Accrual accounting effectively facilitates the evaluation for firms because it strives to reflect the economics of a firm’s activities, it is well-understood, and it is standard across companies and industries. These qualities create transparency into the economics of firms, which helps external parties evaluate and compare economic opportunities. It allows financial benchmarking of firms with very different business models, products, geographies, etc. – an important tool for both internal managers and external parties. It also is easier for external parties to hold firms accountable to financial targets because it limits discretion in reporting results. Creating a GAAP or IFRS analogue for impact accounting would generate benefits: transparency, comparability, accountability.

As discussed above, this impact accounting methodology should take shape through a series of choices about how to define value. The inclusion or exclusion of different stakeholders is a choice. The inclusion or exclusion of different sources of impact is a choice. The tradeoff between accuracy and generalizability of impact metrics is a choice. There has already been a great deal of work by the Organisation for Economic Co-operation and Development (OECD), Sustainability Accounting Standards Board (SASB), Global Reporting Initiative (GRI), Principles for Responsible Investing (PRI), Social Value International and others in partnership with the Impact Management Project (IMP) through the Structured Network to provide a framework for managing these choices. The impact accounting methodology should build upon this prior work.

Before designing the specific measurement and reporting standards, we must establish a set of guiding principles for impact-weighted accounts. Drawing upon existing principles and norms where possible, below are a set of initial design principles meant to guide our decisions about accounting standards, along with the associated benefits and costs of choosing different configurations:

 

 

We recognize that we will not be able to research, analyze, and incorporate all possible impacts in our work. We also recognize that some of the impact metrics and monetary valuation coefficients are far from perfect. But so are the financial accounting numbers that we have been using for thousands of years. They rely on judgements, managerial discretion, and forecasts of the future. They are noisy estimates of the underlying economic reality. Often, simple changes in accounting rules change balance sheets by trillions of dollars, as has been the case with leases, pensions and equity investments, and give rise to income statements that portray a fundamentally different picture of the organization’s performance.

We do not allow these limitations to constrain our ambitions. Fully recognizing the inherent tradeoff between impact measurement accuracy and scalability of application, we aim to create both dependable and scalable measurements of impact.