Accounting,Sustainability and Ethics - Essay Example

Accounting, sustainability and ethics Sustainability, social and environmental concern has risen to be one of the most discussed issues in the contemporary organizations. Tilt (2007, p 48) concludes that sustainable accounting focuses on disclosing nonfinancial information about organization’s performance, to both external and internal parties such as shareholders, creditors, public and government agencies. Financial accounting for sustainability focuses on reporting to the external parties. On the other hand, managerial accounting sustainability is used internally for creating policies and making decision on performance of the organization on social, economic and environmental level. The branch was introduced recently following a global concern on environmental preservation and social sustainability. It represents the organizational activities which have a direct impact on environment, society and organization’s economic performance. Accounting for sustainability is undertaken using various tools and techniques. Most organizations have adopted giving an environmental profit and loss account as the annex of their financial report. Sustainability is also evaluated using a balanced scorecard. A balance sore card shows how the organization is performing in terms of finances, sustainability and other factors that affect organization. Sustainability reporting is also done using triple bottom line reporting technique. Example of the companies that report on their environmental initiatives is Apple Company. In the year 2009 the company announced that 53% of its greenhouse emission comes from the consumer usage of its products. As such the company has adopted greenhouse emission reduction imitative which is achieved using a variety of ways (Freeman 2014 Pg. 554) Currently, organizations have adopted green accounting which seeks to integrate financial reports with nonfinancial one which is associated with environmental services and goods. It has also been accepted that organizations should observe ethics in their daily operations. Business ethics refers to the form of professional or applied ethics which examines moral problems which arise in a business environment (Elliott and Elliott 2011, p. 48). The ethics include observing the law, enhancing social welfare, maintaining good corporate governance and taking part in social corporate responsibility. It has become a common practice in the organizations to link their strategies with the sustainability and ethical initiatives. Many of these organizations are undertaking huge initiatives which aims at improving their business performance, prepare for law and regulatory requirements respond to the demands of the stakeholders and manage costs. Making sustainable decisions utilises managerial accounting report. Modern accounting practices not only concentrate on the conventional financial performance of the organization, but also non-financial activities. Bebbington, Brown, Frame (2007, p. 35) observe that a sustainable decision is the decision which meets four objectives. These include enhancing social progress, advocating for effective environmental protection, observing prudent use of the natural resources and facilitating maintenance of stable and high level of employment and economic growth. Traditional financial reporting leaves some gaps in ascertaining whether the deployment of the financial resources by the organization is being carried out in the most effective way. Organizations can use modern accounting report to improve on their corporate governance. The modern accounting practices recognize the role of good corporate governance in spearheading success of the organization. It has become a practice for the organization’s financial reports to have information on organization’s corporate governance. Under good corporate governance, organization indicates how it has been complying with laws and society norms, how it has acted as a good citizen, how it treats its employees without discrimination and how the management uses shareholders wealth to maximize gains and minimise risks. Corporate governance report also indicates the mechanisms that the company has put in place to deal with the conflicts of interest, whether the management of the company acts in the interest of the shareholders and how the organization is structured (Gray 2010, p.50). Green accounting can be used to enhance sustainability within the organization. Green accounting seeks to integrate three pillars of economic development; that is society, environment and economy. It integrates ecological, social costs and natural environment benefits in conventional accounting systems. Valuing costs and benefits of natural resources more accurately may play a major role in development of more appropriate and sustainable, business, economic and development policies. Modern accounting practices that are used for green accounting include emissions accounting, natural resource accounting, value of non-marketed environmental services and goods, disaggregation of conventional national accounts and accounting green company products (KPMG, 2013). In an organization, green accounting can help management and decision makers to have a way of tallying sector level environmental and other non-market effects. For example, monetizing climate damages and air quality at the organizational location level helps to identify an area in which organizations environmental damage exceeds the value that it adds. Green accounting can also be used to make decisions on how to improve the operations of the organization to be not only efficient but also have low negative impact on the environment. For example, the green accounting can reveal how to enhance organization’s supply chain performance using the environmental cost information. It can also be used make decisions on how to develop standardized systems for green accounting. Accounting should represent financial performance of the organization in a true and fair way. This means that accounting information reports on all the source and utilization of the shareholders wealth. The information reveals the region that the company has vested much in. This knowledge helps decisions makers to identify the most suitable social corporate imitative that they can involve themselves in. For example, if the organization deals with supplying educational materials, it can use the accounting report to know the amount of money that they can use to sponsor students. Accounting information can also help the organization in making decisions on how to improve its ethical practices. For instance, the accounting report recognizes changes in regulations and accounting rules and procedures. Decision makers in an organization can use this information to formulate new ways of adhering to the set rules and ways of ensuring that their business continues to operate in an ethic manner (KPMG 2013, p.1). Modern accounting practices are very vital in ensuring proper decisions are made within the organization regarding sustainability. The practice provide enough information that can be used by the organization in ensuring green supply chain and processes, value for the social corporate responsibility and impact of business ethical practice. Organizations design sustainability plans based on the status and estimated future prospects. This information is obtained from modern financial accounting report which is very comprehensive. Green and ethical accounting provides holistic information to both external and internal stakeholders on organizations’ environmental and ethical concern (Hopwood et al 2010, p. 255). Accounting has a great a responsibility to report on the ethical aspect of the organisations. Accounting should not limit itself in conventional financial reporting only. The essence of accounting is to record, process and report on financial performance of the company as well as other operations of the company. Shareholders of the company use financial report as the only way of knowing how the management are managing their wealth. Therefore, the accounting should disclose all the information regarding plans, strategies and operations of the organization (Schaltegger et al 2006, p. 49). Shareholders have the right to know about their company ethical practices. The ACCA and IASB code of ethics to the accountants and auditors requires them to observe high ethical conduct in their operations. The accounting standards require members to conduct themselves with integrity, in personal, business and professional relationship. Members are also required to be objective in business judgment, do work that they are competent to do, conduct business with care, due skills and diligence and behave in a courtesy way to every one they interact with. This ethics ensures that the organizations report on all its operations and does not fail to reveal any issue to the shareholders. Stakeholders rely on report that has been prepared with total observance of professional code of conduct. Business ethics shows the philosophy of the business. It determines the fundamental aim of the company. An ethical business respects the rules and regulations that are prevalent bin the industry and in the country. The accounting should report on the ethical practice of the company. The ethical practice affects the company’s future prospects, for example, if the company is not adhering to the law and regulations it predisposes itself to closure or law litigation in the future. Ethical practice is very crucial part of ensuring that the organization remains in business for the foreseeable future. For example in the year 1970, Nestle Company was accused of making infant formula milk which was unhealthy. The company was summoned by the World Health Organization to answers this allegations. This resulted into formation of new marketing and production rules where companies are required to adhere to health requirement and conduct their marketing and an ethical way. Management of Nestle Company should have made their environmental report to the shareholders in order to win their trust (Garrett et el 2009 Pg 507-520). As such, the accosting should not concentrate on the income expense, assets and liabilities only of the company (MPhil & Walters 2009, p.127). In conclusion, ethical reporting is very important to the investors in making sound investment decisions. The ethical report in the organizations accounting report helps government agencies in making decisions on what policies and regulations to put in place. It also informs them on the extent to which organizations are informed about business ethics and sustainability. Ethical reporting helps the member of the public and the creditors to know the trust that they can vest on the organization as well as the sustainability strategy of the company. Creditors look for a credit worthy company which has high ethics. Therefore, undertaking ethical report increases credit worthiness of the company. On the same note, sustainability helps to improve credibility and reputation of the company. References List Bebbington, J., Brown, J., Frame B. (2007). Accounting technologies and sustainability assessment models. Ecological Economics 6 1 (2), pp. 2 2 4 – 2 3 6 Elliott, B. and Elliott J. (2011). Financial accounting and reporting. Pearson Education Limited, Edinburgh Gate Harlow. p 45-112 Gray, R. (2010). Accounting, Organizations and Society. Accounting, Organizations and Society 35 (1), pp. 47–62 Hopwood, A., Unerman, J. & Fries, J. (2010). Accounting for sustainability practical insights. London Washington, DC, Earthscan. P. 255 KPMG (2013). Sustainability reporting –What you should know. London, KPMG. p. 1 McPhail, K. & Walters, D. (2009). Accounting and Business Ethics: An Introduction. London, Routledge. P.127 Schaltegger, S., Bennett, M. & Burritt, R. (2006). Sustainability accounting and reporting. Dordrecht, Springer. P. 49 Tilt, C. A. (2007). Corporate Responsibility Accounting and Accountants. Idowu, Samuel O.; Leal Filho, Walter (Eds.), Professionals Perspectives of Corporate Social Responsibility. Verlag Berlin, Heidelberg. Pp. 45-92 Garrett, D. E., Bradford, J. L., Meyers, R. A., & Becker, J. (2009). Issues management and organizational accounts: An analysis of corporate responses to accusations of unethical business practices. Journal of Business Ethics,8(7), 507-520. Freeman, K. (2014). Center attacks core issues in the land of apples. Environmental health perspectives, 108(12), A554. Read More