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Why need accounting standards for sustainability reporting?

Why are accounting standards for sustainability reporting (social and environmental reporting) urgently required? In your comments address the following:

1. Explain of social and environmental reporting
2. Discuss the increase in the provision of such information
3. Discuss the different parties calling for such information and their motivations
4. Analysis of whether an accounting standard could cover this (if so, why, and if not, why not)

Solution Preview

According to the Global Reporting Institute, a "sustainable global economy should combine long term profitability with ethical behavior, social justice, and environmental care" (www.globalreporting.org). The cries for organizations to integrate outcomes in terms of more than just profits, to include impacts on environmental, social and governance issues, are getting louder (Journal of Accountancy 1998, Whitley 2006). Why?

Our capitalist economies are creating harmful side effects that are invisible to most stakeholders of the plants and its inhabitants. According to Elkington, director of www.sustainability.org (2012), we currently consume at the rate of three planets-worth of natural productivity (assuming EU average), five plants (assuming US average) or six planets (Abu Dhabi forecast). For the accounting profession, the problem is that we are not REPORTING these alarming facts. After all, aren't the reporting professionals likely the very talent to inform stakeholders about measurable outcomes? And if we do not embrace this task, will we concede this work to another set of professionals? So, in a world suddenly more conscious than ever before about sustainability issues and production constraints, there is increasing demand for information about disturbances to the environment, green practices, responsible stewardship of resources and good citizenship. Both reporting practices and management accounting practices are beginning to change (Bouten & Hoozee 2013) with the momentum building. The goal of the sustainable movement is to meeting the needs of the current generation without compromising the ability of future generations to meet their own needs (GRI 2011).

Some argue that sustainability reporting is the most important development in accounting in the last two decades (Ionel-Alin 2011). Sustainability is viewed as environmental, social and governance factors that have the potential to affect long-term value creation and/or are in the public's interest. Traditional financial accounting systems do not reflect a complete picture of the company's impact, limiting the view to only financial transaction measures. Gray and Begginton (1992) claim that "few ideas can be considered as more destructive, for the notion of sustainable planet, as an economical system designed to maximize those aspects being measures by financial reporting" (pp. 6). In fact, organizational impact, both positive and negative, reaches are beyond mere transactions and impacts lives, the planet and public goods we all consume and share.

The added value of sustainability reporting is that is provides a more complete view of the actual consumption of the firm, not just resources they paid for, but also resources they consumed that are part of the public goods. Sustainability reporting is a lens that allows stakeholders a wider-angle view of operational impact. It also gives stakeholders a chance to pick winners and losers based on a bigger picture of costs to the world, not just costs to the individual firms.

RESEARCH

Environmental reporting and accounting is generating substantial interest, both in practice and in academia, as an area of growth and importance to a range of stakeholders that goes beyond the traditional reader of financial statements. Organizations are realizing that profits are not the only byproduct of their actions. The stakeholders and organizations seek a balance between economic, environmental and social dimensions, often coined as "sustainability." Most have become aware of the need to measure and reporting on environmental and social impacts, with some participating at high and others at lesser levels. And academic are excited about the new research questions such as "How will the reporting of non-financial measures impact organization?" or "Do those with better environmental records also show better management in financial areas?"

Adoption of sustainability reporting and the use of these measures for internal decision-making matters because it shows the breadth and depth of firm's awareness and responsiveness to how their operations impact public goods (air quality, water quality, and so forth) and outside persons (opportunity, equity, and so forth). Without management accounting information about corporate initiatives towards sustainable development and practices, the accounting profession cannot progress to ...

Solution Summary

Your draft is 2,557 words and 16 references and discusses the problem, research findings, professional practice and standard setting for sustainability reporting.

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