Contemporary Issues in Accounting - Essay Example

CONTEMPORARY ISSUES IN ACCOUNTING Student’s Name Course Professor’s Name University City (State) Date Contemporary Issues in Accounting More organizations are adopting sustainable reporting due to an increase in pressure from the public and the government that businesses channel back part of its profits back to the society and engage in practices that conserve resources. Many people now believe that companies should account back to the society on its behavior concerning environmental impacts (Bonini & Oppenheim 2008). A belief has risen in the society that accounting should cover more than the traditional stockholder/shareholder perspective and companies that fail to conform receive backlash from the public. Concerns are being raised about company’s environmental footprints, which is primarily the environmental effects of an organization’s input and output. Inputs include the measurement of critical environmental resources such as water, land use, and electricity. On the other hand, measures the effectiveness internal processes are and its consequences. It includes the relationship of product reuse and waste generated by company activities. Moreover, whereas preparing SR may be costly and time-consuming, companies that have adopted the approach may benefit from internal and external advantages that are associated with it. In some countries, the need for sustainable reporting is because of government policies that require companies to conduct sustainable audits. For example, In Australia, the Energy Efficiency Opportunities (EEO) Act and the National Greenhouse and Energy Reporting (NGER) Act requires companies to publish their energy consumption rates (Laselle, 2016, p. 3). Equally, some state and local authorities now demand that biggest users report on energy and water use as well as to come up with formulas to cut down on the increasing demand on non-renewable resources. Furthermore, the Australian SAM Sustainability Index tracks the sustainability performance of the country’s companies based on an evaluation of economic, environmental, and social standards. Due to global warming and it’s projected adverse effects on peoples’ health and destruction of property due to increase in floods and storms, most countries are coming up with measures to reduce pollution and environment destruction. One way to reduce pollution is through use of efficient energies by companies. However, in most countries, social and ecological reporting is voluntarily regarding listing rules but most companies concerned about their reputations have adopted Global Reporting Initiative (GRI). GRI as a reporting standard outlines how organizations should report on a broad range of social and environmental issues (Busco et al. 2013, p. 54). GRI developed by some organizations in the U.S. in 1990 before spreading to Europe, and the rest of the world offers companies with a comprehensive sustainability reporting framework. It seeks to help governments and organizations decipher and communicate the impact of business on crucial sustainability problems such as climate change, individual rights, and corruption among others. Close to 1000 organizations worldwide has incorporated GSR guidelines that focus more on stakeholders in various categories of economic, environmental, social, product responsibility among other areas (GRI 2016). Schaltegger, Bennett, and Burritt (2006) acknowledge that sustainability reporting has become synonymous with organizations daily functioning and has entered mainstream industry (534). Sustainability reporting was adopted as traditional corporate reporting failed to account for economic, social, and environmental crises that face organizations. Conversely, sustainability reporting focuses on the approach that an organization has taken to manage its ecological and social issues (ACCA 2016). Besides, it accounts how an organization measures which social and environmental problems are critical to the company and how they are handled. Furthermore, it notifies the public the actions of a company in managing key ecological and social issues such as climate change, talent retention and employee diversity that may present both serious risk and opportunities for organizations. A company can use either direct (narrow) or indirect (broad) environmental accounting. Narrow environmental accounting accounts for issues within reporting company while the latter reports on the advancing and backward supply chain that an organization has incurred from the production of goods to the sale to consumers (Hecht, 2005, p. 212). A company, for example, can report on the environmental impacts of its activities, branches, and others. However, to produce a complete environmental report, the enterprise would be required to include the environmental effects of the actions say of retail shops that sell its products. Mostly, companies report on their environmental impacts but fail to mention indirect measures, as they are hard to measure outside the reporting entity. Also, disagreements exist whether such measures should be included in the production company report or the retail business. Therefore, the reporting of environmental impacts is complicated and faces difficulties in measurement. Issues of communication have emerged as SR method moves into a more advanced level. It is important to note that the way a company communicates sustainability concerns determines stakeholders’ perceived content, value, and disposition towards SR, their level of attention to these reports, the value of the documents to them. Additionally, the way an organization communicates affects users due to differences in media preference. Some may favour, for example, hard copies and others computer-based reports. Likewise, organizations should be aware that employees, customers, suppliers, and non-governmental groups among others usually have different information needs that are fine-tuned and tailor-made to meet their specific needs (Schaltegger, Bennett, and Burritt, 2006, p 534). Reporting that is directed to all parties through paper or the internet may fail to match the emerging demands and later anticipations. Based on the communication challenges, most companies are adopting interactive sustainability reporting which is divided into corporate communication, stakeholder reporting, and web-based reporting. Corporate communication summarizes organization pursuits, plans, and strategies to communicate with all stakeholders. Notably, interactive sustainability reporting ought to part of and harmonious with overall corporate communication for it to be effective. Similarly, Organizations use stakeholder reporting for continuing dialogue with the interested parties. It seeks to create and maintain productive ties with the principal target groups in an open-ended exchange where interested parties can raise issues as well as communicate personal preference. Stakeholder reporting plays a significant role in promoting a frequent exchange of ideas among stakeholders. Internet-based reporting adopts a broad range of useful features that combine text, images, sound, and feedback for the communication exchange between the company and interested groups. Organizations that use SR derive several benefits from using the approach. For example, using SR unifies internal management as it allows organizations to incorporate sustainability into their mission and strategy as well as link their entire activities to the theme. White (2009) for example notes that Interface Inc. has made it its responsibility to eliminate any negative impact it may have on the environment (20). To achieve this, the company continually enhances its product and processes to reduce its environmental and social implications. The company, for example, replaces only tiles that are worn out to control the disposal of its used products. A company can link its strategies to its activities using a sustainability balanced scorecard, thus making sure that ecological, social and commercial dimensions are not left out. Also, SR enables organizations to enjoy operational benefits. Significant improvements arise from focusing on energy, materials, and water. In their bid to conserve the environment, organizations may use efficient energy, which may considerably cut down on costs. Mostly, companies come up with energy reduction initiatives that aim to eradicate activities that waste energy. They usually install high-efficiency heating and cooling systems, centralized energy management systems, and high-efficiency lights. For manufacturing plants, may consider substituting non-hazardous for hazardous as well as seek for ways to conserve water. Thus, a company cuts on costs by using cheaper raw materials and more friendly to the environment. Organizations may also derive direct cost savings from using environmentally friendly raw materials. White (2009) explains that most companies adopt closed-loop manufacturing operation which recycles materials and reduces wastes. Besides, some processes are designed in such a way that chemicals used in the process are recaptured. This method, unlike the 20th-century manufacturing process, is more sustainable as very little material escapes into the environment. Even when some escape, they are in quantities that can be absorbed by the natural environment without damaging it. Moreover, through SR, companies may benefit from the high level of accountability that can be employed to oversee a holistic plan towards sustainability. Therefore, an organization can combine it's long-term sustainability plans while remaining competitive in the industry. Similarly, employee satisfaction may be achieved owing to sharing of common values and goals among all the workers of an organization. Employees, in particular, may be motivated to work for a company that they feel is responsible for the environment and the society. Sustainable organizations often ensure safe working conditions for employees, protection of human rights and appropriate job training for workers. Notably, the benefits associated with SR are not only internal but also external. Organizations that strive to achieve sustainability may be recognized for their actions. Additionally, they may guide the improvement of standards for reporting and offer support programs for other companies that may want to adopt a similar accounting practice. Through SR, organizations can enhance their reputation and brand value, which would give them a favorable edge over their competitors (Cohen, 2013, p. 23). SR encourages exchange with interested parties by allowing them to express their interests, concerns, and future expectations. Businesses can employ SR to demonstrate their responsiveness to certain issues that may damage their reputation or threaten their credibility among their partners and concerned parties. Most times, companies use SR to address particular challenges or concerns and to notify stakeholders how the problems are being addressed. Nonetheless, SR comes with its fair share of challenges. Firstly, unlike the traditional model of property reporting that is uncomplicated, the creating of an SR is expensive and time-consuming, as it is more details and consists of various categories. Laselle (2016) notes that the data generated from a busy organization requires adequate time to collect, analyze, and present (5). It also takes time for an accountant to examine, analyze and certify it as being compliant. Besides, in the preparations of these reports, organizations are required to compile data from different departments such as HR, administration, and finance. Trying to comply with SR by following frameworks such as GRI often results in very long and inaccessible reports that may lead to claims of cheating or spinning. Different perspectives exist on the use of SR by an organization. They include business case approach, stakeholder accountability approach, and critical theory approach. Business case proponents view Corporate Social Responsibility and SR on what the company gets in return. Therefore, they pursue SR and CSR that caters for both the needs of firms and stakeholders. To them, SR enables organizations to derive many benefits including creating financial value, improve management systems, encourage innovation, enhances an organization’s reputation, and ensures transparency to stakeholders. Likewise, most organizations view SR as a means of managing threats that face their companies. To the proponents, when businesses manage themselves and the environment in which they operate, there would be less regulation from the government in the future. Stakeholder-accountability proponents perceive large organizations as quasi-public institutions, thus aim to encourage a transparent and democratic society (Gray 2002). Swift (2001) explains that stakeholders that often comprise of employees, customers, and local populations that must know an organization's activities to make voice their concerns. The proponents of this approach acknowledge that due to the different groups of people involved, conflicts or disagreements are bound to happen. They propose that businesses should strive to take care of its employees, consumers and community groups as well as be involved in the decision-making process (Lehman, 2002, p. 220). Nonetheless, some critics claim that SR is untrustworthy as it seeks to portray organizations in good light even in cases where they do little to protect the environment and support the local communities (O’Dwyer, 2003, p 1) Critical theory approach criticizes stakeholder-accountability perspective of CSR and SR. its proponents disagree that organizations can carry out real accountability and caution of the dangers of pretending that we live in a pluralist society. Critical theory proponents argue that because businesses exist in a dominant capitalist society, they would continue to dominate CSR and SR (Springett 2003). They are skeptical of partnerships between stakeholders and businesses and any attempt to engage the two sides in social accounting experiments (Owen et al., 2000). To sum up the above conclusion, most organizations are adopting sustainable reporting due to pressure from stakeholders and the government to engage in activities that protect the environment and benefits the society. In Australia, some policies such as the Energy Efficiency Opportunities (EEO) Act demands that companies publish their energy consumption rates and measures that they have put in place to conserve it. Organizations that use SR derive many internal and external benefits. For example, a company may cut its operational costs because of adopting energy efficient practices. Also, the organization can deal with external challenges affecting it such as climate change, hence become more stable in the long run. On the other hand, external benefits are derived from improved reputation because of adopting sustainable practices that benefit the local community as well as protect the environment. A good reputation may give a business a competitive edge over its rivals with a bad image. Nonetheless, challenges facing SR are communication issues and the time as well as costs required to prepare them. Reference List ACCA. 2016. Environmental accounting and reporting. [online] Accaglobal.com. Available at: http://www.accaglobal.com/za/en/student/exam-support-resources/professional-exams-study-resources/p1/technical-articles/environmental-accounting-and-reporting.html [Accessed 25 Oct. 2016]. Bonini, S & Oppenheim, J 2008. Cultivating the green consumer, Standard Social Innovation Review, viewed 20 August 2016, . Busco, C, Frigo, M, Riccaboni, A & Quattrone, P 2013. 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Sustainability reporting: Managing for Wealth and Corporate Health. [New York, N.Y.] (222 East 46th Street, New York, NY 10017): Business Expert Press. Read More