It was before the disastrous deep water horizon drilling rig explosion when BP was popular for its sustainability reporting. It was in 2010 when there was an explosion which was followed by fire that resulted in sink of deep water horizon. This explosion had a huge impact on the human lives – 11 workers were dead while 17 were badly injured (Donanldson, 2012). Also, there was an oil spill in the Gulf of Mexico and the cause for it was same as the explosion.
BP committed of developing energy, setting up efficient management systems and also of developing the community as a whole through its reports. However, this disaster of oil spill created a true corporate social responsibility issues (Freeman, 2011). It was easy to compare between the commitment made and the actual situation after the occurrence of such an accident.
All the companies prepare CSR reports in order to provide transparency about the companies’ actions and the affect that it might have on the stakeholders. The question that comes in the mind is that how is this explosion related to the social responsibility. The main objective of preparing the CSR report is for highlighting the issues that might affect the society in any manner (Hubig, 2013). Therefore, all the companies must make a true and fair CSR report so that it is reliable. In the case provided to us it is clear that there was a requirement of safety that was visible before the accident took place. However, this matter was overlooked.
Such incidents have proved the importance of the CSR reports, and therefore it has become very important to prepare the CSR reports according to proper accounting approaches and related standards. There are various approaches and standards for accounting the same so that public is provided with clear, truthful and reliable information.
The term ‘sustainability’ means fulfilling the needs of the current generation without foregoing the needs of the upcoming generation. This approach helps to monitor and assess the performance of the company in relation to social, environmental, governmental and economical aspect. These reports provide full disclosures regarding the opportunities and the risk that is present in the company (Mattessich, 2016). The CSR reports provide full information o the stakeholders that whether the company is able to fulfil its social and environmental obligations or not. Sustainability reporting is a quiet different from the traditional approach because along with the financial impacts all the non financial impacts that has caused due to company’s actions are stated therein. It is the duty of the company to present its corporate governance model so that the stakeholders can get correct and adequate information. These reports help them to know the gap between the promises made by the company and the actual performance. If the gap is wide then it is obvious that the company did not fulfil its commitment of developing and protecting the environment as well as the economy.
In the case provided to us, the public relations of BP is hurt because of such accidents, so it is now important for the company to adopt such approaches of creating the reports that would provide correct and reliable information to all the stakeholders whether internal or external. This approach of reporting would help the company to state its commitment of providing protection to the society as a whole (Paul, 2014). As the stakeholders trust has been hurt, the company has to undergo losses which has now made it alert and created a requirement of stating about tits internal controls, internal methods and the efforts for development that the company is doing. This would provide transparency and consistent report to the stakeholders. The reports are not only used by the investors but also the internal management of the company to help them know about the opportunities as well the risk that is there and take actions according to it (Pratt, 2009). If the company is successful in providing proper CSR reports then it may gain the faith of stakeholders once again. The company’s commitment and fulfilling such commitments shows its scope of survival in the long run. Therefore, we can conclude that many decisions from a long term view are taken on the basis of the CSR reports.
It is important to create a strong and efficient team to identify and manage the environmental cost. Full cost reporting is the accounting approach that mainly involves the identification of direct as well indirect environmental, economic and social cost because of which the company is getting affected in any manner (Rogers, 2015). These costs are important to be known by the internal management and are also used for external reporting. There must be a well designed framework to ascertain all the relevant cost involved and therefore EPA has come up with the total cost assessment method.
In this assessment method, there are four tiers of costs that involved. The tier 0 includes the direct costs only; Tier 1 is the combination of Tier 0 along with the indirect costs, Tier 2 includes both Tier 0 and 1 along with legal liability. Lastly, Tier 3 is the sum of all the three tiers mentioned in addition to the intangible costs. There lies a difficulty in the ascertainment of indirect cost and also Tier 2 and 3 are not recognised (Rosenfield, 2009). The reports provide information about the repairing cost of environment and also the penalties that has to be paid for damaging or depleting the natural resources. However, TCA involves a huge time to carry out the procedures. Therefore, this system is not preferred by most of the accountants. There has to be change in the views only then this system can compete with other effective approaches or methods that are considered favourable for the process of capital budgeting (Schnapf, 2011). It is significant to have a strategic approach towards the environmental cost, issues the future benefits taking into consideration the pressure built by the external stakeholders. While carrying out the evaluation, all the cost and benefits should be taken into consideration whether present or future. It has been observed that many companies in the recent times has started adopting the TCA tiers approach for the full cost reporting of the practices carried out. The growing expectations of the stakeholders create a pressure on the company to provide more comprehensive as well as detailed information.
In the current situation, there has been loss of faith of the stakeholders of the company and it is important for the company to regain their trust and therefore, it is expected by the company to provide more valuable and reliable information that would consist of all the present and future costs (Schroeder, 2014). The company might decide to issue the CSR report and also the full cost reporting while issuing the annual reports of the company. The reports are to contain important information such as details on the operating expense along with the measures and control taken for pollution and related Capital expenditure. They also state the amount incurred by the company towards remedial steps taken by the company for environment. The amount of provisions and liabilities made by the company towards restoration are also to be mentioned. The notes should clearly specify the cause of expense.
These reports are very important as they help the investors have insight in the working of the company. They represent the internal working of the company (Scott, 2014). Few of the actions of the company has hampered its relations with the stakeholders, the report on the expenses will help them ensure that the company has been trying to amend and take steps to correct the harm done. This will also help the management evaluate the benefits they derive form the cots they have incurred. It will help them understand if the costs incurred are actually generating any benefits or not, and steps which can be taken to ensure best outcomes. This report will help ensure that the stakeholders are well informed of the working and activities of the company and that the costs incurred are not being wasted.
Conclusion
There should not be just a provision of assurance, but a requirement of smart assurance is there. For instance, the reports are written in such a manner that it clearly shows the relationship of the company with the regulators. It is necessary to design the reports is such a manner that the information is easily communicable to the stakeholders (Wolk, 2013). These reports that are prepared by the company are assessed by an expert. It is the duty of the expert to provide full information and an unbiased opinion about the reports of the company. He should confirm if the company is being able to meet the stakeholders’ expectations. If such efforts are not made then the objective of preparing the CSR report will not be achieved. These CSR reports should not only be considered as a tool of public relation but it should also be kept in mind that many people use it to take investment decisions.
Donanldson, T. (2012). Ethical issues in business. New Jersey: Prentice Hall.
Freeman, K. P. (2011). Managing environmental risk through insurance. Boston (Mass.): Kluwer Academic Publishers.
Hubig, A. (2013). Introduction of a New Conceptual Framework for Government Debt Management. Wiesbaden: Springer Fachmedien Wiesbaden.
Mattessich, R. (2016). Reality and accounting. [S.I.]: Routledge.
Paul, K. (2014). Managing extreme financial risk. Oxford: Academic Press, Elsevier.
Pratt, J. (2009). Financial Reporting for Managers: A Value-Creation Perspective. Hoboken: John Wiley & Sons, Inc.
Rogers, C. G. (2015). Financial Reporting of Environmental Liabilities and Risks after Sarbanes-Oxley . Hoboken, N.J.: John Wiley & Sons.
Rosenfield, P. (2009). Contemporary Issues in Financial Reporting: A User-Oriented Approach (Routledge New Works in Accounting History). [S.I.]: Wiley.
Schnapf, L. P. (2011). Environmental Issues in Business Transactions . Chicago, IIIl.: American Bar Assocation, Business Law Section.
Schroeder, R. G. (2014). Financial Accounting Theory and Analysis: Text and Cases. Hoboken: John Wiley & Sons.
Scott, W. R. (2014). Financial Accounting Theory. Toronto: Pearson.
Wolk, H. I. (2013). Accounting Theory: Conceptual Issues in a Political and Economic Environment. Thousand Oaks, CA: SAGE.
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