The assessment directly aims in critically examining whether investors in the efficient capital market need any accounting information. In addition, further evaluation is also conducted on the possible of the International Financial Reporting Standard (IFRS) in helping companies to provide essential creditable information in the annual report. The critical evaluation has been conducted to determine the impact of the IFRS system, which has adequately allowed the investors to detect the accurate level of information for each company. The critical evaluations have been adequately conducted in the assessment for detecting the level of accounting information, which is needed by the companies to allow the international market to operate smoothly. The evaluation of the sustainability report is also conducted, which directly help in detecting the significance of the report for completing the internal market. The formats of the international reporting system are mainly evaluated, as investor tend to utilise the information provided by the company, while making their investment decision.
The relevant information from the organisation is mainly needed by the investors under the mainstream financial assumption, which allow them to take adequate investment decision. Furthermore, the investor’s information needs are relevantly different under mainstream finance and behavioural finance. The mainstream finance investors relevantly need adequate information, which can be used for generating high level of income from investment. Moreover, the investors in the mainstream finance are considered to be rational in nature, as they need adequate information before making any kind of investment decisions (Globalreporting.org 2018). Additionally, the mainstream investors consider that the investor is knowledgeable, rational and they act smartly in financial market. Hence, the information that will be needed by the investor conducting the investment in mainstream finance method are depicted as follows.
Information regarding the financial report:
The information that is needed by the mainstream finance investors are the overall financial reports of the organisation, which directly depicts the performance and return generation capability of the company. This information is mainly analysed by the investor to determine the financial performance of the company and understand their future trend (Cho et al. 2015).
Information regarding the Revenue and expenditure of the company:
The information regarding the revenues and expenditure of the company is mainly needed by the mainstream finance investors, as it helps them to estimate the financial progress and trend of the company. The information is mainly used for projecting the trend of the organisation, which is essential in making relevant decisions.
The data regarding the intrinsic value of the stock is also needed by the mainstream finance investor, which can detect the share price valuation and determine whether it is undervalued or overvalued. Ceulemans, Molderez and Van (2015) mentioned that traditional finance investors are assumed to be rational in nature, where they can adequately make prompt decisions for making investment decisions. The mainstream finance investors also need information such as price change of the stock, and the market for deriving the expected return, and risk of the company.
Behavioural finance investors mainly rely on information that is been presented by the company, which can generate higher returns from investment. The behavioural finance investors not only need information regarding the accounting term but the management decision that is been conducted by the organisation. There is certain information that is also needed by the behavioural finance investors, which are depicted as follows.
The behavioural financial investor mainly needs information regarding the overall social responsibility report of the organisation, which allows them to make adequate investment decisions. The behavioural finance investor directly responds to the ethical actions of the company, which help in determining the future trajectory of the management. The social responsibility report is mainly published by the organisation under the GRI guidelines, which help the investor in understanding the overall precautions and actions that is being taken by the management in conducting the business activities.
The behavioural finance investor also needs information regarding the management and the changes in decision for the company. The behavioural finance investors are not rationale, as they not only evaluating the financial accounting report of the company but also other information that are present in the annual report. These information are mainly analysed and evaluated by the by the investor in making relevant decision regarding the investment sphere (del et al. 2015).
Information regarding Tax management and financial position of the business:
The overall information regarding the tax management and financial position of the business is mainly needed by the behavioural finance investors. In addition, the tax management information might eventually allow the behavioural finance investors to determine the overall negative impact that the business will have on the changing tax provision of the government. In addition, the investors to determine the continuity condition of the company in future years also evaluate the overall business performance.
Critically examining the benefits of accounting information for the efficient function of the open international markets:
Accounting information is an effective measure that is provided by the companies to their investors, which allow them to make adequate investment decisions. Furthermore, there are major significance of the accounting information that is provided by the companies for conducting the efficient function of the open international markets. Junior, Best and Cotter (2014) mentioned that accounting information has been an adequate measure on which investors make relevant investment decision, as it provides them with trend of the company. In addition, the accounting information has certain benefits, which are depicted as follows.
Better information:
The authentic accounting information is mainly considered an adequate measure, which allows the investors to detect the accurate level of information that can be used for conducting the information. The major benefit of the accounting information is between financial data is being passed by the company to the investors, which enable them to make the relevant decisions regarding their expenses in the organisation. The accounting information that is provided by the company is mainly considered by the investors, which help the efficient function of the international markets. The ethical financial report that is provided with the help of accounting information directly depicts the current condition of the organisation, while allowing the open international market to function efficiently. Flower (2017) mentioned that investors with better information are able to make adequate decisions regarding their current valuation of the stock.
Greater Transparency:
The accounting information that is presented relevantly creates greater transparency to the investor regarding the current financial position of the company. This transparency in operations and financial health of the organisation directly allows the investor to evaluate the share price of the company in their current market values, which eventually makes the open international market to operate efficiently. The limited transparency in the financial information of the organisation would have negative impact efficiency of the international market, as investor would be reluctant in investing, while creating doubt regarding the information provided by the company. Hahn and Lulfs (2014) argued that loopholes in the current financial statement might greatly hamper transparency of the financial information that might be provided by the company, which is used by investors to make relevant investment decisions.
Better decision process:
The reliability of the information regarding the current financial data is mainly high, which can have positive impact on performance of the investor. In addition, the investor with reliable information that is being presented by the organisation to their shareholders can initiate the decision process. This information will eventually allow the investors in making decisions that can best suit their personal investment needs. The investors are able to make better decisions with the help of ethical accounting information that is being presented by the company, which directly supports the efficient workings of the open international market.
Increased investors’ confidence:
The reliable accounting information directly increases the investor confidence in the financial performance of the company, which in turn raises efficiency of the international market. The valuation of the organisation is mainly conducted with the help of information that is being provided from the financial report. Therefore, with the ethical accounting information the confidence of the investors is mainly boosted, as they are able to detect the level of future incomes and dividends that can be generated by the company over the period of time. Llena and Talalweh (2015) mentioned that confidence of the invertors in a particular company needs to be high, as it directly derives the overall share price value, where companies have no shareholder confidence will not have any value in the share market. The loss of confidence was mainly seen during the financial crisis of 2008, where investor was only selling the stock, as they were concerned about the financial integrity of the companies listed in the stock market.
High Quality Standards:
With the presence of high quality standards of the accounting information, the investors are able to ensure the financial capability of the company. In addition, the high-quality standards of the information might eventually allow investors to make relevant investment decisions.
Sustainability reporting is considered one of the major activities that need to be conducted by companies all around the world for support the current future generations. The sustainability reporting relevantly indicates that development needs to be conducted without compromising the ability of future generations to meet their own needs. Therefore, with the sustainability report of organisation, the investors are able to rely on the ethical measures that are being conducted by the company to ensure low negative impact on the environment. Furthermore, the evaluation of Global Reporting also indicates the different level of measurers that needs to be conducted by companies, while initiating their operations. The social equality report that is generated by the company with the help of global reporting initiative directly depicts their operational condition. Moreover, the report records economic, environmental, and social impacts that are being caused by the organization due to its daily activities. Calabrese et al. (2016) mentioned that with the help of sustainability reporting organizations can even consider impact and wide range of sustainability issues that arises from their actions.
Sustainability report has been embedded in the financial report segment of multinational organizations, which operate in different countries. Moreover, the companies that a listed in the financial market are also required to follow the Global reporting initiative for determining the different level of impact they have on the economy society and environment due to their continuous activities. Furthermore, Global reporting initiative has been adequately imposed on multinational organizations, which enable them to conduct different research for reducing the negative impact on environment, society, and economy. Currently, investors not only evaluate the financial reports of organization but also there is GRI reports, as it allows them to detect the level of research that is conducted by the organization to improve the current operations and increase their sustainability conditions (Fonseca, McAllister and Fitzpatrick 2014).
The sustainability reporting system relatively have standard that needs to be followed by organisations while preparing the reports. The GRI Sustainability Reporting standard needs to be followed by companies, as it is considered as an overall reporting guidance, which allows organisation to adequately prepare the sustainability report. The other sustainability reporting standard providers are Organization for Economic Co-operation and Development (OECD Guidelines for Multinational Enterprises), The United Nations Global Compact (the Communication on Progress), and The International Organization for Standardization (ISO 26000, International Standard for social responsibility). The identified standards relatively allow the organization to prepare the sustainability report in accordance with relevant rules which adequately depict the current operational condition and the impact they have on society, economy, and environment.
There are four standards that need to be followed by the organization according to the Global reporting initiative, which are depicted as follow (Globalreporting.org 2018).
The above-depicted standards directly allow the companies to report their accurate sustainability conditions, which allow the investors to understand their operational conditions (Globalreporting.org 2018).
Sustainability reporting has relatively affected the accounting profession as organization tends to alter the current operations in accordance with the GRI guidelines. Therefore, organizations are able to use the sustainability accounting measure to adequately support the sustainability reporting that needs to be conducted by accountants. Sustainability accounting is also known as, social and environmental accounting, corporate social accounting, corporate social responsibility reporting, and non-financial report. Furthermore, sustainability accounting directly comes under the financial accounting that is conducted by organization to derive the information regarding the non-financial activities that has been conducted during the fiscal year. The data regarding the non-financial information are relatively evaluated by the Accountants to determine the value of different activities that is being conducted by the company to comply with the GRI guidelines. Maas, Schaltegger and Crutzen (2016) criticized that due to the presence of unethical measures and loopholes in the current guidelines companies do not report the accurate non-financial reports to their stakeholders.
There are certain benefits that can be accumulated by the organization due to the accommodation of Sustainable accounting. These benefits are relatively distinguished between internal benefits and external benefits which are depicted as follows.
Internal benefits of using the sustainable accounting:
External benefits of using the sustainable accounting:
Hence, it could be assume that without the presence of adequate accounting measure organizations are not able to prepare the sustainable reports, which are needed by their stakeholders. Therefore, with the sustainable accounting the organizations are able to benefit both internally and externally, which relatively influences their current performance. Kozlowski, Searcy and Bardecki (2015) argued that many companies all around the worlds are not following thoroughly the GRI standards in preparing their sustainability report, which is reducing the efficiency and reliability of the standards.
After evaluating the current standards and regulatory system, certain improvements in the sustainability report can be recommended. These recommendations would eventually improve the existing regulatory system to be more social responsibility of the organizations. There are relevantly four recommendations that can be imposed or alter in the current GRI standards, which will enable the organizations to report their accurate non-financial activities to the stakeholders. The recommendations are as follows.
Scrutinizing the real-world use of the standard disclosures:
The major acceptance need to be conducted on the fact that majority of the companies have no idea what that current sustainability impact, while many of them publish sustainability reports that does not comply adequately with the general disclosure. Therefore, relevant scrutiny needs to be conducted for detecting the real world use of standard disclosures by organizations. Standard disclosure are a widely used by organizations while some of them are not reported as there two complex or removed from real life management. Hence, relative quantitative research needs to be conducted for detecting the disclosures of the companies by segregating, which are being reported and hidden (Hohnen 2013).
Reinforcing the principles for ensuring report quality:
The relevant reinforcement needs to be conducted on certain principles of Sustainable reporting, which ensures the report quality. The emphasis of the organization needs to be conducted on accuracy, clarity, compatibility, reliability, balance, and timeliness of the sustainable report. Sustainability reporting needs to be conducted as per the financial report, which is presented systematically, orderly and in a planned manner. Therefore, the current GRI guidelines need to be imposed in such a way that organizations prepare sustainability report in an orderly fashion and the present all the relevant information as needed by the stakeholders. This would reinforce the regulators to ensure quality repot that is being presented by companies to their shareholders regarding their current sustainability approach (Bsr.org 2018).
Improving the relevant business and sustainability information:
The standard disclosures that is needed by the GRE guidelines and astonishing level of details upgradation, which would ensure that your organization provide all the relevant information to the stakeholders. The higher level of disclosure and details different activities would relatively depict the operations conducted by your organization are in accord with the sustainability guidelines. Hence, the GRE should relatively encourage the organizations to report the information that is relevant to the business and sustainability reporting. This would a relatively ensure high quality reports and information that will be shared between the organizations and their stakeholders.
Moving the standard disclosures from the main guidelines into the sector supplements:
Improvements in the current standard disclosure of the GRI need to be conducted under the sector supplements, as they are more relevant for the companies disclosing their sustainability report. The move will be beneficial to remove the standard disclosure from main guidelines to relevant sector supplements, which will ensure faster creation of GRI sector supplements that are more easily achieved and can be adequately compared. This will effectively ensure organizations to represent country level specific guidance to key markets, while influencing the reporting requirements at country level. This would ensure that organizations present the sustainability report in accordance with the needs of the stakeholders.
Conclusion:
The assessment relatively evaluates the current sustainability reporting system that is being used by organizations to prepare the report for non-financial activities. There is an adequate guideline that is provided by global reporting initiative that needs to be used by organizations to prepare the sustainability report and depict their current operations, which impacts society, environment, and economy. Critical evaluation of accounting profession has being relatively conducted, which depict the benefits that are obtained by the organization while imposing sustainable reporting system. Companies have to relevantly follow the guidelines of Sustainable reporting, which allow the Accountants to improve the current operations, efficiency, and profitability of the organizations. Therefore, it could be understood that with the help of sustainable reporting organizations are benefiting more, as they are developing additional means to improve their operations, while reducing the negative impact on environment, society and economy. Lastly, adequate recommendations are provided to improve the current sustainability standards that are being used by organizations for improving their current social responsibility conditions.
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