One of the current issues in accounting is the concept of social and environmental reporting. Many are those who think that the concepts of social and environmental reporting should be given prominence and if possible, legislated and made compulsory for all listed entities.
Required:
i) Describe the nature of social and environmental reporting? (2 marks)
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Social and environmental reporting is the measurement and reporting of information concerning the impact of a business and its activities on society. It is the disclosure of information in the published annual report or in separate report, of the effect that the operations of the business have on the natural environment. In other words, it is the collation and communication of data – financial, quantitative and/or qualitative – about an organisation’s interactions with society.
ii) Discuss the relevance of social and environmental reports to users of financial statements. (3 marks)
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The backbone of social reporting is the explicit recognition that every organisation has a wide range of stakeholders – those who are influenced by and/or, in turn, influence the organisation. In addition to shareholders and other financial participants, the most important of the other stakeholders are usually taken to be the employees, the local community (ies), customers, suppliers, the environment and government(s).
From society’s point of view, each of these stakeholders have rights to, amongst other things, information about the activities of the organisation – whether or not the organisation chooses to recognise those rights. From the organisation’s point of view, it has a range of stakeholders that it must manage and whose interests it must balance if it is to remain a successful enterprise.