System based accounting theories
These are accounting theories that focus on the role of information and how it is shared among organizations, the country, individuals, and other groups involved with a particular firm. The assumption in these theories is that the firm that uses these accounting theories is thought to be influenced by the society that surrounds it. Additionally, the firm affects the community that it encompasses.
Positive accountant
A positive accountant is one who uses positive accounting in his work. Positive accounting is a branch of accounting research that is used to explain and predict actual accounting practices. The firm is viewed as a collection of contracts by the positive accountant, and that account is a tool that is used to facilitate the formation and performance of contracts.
Making wealth for the investor
This phrase is used in accounting to portray the profitability of the company. The Cost-effectiveness of a firm to the investor is shown in an increase in net profit to the firm.it may be used to show an increase in the value of the firm through the company’s value on the stock market. That is how much investors are willing to pay for a share of the company’s stock.
Stakeholder engagement.
Stakeholder engagement is the process of involving parties who are affected by the decisions of a firm or those who are affected by the decision. This process can influence the implementation of its decisions. These parties may hold significant positions in society or other relevant official areas or parties that can be affected in the long term.
Sustainability reporting
This is described as social, corporate social responsibility, environmental and non-financial reporting that a firm engages in to present to shareholders the non –financial information to external stakeholders such as creditors and relevant authority.It represents activities that directly affect society, the environment, and the firm’s performance. This type of reporting aims to maintain the relationship between the firm and the community and the environment through activities such as corporate social responsibility and regulatory pollution procedures.
Integrated reporting
Integrated reporting is reporting relative company performance in terms of financial and non-financial data. It clearly shows the company’s strategy and governance that have been put in place to create value for the firm in the short, medium, and long run. It is relevant for clear decision making for company policies and decision making in the future.
Stakeholder engagement.
Shareholder engagement can be described as the process in which a firm actively involves various stakeholders in the decision-making process. This is done to get their views on a decision that is likely to affect them, and they do have a say in the outcome of the decision-making process.
In his book Stakeholder management, Jeffery describes seven core principles in stakeholder engagement, in which we will use three to represent the shareholders. The first is that shareholders have a say in the decision about actions that could affect their lives. The second is that shareholder participation is based on the faith that their contribution to the decision will be considered. The third is that shareholder participation seeks input from participants in designing how they participate.
Based on these core principles of shareholder engagement, the following are the stakeholders of a business.
Employees
The employees of a firm play a critical role in the decision-making process. The formulation of policies and procedures by management, such as bonus schedules and other employee-related plans directly affect them. Employees must be actively engaged in systems that are effective and favorable to both the policymakers and the employees during the formulation and implementation of these policies.
Investors
The core activity of many businesses is in creating wealth for the investor. This shows how vital the investor is in store. Any events activity that the company is involved in that does not include the daily running of the company should have a member of the board in it. Investors must be involved in the firm’s decision-making process. This is shown in annual general meetings where the investor gives direction on significant decisions that the company needs to make. Often this is usually approving the management decisions, but they may refute these proposals if they feel they are not geared to the company goals
Government authorities
Businesses operate in jurisdictions on various sovereign states. These states are governed by the law, which must be followed and when broken consequences such as fines and withdrawal of permits may follow. In making a decision that involves laws of the country that are not clear or need further clarification, the decision-making body must include a government authority to clarify this issue. In other sectors, the government may need to be involved in such a decision to protect the interest of its citizens or the country.
The surrounding society
The immediate society that is living within the premises of the firm is affected directly by activities such as noise or water pollution from the firm. A decision being made by the firm to switch to more environmentally friendly solutions should include the immediate society
The customers
Customer feedback is necessary for the generation of a new product or the refinement of an old one. Customers present their views on the product, and the firm can use this information to make adjustments. The use of control groups in the development of a new product is a portrays the customer’s importance in the decision-making process of a firm
Creditors
Creditors offer the company’s loan goods or services that the company is to pay back at a later date. Therefore it is critical that in situations that include taking up more debt or liquidation the creditors are involved to ensure that their needs are not overlooked
Suppliers
Accounting theories involved n stakeholder engagement.
The legitimacy theory states that the company is viewed too be legitimate not by the actions that it undertakes to be legitimate, but whether the societal norms in the community can support it. Legitimacy has a different meaning for different societies and is, therefore, a system based theory. Legitimacy theory in accounting considers the values and societal norms in the community that could affect the legitimacy of the company. Activities such as corporate social responsibility have been proven to increase the legitimacy of a firm as it is involved in giving back to the society .this blends well with the shareholder engagement theory as the members of the community are included in the decision making process for a corporate social program for their own benefit. However, actives such as dumping effluent in lakes and dams in a community reduce the legitimacy of the firm. Shareholder engagement would be critical for the firm before dumping the waste into the river as this would reduce the relative legitimacy of the company.
The institution theory in accounting considers the processes by which structure schemes norms and routines become the authoritative guidelines for behavior. This theory explains why organizations within particulate feeds take on similar characteristics. The entry of an institution in a particular market will cause it to adjust its culture to align with those in the society. This theory overlaps with the legitimacy theory to explain why a company aligns itself with the societal norms. This is to make the company viewed as legitimate by the members of the society and accepted by society. As an example, the car manufacturing industry is beginning the use of clean, sustainable energy in their vehicles. This is after the analysis, so the effects of carbon from vehicle exhaust to the climate. Therefore deciding to adopt energy efferent sources is a position the companies have taken. Any new entrants into the market would have to align with this norm and create legitimacy within the car industry.
The institutional theory includes isomorphism that is an adaptation of an institutional practice by an organization. An example of this is the adoption of the lean policy by other car manufacturers after it had become such a success and is now the norm of production in car making.
Isomorphism can either be coercive, mimetic, or normative. Coercive is where the company is coerced into voluntarily adopting a reporting practice wile mimetic is where a firm copies the practices of other institutions to improve itself. Normative is pressure from other groups to adopt particular institutions practices,
Stakeholder theory states that the managers o s business must take into account the needs of all stakeholders, not only the stakeholders. This viewpoint, therefore, illustrates that a business must consider everyone’s total well-being and everything impacted by it. This can also be viewed as the company needs to distribute a share of the profits to disadvantaged shareholders
Critics, however, point out that it can be challenging to weigh the differing interest of shareholders. Should a business contribute more to the community in corporate social responsibility projects on infrastructure or take up more taxes and pay to the government and let them handle society. Is the company to willingly be proactive and solve its environmental impacts on the community or wait for the local authorities to impose regulations on pollution?
Primary sources of data are sources that document an event, time place, or idea. They are the first-hand accounts of information on a particular topic. According to Ajayi (2017), primary sources of data are original and unique data that has been directly collected by the researcher from a source such as an observation survey questionnaire. Primary sources of data may include raw data, first edition books research journals and articles, data entry letters and other correspondence, audio and video broadcasts that capture events as they are happening in real-time. First-hand eyewitness accounts and interviews .legal and government documents that are in public records such as birth or death certificate and any other files created by organization describing the first-hand account of an event.
Secondary sources of information move one’s step further from being first hands; they are usually an interpretation and analysis of the first-hand sources of data. They do, however, maintain a similar topic to the primary sources and often use quotes and excerpts in their study and presentation of information. They are often the thought of the writer on a particular topic where he draws from primary sources to support his ideas. Secondary sources of drat may include bibliographies, bibliographical works, reference books such as dictionaries encyclopedias and atlases, articles from journals magazines and newspapers after the event, literature reviews and review articles on a primary source such as a movie book or article, works of criticism and interpretation, commentaries indexes and abstracts.
Primary sources may become secondary sources depending on the topic and its use. A peer-reviewed article on the implications of new accounting procedures may be viewed as a secondary source of data s it does not make any original ideas. On the other hand, if the topic being researched is the effect of new accounting procedure to business and other it is a primary source of information.
A mixed methodology study is a use of quantitative(collecting analyzing and integrating data) such as in experiments and surveys while also incorporating the use of qualitative methods such as focus groups and interviews in the research process. This methodology in research is used when the integration provides a better understanding of the research problem.Quantitative data consists of a statistical analysis of scores collected on instruments to answer the research question or test the hypothesis. Qualitative data, on the other hand, categorizes the information received and presents a variety of ideas gathered during the collection of data.
The use of both quantitative and qualitative research and data is advantageous as the researcher gains breadth and depth of understanding and collaboration while avoiding the disadvantages that come with each method of data collection. Additionally, the possibility of triangulation is a significant advantage of using these two methods of data collection. Triangulation is the use of several means such as methods of data collection and research to examine the same phenomenon.It allows the researcher to examine an aspect of the research topic from a different perspective using different methods of view that provide a clearer picture of the overall research. It, however, requires a careful analysis of the type and information about supplied by each process including, the strengths and weaknesses.
Research proposal
Corporate social responsibility and sustainable financial reporting
Importance of this research
Corporate social responsibility is not a new term in the accounting world. It has been present for some time now and has gained traction in the last 10- 20 years. Stakeholders of a firm often need to have their needs met by the firm and the use of corporate social responsibility in sustainable financial reporting has been key in meeting these needs .sustainable financial reporting has been called for by many governing bodies citing the importance of a sustainable financial reporting to stakeholders in the firm. Sustainable financial reporting can not only be engaged through corporate social responsibilities but also other activities that contribute towards a sustainable environment for firms in the long run. Such activities may include the use of eco-friendly energy sources compared to energy sources with a large carbon foot print or the recycling and reusing to ensure that the environment is not polluted. there being various methods That sustainable financial reporting can be achieved, corporate social responsibility is chosen for this research proposal as it is the most commonly used by firms .this research proposal will seek to fin the role of corporate social responsibility in sustainable financial reporting.
Research question
This research proposal seeks to find an answer the question. What has led to the significant uptake of corporate social responsibility by firms in sustainable financial reporting?
.additionally it seeks to find the answers to other questions such as
What are the impacts of corporate social responsibility to the firm and the society?
What sis the role of CSR in sustainable financial reporting?
Literature review
The journal on corporate social responsibility and accounting by Gotherstorm (2013) presents the articles that have been written on corporate social responsibility. He states that the period between 2002 and 2012 there has been over 500 articles journal and books written on the issue. He clears states that his experiment is limited to three search engines that are in university access .he adds that the number is significantly larger if the data base was expanded and estimates over 100,000 articles on the same. He clearly states that the available article and journals have all presented an agreement of the importance of the shareholders theory in corporate social responsibility… He also states that there is use of other accounting theories such as legitimacy theory stakeholder theory and institutional theory. This presents the research with an estimate on the number of articles written on CSR activities. An increase in this number of articles from an older period states that there has been a significantly increase in articles. This can also be directly linked to an increase in corporate social activities which gives this research idea of the extent of the number of corporate social activities by firms in the recent years.
According to Dhaliwal 2011, in his article voluntary non-financial disclosure and the cost of equity capital: the initiation of corporate social responsibility, he states that in his findings firms with a high cost of equity capital tend to disclose more of their corporate social activities in the current year. He adds that initiating firms with superior corporate social responsibilities performance have a reduced cost of equity capital. Additionally he states that these firms attract dedicated investor and analysts to themselves. He also explains that these analyses have less errors and dispersion in their work. He states that firms that engage in corporates social responsibility disclosure enjoy the benefit of a lower cost of capital.
These findings are relevant to our current research on the role of corporate social responsibility to sustainable financial reporting. The companies that engage in voluntary disclosures have enjoyed benefit of a lower cost of equity as compared to companies that do not disclose their corporate social responsibility activities. This sheds more light as to why there has been a significant increase in the corporates social activities by companies. The use of CSR activities as a sustainable financial reporting has been seen to improve the quality of investors and analyst that a firm attracts. The advantages that corporate social responsibility has provided in terms of capital acquisition has led to the uptake of more social activities and disclosures by the firm.
Marquuis 2014 however argues that the involvement of government procedures and guideline for corporate social responsibility has led to watered down social activities by firms. In his paper he focuses on why firms strategically respond to government signals on appropriate corporate actives citing reasons such as avoiding fines and compliance with the law. He integrates institutional theory ad research or corporate social responsibility to develop a political interdependence model that explains the dependency on Chinese firm and how this I linked to issuing corporate social responsibility reports. He additionally states that the government monitoring the corporate social responsibility activities through the requirement of CSR .a reports has led to an increase in the CSR activities in china. He however adds that majority of the CSR activities are only symbolic and not substantive and pins this on the government involvement in the sector.
The involvement of government in corporate social responsibilities in china provided further information on the sustainable financial reporting. The requirements set up by the government on these activities has increased the uptake of CSR activities by chines firms. His government of chins understands the importance of CSR activities and a sustainable financial reporting model.
Prado –Lorenzo (2009) gives his views on corporate social responsibility disclosure in relation to stakeholder power. He states that there is a difference in the stakeholders and shareholders in a company and that both have different powers in decision making when it comes to decision-making on the disclosure of CSR Activities. He states that some stakeholders such as investors hold significantly more power in this decision making process. He argues that the stake holder power which her refers to as the people that the business does not directly interact with have a significantly less power in such a process. This sheds more light into the reasons why there is a significant increase in corporate social responsibility over the recent years showing that shareholders who have a greater power have used their influence to ensure that the company takes part in or does not take part in these activities.
Aras 2008 describes the current use of both international financial reporting standards and United States generally accepted accountant principles are vehicle of colonial exploitation and cannot be sustainable. He add that the use of these accounting principles does not take into account the stakeholder theory. He adds that the accounting principles should include the other stakeholders such as the environment and the immediate society. However e does credit that there have been change in the right direction to create a value sustainable financial reporting system. He adds that the inclusion of environmental impacts to the financial reports of a firma are a step in the right direction towards a sustainable financial reporting system. He contracts however the current financial reporting system to the voluntary approach to the development of Corporate social reporting standards. This gives the research proposal information on the disadvantages on the current guidelines presented by the current financial reporting methods. The call for developing sustainable financial reporting standards is critical in this important as it deals with the sustainable financial reporting.
In this paper on Valid and reliable measurement for sustainable non-financial reporting : total quality management and business excellence Kristensen( 2003 ) describes there being a huge discrepancy in the high importance of intangible value and a system to measure these types of assets. She presents this as s a worry to the current businesses and financial sector. She adds that traditional financial reporting methods do not take into account and that there is a need for new accounting procedures .She therefore adds that information on the intangibles need to have a well based system that can accurately measure these assets and that they should be comparable. The call for a universally acceptable finial reporting system tells us that there’s an increase in the number of corporate social activities by firms therefore he need to regulate this area . Additionally the insufficiencies in traditional methods of accounting portray that there has been an increase and that more scholars are finding this to be topic that needs to be addressed by the current accounting bodies.
Accounting theories
This chapter will present an overview of the accounting theories that relate to corporate social responsibility and sustainable financial reporting. The theories that will be discussed include the stakeholder’s theory, the legitimacy theory and the institutional theory.
Stakeholder’s theory
This theory state that a business interacts with various actors in its operations. These actors can either be investors government regulatory bodies, customers immediate communities suppliers and workers unions. It further states that the actors and influence the decision making process of the business and that the business influences the decisions made by the actors. Stakeholders theory can either be descriptive instrumental or normative. The firms past present and future conditions coupled with its stakeholders present a descriptive part of the shareholders theory. A profitable relationship between the stakeholder and the business states an n informative relationship while if functional code of the business is expressed using a code of conduct this express a normative perspective. This theory clearly brings out that the shareholders have a legitimate interest in the corporation and so does the corporation. It also points out that the managers and administration while making policies that will affect the shareholders should include them in the decagons making process. This theory has been taken up by most companies with the increase in number of focus groups for companies to offer different perspective of the costumer to the firm .additionally the firms have taken to engaging members of the community n building up activities that are advantageous to them. The advantages of inclusion of other actors to the firm have been enormous. From having a wider base in which decision here being made which has helped to see through the loopholes that might occur during a brainstorming session with the involved parties. Moreover firms have taken to reporting their corporate social activities for sustainable reporting to include more actors in the decagons making process .Firms have realized that it is unethical for them to take profit as the sole and only objective of the business .they have ventured out to include the stakeholders of the company as they can influence the attainment of profit
Legitimacy theory
The legitimacy theory implies that there is an interaction between groups and the society, it is closely related to the shareholders theory and overlaps in various segments. Firms are a part of the society and can only come into existence if they are considered as legitimate groups in the society by the society itself. It is based on a social contract that is often unsaid and gives the business a license e to operate. If a firm is not behaving according to the social contract offered by the society it will suffer the consequences of the society acting in a given manner towards tithe firm in such a situation can choose to act accordingly in order to maintain its legitimacy. The actions that a company takes towards legitimizing itself will define its stakeholders. The stakeholders directly affected by the decision of the firm can be termed as legitimate stake holders. Additionally firms can influence the way they are viewed by society through disclosure of certain information. Disclosing information on corporate social activities by the company will earn the company a tag an s a legitimate firm in the society. This legitimacy of a firm can be viewed as an intangible financial asset.
Firms seek to operate within a range of what is socially acceptable by the society, however legitimacy s a relative term and may vary from one society to another and firm time to time.it is imperative that firms undertake activities that are considered legitimate by its immediate society. One such activities that has ahead an astounding effect on the legitimacy of a business is the use of corporate social responsibilities. Firms in the recent times could therefore be using these activities to ensure their legitimacy in the environment. Additionally this could be the preferred activity due to the fact that these activities are common in almost all society and therefore widely applicable. An example would be corporate social activity in USA that involves building a community center will still be applicable in any part of the world as a corporate social responsibility.
Institutional theory
Institutional theory on accounting states that companies will accept standards that have been met by the market or rather the society to their own activities. This in corporate social responsibility can we be viewed as a negative duty approach. The force behind the push for such activities may include shareholders or stakeholders of the firm .Such a push however puts into contention the use of corporate social responsibility in a symbolic or substantive manner. Changes in the eternal environment have put the institution in a position where it has change or be pushed out of the market. Changes such as globalization have made firms expand internationally for profitability another reasons, additionally the global presence of a brand coupled with a strong corporate social program has been critical in improving the brand image of the firm.
Isomorphism is a process where a firm chooses to make changes to itself similar to other firms if they are in the same environment… Coercive is where the legitimacy of the change can be formal or informal… This could be attributed to the increase in the number of social responsibility activities by the firm.
Methodology
A survey would be conducted in firms to ascertain the number of corporate social activities that it has undertaken in specific period of time. This period will range from 2005- 2012 and from 2012 – 2018. Period one will be stated as 2005-2012 while period 2 will be stated as 2012-2018The firms that are included in this firm are firms that were formed prior to the beginning of the century that is firms before 2000. These two period will be analyzed to show the difference in number of corporate social activities .10 firms will be chosen to participate in this study.
Interviews will be conducted on employees to help with the gathering of data for the study.
Use of primary sources of data that will be made available to our research team such as documents, videos and records on such activities on the stipulated period. Secondary sources of data will also be used such as any journal an articles relating to the number of corporate social responsibility activities.
The use of both primary n secondary sources of data would be important as they would present a wide variety of data that is needed in drawing a conclusion.
Survey questions
These survey questions would be asked to the organization in form of a questionnaire
Does the company practice sustainable financial reporting?
What other sustainable financial reporting activities has the company undertaken during period 1 and period 2?
What is the reason for the company to engage in corporate social responding activities?
How many corporate social activities ha the firm undertaken during the period 1 and period 2?
What are the reasons that have contributed to the numbers stated above?
What are the effects of corporate social activities on sustainable financial reporting?
How has corporate social activities reporting influenced the company’s legitimacy?
What has been the impact of the use of sustainable green energy in the supply chain management in sustainable financial reporting?
How has involvement of various stakeholders in the decagons making process affected the corporate social responsibility?
What is pollution aversion activities has the company taken in relation to sustainability?
Ethical approval
The core issues that will be addressed in relation to minting integrity and ethics will include the following
Providing research participates with sufficient information for them to make a decisions as to whether they would want to participate in the survey. This will ensure that the information received has been consented.
The firms also will not be notified of each other’s participation in the research process to ensure integrity of the outcome. This will also prevent a Coercion among the companies.
Ensuring that the participants involved in the research process are free to withdraw from the research at any time without giving a reason.
Protecting and handling the provided data with integrity by instituting rigorous procedures for confidentiality and anonymity.
The research will also be conducted fairly with no favoritism to a certain theory or conclusion. .
Anticipated findings
The research is likely to find out that the numerous advantages that come with corporate social responsibility have played a major role in the significant increase in these activities. Advantages such as legitimacy and lower cost of equity. Additionally there is a significant increase in corporate social activities than other sustainable financial reporting activities.