Letter from... Australia

While every accountant is familiar with general-purpose financial reports, not many would think to apply that concept to water. But in a country as arid as Australia, accounting for every precious drop of water is vital, and a framework in which to do it is not far off.

Just as accountants measure and monitor a company's financial resources and information, so too will they account for water. 'It's crucial work,' explains University of Melbourne senior accounting lecturer Dr Bradley Potter. 'It provides the opportunity to improve the information available in respect of water.'

Globally, water is a scarce resource, but the seven-year drought in Australia has pushed the issue to the top of the agenda as users compete for limited available supplies.
Although there has been an increasing push to use traditional accounting disciplines and frameworks with natural resources, applying these skills and techniques to water is relatively new, and likely to create exciting opportunities for accountants interested in tackling a new area of practice.

In 2006, a report commissioned under Australia's National Water Initiative (NWI) found only two qualified specialists working in the water accounting discipline nationwide - surprisingly few in a country acknowledged as one of the global leaders in the field. Since then numbers have increased to nine qualified accountants and a similar number of academics, but many more are needed to take this innovative field of accounting further.

According to Potter, who is one of the few experts in the field, water accounting is a fascinating area of accounting practice. 'It provides a great opportunity to work on something really interesting and valuable,' he says. 'It allows the application of a range of skills and practices within the accounting discipline.'

Potter's team is working on a joint project with Monash University to develop a conceptual framework for water accounting. The framework has been commissioned by the National Water Accounting Development (NWAD) project, a key initiative of the NWI.

NWAD has been set up to deliver both the water accounting conceptual framework (which will consist of eight statements of water accounting concepts) and specific Australian Water Accounting Standards (AWAS). There are currently three AWAS statements under development: AWAS1, General purpose water accounting reports; AWAS2, Water market disclosures; and AWAS3, Use of water.

Although the idea of water accounting may seem unusual at first, the NWAD committee says it is about 'the application of a consistent and structured approach to identifying, measuring, recording and reporting information about water'.

While the closed nature of the water cycle lends itself to a double-entry accounting approach, it is not simply about transferring the traditional accounting framework to water resources. Potter stresses that different measures are required and says 'it involves some challenges not encountered in a traditional accounting system'.

He believes the new framework will enhance the capacity of water managers to monitor water resources and provide stakeholders such as water users, water traders and investors, environmental groups and policy experts with better information.

While water rights and allocations have always been a source of contention in Australia, the current concern about sustainable management of resources and climate change has forced governments at every level to accept the need for better water information and accounting.

Unlike many other countries, Australia has clearly defined water access entitlements separate from land. This means the rights to water can be more easily defined and accounted for than if they remained tied to land rights.

Annual water allocations are also based on volumetric extraction rather than time or river height. While this will be the basis for the initial accounting system, 'as it is tradeable, it will move to valuation-based in the future', Potter explains.

The task of introducing water accounting in Australia is a little easier than in some countries as there is an enviable base of data on which to develop the accounting standards. Local hydrographical records are among the oldest and most detailed in the world.

According to NWAD, accounting concepts such as accruals will be possible under the framework. Construction of large storages with the holding capacity for several years' worth of water stocks allow rights to stored water to be carried forward.

Australia already has an established market for trading water entitlements and the introduction of an accounting framework is likely to further its development. 'With trading comes the need for greater transparency,' says Potter.

Better transparency and information are also important when it comes to making investment decisions. 'If you are considering an investment, then one input to consider is the sustainability and security of water supplies.'

So, accountants looking for something a little different may want to think about a new career - one where a cloudy sky is likely to put a smile on their face.

Janine Mace is an Australian freelance finance and business journalist.