Accountancy involves communicating the financial information of an enterprise to users such as shareholders, entrepreneurs, and managers. Financial statements provide relevant and reliable data on the economic resource that the company controls periodically. In turn, the accounts report is integral in making investment decisions and controlling the business to enhance sustainability (Tsugankov, 2021). Notably, there are often restrictions on access to all the budget sales and costs depending on the target user. The accountants should have commercial awareness and comply with listing requirements and statutory and professional ethics. Moreover, it is relevant to be aware of contemporary development in sustainability accounting reports which integrate non-financial information about the firm. Unlike the accounting reports, which are easy to quantify, integration of sustainability reporting requires an in-depth analysis of qualitative information of a company’s involvement with people and the ecosystem.
Primary Users
The aim of the general-purpose financial reporting (GPFR) is to offer useful monitory information that the potential investors, creditors, and lenders can apply in making rational choice when giving resources to a company. The other objective is to serve as a decision-making tool for providing and settling loans (Tsugankov, 2021). The GPFR records can be applied in buying, holding equity, selling, and debt management. It is an ethical obligation to ensure that the financiers are not tricked into funding an entity experiencing losses and about to go bankrupt (Shkulipa, 2021). The accounting reports also provide a standard that makes comparison between different companies possible. Therefore, the framework protects the integrity of the accounting profession and offers stewardship to the users.
As implied in the purpose statement, the lenders, creditors, and investors are the primary users of the framework. They use the information to help them choose firms that they can invest their money through loans. Notably, these users need to understand the risk that they take when providing credit to help them decide on the amount, interest rate, and the duration of payment (Bellandi, 2017). Shareholders need the information to enable them to forecast the future performance of a firm. However, companies are not under the obligation to provide predictive reports. Therefore, the shareholders are expected to use information on the past performances of the organization to make a tentative guess of the future outlook (Shkulipa, 2021). The other essential uses are managers because the financial reports help them to make decisions on investment and business. The framework suggests managers can use the data to exercise the right to vote on a business action for future returns on investment.
Sustainability Reporting
Sustainability reporting has emerged as essential financial information that stakeholders need to understand prospects, create new social relations and enhance participation from different people. Essentially, this kind of reporting integrates non-monitory resources such as the company’s significant social, environmental, and economic impact (Oncioiu et al., 2020). In the contemporary world, people understand that organizations have an obligation to its surrounding. It should show commitment to preserving the ecosystem by minimizing pollution. The sustainability reporting also encompasses the idea of circular economy, which aims to maintain product value through recycling, reuse, and reduction (Opferkuch et al., 2021). Noteworthy, companies are increasingly asked to disclose information on carbon waste. The social aspects involve interactions with people both internally and externally. For instance, reports on the culture of the organization’s employees, the reviews from customers, and engagement with the community are all integrated into the reporting.
The underlying idea is that reporting causes companies to be more transparent and change. For instance, if a company has to report its high levels of environmental pollution, it will be more cautious to minimize waste. The relevance is that it makes the firm managers remain conscious of its externalities. In addition, some investors have preferences beyond the maximization of shareholder value (Bergmann & Posch, 2018). Therefore, the investors get what they want, so they play a role in driving change. Moreover, in awarding organizations, sustainability reporting helps identify the companies with a higher capacity to generate value. The implication is that more deserving firms are awarded instead of those that may be making high profits but causing harm to the ecosystem. Resultantly, the sustainability reporting causes improvement in the environmental and social performance. The sustainability reporting can help in rebranding and improving the reputation of the company.
Mandatory Sustainability Reporting
Discussions on whether mandatory sustainability should be implemented are still on going. Those who support the mover argue that it will the necessary incentive to better manage their relationships with the investors, customers, regulators, suppliers, and civil society (Bergmann & Posch 2018). The other rational is that it increases transparency on the environmental and social impact of a company. For instance, the implementation of compulsory sustainability reporting can shed light on the risks and opportunities of a company. Thus, it provides investors with broader information for choosing the companies to give its resources.
The other reason for supporting mandatory sustainability is that it has the potential for increasing accountability for the utilization of natural resources. It is apparent that the future generations will suffer the consequences of the negligence of the current people. For example, the destruction of the ozone layer, the melting ice, and the rise of carbon dioxide concentration in the air will have tremendous effects on individuals who will live some years to come (Bellandi, 2017). It is the moral and ethical obligation of all citizens to make sure that the organizations that are not making any efforts to improve efficiency pay for their ignorance through the carbon tax. Yet, the only way the government and society can identify such firms is when sustainability reporting is a must.
The only argument that opposers of this move have is that the implementation of sustainability reporting is complex due to a lack of quantifiable measures. Moreover, for people who are generating automated reports integrating the non-financial value of the firm may appear difficult (Pilot, 2019). However, such an argument fails to consider that qualitative reporting has been successfully used in research. Moreover, the United Nations has proposals for the Global Reporting Initiative (GRI), which provides firms with the necessary guidelines for reporting (Tsalis et al., 2020). Moreover, some nations such as Germany have embraced sustainable accounting and continues to realize the advantage of firms taking a more active role in the social and financial spheres. Therefore, mandatory sustainability reporting is much needed to ensure that firm managers are more accountable and transparent.
In conclusion, reporting is an integral aspect of organizational management and investment. Presently, all firms are required to have regular financial statements and make them available for the lenders, investors, and creditors to help them forecast the future outlook of the firm. The shareholders and managers may also need the documentation to make business decisions. However, the quantity of information exposed to the external stakeholders may be limited to protect the firm. Presently, there are new discussions on sustainability reporting and the prospect of making it mandatory. Given that such a move will result in increased accountability, it is relevant for companies to cooperate and embrace the approach.
References
Bellandi, F. (2017). Materiality in financial reporting: An integrative perspective. Emerald Group Publishing.
Bergmann, A., & Posch, P. (2018). Mandatory sustainability reporting in Germany: Does size matter? Sustainability, 10(11), 3904.
Oncioiu, I., Căpușneanu, S., Topor, D., & Constantin, D. (2020). Sustainability reporting, ethics, and strategic management strategies for modern organizations. IGI Global.
Opferkuch, K., Caeiro, S., Salomone, R., & Ramos, T. B. (2021). Circular economy in corporate sustainability reporting: A review of organisational approaches. Business Strategy and the Environment, 30(8), 4015-4036.
Pilot, S. (2019). ‘Fad or future? Automated analysis of financial text and its implications for corporate reporting’: A practitioner view. Accounting and Business Research, 49(5), 616-618.
Shkulipa, L. (2021). Grouping of major changes in conceptual framework of financial reporting and analysis of new challenges. Studia Universitatis „Vasile Goldis” Arad – Economics Series, 31(2), 20-44.
Tsalis, T. A., Malamateniou, K. E., Koulouriotis, D., & Nikolaou, I. E. (2020). New challenges for corporate sustainability reporting: United Nations’ 2030 agenda for sustainable development and the sustainable development goals. Corporate Social Responsibility and Environmental Management, 27(4), 1617-1629.
Tsugankov, K. (2021). Conceptual framework for financial reporting: Problems and prospects. Journal of Corporate Finance Research ISSN: 2073-0438, 15(1), 37-47.