Discuss about the Crowdfunding, Sustainability Reporting and Risk Management.
The purpose of this report is to provide brief introduction about the review of literatures. The report explains information about the risk assessment crowdfunding and sustainability reporting aspect of financial accounting. The report explains the key features of risk assessment that are related to the financial reporting and how the manager manages risk related to the activities of the organization. Further, talking about crowdfunding it should be noted that this aspect explained the way an organization can create source of funds with the help of people at large. And sustainability reporting refers to the act that is initiated by the organization in response to taking care of the environment. Further more details about the report are discussed below:
Risk Management
According to Bromiley et al (2015), risk management is the identification, measurement, evaluation and prioritization of risks followed by cooperation, coordinator and economical application of resources to monitor, minimize and control the probability or impact of unfortunate events. Risk management may be defined as a practice of identifying and analyzing the potential risks, evaluating and taking the effective and unique steps to minimize the risk. It refers to the identification, control, measurement and avoidance of unacceptable and unnecessary risks and challenges. Aven (2016) stated that process of risks management includes assessing risks and taking unique and suitable steps that main aim to handling them. The main aim of the risk management is to preservation of the human and physical assets of the organization or company for the successful and effective continuation of its functions and operations (Lam, 2014). In other words, it is important for the company because an organization cannot define and explain its objectives for the future (Wolke, 2017). Along with this, a risk management team is accountable for evaluating and identifying each risk and measuring which of them are vital and critical for the business operations (Chance and Brooks, 2015). Risk management may be defined as a number of actions and procedures that permit managers to identify, monitor, and address before they convert into issues and problems. It is a manageable and straightforward process. It has been stated by Beske and Seuring (2014) that risk management is essential to change in management style in the organization.
The managers and leaders should deal with both the situations of events that occurred and to formulate and initiate actions that are eventually to minimize risks so that the company can run its activities and operations in good conditions (Sadgrove, 2016). Along with this, risk management provides efficiency and effectiveness in terms of attaining goals and objectives. Considering the view of Burke (2013), risk management renders suitable situations for a healthy internal control which ensuring the functioning of internal and effective control includes a difficult set of management actions to sustain suitable assurance that goals and objectives would be attained. Risk management includes analyzing and identifying risks interconnected to build activities and formulating means to respond to them (Hopkin, 2017). It is further analyzed that risk management is a process created and established by management and initiated by the entire staff within the accounting and finance department (Michalski, 2013). This process entails of explaining the risk strategy, analyzing and determining risks, cost control, monitoring, reporting and observing the circumstances of the risks. Risk management represents a difficult process that uses resources, humane and financial to accomplish the long term goals and objectives (Burke, 2013).
According to Aven, 2016 the risk management is the process of evaluating risks involved with practices of business. The goal of risk management in accounting is to minimize the risks involved. The risk comprises the damages which can happen to resources of a company (Aven, 2016). The company encounters different types of risks such as employee liability, loss on investments, equipment breakdowns, and product liability and so on. There are some risks in the accounting which are acceptable known as risk tolerance. At the time of eliminating risks, tradeoffs and opportunity costs should be given weightage. The acceptable risks can be identified by the accounting practices (Džmurá?ová, Hejdová and Teplý 2018). The categories of acceptable risks are financial, human, environmental, physical risk and more. The category of financial risks includes the practices which may result in financial instability. The financial risks are associated to the practices of management. The poor management practices affect the level of financial risks such as bad investments and misallocation of resources. The human risks are linked to the human elements of an organization. It includes the risks linked with the probability of human errors and judgment. It also includes the loss incurred from the loss of key employees. The environmental risk includes the external factors which cannot be controlled by the company such as power outages, natural disasters and more. While the company cannot control the outside forces but it can control the potential damages. The company implements emergency disaster plans and protocols as precautionary measures (Nobanee& Abraham, 2015).
There is need of risk management in the accounting activities. It can be experienced from the uncertainty of the nature of threats. According to Williams, et. al. 2016, the implementation of risk management is necessary due to various factors such as the change in management style. The management deals with the consequences of events and the measures which are required to reduce risks (Williams, et. al. 2016). This way an organization can carry out activities in a better condition. The risk management have role in facilitating effectiveness and efficiency in terms of achieving objectives. It implements necessary measures to reduce and limit unwanted effects (Tessema, 2016). The risk management enables healthy conditions for the internal control. It ensures management measures in order to obtain organizational objectives.
As per Reason, 2016, the risk management involves the activities which are related to the developmental activities. It also forms means to achieve them. It also considers the means to respond by considering the risk already materialized. The risk management process should be rational and convergent, incorporated to the objectives and operations carried out under the accounting and financial structure (Kothari, Mizik&Roychowdhury, 2015). The staff should also be aware of the risk associated with the risk management. It is helpful in achieving objectives, implementing, monitoring and controlling principles of efficiency and effectiveness. The financial and accounting advisors are liable to analyze risks to limit the consequences.
Crowd funding
The term crowdsourcing was used by Jeff Howe and Mark Robinson for the first time in their June 2006 edition of “Wired magazine”. Kleemann et al. (2008) defined this term for the first time like this is a task specifically takes place when any organization making profit outsources to produce or increase sale of its products to the people through an open invitation through internet. In 2008, several studies (including Brabham, 2008a, and Kleemann et al., 2008) identifies the web 2.0 development as a suitable tool to develop the process of crowdsourcing. Authors of these studies have argued that the structure of web 2.0 can be used by the organizations to reach out for wider networks of consumers to make their crowdsourcing more efficient. Venture growth and associated need of capital make it necessary to identify new sources for funding purpose. One of these new sources for funding is collecting funs through the contribution made by individuals instead of professional market investors (Belleflamme, Lambert, and Schwienbacher, 2014). Three different kinds of actors are involved in typical crowdfunding: intermediaries, fundraisers and investors (Tomczak and Brem, 2013).
Lee et al. (2008) described the platform or structure of web 2.0 from different point of views. Technically they described it as a computer based programme or structure that processes the information data automatically, spreads the meaningful information easily and recollect the essential data in some other formats. Their sociological description state that web 2.0 is the foundation of network creation of the people having similar interest. Number of social venture still relay partially or completely on public grand and donation (Fedele and Miniaci, 2010).According to Keelmann et al. (2008) organizations or companies use crowd as a source of cost reduction. This fact is especially true in the context of developed countries where these social enterprises act as a mediator between private and public sectors for the social support (Lehner 2011a).In developing countries such programmes are seen less popular as compares to that in the developed countries. On the other side that is progressive, several banks like Kiva (Larralde and Schwienbacher 2012) or Grameen Bank have emerged, dealing with socially desiring micro-financing and other sustainable investments. According to Brabham (2008b) efficiency of such crowd sourcing in terms of solving problems of the organizing companies is directly related to the composition of the crowdsourcing programme. He states that “more the diversity of programme, more will be its efficiency” (Xia, and Chen 2018).
Lambert and Schwienbacher, (2010) conceptually expanded the definition of crowd funding describing it as an invitation to the people through internet or some other modes of advertising. These invitations are intended to collect or raise financial resources to start a new venture in the market. They states that such financial resources are raise either in the form of some social donations or in exchange of rights, rewards, and other benefits by the newly upcoming organization for which funds being raised. These funds are the financial support for the organization of business venture. A study of Lambert and Schwienbacher (2010) suggests that many projects of different organization, that are financed by crowd funding, live from donations instead of offering rewards or any other benefits to their investors. Cosh et al. (2009) states that raising or attracting capital is one of the major problems entrepreneurs are facing today. They states that entrepreneurs starting a new venture are depended on their family, friends, and their own savings for the funding of their new venture. In the recent times some entrepreneurs started relaying on internet to raise financial funds for their venture. In this context crowd funding is can be defined as a permit to raise funds for creative and innovative investments in the pre-existing businesses as well as for new ventures (Schwienbacher and Larralde, 2010). Such investments are made through internet or any other digital media on which the organization or company relay for fund raising. Although the phenomenon of crowd funding is old technology advancement has spread it as the mode of communication and crowd funding is internet. This use of internet, in the modern technical era, for crowd funding to raise money can be revolutionary for the small business industries and new start-ups. In fact SMEs that may have face difficulties in raising fund have access to the people around the globe which can help them in raising funds (Bradford, 2012). This impossible all because of the technology advancements in the field of communication and banking.
Today there are around 500 platforms with different services they provide. In this sector of crowd funding “Kickstarter” is the leader. Research states that since April 2009, more than 3 million peoele have assured over $500 million for more than 35,000 innovative projects (Rossi, 2014). In an empirical research Lambert and Schwienbacher (2010) finds that 22% of their samples of crowd funding they took for the research are relaying on donations.Crowd funding is becoming popular very fast among the entrepreneurs in the last decade. Although it is becoming a phenomenon around the world, Europe and North America are dominating the industry raising 35% and 59% of total worldwide capital raised through crowd funding (Rossi, 2014). Such trends show that the crowd funding is one of the most efficient ways to raise funds for new ventures and small business enterprises. Crowd funding is developing continuously as the intermediary’s numbers are increasing rapidly (Mahlstede, 2012). In the field of finance and accounting this culture of crowd funding is showing much progressive trends as it is becoming the key element of raising funds for their new ventures and funding for start-up projects of new entrepreneurs. This increase in the popularity of crowd funding is only because of the technology advancement and its efficiency in terms of raising funds easily in comparison to other fund raising ways. Now a days when the number of investors rises in an incentive other investors show lower interest in investing bigger amount as they expect that the incentive is fully funded by the donations and other mode of fund raising (Smith, et al. 2013
Sustainability reporting
According to the Calabrese, et al 2016, a sustainability report is the report that is published by the company or an organization about the economic environment and social impacts that is caused by the day to day activities. In simple words, this is the report which provides the information about economic, social and environmental performance that is related to the performance (Calabrese, et al 2016). In addition, the researcher stated that is not only the report that has been produced from data and statistics but it is the way through which the companies can bring the enhancement in the organization committed to the sustainable development for both internal and external stakeholders. Contradicting the same, Milne and Gray, 2007, stated that the sustainability report presents the values and governance model of the company because this is the way through which the company can demonstrate the link between the strategy and its commitment to a sustainable global economy (Milne and Gray, 2007).
According to the GRI, 2011, the sustainability reports is mainly defined as the triple bottom line agenda along with the international standards like Sustainability reporting guidelines fostered by the Global Reporting Initiative that is formed on the basis of the TBL approach (GRI, 2011). In the sustainability report include financial and non-financial details because it is essential for the stakeholders while making the investment in the business or project of the company. In addition, the author reflected that the sustainability report of the company includes the annual report, social report, environment report and a set of the integrated performance indicators. Along with this, the report shows the integrated information system and the key indicators of the performance for the corporate sustainability.
Sustainable report reflect details for the business aspect
Considering the view of another Lozano, Nummert and Ceulemans, 2016, a sustainability reporting allows the companies to report and check the collective corporate performance. The aim of the report is to build the fair and true view of the business situation for managing stakeholder’s relationship. The author stated that fundamental tool can fulfill the needs of the diverse stakeholder’s group that can affect the concept of corporate accounting which is one of the most important components of the business theories (Lozano, Nummert and Ceulemans, 2016). Moreover, this report provides the opportunity to accomplish complete view of the behavior of business operations. This shows that this sustainability report is linked with the business theories that are important for the company’s working. Moreover, in relation to the more complete view of the business behavior, the company should define and present a set of the integrated performance indicators which include the cross-cutting indicators. The author states that cross-cutting is associated with the technical and physical quantities to the financial ones (Adams and Frost 2008).
Sustainable report reflect details for the financial aspect
According to the Junior, Best, and Cotter, 2014, the sustainable reporting also provides the supports to the financial details. The companies in the competitive world believe in maintaining the transparency of the financial aspects of the company so that the investors of the company can make the decision for the project. Moreover, the accountants of the company are also involved in presenting and evaluating the financial information by presenting and evaluating both financial and non-financial details (Junior, Best, and Cotter, 2014). The financial details that are offered by the company in their sustainability report will make the stakeholders aware of the strategies and goals of the company in the near future. Along with this, they will be able to analyze the profitability of the company which is essential for the investors because decisions of the investors are based on the amount that they are going to get in return (Flammer 2015). It is essential for the investors to evaluate which project will provide the maximum results due to which they make the comparison on the companies (Unerman, Bebbington and O’Dwyer, 2010). Along with this, the companies are also bonded under the ethical and correct corporate governance due to which they provide the transparent and actual financial through their sustainability report (Ioannou, and Serafeim 2017).
Isaksson and Steimle, 2009, stated that most of the well-known company include IBM, HSBC, and Roche among others are pursuing the sustainability as the business strategy. This practice is performed by the companies because they want to win the trust and wants to enhance the value of the shareholders. The analysis reflects that the sustainability report present and prepared with the help of the numerous methods such as MDG, UNGC and GRI reporting framework (Isaksson and Steimle, 2009). On this, another Kolk, 2008, shared his views in which he said that with the rise in the prominence of the non-financial information on the role of the corporations, accountants’ role has widened to consist of the sustainability reporting (Kolk, 2008).
Sustainable report reflect details for environment aspect
According to the Martínez?Ferrero, Garcia?Sanchez, and Cuadrado?Ballesteros, 2015, the sustainable report includes the details related to the environmental aspects which are followed by the company (Schaltegger, and Wagner 2017). The environment report provides the details for managing and controlling the corporate activities and also provides the assistance to the communication with the stakeholders mainly to those who are interested in the environmental issues (Martínez?Ferrero, Garcia?Sanchez, and Cuadrado?Ballesteros, 2015). Most of the company reflect that framework which is used by them for safeguarding the environment. According to EPA (2013), the environmental management system is the framework that reflects the processes and the practices that can support the company to reduce the impact of the environmental factor and to enhance the operational efficiency (EPA, 2013). All these details are transparency reflected by the company in their sustainability report which helps the company to win the trust of the investors that they are dealing with the right company who is involved in ethical aspect (Chvatalová, Kocmanová, and Do?ekalová, 2011).
In the end, it can be said that the sustainability reporting is one of the most important aspects that provides the support and high value to the company in the market. Moreover, this sustainability reporting helps the company in growing the business in the competitive market (Martínez?Ferrero, Garcia?Sanchez, and Cuadrado?Ballesteros 2015). Along with this, the sustainability reporting through the light on the business as well as on the financial concept that is essential for the business
Conclusion
Thus, in the limelight of above mentioned events, the facts that are should be noted are that risk management, crowdfunding and sustainability reporting all the three aspects are very important for a business to function. These aspects are very important is financial accounting and management as well. The report outlines the three major aspects with relation to the financial management and accounting.
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