government

Resource-dependent rural communities

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Introduction to the assignment I am currently working on.  Just for you, @raark:

1    Introduction

Australian rural communities that are economically dependent upon a single primary industry can be particularly affected by systemic change in industry viability over time (Marshall, Fenton, Marshall, & Sutton, 2007).  The challenges faced by such communities are only increased by factors such as government policy to reduce local services and policies relating to rural industries (Hyde, 1998) and the narrow and shrinking skill base of the local work force (Humphrey, 1994). 

The resource-dependence of rural communities is detrimental to the long-term economic sustainability of those communities (Buttel & Newby, 1980; Gramling & Freudenburg, 1990).  In this context, Kranich and Luloff (1991) identify several obstacles to the success of rural development programs that seek to increase the robustness of these rural communities by reducing the community’s dependence upon a single industry. 

This paper seeks to further explore these obstacles on the basis of analysis of a subset of twenty-one interview transcripts generated for prior studies (Herbert-Cheshire, 2000, 2003).  These interviews were carried out with key residents of the rural community of Monto in regional Queensland, which at the time of the interview process was heavily dependent upon the dairy industry (Australian Bureau of Agricultural Resource and Economics, 2001).  The purpose of this paper is to further consider this evidence in order to examine the manner in which Monto’s historic reliance on dairy farming and other forms of agricultural production has shaped the response of the local residents to the deregulation of the dairy industry, and furthermore to consider the potential of this response to enhance Monto’s viability and economic sustainability. 

ITGI Roundtable Conference article now available

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I see that ITGI has posted the transcript of the roundtable we did back in September 2008 or so.  It covers off some of the leading lights in IT Governance in Brisbane – and then I’m there as well:

  • Tony Hayes, FCPA, Queensland Government, Australia
  • Micheal Axelsen, FCPA, Director, Applied Insight Pty Ltd., Australia (that would be me)
  • Ashley Goldsworthy, AO, OBE, FTSE, FCIE, FCPA, Professor, Australia
  • Duncan Martin, CISA, ACA, CIA, CPA, Chief Financial Officer, The Rock Building Society Ltd., Australia
  • Glen McMurtrie, CISA, CBM, CFE, Principal Internal Auditor, Department of Communities, Australia
  • Simon Middap, Group Manager, ICT and Projects, ENERGEX Ltd., Australia
  • John Thorp, CMC, I.S.P., The Thorp Network Inc., Canada

It reads fairly well – I do remember it as an interesting conversation. 

The transcript is available on www.itgi.org and is available as a pdf here.

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An introduction to the Carbon Emissions Reporting regime in Australia

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This is a blog post from a CPA Australia Carbon Emissions Reporting Discussion Group meeting – the inaugural meeting – that I attended on 18th November 2008.  Danny Power from PwC is the convenor. 

There will be an election of office-bearers at the end of the next meeting.  The topics under discussion are going to be quite broad-ranging.  Danny is linking it to the sustainability reporting issues, and Danny seems to think the label might change later.  However, Carbon Emissions Reporting is the current label for the group – thinks we might need to break into several discussion groups at some point (I’m not sure about that – see how popular it is).  There were about 40 people in attendance at this first meeting, though, which is always a good sign. 

Why did Danny set up the discussion group?

  • Compliance issues
  • The accountant’s role as a business advisor and in managing the reporting systems
  • Impacts for all organisations whether direct or indirect
  • “The Science” – still seems controversial, and if you’re going to report on it you need a working knowledge of what the processes are and how it works. 
  • Possibly the most important – to create a support and peer group for each other.

Schemes, coverage, compliance and impacts

This section of the presentation was given by Mick Zeljko of the Climate Change Team of PricewaterhouseCoopers. 

The finance function of most companies will be generally involved it seems in managing the reporting process, which is a substantial – very substantial – part of the new CPRS. 
Emissions Schemes

Current programs:

  • Mandatory Renewable Energy Target (MRET)
  • NSW Greenhouse Gas Abatement Scheme (GGAS)
  • Qld Gas Electricity Scheme (GECS)
  • Greenhouse Challenge Plus
  • Energy Efficiency Opportunities

The scope of these current programs is fairly limited and tend to be industry-specific.  There is a general feeling that perhaps people have been a little bit lax about the current programs, and it’s been pretty relaxed with the result that there has not been a lot of accuracy in the numbers that are currently being reported.  Probably a lot of companies don’t really have a lot of confidence in their reporting schemes. 

New Schemes:

  • National Greenhouse and Energy Reporting System (NGERS)
  • Carbon Pollution Reduction Scheme (CPRS)

NGERS will cover a lot less companies than those that are affected by ETS.  Types of gasses – six Kyoto gasses – CO2 and Methane and so on.  All measured in terms of CO2 equivalency – for example, methane is 20 times stronger than CO2, so 1 tonne of emitted methane is 20 CO2 Tonne Equivalents.

The NGERS does get down to 200 terajoules and 50 kilotonnes in 2010.  ETS will require only 25KT in 2010 so it is a little disconnected from NGERS – you can probably expect that the two programs will come into alignment. 

The Emission Trading Scheme (ETS) is now officially called CPRS – Carbon Pollution Reduction Scheme.  The feeling is that it sounds better to be reducing carbon pollution than trading the rights to emit pollution.  The scheme generally caps Australia’s emissions, and then identifies industries subject to the cap.  These industries are then allocated permits and at the end of the year have to have permits to cover what they emitted or pay a substantive fine.  If you don’t have the permits, you have to go buy them from someone who does.  This is the essence of the ‘cap and trade’ system.  

Under the scheme:

  • Government allocates or auctions permits up to the cap annually.
  • Companies compete on the market to acquire required permits.
  • Permits can be traded at market prices between firms and third parties.
  • Scheme requires robust monitoring, reporting and assurance of data.
  • Transitional assistance measures are included
  • A number of elements are yet to be finalised
    • Including emissions target trajectories, penalties for non-compliance and complementary measures for non-covered sectors. 

A green paper was released in July.  Everyone affected is throwing a submission at the government.  The government is aiming to have draft legislation ready by the end of the year.  There remains a whole bunch of stuff that is yet to be finalised, particularly emissions trajectories.  We don’t know what the limits will be yet though – what the targets will be. 

Covered sectors:

  • Stationary energy
  • Industrial processes
  • Fugitive emissions (e.g. mining and landfill)
  • Waste
  • Transport
  • Reforestation (opt-in – gets you credits)
  • Agriculture may come in later, around 2015.

Liability generally relies upon the emitter.  Generally it is upstream supply liability.

Emissions covered include:  Scope 1 (i.e. direct for example emissions from a generator) emissions only.  Contrast with NGERS which includes Scope 2 (e.g. indirect such as a factory’s use of electricity) across all 6 Kyoto Greenhouses. 

Threshold

  • Direct emissions of 25,000 tonnes of CO2e (Carbon Equivalents). 

The affected businesses will need to be collecting up systems, processes and governance to get NGERS into place. 

I wonder what the definition of an entity (i.e. a ‘business’ will be in the covered industry?). 

The first NGERS reporting period has commenced, those these systems etc will need to be in place from the point of view of affected NGERS entities.  CPRS Green Paper submissions are now closed.  The draft legislation is due out in early September, and they seem to want to have the legislation in place by the end of the year.  The Government wants to set medium-term national trajectories soon, and are aiming for a 1 July 2010 start.  These trajectories will affect how many permits are available – they will not determine who is affected by CPRS. 
We in Australia will have two full reporting periods and  given thethen full trading will commence under CPRS.  Unless it doesn’t  current financial crisis. 

Under NGERS – compliance is about registering and reporting.  Penalties apply for corporations and CEOs.

Project Definition

There are a a whole lot of rules and legislation around wh`o effectively owns the emissions.  A big mining site will have a lot of issues just working out what are we reporting on.

Systems Implementation

  • Collect greenhouse and energy data
  • Calculate greenhouse and energy data – there is a measurement determination that tells you how you work out how much CO2 you emit.  There are proxy things in place. 
  • Got to have good storage of records for any audit down the track.

Maybe I have a large IT bent, but I can see that this is going to be a problem for anybody seeking to implement Greenhouse Gas Reporting Systems and implement it through the accounting information system.  Or even if they don’t. 

Clearly it will have an impact upon reporting processes, and who does it – and I suspect this job will often fall to the finance function. 

Reporting

  • Register with GEDO
  • Prepare and submit data using OSCAR.  (See Greenhouse Challenge Plus).
  • There will be a lot of internal reporting as well particularly for companies that are CPRS-liable. 

Governance

  • Need a whole lot of things covering all of this to make sure it keeps ticking along. 

Companies will have to be NGERS compliance at a minimum. 

Assurance – large emitters (>125KT CO2) will require third party assurance of the information prior to submission.  Beyond these core issues we don’t know much around how it is taxed and so on.  The draft legislation hasn’t come out yet.  There are thousands of submissions being put in place.

If you are liable there are serious financial implications and also some compliance costs.  Indirect impacts will result in price increases it seems – which will be the main issue for SME’s. 
Indirect impacts are going to be increasing on just about everyone.  Transport and logistics – may see a complete change in the competitive position between transport for example.  For instance you will need to reconsider where you get your services from e.g. road vs rail.

Need to do a risk assessment now.  Carbon due diligence.  Green paper submissions were a big thing a little while ago.

Strategic Response – can do a lot of stuff now.  There are opportunities for new services and products – carbon market planning and financial advice.

CPRS Accounting Issues:

  • Permits acquired to satisfy obligation = intangibles
  • Permits acquired for trading = inventory
  • Measurement choices available
  • Impact of CPRS on impairment calculations
  • Accounting disclosures which may be required.
  • How to account for forward purchase agreements of carbon pollution permits
  • Broadly – what impact will the acquisition, trading, hedging and surrender of carbon plollution permits on reporting.
  • Tax treatment?  Still yet to be decided. 

We also noted in the presentation that cashflow issues exist potentially for people that have to buy permits up front. 

There will be another meeting in February, probably, of the Discussion Group.  It was a very interesting discussion and it will be interesting to see where these compliance issues around the Carbon Emission Emissions Reporting processes take us.  And as we can see above – there are assurance implications (although supposedly only for >125KT emitters?).

More notices as events warrant.

ABC Learning: The Parents’ Dilemma

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Here in Australia, the big parental news (well, amongst parents of the under-5 set it’s a big topic, and amongst singletons and non-parentals it’s kind of a non-issue) is the failure of ABC Learning.  A failure that comes despite guaranteed cashflow, subisidised products, high demand for services, and captive guilt-ridden parents.  We have a 3 year old at one centre, so we know all about it!

Clearly Eddie Groves over-extended the company, and it’s become increasingly apparent that a business that seems too good to be true, with poor governance models, from a person whom you probably wouldn’t trust as far as you could throw him (‘Fast Eddie’ never gave a vibe as being the brightest candle in the candelabra), usually is too good to be true.  It’s since emerged that the mounting profits were built upon structured relationships, dodgy accounting, and a very poor relationship with the truth.  Apparently the company was valued at over 3 billion dollars, but 1.3 billion of that was intangible assets – most of which it seems related to the ABC brand, which is now more like the kiss of death than anything of value.

20-20 hindsight is a wonderful thing, and it seems the writing has been on the wall for some time.  Nevertheless, it still came as a shock to parents who naively believed what they were told:

  • It started out that the media was just being mean to ABC Learning.
  • Then it became that ABC Learning was renegotiating with the banks and it would all be OK.
  • Then it became that the receivers/managers had been called in, but it would all be OK and no centres would close.
  • Then it came out that 40% of the centres were currently unprofitable.
  • Then it came out that 40% were actually unviable and would be closed.

And then last Thursday we had TV cameras outside our centre.  Not a situation to make working parents feel relaxed and comfortable. 

As a result of all this uncertainty, parents seem to be taking their kids out in droves now.  And staff have also got the message and lots have left.  It has become a version of the prisoners’ dilemma.  If all the parents stay, it’s unlikely that the centres will close.  However, if you stay with the centres, you will discover that there are no places left when the centre does collapse, because all the other parents took those places.

It is a real pain and a worry, and at the least it’s clearly a distraction for staff.  Our centre held a ‘positive pink’ day today, asking the kids to come in pink shirts to support the staff – and fair enough too, given that the staff aren’t the ones with over-ambitious ideas and a completely fatuous understanding of business and business ethics (hint:  the ones with this would seem to include Eddie Groves, Le Neve Groves and indeed the erstwhile chairman, Sallyanne Atkinson).  In particular, if Eddie Groves were to spend the rest of his life clutching a wine bottle and drooling into the gutter, I would only think uncharitable thoughts. 

But Eddie is not the staff.

Today when I collected my child from the centre one parent was fixing to have a barney with the director over a lost water bottle.  Admittedly such things are frustrating, particularly when they’re labelled and clearly belong to the child in question – but the director has had to battle staff shortages, parents withdrawing their kids, a bankrupt company, the receivers today and, to top it all off, a nice bout of gastro.  For all I know, the staff decided to play soccer with the drink bottle by tying it to a rope and into traffic, and then sending the child to go get it.  I am assuming that doesn’t happen, but of course sometimes I’m sure it’s a tempting idea :).

The receivers/managers, and the government, had better make sure there’s a clear path soon with these centres, or there’ll be worse to come for parents.  If they’re going to be sold off, the sooner the better, I think, and get any rejigging over and done with as soon as possible.  I for one won’t miss the jolly pink teddy bear threatening us all as we come into the carpark.  I know that we as parents are getting a little tired of being lied to as to how things are going – we’ve got a couple more years of association with the centre and I don’t know where it’s going to go.  We’ve been loyal, we’re staying loyal (to the staff), but eventually loyalty and $3 will buy you a cup of coffee, particularly if your child is out on the street. 

The parents’ dilemma will become increasingly real for many parents over the next little while, and they had better get their act together soon. 

Accounting for the Emission Trading Scheme

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As part of the good old PhD, I’m looking at some of the impacts of reporting changes around the adoption of IFRS in Australia upon audits.  As part of this, I’m taking a look at accounting for the Emissions Trading Scheme – mostly because it’s interesting and topical.

The Australian Government has flagged an intention to create an emissions trading scheme, but has rather less-than-helpfully (in some ways) left the creation of accounting for its business impact to the International Accounting Standards Board.  According to the IASB work program, an exposure draft regarding accounting for emissions trading scheme will be provided in the second half of 2009, and IFRS standards will be released in 2010.  Alternative accounting models are to be brought to IASB in Q3 2008 (presumably, about now).

Rather less than conveniently, if IASB’s work program doesn’t slip, the new accounting standards will be released about the time the emissions trading scheme is implemented.  Hmmm.

The project overview is provided here for IASB: emissions trading scheme.

However, the above seems to relate to how to account for the dollar impact of the scheme (presumably, accounting for assets and expenses created by the scheme etc).  There is in addition a current reporting obligation under the National Greenhouse and Energy Reporting Act 2007.  This is of course NOT the ETS, but it does give us some things to do right now.  A copy of the guidelines for reporting obligations can be found on the government’s website.

By 2010, organisations that produce more than 50 kilotonnes of CO2 and/or use 200 terajoules of energy are subject to these requirements.  There is an enormous scope of the non-accounting information that is required just in order to determine whether or not the corporation exceeds the threshold (see also this link:  https://www.oscar.gov.au/Deh.Oscar.Extension.Web/Content/NgerThresholdCalculator/Default.aspx).

These reporting requirements appear to apply to at least government agencies, although it is uncertain whether State Departments (e.g. Queensland Health) are captured by these requirements.  The advice for government agencies is that they should set up their systems to make this apply, and likely it will be made apply in any event due to the need for them to maintain a reputation.

A lot to absorb.  By the way this blog is starting to creak under its own weight and desperately needs a redesign – I will redesign the categories and so on when I get a chance (so perhaps this is permanent).