Case study: Externalities Accounting and AIR Financial Statements

Assignment: Externalities Accounting and AIR Financial Statements (Based on Multi-Entry Accounting and Integrated Reporting) https://www.emerald.com/jaar/article/27/6/47/1346076/Externalities-accounting-hexalogy-Multi-entry

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Group max up to 4 people minim 2 people

Dealine : 20 May 2026

Delivery via the forms

https://forms.office.com/e/Ntbrm5QL1N

Only report deliver via mail to:

piotr.staszkiewicz@mail.com

• (please sent one e-mail for the entire team listing all authors and theier affilatiion, contribution and AI disclosure at the fornt page of the report)

1. Assignment Context

This assignment is based on the paper:

“Externalities accounting hexalogy. Multi-entry mechanism model for adjusted integrated reporting” (Journal of Applied Accounting Research)

The paper proposes extending traditional double-entry accounting into a multi-entry system, where:

Financial transactions are supplemented with externality entries Externalities reflect social and environmental impacts Accounting evolves toward Adjusted Integrated Reporting (AIR)

Students are expected to critically engage with this model, not merely reproduce it.

2. Learning Objectives

By completing this assignment, you should be able to:

• Understand the concept of multi-entry accounting
• Apply externality valuation (E-values) in accounting systems
• Construct AIR financial statements
• Evaluate ESG performance using quantified externalities
• Explore integration with digital reporting systems (XBRL, e-invoicing)

3. Task Overview

You are required to design and simulate a monthly accounting system for a fictional or real company that includes:

Part A — Journal Entries

Generate up to 1000 accounting journal entries (minimum: 50 for basic pass) Each entry must include:

• Debit and credit accounts
• Monetary value (€)
• Assigned externality value (E-value)

Part B — Externality Framework

Define your own E-value judgment methodology, including:

• What constitutes positive externalities (E-output)
• What constitutes negative externalities (E-input)
• How values are calculated (e.g., carbon pricing, social impact)

You must clearly justify your assumptions.

Part C — AIR Financial Statements

Using your dataset, prepare:

• Adjusted Income Statement (AIR) Optional:
• Externalities Balance Sheet
• Value Flow Statement

Your AIR statement should integrate:

• Financial profit/loss
• External impacts (E-input and E-output)

Part D — ESG Evaluation

Assess your company’s performance in:

• Environmental (E)
• Social (S)
• Governance (G)

Part E — Comparative Analysis

Compare your AIR results with either:

• A real company’s integrated report, or
• A peer company (real or fictional)

Focus on:

• Differences in ESG representation
• Strengths and limitations of AIR

4. Advanced Component (for High Distinction)

Students aiming for the highest marks should additionally:

• Integrate Digital Reporting Systems

• Propose a conceptual system combining:

– EU Sustainability Reporting (ESRS / XBRL taxonomy) – Polish e-invoicing system (KSeF)

Your system should show how:

• Transaction data (e.g., invoices)
• ESG metrics
• Externalities (E-values)

can be integrated into a single reporting pipeline.

Prototype Requirement

You should:

Design a conceptual architecture (diagram or explanation) Simulate how data flows from: Transaction → Accounting → Externality layer → AIR statements

5. Important Conceptual Elements

Multi-entry accounting (core idea)

From the reference paper:

The multi-entry model extends accounting by incorporating additional entries that capture external effects beyond financial transactions.

You are expected to interpret and operationalize this idea—not copy it mechanically.

Externality Types

You may structure your model using:

E-input → negative impacts (e.g., emissions, waste) E-output → positive impacts (e.g., innovation, social value)

(E-throughput may be omitted unless you wish to extend the model)

6. Expected Output Structure

Your submission should include:

• Each author individidual contribution statement
• Each author individial use of AI scope statment (note please use GAIDeT: https://panbibliotekar.github.io/gaidet-declaration/)
• Introduction and assumptions
• Methodology for E-values
• Journal entry dataset (sample or full)
• AIR financial statements
• ESG evaluation
• Comparative analysis

(Optional) Advanced system design

7. Indicative Solution Directions (NOT definitive answers)

The following are possible approaches, not required ones:

Example directions students may take: Assign carbon costs using market-based pricing (e.g., €50/ton CO₂) Treat employee training as a positive externality Model community investment as social capital creation Show that: A financially unprofitable firm may become less negative or positive under AIR Demonstrate that AIR: Improves transparency But reduces comparability due to subjective valuations

For advanced work:

Map invoice data (KSeF) → ESG categories Use XBRL tags to structure sustainability metrics Simulate semi-automated AIR reporting

8. Critical Reflection Requirement

You must explicitly discuss:

The subjectivity problem in E-values Whether AIR improves decision-making Limitations of integrating ESG into accounting 9. Warning on Scope (Important)

⚠️ This assignment—especially the advanced version—is highly ambitious.

It reflects a current research frontier involving:

Accounting theory ESG regulation Digital reporting infrastructure

You are not expected to fully solve the problem, but to demonstrate:

Structured thinking Conceptual clarity Critical engagement

10. Key Reference

AIR - thoeretical concepts ESRS (EU Sustainability Reporting Standards) XBRL documentation KSeF system materials

11. Assessment Criteria

Criterion => Weight

• Conceptual understanding 25%
• Application (journal + AIR) 25%
• ESG analysis 15%
• Critical thinking 20%
• Advanced integration (optional) 15%

12. Final Note

This assignment is designed to push you beyond standard decision practice:

👉 From recording transactions 👉 Toward measuring total value impact

There is no single correct solution—only better or worse reasoning.