ACT 4191: Accounting Theory and Practice

1. ACT 4191: Accounting Theory and Practice Group 1 Chapter 19: Social and Environmental Reporting Lecturer: Dr. Hasri Mustafa Group members Matric No. Sasidaran Selladurai 124889 Thenmoly Mariapan 122045 Toh Sui Yen 127115 Issac Thomas 122095 Sasikala Ramu 123536

2. What is Social & Environmental reporting?

3. Traditional accounting are based on: • The accounting entity • Financial measurement of economic events • A defined set of user concerned bout the financial performance of the entity Constraints and are inadequate in nowadays since social and environmental reporting are debated

4. Gray, Owen & Adam Social Accounting is combination of: • Guthrie & Parker Social Accounting should serve 3 major purposes:

5. Sustainable Entity • Eco-efficiency • environmental-oriented & aims to improve performance while reducing impact on environment • Eco-justice • Concerned with social equality; * INTRAgenerational Equity * INTERgenerational Equity

6. What Motivates Corporate Social Responsibility?

7. What Motivates Corporate Social Responsibility? • Legal Regulations and Management Accountability • Intervention by government • Tax deductions • Strict regulations • Penalties in form of imprisonment and fines

8. What Motivates Corporate Social Responsibility? (Cont’d) • Shareholder Activism • Increased attention from shareholders • E.g: Questions to management at AGM

9. A Theoretical Framework for Corporate Social Responsibility

10. The Social Contract • to explain the boundaries of acceptable interaction between participants with society • Explain power of government by conceptualizing a theoretical contract drawn up among individuals • based on the idea of justice for individual within society • Corporate management’s responsiveness on social and environmental issue is bound by the implicit boundaries of the social contract

11. Organizational Legitimacy • condition or status which exists when an entity’s value system is congruent with the value system • features of legitimacy - It is not synonymous with economic success or legality - It is determined to exist when the organization goals, output, and method of operation are in conformance with societal norms and values - It’s challenges related to the size of the organization and to the amount of social and political support if receives - It’s challenges may involve legal, political or social sanction

12. Four Strategies of Legitimacy • Educate and inform its relevant public regarding the organization performance and activities. • Change the publics’ perception without changing the organizations actual behavior. • Manipulate the perception by deflecting attention from issue concern to other related issue. • Change external expectation of its performance

13. Political Economy Theory • Alternative way in observing social and environmental reporting • Require a greater interplay of information between the firm and external parties. • This theory suggest that: - accounting systems act as mechanisms used to create, distribute and mystify power - accounting report serves as a tools for construction, sustaining and legitimacy economic and political arrangement

14. Social and Environmental Reporting

15. Mandatory Reporting of Social and Environmental Information • ACCOUNTING STANDARDS • Contingent Liabilities • Corporations Act • Voluntary Reporting • Environmental Reporting • Social reporting • The sustainability report • Web-based corporate reporting

16. Guidelines for Voluntary Environmental Disclose 1.Decide objectives 2. Taking the decision to report 3. Identify Priority Audiences 4. Audience needs/expectations 5. Plan Content and Structure

17. Guidelines for voluntary environmental disclose (Cont’d) 6. Information/data gathering 7. Drafting and data processing 8. Design and production 9. Verification 10. Dissemination Strategies 11. Feedback

18. Accounting and Reporting Issues

19. Triple bottom-line reporting and accounting • Reporting on • economic • environmental • social • Consider the “cost” of operations on the environment and society

20. The Entity Concept • Triple bottom-line reporting - development of FULL COST accounting for impact on environment and society • Example: impact of CO2 emissions from an industrial site would be accounted for only to the extent of costs associated with licensing, monitoring, emission reduction, fines and penalties, and plant shutdown due to breaches of licensing conditions • The contribution to global warming – “externality”

21. Lifecycle analysis • ‘gate-to-gate’ analysis • Purpose • to provide more complete understanding of interdependence and interactions between business, society and environment • identification of all relevant costs • Lifecycle analysis costs may be classified as 1. Conventional costs 2. Liability costs 3. Environmental costs (examples : refer to table 19.3, pg 650)

22. Measurement • Social and environmental issues are tend to be qualitative, not financial • Two arguments 1. The argument against the valuation 2. The argument for the valuation • Balanced score card

23. Stakeholders and the reporting medium • Stakeholders – who is concern with financial performance of entity • Reporting medium – reporting used to distribute information to users and communicate between two group of people • To extend reporting process, the entity may identify • the potential stakeholders who want information on performance • the information these stakeholders require • the form for reporting information • the best way to disseminate information to stakeholders

24. Conclusion • The concept of sustainability provides a foundation of understanding the reporting of social and environmental information. • Social and environmental reporting has remained predominantly a voluntary undertaking by organizations. • The social contract is used as a means of conceptualizing the interaction between the organization and broader community, and raises the concept of boundaries of behavior. • Organization legitimacy is introduced to show how reporting information can be a part of justifying the existence of the firm. • More commonly by providing guidelines for voluntary reporting. • A number of significant problems when considering the accounting for social and environmental issues.

25. Issues…

26. Thank You!!!