Adv. Accounting Theory & Practice - Essay Example

?DO CORPORATE SOCIAL RESPONSIBILITY REPORTS OF FIRMS PROVIDE SHAREHOLDERS AND STAKEHOLDERS WITH USEFUL INFORMATION ON CORPORATE SOCIAL AND ENVIRONMENTAL PERFORMANCE OR ARE THEY MERELY A SOURCE OF PUBLIC RELATION VEHICLE? The firms in different industries have a conflicting nature in terms of their responsibilities towards society (Lance Moir, 2001). Their scope of responsibilities clearly depends upon the area in which they are doing business, for example the extracting businesses are crucial to the focus of environment regulatory authorities. It is obvious that corporate social responsibility is a part which is very important for running the businesses successfully. But following the predefined the environmental policies compels businesses to behave in a certain a way, for example using high quality raw material, and atmosphere friendly plants. It brings cost to the business which is certainly not favorable for businesses. So, businesses have started deceiving the regulatory institutions and other stakeholders. They have found their ways in fulfilling the requirements of the regulatory bodies. There are loop holes in the system which companies use for manipulating the data and information shared with the stakeholders (Hooghiemstr, 2010). Businesses always communicate with their stakeholders in written form. So there is a lot of documentary material involves. They are shared with stakeholders periodically. The documents which come under the reports of corporate social responsibility are: Annual financial reports (Smith and Taffler, 1992a, 2000) Letters of CEO to shareholders (Hooghiemstra, 2010) Financial reviews of operations (Rutherford, 2003) Prospectuses of initial public offerings (Aerts & Cheng, 2011) The company websites (Campbell & Beck, 2004) Conference calls of executives (Matsumoto, 2011) Takeover or merger and acquisition related documents (Brennan et al, 2010) Companies which are always under pressure by their stakeholders seem to be using different tactics for the satisfaction of their stakeholders (Clatworthy and Jones, 2001). For that they give out the company information in a manner that will always highlight the areas with positive performance figures regarding company. They never talk about their weaknesses. This is called impression management. Two types of information are presented in the above mentioned documents of company. One is related to the qualitative data and the other is about calculated accounting figures. The qualitative narratives are highly manipulated. They never give out the exact matter. The quantitative narratives used in financial reporting are obtained from accounting books and financial statements of the company (Jones & Shoemaker, 1994). The usage of rhetorical devices in following accounting standards helps companies to manipulate the opinions of the readers of those reports. Rhetorical devices are related to accounting standards which allows businesses to present their accounting information in a customized format of their choice. The accounting narratives used in accounting reports mostly are out of the consideration of the auditors. The reason is that they do not come under the scope of auditing. This gives room to the companies to manipulate the information they share with their stakeholders. Generally, the external auditors of the company are restricted to check limited amount of information in financial records of the firms. The accounting narratives which are outside the scope of auditing have been given the name of discretionary accounting narratives by Brennan & Merkl-Davies, 2011. Impression management is complicated. Because while following the impression management strategy companies have to look into the interests of all stakeholder, then they decide which of them are at conflict with business, and which of them are conflicting with each other. Then they look at the multiple choices available to them for communicating their financial information. Then they analyze all the choice and choose the best, which aids in attaining the utmost interests of the business, and also resolves the conflicts among stakeholders. Impression management is done by taking into account the four areas, economic, psychological, sociological and critical. These four dimensions of impression management divide the stakeholders of the business in two groups. The shareholders and investors are dealt under the dimensions of economic and psychology. Information is manipulated here in a way that these two stakeholders seem satisfied with the financial health and performance of the business. This is achieved through misallocating the resources for short term (Merkl-Davies & Brennan, 2007). On the other side the sociological perspective attempts to formulate the favorable impression of business in front of society. So, here corporate social and environmental responsibility is addressed. The impression management techniques try to manipulate the perception of the people concerned with social and environmental performance of business entity. If these attempts are successful, they lead to the moral support of overall society, for organization. Whole society seems to follow the opinion being shared by business instead of their free will. Hence, good will of the business will increase and long term financial benefits will be obtained. Organizations focus upon the psychological and economic impression management more because it is related to their business partners i.e. investors and shareholders. This all is about generating bias and self serving results. The environmental responsibility is crucial to the functioning of businesses now a day. There are many regulatory bodies looking up the activities of businesses. They scrutinize their actions for not following settled policies of environmental health. It has taken a shape of a trend. If one company goes ahead, and contributes in environmental responsibility, the competitors will follow this too. This is a positive step that more and more businesses are formulating their strategies watching the environmental conservation. The reason is such actions add value to the good will of the business. The actions which companies are required to disclose are related to their interaction with external physical environment. The factors of this external physical environment are human resource, community, natural environment, energy resources and product hazards. The regulatory bodies regarding environmental responsibilities have increased dramatically (Bates, 1995). Their general requirement is related to the disclosure of restoration obligation predictable. Previously it was considered an ethical action of companies who use to take care of environment while doing their business activities. But today due to the proposed legal institutes it has become a responsibility of businesses to watch out their actions in light of their consequences. These legal institutes help businesses formulate environment friendly business strategy. The self laudatory presentation of data is one of the examples of techniques used for the manipulated representation of information about the environmental responsibility. In this companies highlights their actions which are compliant with the requirements of the environmental regulatory bodies and do not leak out the information which is against it. So they try to give out a very positive image to their stakeholders (Deegan and Gordon, 1996). Companies now disclose more information than before as it has become a competition of having best image in the eyes of the stakeholders of the business. (Trotman & Bradley 1981). The legitimacy theory says when businesses operate in an environment they confront with a lot of social standards and norms. They try to follow those norms in doing their business. In doing so, as the standards of the society change with the passage of time, they change their policies too (Dowling and Pfeffer, 1975; Gray et al., 1995a; Guthrie and Parker, 1990; Lehman, 1983; 1992; Ullman 1976). If the organizations do not follow these societal standards they can face adverse conditions. So, legitimacy theory is about organizations not only taking care about their financial partners but the public and natural environment at large. Companies need to give justification if they were not following the proposed corporate social responsibility. They are penalized according to the law of land. Organizations do always manipulate the results in corporate social responsibility reports to some extent for having a favorable impression in front of their stakeholders. Some do it less and some do it to a surprising extent. 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