Corporates Social Responsibility Accounting Beetween Theory and Reality.
Corporate’s Social Responsibility Accounting
Beetween Theory and Reality
Presented by: Srihadi W.Zarkasyi
Accounting Department – Padjadjaran University
Simposium Kebudayaan Indonesia-Malaysia Ke – X
Bangi, Selangor, Malaysia
May 29 -31 2007
Abstrak
Corporate Social Responsibility merupakan salah satu masalah etika
bisnis yang sering diperdebatkan baik dari sudut pandang filosofis-teoritis
maupun pada tingkat praktis.
Beberapa persoalan yang diperdebatkan adalah hal-hal yang berkaitan
dengan apakah perusahaan benar-benar mempunyai tanggung jawab moral dan
sosial. Jika ada apa lingkup tanggung jawab itu. Apakah dalam hal yang
berhubungan dengan tanggung jawab sosial perusahaan itu maka suatu
perusahaan perlu terlibat dalam kegiatan sosial yang berguna bagi masyarakat.
Masalah lain yang timbul adalah bagaimana tanggung jawab sosial perusahaan
itu dapat dioperasionalkan dalam suatu perusahaan.
Sehubungan dengan implementasi konsep Corporate Social
Responsibility di dalam perusahaan, maka hal tersebut terkait dengan masalah
akuntansi, yaitu masalah pengukuran (problem of measurement) dan masalah
pelaporan (problem of reporting) yang berkaitan dengan aktivitas bisnis. Secara
teoritis hal tersebut terkait dengan Social Accounting dan Social Audit.
Makalah ini mencoba membahas masalah-masalah (problems) dan
prospek yang berkaitan teori dan praktik penerapan Corporate’s Social
Responsibility Accounting yang sampai saat ini masih dirasakan adanya
kesenjangan.
Keyword: Corporate’s Social Responsibility, Social Accounting, Social
Audit, Stakeholder Theory, Social and Environmental Reporting,
Accountability and Transparency.
1
Introduction
The growth in environmental accounting research and intersest
in the last few years has been little short of phenomenal.For those of
us with a long-standing interest in such issues, it is easy to get swept
along in the euphoria of seeing environmental issues brought to
centre stage in business and accounting debates. Little more than
decade ago, any scholar wishing to review the literature concerned
with accounting and the natural environment would have been faced
with relatively straightforward task. Beyond the new significant and
seminal papers (see, for example Dierkes and Preston 1977, Ullman,
1976) environmental issues tended only to surface as one of the
themes within the Social Accounting and Reporting literature (Gray et
all 1996, Mathews 1997 for summaries). The change in the last ten
years has been little short of phenomenal. Consequently, it would be
easy - especially for those of us who have been involved in the area
for some years - to get swept along on a tide of enthusiasm now that
environmental (and, latterly, social) accounting appears to be
occupying an increasingly central place in accounting debate.
For years accounting scholars have bemoaned the fact that
Accounting (and Finance) teaching and research have largerly
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ignored environmental matters. Now this has changed and there are
few aspect of accounting in which environmental concern is not
explicitly recognized as important. Most research in corporate
environmental management and environmental accounting indicate a
substantial gap between the espoused environmental attitudes of
business leaders and the actual practices of their companies.
The primary purpose in writing this paper is to investigate
problems and prospects concerning Corporate Social Responsibility,
and discuss: (1) Business Interaction with Society, (2) Accountability
and Transparency, (3) Environmental Issues and Financial
Statements, (4) Financial Markets and Social or Environmental
Disclosure, (5) Accounting, the Environment and Sustainability, (6)
Environmental issues and Auditing, (7) Social and Environmental
Reporting, (8) “Greening Influences” on Companies, Managers and
Accountants, (9) Accounting Education, (10) Conclusions
1.Business Interaction with Society
The nature of relationship between business and society is an
over-arching question and it is important to note that interpretations of
social behavior will depend upon the perspective adopted. A strong
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view is that business carries out the economic functions of society
(Wartick and Wood, 1998) and that, in free market economies, in
carrying out these economic functions, business has some forms of
responsibility to society. There are, however, competing perspectives
and views that conflict with this dominant perspective.
The liberal economist would say that the only forms of
responsibility are “economic”, whereas some critical theorist would
state that any form of what might be termed “social responsibility” is
there to maintain the legitimacy of system.
Whether or not business should undertake activities that may
be regarded as pro social and the forms that responsibility should
take depend upon the perspective adopted. Those who adopt “neoclassical” view of the firm would believe that the only social
responsibilities to be adopted by business are the provision of
employment and payment of taxes. This view is most famously taken
to the extremes of maximizing shareholder value and reflected in the
views of Milton Friedman.
The need for companies to undertake activity that might be
regarded as socially responsible has been discussed in the literature
and has been a topic of academic study for decades (Ullman, 1985).
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Cannon (1992) discusses the development of corporate social
responsibility via the historical development of business involvement
leading to a post war re-examination of the nature of the relationship
between business, society and government. He identifies that the
primary role of business is to produce goods and services that society
wants and needs, however there is inter-dependence between
business and society in the need of a stable environment with an
educated workforce.
Cannon (1992) quotes Lord Sieff, the former chairman of Marks
and Spencer: “ Business only contributes fully to a society if it is
efficient, profitable and socially responsible”. Similarly Wood (1991)
states that: “the basic idea of corporate social responsibility is that
business and society are interwoven rather than distinct entities”.
The push that business should undertake social activities with a
business benefit is not new, the literature has much on “doing well by
doing good” (Stroup and Neubert, 1987). From Corporate
perspective, Harris and Klepper (cited in Carrol, 1996) find that the
main reasons for undertaking contribution activities were: (1)
Corporate Citizenship: practice good corporate citizenship, (2)
Business Environment: protect and improve environment in which to
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live, work, and do business, (3) Employee benefits: realize benefit for
company employees, (4) Public relations: realize good public
relations value, (5) Pluralism: preserve a pluralistic society by
maintaining choices between government and private-sector
alternatives, (6) Commitment: of director or senior officers to
particular causes, involvement.
From a practical point of view, Pava and Krausz (1996) observe
that “there is no doubt that in some instances corporate social
responsibility is nothing more than self advertising.
2. Accountability and Transparency
In a society of pristine liberal democratic economy, individuals
are theoretically better informed and more empowered, whereby, the
inequalities of wealth are potentially exposed and such inequalities of
power are somewhat minimized through greater accountability and
transparency of information.
What is meant by “accountability”? This concept is not fully
comprehended by managers and few people agree on its definition
due to the broad context within which the word accountability has
been used – business, law, government, politics and morality. There
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are those who maintain that the “true test of an accountable
organization is specific: whether it measures performance
quantitatively – with financial and non-financial numbers – and
reports it publicly to audiences inside and outside the organization.
Anything less than hard numbers, broadly disclosed, reveals an
organization hesitant to commit to full accountability. The act of one
party answering to another in qualitative terms alone is not enough.
Accountability requires data” (Epstein and Birchard, 1999).
The notion of accountability is commonly described in regards
to an organisation’s legal compliance and its financial reporting to
shareholders and governmental authorities, and only very recently
extended to social, environmental, and ethical reporting.
Epstein and Birchard (1999) have defined an “accountable
organization” as comprising of four approaches to accountability:
governance, measurement, management systems and performance
reporting. An accountable organization initiates independent
governance; balanced financial and non-financial systems of
measurements; incorporates closed-loop planning, budgeting, and
feedback systems; and comprehensive transparency through regular
public reporting activities.
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Accountability in the accounting literature is being defined as:
The duty to provide an account (by no means necessarily a financial
account) or reckoning of those actions for which one is held
responsible (Gray et al, 1996). Thus, accountability is concerned with
the responsibility of supplying information and the right to receive it.
Central to deep green perspective, is the principle of personal
accountability from which, the duty to supply information is founded.
The right to receive information is a fundamental ingredient of any
neo pluralist or participatory democracy.
However, do organizations have a social responsibility over
above Milton Friedman’s (1962) definition “to make as much money
for their shareholders as possible? Are shareholders the only
stakeholders that count in business who have the right to be heard
and receive information about management performance? On the
contrary, when a party is affected by an organization, it has the right
to be heard and be informed of that company’s operation. Put it
simply, stakeholders are owed some say in the direction of a firm due
to their being affected by that company. In short, their stake earns
them the right to be counted in decisions that affect them directly or
indirectly (Pruzan and Zadek, 1997).
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Therefore, it has been asserted that public at large has a right
information about the extent to which companies complied with the
minimum standards of law and other regulations (Gray et all 1991).
Perhaps the most obvious rights and responsibilities emanate from
legal promulgation. The law establishes the minimum level of
responsibilities and rights and therefore, the minimum level of legal
accountability at any given time in any given country (Tinker et al,
1991).
Moral and natural rights and responsibilities in a society are
unremittingly shifting overtime and so is the degree of accountability.
What is considered to be responsibility is constantly varying and
developing (Tinker et al, 1991). Nevertheless, just because the
philosophical (natural/moral) responsibilities are difficult, if not
impossible to account for with certainty does not mean that such
issues have to be neglected. The current waves of response to the
natural environment are example for this.
Social responsibility is part of the reason for seeking greater
accountability from corporate management. Increasingly, individual
and institutional investors, as well as other stakeholders (employees,
government, and community) are motivated by the belief, evidence by
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recent studies, “that well managed companies, including their
environmental aspects, are those companies producing the best
bottom-line results. An increasingly significant source of these data is
corporate (voluntary) environmental reports” (Piasecki, Fletcher, and
Mendelson,1999).
3. Environmental Issues and Financial
Statement
There is probably only one line of research which runs
unbroken from the early interest in social accounting through to the
current interest in environmental accounting. That line of research is
that which investigate the statistical relationship of corporate
environmental (and social) disclosures, corporate characteristics,
environmental (and social) performance and financial performance.
(See for example, Freedman and Jaggi, 1988, Freedman and
Stagliano, 1995, Freedman and Ullmann 1986, etc).
Social Accounting is an attempt to redress the balance through
recognition that a firm affects, through its actions, its external
environment (both positively and negatively) and should therefore
account for these effects as part of its overall accounting for its
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actions. Implisit in this concern with the effects of the actions of an
organization on its external environment is the recognition that it is
not just the owners who have a concern with its activities.
Additionally, there are wide varieties of other stakeholders who
justifiably have a concern with those activities and affected by those
activities. Those other stakeholders have not just an interest in the
activities of the firm but also a degree of influence over the shaping of
those activities.
The desirability of considering the social performance of a
business has not always however been accepted and has been
subject of extensive debate. As recent example, Deegan (2002)
presents an overview of the research trends and opportunities in the
area of social and environmental accounting research. Similar studies
where evidence by Mathews (1997), Gray (2002) with a social
accounting literature review of the last 25 years. The suggestion of
the area of social and environmental, first arose in the years 70 and a
concern with a wider view of company performance is taken by some
writers who concern with the social performance of a business as a
member of society.
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Gray, Owen and Maunders (1991) consider social accounting in
terms of responsibility and accountability and distinguish between
the internal needs of a business, catered for by management
accounting, and the external needs, which are addressed for
shareholders by financial reporting but largerly ignored for other
stakeholder interest.
4. Financial Markets and Social or
Environmental Disclosure
In developed countries, financial markets have increasing
global power and that power can manifest itself in environmental
degradation, social injustice and limitations on the ability of quoted
companies to undertake activities which, although experimental and
financially fragile, can be seen as socially and environmentally
responsible. Markets’ power does not seem to be balanced by their
responsibility. Social and environmental disclosure is one possible
way in which markets may be re-educated towards more sustainable
modes of behavior.
Broadly speaking, the research into corporate social and
environmental disclosure has not been primarily motivated by
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concerns for shareholders and other financial participants as such.
Rather, one branch of the research has been concerned to examine
the how social and environmental disclosure reflects and discharges
the responsibilities and subsequent accountabilities of the
organization. This research has taken a societal point of view and
has been motivated by democratic concerns to rights to information
and the means by which organizational behavior might be controlled
by society, (see, for example, Gray et al, 1996). The second branch
of research into social and environmental disclosure has been rather
more managerialist in orientation and sought to explore (1) how the
company uses such disclosure to manage its stakeholders and (2)
how such disclosure might used to secure the legitimacy of, either,
the individual corporation or, more broadly, capitalism itself (Arnold
and Hammond, 1994).
Of more direct relevance, a less dominant aspect of the
research has sought to explore what, if anything, social and
environmental disclosures might mean for shareholders. There are
several themes to this research.
In the first place researches have sought to establish whether
investors find social and environmental disclosures decision-useful.
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This research, in keeping with much research into financial reporting
theory (see, for example Belkaoui, 1986) has employed a variety of
methods to investigate the actions, attitudes and behaviors of the
individual investor (see, especially Epstein and Freedman, 1994) as
well as the more familiar explorations of aggregate financial market
response to such disclosures.
Despite fairly convincing evidence that investors often show
more than a passing interest in social and environmental disclosures
(see, for example, Benjamin and Stangga, 1977; Chenall and Juchau,
1977; Firth, 1984; Epstein and Freedman, 1994), it is still traditional to
assume that investors are only interested in maximizing their riskadjusted returns from investment, (see, for example, Benston, 1982;
Skogsvik, 1998; Rivoli, 1995). Under such an assumption, there is no
immediate or obvious reason for shareholders to have any interest in
the social and/or environmental aspects of their investment.
The foregoing offers an a priori argument for why social and
environmental data may have potential impact on shareholders’
decisions as to whether or not to buy, hold or sell shares. But, the
crucial thing is that such an analysis presupposes that investors are
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only interested in the financial aspects of their investment, (see,
Richardson et all, 1999).
There is no evidence, as far as we aware, that all investors are
exclusively interested in a purely financial appraisal of their
investments. Indeed, they very significant growth in ethical
investment funds (for example, Antonio et al 2000), probably
suggests quite the reserve. Therefore, as Belkaoui (1976) argues,
there is no a priori reason why we should assume that all investments
are always treated as purely economic events. Consequently, social
and environmental disclosures may well over an important source of
direct input to these “ethical” investors’ decisions.
Finally, social and environmental disclosure may have to play a
crucial role in moves towards sustainability, (Leggett, 1996; Suranyi,
1999; Case, 1999; Gray and Bebbington, 2000). That is, there is
increasing recognition (see, for example, Schmidheiny and Zorraquin,
1996) that moves towards sustainability (or, more realistically, moves
away from un-sustainability) cannot be achieved if financial markets
remain as rapacious, self serving and short-termist as there are
currently.
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Consequently, financial markets need to be “educated” (see for
example, Schmidheiny and Zorraquin, 1996) about the social and
environmental challenges that sustainability presents to each and
every company. Although social and environmental disclosure is, as
yet, not delivering this quality of educative disclosure, (see, for
example, Gray 2000) it seems inevitable that Social and
Environmental disclosure must play a major part in seeking out the
possibilities of transformation that may exists in Financial Markets.
5. Accounting, the Environment and
Sustainability
Sustainability relates to both present and future generations. It
is discuss that the needs of all peoples are met. Those needs are
both social and environmental. The link between accounting and
environmental degradation is well-established in the literature (see,
for example, Eden, 1996; Gray et all 1993). The crucial point is that
accounting which takes the business agenda as given should include
much environmental and social accounting. Thus, central to any
discussion of accounting and the environment is a basic, challenging,
and deeply unsettling question: do we believe that the organizations
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which accounting serves and supports can deliver environmental
security and sustainability?
At the same time as the technical implementation of social
accounting and reporting has been developing the philosophical basis
for such accounting has also been developed. Thus, Benston (1982,
1984) and Schreuder and Ramanathan (1984) consider the extent to
which accountants should be involved in this accounting. Donaldson
(1982) argues that such accounting can be justified by means of the
social contract as benefiting society at large. Batley and Tozer (1990)
and Geno (1995) have argued that “sustainability” is the
“cornerstone” of environmental accounting.
6. Social and Environmental Reporting
The questions of how business should report its social
performance and how that performance should be assessed have
been dominant themes in the social accounting literature (Gray et al,
1996) and the social issues in management literature (Wood 1991)
over the past decade. We are now witnessing both a number of
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initiatives that seek to set guidelines or standards for social
accounting, for example the Global Reporting Initiative (GRI).
If there is one area which accounting researchers have
embraced with enthusiasm it is the phenomenal growth in
environmental reporting by organizations. The research in this area
has been dominated, initially at any rate, primarily by studies
descriptive in orientation. Such studies typically employ some variant
of content analysis (see, for example, Milne and Adler, 1999; Gray et
all, 1995). Both country specific studies and comparative studies
have recorded an upward trend in environmental disclosure both
through the annual report and through stand-alone environmental
reports. However, analyses of the phenomenon ( Hackston and
Milne1996; Fekrat et al1996; Pava and Krause 1996 ; Adams et al
1998) confirm that such reporting is principally restricted to the very
largest companies and is, to a degree at least, country and industry
variant.
Research into environmental disclosure is developing rapidly
with examinations of the impact of pressure groups (Tilt, 1994) and
other external forces (Gray et all, 1995; Deegan and Gordon, 1996),
exploration of user’s needs (Epstein and Freedman, 1994; Deegan
18
and Rankin, 1997), focus on particular aspects of reporting such as
environmental policies (Tilt, 1997), exploration of the truthfulness of
environmental disclosure (Deegan and Rankin, 1996) and much
needed theoretical development (see, for example, Patten, 1992;
Roberts, 1992; Gray et al, 1995, Buhr, 1998; Adams et al, 1998;
Brown and Deegan, 1998; Neu et all, 1998).
Environmental reporting takes place in a predominantly
voluntary regime and with the continuing interest in voluntary
guidelines for such reporting (see, for example, KPMG 1997), such
survey of practice are crucial in keeping attention focused on the
doubtful quality and, especially, the global paucity of such reporting. If
environmental reporting is important (for social accountability reasons
even if it is of dubious “financial user need” value) then the
predominant view of business – that environmental reporting is
adequate in voluntary regime – must be challenged. Whilst the early
research into environmental disclosure appeared to be so delighted
that any such disclosure was taking place, this acquiescence has
given way to a more critical analysis of practice. This analysis,
primarily informed by the “critical school” (Laughlin, 1999), comprises
three main themes. The first two of these themes are, in essence,
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the same critique made of social accounting. First, accounts of any
kind are necessarily partial and biased constructions of a complex
world. Not only do such constructions, by making some things visible,
make other things invisible (Broadbent, 1994) but they are most likely
to limit and even destroy the essential nature of the thing accounted
for. (See, for example, Maunders and Burritt, 1991; Maunders, 1996;
Cooper, 1992; Johnson, 1998). Second, the critical theorist would
argue that environmental reporting is voluntary activity it can only
reflect those aspects of environmental performance which
organizations are willing to release. It can, therefore, only be a
legitimation device and not an accountability mechanism.
Consequently, the critical theorist argue, environmental accountingincluding environmental reporting- is almost certain to do more
environmental harm than it does good. These two themes are now
developing into an important – if, as yet, unresolved – theoretical
debate which seeks to counter the inherent managerialism of most
accounting (and environmental accounting) research.
The final theme in the critique of environmental disclosure
develops the issue of the voluntary nature of environmental
disclosure and brings a much-needed re-assessment of the
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importance and role of law in the construction of society. Specifically,
Gallhofer and Haslam (1997) could be taken to use researchers’
views on the role of regulation in governing environmental reporting
as an indicator of the researcher’s managerialist or alternative
perspective.
In essence, a non-managerialist environmental reporting would
have to challenge an organization’s legitimacy and, in particular, the
legitimacy of the means by which it earned the reported profit and
gained its growth. The critical challenges to environmental reporting
are not ill-founded when they remark that too little environmental
reporting research examines this question to any substantial degree.
One of the more inexplicable, although exceptionally welcome,
consequences of the growing environmental agenda has been the reemergence of a serious interest in social accounting. This is not the
place to try and review, in any detail, the broad social accounting
literature (see, for example, Gray et al 1996) – although a few general
observations seems opposite. Social Accounting had its principal
heyday in the 1970s but, although some researchers maintained an
active interest in the field, it virtually disappeared from the popular
consciousness of accounting academe during the 1980s and 1990s.
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Its re-emergence seems to be a response to a number of factors.
One such factor seems to be the recognition that separation of
environmental from social issues is difficult at best and pernicious at
worst. As environmental issues are explored more carefully, the
underlying implications for employment, communities, health and
safety and even the organization’s very posture on ethics and social
responsibility inevitably resurface.
Equally, corporate practice has re-discovered social accounting
and when organizations as diverse as Ben and Jerry’s, the Body
Shop and Shell commit to social accounting, the wider business
community begins to take notice. Finally, as we shall see, the
environmental debate leads us inexorably towards discussions of
sustainability. Such discussions must, by definition, embrace social
accounting matters.
The recent research literature on social accounting is still a little
sparse but examples exist. The Adams/Roberts project has
maintained a focus across both social and environmental disclosure
(see, for example, Adams et al, 1998; Gray et al 1995; Hackston and
Milne, 1996). Work by Roberts (1992), Pinkston and Carroll (1996),
Patten (1995), Epstein and Freedman (1994), Mathews (1995) and
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Robertson & Nicholson (1996) continues to keep the social
responsibility accounting debate moving forward whilst
simultaneously, we are starting to see a re-emergence of normative
work designed to guide how social accounting might be accomplished
and what it might look like (See, Zadek et al, 1997; Gray et al, 1997;
Gonella et al, 1998).
7. Environmental Issues and Auditing
Where issues are affecting the financial statements, the
statutory financial audit must take notice. Despite this, researchers
have, it would appear, been slow to pick up on the very real
implications that environmental issues can have for the attestation of
financial statement. Whilst professional accountancy bodies are
addressing such issues – and even commisioning research into the
area (see, for example, Kamp-Roelands, 1996) we are only aware of
substantial investigation of this area in the UK. In 1997 Collison and
Gray has identified a growing concern amongst auditors about
potential risk exposure they face as a consequence of the
environmental impact on the business. Such concern, however,
seems to be largely limited to the larger firms of auditors and this, in
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turn, seems to be explained by the firm’s own level of awareness of
the issues – the more one is aware of the potential impact of
environmental issues the more anxious one becomes. The majority of
audit firms do not yet, it seems have a very detailed understanding of
what environmental issues mean for their clients and their financial
statements.
Equally, there are growing demands upon auditors to either
include environmental data in their attestation of the financial
statements and/or to attest independently to environmental data in,
for example, an environmental report. These demands place
additional strains upon the auditor and audit function (Tozer and
Mathew, 1994) and, given the especially poor quality of (so-called)
independent attestation to environmental reports, these pressures
seem set to grow. At the same time, we might begin to ask, yet again,
about the purpose of financial statements and the auditors’
attestation. If the statements and audit report are purporting to
present a fair picture of the organisation’s performance but omitting
one of –if not the – largest potential threat to the continuance of
mankind, we might well be anxious about the claims of the
accounting and audit profession.
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The problems in auditing is standars, every accountant need
standards to do the audit concerning corporate’s social responsibility.
8. “Greening Influences” on Companies,
Managers, and Accountants
A literature review has identified a number of reasons why firms
might be influenced to adopt more socially and environmentally
responsible attitudes and behavior (positive influences). These
include external pressures from stakeholders like governments,
institutions, customers and competitors (Roberts, 1992); market
opportunities to provide new environmentally friendly products
(Elkington and Burke, 1989); the need to conserve finite physical raw
material or resources used by companies (Owen, 1992; Brown et al
1998); a desire to invest in prevention activities rather than incur
future liabilities (Schmidheiny & Zorraquin, 1996; Bijterveld et al
1998); the perception of environmental issues as source of innovation
(Porter and Van Der Linde, 1995); a personal set of ethical and moral
view that see environmental protection as a virtuous activity (Hill et al,
1994); the demand of government laws, licenses, or policies
(Charlesworth, 1998), the need or desire to comply with
environmentally friendly industry standards, such as ISO 14000
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(Sheldon 1997; Sharma-Fleet, 1998): cost savings and improved
profitability through reduced resource consumption, cleaner
production and/or waste management (Rondinelli and Berry, 2000),
the desire to improve risk management policies within the firm
(Bijterveld et al 1998); and the belief that it may help improve
employee motivation (Wehrmeyer, 1996).
The literature review has also identified a number of reasons
why firms might be influenced not to adopt environmentally
responsible behavior. These include a perception that such measures
will create unnecessary additional costs (Charles worth, 1998; Shiraz,
1998); a fear that such activities may lead to the loss of and existing
strategic, competitive or price-based market advantage (Reding,
1993), internal barriers to change within the organization, such as
employee resistance, technological and production problems, or
management apathy (Hartman and Stafford, 1997); lack of requisite
skills and/or knowledge (Friedman 1980, Porter and Van der Linde
1995, Wang et al 1997); a fear that it increases the standards by
which stakeholders and the public judge the performance of the firm
(Mirvis, 1994; Barnes, 1994; Brown, 1995), and the perception that
26
environmental management is outside the core competence of the
firm.
Why do so many companies choose not to report?
The survey of more than 50 non reporting companies highlights
reason for not producing an environmental report. Some of the main
reasons are: doubt about the advantages it would bring to their
companies, they already have a good reputation for their
environmental performance, too expensive, and fear of damage to
company reputation.
The perceived obstacles include: data gathering problems, lack
of indicators, lack of resources and lack of management interest.
However, the extents to which the actual obstacles to reporting are
being experienced by reporting firms vary. Non – reporters tend to
believe that these barriers are more significant than actually
experienced.
Some of the more dominant reasons for non-disclosure
identified by Gray, Bebbington and Walters (Gray et all, 1993) are as
follows: the absence of demand of the information, the absence of a
legal requirement, cost outweigh benefits, data availability (and
related costs), secrecy, wait and see, never taught about it.
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However it seems that good intentions on environmental
management, which refers to the perceived importance of the natural
and corporate environment, their level of willingness to do something
to preserve and protect it, and their inclination to devote firm
resources (or possibly even forego some profit) in order to help
alleviate environmental problems. Generally speaking, the level of
enthusiasm for protecting the environment is high among corporate
leaders, just as it is among the general community (Hukkinen, 1999).
It appears plausible that a high level of positive intentions would
serve as a meaningful indicator of the actual environmental activities
undertaken by corporations.
9. Accounting Education
Too see the foregoing developments in environmental and
social accounting in a vacuum would be a mistake. There is still much
work to be done on attempting to explain how, if at all, accounting
research and practice in general (and environmental and social
accounting research and practice in particular) reflect changes is
broader society – and why they change in the way they do. Closer to
home, however, there has been evidence that (to our mind at least)
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suggest a maturing process in the academic accounting profession
(even if such a maturation is less apparent in practice). That is,
underpinning much of the work we have so briefly reviewed above, is
a growing – and critical – examination of the characteristics of
accounting education and accountants themselves as well as the link,
if any, between these two. Again this is too complex an area to
rehearse in any detail here but it does not seem unimportant that (a)
a significant proportion of research into accounting education, and
especially the ethical dimension of that education has involved social
and/or environmental accounting in its enquiries; (b) that research
into environmental accounting is finding accountants reluctant –
and/or unable to be innovative in the field; and (c) this has been
accompanied, in turn, by increasingly anxious recognition of the
negative role played by accounting teachers in the area. For
example: Bebbington et all, 1994; Brown and Goulding, 1993;
Francalanza, 1997; Gray et al, 1994; Guilding and Kirman, 1998,
Humphrey et al, 1996; Lewis et al, 1992; Loeb, 1998; Mathews, 1995;
Owen et all, 1994; Wang et all, 1997). The essence of the literature is
that accounting educators indoctrinate their students though a slavish
attachment to the professional syllabus and thereby produce students
29
who are ethical immature, intellectually passive and largely incapable
of innovation. That practicing accountants should then be found to
exhibit broadly similar characteristics comes as little surprise. Such
concerns (particularly about education) go some way towards
explaining why, despite the demands of both the corporate sector and
the environmental movement, accountants response to the
environmental crisis remains fairly lukewarm and predominantly
constrained by GAAP (Generally Accepted Accounting Principles).
10. Conclusions
Every business is an open system, they have specific
interaction with society. Business do not operate in a social or
political vacuum. In fact, most companies operate in a social,
economic, technological, and political change that brings both
opportunities and threats. The primary role of business is to produce
goods and services that society wants and needs, however there is
inter-dependence between business, government, and society in the
need of a stable environment with an educated workforce.
Corporate Social Responsibility is a part of the reason for
seeking greater accountability and transparency from management.
30
Environmental Issues and Financial Statement still become
convincing topic from the early interest in “social accounting” through
to the current interest in “environmental accounting”. In practice, there
is no consistence evidence that financial markets care about social
and environmental disclosure.
Mostly an expert agree that from philosophical point of view,
there is a strong relationship between Corporate Social Responsibility
and Sustainability, but some still doubt that “sustainability” is the
cornerstone of environmental accounting.
Problems in Environmental Reporting are: “what” and “how” to
report” (mechanism for reporting). Management who report has
specific reason such as: develop corporate image, political benefit,
competitive advantage, etc. On the contrary, management who did
not also believe that environmental reporting is costly.
Both academician and accountant agree that Standard for
Environmental Audit and Business Ethics are become more important
literature in Accounting Profession.
31
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Europe, 1998
Arnold & Hammond, The role of accounting in ideological conflict,
Accounting Organizations and Society, 1997
Barnes, A new approach to protecting the environment: the European
Union’s Environmental Management and Auditing Regulations, 1994
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empirical study, Journal of Accounting Education, 1993
Brown and Deegan, The public disclosure or environmental
performance information, Accounting and Business Research, 1998
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Accounting, Auditing and Accountability Journal, 1998
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Accountancy, 1994
Belkaoui, The Impact of the Disclosure of the Environmental Effects
of Organizational Behavior on the market, Financial Management,
Winter, 1976
Benston, An analysis of the role of accounting standards for
enhanching corporate governance and social responsibility, Journal
of Accounting and Public Policy, 1982
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Benjamin & Stangga, Difference in disclosure needs of major users of
financial statements, Accounting and Business Research, 1977
Cannon, Corporate Responsibility, Journal of Business Ethics, 1992
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Ethics, 1996
Case, Environmental Risk Management and Corporate Lending, A
Global Perspective, 1999
Cooper, A social analysis of corporate pollution disclosures: a
comment, Advances in Public Interest Accounting, 1992
Charlesworth, Business needs clear policy on green issues, Journal
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Diekers & Peterson, Corporate Social Accounting and Reporting for
the Physical environment, Accounting Organization and Society,
1977
Deegan, A study of environmental disclosure practices of Australian
Corporations, Accounting and Business Research, 2002
Deegan & Gordon, A Study of Environmental Disclosure Practices of
Australian Corporations, Accounting and Business Research, 1996
Deegan & Rankin, Do Australian companies report environmental
news objectively? Accounting and Auditing Journal, 1997
Deegan, Rankin M & Vought, Firms disclosure reaction to major
social incident: Australian Evidence, Accounting Forum, 2000
Donaldson, Making stakeholder theory whole, Academy of
Management Review, 1982
Epstein & Birchard, Counting What Counts: Turning corporate
accountability to competitive advantage, Journal of Business Ethics,
1999
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Epstein & Freedman, Social disclosure and the individual investor,
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sustainability, Accounting and Organizations and Society, 1993
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Journal of Accounting Education, 1994
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of the literature and longitudinal study of UK disclosure, Accounting,
Auditing and Accountability Journal,1995
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in corporate social and environmental reporting, 1996
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the planet safe in the hands of business and accounting, Advances in
Environmental Accounting and Management, 2002
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environmental groups, Journal of Business Ethics, 1997
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Hill et all, Benefiting Business and the Environment, Journal of
Business Ethics, 1994
Hukkinen, Institutions of Environmental Management: Constructing
mental models and sustainability, Journal of Bussines Ethics, 1999
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demonstration of ethical concern?, Journal of Business Ethics, 1995
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responsibility and financial performance, Journal of Business Ethics,
1996
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Accounting, Vol 6, 1992
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Organization and Society Journal, 1995
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stalemate,
Harvard Business Review, 1995
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1999
Pinkston & Carrol, A restrospective examination of CSR orientation:
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Ethics,1995
35
Richardson et al, Managing capital market reactions to social
responsibility, International Journal of Management, 1999
Roberts, Determinants of Corporate Social Disclosure, Accounting,
Organization and Society, 1992
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the market and environmentalism, Harvard Business Review,1993
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an extended comment, Accounting Organizations & Society,1984
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Accountancy, 1996
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Systems in the Real World, Journal of Business Ethics, 1997
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36
Beetween Theory and Reality
Presented by: Srihadi W.Zarkasyi
Accounting Department – Padjadjaran University
Simposium Kebudayaan Indonesia-Malaysia Ke – X
Bangi, Selangor, Malaysia
May 29 -31 2007
Abstrak
Corporate Social Responsibility merupakan salah satu masalah etika
bisnis yang sering diperdebatkan baik dari sudut pandang filosofis-teoritis
maupun pada tingkat praktis.
Beberapa persoalan yang diperdebatkan adalah hal-hal yang berkaitan
dengan apakah perusahaan benar-benar mempunyai tanggung jawab moral dan
sosial. Jika ada apa lingkup tanggung jawab itu. Apakah dalam hal yang
berhubungan dengan tanggung jawab sosial perusahaan itu maka suatu
perusahaan perlu terlibat dalam kegiatan sosial yang berguna bagi masyarakat.
Masalah lain yang timbul adalah bagaimana tanggung jawab sosial perusahaan
itu dapat dioperasionalkan dalam suatu perusahaan.
Sehubungan dengan implementasi konsep Corporate Social
Responsibility di dalam perusahaan, maka hal tersebut terkait dengan masalah
akuntansi, yaitu masalah pengukuran (problem of measurement) dan masalah
pelaporan (problem of reporting) yang berkaitan dengan aktivitas bisnis. Secara
teoritis hal tersebut terkait dengan Social Accounting dan Social Audit.
Makalah ini mencoba membahas masalah-masalah (problems) dan
prospek yang berkaitan teori dan praktik penerapan Corporate’s Social
Responsibility Accounting yang sampai saat ini masih dirasakan adanya
kesenjangan.
Keyword: Corporate’s Social Responsibility, Social Accounting, Social
Audit, Stakeholder Theory, Social and Environmental Reporting,
Accountability and Transparency.
1
Introduction
The growth in environmental accounting research and intersest
in the last few years has been little short of phenomenal.For those of
us with a long-standing interest in such issues, it is easy to get swept
along in the euphoria of seeing environmental issues brought to
centre stage in business and accounting debates. Little more than
decade ago, any scholar wishing to review the literature concerned
with accounting and the natural environment would have been faced
with relatively straightforward task. Beyond the new significant and
seminal papers (see, for example Dierkes and Preston 1977, Ullman,
1976) environmental issues tended only to surface as one of the
themes within the Social Accounting and Reporting literature (Gray et
all 1996, Mathews 1997 for summaries). The change in the last ten
years has been little short of phenomenal. Consequently, it would be
easy - especially for those of us who have been involved in the area
for some years - to get swept along on a tide of enthusiasm now that
environmental (and, latterly, social) accounting appears to be
occupying an increasingly central place in accounting debate.
For years accounting scholars have bemoaned the fact that
Accounting (and Finance) teaching and research have largerly
2
ignored environmental matters. Now this has changed and there are
few aspect of accounting in which environmental concern is not
explicitly recognized as important. Most research in corporate
environmental management and environmental accounting indicate a
substantial gap between the espoused environmental attitudes of
business leaders and the actual practices of their companies.
The primary purpose in writing this paper is to investigate
problems and prospects concerning Corporate Social Responsibility,
and discuss: (1) Business Interaction with Society, (2) Accountability
and Transparency, (3) Environmental Issues and Financial
Statements, (4) Financial Markets and Social or Environmental
Disclosure, (5) Accounting, the Environment and Sustainability, (6)
Environmental issues and Auditing, (7) Social and Environmental
Reporting, (8) “Greening Influences” on Companies, Managers and
Accountants, (9) Accounting Education, (10) Conclusions
1.Business Interaction with Society
The nature of relationship between business and society is an
over-arching question and it is important to note that interpretations of
social behavior will depend upon the perspective adopted. A strong
3
view is that business carries out the economic functions of society
(Wartick and Wood, 1998) and that, in free market economies, in
carrying out these economic functions, business has some forms of
responsibility to society. There are, however, competing perspectives
and views that conflict with this dominant perspective.
The liberal economist would say that the only forms of
responsibility are “economic”, whereas some critical theorist would
state that any form of what might be termed “social responsibility” is
there to maintain the legitimacy of system.
Whether or not business should undertake activities that may
be regarded as pro social and the forms that responsibility should
take depend upon the perspective adopted. Those who adopt “neoclassical” view of the firm would believe that the only social
responsibilities to be adopted by business are the provision of
employment and payment of taxes. This view is most famously taken
to the extremes of maximizing shareholder value and reflected in the
views of Milton Friedman.
The need for companies to undertake activity that might be
regarded as socially responsible has been discussed in the literature
and has been a topic of academic study for decades (Ullman, 1985).
4
Cannon (1992) discusses the development of corporate social
responsibility via the historical development of business involvement
leading to a post war re-examination of the nature of the relationship
between business, society and government. He identifies that the
primary role of business is to produce goods and services that society
wants and needs, however there is inter-dependence between
business and society in the need of a stable environment with an
educated workforce.
Cannon (1992) quotes Lord Sieff, the former chairman of Marks
and Spencer: “ Business only contributes fully to a society if it is
efficient, profitable and socially responsible”. Similarly Wood (1991)
states that: “the basic idea of corporate social responsibility is that
business and society are interwoven rather than distinct entities”.
The push that business should undertake social activities with a
business benefit is not new, the literature has much on “doing well by
doing good” (Stroup and Neubert, 1987). From Corporate
perspective, Harris and Klepper (cited in Carrol, 1996) find that the
main reasons for undertaking contribution activities were: (1)
Corporate Citizenship: practice good corporate citizenship, (2)
Business Environment: protect and improve environment in which to
5
live, work, and do business, (3) Employee benefits: realize benefit for
company employees, (4) Public relations: realize good public
relations value, (5) Pluralism: preserve a pluralistic society by
maintaining choices between government and private-sector
alternatives, (6) Commitment: of director or senior officers to
particular causes, involvement.
From a practical point of view, Pava and Krausz (1996) observe
that “there is no doubt that in some instances corporate social
responsibility is nothing more than self advertising.
2. Accountability and Transparency
In a society of pristine liberal democratic economy, individuals
are theoretically better informed and more empowered, whereby, the
inequalities of wealth are potentially exposed and such inequalities of
power are somewhat minimized through greater accountability and
transparency of information.
What is meant by “accountability”? This concept is not fully
comprehended by managers and few people agree on its definition
due to the broad context within which the word accountability has
been used – business, law, government, politics and morality. There
6
are those who maintain that the “true test of an accountable
organization is specific: whether it measures performance
quantitatively – with financial and non-financial numbers – and
reports it publicly to audiences inside and outside the organization.
Anything less than hard numbers, broadly disclosed, reveals an
organization hesitant to commit to full accountability. The act of one
party answering to another in qualitative terms alone is not enough.
Accountability requires data” (Epstein and Birchard, 1999).
The notion of accountability is commonly described in regards
to an organisation’s legal compliance and its financial reporting to
shareholders and governmental authorities, and only very recently
extended to social, environmental, and ethical reporting.
Epstein and Birchard (1999) have defined an “accountable
organization” as comprising of four approaches to accountability:
governance, measurement, management systems and performance
reporting. An accountable organization initiates independent
governance; balanced financial and non-financial systems of
measurements; incorporates closed-loop planning, budgeting, and
feedback systems; and comprehensive transparency through regular
public reporting activities.
7
Accountability in the accounting literature is being defined as:
The duty to provide an account (by no means necessarily a financial
account) or reckoning of those actions for which one is held
responsible (Gray et al, 1996). Thus, accountability is concerned with
the responsibility of supplying information and the right to receive it.
Central to deep green perspective, is the principle of personal
accountability from which, the duty to supply information is founded.
The right to receive information is a fundamental ingredient of any
neo pluralist or participatory democracy.
However, do organizations have a social responsibility over
above Milton Friedman’s (1962) definition “to make as much money
for their shareholders as possible? Are shareholders the only
stakeholders that count in business who have the right to be heard
and receive information about management performance? On the
contrary, when a party is affected by an organization, it has the right
to be heard and be informed of that company’s operation. Put it
simply, stakeholders are owed some say in the direction of a firm due
to their being affected by that company. In short, their stake earns
them the right to be counted in decisions that affect them directly or
indirectly (Pruzan and Zadek, 1997).
8
Therefore, it has been asserted that public at large has a right
information about the extent to which companies complied with the
minimum standards of law and other regulations (Gray et all 1991).
Perhaps the most obvious rights and responsibilities emanate from
legal promulgation. The law establishes the minimum level of
responsibilities and rights and therefore, the minimum level of legal
accountability at any given time in any given country (Tinker et al,
1991).
Moral and natural rights and responsibilities in a society are
unremittingly shifting overtime and so is the degree of accountability.
What is considered to be responsibility is constantly varying and
developing (Tinker et al, 1991). Nevertheless, just because the
philosophical (natural/moral) responsibilities are difficult, if not
impossible to account for with certainty does not mean that such
issues have to be neglected. The current waves of response to the
natural environment are example for this.
Social responsibility is part of the reason for seeking greater
accountability from corporate management. Increasingly, individual
and institutional investors, as well as other stakeholders (employees,
government, and community) are motivated by the belief, evidence by
9
recent studies, “that well managed companies, including their
environmental aspects, are those companies producing the best
bottom-line results. An increasingly significant source of these data is
corporate (voluntary) environmental reports” (Piasecki, Fletcher, and
Mendelson,1999).
3. Environmental Issues and Financial
Statement
There is probably only one line of research which runs
unbroken from the early interest in social accounting through to the
current interest in environmental accounting. That line of research is
that which investigate the statistical relationship of corporate
environmental (and social) disclosures, corporate characteristics,
environmental (and social) performance and financial performance.
(See for example, Freedman and Jaggi, 1988, Freedman and
Stagliano, 1995, Freedman and Ullmann 1986, etc).
Social Accounting is an attempt to redress the balance through
recognition that a firm affects, through its actions, its external
environment (both positively and negatively) and should therefore
account for these effects as part of its overall accounting for its
10
actions. Implisit in this concern with the effects of the actions of an
organization on its external environment is the recognition that it is
not just the owners who have a concern with its activities.
Additionally, there are wide varieties of other stakeholders who
justifiably have a concern with those activities and affected by those
activities. Those other stakeholders have not just an interest in the
activities of the firm but also a degree of influence over the shaping of
those activities.
The desirability of considering the social performance of a
business has not always however been accepted and has been
subject of extensive debate. As recent example, Deegan (2002)
presents an overview of the research trends and opportunities in the
area of social and environmental accounting research. Similar studies
where evidence by Mathews (1997), Gray (2002) with a social
accounting literature review of the last 25 years. The suggestion of
the area of social and environmental, first arose in the years 70 and a
concern with a wider view of company performance is taken by some
writers who concern with the social performance of a business as a
member of society.
11
Gray, Owen and Maunders (1991) consider social accounting in
terms of responsibility and accountability and distinguish between
the internal needs of a business, catered for by management
accounting, and the external needs, which are addressed for
shareholders by financial reporting but largerly ignored for other
stakeholder interest.
4. Financial Markets and Social or
Environmental Disclosure
In developed countries, financial markets have increasing
global power and that power can manifest itself in environmental
degradation, social injustice and limitations on the ability of quoted
companies to undertake activities which, although experimental and
financially fragile, can be seen as socially and environmentally
responsible. Markets’ power does not seem to be balanced by their
responsibility. Social and environmental disclosure is one possible
way in which markets may be re-educated towards more sustainable
modes of behavior.
Broadly speaking, the research into corporate social and
environmental disclosure has not been primarily motivated by
12
concerns for shareholders and other financial participants as such.
Rather, one branch of the research has been concerned to examine
the how social and environmental disclosure reflects and discharges
the responsibilities and subsequent accountabilities of the
organization. This research has taken a societal point of view and
has been motivated by democratic concerns to rights to information
and the means by which organizational behavior might be controlled
by society, (see, for example, Gray et al, 1996). The second branch
of research into social and environmental disclosure has been rather
more managerialist in orientation and sought to explore (1) how the
company uses such disclosure to manage its stakeholders and (2)
how such disclosure might used to secure the legitimacy of, either,
the individual corporation or, more broadly, capitalism itself (Arnold
and Hammond, 1994).
Of more direct relevance, a less dominant aspect of the
research has sought to explore what, if anything, social and
environmental disclosures might mean for shareholders. There are
several themes to this research.
In the first place researches have sought to establish whether
investors find social and environmental disclosures decision-useful.
13
This research, in keeping with much research into financial reporting
theory (see, for example Belkaoui, 1986) has employed a variety of
methods to investigate the actions, attitudes and behaviors of the
individual investor (see, especially Epstein and Freedman, 1994) as
well as the more familiar explorations of aggregate financial market
response to such disclosures.
Despite fairly convincing evidence that investors often show
more than a passing interest in social and environmental disclosures
(see, for example, Benjamin and Stangga, 1977; Chenall and Juchau,
1977; Firth, 1984; Epstein and Freedman, 1994), it is still traditional to
assume that investors are only interested in maximizing their riskadjusted returns from investment, (see, for example, Benston, 1982;
Skogsvik, 1998; Rivoli, 1995). Under such an assumption, there is no
immediate or obvious reason for shareholders to have any interest in
the social and/or environmental aspects of their investment.
The foregoing offers an a priori argument for why social and
environmental data may have potential impact on shareholders’
decisions as to whether or not to buy, hold or sell shares. But, the
crucial thing is that such an analysis presupposes that investors are
14
only interested in the financial aspects of their investment, (see,
Richardson et all, 1999).
There is no evidence, as far as we aware, that all investors are
exclusively interested in a purely financial appraisal of their
investments. Indeed, they very significant growth in ethical
investment funds (for example, Antonio et al 2000), probably
suggests quite the reserve. Therefore, as Belkaoui (1976) argues,
there is no a priori reason why we should assume that all investments
are always treated as purely economic events. Consequently, social
and environmental disclosures may well over an important source of
direct input to these “ethical” investors’ decisions.
Finally, social and environmental disclosure may have to play a
crucial role in moves towards sustainability, (Leggett, 1996; Suranyi,
1999; Case, 1999; Gray and Bebbington, 2000). That is, there is
increasing recognition (see, for example, Schmidheiny and Zorraquin,
1996) that moves towards sustainability (or, more realistically, moves
away from un-sustainability) cannot be achieved if financial markets
remain as rapacious, self serving and short-termist as there are
currently.
15
Consequently, financial markets need to be “educated” (see for
example, Schmidheiny and Zorraquin, 1996) about the social and
environmental challenges that sustainability presents to each and
every company. Although social and environmental disclosure is, as
yet, not delivering this quality of educative disclosure, (see, for
example, Gray 2000) it seems inevitable that Social and
Environmental disclosure must play a major part in seeking out the
possibilities of transformation that may exists in Financial Markets.
5. Accounting, the Environment and
Sustainability
Sustainability relates to both present and future generations. It
is discuss that the needs of all peoples are met. Those needs are
both social and environmental. The link between accounting and
environmental degradation is well-established in the literature (see,
for example, Eden, 1996; Gray et all 1993). The crucial point is that
accounting which takes the business agenda as given should include
much environmental and social accounting. Thus, central to any
discussion of accounting and the environment is a basic, challenging,
and deeply unsettling question: do we believe that the organizations
16
which accounting serves and supports can deliver environmental
security and sustainability?
At the same time as the technical implementation of social
accounting and reporting has been developing the philosophical basis
for such accounting has also been developed. Thus, Benston (1982,
1984) and Schreuder and Ramanathan (1984) consider the extent to
which accountants should be involved in this accounting. Donaldson
(1982) argues that such accounting can be justified by means of the
social contract as benefiting society at large. Batley and Tozer (1990)
and Geno (1995) have argued that “sustainability” is the
“cornerstone” of environmental accounting.
6. Social and Environmental Reporting
The questions of how business should report its social
performance and how that performance should be assessed have
been dominant themes in the social accounting literature (Gray et al,
1996) and the social issues in management literature (Wood 1991)
over the past decade. We are now witnessing both a number of
17
initiatives that seek to set guidelines or standards for social
accounting, for example the Global Reporting Initiative (GRI).
If there is one area which accounting researchers have
embraced with enthusiasm it is the phenomenal growth in
environmental reporting by organizations. The research in this area
has been dominated, initially at any rate, primarily by studies
descriptive in orientation. Such studies typically employ some variant
of content analysis (see, for example, Milne and Adler, 1999; Gray et
all, 1995). Both country specific studies and comparative studies
have recorded an upward trend in environmental disclosure both
through the annual report and through stand-alone environmental
reports. However, analyses of the phenomenon ( Hackston and
Milne1996; Fekrat et al1996; Pava and Krause 1996 ; Adams et al
1998) confirm that such reporting is principally restricted to the very
largest companies and is, to a degree at least, country and industry
variant.
Research into environmental disclosure is developing rapidly
with examinations of the impact of pressure groups (Tilt, 1994) and
other external forces (Gray et all, 1995; Deegan and Gordon, 1996),
exploration of user’s needs (Epstein and Freedman, 1994; Deegan
18
and Rankin, 1997), focus on particular aspects of reporting such as
environmental policies (Tilt, 1997), exploration of the truthfulness of
environmental disclosure (Deegan and Rankin, 1996) and much
needed theoretical development (see, for example, Patten, 1992;
Roberts, 1992; Gray et al, 1995, Buhr, 1998; Adams et al, 1998;
Brown and Deegan, 1998; Neu et all, 1998).
Environmental reporting takes place in a predominantly
voluntary regime and with the continuing interest in voluntary
guidelines for such reporting (see, for example, KPMG 1997), such
survey of practice are crucial in keeping attention focused on the
doubtful quality and, especially, the global paucity of such reporting. If
environmental reporting is important (for social accountability reasons
even if it is of dubious “financial user need” value) then the
predominant view of business – that environmental reporting is
adequate in voluntary regime – must be challenged. Whilst the early
research into environmental disclosure appeared to be so delighted
that any such disclosure was taking place, this acquiescence has
given way to a more critical analysis of practice. This analysis,
primarily informed by the “critical school” (Laughlin, 1999), comprises
three main themes. The first two of these themes are, in essence,
19
the same critique made of social accounting. First, accounts of any
kind are necessarily partial and biased constructions of a complex
world. Not only do such constructions, by making some things visible,
make other things invisible (Broadbent, 1994) but they are most likely
to limit and even destroy the essential nature of the thing accounted
for. (See, for example, Maunders and Burritt, 1991; Maunders, 1996;
Cooper, 1992; Johnson, 1998). Second, the critical theorist would
argue that environmental reporting is voluntary activity it can only
reflect those aspects of environmental performance which
organizations are willing to release. It can, therefore, only be a
legitimation device and not an accountability mechanism.
Consequently, the critical theorist argue, environmental accountingincluding environmental reporting- is almost certain to do more
environmental harm than it does good. These two themes are now
developing into an important – if, as yet, unresolved – theoretical
debate which seeks to counter the inherent managerialism of most
accounting (and environmental accounting) research.
The final theme in the critique of environmental disclosure
develops the issue of the voluntary nature of environmental
disclosure and brings a much-needed re-assessment of the
20
importance and role of law in the construction of society. Specifically,
Gallhofer and Haslam (1997) could be taken to use researchers’
views on the role of regulation in governing environmental reporting
as an indicator of the researcher’s managerialist or alternative
perspective.
In essence, a non-managerialist environmental reporting would
have to challenge an organization’s legitimacy and, in particular, the
legitimacy of the means by which it earned the reported profit and
gained its growth. The critical challenges to environmental reporting
are not ill-founded when they remark that too little environmental
reporting research examines this question to any substantial degree.
One of the more inexplicable, although exceptionally welcome,
consequences of the growing environmental agenda has been the reemergence of a serious interest in social accounting. This is not the
place to try and review, in any detail, the broad social accounting
literature (see, for example, Gray et al 1996) – although a few general
observations seems opposite. Social Accounting had its principal
heyday in the 1970s but, although some researchers maintained an
active interest in the field, it virtually disappeared from the popular
consciousness of accounting academe during the 1980s and 1990s.
21
Its re-emergence seems to be a response to a number of factors.
One such factor seems to be the recognition that separation of
environmental from social issues is difficult at best and pernicious at
worst. As environmental issues are explored more carefully, the
underlying implications for employment, communities, health and
safety and even the organization’s very posture on ethics and social
responsibility inevitably resurface.
Equally, corporate practice has re-discovered social accounting
and when organizations as diverse as Ben and Jerry’s, the Body
Shop and Shell commit to social accounting, the wider business
community begins to take notice. Finally, as we shall see, the
environmental debate leads us inexorably towards discussions of
sustainability. Such discussions must, by definition, embrace social
accounting matters.
The recent research literature on social accounting is still a little
sparse but examples exist. The Adams/Roberts project has
maintained a focus across both social and environmental disclosure
(see, for example, Adams et al, 1998; Gray et al 1995; Hackston and
Milne, 1996). Work by Roberts (1992), Pinkston and Carroll (1996),
Patten (1995), Epstein and Freedman (1994), Mathews (1995) and
22
Robertson & Nicholson (1996) continues to keep the social
responsibility accounting debate moving forward whilst
simultaneously, we are starting to see a re-emergence of normative
work designed to guide how social accounting might be accomplished
and what it might look like (See, Zadek et al, 1997; Gray et al, 1997;
Gonella et al, 1998).
7. Environmental Issues and Auditing
Where issues are affecting the financial statements, the
statutory financial audit must take notice. Despite this, researchers
have, it would appear, been slow to pick up on the very real
implications that environmental issues can have for the attestation of
financial statement. Whilst professional accountancy bodies are
addressing such issues – and even commisioning research into the
area (see, for example, Kamp-Roelands, 1996) we are only aware of
substantial investigation of this area in the UK. In 1997 Collison and
Gray has identified a growing concern amongst auditors about
potential risk exposure they face as a consequence of the
environmental impact on the business. Such concern, however,
seems to be largely limited to the larger firms of auditors and this, in
23
turn, seems to be explained by the firm’s own level of awareness of
the issues – the more one is aware of the potential impact of
environmental issues the more anxious one becomes. The majority of
audit firms do not yet, it seems have a very detailed understanding of
what environmental issues mean for their clients and their financial
statements.
Equally, there are growing demands upon auditors to either
include environmental data in their attestation of the financial
statements and/or to attest independently to environmental data in,
for example, an environmental report. These demands place
additional strains upon the auditor and audit function (Tozer and
Mathew, 1994) and, given the especially poor quality of (so-called)
independent attestation to environmental reports, these pressures
seem set to grow. At the same time, we might begin to ask, yet again,
about the purpose of financial statements and the auditors’
attestation. If the statements and audit report are purporting to
present a fair picture of the organisation’s performance but omitting
one of –if not the – largest potential threat to the continuance of
mankind, we might well be anxious about the claims of the
accounting and audit profession.
24
The problems in auditing is standars, every accountant need
standards to do the audit concerning corporate’s social responsibility.
8. “Greening Influences” on Companies,
Managers, and Accountants
A literature review has identified a number of reasons why firms
might be influenced to adopt more socially and environmentally
responsible attitudes and behavior (positive influences). These
include external pressures from stakeholders like governments,
institutions, customers and competitors (Roberts, 1992); market
opportunities to provide new environmentally friendly products
(Elkington and Burke, 1989); the need to conserve finite physical raw
material or resources used by companies (Owen, 1992; Brown et al
1998); a desire to invest in prevention activities rather than incur
future liabilities (Schmidheiny & Zorraquin, 1996; Bijterveld et al
1998); the perception of environmental issues as source of innovation
(Porter and Van Der Linde, 1995); a personal set of ethical and moral
view that see environmental protection as a virtuous activity (Hill et al,
1994); the demand of government laws, licenses, or policies
(Charlesworth, 1998), the need or desire to comply with
environmentally friendly industry standards, such as ISO 14000
25
(Sheldon 1997; Sharma-Fleet, 1998): cost savings and improved
profitability through reduced resource consumption, cleaner
production and/or waste management (Rondinelli and Berry, 2000),
the desire to improve risk management policies within the firm
(Bijterveld et al 1998); and the belief that it may help improve
employee motivation (Wehrmeyer, 1996).
The literature review has also identified a number of reasons
why firms might be influenced not to adopt environmentally
responsible behavior. These include a perception that such measures
will create unnecessary additional costs (Charles worth, 1998; Shiraz,
1998); a fear that such activities may lead to the loss of and existing
strategic, competitive or price-based market advantage (Reding,
1993), internal barriers to change within the organization, such as
employee resistance, technological and production problems, or
management apathy (Hartman and Stafford, 1997); lack of requisite
skills and/or knowledge (Friedman 1980, Porter and Van der Linde
1995, Wang et al 1997); a fear that it increases the standards by
which stakeholders and the public judge the performance of the firm
(Mirvis, 1994; Barnes, 1994; Brown, 1995), and the perception that
26
environmental management is outside the core competence of the
firm.
Why do so many companies choose not to report?
The survey of more than 50 non reporting companies highlights
reason for not producing an environmental report. Some of the main
reasons are: doubt about the advantages it would bring to their
companies, they already have a good reputation for their
environmental performance, too expensive, and fear of damage to
company reputation.
The perceived obstacles include: data gathering problems, lack
of indicators, lack of resources and lack of management interest.
However, the extents to which the actual obstacles to reporting are
being experienced by reporting firms vary. Non – reporters tend to
believe that these barriers are more significant than actually
experienced.
Some of the more dominant reasons for non-disclosure
identified by Gray, Bebbington and Walters (Gray et all, 1993) are as
follows: the absence of demand of the information, the absence of a
legal requirement, cost outweigh benefits, data availability (and
related costs), secrecy, wait and see, never taught about it.
27
However it seems that good intentions on environmental
management, which refers to the perceived importance of the natural
and corporate environment, their level of willingness to do something
to preserve and protect it, and their inclination to devote firm
resources (or possibly even forego some profit) in order to help
alleviate environmental problems. Generally speaking, the level of
enthusiasm for protecting the environment is high among corporate
leaders, just as it is among the general community (Hukkinen, 1999).
It appears plausible that a high level of positive intentions would
serve as a meaningful indicator of the actual environmental activities
undertaken by corporations.
9. Accounting Education
Too see the foregoing developments in environmental and
social accounting in a vacuum would be a mistake. There is still much
work to be done on attempting to explain how, if at all, accounting
research and practice in general (and environmental and social
accounting research and practice in particular) reflect changes is
broader society – and why they change in the way they do. Closer to
home, however, there has been evidence that (to our mind at least)
28
suggest a maturing process in the academic accounting profession
(even if such a maturation is less apparent in practice). That is,
underpinning much of the work we have so briefly reviewed above, is
a growing – and critical – examination of the characteristics of
accounting education and accountants themselves as well as the link,
if any, between these two. Again this is too complex an area to
rehearse in any detail here but it does not seem unimportant that (a)
a significant proportion of research into accounting education, and
especially the ethical dimension of that education has involved social
and/or environmental accounting in its enquiries; (b) that research
into environmental accounting is finding accountants reluctant –
and/or unable to be innovative in the field; and (c) this has been
accompanied, in turn, by increasingly anxious recognition of the
negative role played by accounting teachers in the area. For
example: Bebbington et all, 1994; Brown and Goulding, 1993;
Francalanza, 1997; Gray et al, 1994; Guilding and Kirman, 1998,
Humphrey et al, 1996; Lewis et al, 1992; Loeb, 1998; Mathews, 1995;
Owen et all, 1994; Wang et all, 1997). The essence of the literature is
that accounting educators indoctrinate their students though a slavish
attachment to the professional syllabus and thereby produce students
29
who are ethical immature, intellectually passive and largely incapable
of innovation. That practicing accountants should then be found to
exhibit broadly similar characteristics comes as little surprise. Such
concerns (particularly about education) go some way towards
explaining why, despite the demands of both the corporate sector and
the environmental movement, accountants response to the
environmental crisis remains fairly lukewarm and predominantly
constrained by GAAP (Generally Accepted Accounting Principles).
10. Conclusions
Every business is an open system, they have specific
interaction with society. Business do not operate in a social or
political vacuum. In fact, most companies operate in a social,
economic, technological, and political change that brings both
opportunities and threats. The primary role of business is to produce
goods and services that society wants and needs, however there is
inter-dependence between business, government, and society in the
need of a stable environment with an educated workforce.
Corporate Social Responsibility is a part of the reason for
seeking greater accountability and transparency from management.
30
Environmental Issues and Financial Statement still become
convincing topic from the early interest in “social accounting” through
to the current interest in “environmental accounting”. In practice, there
is no consistence evidence that financial markets care about social
and environmental disclosure.
Mostly an expert agree that from philosophical point of view,
there is a strong relationship between Corporate Social Responsibility
and Sustainability, but some still doubt that “sustainability” is the
cornerstone of environmental accounting.
Problems in Environmental Reporting are: “what” and “how” to
report” (mechanism for reporting). Management who report has
specific reason such as: develop corporate image, political benefit,
competitive advantage, etc. On the contrary, management who did
not also believe that environmental reporting is costly.
Both academician and accountant agree that Standard for
Environmental Audit and Business Ethics are become more important
literature in Accounting Profession.
31
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