There’s a quiet reckoning happening in accounting. For generations, the profession has stood by the notion that our reports must present a ‘true and fair view’ of an entity’s financial position. But as we confront climate risk, systemic fragility and operational volatility, one wonders if ‘true and fair’ is still enough. Or should we be aspiring to something more: a ‘true, fair and sustainable’ view?
This isn’t simply an ethical debate; it’s a technical one, too. Sustainability implies the ability to survive – and thrive – over time. And that requires us to engage with risks that haven’t yet struck but loom in plain sight. If a firm is sitting on a mountain of residual non-financial risk – cyber vulnerabilities, conduct exposure, climate liabilities – should its pristine balance sheet lull us into complacency?
Auditors’ duty is narrowly scoped to verifying what’s been placed in front of them
Widen the scope
Take Silicon Valley Bank. Its 2022 audited financials showed pre-tax profits exceeding US$2bn. Then, within months, it collapsed in spectacular fashion. The failure wasn’t due to some unknown black swan. The bank had concentrated risk, an unbalanced funding profile and poor hedging – all observables but not, apparently, ‘accountable’.
That’s where we hit a deeper problem. Accounting today is based on information provided to the auditor – not all information that is available. Auditors are not expected to scan the horizon; their duty is narrowly scoped to verifying what’s been placed in front of them. But in the age of real-time data, digital signals and risk modelling, should that still be the case?
TRUs allow firms to transfer the financial burden of future risks to market participants
Imagine if auditors had a mandate like ‘know your customer’ (KYC) in banking – an obligation not to remain wilfully blind. When non-financial risk accumulates and external data shows rising exposure, shouldn’t that prompt scrutiny? After all, we know from Basel’s BCBS 239 principles that aggregating risk data is a supervisory expectation. Shouldn’t it be a professional one, too?
Cue risk accounting
This brings us to a concept that might reshape our financial lens: risk accounting. At its core is the risk unit (RU): a standardised metric quantifying residual non-financial risk. Think of it as a unit of post-control exposure. By capturing risks such as cyber threats, compliance gaps or climate vulnerabilities in a quantifiable form, RUs let us translate the abstract into the actionable.
So, how does this play out in double-entry terms? Let’s say a company calculates its residual exposure to conduct risk at US$5m, using a defensible methodology. That amount – an expected future loss – is posted as a provision in the income statement.
That risk accrual can now be tokenised. Tokenisation refers to the process of converting a quantified risk exposure into a tradable digital asset – a tokenised risk unit (TRU) – which can then be issued and sold on a regulated exchange. TRUs allow firms to transfer the financial burden of future risks to market participants willing to underwrite them.
The balance sheet improves not by hiding the risk but by externalising and funding it transparently. This isn’t securitisation of fantasy assets; it’s risk transfer rooted in disclosure, standardisation and marketplace pricing. And because TRUs are based on quantified RUs, the pricing reflects actual risk levels: auditable, comparable and reportable.
If your supply chain is geopolitically fragile, the market deserves to know
Far from conflicting with IFRS Standards, this model enhances its logic:
- IFRS 8 encourages segment-level risk disclosures. RUs make that real, aligning residual risk to each operating unit.
- IFRS 9 is built on expected credit losses. RUs apply that forward-looking principle to non-financial domains.
- IAS 37 allows provisions where loss is probable and measurable. With RUs, both conditions are met.
Risk readiness
This isn’t futuristic theory. The Risk Accounting Standards Board has published frameworks showing exactly how these accounting treatments can align with international standards. Disclosures include staging models, assumptions and sensitivity analysis – just as we do for credit loss provisions today.
Ethical reporting also means refusing to ignore what is knowable
What’s more, these practices speak to broader changes in regulation. As environmental, social and governance mandates tighten – through mechanisms such as CSRD in Europe – firms will be held accountable not just for emissions but for risk readiness. That includes recognising the cost of failing to address foreseeable risks. If your data privacy practices expose you to a probable fine, or your supply chain is geopolitically fragile, the market deserves to know. Risk accounting gives you the language – and ledger – to say it.
Ethical question
There are significant benefits with regard to ethics. Ethics in accounting has long centred on independence and integrity – values that remain non-negotiable. But today, ethical reporting also means refusing to ignore what is knowable. A sustainable accounting framework would not only record past performance but also signal looming threats. It would push boards to act before risks crystallise, and empower markets to price those risks intelligently.
Yes, there are complexities. Risk accruals must eventually crystallise or reverse. Tokenisation demands governance, liquidity and investor protections. But the broader arc is clear: when we quantify risk, we can manage it. When we manage it, we can report it. And when we report it, we invite solutions – whether internal mitigation or external transfer.
That is what a ‘true, fair and sustainable’ view could look like. It offers not just a snapshot of what was, but a dashboard for what lies ahead; not just compliance, but foresight; not just statements, but stewardship.
Maybe it’s time we let the ledger speak not only to profit and loss but to possibility and preparedness. The future won’t wait until year-end to reveal its risks – and neither should we.
More information
See ACCA’s insights on risk. Find out about ACCA’s Global Governance, Risk and Performance Forum
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