University Financial Analysis Report: Chemical Industry

This report analyzes the financial and ethical implications of a chemical company's environmental impact and disposal practices. The student argues for the importance of reducing nature to a number for accounting purposes, emphasizing full disclosure and accurate information regarding environmental externalities. The report examines two case studies: the Bento Rodriguez Dam Disaster and the Savar building collapse, highlighting the need for companies to account for the costs of their negative social, economic, and environmental impacts. The analysis stresses the importance of ethical practices, relevance, and faithful representation in corporate reporting to quantify and address externalities, advocating for a shift from conventional financial reporting to include sustainability reporting. The report references key academic sources to support its arguments and discusses the challenges of quantifying non-economic externalities, emphasizing the benefits of reducing nature to a number to encourage ethical behavior and full disclosure.

Accounting Financial Analysis Report
Term Paper
May 19, 2019
550 words
Student Name
University Name

1
Accounting Financial Analysis Report
Yes. I believe reduction of nature to a number stays beneficial to accounting and
environment to an extent that the entity will give full disclosure and accurate information
about its environmental impacts. The entity must give the extent of its external externality to
be used in reduction of nature to a figure. However, where there is no full disclosure and
accurate information or data, then reduction of nature to a figure will stay adversarial to the
accounting and environment. 1 From this scenario, it is apparent that the chemical firm is
never engaging in full disclosure nor does it give accurate information on its disposal of
chemicals that can no longer be sold. To the extent that the Company only wrote down the no
longer sold chemical to zero while silent on their continued disposal into the river, reducing
nature to a number is never beneficial. It is only beneficial if the Company engaged in full
disclosure and accurate corporate accounting to pay for the disposal costs.
In case 1 (Bento Rodriguez Dam Disaster 2015), there is a need to reduce nature to a
number by putting a monetary value to the external externality arising from the chemical
production and disposal. In this case, the dam was considered too expensive to stabilize
leading to a faulty wall being ignored. It subsequently collapsed killing many people, but now
stabilization is considered inexpensive. This shows that the joint venture did not focus on
safety but on cutting cost and increased production. A company must pay for the cost of the
deaths of people who cannot return. This justifies why this chemical company needs to pay to
dispose chemicals it no longer sell in a manner that does not pollute the environment. Thus,
reduction of nature to a figure will be beneficial to environment and accounting.2 This cost
will cover for the external externality arising from this chemical firm disposal activities. It
1 J. Unerman B. Jan, and O. Brendan, ‘Corporate reporting and accounting for externalities,’
Accounting and Business Research, vol. 48, no. 5, 2018, pp. 497-522
2 N. Adler and V. Nicola, ‘Accounting for externalities and disposability: A directional economic
environmental distance function,’ European Journal of Operational Research vol. 250, no. 1, 2016, pp.
314-327

2
will compel the Company to accurately account for and report externalities hence breaking
the silos between conventional separate financial reporting (FR) domains alongside
sustainability reporting (SR); and amid silos inside SR. Relating to the chemical firm‘s case,
it is clear that it wanted to avoid the cost of externalities and this is why it secretly disposed
the dangerous chemical to the river and also concealed the impacts of its externalities by
failing to pay the disposal cost. It would be beneficial to compel the Chemical Company to
give both relevance and faithful representation information which can be used to quantify its
negative social, economic and environmental impacts to determine the amount they need to
pay.
In case 2 (2013 Savar building collapse); I believe nature reduction to a figure is also
helpful to environment and accounting because owners of the building ignored the warning of
the impending collapse after cracks were discovered. They failed to provide full disclosure
nor accurate information to the extent of their externalities. Despite selling garments at low
cost, it cannot replace the deaths and injuries caused. The owners never took the safety
serious hence must pay for the externalities caused. However, it is challenging to quantify the
externalities. This makes firms neither unable to fully pay for their negative economic, social
and environmental impacts nor give SR. Thus, SR will fall short of IASB’s relevance and
faithful representation requirements. This is because many externalities are non-economic in
nature and lack observable market exchange values making it hard to approximate non-
controversial alongside dependable financial measure. The usefulness of externalities’
metrics (non-monetised) are restricted due to lack of underlying comparability between bases
of measurement. Relating back to this chemical firm’s case, it is apparent that their
quantification of externality or nature was wrong (as the chemical was reported at zero)
which does not meet the criterion for relevance and faithful representation. In this case, it
would be difficult to measure the cost of externality and reduce nature to a number just as it

3
has never been possible to measure the cost in Savar 2013, but it will still beneficial to reduce
nature to a number to ensure firms engage in ethical practices.
References

4
1 Adler, N. and Nicola V, ‘Accounting for externalities and disposability: A directional
economic environmental distance function,’ European Journal of Operational Research vol.
250, no. 1, 2016, pp. 314-327.
2 Unerman, J, Jan B., and Brendan, O., ‘Corporate reporting and accounting for externalities,’
Accounting and Business Research, vol. 48, no. 5, 2018, pp. 497-522.