Critical Perspective On Accounting And Traditional Financial Reporting Framework

History of Green accounting

What is the traditional account?

What is financial reporting framework currently being use?

Emphasis in accounting concepts, double entry, financial performance of of company?

It does not go for great accountability (environment accounting ETC/CSR) relevant or not?

Is traditional financial reporting framework relevant for greater corporate a beyond investor, leader, creditors?

Suggest method to overcome this,

4) What is currently being done to address social & environmental problem?

The objective behind critical perspective on accounting is providing forum in order to grow the accounting researcher and practitioner who can get the fact that conventional theory and practice is ill-suited to the challenges of today’s environment. They also understand that there is link between accounting practice and corporate behavior and are connected with the today’s social, ecological and distributive problems. This is a point of concern and some new literature reformulating the activities related to corporate, politics, practical, social and theoretical means.

It is widely spread that but not accepted universally that industries not only have to provide accounts of financial performance of industry, but also provide accounts of their social and environmental performance (Schaltegger and Burritt, 2010) and we will critically analyze this point throughout our discussion. In the research I found the article giving suggestions across time upon the traditional financial reporting framework goes with some modification and relevantly call greater corporate accountability. I dismiss such suggestions. I believe accountants should have the ability through with they can contribute towards extending accountability beyond investors, lenders and creditors and can serve these interest greatly. Many core accounting concepts like double entry, finance performance of the company need to be abandon. I will also discuss the relevance of traditional accounting framework in terms grater corporate beyond investor, leader, creditors. The paper further concludes through questioning accounting and business educator social responsibility. I critically Analyze here that accountant can play their role towards saving the planet.

Non-financial accounting was initiated twenty years back and it is taken as financial accountings subcategory and it focuses on the information disclosure other than financial record of the organization to external parties that are shareholders, capital holders, creditors and other managerial persons (Mathews, 1997).  Such a disclosure contains the activities that have a direct impact on society, environment and organizations financial performance.

To understand accounting twenty years later, we have to look at accounting ago twenty year. While researching I observe that the main role performed by accounting was recording market-mediated transactions and also provides the numbers which served as observable contracts bases. I also noticed that the numbers estimated in financial statement are good if the prices behind them are high. In addition to that, prices in total efficient markets can motivate people for engaging in activities that were socially detrimental as people did not include externalities like environmental degradation.

The main fact I found in Daniel, (2013) article is that, if there is no price or fine on polluting environment on firms then they will pollute the environment as much as they require for maximizing firms profits. Financial statements on the prices can states that organization got their profit by creating social destruction and also makes messes which will cost socially to remediate.

Green accounting twenty years later

Instead of criticizing accounting for their failure towards such externalities I strongly fell and will argue that governments has to force organization for their internalities and externalities and they can achieve this by cap-and trade markets establishment for pollutant. As we discuss above I want to criticize here, which is quite obvious that the organization pollute the environment most are also ready to pay most for certificates. Manager trade off organizations’ productive capitals refining costs, due to this it is less polluting as compare to certificates buying costs.  

Now coming towards role of accountant in saving the planet, according to the Daniel, (2013) article, I argued here that organization can stick towards their traditional role which is to record the consummated transaction in market. The auditors have to play their roles and should ensure that the organization obey emission quantities stated and allowed in their purchased certificate and do not go beyond that.  

Manager and accountant of organization have incentive that they can disclose asset retirement obligation because in the competitive capital market these manager and accountant can convince the investor about the reliability of disclosed amount. The organizations capital cost and future payment of auditor’s are depend upon the reliability factor. If the disclosures are not reliable and favorable then the investors assume the worst situation and also pay the organization’s securities and service of auditors unfavorably.

After twenty years managers are now in better position because accounting standards are much better and is discussed in following topic.

According to the facts discussed by Deegan (2013) in his article, the Asset Retirement Obligations (ARO) Canadian firm require is introduced in CICA’s section 3110, in 2004 in order to estimate ARO’s. Simplified version of this standard was incorporated in accounting for private companies when Canada switches to International Financial Reporting Standard (IFRS). Under IFRS, International Accounting Standard (IAS) 37 same requirement they include for recording the ‘constructive obligations’, this obligation is exist when organization has promised for expenditure reclamation beyond the liability laws.

Promissory estoppels was defined in section 3110 and this is a legal principle which is assurance made to prevent injustice at the following situation.

The deal was between promisor and promisee and it intended to affect their legal relationship or contract acted on.

The person who made promise i.e. promise should act on promise in some way changed position.

Liabilities are recorded under AROs which is similar to the current value of predicted future cost in terms of cleaning the environment, also adds the costs of assets related to it. The government of country is act as promise who allows the organizations to establish its operations which sustain their promise of maintaining clean environment (Gray, 2005). In upcoming years, the organization accretes the liability and buildup is recorded as ‘interest expense’, and asset are depreciated as its useful life. Calculating the interest and depreciation result in material amounts. Here I come towards the conclusion that the market can price the organization’s AROs as it was twenty years ago.

Traditional accounting and financial reporting concept

Measuring the amount of tangible products like smartphones, jeans clothes and bread and its production and sale is the exclusive focus of financial report. Today’s business environment is based on information technology, it is digital computers’ courtesy and hence tangible assets and stuff are not the only priority of today’s organization and hence organization cannot have to depend only on those sources. Intangible sources or wealth that is knowledge and data are new advent of today’s information environment.

This new wealth come in front of business people and become visible when information technology providing companies like Twitter and Facebook are listed publicly and not only listed but their share prices are just booming though the companies make no or little money. All traditional accounting concepts and facts are left behind due to this new phenomenon. The main strength or wealth of this new age IT companies is in their software and geeks, and in accounting term it is called as human capital and intellectual capital (John, 2015). As the world changes the new accounting paradigm should change and need to capture the new wealth.

There are numerous new and narrative reports of companies from 1990s which encourage corporations to consider their externalities, along with the notable environmental, social and governmental reports and are referred to as non-financial or sustainable reporting.  Social and relationship value and natural capital are new values are defined by accountants in order to capture sustainability data in corporate reports. These two capitals and additionally financial and manufactured capital which is known as traditional capital, forms the base of the new ‘six capitals’ accounting model and this is known as integrated reporting and is administered by the International Integrated Reporting Council (IIRC) (John, 2015)

Numerous organizations conducting discussion at their level about financial reporting boundaries or we can say about relevance of financial reporting. In this context some organization argues that the investors extending beyond their traditional accounting boundaries of financial statement, the information is relevant for them and at the time growing interest of corporate reporting integration is across the broader range of performance information and it is least for some (Deegan, 2013). It is found that already there have been some problems about the traditional financial statements boundaries. For example, the financial statements in a document can be presented outside under the IFRSs particular mandated disclosures and it is available under the same terms as financial statement ad at the time of cross references from financial statements to that information.

In the last decade, the changing needs of users have evolved by financial reporting in fact it was nature of financial reporting.  During this period challenges of business and capital market have been increased along with the greater business models complexities, risk and uncertainty has become part of source and risk management has become sophisticated. Since the last decade financial service sector experienced continuous significant growth and securitizations has created as a new asset classes (John, 2015). It is need of current business sector that financial reporting have to keep up with these changes, in a significant way and has to make use of fair value accounting widely and more complex and judgmental measurement is required for it. This change shows an upcoming trend towards user relevant information provision, even though such information may be more subjective and less reliable.

Disclosure requirement and practices of financial reporting have to go through these changes and also had to respond them and it is done by shifting from breakdown which simply provide offline items on the face of financial statements, up to the providing disclosures in more detail. It incorporates disclosures of assumptions, models, bases of alternative measurement and estimate uncertainty resource in between others (John, 2015). Hence disclosures have considered as balancing item in terms of providing credible and useful decisions information.

The role of organization towards social and environmental responsibility is the central issues of discussion with in organizations governance and objective behind this is maximizing profit of shareholders.  According to the facts explained in Deegan, (2013) CSR lead the organization towards better financial performance. The news paper article on this topic also raise the fact that today people are becoming aware about the environmental and social issues and they also support the organization from buying their product and other means who have cleared their social and environmental performance than the organization taken less environmental responsibility. CSR has forced organization to integrate their sustainability element into organizational competitiveness.

I have taken example here to show how organization calculates their Environmental Protection Costs; it is review of one fiscal year.

Below table shows costs and benefits of environmental conservation activities performed by Sumitomo Forestry Co. Ltd., Japan. They promote environmental sound management through this.

Category of the Cost	Initial Activities	Required Costs (Unit: million Yen)
Operations Costs
1.      Cost required  for pollution prevention	Soil contamination survey	0.41
2.      Cost for global environment protection	Forestry cultivation, environment related business, carbon offset	936
3.      Cost for resource recycling	Chip distribution operation on waste wood, potting mix business, recycling industrial waste	4319
Upstream or downstream costs	Green purchasing	200
Activity cost management	Environmental management operation and its promotion	112
	Disclosure of environmental information and its administration	1,553
R & D Cost	Research on Environment conservation activities	303
Cost required for social contribution	Forester House management	23
	Participate in social event and activities	2
	Total	7,448.41

Benefits for the environment achieved from above activities are shown in below table:

Category	Description	Results
1. Operational cost benefits achieved	Volume saved from operation of recycling waste food	1,183,000 m3
	Volume sold of potting mix by water purification recycling	25,000t
2. Upstream or downstream costs benefits	Increased green procurement ration	72.2%
3. Management activity cost benefits	People attend sustainable Forest Gallery	5,000 people
	Employee get designated as internal environmental auditors	59 people
4. Social contribution benefit achieved	Participated volunteers	324 people
	Participation of children in environmental education program	546
	Visitors visits to company’s forester house	2,500 people

Conclusion:

In this research we find out the facts of accounting concept in the context of corporate forum. At the end of the research it is found that organization should take the responsibility of showing their accounts of their social and environmental performance, which is known as corporate social responsibility (CSR) or corporate environmental responsibility. When we talk about accounts of such performance, it implicitly become responsibility of accountant to create environmental accounting reviews i.e. the environmental protection costs firm spend per year. Hence I agree the term that accountant will have central role in saving the planet according to my critical analysis.

Reference List:

Deegan, Craig (2013), The accountant will have a central role in saving the planet…really? A reflection on ‘green accounting and green eyeshades twenty years later’, Critical Perspectives on Accounting, 24 (6) 448-458.

Schaltegger, S. and Burritt, R. L.(2010). “Sustainability accounting for companies: Catchphrase or decision support for business leaders?”, Journal of World Business, Vol. 45, Issue 4, October, pp. 375–384,

Mathews, M. R. (1997). “Twenty-five years of social and environmental accounting research. Is there a silver jubilee to celebrate?”, Accounting, Auditing & Accountability Journal, Vol. 10, No. 4, pp. 481–531, MCB University Press

Gray, R. (2005). “Current Developments and Trends in Social and Environmental Auditing, Reporting & Attestation: A Personal Perspective”, (E-Journal)

John, F. (2015) The International Integrated Reporting Council: A story of failure, Critical Perspectives on Accounting, Vol.27, pp. 1–17