Wednesday, December 11, 2019

Financial Reporting Incentives Conservative Accounting

Question: Discuss about the Financial Reporting Incentives for Conservative Accounting. Answer: Introduction With the gradual movement of time, there has been a major reliance and compulsion of having a level of transparency as it leads to a greater projection and enhances the goodwill. This not only provides a better environment but also leads to competitive advantage. This has attracted both threat, as well as opportunities because of the vast presence of issues pertaining to environmental, social, etc. hence; this needs the attention of the accountants and demands better practice. Accountancy is concerned with the formulation of rules and policies thereby addressing the issues in a well defined manner thereby curtailing the risk to a considerable extent. The performance of environment is in tune with the natural capital that can be termed as the natures resources and the method undertaken by the management to deliver the goods, as well as services. On the contrary, the social performance highlights the effect of the organization on human and social capital while human capital deals with the efficiency, skills and motivation. Sustainable development Sustainable development is defined as the development that satisfies the needs of present without compromising the needs of the future generations. It is also said that sustainable development is the rational management of human, natural and economic resources that aims to satisfy the essential needs which are required by everyone in the long run (Slaper Hall, 2011). It is an act of management that uses the resources in a manner so that the future generation are not devoid of the benefits. It aims at creating a balance between present and future economic development by ensuring conservation of natural resources and environmental pollution. It requires integrating the economic and environmental goals (KMPG, 2016). However, the focus of sustainable development is not only to protect the environment but also to create a strong and just society. There are certain sustainable development goal which are to take an action and end poverty, protect the planet and ensures that all people enjo y peace and prosperity. This sustainable development is also known as global goals. Sustainable development can be conceptually broken into three parts: environment sustainability, economic sustainability and socio-political sustainability. There are certain principles which need to be followed to achieve the global goals (Oates, 2009). Some of the principles are-The principle of social responsibility- In the long run, unsustainable patterns of production and consumption must be changed to improve the standard of living (ACCA, 2009). The polluter pay principle- It means that the party responsible for causing pollution is made liable to pay for the damages caused to the environment. This principle is also known as Extended Polluter Responsibility. The principle of utilising local resources-Efforts should be made to supply the needs of communities on a local level from local resources. Utilisation of manmade resources and cultural heritage are also very important tasks (Eccles Krzus, 2010). The principle of public participation- Peoples knowledge about sustainable development, its social and economic implications and about sustainable solution should be enhanced and clarified. Role of Accounting in sustainable development Accounting directly and indirectly contributes towards the sustainable development. It is like a sub category of financial accounting which discloses the non financial information about the firm. It gives an account of the social responsibilities carried out to encourage sustainable development. It is a tool used by an organisation to become more sustainable (Ibrahim et. al, 2013). The inclusions of environmental considerations as a part of corporate strategy improve corporate performance. It helps in creating awareness of how they can help an organisation address issues of sustainability and more fully incorporate their issues in business strategy. Accounting for sustainability involves linking sustainability initiatives to company strategy, evaluating risks and opportunities, and providing measurement, accounting and performance management skills to ensure that the sustainability is embedded into the day to day operations of the company (Ibrahim et. al, 2013). There are certain performances that are assessed with financial measures include personal income and expenditure, employment, taxes and business climate factors. Establishing a healthy business and cash flow is an important aspect of the business. The main reason why business exists is to satisfy the needs of people. To achieve this, the company need to invest a lot of resources for formulating strategies that can enhance customer satisfaction. The company also has to divert significant amount of resources in promotional activities so that they can ascertain that their clients are well advised concerning their products. Wage and benefits are primary motivating factors for employees in most of the companies. There is a comparison between other benefits such as pension and health that are given to employees. Training is very essential in sharpening the skills of the employees and also motivating them. This component pre determines the programs that are necessary for fostering the participation of employees in taking decisions. The ratio for the budget of training to that of annual operating costs needs to be included only when the training has been carried out. The aspect of employment usually focuses on the financial aspects of jobs being offered with the aim of making sure that the companys resources are not mismanaged and are used in an effective manner. It entails assessing the total workforce in terms of the employment type, the number and rate of employment as well as the region. The measure must include any benefits provided to full time employees which temporary worker does not receive. Social measures are made in reference to the community or a particular area. This variable covers employment rate, median household income, relative poverty, life expectancy as well as the rate of crime. When the company demonstrates its contribution social responsibility then it can increase its profitability. Social initiatives can be taken by staff, community or the suppliers (Integrated reporting, 2016). The key benefits of following the social measures includes the long term profitability, improved retention of staffs, building strong image of the company as well as gaining customers loyalty and confidence. Such variable measure the natural resources and can reflect the potential influence in terms of its effectiveness. Internal factors may include the energy consumed per employee or consumer, spills, penalties and fines. The external factors may cover aspects such as quality of air, water, solid and toxic waste, natural resources, energy consumption as well as use of land (Integrated reporting, 2016). There are certain specific measures that are taken into account when making an assessment of the environment component and these include solid waste management, hazardous waste management, electricity consumption and alterations in the usage of land. There is a comparative analysis done of the cost of different sources of energy and its effectiveness. The use of energy directly affects the environment and its affects are extended to the global level. The use of non renewable resource should be minimised to safe the future generations from deprivations of such resources. Integrated Reporting in Australia The scandals in the corporate arena has highlighted that the ESG management that is the environment, social and governance matter of a company influences the performance that is in tune with the finance and this leads to a strong influence over the value of the shareholder. Thereby, integrated reporting goes beyond the traditional time span and inter links both financial, as well as non-financial data so that proper information can be provided to the stakeholders that deals with the performance of the organization. The IIRC has strongly provided an integrated framework that helps in proper communication that helps the stakeholders. When it comes to the point of view of Australia, firms of internal advisory such as Deloitte, PwC has provided their consent to the matter of integrated reporting after proper identification of the utility of information of non-financial nature (Carol et. al, 2016). It is of the view that when an organization is integrated in nature, it leads to a policy, as well as vision that heads in a proper direction and helps in disclosing information that pertains to financial, as well as non-financial. Innumerable companies have opined that the concept of integrated reporting is of great use because it has a dual nature as it signifies the deficiency present in the present framework and even projects how the management of financial can and non-financial information can be done (Barbu et. al, 2014). When it comes to Australia, there are regulations prescribed by ASX and the companies need to adhere to it. But, when it comes to the prospect and benefits of integrated reporting, there is huge requirement for disclosing the information. This is due to the fact that the plan of integrated reporting helps in covering a major chunk of the company in terms of parameters and information thereby overtaking other financial details. Moreover, taking into view point the current market scenario of Australia, it can be commented that the there are various s takeholders group like investors, agencies, etc. that require valuable information and it helps in the evaluation of the company. Hence, for such group it is imperative that the awareness should be increased and advocated so that the importance of other factors can be known (Barbu et. al, 2014). Hence, in such a situation, integrated reporting can be of great use that helps in providing valuable information in terms of challenges and opportunities. Importance of Integrated Reporting Reporting in Australia has tend to be investor friendly that helps in value creation together with the concept of high governance and sustainability. It leads to a better show inn terms of leadership and generation of values. Moreover, as per ICAA, the IR concept even facilitates the emergence of teams of finance and CFO. The participants were not present in initiative that was done on a voluntary basis. Further, there is no reporting structure that will accommodate the concept of Global reporting Initiative (GRI), World Resources Institute, etc (Druckman, 2016). Hence, amidst the entire scenario, it can be said that the present, as well a future performances can be achieved when IR concept is put into implementation. IR is relevant in every respect because it leads to enhanced level of performance. In reality, creativity, as well as learning leads to enhanced level of performance (Bushman Piotroski, 2006). It prepares the organization with a strong model that is ready to adapt to a ny situation and hence, benefits the long term perspective of the company. IR projects the developments that happens in the recent times and report the actions that are undertaken by the company such as traditional report, CSR, sustainable development, environmental report, etc (Melville, 2013). Conclusion The report sheds light on the concept of sustainability and integrated reporting. Both the concept are of paramount importance because it is directly in tune with the future prospect of the company. All these are characterized by different dimensions that affect performance and these include financial, social and environmental. The performance measures under the environmental dimensions are greenhouse gases, waste, energy as well as water while performance measure for social dimensions includes managing the supply chains and social initiatives involving the community (Spiceland et. al, 2011). Finally, the dimension of economics and finance is concerned with performance measures such as customer satisfaction, employment, employee training, wage benefits. The company may face any kind of challenges which may be related to any of the category but it should carry out its operations intelligently. Therefore, both the concept IR and sustainability holds a special importance and it is the d uty of the company to have a strong hold over these concepts so as to have a strong reporting. References ACCA 2009, Key Issues in Sustainability Assurance, Research report 115, The Association of Chartered Certified Accountants. Barbu, EM, Dumontier, P, Feleaga, N, Feleaga, L 2014, 'A Proposal of an International Environmental Reporting Grid: What Interest for Policymakers, Regulatory Bodies, Companies, and Researchers?', The International Journal of Accounting, vol. 49, no. 2, p. 253. Bushman, R. Piotroski, R 2006, Financial reporting incentives for conservative accounting: The influence of legal and political institutions, Journal of Accounting and Economics, vol. 42, pp. 107-148. Carol, A.A, Brad, P, Prakash J. S, Jodi Y 2016, Exploring the implications of integrated reporting for social investment (disclosures), The British Accounting Review, vol. 48, no. 3, pp. 286-296 Druckman, P 2013, Integrate reporting framework aims to promote lasting sustainable change, viewed 24 October 2016, https://www.theguardian.com/sustainable-business/blog/integrated-reporting-framework-sustainable-change Eccles, R.G. Krzus, M. 2010, One Report: Integrated Reporting for a Sustainable Strategy, Wiley, New Jersey, USA. Ibrahim M, S Osama F Attayah, P 2013, Critical Factors Influencing Voluntary Disclosure: The Palestine Exchange PEX, Global Journal of Management and Business Research Finance, vol. 13 no. 6, pp. 9-15 Integrated reporting (IR) 2016, What? The tool for better reporting, viewed 28 November 2016, https://integratedreporting.org/what-the-tool-for-better-reporting/ KMPG 2016, Performance insight through Better Business Reporting, viewed 28 November 2016, https://www.kpmg.com/Global/en/IssuesAndInsights/ArticlesPublications/Documents/road-to-integrated-reporting.pdf Melville, A 2013, International Financial Reporting A Practical Guide, 4th edition, Pearson, Education Limited, UK Oates, T. 2009, Jigsaw must be complete, Sustainable Business, Sydney. Slaper, T. F., Hall, T. J. 2011, The Triple Bottom Line: What Is It and How Does It Work? Indiana Business Review. vol. 86, no. 1, pp. 6-10. Spiceland, J., Thomas, W. Herrmann, D 2011, Financial accounting, New York: McGraw-Hill/Irwin,University Press.

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