B&E | SWOT Analysis of the Development of Carbon Audit in China

B&E | SWOT Analysis of the Development of Carbon Audit in China

By Cuiping Bao
Department of Accounting, Jinan University, Guangzhou, China

B&E | SWOT Analysis of the Development of Carbon Audit in China

Image Attribute: Factory Smoke - China  ID:201212121600 / Jonathan Kos-Read, GATAG.NET

Carbon audit is the escort for achieving the low-carbon economy. The development of Carbon audit is of great significance in China, and there are advantages, weaknesses, opportunities and threats. Combined with country's national conditions, below is the SWOT analysis on the development of carbon audit.

Strength: As the supervision mechanism of the low carbon economy, carbon audit arises at the historic moment. China has established preliminary system for carbon trading market, and Bebbington argued that enterprises should provide third-party verification before carbon trading.[1] Therefore, carbon audit emerged. By the law of market supply and demand, carbon audit mechanism is in continuous improvement, with constant improvement in carbon trading market. In addition, according to signaling theory, the action of carbon audit implementation and disclosure delivers enterprises’ strong competitiveness and social responsibility, which is conducive to improve the investors’ recognition.

Weakness: As a totally new category of the audit, China starts late in both theory and practice. Worse still, relevant theoretical support is relatively insufficient. Specifically, China lacks unified carbon audit standards at present, and a complete set of the system has not yet been established. In addition, the absence of carbon audit talents has been a barrier to conducting carbon audit.

Opportunity: As a responsible developing country, China made emission-cut promises and strongly to push the whole world to reach a spiritual consensus on reducing emissions. He lay emphasis on environmental protection and ecological civilization construction at the national meeting. In his five-year plan for 2011 to 2015, China strives for establishing a carbon trading market gradually, proposing that related enterprises are mandatory to disclose carbon emission report and some are encouraged to disclose information voluntarily, which provides opportunities for the development of carbon audit.

Threat: Different from traditional financial audit, carbon audit is reluctant to offer short- term benefits. For those who pursuits maximizing shareholders’ wealth, they fail to identify its long-term economic interests. In addition, abysmally low public awareness about carbon audit also brings difficult to the implementation of carbon audit.

Confronted with both opportunities and challenges, the prospect of carbon audit is bright and it should strive to turn seemingly disadvantage aspects to advantages ones.

Suggestions:

With the development of the low-carbon economy, in order to adapt to the transformation of growth mode of the economy and attain sustainable development, it is imperative to construct carbon audit system and establish regulations. Nevertheless, China still lacks standardization for the implementation system and assessment system. Bebbington and other scholars pointed out that the lack of low carbon audit standard can increase the credit risk of enterprise audit [1] . Yanyan Chen and Lanxiang Peng argued that the unsound mechanism, the lack of carbon auditing standards and the insufficient carbon audit talents, are becoming bottlenecks to progress [2] . In order to implement carbon audit successfully, facilitate low-carbon economy and realize the sustainable development, effective and feasible recommendations are as shown below.

Complete the Upper Construction and Establish Carbon Audit System

From the analyses made above, research about carbon audit is still in a fledging period, with theory and methodology needed to be further developed. Therefore, it needs to strengthen the carbon audit research, and establish a running system as soon as possible to provide theoretical and methodological support. In addition, although some related policies about carbon audit were devised, most of them are not binding and compulsory in general. They are too far to meet people’s expectations; a deep reason is that related laws about low-carbon economy have not been fully incorporated into national legislation. Therefore, it needs to perfect the National Auditing Standards, the Independent Auditing Standards, and Internal Auditing Standards as soon as possible. This article suggests that it is necessary to speed up making related laws, and draw lessons of legislation in foreign countries to form the legal system of carbon audit, forming a distinct, complete and mature carbon audit system to guide the carbon audit and improve social acknowledgment of carbon audit report.

Train and Reserve the Carbon Audit Talents

From the above SWOT analysis, it’s imperative to cultivate more talents to solve inadequate carbon audit specialist. In addition to all the basic capabilities of traditional financial audit, carbon auditors are also required to have engineering, physics, environment and other professional knowledge, and master various standards and methods of monitoring and statistics analysis. Undoubtedly, they should be able to calculate the energy consumption of various indicators according to the enterprise of energy input and output data, find out conservation potential and put forward reasonable suggestions according to the index analysis existing in the enterprise.

On the one hand, consisting of auditors with financial and non-financial backgrounds, it needs to speed up building the carbon audit team and widely absorb external experts to participate in, improving the efficiency and effect of carbon audit. On the other hand, it should promote the carbon audit education and training, with experts in the field of carbon audit sharing their expertise to the good potential auditors. Strengthening carbon audit knowledge and improving technology competence are conducive to provide a solid basis for the implementation of the carbon audit.

Actively Encourage Carbon Audit

On the premise of carbon audit legal system and sufficient carbon audit talents, it needs to intensify carbon audit pilot work and gradually expand the scope of carbon audit pilot. In addition, we should draw lessons from international experience to gradually establish and improve the carbon trading market, stimulate the enterprises to reduce carbon emissions [3], and actively promote the development of low-carbon economy.

In short, as an important safeguard mechanism of low-carbon economy, carbon audit arises at the historic moment. Compared with the traditional audit, carbon audit is much more complex and demanding. From the current situation in China, carbon audit system is not sound and is lack of the basis and the talents, bringing a lot of resistance to the development of carbon audit. Therefore, it is strongly recommended that China should complete the upper construction, establish carbon audit system, reserve the talents and actively encourage carbon audit to provide adequate preparations for further development of carbon.

Reference:

[1] Bebbington, J. and Gonzalez, C.L. (2008) Carbon Trading: Accounting and Reporting Issue. European Accounting Review, 17, 697-717.  http://dx.doi.org/10.1080/09638180802489162 

[2] Chen, Y.Y. and Peng, L.X. (2010) Problems and Countermeasures of Carbon Auditing in China. Finance and Accounting Monthly, No. 27, 71-73.

[3]  Ratnatunga, J. and Balachandran, K. (2009) Carbon Business Accounting: The Impact of Global Warming on the Cost and Management Accounting Profession. Journal of Accounting, Auditing and Finance, 2, 333-355.

Cite this Article:

Bao, C.P. (2016) The Status, Potentials and Countermeasures of China’s Carbon Audit. Low Carbon Economy, 7, 116-122. http://dx.doi.org/10.4236/lce.2016.73011

Copyright © 2016 by author and Scientific Research Publishing Inc.
This work is an exceprt taken from a licensed work published under the Creative Commons Attribution International License (CC BY 4.0).
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