ACCA Strategic Professional · Advanced Performance Management · Sustainability
Kestrel Foods is mapping its business model for its integrated report. Its factory converts purchased raw crops (an input) and employee expertise into packaged snacks. The sustainability manager notes that the factory's activities reduce the local water quality available to the community. In the language of the Integrated Reporting Framework, how should the water quality effect be described?
The reduced local water quality is an outcome: a negative effect on natural capital caused by the company's activities and outputs. Integrated reporting asks the entity to disclose such effects on the capitals, rather than treating them as inputs, outputs or recognised balance sheet assets.
- AAn outcome that reduces natural capital, which the report should disclose as an effect on the capitalsCorrect
- BAn output, because it is a product of the factory's activities
- CAn input, because water is used in the production process
- DAn asset recognised on the statement of financial position
Explanation
Outcomes are the internal and external consequences for the capitals, either positive or negative, resulting from the business activities and outputs. Reduced water quality is a negative outcome on natural capital. Outputs are products and services, and water used is an input, so those are not the best description of the quality decline. It is not a recognised asset.
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