The Inclusion of Environmental Accounting - Research Paper Example

Corporate Social Responsibility and Environmental Accounting of the Oil and Gas Industry in Saudi Arabia Table of Contents 1.0Introduction 3 1.1Statement of the Problem 3 1.2Objectives of the Study and Research Questions 4 1.3Research Hypothesis 4 2.0 Literature Review and Theoretical Framework 4 2.1 Theoretical Framework 4 2.2 Environment and Accounting 5 2.3 Influence of Environmental Accounting on Financial Statement 5 2.4 Environmental Accounting Approaches 5 2.5 Environmental Accounting Elements 6 2.6 Determinant of Environmental Reporting in Saudi Arabia 6 3.0 Research Methodology 7 3.1 Sampling Strategy 7 3.2 Sources of Data 7 3.3 Data Collection Instruments 7 3.4 Analysis of the Data 7 References 9 1.0 Introduction Corporate social responsibility is also known as non-financial reporting, environmental accounting and social accounting (Frynas, 2010). Social accounting is defined as an approach in which an organization reports activities that incorporate the socially relevant behavior with relevance to social performance. Environmental accounting is a subset of social accounting, and it focuses on the environmental performance and cost structure of a company (Hawani, Mohamed and Hanim 2011). It describes numerous interactions and approaches in advancing the requirements of the natural environment including preparation, presentation and communication on data on the environment (Kamla and Roberts 2010). The oil and gas industry in Saudi Arabia embraces social and environmental accounting in advancing corporate social responsibility (Hawani, Mohamed and Hanim 2011). The inclusion of environmental accounting is to provide information on the extent in which a corporation aims to sustain the environment and the significance of the environmental sustainability in the development of the societies and communities. Gas and oil are responsible for most environmental degradation processes: increase in greenhouse emissions and air pollution (Kamla and Roberts 2010). The corporations employing environmental accounting and CRS have incorporated numerous measures, but the extent of the impact on the accounting processes has not been discussed (Hawani, Mohamed and Hanim 2011). Do the corporation in Saudi Arabia dealing with oil and gas integrate environmental accounting? What about CRS? Do these data or information reflect in the financial statements? What are the costs of these activities on the corporation? 1.1 Statement of the Problem Environment accounting includes allocation, measurement and identification of environmental costs and integration of the information into the financial statements and communication with the different stakeholders (Abdo, Wang and Gouveia, 2011). It encourages corporate social responsibility and good corporate governance, and effective recording of the environmental costs enables an organization to employ strategies to reduce the cost. Some of the problems associated with environmental reporting and accounting include measurement of liabilities, capitalization of cost, environmental liabilities and identification of environmental expenses and costs. In Saudi Arabia, the lack of effective accounting standard in the treatment of these problems presents a challenge in effective allocation of the resources. Therefore, reviewing the financial statements and information provide an avenue to understanding the treatment of these problems in financial statements and other forms of communications to the stakeholders. 1.2 Objectives of the Study and Research Questions The following are the objectives of the study: I. Identification of environmental disclosures on profitability of firms II. How the size and nature of corporation affects voluntary disclosure regarding environmental data III. Identification of some of the environmental liabilities affecting the oil and gas industry in Saudi Arabia IV. Ascertaining environmental costs influencing profitability of organizations The following are the research questions: i. Do environmental disclosures affect the profitability of an organization? ii. To what extent does an organization influences voluntary disclosure of environmental information? iii. Does environmental cost influence the profitability of a firm and to what extent? 1.3 Research Hypothesis To accomplish the requirements of the study, the following are the hypotheses: H: Voluntary disclosure of environmental information does not depend on the size of the corporation H: Environmental costs affects the profitability of a firm extensively 2.0 Literature Review and Theoretical Framework 2.1 Theoretical Framework The analysis is based on social theories of accounting. Some of the social theories include positive, legitimacy and stakeholder accounting theories. The stakeholder’s theory explains that information disclosure is a right and obligation of the stakeholders. García‐Rodríguez et al. (2013) state that the legitimacy theory balances the acceptable behavior and social values in advancing organizational activities. The positive accounting theory aims to understand the reasons why organizations make voluntary social disclosures (Hawani, Mohamed and Hanim 2011). 2.2 Environment and Accounting Substantial resources and efforts have been deployed in ensuring the natural resources are treated appropriately (Hopkins, 2012). Accounting is used as a tool to disclosure environmental responsibility in different sectors at all levels of economic activities, such as macro and micro (Kamla and Roberts 2010). The accounting aspect has become an integral component ion measuring and evaluating actual or potential environmental impacts of organizations and projects (Hawani, Mohamed and Hanim 2011). For example, numerous companies dealing in oil and gas are developed in Saudi Arabia meaning accountability is important (Kamla and Roberts 2010). Effective environmental accounting ensures appropriate recording of the financial records including the environmental costs. 2.3 Influence of Environmental Accounting on Financial Statement The first impact is cash accounting in that it effects is limited on the financial statements compared with preparation on the accrual basis of the financial statements (Hawani, Mohamed and Hanim 2011). Cash flow problems can occur during environmental issues reporting because of the difference in periods and the compliance with different government financial requirements. For example, Abdulla et al. (2012) state that problems occur when it comes to compliance with environmental regulations and laws. The second is accrual accounting in which environmental laws and regulations recognize the requirement of assets impairment resulting in writing down the carrying value (Hawani, Mohamed and Hanim 2011). Ineffective documentation on environmental matters such as waste disposal and emission may require accrual of legal costs, compensation or remediation works. Moreover, an organization may require disclosure as a contingent liability creating additional accounting challenges. 2.4 Environmental Accounting Approaches In environmental accounting, two approaches are adopted: the monetary and the physical. In psychical approach, the environmental operations are documented in physical terms, such as deductions and additions from that resource. According to Al-Janadi, Rahman and Omar (2012), the monetary approach incorporates the aspects of environment accounting, which is not possible through the use of physical approach (Hawani, Mohamed and Hanim 2011). The monetary approach has gained interest because of the ability to know the profit and loss associated with environment operations and associated economic indicator (Kamla and Roberts 2010). 2.5 Environmental Accounting Elements Environmental accounting and corporate social responsibility should clarify the engagement objectives (Kamla and Roberts 2010). The objectives should reflect the policies and regulations for the environmental considerations, and specify the targets and actions of championing environmental requirements. It includes calculations and defining the target period. Muralidhar (2010) presents that the scope of calculation should be constant and reflects the requirements of the organization. According to Negash (2012), the strategy is to ensure continuous reporting and allowing effective comparative analysis of the data. Moreover, it enables comparison of similar companies and determining the effectiveness of their respective strategies in addressing environmental matters (Hawani, Mohamed and Hanim 2011). 2.6 Determinant of Environmental Reporting in Saudi Arabia Environmental reporting is voluntary social reporting in most instances and indicated as such in the financial statements (Hawani, Mohamed and Hanim 2011). The environmental reporting strategy focuses on the traditional economic thinking and does not incorporate other variables such as ecological issues, profits, prices and cash flows (Hawani, Mohamed and Hanim 2011). Some of the variables used as a determinant of environmental reporting in Saudi Arabia, according to Campbell and Slack (2011), include company size, financial leverage, profitability, effective tax rates, industrial membership, and audit firm. These numerous variables influence the reporting mechanism and can identify the numerous frameworks in critiquing and reviewing the effectiveness of the environmental accounting requirements (Kamla and Roberts 2010). The entire purpose is to analyze the significance of environmental accounting on corporate social responsibility. 3.0 Research Methodology The research design employed is survey design. The researcher aims to use the design in testing hypothesis and answering research questions. The effectiveness of the design is the need of the different relationship, variables, and additional manipulation requirements. 3.1 Sampling Strategy The sampling strategy targets the oil and industry sector. Five companies will be chosen and engagement with different government agencies. The agencies include environmental protection departments and contribution of independent stakeholders within the oil and gas industry. 3.2 Sources of Data The researcher will utilize both primary and secondary data in fulfilling the requirements of the study. The primary source of the information is through observation and interview since it enables capturing of the most recent information regarding the environmental accounting and corporate social responsibility. Furthermore, the oral conversation will be employed to clarify some issues and capture information which is hard to present in written form. The secondary data will be obtained through collecting the financial statements from the five companies. Additional data will be obtained from the media reporting and governmental agencies are reporting. 3.3 Data Collection Instruments A questionnaire will be used to collect the information. In addition, the information from the media and financial statements will be grouped into themes. The questionnaire will be extensive in nature to incorporate the numerous variables of environmental accounting and corporate social responsibility. Grouping the information in themes would enable thematic analysis and picking the appropriate information in fulfilling the requirements of the study. 3.4 Analysis of the Data Thematic analysis will be used to analyze the information from the financial statements and also from the interviews. Statistical software will be used to analyze the questionnaires. Therefore, both the qualitative and quantitative data will be collected and analyzed to accomplish the requirements of the study. Clarification Section Using only secondary data of Annual reports will not be enough for a rich analysis. If you can include some qualitative data of interviews of concerned managers then I think it will be a very good proposal can you do that? It is already include because interviews and oral discussions will be done to collect information from different stakeholders including government agencies What is the methodology will I use to collect data? Both qualitative and quantitative (mixed) research methods will be used. The quantitative method will be used to analysis the annual results while qualitative will be used to collect oral and interview information from the respondents Is the annual report helpful to get data and how these data will be helpful? The investment on sustainability is clearly documented in most annual reports. The reports indicate the amount of investment on sustainability measures and also the requirements of corporate responsibility. Through such process, it is possible to determine the amount of investment and significance of the investment What is the purpose of collected information? The collected information will be used to determine the strategies that companies employs when it comes to corporate social responsibility and the wider impact of such strategies on the community What am I using these data for? The data will be used to inform on the nature of strategies and methods to champion corporate social responsibility What factors that will I apply and how these factors will be helpful to fix the issues during my research period of time. Through the information collected, it is possible to determine the effectiveness of the processes, and analysis will provide the most effective method when it comes to social responsibility. Investment on social responsibility should be premised on reason and logic, and the analysis will provide a socioeconomic impact of the investments References Abdo, H. Wang, J. Gouveia, R. (2011), Investigating the Development of Business Angel Networks in Portugal: A Comparative Study. 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García‐Rodríguez, F.J., García‐Rodríguez, J.L., Castilla‐Gutiérrez, C. and Major, S.A., 2013. Corporate social responsibility of oil companies in developing countries: from altruism to business strategy. Corporate Social Responsibility and Environmental Management, 20(6), pp.371-384. Hawani W.N., Mohamed Z.M., and Hanim Y. 2011. CSR disclosures and its determinants: evidence from Malaysian government link companies. Social Responsibility Journal, 7(2), pp.181-201. Hopkins, M., 2012. Corporate social responsibility and international development: is business the solution? Earthscan. Kamla, R. and Roberts, C., 2010. The global and the local: Arabian Gulf States and imagery in annual reports. Accounting, Auditing & Accountability Journal, 23(4), pp.449-481. Muralidhar, K., 2010. Enterprise risk management in the Middle East oil industry: an empirical investigation across GCC countries. International Journal of Energy Sector Management, 4(1), pp.59-86. Negash, M., 2012. IFRS and environmental accounting. Management Research Review, 35(7), pp.577-601. Read More