Organizational Boundaries

Organizational boundaries play a crucial role in defining the scope of an organization’s impact assessment. Accurately delineating organizational boundaries becomes essential for effective accounting. This process not only aids in identifying the direct and indirect effects of an organization's operations but also supports the development of targeted strategies for reducing waste footprints.

Organizational boundaries define the limits of an organization’s structure.

Organizational Nodes

Defining the organizational boundaries within the framework is the first step in waste accounting. These boundaries delineate how an organization encompasses its internal units, whether they are distinct legal entities, joint ventures, or any form of organizational collaboration. It is essential to recognize and accurately define these units to ensure that the waste accounting encompasses all relevant aspects.

Organizational units are the legally identifiable forms of collaboration that contribute to an organization’s overall waste footprint.

Consolidation Approach

Organizations can have varying structures, and must always have an approach to consistently consolidate their waste events at all levels. While the use of the economic substance approach is consistent with international financial reporting standards, organizations can build their own consolidating approach using other criteria. One key consideration is to assess the regulatory requirements of the jurisdictions in which it operates. Consolidation approaches can be designed by applying one or a combination of the following criteria:

Criteria	Definition	Accounting
Economic Substance	Percentage of economic interest in operations.	Interest %
Legal Ownership	Share equity in operations.	Equity %
Operational Control	Authority to introduce operational changes in the operations.	Vote %
Financial Control	Authority to direct financial policies to their own benefit in the operations.	Vote %

Edge Cases & Guidelines

The considerations listed below are intended to serve as a foundation for organizations to develop consistent, flexible, and transparent consolidation approaches. They take into account the need for uniformity in reporting within an organization, the adaptability required to address the unique aspects of different scenarios, and the necessity for clarity in joint operations and state partnerships. Through these guidelines, organizations are encouraged to refine their accounting practices.

• Consolidation Consistency. Consolidation of waste events at a certain level can only be done if all its branches follow the same approach.
• Multiple Criteria Flexibility. Organizations may choose to apply one or many criteria to create custom approaches. For most cases, a single criterion is enough, but there are exceptions where complexity demands a tailored formula.
• Multiple Consolidations. Reporting to multiple entities may require more than one consolidation approach. Each of such cases should be treated independently and is non-comparable.
• State Ownership. The rules provided can also be applied to account for waste events from joint operations that involve state ownership or a mix of private/state ownership.
• Joint Operations. Two or more organizations can hold interests in the same joint operation and use different consolidation approaches. This does not matter in voluntary frameworks as long as there is adequate disclosure from the organization on its consolidation approach. However, multiple counting needs to be avoided in trading schemes and mandatory government programs.
• Contracts Covering Waste Responsibility. To clarify waste responsibility issues, organizations may draw up contracts between the parties that cover these topics. Where such arrangements exist, organizations may be relieved from or bound to the corresponding responsibilities and fulfillment claims.