A standard for water reporting will soon be released. Peter Day , Jayne Godfrey and Sean Hanley explain how it will work.

    Water is a fundamental resource for all organisations – public and private – and as the competition for water resources increases, the need to account fully and consistently for how it is distributed to meet economic, environmental and social needs grows.

    The implementation and adoption of water accounting aims to improve public knowledge and understanding of Australia’s water resources.

    What is water accounting?

    Water accounting is a systematic process of identifying, recognising, quantifying, reporting and assuring information about water, rights or other claims to water, and about obligations to deliver water or water rights or claims to other parties. Borrowing fundamental concepts from the financial accounting discipline, water accounting aims to facilitate informed decision-making based on information about water resources.

    Who benefits from water accounting?

    Water accounting helps directors, organisations, governments and other stakeholders to make informed decisions about managing and allocating water and other resources. This is similar to the way general-purpose financial reporting reports assist economic decision-making.

    General purpose water accounting reports (GPWARs) will address the general information needs of people – water users, water market investors, traders and brokers, environmental organisations, auditors, financiers, local governments, researchers, planners and policy formulators – who cannot normally obtain the information directly from an organisation. Much like financial accounting, it is expected that, in preparing these reports, companies will also gain significantly from a better understanding of how they manage their resources. Directors will gain insights useful to their governance role that they otherwise would not have.

    Water accounting is coming

    Draft GPWARs have been prepared by various organisations as part of the piloting process led by the Water Accounting Standard Board (WASB) over the last two years. This pilot program has helped to inform the development of the Australian Water Accounting Standards (AWAS). It has involved public and private organisations, managers of water and major users of water to ensure water accounting can be applied to a broad range of users and preparers.

    The first AWAS, Australian Water Accounting Standard 1: Preparation and Presentation of General Purpose Water Accounting Reports (AWAS 1), is set to be released as an exposure draft in July 2010. In addition to the guidance offered by the pilot program, this exposure draft (EDAWAS 1) was strongly underpinned by the prior development of a Water Accounting Conceptual Framework (WACF). The aim is thus to provide a principle-based underpinning to a standard that can be applied to a wide variety of water entities. The exposure draft includes four model reports that will help to guide the preparation of water accounting reports for different types of entities.

    Does your organisation have to apply water accounting?

    For directors of public companies outside the water industry.

    In the short term, water accounting will be voluntary. While significant progress has been made on its development in a short time, as a discipline it remains in its infancy. The regulatory and institutional processes surrounding water accounting are yet to be finalised.

    That said, the adoption of water accounting offers obvious benefits and it is likely to be taken up by leaders of industry sooner rather than later. Organisations that adopt it will obtain increased understanding of the importance of water to their business and a greater appreciation of where water scarcity may cause risks for their organisation. Organisations are already adopting aspects of water accounting to demonstrate their corporate social responsibility and enhance their public reputations.

    Further, as organisations in the public water sector adopt water accounting, those private organisations for which water is a major part of production can use the GPWARs of those in the public water sector to assess water availability when identifying potential growth areas.

    For directors of organisations in the water sector.

    Those in the water sector will be even more aware of the importance of water accounting due to the National Water Initiative (2004) and Water Act 2007.

    These Federal pieces of legislation have called for greater transparency on how much water there is, who has the rights to it, how it is managed and how it is used.

    Water accounting offers organisations a way to answer these questions in one document, in a nationally consistent and comparable manner. Moreover, reporting in accordance with EDAWAS 1 will assist organisations in the water sector to demonstrate effective stewardship of a public good.

    Notably, the WASB does not intend for GPWAR to be just another regulatory report produced and filed away. WASB intends to undertake a cost-benefit review of water accounting starting in late 2010, an integral aspect of which will be how GPWAR adoption can replace existing reporting to reduce the reporting burden apparent in the water industry.

    What do water accounting reports look like?

    To achieve the objective of water accounting, report preparers must provide users with information that is useful to decision making.Consistent with the principles borrowed from financial accounting, the GPWAR has many features similar to a financial report:

    • An accrual-based statement of water assets and water liabilities (akin to the statement of financial position, this statement reports balances of water and rights and other entitlements to water, and also obligations to deliver water);
    • An accrual-based statement of changes in water assets and water liabilities (akin to the statement of comprehensive income);
    • A statement of physical water flows (akin to the statement of cash flows); and
    • An assurance statement – an independent attestation that the GPWAR has been prepared and presented in accordance with relevant standards.

    A GPWAR also includes:

    • A contextual statement containing information about the physical and administrative aspects of the water report entity; and
    • An accountability statement. Similar to a director’s declaration, it requires those charged with governance to confirm that the report has been prepared and presented in accordance with relevant standards.

    Models of GPWARs for different types of entities are available at WASB’s website.

    Application of water accounting

    How will we know if water accounting reports are accurate?

    The GPWAR is expected to be audited and to include an assurance statement. This will be either unqualified or qualified.

    At this stage, however, while there is a requirement in EDAWAS 1 to include an Assurance Statement in a GPWAR. A standard for water accounting assurance does not yet exist. WASB and the Auditing and Assurance Standards Board (AUASB) have agreed to develop a pronouncement together. A discussion paper released by WASB on the assurance of water accounting reports in late 2010.

    Further, as noted above, due to the embryonic nature of water accounting at present, additional work needs to be undertaken with respect to institutional and regulatory arrangements.

    What if the statement of water assets and water liabilities reveals that my organisation has obligations to deliver water that exceed its holdings of water and rights to water?

    Only present volumes are recognised as water assets and water liabilities on the statement of water assets and water liabilities. Expected rainfall or other future events expected to give rise to increased water are not capitalised into the volumes reported in GPWARs. As such, the presence of a negative net water assets amount does not necessarily indicate “insolvency” from a water perspective.

    Like financial accounting, the GPWAR should be read in full – including the note disclosures – to gain a full understanding of the water report entity and its context and outlook, to be able to evaluate the decisions made by the management of that water report entity.

    How do water accounting reports relate to the financial statements?

    At this stage, the correlation between those items recognised as water assets and water liabilities and their financial counterparts is weak. The WASB and the Australian Accounting Standards Board will keep a watching brief as trends emerge in financial recognition of water transactions and how the correlation should be developed.

    What is the cost to my organisation of implementing water accounting?

    The cost of introducing water accounting would have to be determined on a case-by-case basis, and while WASB aims to assist users in doing this through a cost-benefit analysis (to be undertaken beginning in late 2010), it invites directors to consider the opposite of this question: what is the cost to my business in not adopting water accounting?

    Putting aside whether AWAS were to become mandatory, consider if the water industry adopts water accounting. Water accounting can be a powerful tool to demonstrate that a valuable resource has been managed effectively and sustainably. Entities would provide water information to customers, potential investors, local communities, business partners and other stakeholders that is reliable, consistent and comparable. They will be able to use this information to better understand and plan for the allocation of their resources in response to their perception of your organisation’s performance in mitigating risks relating to water scarcity or quality.

    For more information on water accounting, visit the WASB website at:



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