deegan6e_ch37

. Copyright 2010 McGraw-Hill Australia Pty Ltd PPTs to accompany Deegan, Australian Financial Accounting 6e 37-1

Chapter 37Accounting for corporate

social responsibility


Objectives of this lecture• Understand and appreciate the various issues associated

with social-responsibility reporting, including:– alternative perceptions about the social responsibility of

business– what social-responsibility reporting is– how social-responsibility reporting relates to financial

reporting– the possible linkages between social and environmental

performance and financial performance– the linkage between social and environmental risk and

business risk– the regulatory requirements for disclosure of social

performance


Objectives (cont.)• Understand and appreciate the various issues associated

with social-responsibility reporting, including (cont.):– the regulatory and industry requirements for disclosure of

environmental performance

– the trend towards sustainability reporting– the extent to which Australian organisations currently

disclose information about their social and environmental performance

– user demands and market responses to the disclosure of social-performance and environmental-performance information

– theoretical perspectives on what motivates organisations to present social and environmental information


Objectives (cont.)

• Understand and appreciate the various issues associated with social-responsibility reporting, including (cont.):

– some of the limitations of conventional financial accounting in relation to the recognition of social and environmental costs and benefits

– some of the various frameworks for social-performance and environmental-performance reporting


Introduction to social-responsibility reporting• Traditionally business entities perceived to be responsible

for their financial performance and that the principal stakeholders were the owners (shareholders)

• Views are changing; it is becoming accepted that entities also have responsibilities to a broader group of stakeholders (e.g. local communities, customers, suppliers, employees, creditors, government and even future generations)

• Entities now being held responsible for their social and environmental as well as their financial performance

• With the changes in expectations about responsibilities of corporations we would expect to find a change in the expectations about corporate accountabilities

• Changes in expectations about accountabilities in turn should lead to changes in corporate accounting


Definition of social-responsibility reporting

• Environmental and social reporting represent components of the broader form of reporting known as ‘social-responsibility reporting’ (SRR)

• SRR can be defined as ‘the provision of information about the performance of an organisation in relation to its interaction with its physical and social environment’

• This includes interaction with local community; level of support for community projects; level of support for developing countries; health and safety record; training, employment and education programs; and environmental performance


Social, environmental and triple-bottom-line reporting

• Social reporting:– is a component of social-responsibility reporting– provides information about an organisation’s interaction with,

and associated impacts on, particular societies

• Environmental reporting:– is the communication of environmental performance

information by an organisation to its stakeholders

• Triple-bottom-line reporting:– provides information about the economic, environmental and

social performance of an entity


Social, environmental and triple-bottom-line reporting (cont.)

• Represent new forms of reporting compared with financial reporting

• No single uniform approach generally adopted by all organisations

• No conceptual framework for social and environmental reporting—although the Global Reporting Initiative is attempting to develop a coherent framework

• Variation in how entities provide social and environmental information—obvious implications for comparing different entities’ performance


Triple-bottom-line reportingCharacteristicsProvides information that enables report readers to assess

how sustainable an organisation or community’s operations are

Interrelated objectives– financially secure (e.g. profitability)– minimise or eliminate negative environmental impacts– act in conformity with societal expectations

According to Elkington (1997):

Sustainable development involves the simultaneous pursuit of economic prosperity, environmental quality and social equity. Companies aiming for sustainability need to perform not against a single financial bottom line, but against the triple bottom line


Differing views of business responsibility• Friedman

– Rejected the view that corporate managers have any moral obligations

– Saw the responsibility of business to use resources to increase profits as long as it stays within the rules (to engage in open and free competition, without deception or fraud)

– Friedman rejects the view that corporate managers have any moral obligations or responsibilities. He notes (1962, p. 133) that the belief in moral obligations and responsibilities:shows a fundamental misconception of the character and nature of a free economy. In such an economy, there is one and only one social responsibility of business to use its resources and engage in activities designed to increase its profits as long as it stays within the rules of the game, which is to say, engages in open and free competition, without deception or fraud


Differing views of business responsibility (cont.)Alternative view• Managers should manage the organisation for the benefit of

all stakeholders, not just those with control over scarce resources

• Community-based surveys reveal that many individuals (Australia and overseas) believe that corporations are accountable for their social and environmental performance (extending beyond financial performance)

• Implications—if broad perspective adopted entity likely to provide information on wide range of organisation’s activities to satisfy needs of various stakeholder groups

• If we accept entity has a responsibility for its social and environmental performance then accountants (or others) should provide an account of social and environmental performance

• Accounting does not have to be restricted to ‘financial’ performance

• Need also to consider whether responsibility owed to future generations (sustainability)


Accountability• An organisation’s perspective of its accountability will directly

impact on the information (accounts) it provides• If an organisation considers it only has a responsibility for its

financial performance, then it will fixate on financial accounts• Historically, this restricted view of accountability has dominated• If an organisation believes it has an accountability for its social

and environmental performance, then it will provide social and environmental accounts/reports

• A definition of ‘accountability’ would be useful

Accountability involves two responsibilities or duties, these being

1. the responsibility to undertake certain actions (or to refrain from taking actions), and

2. the responsibility to provide an account of those actions


Accountability (cont.)

• Therefore, if a student undertakes a course (degree) in accounting and there is an overwhelming focus (fixation) on reporting about financial performance then those people in charge of the course (degree) would appear to be embracing a view that the major accountability (and responsibility) of an organisation relates to its financial performance (as opposed to also including elements of social and environmental performance)


Regulation of public social and environmental reporting

• Reporting about social and environmental issues within annual report remains predominantly voluntary

– A specific Australian requirement for companies to provide environmental information in their annual reports is to be found in AASB 116 Property, Plant and Equipment, which requires the cost of an item of property, plant and equipment to include the initial estimate of the costs of dismantling and removing the item and restoring the site on which it is located, the obligation for which an entity incurs either when the item is acquired or as a consequence of having used the item during a particular period for purposes other than to produce inventories during the period

– Section 299(1)(f) of the Corporations Act Details required in Directors’ Report of performance in

relation to any specific environmental regulation to which it is subject


Regulation of public social and environmental reporting (cont.)

• A further accounting standard that has some relevance to accounting for the environment is AASB 137 Provisions, Contingent Liabilities and Contingent Assets. Obligations relating to environmental performance could be considered to be either included in ‘provisions’ or ‘contingent liabilities’, depending upon the circumstances


Regulation of public social and environmental reporting (cont.)As with environmental performance, organisations are generally not required to publicly disclose information about their social performance

No requirement for an entity to disclose information about:

support of local communities employment or education policies support of charitable organisations

Disclosure remains voluntary—entities often exclude information that portrays them in a negative light


General reporting requirements• No other annual report requirements that relate specifically to

environmental performance or environmentally related expenditures or obligations

• Note general reporting requirements

– True and fair financial statements (s. 297 of the Corporations Act)

– Material contingent liabilities to be disclosed in note to accounts (AASB 137)

• More stringent regulations in other countries


Other reporting requirements

• National Pollutant Inventory• Australian Greenhouse Challenge (voluntary)• ASX Corporate Governance Council’s Corporate

Governance Principles and Recommendations


Why the lack of reporting requirements?

• Financial reporting is heavily regulated• Social and environmental reporting— arguably quite important

—is subject to very minimal regulation• Yet, given global environmental problems, shouldn’t

government impose additional regulation?• Recent government inquiry concluded that it is best to leave

social and environmental disclosures to the control of corporations—‘let the market decide’

• A reliance on ‘enlightened self interest’• BUT, why is it appropriate for social and environmental

disclosures to be left to market forces when, by contrast, financial disclosures are so heavily regulated?

• It would appear that regulators have embraced a ‘shareholder primacy’ approach to corporate reporting


Limitations of traditional financial accounting

• Focuses on information needs of stakeholders with a financial interest

• ‘Materiality’ precludes reporting of social and environmental information—difficult to quantify costs

• Liabilities often discounted to present value, future clean-up expenditures appear trivial

• Adoption of the entity assumption– If a transaction or event does not directly affect the entity,

the transaction or event is to be ignored for accounting purposes. This means that the externalities caused by reporting entities will typically be ignored, and that performance measures (such as profitability) are incomplete from a broader societal (as opposed to a ‘discrete entity’) perspective. Quests towards sustainability will require a modification in the application of the accountant’s entity assumption


Limitations of traditional financial accounting (cont.)

• Exclusion from expenses of any impacts on resources not ‘controlled’ by the entity– Asset definitions rely upon control, meaning that the

abuse of resources not ‘controlled’ will not impact on corporate profitability …. Good system?

• Focus restricted to stakeholders with a financial interest in the entity—information provided primarily of financial or economic nature– Transactions not directly impacting on entity are ignored– Ignores externalities caused by the reporting entity, some

relating to social and environmental implications of the entity’s operations


Limitations of traditional financial accounting (cont.)• Electing not to disclose environmental information on

the basis that the amount involved is immaterial (e.g. environmental fine) or incapable of direct financial measurement (e.g. impact caused by spill) ignores the fact that such events or incidents can have significant impact on reputation and therefore stakeholder support


Industry and government initiatives• Mining companies led the way in producing stand-alone

social and environmental reports and ‘sustainability’ reports

• Organisations in other industries following the lead:

– electricity

– manufacturing

– water industries

– banks

• Companies also often produce additional pages of information within their annual reports on social and environmental performance


Industry and government initiatives (cont.)• Minerals Council of Australia

– Developed Australian Minerals Industry Code for Environmental Management in 1996

– Code revised and reissued in 2000 and further changes made in 2006

– Subsequently, the MCA released a framework entitled Enduring Value: The Australian Minerals Industry Framework for Sustainable Development

• Other Australian industry codes and environmental reporting guidelines– In March 2009 the electricity industry, through the Energy

Supply Association of Australia (ESAA), released its Sustainable Practice Framework, which replaced the Australian Electricity Suppliers Code for Environmental Management

– EPA (NSW)—Corporate Environmental Reporting: Why and How

– Environment Australia—A Framework for Public Environmental Reporting: An Australian Approach


Industry and government initiatives (cont.)

• International reporting guidelines released by various organisations, including:– Business in the Community (UK)

– Confederation of British Industry (UK)

– Deloitte and Touche (Denmark)

– Environmental Task Force of the European Federation of Accountants

– European Chemical Industry Council

– Global Environmental Management Initiatives (US)

– Global Reporting Initiative (GRI)

– Department of Environment and Heritage—Corporate Sustainability: An Investor Perspective—The Mays Report (2003)


Industry and government Initiatives (cont.)

• Global Reporting Initiative’s Sustainability Reporting Guidelines—enjoy dominant position internationally at social and environmental level– Generally accepted as current ‘best practice’ reporting

– Used by many organisations as basis for their social and environmental reporting (and sustainability reporting)

– A revised framework—G3—was released in 2006

– Consists of 79 separate indicators of which 49 are deemed to be ‘core’

– Could be used as basis for mandatory reporting if government was to introduce mandatory reporting


Industry and government initiatives (cont.)• Number of reporting guidelines have been released

internationally regarding environmental and, to more limited extent, social and sustainability reporting

• To date no conceptual framework exists for environmental reporting; disclosure based on perceptions of information needs of particular stakeholder groups

• Disclosure of social and environmental information often based on reports that have been acknowledged as representing ‘best practice’, i.e. they have been recognised by an award

• Example: ACCA Australia and New Zealand Sustainability Reporting Awards—recognise organisations that are attempting to report on their efforts towards sustainable business practices


Industry and government initiatives (cont.)• Number of guides also produced relating to social and

environmental performance indicators

– World Business Council for Sustainable Development, Measuring Eco-efficiency: A Guide to Company Performance

– EPI—Finance, Environmental Performance Indictors for Finance Industry

– Department of Environment and Heritage, Triple Bottom Line Reporting—A Guide to Reporting Against Environmental Indicators

– World Bank, Environment Performance Indicators

– OECD, Environmental Indicators

– The GRI Sustainability Reporting Guidelines also includes many indicators


Research evidence of social and environmental reporting

• Guthrie and Parker (1989)– Authors studied BHP social disclosure practices between

1885 and 1985

– Environmental disclosures absent until 1950

– Recurred in 1970s; peaked in 1970s

• Guthrie and Parker (1990)– Reported corporate social disclosure in Australia

relatively low compared with UK and US

– No Australian company provided ‘bad news’ about environmental performance

– Disclosure likely to be in response to social pressures


Research evidence of social and environmental reporting (cont.)

• Newson and Deegan (2002)– Authors compared social and environmental

disclosures by corporations in Australia, Singapore and South Korea

– Disclosure in Australia increased Generating twice the amount of Singapore and South

Korean firms



• Deegan and Gordon (1996)– Reported that increases in environmental disclosures

across time positively associated with increases in levels of environmental group membership

– Australian corporate environmental disclosures self-laudatory

– Positive correlation between environmental sensitivity of the firm’s industry and level of corporate disclosure



• Deegan and Rankin (1996)– Reported increase in firms’ reporting of favourable

environmental information in the year of EPA prosecution– EPA-prosecuted firms provided greater amount of

positive environmental disclosure than non-prosecuted firms

– Positive information greater than negative information



• Deegan, Rankin and Vought (2002) Annual reports of Australian companies reviewed

(mining, oil transport, production, chemical industries) that were facing threats to their legitimacy based on major incident or disaster

Companies found to have significantly greater levels total and positive incident-related disclosures after the incident than before

Disclosure appeared to be in reaction to the incident rather than to social or environmental issues generally



• Deegan and Rankin (1997)– Shareholders and review organisations consider

environmental information material to their decisions

– Shareholders, review organisations and accounting academics seek environmental disclosure from annual reports

– Annual report more important source of information than any other regarding environment



• Brown and Deegan (1999)– Higher level of media attention directed at the

environmental consequences and performance of particular industries was generally associated with higher levels of annual report environmental disclosures

• O’Donovan (1999)– Management believes media shapes community

expectations and corporate disclosure is one way to ‘correct misperceptions’


Research evidence of social and environmental reporting (cont.)• Islam and Deegan (2010)

– Investigate the social and environmental disclosure practices of two large multinational companies, specifically Nike and Hennes & Mauritz

– They investigate the linkage between negative media attention, and positive corporate social and environmental disclosures

– Their results generally support a view that for those industry-related social and environmental issues attracting the greatest amount of negative media attention, these two corporations reacted by providing positive social and environmental disclosures

– The results were particularly significant in relation to labour practices in developing countries—the issue attracting the greatest amount of negative media attention for the companies in question


Social and environmental reporting practices2008 International Survey by KPMG notes:

–Corporate responsibility reporting has ‘gone mainstream’—nearly 80% of the largest 250 companies worldwide (Global 250) issued corporate responsibility reports, and an additional 4% integrated corporate responsibility information into their annual reports

–The rate of reporting among the largest 100 companies (N100) in 22 countries is 45% on average, with the highest numbers in Japan (88%) and the UK (84%)

–Integration of corporate responsibility information into annual reports is on the rise in France, Norway, Switzerland, Brazil, and South Africa


Social and environmental reporting practices (cont.)

2008 International Survey by KPMG (cont.)–Ethical considerations and innovation increased as the most common reasons for reporting among both the G250 and N100, while risk management fell in the G250 group–More than three-quarters of the G250 and nearly 70% of the N100 apply the GRI Guidelines for their reporting–Sixty-nine per cent of N100 companies do not disclose any risks related to climate change–In the KPMG study, Australia ranked 14th out of the 22 countries surveyed, with 37% of the top 100 companies in the sample producing a stand-alone corporate responsibility report (up from 23% in 2005, 14% in 2002 and 5% in 1996)


Social and environmental reporting practices (cont.)• Students are encouraged to go to corporate

websites– Many large listed companies are now producing

publicly available reports that address aspects of their social and environmental performance

– These reports are released under a number of headings, including sustainability reports, TBL reports and social responsibility reports


Social accounting• Aims to assess the impact of an organisation or

company on people both inside and outside of it• Covers such issues as:

– community relations

– product safety

– training and education

– sponsorship

– charitable donations

– employment of disadvantaged groups


Social reporting• Widely promoted in 1970s

– Lost prominence in 1980s

• Re-emerging from mid- to late1990s– Increased concern with stakeholders– Growing anxiety about business ethics and corporate social

responsibilities– Increased importance of ethical investment– Environmental issues cannot be separated from social

issues


Social auditing• Process whereby an enterprise can account for its

performance against its social objectives and then report on that performance

• Results of social audit form basis of publicly released social accounts

• Provides details of where improvements are necessary

• Guidance documents developed by Institute of Social and Ethical Accountability (UK)

• Questionnaires can be completed by stakeholders to determine whether organisation may be considered to be a ‘good corporate citizen’


Assurance of reports

• Just as there is a demand for external reviews (audits) of financial reports, we would expect to find a demand for third party assurance of social and environmental reports

• Quality of assurance work remains low relative to financial statement audits

• Improvements needed


Diversity in reporting approaches

• Approaches adopted to disclosing social and environmental information vary greatly– Checklist approach

Provides information in accordance with the list of disclosures identified in various reporting guides

– Target-based reporting Focuses on reporting against pre-set environmental

targets


Diversity in reporting approaches (cont.)• Eco-balance approach

– Diagrammatic depictions of environmental performance that describe the inflow of materials and outflow of finished goods, recycled waste products, waste and emissions

However:• Target-based and eco-balance approaches do not

incorporate environmental factors into measures of financial performance


Diversity in reporting approaches (cont.)

• Full-cost approach incorporates environmental costs and benefits into profit calculations

– Some organisations also determine a notional ‘sustainable cost’

1. A consideration of the costs required to ensure that inputs to the organisation have no adverse environmental impacts in their production

2. The costs required to remedy any environmental impacts that arise even if the organisation’s inputs had a zero environmental impact


Motivations for social and environmental reporting• Many organisations voluntarily elect to publicly disclose

information about their social and environmental performance

• Rationale1. Influence the perceived legitimacy of the organisation

2. Manage particular (perhaps powerful) stakeholder groups

3. Increase wealth of shareholders and managers of the organisation

4. Belief on the part of managers that the entity has an accountability to provide information

5. To forestall efforts to introduce more onerous disclosure regulations


Motivations for social and environmental reporting (cont.)1. Influencing the perceived legitimacy of the

organisationBased on Legitimacy Theory (Chapter 3)– Relies upon the notion of a social contract

‘Community licence to operate’ Implied contract constituted by the expectations held

by society about the conduct of organisations– Failure to comply with social contract will be detrimental

to the ongoing existence of the organisation


Motivations for social and environmental reporting (cont.)

1. Influencing the perceived legitimacy of the organisation (cont.)– Business organisations, to maintain their existence, must

establish congruence between the social values associated with or implied by their activities and the norms of acceptable behaviour

– As community expectations change, organisations must also adapt and change

– Process known as organisational legitimacy



1. Influencing the perceived legitimacy of the organisation (cont.)

Changes in public expectations Traditionally, profit maximisation perceived to be the

optimal measure of corporate performance Public expectations have changed significantly in recent

decades• Increase in environmental legislation• Increase in membership of ‘green’ groups



1. Influencing the perceived legitimacy of the organisation (cont.)Courses of action to maintain legitimacy (Lindblom 1994)

Educate and inform ‘relevant publics’ about actual changes in the organisation’s performance and activities

Change the perceptions of the relevant publics—but do not change actual behaviour

Manipulate perception by deflecting attention from the issue of concern to other related issues through an appeal to, for example, emotive symbols

Change external expectations of performance



1. Influencing the perceived legitimacy of the organisation (cont.)

Public disclosure of information concerning the organisation’s effect on or relationship with society can be employed within each of the four strategies (e.g. in annual report)• Might provide information to counter or offset

negative news that is publicly available• Might draw attention to strengths while

downplaying negative implications of operations



2. Managing particular stakeholder groups• Stakeholder Theory—organisation considered to be

part of the wider social system, but specific stakeholder groups within society considered

• Expectations of the various stakeholder groups considered to impact on the operating and disclosure policies of the organisation



2. Managing particular stakeholder groups (cont.)Organisation more likely to respond to those stakeholders deemed to be powerful

– Some stakeholders have more power to influence corporate management

This influence is a function of stakeholders’ degree of control over the resources required by the organisation



2. Managing particular stakeholder groups (cont.)– Stakeholder power is tied to stakeholders’:

command of limited resources (e.g. finance, labour)

access to influential media

ability to legislate against the company

ability to influence the consumption of the organisation’s goods and services



2. Managing particular stakeholder groups (cont.)– Stakeholder influence on corporate decisions

Major role of management is to balance stakeholder demands with achieving the strategic objectives of the firm

As the level of stakeholder power increases, so does the importance of meeting stakeholder demand

Demands may include provision of information about organisation’s activities



3. Increasing the wealth of managers of the organisation

Positive Accounting Theory (Chapter 3)– Individuals driven by self-interest (tied to wealth

maximisation; hence individuals will select the accounting method that will give them the greatest personal financial benefits



4. Belief on the part of managers that the entity is accountable to provide information

– Belief that stakeholders have a right to know about the various social and environmental implications of an organisation’s operations

– Acceptance by managers that they are accountable for their operations (which includes a responsibility to report)



5. Forestalling efforts to introduce more onerous disclosure requirements

– Reporting practices may be introduced or increased to forestall the possibility of government imposing potentially more onerous reporting requirements Currently little regulation of social- and

environmental- performance reporting


Stakeholder demands for and reactions to social and environmental information

• A number of studies have addressed stock market reactions to the disclosure of social information

• Underlying theory used in this research is the efficient markets hypothesis—information content of news announcements, if relevant to market place, will be immediately and unbiasedly impounded within share prices

• Results of studies– Share market found to react to social disclosure

Reaction is a function of the industry and type of disclosures made


Stakeholder demands for and reactions to social and environmental information (cont.)

• Results of studies (cont.)– Positive market reaction to pollution disclosure

in US Some investors respond to demonstrations of social

concern

– Banking and insurance institutions key users of social and environmental information

– Ethical investment market growing user of social and environmental information


Stakeholder demands for and reactions to social and environmental information (cont.)

• In recent years, banking and insurance institutions have become key users of social and environmental information, particularly about environmental performance

• Ernst and Young (2003) found that 61% of finance industry participants view environmental issues as ‘quite’ or ‘very’ significant to investment analyses

• Fund managers also use their power to demand corporations provide social and environmental performance information

• Superannuation trustees now pushing for improvements in corporate environmental disclosure policies

• Another growing source of demand for social and environmental information is the growing ethical investment market (ethical funds)


Linkage between social and environmental performance, financial risk and financial performance• There are a number of reasons why social and

environmental performance can affect financial performance– Consideration of ‘Community Licence to Operate’—

organisations to contribute to society and not harm environment, otherwise can lose customer, employee, and community support

– Poor environmental performance can impact directly on various corporate assets, e.g. pollutants on land

– Social and environmental credibility can impact on value of intangible assets (e.g. positive corporate reputation)

– Individuals and governments increasingly likely to take legal action against organisations that damage the environment

– Increase in insurance costs to fund clean-ups, etc.


Linkage between social and environmental performance, financial risk and financial performance (cont.)• Why social and environmental performance can affect

financial performance (cont.)– Additional costs of finance, e.g. social and environmental

performance requirements for lenders in developing countries

– Increasingly stringent environmental standards that restrict marketability of particular products based on poor environmental credentials

– Carbon mitigation polices and taxes being introduced worldwide

– Increasing evidence that organisations that monitor and reduce use of resources that have greater environmental impact (e.g. energy, water) and reduce waste generate both environmental and financial gains

– There is a relationship between environmental issues and share prices (e.g. Exxon Valdez oil spill in 1988)


Growing importance of climate change• Climate change likely to have major impacts on corporate

and financial risk and financial performance– Climate change could cost companies and their

shareholders tens of millions of dollars and require major strategic shifts (CERES 2002, p. 1)

– Climate change voted most significant issue facing 21st century business (2000 World Economic Forum)

– Effect of climate change and mitigation efforts on organisations will depend on carbon intensity of operating practices as well as location of operations

– Difficult to accept that organisations should not be required to make disclosures relating to implications for business of climate change mitigation policies

– Response of survey of largest 100 companies (by market capitalisation) is mixed—less than 50% of boards have considered the impact of climate change


Summary• The lecture has considered various issues associated with

social-responsibility reporting

• Social-responsibility reporting relates to the provision of information about various facets of an organisation’s social performance, including information about its environmental performance, health and safety records, training and education programs, support of the local community, etc.

• Provision of information about an entity’s social performance (unlike financial reporting) is largely unregulated—corporate social disclosures within annual reports are often provided on a voluntary basis—many researchers have undertaken studies to explain the various motivations driving corporate management to make such disclosures

.

Summary (cont.)• Consideration of social-responsibility disclosures requires

consideration of the social responsibilities of business—various perspectives on the social responsibility of business have been considered in this lecture; some limit the responsibility of business to a responsibility to investors, other broader perspectives include a responsibility to a range of stakeholder groups

• Also considered in the lecture is an overview of various research studies on the practice of environmental-performance reporting

• Researchers will rely on a particular theoretical perspective to develop their arguments and to explain the results of their work—researchers can select from among many competing theories to explain accounting-related phenomena, often the selection of a theory is tied to the values and beliefs of the researcher

Copyright 2010 McGraw-Hill Australia Pty Ltd PPTs to accompany Deegan, Australian Financial Accounting 6e 37-67


Summary (cont.)• Typical accounting theories addressed in this lecture

include:– Positive Accounting Theory– Legitimacy Theory– Stakeholder Theory

• The theory currently being embraced by many researchers into social-responsibility reporting is Legitimacy Theory

• Advocates of a Legitimacy Theory perspective propose that the way in which an organisation operates and what information it elects to disclose will depend on management’s perspectives on what the community considers to be appropriate for the organisation


Summary (cont.)• An overview of various environmental-reporting research

studies has also been provided—these typically show that the amount of environmental-performance reporting is increasing, is improving in quality and can frequently be explained as a strategy used to legitimise the ongoing operations of an organisation

• Research indicates that various user groups (e.g. shareholder and various interest groups) demand information about corporate environmental performance

• Financial accounting is not an all-encompassing measure of performance of an organisation—it typically disregards the social and environmental impacts/performance of an entity’s operations; reasons for omission including the accountant’s concept of materiality as well as the accounting definition of assets and expenses


Concluding thought …..

Only after the last tree has been cut down,

Only after the last river has been poisoned,

Only after the last fish has been caught,

Only then will you find out that money cannot be eaten (Cree Indian saying)

deegan6e_ch37

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