International Financial Accounting and Social and Environmental Theory - Essay Example

?Running head: International Financial Accounting and Social and Environmental Theory International Financial Accounting and Social and EnvironmentalTheory Insert Name Insert Grade Course Insert Tutor’s Name 18 November 2011 Outline Introduction Development of Accounting Practices Social and Environmental Influences Conclusion International Financial Accounting and Social and Environmental Theory Introduction Social and environmental theory in financial accounting attempts to outline how information stakeholders and social environments are interrelated. The society can include institutions, social groups, shareholders of organizations, cultures and the society in general. The role of stakeholders in the society, which involves collective contributions by individuals, is the focal point of financial accounting, social and environmental theory. The primary issue concerning social and environmental theory is the way the society determines developments, goals, and innovations in accounting practice. It is generally agreeable that the society and environment in which accounting practices are applicable affects its development to some extent. However, the extent and the framework with which the social and environmental theory has influenced current accounting practices is a matter of dispute. Actors in this theory are the members of society being users, accountants, and generally stakeholders of accounting practices. Development of Accounting Practices Stakeholders in the society are considered to have control over accounting practices, their developments, and the directions in which such developments take place, to some extent within a given social setting. The influence of practices and developments is referred to as agency, where stakeholders in the society have the ability to influence accounting practices toward attaining some end. The level of accounting practices largely depends upon the kind of environment those stakeholders come from. Social and environmental structures are the interactions of stakeholders with societal cultures and norms that define them. The structures range from those of family setting, organizational and a country in general. It is agreeable that developments, innovations, and the general progress of accounting research varies from one country to another with respect to social, cultural and environmental differences. International financial accounting places its current practices on the heterogeneous aspect, despite globalization and efforts of researchers towards standardizing the practice (Humphrey, 2007, p.74). Institutional, family level and country structures are to some extent the result of stakeholders using and maintaining their use in accounting through a combination of purposive actions and their beliefs. Social and environmental efficacy is the ability of stakeholders to cause changes in accounting practices, with respect to corporate social responsibilty. Although it is generally considered that people are to some extent products of the society and environments, this consideration does not imply that individuals will possibly decide to resist societal and environmental influences, either collectively or individually. Corporate social responsibility thus brings up treatment of accounting practices as activities of conventional accounting researched with universal preconceptions and assumptions to mainstream financial accounting. This approach assumes that the community is the main user of information and accounting practices in general. More to this approach, corporate social responsibility places environmental and social reporting at the epicenter of an examination of the purpose of information in agreement between the society and organization (Gray, Kouhy and Lavers, 1995, p.48). Accounting practice stakeholders in the social circle encompass researchers, teachers, practitioners, and academicians as influential thinkers who are concerned with social and environmental accounting. Current practices can be generally tied to high level of interactions and discussion among the above stakeholders. Accounting history bases its growth and development on influential thinkers who have synthesized the intellectual works into useful foundational work. Although much of social accounting knowledge has not been applied yet, developments can be tied to various forms of knowledge, discipline, and power from influential thinkers such as the Foucault (Freedman and Jaggi, 2010, p.23). As years go by, additional guidelines are being customized to meet the interests of stakeholders in the society, and thus may lead to formulation of a common way for recognizing and disclosing social and environmental data in financial statements. This has led to the current international accounting practices, whose developments and advancements have been guided by corporate social responsibility of stakeholders of the society and environment in general. The theoretical foundation of social and environmental accounting practices is tied to social and environmental agency of stakeholders. Stakeholder influence on general disclosure by corporate companies are the underlying perspectives through which actual accounting practices have evolved, as the corporate world and the society in general seek to evaluate and report environmental performance. Nevertheless, researchers have advanced these changing perspectives through analyzing the emerging views and practices in financial accounting reporting (Freedman, 2006, p.2). Social and environmental accounting, largely being a normative concept, is sought to widen the scope of accounting practices to encompass the society and not particularly focus on economic aspects, alongside being accountable to all members of the society. Evolvement of accounting practices through social and environmental theory goes beyond recognition and disclosure expressed exclusively in financial terms, purposely for financial success. Through stakeholder contribution, the practice has evolved. Social and Environmental Influences Societal accounting practices points out to the fact that organizations influence largely both negatively and positively, the environments in which they operate. Activities of organization are, in one way or another, a matter of concern to the environments in which they operate, and they should therefore be held accountable for these activities through recognition and disclosure. Corporate social responsibility of organizations goes beyond the economic aspect of the organization and encompasses social welfare and economic externalities. Current international accounting practices generally advanced from research efforts in the past that devoted the formulation and application of national accounts that provide a framework of measuring national welfare in economies that were dynamic. Moreover, the developments and dynamics are tied to the fact that national accounts needed modification and innovations by stakeholders for the purpose of measuring and reporting national and global welfare of human beings in the most efficient manner (Aronsson, 2010, p.1: Aronsson, Lofgren and Backlund, 2004, p.1). However, social and environmental accounting theory offers alternative options of accounting for organizations whose economic aspects are significant. The alternative accounts have the potential of enabling organizations to pursue their economic profitability alongside attaining corporate social responsibility. Social and environmental aspects focus on two broad organization’s pursuits, which involve accountability to the society and management goals through technical disclosure. In addition, social theorists have placed their claims of social and environmental theory in financial accounting to the fact that technical means of reporting is just and important to realization of expected outcomes. Financial accounting practices that particularly focus on the means to reporting result in a purely technical affair. This is emphasized by Hibbitt (2004, p.151), who states that “to most practicing accountants, this is perhaps accepted as a given, but in so doing, there is an underlying normative acceptance of ‘what is’, in terms of the social system and the goals of that system, as being ‘what should be.” All stakeholders in the society gain equally and fairly from implementation of accounting practices that focus on social and environmental objectives such as improved transparency of corporate activities, alongside balancing corporate responsibility and power. Corporate social responsibility embraces information about an organization through any media, which may include annual reports, third party, and self-reporting of quantitative, financial, non-quantitative, and non-financial information about an organization. Moreover, there are no restrictions with regards to the type of information, recipients, and the channels of distributing such information (Gray, Kouhy and Lavers, 1995, p.47; Idowu and Louche, 2010, pp. 265-267). Societal accountability by organizations focuses on facilitating and supporting the wellbeing of the society, which refers to sustainability and desirability of all members of the society. For organizations to make informed decisions on the needs and objectives of the society with respect to information flow among stakeholders of the society and environment in general, the flow of information through recognition and disclosure should address the issues of corporate accountability. Current international financial and accounting practices not only focuses on economic performance of organizations, but also environmental performance and the cost structure of a company within the society, thanks to social and environmental accounting theory. Social and environmentally focused accounting practices outline the recognition, preparation, communication, and presentation of information concerned with interaction of organization with the natural environment. Organizations have succumbed to societal pressures that call for accountability and social responsibility of organizations. Through societal pressures, reporting has evolved on the basis of social and environmental aspects that cannot be ignored by corporate management. The social environment has necessitated reporting on aspects such as employee welfare to enable management of issues such as management propaganda, promoting interests of company affairs, employer-to-employee relationships, and management decisions (Riahi-Belkaoui, 2004, p.273). Current accounting practices in the United Kingdom have evolved to include assessment of environmental costs and benefits resulting from their activities such as pollution of the environment. This kind of reporting informs the larger public of financial issues resulting from environmental aspects legislation and more specifically environmental data that may include non-financial and qualitative information. This disclosure may include annual reports that outline use of natural, activities affecting wildlife habitat, and factory emissions. According to Collier (2003, p.100), Ottakar’s annual report is an example of financial statements that are useful to external parties such as the shareholders, financiers, and other stakeholders, though the information reported cannot provide adequate information necessary for use by the internal management. The reports are generally aggregated to annual and headline figures that are of the corporate level and cannot therefore be useful to managers who require unit level information. Huge companies usually place emphasis on accountability for the use of scarce resources, reduction of their wastage, and eco-efficiency in financial and accounting disclosures. However, reporting based on this emphasis must not necessarily provide complete information that accounts for all wastes, outputs, and inputs of the organizations. Through current reporting, organizations can often clearly demonstrate their success in corporate social responsibility and eco-efficiency. Projects such as the environmental and natural resource accounting project has widely contributed to advancements such as the neoclassical accounting approach, which sought to advance beyond national income accounts, where costing is inclusive of outputs of environmental system of production in its natural state and inputs of environmental costs (Uno and Bartelmus, 1998, p.6). Financial and accounting reporting in many countries is governed by existing legislations, although the regulations and legislations are only based on few selected accounting sections in social and environmental theory. Legislations are however essential, since public disclosures by organizations are used to achieve a number of strategies such as informing the relevant public, changing public perceptions, diverting public attention and changing public expectations with regards to activities and actual changes in activities of an organization (Hoque, 2006, p.173). The partial regulations on current international financial and accounting practices have led to social and environmental disclosures on voluntary basis. Although efforts of organizations towards social and environmental recognition and disclosure are regarded as commendable, there seems be an imbalance between accountability and voluntary reporting, since managerial focus still remains on institutional interests. Conclusion In modern day, societies are characterized by environmental pollution, which has become severe; thus, awareness of stakeholders with regards to its problems becoming so serious has contributed to development of environmental accounting. Despite all these social and environmental challenges, there is no specific focus with respect to a standard style of reporting and recognizing social and environmentally related data. This is mainly because regulatory bodies, legal authorities, and standard setting organizations cannot come to an agreement as to the standard conceptual framework of recognizing and reporting environmental accounting. Therefore, such recognition and disclosure is a voluntary activity and is not a mandatory requirement, since there are no specific formats of recognizing and disclosing this data. Nevertheless, with the increasing competition in the contemporary corporate world, firms are taking a step in pursuing their competitive advantage by incorporating corporate social responsibility in their operations, and in the process, they include disclosures of such CSR in their financial reports. This trend has seen the growth of social and environmental reposting, albeit on voluntary basis. Reference List Aronsson, T., 2010. Handbook of Environmental Accounting. London: Edward Elgar Publishing. Aronsson, T. and Lofgren, K., Backlund, K., 2004. Welfare Measurement in Imperfect Market. A Growth Theoritical Approach. London: Edward Elgar Publishing. Collier P. M., 2003. Accounting for Managers: Interpreting accounting information for decision making. NY: John Wiley and Sons. Freedman, M., 2006. Environmental Accounting: Commitment or Propaganda. NY: Emerald Group Publishing. Freedman, M., & Jaggi, B., 2010. Sustainabilty, Environmental Performance and Disclosure. NY: Emerald Group Publishing. Hibbitt, C.J., 2004. External environmental disclosure and reporting by large European companies: an economic, social, and political analysis of managerial behavior. NY: Rozenberg Publishers. Hoque, Z., 2006. Methodological Issues in Accounting research: theories, methods and Issues. NY: Spiramus Press Ltd. Humphrey, C., 2007. The Real Life Guide to Accounting Research: A Behind the Scenes View of using Qualitative Research Methods. NY: Elsevier. Gray, R., Kouhy, R., & Lavers, S., 1995. Corporate Social and Environmental Reporting: A review of the Literature and a longitudinal study of UK Disclosure. Accounting, Auditing and Accountability Journal, Vol. 8, No.2. Idowu S, O., & Louche, C., 2010. Theory and Practice of Corporate Social Responsibilty. NY: Springer. Riahi-Belkaoui, A., 2004. Accounting Theory. OH: Cengage Learning EMEA. Uno, K., & Bartelmus, P., 1998. Environmental Accounting in Theory and Practice. NY: Springer. Read More