Traditional Financial Reporting and Criticism

Running head: PROFESSIONAL ACCOUNTING AND FINANCE
Professional Accounting and finance
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1PROFESSIONAL ACCOUNTING AND FINANCE
Traditional Financial Reporting and Criticism:
Traditional financial reporting is generally associated with providing information
related to the financial performance, the position at a particular provided date, the changes in
the financial position and many more and this are useful taking the economic decisions (Leuz
and Wysocki 2016). Some of the major information contents mainly includes the statement of
the asset that an entity is having, the liabilities, ownership structure and the statement of
income, expenditure and profits. Besides this it is also responsible for providing information
related to the investments, operations and the financial activities related to flow of cash.
The business world of today is becoming highly competitive along with being
collaborative and distributed. The traditional financial reporting is not capable of providing
the organizations with an opportunity of gaining a sustainable advantage (Cooper 2017). It is
essential to make sure that each of the stakeholders are associated with making intelligent
decisions depending upon the real-time information provided. The traditional financial
system is lacking the analytic functionalities that are required for providing support to the
intelligence needs and the speed at which most of the companies operate (Erb and Pelger
2015). Traditional financial reporting is only associated with dealing with the financial
aspects without reporting any kind of environmental and social impacts of the company. This
Financial statements are associated with reflecting the concepts of the operations and the
company’s operations. The traditional financial statements are not associated with showing
the activities of the company which are associated with effecting the external social factors
(Macve 2015). This statements are also capable of depicting the impacts of the actions of the
company on the society and the environment or particularly in the communities where the
report is present by having a special focus upon the relation existing with the ecosystem. The
major reason behind this is that they are not inclusive of the sustainability report.

2PROFESSIONAL ACCOUNTING AND FINANCE
Major theories behind the Corporate Sustainability Theory:
The two major theories lying behind the corporate sustainability reporting have been listed
below:
The Stakeholders Theory: This theory was stated and popularized by Edward Freeman. In
this theory the stakeholders are considered to be an individual or a group who are capable of
affecting or having the risk of being affected by the achievements or actions that an
organization is having while making attempts to reach its objectives (Schwartz 2017).
Stakeholder Theory is based upon the premise that the closer or stronger relationship that the
organization is having with the external parties the easier it is for them to achieve their
objectives and in case if the relation is worst then achieving the objectives becomes much
harder. The external stakeholders want an assurance regarding the fact that they are receiving
as much as the amount that is being taken from them. One such example is how much the
company is spending upon the programs intended to give back to the society (Ni and Van
Wart 2015). The main goal of the stakeholder theory includes the enabling of the factors
which are responsible for strengthening of the relationship that the organizations are having
with the external parties.
Legitimacy theory: Legitimacy theory is associated with explaining the fact if an
organization wants to exist or to survive it must be associated with acting in line with the
norms and values of the society. For this reason, it is essential that the corporations must
provide the environmental disclosure in the actual report provided by them. Besides this the
theory is also associated with arguing on the fact that if an organization wants to maintain its
existence then it must make sure that it stays legitimate in front of the external stakeholders
who are considered to be having the power of affecting the legitimacy (Cheng, Ioannou and
Serafeim 2014). One of the most important way by which the corporation can remain
legitimate in the eyes of the public is by providing the them with the voluntary environmental