代写 Social and Environmental Accounting assignment

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  • 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
     
    代写 Social and Environmental Accounting assignment