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 — is “true and fair” 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?
Let’s reflect on Silicon Valley Bank. At year-end 2022, its audited financials showed pre-tax profits exceeding $2 billion. 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’.
And that’s where we hit a deeper problem. Accounting today is based on information provided to the auditor — not all information 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 modeling, should that still be the case?
Imagine if auditors had a mandate like Know-Your-Customer in banking — an obligation not to remain willfully 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?
This brings us to a concept that might reshape our financial lens: Risk Accounting. At its core is the Risk Unit (RU)— a standardized 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 firm calculates its residual exposure to conduct risk at £5 million, using a defensible methodology. That amount — an expected future loss — is posted as a provision in the P&L.
Dr Risk Expense
Cr Risk Accrual (Balance Sheet)
Straightforward so far. But here’s where it gets innovative.
That risk accrual can now be tokenized. Tokenization refers to the process of converting a quantified risk exposure into a tradable digital asset — a Tokenized 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. [More on this can be found in the RASB whitepaper.]
Now observe the double-entry:
Dr Cash
Cr Risk Accrual (Derecognition)
The balance sheet improves, not by hiding the risk, but by externalizing and funding it transparently. This isn’t securitization of fantasy assets; it’s risk transfer rooted in disclosure, standardization, and marketplace pricing. And because TRUs are based on quantified RUs, the pricing reflects actual risk levels — auditable, comparable, and reportable.
Far from conflicting with IFRS, 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.
This isn’t futuristic theory. The Risk Accounting Standards Board (RASB) 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.
What’s more, these practices speak to broader changes in regulation. As ESG mandates tighten — through mechanisms like CSRD in Europe — firms will be held accountable not just for emissions, but for risk readiness. That includes recognizing 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.
So what does it mean for ethics? Quite a lot. Ethics in accounting has long centered 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 crystallize — and empower markets to price those risks intelligently.
Yes, there are complexities. Risk accruals must eventually crystalize or reverse. Tokenization 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.
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.
Because the future won’t wait until year-end to reveal its risks — and neither should we.
“A sustainable financial view doesn’t distort reality — it reflects it.”
Steve Bailey FCCA, Chairman, Risk Accounting Standards Board