Rationale for Government Introducing Legislation Regarding Social and Environment Disclosure

This document discusses the rationale for government introducing legislation regarding social and environment disclosure in accordance with public interest theory. It explores the benefits of social and environmental disclosures from a capture theory perspective and predicts the impact of potential legislations on the accountability of corporations based on economic theory perspective.

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Accounting Theory & Contemporary Issues

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Part A
a. Rationale for Government Introducing Legislation Regarding Social and Environment
Disclosure in accordance with Public Interest Theory
The public interest theory has stated that regulators while introducing any type of
legislation should consider its projected benefits realized by society in comparison to the
estimated costs. The government is emphasizing on introducing the legislations regarding
disclosing social and environmental disclosures by business in addition to the financial
disclosures for protecting the interests of the investors (Windholz, 2017). Thus, as per public
interest theory the introduction of such legislation would help in providing an integrated view of
the performance of a business corporation by disclosing both financial and non-financial
information to its stakeholders. The assessment of introducing a proposed legislation can also be
done effectively on the basis of public interest theory by examining its potential benefits and
costs and thus ensuring that it will provide large benefits to the general public instead of only
acting in the interest of some specific stakeholder groups (O'Dwyer & Owen, 2010).
b. Benefits from social and environmental disclosures on the basis of capture theory
perspective to the types of Constituents in long run
As per the capture theory, the regulate parties tend to capture in the regulatory process in
a manner for ensuring that it helps in meeting their self-interest. As such, the theory has stated
that interested parties before the introduction of any relevant legislation tends to act in the
interests of general public but during its implementation phase they try to adopt in manner so that
they are able to serve their personal interests (Parker, 2010). The introduction of legislations
relation to social and environmental disclosures would have a significant impact on the
organizations in context of their social and environmental reporting practices. The most
significant impact will be on the companies operating within mining, transport or manufacturing
sector and thus industry associations will try to achieve the support of regulatory bodies to
capture the regulation in manner so that they are able to effectively meet their own interest
(Deegan, 2014).
c. Prediction on the basis of ‘economic theory perspective’ regarding the impact of
potential legislations on accountability of corporations
The economic interest theory has presented the perceptive that the process of introduction
of legislation is driven by the self-interest of the interested parties such politicians or regulators.
Thus, it can be stated on the basis of this theory that a proposed regulation will be supported by
regulators only it intends to provide benefits to them (Parker, 2010). As such, large organizations
having high political power due to financial support from the government or political parties can
result in influencing the legislations towards meeting their person objectives (Cave, 2012). This
can have a negative impact on the accountability of the legislations introduced in relation to
social and environmental disclosures (O‘Dwyer, 2005). The social and environmental disclosures

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can led to increasing the accountability of corporations for providing detailed information about
the impact of their operations on social and environmental performance. Thus, identification of
large negative impacts of companies such as those involved in transport or mining sector through
such type of disclosures can cause them to influencing the process of development of regulation
and this can have an impact on the accountability of such legislations (Hartley, 2015).
Part B:
A: Meaning of accountability
Accountability refers to the obligation of an individual or entity to be accountable of their
actions, judgments and activities, and must take responsibility for each and every action they
take. Individual and entity who have performed the actions through using the environment
resources and any other public resources than they are accountable for each of their actions and
should disclose their detailed information on both financial as well as non aspects in respective
reports. In other words accountability is related with the assurance that individual or an entity
provides on their performance of any activity they undertake and responsible for it. Stakeholder
theory is the best accounting theory that defines the meaning of accountability (Islam & Deegan,
2010).
Accountability can be further sub divided into corporate accountability, individual
accountability and government accountability. Corporate accountability refers to the ability of
individual or group of individual affected by the actions of the corporation to hold it for every
actions and operations it carries out. The concept of accountability requires changes to be made
in fundamental and legal framework within which corporation performs their actions. It requires
to held person in charge at corporation (Board of Directors and CEO) responsible for the
environmental and social duties. Corporate accountability further clarifies that there is no need to
urge the entities to voluntary disclose information on their actions and what steps they have
taken to improve the social and environmental performance. It is because corporate
accountability provides that corporations are “held to account” and it implies enforceability
(Deegan, 2012).
B: Aspects of corporate performance that organization must be accountable
Corporate accountability requires entities to disclose all financial and non-financial
information related to the actions they undertake to achieve the business objectives. There are
various aspects of corporate performance that very business organization must be accountable for
and some of them are listed below:
 Profitability Performance: Investor’s and other stakeholders need information on
corporate financial performance and financial position in order to make the valuable
decision. So it is highly important corporations should disclose data related to the
financial statement.

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 Growth Performance: This aspect is related with the actions of the management in
increase the firm’s size and it’s earning capacity (Bartolomeo, James & Wolters, 2011).
 Environment Performance: Environmental performance refers to the actions taken by
the management to control the negative aspects of environment and what steps taken to
improve the environmental performance. Environmental disclosures such as
sustainability report, climate impact and other specific information must be shown in
annual report in order to inform the stakeholder’s on what actions company has taken to
reduce adverse impacts of its operations on the environment. Environment related
information helps the organization to make the both internal and external decision in
more precise manner that will help the organization to prosper for the long duration of
time.
 Social Performance: Accountability related to the social performance means role of
management to align the organization mission and objectives with the accepted social
values. It is very important organization must disclose information on social performance
in corporate report and also on their websites so that it can be accountable for every
action carried out by entity is in public interest or not (Selvam, 2016).
 Market value performance: Market value refers to the external variable used to assess
external performance of firm with respect to total value it creates in market. It is highly
important management must provide all the information about the market value to their
stakeholders so that they all can be aware of future performance of the company.
 Employee Satisfaction: It is highly important to disclose information about the
satisfaction of the employees in the annual reports so that organizations can held
accountable for the compensation, rewards and workplace environment provided to the
employees. Satisfaction of employees is related with the company investment in the
human resource practices (Bartolomeo, Bennett, Bouma, Heydkamp, James & Wolters,
2018).
 Customer Satisfaction: Customers is very important asset for any organization and it is
highly important to satisfy their needs and requirements through healthy commercial
practices. Reporting on customer satisfaction performance allow to assess the company’s
actions to fulfill the requirements of customers (Selvam, 2016).

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References
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