the data dynamic

The Data Dynamic

2009

Author: Micheal Axelsen

The Data Dynamic

Micheal Axelsen FCPA is director of applied insight pty ltd, and provides specialist consulting services in improving data governance with clients. Micheal can be contacted by email on [email protected], or followed on twitter at www.twitter.com/MichealAxelsen. Micheal chairs the CPA Australia Information Technology & Management Centre of Excellence. This article was published in the Australian Financial Review ‘MIS’ Magazine on 1 May 2009 and the 2009 CFO Magazine Software Guide.

The Data Dynamic

This Draft: 2nd April 2009 1 The Data Dynamic

CPA Australia believes that a properly designed emissions trading scheme that

incorporates well-calibrated caps and emission trajectories is central to reducing

carbon emissions. Australia’s ‘Carbon Pollution Reduction Scheme’ (CPRS)

introduces a ‘cap-and-trade’ emissions trading scheme for the nation’s top 1000

polluters. It presents diverse challenges for businesses directly affected by the CPRS,

but the resultant ‘market pricing’ of pollution affects the cost structures of smaller

businesses as well as large businesses.

Businesses must consider the challenges that the implementation of this scheme

will have upon Australian business practices, particularly for information systems.

The CPRS will have specific reporting guidelines requiring transparency,

comparability, accuracy, consistency and completeness, and it is proposed that records

be maintained to within ‘95% confidence levels’. Such obligations can only

realistically be met through dependable information systems to record the information

the CPRS will require.

Many large polluters already comply with the reporting guidelines. However,

these businesses continue to refine and improve their methods. Some have

implemented new information systems, whilst others have opted for integrated

solutions with existing information systems. The accounting information system is a

prime candidate for an integrated solution, as it already processes invoices with the

relevant consumption information, and is an audited and reliable information system.

Although only the largest of the large polluters must have their information

audited at this stage, all polluters must retain auditable records. As the scheme is

proposed to require ‘95% confidence levels’ and proposes significant penalties if

The Data Dynamic


adequate steps to address errors are not taken, a reliable information system with an

audit trail to support the audit of this information by external third parties is

necessary. The data quality of this system must be high, and staff training and

awareness will be needed to ensure the accuracy of records.

This implies that information systems need to be developed or selected in

accord with best practice frameworks such as COBIT (Control Objectives for

Information Technology). There will be risks and issues associated with the

implementation of these solutions. The solutions are potentially complex, and will

require accuracy and completeness from implementation so as to avoid potential

legislative penalties. A definite and planned approach to data governance will be

good for the business – and good for the environment.

Those businesses affected directly by the CPRS, as well as smaller businesses,

will also need to consider the likely price changes to their costs of production. The

CPRS ensures that the cost of most of Australia’s greenhouse gas emissions is

incorporated into the price of all goods and services. By way of example, the cost of

electricity is expected to increase on average by 18% and the cost of gas by 12%.

Market forces will encourage the adoption, where appropriate, of less expensive (and

thus less emissions intensive) alternatives, or ration their consumption of these more

expensive products and inputs.

All businesses will need to model the effect of the increases in these costs on

their own prices to ensure that the business remains sustainable. Information of a high

quality, and reliable pricing and budgeting models, are needed to ensure that the

business does not adopt poor approaches to the pricing of its goods and services. The

The Data Dynamic


need to achieve this fine balance is only heightened by the requirements of the ACCC

in the setting of prices, and the possible damage to business reputation if the approach

to pricing seems unreasonable to the business’s customers or the wider community.

The success of this universal adjustment of prices depends upon the business’s

data quality and the use of appropriate and reliable models, in addition to market

knowledge. These issues are as important today for businesses as they were in the

implementation of the GST in 2000. Addressing these issues is key to understanding

the impact of CPRS on the business’s bottom line. No business should allow these

changes in cost structure to affect the business’s viability in the long term.

The CPRS affects all businesses to some degree. The implementation of the

CPRS highlights the need for strong data governance practices and accurate business

information through the adoption of best practice control frameworks such as COBIT

and data assurance services. Businesses need to address these issues through rigorous

assessment of their current situation and development of innovative solutions.