lead organisations through the reporting process with the main idea of becoming more sustainable in their practices in everyday business.

Specific techniques to measure information in sustainability accounting include:

  • Inventory Approach
  • Sustainable Cost Approach
  • Resource Flow/Input-Output Approach

The Inventory Approach focuses on the different categories of natural capital and their consumption and/or enhancement. This approach identifies, records, monitors, and then reports on these different categories. These categories are analyzed according to specific classifications, including critical, non-renewable/nonsubstitutable, non-renewable/substitutable, and renewable natural capital.

The Sustainable Cost Approach results in a notional amount on the income statement that quantifies the organization’s failure to “leave the biosphere at the end of the accounting period no worse off than it was at the beginning of the accounting period”. In other words, this amount represents how much it would cost an organization to return the biosphere to its natural state at the beginning of the accounting period.

The Resource Flow/Input-Output Approach attempts to report the resource flows of the organization. Rather than explicitly reporting sustainability, it focuses on resources used to provide transparency. This approach catalogues the resources flowing into and out of the organization to pinpoint potential areas of improvement.

Benefits

  • Greenwashing
  • Mimicry and industry pressure
  • Legislative pressure
  • Stakeholder pressure and ensuring the “license to operate”
  • Self-regulation, corporate responsibility and ethical reasons
  • Managing the business case for sustainability
Management Notes

Passing of Journal Entries

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Significance of internal reconstruction

(a) When there is an overvaluation of assets and undervaluation of liabilities.

(b) When there is a difficulty to meet the financial crisis and there are continuous losses.

Accounting Entries on Internal Re-Construction

Entry for share capital reduced without changing the face value of the shares

Share Capital A/c

   To Capital Reduction/Reconstruction A/c

Entry if face value of the shares is also changed on reduction of capital a new

category of share capital is created :

Share Capital A/c (Old)

         To Share capital A/c (New)

         To Capital reduction A/c

Entry where rate of dividend on preference shares is changed under the scheme of reconstruction:

Preference Share Capital A/c (OLD)

      To Preference Share Capital A/c (New)

Entry When debenture holder and creditors are also ready to reduce their claim against company:

Debenture A/c

Creditors A/c

       To Capital reduction A/c

Reduction in paid up value only

Here the nominal value of shares remains same only paid up is reduced.

Example 1. The shareholders may agree to reduce the paid up value of Rs.100 into paid up value of Rs.10 by making a sacrifice of Rs. 900 per share. For this transaction the following journal entry will executed:

Sr. No Particular Dr Cr
1 Share capital Account Dr (900X No. of shares)

 

 900  
          To Capital Reduction Account (900X No. of shares)   900
  1. Reduction in both Nominal and Paid-up value

In this case both the paid up capital and nominal value are reduced. If we consider the above example, then the following journal entries will be passed:

Sr. No Particular Dr Cr
1 Share Capital Account Dr (1000 X No. of shares) 1000  
          To Capital Reduction Account (900 X No. of shares)   900
           To Share Capital A/c(100 X number of shares)   100

Management Notes

Meaning of Amalgamation and Acquisition

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Amalgamation

Amalgamation is the process of combining or uniting multiple entities into one form.

In Amalgamation, two or more companies combine to create a new company. All the combining companies lose their separate existence and entity. The new company takes over all existing assets and liabilities of the companies amalgamated. The new company allots its shares to the shareholders of the amalgamating companies.

Example of Amalgamation

For e.g. Arcelor, the world’s largest steel company (which has been since been acquired by Mittal Steel) came into being as a result of amalgamation. French steel company Usinor amalgamated with Aceralia of Spain and Arbed of Luxembourg in the year 2002 and the new company formed out of this amalgamation was named as Arcelor.

Amalgamation in the nature of merger:

In this type of amalgamation, not only is the pooling of assets and liabilities is done but also of the shareholders’ interests and the businesses of these companies. In other words, all assets and liabilities of the transferor company become that of the transfer company. In this case, the business of the transfer or company is intended to be carried on after the amalgamation. There are no adjustments intended to be made to the book values. The other conditions that need to be fulfilled include that the shareholders of the vendor company holding atleast 90% face value of equity shares become the shareholders’ of the vendee company.

Procedure for Amalgamation

  • The terms of amalgamation are finalized by the board of directors of the amalgamating companies.
  • A scheme of amalgamation is prepared and submitted for approval to the respective High Court.
  • Approval of the shareholders’ of the constituent companies is obtained followed by approval of SEBI.
  • A new company is formed and shares are issued to the shareholders’ of the transferor company.
  • The transferor company is then liquidated and all the assets and liabilities are taken over by the transferee company.

Accounting of Amalgamation

Pooling of Interests Method:

Through this accounting method, the assets, liabilities and reserves of the transfer or company are recorded by the transferee company at their existing carrying amounts.

Purchase Method:

In this method, the transfer company accounts for the amalgamation either by incorporating the assets and liabilities at their existing carrying amounts or by allocating the consideration to individual assets and liabilities of the transfer or company on the basis of their fair values at the date of amalgamation.

Acquisition

An acquisition is when one company purchases most or all of another company’s shares to gain control of that company. Purchasing more than 50% of a target firm’s stock and other assets allows the acquirer to make decisions about the newly acquired assets without the approval of the company’s other shareholders. Acquisitions, which are very common in business, may occur with the target company’s approval, or in spite of its disapproval. With approval, there is often a no-shop clause during the process.

Advantages:

  1. Fresh ideas and perspective

M&A often helps put together a new team of experts with fresh perspectives and ideas and who are passionate about helping the business reach its goals.

  1. Access to capital

After an acquisition, access to capital as a larger company is improved. Small business owners are usually forced to invest their own money in business growth, due to their inability to access large loan funds. However, with an acquisition, there is an availability of a greater level of capital, enabling business owners to acquire funds needed without the need to dip into their own pockets.

  1. Access to experts

When small businesses join with larger businesses, they are able to access specialists such as financial, legal or human resource specialists.

  1. New competencies and resources

A company can choose to take over other businesses to gain competencies and resources it does not hold currently. Doing so can provide many benefits, such as rapid growth in revenues or an improvement in the long-term financial position of the company, which makes raising capital for growth strategies easier. Expansion and diversity can also help a company to withstand an economic slump.

  1. Market power

An acquisition can help to increase the market share of your company quickly. Even though competition can be challenging, growth through acquisition can be helpful in gaining a competitive edge in the marketplace. The process helps achieves market synergies.

  1. Reduced entry barriers

With M&A, a company is able to enter into new markets and product lines instantaneously with a brand that is already recognized, with a good reputation and an existing client base. An acquisition can help to overcome market entry barriers that were previously challenging. Market entry can be a costly scheme for small businesses due to expenses in market research, development of a new product, and the time needed to build a substantial client base.

Management Notes

Acquisition Reports

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Acquisition Reports is used to compare the performance of different marketing channels and discover which sources send the highest quality traffic that may have led to conversions.

The Acquisition section tells you where your visitors originated from, such as search engines, social networks or website referrals. This is a key section when determining which online marketing tactics are bringing the most visitors to your website.

All Traffic

All Traffic Reporting type, as the name suggests, gives a report of all the traffic coming from the website. It is broken down into 3 main sub-categories that shows the channels used, the medium; mechanism that delivered users to your site & the source.

Channels

Find traffic distributed according to different channel groupings; Organic, CPC, Referral, Email, etc.

Search Console

The Search Console reports in Analytics provides information about the performance of organic-search traffic. See data like user queries and the number of times the site URLs appear in search results (impressions), along with post-click data about site engagement like bounce rate and e-commerce conversion rate.

Source/Medium Report

This report shows how the sources and their respective mediums send referrals, search engine traffic, and direct traffic to the site.

Adwords

Adwords Report gives a full view of the traffic coming from a particular source type; Google Adwords. These reports provide a window into the users’ Acquisition-Behavior-Conversion (ABC) cycle i.e how we acquire users, their behavior on our site after acquisition, and their conversion patterns.

Referrals

From where else did the traffic come from? Referral traffic is traffic that came to the site from sites that have been linked to ours. Click on the individual referrals to see which specific web pages link back to the site.

Campaigns

Campaigns Report track visitors who come from different campaign groupings (or a third-party application) that we set up on the website. This type of reporting uses UTM parameters appended to the end of a URL to track a visitor who would click on it.

Social

The Social section under Acquisition Reports gives us an in-depth analysis into social activity related to our website. The reports starts by giving us a summary of conversions linked to social networks and traffic from specific networks.

Management Notes

Additional interface features

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Custom Dashboards

Google Analytics gives you the ability to create semi-custom dashboards for your analytics. If seeing web traffic, conversions and keyword referrals are most important to you, you can add them to your dashboard. Your dashboard is the first screen you see when you log in to your website’s profile, and it can be exported into PDF and .CSV format for easily sharing your reports.

Of course, these five features of Google Analytics only scratch the surface of what’s possible. Once you’re comfortable with the platform, it’s amazing the kinds of insights you can pull out of it.

Third party referrals

You’ll be able to see what third party websites sent you traffic. This is useful, because you’ll be able to see what sites are worth spending more time on, as well as if any new sites have started linking to yours.

Traffic reporting

At the most basic level, Google Analytics is a traffic reporter. The service will tell you how many people are visiting your site each day. You can also track trends over time, which will influence your online marketing decisions.

Keyword referrals

Have you ever wondered what people were searching for when they found your website? With Google Analytics, you’ll be able to see what keywords people used to find you, which can heavily influence your website’s SEO strategy.

Conversion tracking

Once you’ve identified conversion points on your website, (such as a contact form submission, e-commerce sale, or phone call), you can set them up for tracking in Google Analytics. You’ll be able to see when someone converted, the traffic source that referred them, and more.

  • Data Collection and Management
  • Data Analysis and Visualization
  • Reporting
  • Integrations
  • Analytics Intelligence
  • Data Activation
Management Notes

Audience Reports

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Audiences in Analytics are users that you group together based on any combination of attributes that is meaningful to your business.

An audience might be simply current shoppers (include users who have > 0 product views; exclude users who have > 0 purchases).

Or you might need a more detailed definition that identifies shoppers who viewed the detail page for Product A, and then within 3 sessions or 7 days returned to purchase the product.

You can create broad definitions like all users who at any time purchased a product, or all users who have purchased within the last 12 months but not during the last 2.

Once you define an audience, you can:

  • Activate that audience on platforms like Google Ads and Display & Video 360 so you can focus your marketing efforts on those users
  • Apply the audience to your Analytics reports to explore their behavior in response to your marketing. You can use the audience as a secondary dimension in reports, and as a dimension in segments, custom reports, and custom funnels.

Active Users

Track active users for increments of 1, 7, 14, and 28 days, and stay abreast of the level of user enthusiasm for your site or app.

Demographics (Age, Gender)

Understanding the age-and-gender composition of your audience gives you an opportunity to precisely tailor your content and advertising, from the graphics, language, and technical sophistication you employ on your site to the creative contents and placements for your ads.

User Explorer

Isolate and examine individual rather than aggregate user behavior. Individual user behavior is associated with either Client-ID or User-ID.

Audiences in Analytics

Create audiences, publish them to Analytics, then apply them to reports to explore audience behavior in response to your marketing. You can use the audience as a secondary dimension in reports, and as a dimension in segments, custom reports, and custom funnels.

Cohort Analysis

A cohort is a group of users who share a common characteristic that is identified in this report by an Analytics dimension. For example, all users with the same Acquisition Date belong to the same cohort. The Cohort Analysis report lets you isolate and analyze cohort behavior.

Lifetime Value

Understand how valuable different users are to your business based on lifetime performance across multiple sessions. For example, you can see lifetime value for users you acquired through email or paid search. With that information in hand, you can determine a profitable allocation of marketing resources to the acquisition of those users. Mobile-app properties only.

Custom (Custom Variables, User Defined)

You can use Custom Variables to extend the scope of your Segments. User-level custom variables let you identify users by aggregate behavior over a date range rather than by discrete, single-session interactions with your site.

Benchmarking

Benchmarking allows you to compare your data with aggregated industry data from other companies who share their data. This provides valuable context, helping you to set meaningful targets, gain insight into trends occurring across your industry, and find out how you are doing compared to your competition.

Management Notes

Behavior reports

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The Behavior section reveals what your visitors do on your website. Specifically, the reports tell you what pages people visit and what actions they take while visiting.

The Behavior Flow report visualizes the paths users traveled from one screen, page or event to the next. This report can help you discover what content keeps users engaged with your site. The Behavior Flow report can also help identify potential content or usability issues.

Use the Behavior Flow report to investigate how engaged users are with your content and to identify potential content issues. The Behavior Flow can answer questions like:

  • Is there an event that is always triggered first? Does it lead users to more events or other behaviors?
  • Are there paths through your mobile app or site that are more popular than others, and if so, are those the paths that you want users to follow?
  • Did users go right from product pages to checkout without any additional shopping?

High bounce rates indicate two possible scenarios. Users took the information they needed and left. Or your website experience was uninteresting or unoptimized that they didn’t continue to browse through your website. It all depends on the type of content you have, so it’s good to click through the link to understand the purpose of each page.

Longer time spent shows that users stay engaged with the content. Consistent engagement, in turn, informs Google that it is a reliable source to rank higher in search results, too! Yay!

One metric that usually stands out here is Page Value. Mainly because it’s not a widely used metric. So how is Page Value calculated? When an order is made in one session, Google Analytics assigns equal weight for all the pages that influenced the total revenue. But remember, this is only calculated if you track revenue on your website. Obviously checkout pages will have the highest Page Values, but what’s fun is finding the unexpected ones that do too.

Page Value Formula = (Total Transaction Revenue + Goal Value) /(# of Unique Page Views)

Site Speed

Site Speed can be one of the reasons that causes high bounce rates. Users expect a seamless experience with all websites in today’s Internet. If they can’t do anything on your website, they’ll immediately leave. So, Site Speed is another report to help you to figure out the root cause of unhappy users.

Site Search

If you do have a Search bar on your website, the Site Search report can really help you improve your user experience. Search bars help users find content, but it also helps you understand what they want to find right away. If the content is not easy to find, they’ll depend on the Search bar for assistance. There’s an opportunity right there!

Usage Report

The Usage report breaks down sessions with and without site search usage. This information will help you figure out the answer to this question: do your visitors need to depend on a search bar to use your website?

With a simple website in the screenshot below, the data shows that 99.9% of users are visiting without even touching the site search. I’ll translate that for you. People can easily find the content they need on their own. There is less dependence on a help tool, so this is a great sign for the test website below.

Management Notes

Conversion Reports

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Google Analytics’ Conversion reports provides metrics to evaluate your online business value, whether it is revenue or other valuable events i.e. signups, leads, subscribers. You can drill down through the conversion funnel with the preset tracking options or customize your own. Conversion reports can give you user insight as to how to attract your audiences to reach the bottom line: sales and revenue.

A completed activity, online or offline, that is important to the success of your business. Examples include a completed sign-up for your email newsletter (a Goal conversion) and a purchase (a transaction, sometimes called an Ecommerce conversion).

A conversion can be a macro conversion or a micro conversion. A macro conversion is typically a completed purchase transaction. In contrast, a micro conversion is a completed activity, such as an email signup, that indicates that the user is moving towards a macro conversion.

  • Last Interaction: 100% to Direct (Typed in the URL + Ordered in same session)
  • Last Non-Direct Click: 100% to the channel before Direct (Paid Search)
  • Last AdWords Click: 100% to Paid Search (only one campaign click)
  • First Interaction: 100% to Social (promoted Facebook post)
  • Linear: Equal credit to each channel (Social, AdWords, Direct = 33%)
  • Time Decay: More credit distributed to the most recent channels (Direct – most credit due to the paycheck time frame / Social – least)​
Management Notes

Social reports

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Google Analytics currently allows you to view eight social analytics reports.

These reports showcase the ROI and impact of your social media campaigns.

To find them, you’ll simply want to go to the “Reporting” tab on your dashboard. From there, click on “Acquisitions” and then “Social.”

As a marketer, this is my favorite report in the new Social suite because it identifies the networks and communities visitors are using to engage with your content and then lets you see how people interact based on where they came from. As a marketer, a content producer and a lover of social, this report rocks my world by giving me a better sense of where I should be devoting resources.

y tapping into Google’s Data Hubs and viewing the Activities Stream tab for Google+, marketers get an interactive look at how their content is being shared on Google’s social network.  This allows businesses to quickly identify their top content and find key influencers. For marketers looking to build larger engagement plans or identify brand advocates, this is an extremely powerful way to gain insight into how your content is being shared across Google.  You’re able to see who is starting the conversations about your brand, what they’re saying when they share it, and then gain direct access to these people via URL Ripples and URL Trackbacks.

To compare data from a single social network across these reports:

  1. Add the secondary dimension Source/Medium to the Social Conversions or Multi-Channel Funnel report. This dimension should appear in the Source/Medium report by default.
  2. In each report, use the advanced filter (found at the top of the data table) to restrict the data to one source or medium.
  3. Confirm that you’re looking at the same transaction metric across these three reports. Use the Conversion dropdown menu at the top of a report change the metric.

When comparing data in these reports, keep the following in mind:

  • The lookback window and attribution model differs across these three reports.
  • The Social Conversions reports aggregate all social referrals into a single report and uses friendly names to aggregate traffic from various social networks. Data might appear with different names in the other reports.
  • In the Source/Medium report, traffic from social sites will show up as a referral, unless you’ve used manual campaign tracking parameters.
Source/Medium Report Social Conversions Report Multi-Channel Funnel Report
Lookback Window 6 months by default. Change the session settings to adjust. 30 days 30 days by default. Use the report slider to adjust from 1 to 90 days.
Attribution Model Includes only conversions where the traffic from a social network was the last click before the conversion, or conversions for direct traffic. Includes all conversions where the traffic from a social network was involved in the conversion path as an assist click and/or last click.

The sum of the assisted conversions and last interaction conversions may be greater than the total number of conversions because if the same channel was both an assist and a last click for the same conversion, only one total conversion is incremented.

 Includes all conversions where the traffic from a social network was involved in the conversion path as an assist click and/or last click.

The sum of the assisted conversions and last interaction conversions may be greater than the total number of conversions because if the same channel was both an assist and a last click for the same conversion, only one total conversion is incremented.

Management Notes

Track events

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Google Analytics Event tracking is an invaluable feature that allows you to record interactions with elements of your website which aren’t tracked by default within Google Analytics.

Events are user interactions with content other than page loads (pageviews). Downloads, link clicks, form submissions, and video plays are all examples of actions you might want to analyze as Events.

Simply by adding snippets of code to your site, it is possible to track event interactions to understand how long users spend watching your videos or even which fields on your forms users drop off at.

Some of the typical uses for event tracking are listed below:

  • Tracking outbound link clicks to other websites.
  • Understanding how many users clicked on mailto email addresses or click-to-call phone numbers. This can help you to better understand the number of enquiries you are getting from your site.
  • Tracking PDF and other media downloads.
  • Measuring interactions with video content, such as time spent watching a video.
  • Tracking exactly where users drop off when filling in fields on your forms or checkout
  • Monitoring the clicks on unique elements of a page, such as the “contact us” call to action on your about page.
  • Collecting data about how many users filled in and submitted a form, although I would always recommend sending users to thank you pages whenever possible.

Anatomy of Events

An Event has the following components. An Event hit includes a value for each component, and these values are displayed in your reports.

  • Category
  • Action
  • Label (optional, but recommended)
  • Value (optional)

For example, you might set up a video “play” button on your site so that it sends an Event hit with the following values:

  • Category: “Videos”
  • Action: “Play”
  • Label: “Baby’s First Birthday”

Category

A category is a name that you supply as a way to group objects that you want to analyze. Typically, you will use the same category name multiple times over related UI elements that you want to group under a given category.

Suppose you also want to measure how many times the video is downloaded. You could use:

  • Category: “Videos”
  • Action: “Downloaded”
  • Label: “Gone with the Wind”

In this case, there would be only one category Videos in your reports, and you could see aggregate metrics for user interaction with the total set of elements for that single video object.

However, it’s likely that you will have more than one single object that you want to measure, and it’s worth considering how you want to categorize your reporting before you implement the call. For instance, you might want to analyze all separate movies under the main category of “Videos” so that you get aggregate numbers for all video interaction, regardless of which one users interact with.

On the other hand, you might create separate categories based on the type of video one for movie videos and one for music videos. You might also want a separate category for video downloads:

  • Videos – Movies
  • Videos – Music
  • Downloads

In this scenario, you could see the total combined event count for all three categories in your reports. The Total Events metric displays all event counts for all categories that you have supplied in your implementation. However, you will not be able to view combined metrics for all Videos separately from Downloads, because detailed event metrics are combined under their respective categories.

While the Event object model is entirely flexible, you should first plan your desired reporting structure before deciding upon your category names. If you plan to use the same category name in multiple locations, be careful to correctly reference the desired category by name. For example, if you plan to call your video category “Video” and later forget and use the plural “Videos,” you will wind up with two separate categories. Additionally, if you decide to change the category name of an object that has already been recorded under a different name, the historical data for the original category will not be re-processed, so you will have metrics for the same web-page element listed under two categories in the reporting interface.

Action

Typically, you will use the action parameter to name the type of event or interaction you want to measure for a particular web object. For example, with a single “Videos” category, you can analyze a number of specific events with this parameter, such as:

  • Time when the video completes load
  • “Play” button clicks
  • “Stop” button clicks
  • “Pause” button clicks
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