Abstract In nowadays, the sustainable development is playing a fundamental role in our society, and the perception of sustainable development has been well perceived. In an accounting context, the sustainability reporting has evolved into a kind of tool for an organization to show and present its corporation social responsibility.
Moreover, it is also the expectation for the business organization to operate in a sustainable way. In the recent researches, there are sufficient evidences show how important the sustainable development to the community?
How the conventional accounting evolve into two breeds of accounting, which are social accounting and environment accounting.
The limitation of sustainability reporting has been discussed in various academic researches. Introduction In nowadays, Sustainable development is the mainstream process in modern business operation. Most of the industries are realized the business operations can no longer emphasis on short or medium term development. It should be planned and organized well under a long term strategic planning, to achieve a long term existence in communities; it also can be referred to corporation social responsibility.
Despite the various definition of what is sustainability, there is a general acceptance on what is sustainability. As World Commission on Environment and Development indicate that, the sustainable development is the developments that meet the current needs of the human development, but without compromising the ability of future generations to meet their own needs. (WCED,1987). However, this is also rise a question; is Sustainable development is the matter for accountant?
In order to reach the conclusion of that question, this essay wills analysis sustainable development under accounting context; to explain the role for accountants to carry out the sustainable development and why sustainable development is important; how the sustainable development related to those accounting theories, such as legitimacy theory, social contract and stakeholder theory. Body Importance of the sustainable development As mentioned in the early date 1987, the definition of the sustainable development has been well defined; it is also implicate the importance of the sustainable development for human race. n CIPFA’s report, it is stated that, the sustainable development is not only concern to protect the environment for human race, but also concern to provide the good quality and standard life for human race( CIPFA,2006). Furthermore, according to the CFSG sustainability report at 2007-2008, it is clearly indicate why the sustainable development is important to human race; nature resources are apparently is limited on our planet, and any business activity is limit physically, but if the business activity goes beyond the limitation.
Even in the short or medium run the business might still able to operate but in the long term perspective, it will lead to an unsustainable situation, and eventually, the business activity will be wiped out of the community due to the dried up nature resource. Additionally, according to the legitimacy theory in Deegan’s book (2009), if the organization does not satisfy the social expectation from communities. Its business operation will eventually end up by diminishing productivity or/and demand.
Meanwhile, Thomas Lewis had also given an explanation that, organization is impossible to exist in isolation, it will interact with society, if the organization is fail to respond or adjust to be legitimated, it will create a legitimacy gap and the society will refuse to accept the existence of that organization. Then the business operation will shut down in the future. Therefore, it is important to place sufficient attentions and emphasizes on sustainable development. In addition, ABB had well explained the importance of the sustainable development not only for the business entity but also for the stakeholders.
ABB had concluded that in its report at year 2001: most social initiatives are business-driven, combining good business sense with community involvement, providing social benefits and creating a win-win situation for both parties. At the same time this notion is also supported by another business entity, at year 2002, BMW report also points out that for the companies go beyond economic factors to combing environmental and social criteria into its strategy management policies are more successful than heir competitors. As this point of view, the environmental protection projects, social commitments and employees orientations and so forth are not consider as cost factor but the key factors to success in future business operation. Due to the importance of the sustainable development, there are increasing number of companies are publishing its sustainability report, a recent reach had indicated that, in financial sector, there is 25 per cent published report in the year 2002.
Moreover, dating back to 1999, the reporting entities is no longer restrict in ‘ more polluting’ sectors it also include other sectors as well, such as, retail, services, communications, and media sectors, About 500 companies are participating this movement on corporation social responsibility and sustainability reporting ( Financial time, 1999). Social and environment accounting In order to cope with development in accounting sectors, and overcome the limitation on traditional accounting. The accounting has evolved as well and breeds two new types of accounting which is social accounting and environment accounting.
They all work alone with conventional accounting (Deegan, 2009). The role of the social and environmental accounting is aim to work out the total cost and benefit from the social and environment. More in specific is, social accounting is more concerning the impact of the communication between the entity and community, and the environment accounting is concerning the impact of an entity’s activities affect the environment (Boyce, 2000). additionally, in a recent research, Boyce found that there is a need to value the environment as the process of the economic, and in order to move forward to sustainable development.
Furthermore, to support why accounting bodies are evolved, in Deegan’s book (2009) had stated that sustainability as a business depends not only on the improving its financial performance, but also on continuing to manage responsibly. Without the loyalty and support customers and employees and the trust of the community which the organization is operating, for the long term perspective, the business will unlike to be successes. The social and environmental performance will be the crucial point to meet the social expectation and then win the loyalty, trust and the support.
Limitation on conventional accounting The main limitation for traditional accounting is the capability to distribute information to the stakeholders. In an traditional accounting perspective ( Deegan,2009), organizations are tended to ignore the information will not affect its financial performance and have less incentives to disclose the information other than numbers, the profit, return on investment and the share price are the only indicators to assess how well the financial performance is(Slaper,2011).
As the consequence, the accounting report is only disclosing its financial performance of the organization, but not concerns the social responsibility for an organization. Therefore, the organization will fail to meet the social expectations, and then lead to a legitimacy gap between the organization and community. If the organization chooses to insist to ignore its social responsibility, and keep fail to meet the expectation of the community, it will be wiped out of the business eventually. Triple bottom line
At the 1990s, some of the researchers are started to increase the measurability of the sustainable development, by compassing a new accounting framework known as triple bottom line (Slaper & Hall, 2011). Compare to conventional accounting framework, profit, return on investment and revenues are no longer the only performance indicators. It is introduce the social and environmental dimension into the performance assessment, Such as social, environment and financial. It is focusing to assess the performance in a comprehensive perspective, rather than a narrow direction.
It is often involved with people, profit and planet. The triple bottom line can be an important tool to support the sustainable development (Slaper & Hall, 2011). Since the triple bottom line has been introduced into the public, and being adopted by the most of top 500 multinational enterprises, the popularity of the TBL is increasing significantly, and more and more industries are stated to adopt TBL reporting to present or achieve its own corporation social responsibility to the public. Furthermore, TBL reporting s also can be perceived as social responsibility to all stakeholders, disregard the power of the stakeholders. Meanwhile, Deegan had also explained why more and more industries are starting to adopt the TBL via different theories. According to legitimacy theory, every community and society has their expectation for organization operation. The society and community are expect the business operator not only perform best in financial sector, but also expect the operator place the sufficient emphasis on its social and environment sector.
This expectation become the basic driving force, and force the business operators to disclosure the comprehensive information base on public interest and act with social care and responsibility. Moreover, from inner perspective of an business entity, the corporation management might adopt the stakeholders theory either managerial version or ethical version. It is predicts that management is more likely to disclose the performance information with the focus on powerful stakeholders to the company rather than normal stakeholders.
In contrast, some corporation managements are adopting the ethical version, they perceived the stakeholders as the whole, which is mean, when company disclosing its performance information to all stakeholders regardless the power of stakeholders( Deegan,2009). Limitation on triple bottom line Although the triple bottom line is becoming more and more popular in recent years, and there is a considerable amount of studies done by the researchers and GRI, with the intension to increase the measurability of the TBL.
However, there are still some fundamental limitations existed, such as, measurability, lack of legal support, quantitative frameworks existed, external verifications and misused. In Kolk’s article (2004), Kolk had pointed out that, despite the popularity of TBL reporting. There is still no legal requirement for the reporting entity; therefore, most of the entity is producing its sustainable report on a voluntarily base. As the consequence, this situation rise up another issue for the public; does the report really reflect the actual achievement of the company? Or does the company really implement the policy in their report?
There is almost third of them merely asks for the existence of a policy and/or procedures are really on the topic of concerned, said by Kolk (2004). His study also indicate that, currently in order to overcome the accountability problem, one third of the report are being audited by external party, 65 per cent are checked by the professional accountant, 20 per cent by technical firms, and 10 per cent by certificated bodies and the rest reports are being checked by others. Acknowledged those improvements are certainly give some type of assurance about the credibility of the reports.
But in contrast, due to the quantitative frameworks developed by different professional there is guideline confusion has been risen up. Use Japanese company as an example, Matsushita Electric Company had adopted three different guidelines as the references for its own report (MEG, 2002). All those issues are needed to be addressed to perfect the sustainable development. Additionally, in the recent years, few companies are started to use its own sustainability report to show their value added and its distribution to the stakeholders. According to BASF report at year 2000, there are a total 10. 59 million euro value added and distribute to its stakeholders, such as employees, state and shareholders with the share of 64. 9 16. 9 and 12. 0 respectively. Although this is a positive matter, but it is still draws public concern about misused on sustainability report, the primary goal for TBL reporting is no longer aim to corporation social responsibility, it is aim to be a kind of advertising for the corporation. Conclusion Apparently, the perception of sustainable development and the importance of the sustainable development have been well perceived.
Therefore, with the world economic develop, the accounting knowledge are also evolved into a new stage. With no doubt, sustainable development will still be the mainstream process in the future. However, without a general acceptable guideline and legal support, the sustainable development will keep its limitation. Therefore, in current period, keep placing an emphasis to integrate the conventional accounting into a sustainable development context and develop the general acceptable guideline for the sustainability reporting is the most efficient method to go.
Meanwhile, as the world is developing, it is necessary for accounting to develop or even re-write the accounting information system, to match the sustainable development. Reference list Knight, P. & Propper, S. 1999, Verifying the verifiers: ENVIRONMENT VIEWPOINT PETER KNIGHT and SIMON PROPPER: Independent auditing of social and environmental performance should not be left to the Big Five accountancy firms, United Kingdom, London (UK). Boyce, G. 2000, “Public discourse and decision making Exploring possibilities for financial, social and environmental accounting”, Accounting, Auditing & Accountability Journal, vol. 3, no. 1, pp. 27-27-64. Deegan, C 2009, Financial Accounting Theory, 3 edn, McGraw-Hill, NSW. Slaper, T. F. , PhD. & Hall, T. J. 2011, “The Triple Bottom Line: What Is It and How Does It Work? “, Indiana Business Review, vol. 86, no. 1, pp. 4-4-8. Sridhar, K. 2011, “A multi-dimensional criticism of the Triple Bottom Line reporting approach”, International Journal of Business Governance and Ethics, vol. 6, no. 1, pp. 49. Compiled from BASF (2001) Social Responsibility 2000. We Take our Responsibility Seriously, Ludwigshafen
BMW (2002) Sustainable Value Report 2001/2002. Environment, Economic, Social Responsibility: Meeting the Future, Munich, pp. 16-17. ABB (2001) sustainability report. ABB Group Annual Report 2000, Vaxjo and Zurich, p. 38. Matsushita Electric Group (2002) Environment Sustainability Report 2001, Osaka, p. 9. Kolk, Ans. A decade of sustainability reporting: developments and significance. Vol. 3. Amsterdam: University of Amsterdam, 2004. N. pag. Print. Lewis, Thomas. Debate: Public Sector Sustainability Reporting-Implications for Accountants.
N. p. : PUBLIC MONEY & MANAGEMENT, 2008. N. pag. Print. World Commission on Environment and Development (1987), Our Common Future ( The Brundtland Report ), Oxford: Oxford University Press. Brown, D. ,J. F. Dillard & R. S. Marshall (2005), ‘ Triple bottom line: a business metaphor for a social construct’, paper presented at Critical Perspectives on Accounting conference, Baruch College, City University of New York, 28-30 May. CIPFA (2006), Sustainability: A Reporting Framework for the Public Services (London)
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