Advanced Accounting Theory and Practice - Essay Example

ADVANCED ACCOUNTING THEORY AND PRACTICE By Advanced Accounting Theory and Practice Abstract The key idea motivating the concept of corporate social responsibility, especially in terms of social and environmental reporting is the enhancement of the corporate image, as well as the credibility among concerned stakeholders. This statement is very true as proven by the following discussion. Discussion Corporate [social and environmental] reporting is essentially known as corporate social responsibility and it refer to a situation where management of a company decides to communicate all various stakeholders in the company such as community, employees, customers, lenders and suppliers. The community demand corporate social responsibilities especially in matters relating to greening of environment, cleaning of cities and financing of new social based projects such as boreholes. Given that environmental based accounting accounts for a large proportion of company financial resources, there is an increased need for prudent corporate [social and environmental] reporting. Essentially, the last two decades have seen an increased number of corporate based institutions disclose vital environmental accounting information. The report entails number of projects financed, thesocietalreaction, financial resources used, challengesfaced, future environmental strategies, recorded results and reaction of all stakeholders towards the environmental reporting process. The aim of this paper is to argue on whether Adam (2002) statement was correct when he stated that the main motivation for any social and environmental corporate reporting is to enhance corporate credibility and image with various stakeholders such as employees, society, creditors, debtors among others. Essentially relied on various accounting theories to agree or refuse truth behind the statement. In most cases, any social and environmental reporting involves the management structures, functional and social based structures and the culture of organization towards the reporting matters. The main reasons for any organization to implement prudent environmental reporting are that all organizations are vital system that affects life of all stakeholders socially, either economically or politically. In most cases, organizations that have strong societal based relationship tend to have strong influential impact because of the positive image. Immediately, the stakeholders receive trust worthy information from reported statement, there is a tendency to create a high credible environment for the corporate institution. This statement was substantiated based on accounting theories such as stakeholder, accountability, legitimacy and political-economic theories of accounting. The stakeholders include community, shareholders, lenders and creditors and they are eager to secure accountable, prudent and complete and trust worthy information from the social and environmental based accounting reports. In most cases, accountability involves two things; first, the managers must be responsible in all information provided to the stakeholders (Adams, 2002). Secondly, they should be in a position to account for the financial resources used in environmental based accounting projects. The main accounting theories that argue about social and environmental corporate reporting enhancing corporate credibility and image with various stakeholders include stakeholder theory requires full disclosure of all accounting information to the stakeholders. Thestakeholders require such information for different purposes. It is right for the stakeholders to know how financial resources are spent especially on social based needs. Essentially the main interest party includes society and shareholders. The society is obliged to know how much the corporate used in supporting different projects such as schools and hospital. In most cases, companies pollute environment and impact on different social activities hence they should give back to the society (Moir, 2001). Secondly, shareholders demand such information to know how much of what they invested go to society and environment. If the organization fails to provide adequate information that promotes image, there are chances that the shareholders fail to support such future projects. Therefore, if any organization needs future shareholder and societal support, it must provide credible social and environmental accounting reports. In addition to that, other stakeholders such as creditors use such reports to make a decision on whether to finance the corporate in time of financial difficulties. Secondly, there is legitimacy theory, which reveals that most organizations will seek to find out a connection between the social based values and the implied company activities. Moreover, the company culture and society will be established in order to create a market for products. However, it is argued that all organizations strive to tap only accepted code of behavior because it will create a positive image and credibility before the eyes of all stakeholders. The theory requires corporates to provide credible and prudent information about social and environmental based statements (Meryl-Davies et al 2011). Third, political economy based accounting theory requiresall environmental and social reports viewed as political, social and economic documents. This means that they touch all circles of business life, shareholders desire and society wishes.Therefore,it should be noted that environmental based reporting is an essential factor in sustaining, creating and ensuring that financial resources are utilized prudently and credibility such that society benefits to the maximum. Managers and shareholders are politically driven to have own stake achieved. Thetheory reveals that prudent environmental report help the company to create credible environment that help in ensuring that different stakeholders values the company and have strong belief in services or good provided. In most cases, a positive corporate image reveals that the company operates in honest environment here the rights of all stakeholders and resources are maximally used (Hooghiemstra, 2000). In addition to that, positive accounting theory drafted by Watts and Zimmerman in 2006 reveals that environmental and social reporting help corporate organization to meet self-interest. Theself-interest involves credibility and positive image. Any organization must provide such reports in order to avoid breaching that contract entered between it and other stakeholders such as managers’ suppliers and employees. If the contracts are breached, company reputation become worse and there is a chance to create conflict of interest. A conflict between the parties means no maximization of company resources hence a reflection of poor performance. In order to motivate the shareholders and other stakeholders, a plea has been made to meet the objective of prudent environmental reporting. Moreover, companies enjoying credibility and positive image remains to enjoy low operation costs and high revenue creation. Essentially, thereis factlittle litigations are raised against the corporate from taxpayers and society at large (Brennan, et al 2013). Lastly, Green accounting theory was one of the theories that Adams (2002) used to make the statement that motivational social and environmental reporting enhances credibility and image of the corporate before stakeholders. This theory is a new genesis to accounting era where one of the main functions of accountant is to report about ecology and how it should be controlled, maintained and used towards environmental problem reduction. The accountant and other financial analyst must report what was spending on environmental sustainability because some of the stakeholders such as society view environment as part of the business. Some companies such as Xerox; an agro-chemical company attempted to introduce green accounting and currently, it is one of those few companies found to thrive in high positive image before stakeholders. Thetheory allows financial reporters disclose all financial resources diverted to environmental reporting. This is in tandem to generally accepted accounting principles because all resources used from company profit or fixed investments must be disclosed to all stakeholders. Green accounting theory is based on three natural principles. First, there is resource productivity, which means that managers should not separate environment from business. Therefore, various resources should be diverted to the environment just like in business. Itargued that most of environmental inefficient such as water pollution and land degradation are because of business and hence, corporate must spent on society (Babington et al, 2008). Second, Ecological based redesign principle reveals that there is an ever-growing pressure from the society to have a share from corporate profit. The share should be diverted to environmental and social activities such as tree planting and boreholes. Therefore, it is vital to report all environmental and social diverted resources in line to general accepted accounting principles. Lastly, service and flow call for reprocess and reusing of various resources such as papers instead of dumping to environment. Therefore, in summary form, these principles reveals business and environment should go hand to hand and each of them must complement the other in terms of resources. This will motivate stakeholders because they can see a change and high level of credibility on resource utilization. Essentially, social and environmental reporting reflect accountability, honesty and responsible based accounting because the stakeholders such as shareholders, lenders and others can testify how much resources has been spend on land degradation, tree planting, digging borehole or providing medical and fool supplies to neighboring society. The various theories discussed above reveals that those corporate take advantages of social and environmental accounting create a solid positive image before society and hence highly trusted. Moreover, the company goes to an extent of making more profits meaning a benefit to shareholders. Prudent environmental and social reporting is however termed as a motivation to stakeholders so that they can finance the corporate, reduce environmental conflicts or provide any other essential support needed (Thorne, et al 2014). As revealed in the political and economic accounting theory, all these reports touch on economic performance and hence, every stakeholder must be eager to know how much was spend on environment and social world. Therefore, I agree with the statement that main motivation of social and environmental corporate reporting is to enhance corporate credibility and image with various stakeholders. Conclusion In summary, the various accounting theories coupled with philosophical understanding of how corporate operate reveal that the statement “main motivation of social and environmental corporate reporting is to enhance corporate credibility and image with various stakeholders must be correct. “These reports provide information on how financial resources from certain stakeholders such as shareholders and creditors go to environment and benefit others such as community. Therefore, the society and shareholders are eager to know how much spend on environment and social needs. Reference List Adams, C. (2002), Internal organizational factors influencing corporate social and ethical reporting beyond theorizing, Accounting, Auditing, and Accountability Journal, Vol. 15 No. 2, pp. 223-250. Babington, J., Larringa-Gonzalez, C., and Moneva, J. (2008), Corporate social responsibility reporting and reputation risk management. 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M. and Brennan, N. M. (2011), A Conceptual Framework of Impression Management: New insights from psychology, sociology, and critical perspectives, Accounting and Business Research, Vol. 41 No. 5, pp. 415-437. Moir, L. (2001), What do we mean by corporate social responsibility? Corporate Governance, Vol. 1 No. 2, pp. 16-22. Thorne, L., Mahoney, L.S. and Manetti, G. (2014), Motivations for issuing standalone CSR reports: a survey of Canadian firms, Accounting, Auditing, and Accountability Journal, Vol. 27 No. 4, pp. 686-714. Read More