代写 Social and Environmental Accounting assignment
Topic 6: Extending Corporate
Accountability - Social and
Environmental Accounting
? Evaluate social and environmental accountability in terms of
theories underpinning its disclosure
? Explain the concept of sustainability and sustainable
development
? Use accounting theories to explain the decision by entities to
provide sustainability reports
? Identify and discuss the limitations of financial accounting with
respect to reporting environmental and social performance
? Describe the purpose and process of performing a social audit
? Critically evaluate sustainability reporting practices
? Deegan, Financial Accounting Theory, 4 th edition
◦Required reading: Chapter 9
◦Discussion Questions: 9.1, 9.2, 9.3, 9.9, 9.12, 9.24,
9.26, 9.28, 9.42, 9.44
? Sustainable development and sustainability reporting are
perceived as an increasingly important part of society’s
expectations with respect to corporate entities
? Sustainability reporting represents a departure from the sole
economic focus that was traditional in external reporting
? The terms sustainability reporting and triple bottom line
reporting (TBL) reporting are often considered to be synonymous
• However, sustainability reporting would require more than just
TBL reporting:
?TBL produces 3 separate bottom lines relating to economic,
social, and environmental performance in the current year
?Sustainability reporting would also address specifically how
current activities are impacting the abilities of future
generations to satisfy their own needs.
? Current TBL reports do not address such issues
? Social reporting – which is a component of CSR/sustainability
reporting – provides information about such things as:
• labour practices (e.g. occupational health and safety, training
and education, hiring policies - diversity and equal
opportunity, supplier labour polices)
• human rights performance (e.g. non-discrimination, freedom
of association and collective bargaining, child labour,
indigenous rights)
• ethics (e.g. bribery and corruption, ethical/fair trading)
• product responsibility performance (e.g. customer health and
safety)
• impact on local communities where firm conducts its
operations (e.g. donations/provision of community services
and facilities, hiring local staff)
? Environmental reporting – also a component of
CSR/sustainability reporting – provides information about such
things as:
? materials usage (e.g. sourcing policies - buying responsibly
from sustainable sources)
? recycling, waste minimisation
? carbon emissions, effluents
? energy usage
? water usage
? compliance with environmental regulations
? use and impact of transport
? protection of ecological resources/biodiversity
? If firms provide information about their social and environmental
performance, this implies that they believe they are accountable for
more than just their economic performance
• not a view held universally
? There is increasing community pressure for firms to make a
commitment to sustainable business practices
• corporate reporting is responding to this pressure
? If sustainability becomes part of the expectations held by society:
• it must, according to Legitimacy Theory, become a business goal
(or be perceived to be a business goal) to maintain legitimacy
? Providing information about social and environmental performance
will increase the trust a community has in the organisation
? Brundtland Report placed sustainability on the business
worldwide agenda
? Sustainable development defined as:
‘… development that meets the needs of the present world
without compromising the ability of future generations to
meet their own needs’ (World Commission on Environment
and Development, 1987)
? Inter-generational and intra-generational equity are central to the
agenda
? Should firms be responsible for the sustainability of their business
practices?
? Will they embrace this responsibility in the absence of specific
legislation?
? What do its relevant stakeholders consider business
responsibilities to be?
• Based on personal judgement of the management involved as
to who are the relevant stakeholders
• The information disclosed depends upon the perceived needs
of relevant stakeholders
• Perceived responsibility and accountability are closely
connected
? The duty to provide an account (not necessarily financial) or
reckoning of those actions for which one is held responsible
? Two responsibilities or duties:
•responsibility to undertake certain actions
•responsibility to provide an account of those actions
? Note the link to the ethical branch of Stakeholder Theory
? Many firms make public statements that their responsibilities
extend beyond shareholders to encompass communities in
which they operate and society as a whole
? If sustainability is embraced then responsibility is also owed to
future generations
? If a firm accepts responsibility for the sustainability of its
business practices, then it should produce an account of its
responsibilities:
• it should provide a sustainability report
? Stage 1: Why report?
• relates to management’s motivations
? Stage 2: To whom to report - who are the stakeholders?
• tied to managerial motivations for reporting - if motivations
are based on managerial reasoning, then disclosures could
be aimed at powerful stakeholders
? Stage 3: What to report?
• involves dialogue with identified stakeholders
? Stage 4: What format for the disclosures?
We will consider each of these stages in turn.
? Different accounting theories will provide alternative
explanations about why an entity might decide to report social
and environmental information
? Remember that most social and environmental reporting is
voluntary:
•therefore various positive theories can be used to explain and
predict the voluntary decision to report
? Different theories make different assumptions and therefore
will tend to give different explanations of the reporting
phenomena
? Legitimacy Theory and the Social Contract
• disclosures linked to providing evidence that the firm is
complying with expectations of society to maintain legitimacy
? Stakeholder Theory (Managerial branch)
• disclosure depends on expectations of powerful stakeholders
? Accountability Model (Ethical branch of Stakeholder Theory)
• an acceptance of an ethical responsibility to report
? Institutional Theory
• firms will adopt practices similar to other firms due to
institutional pressures (coercive and mimetic isomorphism)
? Positive Accounting Theory (discussed in Topic 4)
• disclosure depends on positive wealth implications
? Consider the views of Milton Friedman – reporting is not about
responsibilities; rather, it is about enhancing business profitability
• rejected the view that corporate managers have any moral obligations
• stated that ‘the business of business is business’
• responsibility of business is to increase profits as long as business stays
within the law
• this view is often reflected in the media, which applauds profitable firms
? Alternative view: regardless of the impacts of profitability, stakeholders have a
right to know about the social and environmental implications of a firm’s
operations
• firms are artificial entities that society chooses to create
• in return, firms must earn their right to operate in the community
• consequently firms are accountable to society for how they operate
• societal expectations may extend beyond profitability
• firms do not have an inherent right to resources
? Where do you think corporations sit in terms of the above views?
? Anita Roddick, founder of the Body Shop, made the following statement
(2007):
代写 Social and Environmental Accounting assignment
In terms of power and influence, you can forget the church,
forget politics. There is no more powerful institution in society
than business, which is why I believe it is now more important
than ever before for business to assume a moral leadership. The
business of business should not be about money, it should be
about responsibility. It should be about public good, not private
greed.
? Consider how Roddick’s view contrasts with Milton Friedman or with the
statement made by the Business Council of Australia (2005):
The litmus test for any activity or responsibility is whether the
performance of that activity or responsibility can reasonably be
seen to be contributing to the growth of shareholder value.
? This depends on why the firm is producing social and environmental
disclosures:
• it is emphasised that the decision of whom to report to is
directly related to the previous issue of ‘why report?’
• one cannot be considered in isolation from the other
? If managers overwhelmingly motivated by the desire to increase
shareholder value, then reporting will be aimed primarily at
satisfying the expectations of powerful stakeholders
? If, by contrast, managers accept a broader ethical perspective then
disclosures would be aimed at all stakeholders impacted by the
operations of the entity
• but it is not possible to address all information needs, so some
prioritisation will be necessary
? This depends on both why the firm is producing social and
environmental disclosures, and to whom they are reporting:
• Firstly, establish that there is a demand for information
• Identify information needs of stakeholders through dialogue
• Negotiate a consensus among competing stakeholder needs
and expectations
?This may involve assessing how important the disclosure is
to identified stakeholders.
? Conventional financial accounting does not appear to provide a
foundation for social and environmental disclosures
? Triple bottom line reporting (economic, social, environment), is
an alternative
• but not the same as sustainability reporting
• a true sustainability report would consider issues such as the
carrying capacity of the ecosystem, impacts on future
generations, etc.
? An attempt can also be made to place a cost on the externalities
of business
• ‘externalities’ are various impacts caused by the entity’s
operations, but do not result in a financial cost to the entity
? e.g. pollution, habitat destruction, loss of small businesses
? For the following reasons, financial accounting is not seen as a useful
vehicle for promoting social and environmental disclosures:
? financial accounting focuses primarily on the information needs of
investors and lenders/creditors involved in economic resource
allocation decisions
? sustainability concerns all stakeholders
? the notion of ‘materiality’ tends to preclude the reporting of social and
environmental information
? it is very difficult to quantify the social and environmental costs and
benefits
? future clean-up expenditures will be incurred a long time into the
future:
? when discounted to present value, they become a trivial amount
? but it could be argued that social and environmental information is
material in nature, due to their potential future impact on the firm
? Financial accounting adopts an entity assumption
• transactions not directly impacting on the entity’s resources are
ignored
• externalities caused by the reporting entity are also ignored
• sustainability and the ‘entity assumption’ are mutually exclusive
? Expenses are defined to exclude the recognition of any impacts on
resources not controlled by the reporting entity
• the recognition of expenses relies upon the using up of assets
• assets are defined in terms of ‘control’
? hence if something is not controlled by the entity, such as the
environment, then it is not an asset of the entity, and the entity’s
impact on the environment is not an expense
? Externalities caused by the entity cannot be reliably measured, and so
typically are not recognised given the recognition criteria in the IASB
Framework
? Economic performance of governments is related to outputs of
systems of national accounts
• e.g. Gross Domestic Product (GDP): “The monetary value of all
the finished goods and services produced within a country's borders
in a specific time period”
http://www.investopedia.com/terms/g/gdp.asp#ixzz1sU98KVJM
• GDP does not consider social and environmental issues, such as
equity of how resources are distributed, how efficiently
resources are used, impact on environment
• Bhutan – Gross National Happiness (GNH)
• an alternative to GDP?
• http://www.grossnationalhappiness.com/wp-
content/uploads/2012/04/Short-GNH-Index-edited.pdf
? Experiments taking place to measure ‘Green’ GDP
• envisaged that a Green GDP will include environmental impacts
? The Global Reporting Initiative (GRI) is a non-profit organisation established
in 1997 that promotes economic, environmental and social sustainability. GRI
provides all companies and organisations with a comprehensive sustainability
reporting framework that is widely used around the world.
https://www.globalreporting.org/Information/about-gri/Pages/default.aspx
? The GRI Sustainability Reporting Guidelines is the most comprehensive
framework for ‘how to report’ that is currently available – fourth version, G4,
released in 2013
https://www.globalreporting.org/resourcelibrary/GRIG4-Part1-Reporting-
Principles-and-Standard-Disclosures.pdf
? Made up of various performance indicators
? GRI Guidelines are not mandatory. Organisations can elect to comply with
either the ‘Core’ guidelines or ‘Comprehensive’ guidelines
? Apart from the GRI, a number of other organisations have produced reporting
guidelines
? Integrated reporting refers to an annual report which combines
financial, environmental, social and governance information into
one integrated report
? South Africa introduced Integrated Reporting for financial years
commencing on or after 01 March 2010
? International Integrated Reporting Committee (IIRC) was
established in 2010, with the aim of:
? creating a globally accepted framework which combines together
financial, environmental, social and governance information into
one integrated report, in a clear, concise, consistent and
comparable format
? On 9 December 2013, the IIRC published its Integrated Reporting
Framework
http://www.theiirc.org/wp-content/uploads/2013/12/13-12-08-THE-
INTERNATIONAL-IR-FRAMEWORK-2-1.pdf
The aims of IIRC’s Integrated Reporting Framework are to:
? Improve the quality of information available to providers of financial
capital to enable a more efficient and productive allocation of capital
? Promote a more cohesive and efficient approach to corporate reporting
that draws on different reporting strands and communicates the full
range of factors that materially affect the ability of an organization to
create value over time
? Enhance accountability and stewardship for the broad base of capitals,
(financial, manufactured, intellectual, human, social and
relationship, and natural), and promote understanding of their
interdependencies
? Support integrated thinking, decision-making and actions that focus on
the creation of value over the short, medium and long term
Principles-based Approach
? The IIRC’s Framework has adopted a principles-based approach, setting
out principles and concepts as the basis for Integrated Reporting, rather
than detailed disclosure requirements (IIRC Framework, Section 1D)
? IIRC Framework identifies six different forms of capital that a
firm possesses: financial, manufactured, intellectual, human,
social and relationship, and natural
•Natural capital includes air, water, land, minerals and forests;
biodiversity and ecosystem health
? In the course of value creation, these forms of capital may be
increased or decreased, or transformed as a result of the firm’s
activities
•One form of capital could be increased at the expense of other
forms of capital (IIRC Framework, Section 2C)
? IIRC Framework’s approach provides more holistic perspective
to business (and investment) decision making, business
management, and value creation, over the short and long term, as
opposed to the more limited approach of focusing on financial
capital, and short term performance (profits)
? The IIRC’s Framework has a narrow focus, focusing on:
• investors and lenders/creditors, ignoring other stakeholders
• value creation for investors, rather than accountability for all
stakeholders
? The IIRC “is a global coalition of regulators, investors, companies,
standard setters, the accounting profession and NGOs” (IIRC
Framework, About the IIRC)
• The IIRC reflects the vested interests of large scale companies,
investors, and other groups closely with associated companies and
investors
? Therefore the IIRC Framework reflects their vested interests of
enhancing corporate value
• The IIRC does not represent the broader interests of other
stakeholders, such as employees/unions, customers/consumer groups,
local communities, environmental groups
? Therefore the IIRC Framework does not reflect the broader interests
? of these other stakeholders
? Financial accounting typically ignores environmental impacts
• Experimental approaches to full-cost profit calculation, by including cost
of externalities, are being developed by some firms (Deegan, p.463-471)
? Market prices do not reflect the finite supply of resources involved or
harm resources cause
? Perception that all costs associated with the production of goods or
services, (including use of ‘the environment’), should be reflected in the
price of the goods or services
• The practice of ‘under-pricing’ the environment leads to over use, and
damage to the environment
• If done comprehensively would involve complete life-cycle analysis,
involving consideration of all inputs and outputs from raw material
acquisition to disposal
• Often referred to as ‘true prices’ or ‘true costs’
? A number of researchers are attempting to develop approaches to
place a cost on the social and environmental impacts of organisations
– still very experimental
? For example, Gray and Bebbington (1992, p.15) state:
• … sustainable cost can be defined as the amount an organisation
must spend to put the biosphere at the end of the accounting period
back into the state (or its equivalent) it was in at the beginning of
the accounting period. Such a figure would be a notional one, and
disclosed as a charge to a company’s profit and loss account. Thus
we would be presented with a broad estimate of the extent to which
the accounting profits had been generated from a sustainable
source … our estimates suggest that the sustainable cost
calculations would produce the sort of answer which would
demonstrate that no Western company had made a profit of any
kind in the last 50 years or so.
? Global climate change is attributable to the actions of humans
causing an increase in natural gases (e.g. CO 2 ) in the Earth’s
atmosphere
• results in a greenhouse effect where infra-red radiation from
the sun warms the Earth
• these gases prevent the heat from escaping the Earth’s
atmosphere
? Carbon Emissions Trading schemes are a market-based
approach by governments to address carbon emissions
? They can be used by governments to provide firms with
economic incentives to reduce their carbon emissions
• but if the market price of emission allowances is low, firms are
encouraged to pollute because the cost of purchasing emission
allowances is cheaper than investing in technology to reduce
emissions
? Cap and Trade schemes entail a government or regulatory body
setting a national target (a ‘cap’) for the maximum emissions
permitted for a specific time period, (e.g. carbon emissions
permitted over one year)
? This national target is divided into units, and either allocated to
participating firms (based on a formula including past emissions)
or auctioned
? Firms can then trade their emissions allowances:
• Firms which emit less their allowance/target can sell excess allowances
• Firms which emit more than their target/allowance must buy additional
allowances (or incur substantial fines)
• Firms may also be permitted to ‘bank’ their excess allowances to be used
in future years
• Allowances may be traded on an organised market
? A Cap and Trade scheme acts to internalise costs which were
previously externalities (and therefore not included in firms’
financial accounting)
? Classification of emission rights – Intangible asset?
? Measurement of emission rights – Cost or fair value?
? Accounting for increases and decreases in the fair value of emission
rights – in profit or loss or other comprehensive income?
? Accounting for impairment of emission rights
? When to recognise revenues and expenses relating to emission rights?
? Positive Accounting Theory (discussed in topic 4) can explain
accounting policy choices by firms
? In May 2012, the IASB added Emissions Trading Schemes to its
agenda
? Theories of regulation (discussed in topic 2) can explain lobbying
behaviour by firms relating to emissions trading
? http://www.ifrs.org/Current-Projects/IASB-Projects/Emission-Trading-
Schemes/Pages/Discussion-and-papers.aspx
? Purpose of social auditing is for an organisation to assess its
performance in relation to society’s requirements and
expectations
? Results form the basis of an entity’s publicly released social
accounts, which in themselves are often incorporated into a triple
bottom line or sustainability report
? Consider the Body Shop’s 2011-2013 social performance report
which is based on their social audit (performed every two years)
• http://viewer.zmags.co.uk/publication/61c41367#/61c41367/1
? Released in 1998 (last revised in 2014) by the Social Accountability
International, a US body
• SA8000 – focuses on social issues including human rights, health and
safety, and equal opportunities
• http://www.sa-
intl.org/_data/n_0001/resources/live/SA8000%20Standard%202014.pdf
? In 1999 (last revised 2008) AccountAbility launched AA1000 series of
standards
• provides operational guidance on setting up and operating social and
ethical accounting and auditing systems
• Includes AA1000 Accountability, Assurance, and Stakeholder
Engagement standards
• http://www.accountability.org/standards/index.html
An article appearing in the Independent newspaper (UK, 18 April
2005, p.20) entitled ‘The ethical revolution sweeping through the
world’s sweatshops’ identified how organisations such as Nike and
Gap had put in place various mechanisms to help ensure
improvement in the conditions of factory workers. In relation to the
responses of Nike and Gap:
a) Why do you think that companies like Nike and Gap responded to
community concerns?
b) Is this a case of enlightened self-interest or a case of a company
embracing a form of responsibility to the stakeholders affected by
its operations?
? Social and environmental reporting is a rapidly evolving area
? Only 20 years ago, almost no companies were producing social
and/or environmental reports
? Now many large listed companies are providing such reports
? As concerns for global warming, social justice and
environmental protection increase we can expect this form of
reporting to continually evolve
? It is increasingly important for accountants to be
aware of the issues surrounding sustainability
reporting as demand for social and environmental
accountability grows
? In an era of international capital, when our wealth is more than
ever tied up in its fortunes, and at a time when corporations,
governments and financial institutions are demonstrating their
fallibility on a global scale, it is essential that we are aware of
the somewhat arbitrary laws of account that govern them -
especially because it is in the labyrinthine workings of our
accounting systems that value itself is assigned…In one way or
another, this century will be the one in which we learn to
account for our planet. Because unless we start accounting for
our transactions with the earth, we will bankrupt it for all
future human habitation.
(Jane Gleeson-White, 2011, pp. 253-254)
RMIT University©2014 37
You should be able to:
? Evaluate social and environmental accountability in terms of
theories underpinning its disclosure
? Explain the concept of sustainability and sustainable development
? Use accounting theories to explain the decision by entities to
provide sustainability reports
? Identify and discuss the limitations of financial accounting with
respect to reporting environmental and social performance
? Describe the purpose and process of performing a social audit
? Critically evaluate sustainability reporting practices
? Discussion Questions: 9.1, 9.2, 9.3, 9.9, 9.12, 9.24, 9.26, 9.28,
9.42, 9.44
RMIT University©2014 38
? Read:
• Deegan, Financial Accounting Theory, 4 th edition,
Chapter 10
? Attempt Discussion Questions:
• Ch 10: 10.1, 10.6, 10.7, 10.9, 10.20, 10.25, 10.28, 10.29
? Check your answers against the solutions
RMIT University©2014 39
