SEMSTER 1 – YEAR 2011
AFW 3040 – ACCOUNTING THEORY
BY: SARAH WONG
Assignment 2 – 1500-word Essay
Topic: How social and environmental reporting practices undertaken by companies highlight the limitations of the conceptual framework. Introduction:
Accountancy has always been concerned with mainly the accountability of directors to shareholders and companies to creditors. As companies grow larger and become more integrated with the society, this call for a focus towards sustainability and being accountable to a wider range of stakeholders (Perks, 1993). Corporate Social Responsibility is defined as a concept whereby companies integrate social and environmental concerns in their business operations by going beyond compliance and investing into human capital, environment and the relations with stakeholders (Commission of European Communities, 2001). The convergence of global capital markets has led both international and national accountants in both financial reporting and auditing fields to concentrate on capital market focused convergence issues which include the exclusion from explicit consideration of social, environmental and sustainable development issues. The ability of the environment to supply raw materials and incorporate waste while maintaining biodiversity and upholding the quality of life has been increasingly intricate (Welford, 1995). Conventionally, the corporate view has been based on the GDP indicator which promotes an increase in output which will lead to an increase in income. For small companies, a simple environmental reporting framework which focuses on energy, water, waste and carbon dioxide emissions can be linked to the taxation system which rewards the efficient companies. The substitute view on an increase in awareness relates to improving corporate image with various stakeholders (Adams, 2002). Adams emphasized on the strength of public pressure and image benefits of responding to these issues as demonstrating leadership. Key environmental, social and sustainability indicators are presented to shareholders and stakeholders in the statutory annual report and accounts package. Therefore, this essay attempts to explain the practices undertaken by companies and the regulation of social and environmental reporting. Besides that, it also explains the development of triple bottom line reporting and how it impacts the preparation of financial reports and the conceptual framework. Development of triple bottom line reporting and sustainability reporting: Triple bottom line (3BL) reporting is defined as reporting that provides information about the economic, environmental and social performance of an entity (Elkington, 1997). It is the deviation of traditional accounting which only focuses on the financial matters as 3BL includes social and environmental performance reporting. 3BL accounting was assumed to be created by Elkington in mid 1990s and is being accepted over the years. Many large companies such as AT&T, Shell, Nike and BHP have started using 3BL in their annual reports (Norman & McDonald, 2004). Big Australian industry bodies such as the Business Council of Australia, the Institute of Chartered Accounts and other professional and representative groups have also been placing a high emphasis on 3BL by issuing major documents related to sustainable development and 3BL reporting (Group of 100 Incorporated, 2003). The development of 3BL accounting is closely tied to seven linked revolutions which are markets, values, transparency, life-cycle technology, partnership, time and corporate governance. Markets:
There has been an increase in the number of companies established in the society with limited resources available. These companies find themselves being challenged by customers and the financial markets about their 3BL commitments and performance. With so many companies producing similar products it is a competitive advantage to be competitive and meet the...