Social and Environmental Accounting - Essay Example

Social and environmental accounting University Student Id Course Date Introduction The write up is a social and environmental issues in accounting while considering the contemporary accounting practices. The accounting practices have been changing due to the increased need for organizations to be responsible to its stakeholders. Organizations are now engaging the stakeholder in various financial issues aiming at creating trust among the stakeholders. The accounting practice employed by organizations are now considering the different interests of the stakeholders to ensure that the organizations can win the trust of the stakeholders (Al-Mudhaki and Joshi, 2004). The essay will explore the social and environmental accounting by making use of Lehman Brothers and Enron as the cases of organizations that failed due to lack of accountability. The accounting practices the management of the organizations was not committed to ensuring that the interests of the shareholders were met hence failing to ensure that they were accountable. The accounting practices that were employed in Lehman Brothers and Enron were not accountable as the organization was not considering its stakeholders in the financial management. Therefore, this essay explores the social and environmental accounting while putting into consideration the issue of stakeholder accountability. Social and environmental accounting Accountability in accounting practices has been considered crucial in ensuring consideration of the interests of the stakeholders. Organizations are working towards achieving accountability through ensuring that different stakeholders are engaged in the organizational affairs. The contemporary accounting practices have led to increasing the need for focus on the social and environmental aspect in organizations (Sikka, 2009). Organizations are now becoming highly responsible to its stakeholders where the consideration of the interests of the stakeholders has become an issue of great benefits to the success of organizations. For instance, organizations are making use of the accounting practices that do consider the social and environmental factors in the accounting and the general financial management. There are many cases of organizations that have failed due to the lack of accountability in the management of finances. For instance, Lehman Brothers are the most important organization that can be used in the process of demonstrating the need for ensuring that organizations are accountable. The company was declared bankruptcy in the year 2008 after the management failed to operate as per the interests of the shareholders leading to the financial crisis as the accountants were not accountable in their accounting practices. Just like Lehman Brothers, Enron company was not accountable to its shareholders were the accounting practices used led to the failure of the company as the management of the company was in conflict with the interests of the shareholders (Ho and Lin, 2011). Enron did not consider the interests of its stakeholders in the management of the company resulting in its failure as the financial management practices and accounting practices employed were fraudulent. Companies have realized the benefits of social and environmental accountability making many business leaders work towards ensuring accountability in their accounting practices. Many organizations are making use of the social and environmental accounting practices to improve their position in the market by improving their brand image. Social accounting has proved to be great benefits in the process of mitigating risks as it ensures that the different stakeholders in the organization can develop trust with the accounting practices as the financial management aspect of the organizations. This can be crucial in the process of attracting many investors in the company where the potential investors can perceive the organizations as responsible for the management of the invested funds. Besides, organizations are achieving competitive advantages in the market through ensuring that they are accountable to their stakeholders (Raynaud, 2008). As a result, the organizations can be able to protect their corporate brand where the organization can be viewed as a responsible corporate citizen making it improve its position in the market hence creating some chances of achieving competitive advantages. The organizations that fail to ensure accountability are likely to lose competitive advantages in the industry as it is in the case of Enron Company. Enron was not accountable in its accounting practices making the investors and shareholders lose trust with the management of the company. As a result, the investors could not invest their funds in the company as they feared to lose their funds. This is an indication that accountability in the management of organizations is crucial to their success. Organizations can make use of the environmental and social accounting in managing the values in their operations. The company values ensuring accountability in the operations and the consideration of the interests of the stakeholders in the organizational management practices. The contributions of the companies to the society can be possible through ensuring accountability where the perception of the public can be improved. Corporate social responsibility in the management of accounting practices are crucial in any organization as through accountability organizations can be in a position to positively influence the society. It is through accountability where the organization can ensure that the elimination of the possible conflicts between the company and the stakeholders. For instance, in the case of Enron Company, there was increased conflict of the company with its stakeholders as the management did not ensure accountability (Gray, 2008). Through accountability, organizations can develop good relations with the stakeholders hence improving the company image in the market. Some organization has been using accountability as a strategy of achieving competitiveness as the customers perceive the organization as accountable. Organizations are making use of corporate social responsibility in the process managing their social environment that does for part of the core activities of any business. In the contemporary accounting practices, the social considerations in the process of making the business decision are becoming important in the process of ensuring accountability of the organizations. However, some organizations do feel accountability, especially when considering the social consideration in the management of the organization as increase expenses. As a result, such organizations tend to fail in ensuring that they are accountable for their operations. The failure such organizations to ensure that they are accountable create some conflicts with the stakeholders as the interests of the stakeholders are usually not considered in the business decisions (Ashbaugh and Pincus, 2001). Consequently, such organizations are likely to have a bad corporate image in public hence experiencing a decline in their market share. The Lehman Brothers considered accountability as costly and decided to manage the organization without the considerations of the stakeholders. As a result, the stakeholders especially the customer and the shareholders lost their trust with the company as the management of the company was not considerate to their interests. The managers of Lehman Brothers were operating in a way that was against the interests of their bosses who are the shareholder. The shareholders do expect managers to manage their funds in accordance with their interest but the manager sin Lehman Brothers decided to follow their interests in the management of the company. Accountability to the stakeholders According to the stakeholder theory, the stakeholders have some interests that they expect the organizations to meet. Failing to meet these interests can easily result in stakeholder conflicts with the organization. Some of the stakeholders that are common in any organization can include investors, customers, employees, shareholders, suppliers and creditors among others. The conflict of interests between the organizations and the stakeholders is mainly associated with the failure of the organizations to consider the interests of the stakeholders. It is only through the accountability of the organizations that the conflict of interests can be eliminated as through accountability the organizations can ensure that the stakeholder interests are considered (Nobes and Parker, 2008). The social and environment accountability has been associated with the accountability of organizations. It has become a contemporary issue in accounting where organizations are now making use of accountable accounting practices to ensure that the interests of the stakeholders are considered. Organizations have realized to need for social and environmental accounting as through accountability in accounting practices the interests of the stakeholders are considered. Increasing accountability and transparency of the accounting practices in organizations is crucial in ensuring that the invested funds in the organizations are managed in a way that guarantees accountability. There are many changes that have been taking on accounting practices in the contemporary world where the corporate image has been considered as a crucial strategy in achieving competitive advantages. The social and environmental accountability can be promoted through ensuring that there is increased sharing of information. Through accountability, organizations can ensure that the necessary information and ideas are passed to the stakeholder making them aware of the various decisions made in the organizations. It is through proper communication and sharing of ideas that can assist in ensuring that social and environmental accounting is embraced. Ensuring sharing of information the interests of the shareholders can be met in an easy and better way as the stakeholder are encouraged to share their opinions with the organizations hence ensuring that their ideas are considered in the different organizational decisions. The engagement of the stakeholders can be better encouraged through improved information sharing where the organization can be in a position to understand the stakeholders (Turley and Zaman, 2007). Also, organizations can be in a position to ensure that they keep the stakeholders updated through providing the different information concerning the organizational affairs. Considering the case of Lehman Brothers and Enron, the two companies kept the stakeholders away from the affairs of the organization where they could not engage them. Besides, the accounting practices of the two companies were not considering the wealth maximization interests of the shareholders as they adopted accounting practices that only considered their interests. Accounting provides an important mechanism for increasing accountability of any organization through ensuring that the accounting practice adopted are accountable and do consider the social aspects and responsibility of organizations. The stakeholder perspectives of stakeholders are usually developed by the way an organization is accountable for their operations through social and environmental accounting (Fok, Hartman, and Kwong, 2005). The stakeholders of any organizations have the right to know the affairs of the organizations where the organizations can only keep the stakeholders updated on its affairs through being accountable. The stakeholder accountability in organizations has promoted understanding and relationship that can improve organizational performance. Organizations can receive support from the stakeholders through improving the relationship existing between the organization and the stakeholders. Failing to develop the relationship of the organization and stakeholders can result in organizational failure where organizations can face numerous resistance from the stakeholders (Callao, Jarne, and Lainez, 2007). Organizations can fail in developing a good relationship with the stakeholders through failing to consider their interests the organizational affairs. As a result, the implementation process of strategies can face challenges due to the lack of support from the stakeholders. Accounting can be considered to be social in nature where the relevant individuals can be involved in the accounting practices of an organization. For instance, shareholders can be engaged in the accounting practices of an organization to ascertain that their funds are managed in a way that considers the interests of the shareholders of maximizing their wealth. Engaging shareholders in the accounting practices can only be possible if the organizations are responsible and accountable (Brigham and Ehrhardt, 2010). Through the engagement, the shareholders can have trusted with the organization where they can be able to access different financial information of the organization. Conclusion The social and environmental accounting in any organization entirely depends on of the level of accountability of the organization. It is only through accountability that organizations can be in a position to ensuring that the accounting practices adopted do consider the interests of the stakeholders. Considering the role of ensuring accountability in the management of the fund of the shareholders, improving the image of the company regarding the management of the company is crucial. This is the consideration of the environmental and social issues in accounting that the shareholders and the potential investors can create trust with the organization. The accountability of the organization to its stakeholders is crucial in ensuring that the business environment and the relationship existing between the organization and its stakeholders. The organization that needs to ensure accountability in their operations should ensure that the employees are properly engaged because it is through engagement that the corporate image of organizations can be improved. References Al-Mudhaki, J. and Joshi, P.L. 2004. ‘The role and functions of audit committees in Indian corporate governance: Empirical findings', International Journal of Auditing, Vol. 8, pp. 33-47. 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