FSA (Fundamentals in Sustainability Accounting)
Credential Level 1 actual questions and answers
What is sustainability?
Meeting the needs of the present without compromising the ability of
future generations to meet their own needs
IDENTIFY: Objective 1: Why are investors demanding quality
sustainability information?
Investors express demand for and source quality sustainability
information to meet their investment goals. While investors are
generally defined as people or organizations that allocate financial
capital with the goal of achieving a profit, not all investors are the
same. Investment goals and accompanying strategies may include
using the information to:
a) achieve above-market returns,
b) assessing risk to protect against diminished returns and major
losses, or
c) evaluating the predictability of investment outcomes.
Whether operating in public or private markets, the ability of investors
to use sustainability information to achieve enhanced outcomes is
evidenced by an increasingly robust body of independent research.
,IDENTIFY: Objective 1: What factors drive demand for quality sustainable
information within companies? What is driving the demand within
companies for sustainability information?
Sustainability data, both qualitative and quantitative, can contribute to
company success in the near, medium and long term by improving the
management of sustainability-related risks and opportunities.
Where sustainability-related risks and opportunities are measured and
managed, companies may be better equipped to:
a) identify and mitigate risks,
b) reduce costs,
c) optimise efficiencies and even
d) increase market share and revenue growth through new products
and services.
Indeed, by demonstrating an ability to manage sustainability-related
risks and opportunities to bolster company performance, companies
can leverage sustainability disclosure to effectively communicate with
investors and improve cost of capital.
Simply put, demand for sustainability information within companies is
often (though not always) driven by the goal of improving bottom-line
performance.
RECOGNISE: Objective 16: What are the other institutions driving the
demand for sustainability information?
1. Public policy and regulation - Policy-based initiatives stimulate
sustainability disclosure by enacting international, national and local
,recommendations or requirements for publicly listed companies in
order to foster more stable, sustainable economies.
eg 1: European Commission's Action Plan for Financial Sustainable
Growth, a policy directive that sets forth a comprehensive strategy and
action plan to 'further connect finance with sustainability.' The plan
contains 10 key initiatives distributed among three core categories:
'reorienting capital flows towards a more sustainable economy,'
'mainstreaming sustainability into risk management' and 'fostering
transparency and long-termism;
eg 2: Individual nations have also taken up policy initiatives aimed at
corporate sustainability disclosure, including Australia, India, Japan,
South Africa and UK.
2. Industry bodies - Non-policy efforts particularly those initiated by
securities exchanges and industry associations also influence the use
of sustainability information.
eg 1: Sustainable Stock Exchanges (SSE) Initiative
RECOGNISE: Objective 2: What was the aftermath of stock market crash
of 1929?
1. Regulatory reforms driving disclosures to improve transparency.
2. As transparency and disclosure crystalised as cornerstones of
capital markets accounting profession also evolved which eventually
resulted in the establishment of generally accepted accounting
, principles (GAAP). The objective of this started with a focus on
historical cost accounting and then evolved into decision-usefulness.
3. The accounting standards have now evolved to bring in global
standardisation and alignment for financial disclosure.
RECOGNISE: Objective 2: How has the purpose of accounting changed
since the 1930s, and why did financial reporting move toward
standardisation?
In early years, accounting practices primarily focused on accurate
recordkeeping via historical cost accounting. This founding purpose
shaped the accounting profession, where accuracy and reliable record
keeping are paramount. However, to serve their own unique goals,
firms began accounting and reporting financial information using a
range of methodologies, ultimately inhibiting the comparability of
financial statements.
This fragmentation of accounting practices necessitated a push by
accounting associations to come to a consensus regarding the true
purpose of accounting and to promote standardisation. The profession
ultimately determined that accounting exists to provide information for
the purpose of making economic decisions, which can include both
historical records and forward-looking information.
High levels of adoption of standards such as the IFRS Accounting
Standards and US GAAP allow investors around the world to efficiently
source and use the information produced using those standards. With
higher levels of standardised disclosure comes more consistent,
comparable, and reliable information across markets, allowing
investors
Credential Level 1 actual questions and answers
What is sustainability?
Meeting the needs of the present without compromising the ability of
future generations to meet their own needs
IDENTIFY: Objective 1: Why are investors demanding quality
sustainability information?
Investors express demand for and source quality sustainability
information to meet their investment goals. While investors are
generally defined as people or organizations that allocate financial
capital with the goal of achieving a profit, not all investors are the
same. Investment goals and accompanying strategies may include
using the information to:
a) achieve above-market returns,
b) assessing risk to protect against diminished returns and major
losses, or
c) evaluating the predictability of investment outcomes.
Whether operating in public or private markets, the ability of investors
to use sustainability information to achieve enhanced outcomes is
evidenced by an increasingly robust body of independent research.
,IDENTIFY: Objective 1: What factors drive demand for quality sustainable
information within companies? What is driving the demand within
companies for sustainability information?
Sustainability data, both qualitative and quantitative, can contribute to
company success in the near, medium and long term by improving the
management of sustainability-related risks and opportunities.
Where sustainability-related risks and opportunities are measured and
managed, companies may be better equipped to:
a) identify and mitigate risks,
b) reduce costs,
c) optimise efficiencies and even
d) increase market share and revenue growth through new products
and services.
Indeed, by demonstrating an ability to manage sustainability-related
risks and opportunities to bolster company performance, companies
can leverage sustainability disclosure to effectively communicate with
investors and improve cost of capital.
Simply put, demand for sustainability information within companies is
often (though not always) driven by the goal of improving bottom-line
performance.
RECOGNISE: Objective 16: What are the other institutions driving the
demand for sustainability information?
1. Public policy and regulation - Policy-based initiatives stimulate
sustainability disclosure by enacting international, national and local
,recommendations or requirements for publicly listed companies in
order to foster more stable, sustainable economies.
eg 1: European Commission's Action Plan for Financial Sustainable
Growth, a policy directive that sets forth a comprehensive strategy and
action plan to 'further connect finance with sustainability.' The plan
contains 10 key initiatives distributed among three core categories:
'reorienting capital flows towards a more sustainable economy,'
'mainstreaming sustainability into risk management' and 'fostering
transparency and long-termism;
eg 2: Individual nations have also taken up policy initiatives aimed at
corporate sustainability disclosure, including Australia, India, Japan,
South Africa and UK.
2. Industry bodies - Non-policy efforts particularly those initiated by
securities exchanges and industry associations also influence the use
of sustainability information.
eg 1: Sustainable Stock Exchanges (SSE) Initiative
RECOGNISE: Objective 2: What was the aftermath of stock market crash
of 1929?
1. Regulatory reforms driving disclosures to improve transparency.
2. As transparency and disclosure crystalised as cornerstones of
capital markets accounting profession also evolved which eventually
resulted in the establishment of generally accepted accounting
, principles (GAAP). The objective of this started with a focus on
historical cost accounting and then evolved into decision-usefulness.
3. The accounting standards have now evolved to bring in global
standardisation and alignment for financial disclosure.
RECOGNISE: Objective 2: How has the purpose of accounting changed
since the 1930s, and why did financial reporting move toward
standardisation?
In early years, accounting practices primarily focused on accurate
recordkeeping via historical cost accounting. This founding purpose
shaped the accounting profession, where accuracy and reliable record
keeping are paramount. However, to serve their own unique goals,
firms began accounting and reporting financial information using a
range of methodologies, ultimately inhibiting the comparability of
financial statements.
This fragmentation of accounting practices necessitated a push by
accounting associations to come to a consensus regarding the true
purpose of accounting and to promote standardisation. The profession
ultimately determined that accounting exists to provide information for
the purpose of making economic decisions, which can include both
historical records and forward-looking information.
High levels of adoption of standards such as the IFRS Accounting
Standards and US GAAP allow investors around the world to efficiently
source and use the information produced using those standards. With
higher levels of standardised disclosure comes more consistent,
comparable, and reliable information across markets, allowing
investors
