Voluntary Disclosure - Coursework Example

Voluntary Disclosure xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx Name xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx Course xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx Lecturer xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx Date Table of Contents Table of Contents 1 Voluntary disclosure 1 Accountability, legitimacy and stakeholder theories 2 Accountability theory 3 Legitimacy theory 4 Stakeholder theory 5 Rationale for Santos’ decision to produce a sustainability report 5 Environmental disclosures included in Santos sustainability report 2012 6 Justification of the theories 8 Effects of the environmental disclosures 9 Environmental impact of Santos’ activities in the media 9 Conclusions 9 Voluntary disclosure According to Noe (1999), this is the provision of organisations information by its management beyond the requirements of the regulating authorities such as the securities exchange commission and the generally accepted accounting principles (GAAPs). This information is usually regarded as very important by the users of the financial statements of the reporting organisation. Gigler (1994) explains that voluntary disclosure includes information such as the non financial information (social responsibility reporting), the organisation strategies and characteristics. It also includes the prices of the stocks of the company in the market. Voluntary disclosure is helps all the stakeholders a reporting organisation. The organisation itself benefits by enhanced credibility, has access to liquid markets, gets a lower average of its cost of capital, reduces considerably the danger of litigation of inadequate disclosures and the organisation makes better investment decisions. Cheng & Lo (2006) says that the investors to a company are prepared to receive a lower rate of return on their investments (equity) if the company has disclosed more information of its activities and investments. There is a negative relation between the investors expected return and the level of disclosure of information. Eng & Mak (2003) continue to explain that the cost of equity lowers when a firm discloses its information other than the requirements of the securities exchange commission and the generally accepted accounting principles. The investors also are able to make decisions concerning their allocation thereby lowering the cost of capital of a company. The extent of the level of disclosure of an organisation is contained in its financial reporting requirements. The level of reporting varies depending on the type of business an organisation is involved in, the industry in which it is operating, the size of the organisation and most important the ownership and governance structure of the organisation. Accountability, legitimacy and stakeholder theories Accountability theory This theory states that a corporations or an organisation ought to include disclosure of other information above the financial reports of revenue and expenses, they ought to disclose how they are contributing positively to community initiatives, the effects of their operations in the environment (environmental pollution), governance and other information which is non financial. Milne (2002) notes that the accountability theory implies that corporations are transparent and responsible in their performance. In order for community and society to judge whether they have impacted them negatively or positively, community members need information about the corporate activities and performance. It espouses that the financial performance should not be the only crucial goal of an organisation and that the shareholders of the organisation should not be the only people the organisation must be responsible to, other stakeholders such as the community members and employees require accountability as well. Together with the financial report, as the securities exchange commission requires, many companies choose to include corporate accountability reports so as to satisfy the needs of the public and shareholders as well. The accountability report is an important part to investors who are concerned with ethical investing. According to Unerman & O’Dwyer (2010), this theory requires that the internal procedures and policies of an organisation reflect the best interest of all the stakeholders of the organisation, they must also be lawful as the theory states. The theory means the obligation of a corporation that is entrusted with a duty to others to explain its performance of that very duty, both financial and non financial. The use of the current technologies in accountability reporting by corporations can be very helpful to them in ensuring that they are more accountable to the stakeholders. The information provided by corporations must be able to be verified by the stakeholders. Legitimacy theory Legitimacy theory asserts that corporations continually seek to ensure that they carry out their activities within the norms and bounds of the communities where they are operating; they try to ensure that their activities and operations are seen and viewed by the outsiders as legitimate as Wilmshurst & Frost (2000). This norms and bounds differ from one corporation to another depending on the disclosure and governance requirements of the corporations, they are not fixed, they as well change overtime but require companies to be responsive to the environment under which they operate. This theory signifies that there is social contact between a company and the society/community in which the company operates. This contact is the explicit and implicit expectations that the society/community expect from companies s they conduct their operations. According to this theory therefore, a corporation must deliver some socially desirable ends to the society in general and distribute its economic as well as social benefits to the community from which it derives its resources. The society allows the organisation to conduct its activities and operations assuming that it will generally meet their expectations. Legitimacy theory emphasizes that an organisation/corporation must consider the rights not only of its investors but also of the public at large. An organisation may legitimate its activities, as Cho& Patten (2007) puts out, by designing its output and objectives to match to the current definitions of legitimacy or either change the definitions of legitimacy to match to the organisations current practices, values and outputs. This theory has the responsibility of clearing up the conduct of organisations in formulating and implementing chosen environmental and social disclosures of information in order to accomplish their social obligations that enables them to survive in agitated or unstable environment. Stakeholder theory Unerman & O’Dwyer (2010) continues to explain that this theory outlines how a corporate management can realize the interest of the stakeholders. Stakeholder theory discusses about the conceptual outline of corporate ethics and its management that deal with ethical and moral values in the management of the business. This theory argues that all stakeholders of a company have the right to be treated reasonably by the company as well as that stakeholders influence is not in a straight line significant. It further states that a stakeholder is an individual or group who can influence the attainment of company objectives. The theory explains that the management is expected to attend to the expectations of the stakeholders. The management task is to assess the significance of meeting the demands of the stakeholders in order to realize the premeditated objectives of the firm. Therefore the purpose of an organisation is to serve as an intermediary in coordinating the stakeholders. The management viewpoint of the stakeholder’s theory is a key element that the management of an organisation can apply to influence the stakeholders in order to grow their support and approval as well. This theory has two branches, the ethical/normative branch and the positive/managerial branch. Rationale for Santos’ decision to produce a sustainability report The rational for Santos to produce sustainability report id to keep track of their sustainability performance and help the company to keep it accountable. To address the challenges it faces in sustainability activities and what the interests of the stakeholders are and what it is doing in fulfilling them. The rational for producing the sustainability report is also to steer their performance improvements and make stronger the contribution of sustainability in its core business as well improve its economic, social and environmental impacts as Eng & Mak (2003) asserts. The company makes reference to it in the annual report so as to communicate to the users of the annual report their sustainability performance. The users will also have a chance to view and evaluate it thereby giving the company a reputation benefit to investors, customers, credit agencies among other stakeholders. It makes reference to it to raise its brand value. This will make the company to avoid penalties and lawsuits that can be raised against it by the competitors or other interested groups or an individual. Environmental disclosures included in Santos sustainability report 2012 Environmental disclosure Page number Identified theory/theories Positive or negative Understanding our emission sources- Fugitive emissions including minor losses from flanges, valves, wellheads and others 20 Accountability Negative Protecting water resources and ecosystems- recognises water as precious resource- sets out requirements to be followed to protect it. 22 Stakeholders and legitimacy Positive Cooper gas water management- carried study to find the best solution for managing formation water 22 Accountability Positive Protecting biodiversity- has a genuine, long held commitment to look after the environment. 24 Legitimacy Positive Managing waste- recognises the of responsible waste management 24 Stakeholders/legitimate Positive Water management and oil spill- focused on formatting water management and oil spill response capability. 24 Accountability Positive Justification of the theories The accountability theory explains well the “Understanding our emission sources.” The company have a duty to explain to the public the effects of its activities and operations. The company ought to explain what the effects of the emissions are to the public so that they can take the necessary actions to protect themselves especially the surrounding communities that live where the emissions are released. The Stakeholders and legitimacy theory best explains the “Protecting water resources and ecosystems.” The community in which the company carry out their activities are stakeholders and they use that water resources, water is a basic need, in this case the community has given the company permission to operate in assumption that the company will extend the economic benefits to them. The company has therefore to operate within the norms and bounds of the community. For biodiversity the company is accountable to its stakeholders to inform them of how they are taking care of the biodiversity. The company in this response has a genuine, long held commitment to look after the environment. By disclosing this information the company has demonstrated its accountability in relation to the environment. The company has also to manage the wastes well not to affect the community where the wastes are dumped. The company therefore has to get permission to dump the wastes; the company must manage the wastes well to avoid negative effects of the wastes to the surrounding community. Effects of the environmental disclosures Based on the identified environmental disclosures, the sustainability report gives an impression that Santos benefits from the environment. The company is benefiting from the environment and although it is releasing harmful emissions in to the environment, it has measures to deal with them. The company is benefiting from the environment. Environmental impact of Santos’ activities in the media The Coal seam gas licence given to the company in the state's north-west while leaks of contaminated water were being investigated – this has been portrayed in a negative light. Conclusions The information provided by Santos in its sustainability report is fair in all aspect. The report provides the measures that the company has put in place to ensure that all the concerned parties and stakeholders are taken care of as a result of its operations. The company has provided the disclosures of information o n economic, social and environment effects of its operations indicating clearly how each and every aspect of the report is affected. The report therefore is very reliable according to the voluntary disclosures in the 2012 Santos report. References Cheng, Q & Lo, K (2006) Insider trading and voluntary disclosures Journal of Accounting Research Cho, C & Patten, D (2007) the role of environmental disclosures as tools of legitimacy: A research note. Accounting, Organizations and Society Eng, L & Mak, Y (2003) corporate governance and voluntary disclosure Journal of accounting and public policy Gigler, F (1994) Self-enforcing voluntary disclosures Journal of Accounting Research Milne, M (2002) Positive accounting theory, political costs and social disclosure analyses a critical look Critical perspectives on accounting Noe, C (1999) Voluntary disclosures and insider transactions Journal of Accounting and Economics Unerman, J Bebbington, J & O'Dwyer, B (2010) Sustainability accounting and accountability Taylor & Francis Wilmshurst, T. D., & Frost, G. R. (2000) Corporate environmental reporting: a test of legitimacy theory Accounting, Auditing & Accountability Journal Read More