Financial Reporting, CSR, and Sustainability: An Analysis Report

This report provides a critical review of developments in global financial reporting and corporate social responsibility (CSR), focusing on protecting investors and markets from corporate failures. It examines issues related to sustainability, including corporate social responsibility, accountability, governance, and tax avoidance, along with the harmonization of accounting standards. The report analyzes key principles of CSR, the importance of corporate governance, and the impact of tax avoidance strategies. Case studies of Enron and Lehman Brothers are used to illustrate the consequences of poor governance and accountability. The analysis emphasizes the need for stakeholder involvement, transparency, and ethical practices to improve financial reporting and promote sustainable business operations. The report also discusses the role of IFRS and suggests ways to enhance investor protection and corporate responsibility.

Current System Analysis
and Modelling

TABLE OF CONTENTS
Table of Contents.............................................................................................................................2
INTRODUCTION...........................................................................................................................1
Theme: 1 Selected issues in Sustainability......................................................................................1
Topic 1: “Corporate social responsibility”.............................................................................1
Topic 2: “Accountability and governance”............................................................................3
Topic 3: “Tax avoidance”.......................................................................................................5
Theme: 2 Harmonization of accounting standards..........................................................................6
Topic 4: “Concept, context and relevance”............................................................................6
Topic 5: “Implementation and challenges”............................................................................8
Topic 6: Some critical perspectives......................................................................................10
CONCLUSION..............................................................................................................................12
REFERENCES..............................................................................................................................13

INTRODUCTION
Financial reporting is one of the effective process which is used by the company in order
to maintain accurate record of their financial transactions. As it is a formal record of financial
activities as well as position of business and other entity accordingly. Role of CSR in
international reporting is also be equally important to protect the interest of investors and market
at the same point of time. This project module aims at provide critical reviews about the
development those are occurred in both global financial reporting and CSR. The main aims of
this review is to protect investors and markets from corporate failure. All the issues related with
the sustainability is being discussed accordingly in this report. Apart from this harmonization of
accounting standard in global context is also being analysed properly. On the basis of collected
information valuable suggestion is being provided to make modification upon the real world in
accordance to protect investors (Rocheleau, Thomas-Slayter and Wangari, 2013).
Theme: 1 Selected issues in Sustainability
Topic 1: “Corporate social responsibility”
(Source: Corporate Social Responsibility, 2018)
According to McCrone and et. al., 2012, corporate social responsibility is referred as the
corporate values which insists management of an organisation to contribute towards the society
and environment where they operate. CSR is the major aspect of an organisation as it helps in
improving sustainability. Sustainability and CSR are dependent variables as they both functions
to achieve a common aim and that is improvement of environment and surroundings by business
operations. The above mentioned concepts helps in tackling the economic reality which has
1

various challenges such as economic and environmental opportunities and threats. CSR can also
help in avoiding corporate failure as it makes sure that a business entity fulfils all its social
responsibility. For example, international organisation contributes at least 1% of their earnings
for the society so that they can provide best towards community through which they are earning
profitability.
In the opinion of Seabrooke and Wigan, 2016, this concept not only helps in protecting
organisation by corporate failure but it also protects the interest of investors. Investors who
contribute their amount in an organisation has few expectations regarding returns and those
expectations can be fulfilled by using sustainable business practices. The incapacity related to
finance sustainability need to develop through IFRS standards. Various financial institution such
as development banks and private company have developed a large amount of innovation that
can support sustainable growth within the nation. CSR is basically associated with the ways in
which an organisation increases the minimum obligation towards their stakeholders specified
through proper regulation and corporate governance. CSR is a mechanism to voluntary
incorporated social and environmental concern into their business operations and their overall
collaborations with their investors. This encourages an appropriate culture of compliance for
every entity at global level. In case company cannot follows CSR policy then chances of
corporate failure arises. As these policies brings an obligation upon organisations that required to
cope up with rules and regulations and not indulge in the practice of corruption and
mismanagement. As this will results in disclosure in future which is supported by example of
Enron (USA) 2001. A common theme there is also an expectation that CSR activities would
increase a corporation’s legal roles and responsibilities.
In the view point of Mathews, 2012, discussed various key principles of CSR that operate
at several level of analysis. At the official level, the principle of legality aims on obligation and
approvals that evaluate the restrictions of business society interactions. There is specific
assumption that legal bodies or community used to determine the legitimacy of concern entity as
well as impose sanctions on illegal corporate action. At the organisational stage, the principle of
public duty targets on firms taking responsibility for their business events.
Example:
Enron (USA) 2001, had gone from being taken into account as one of the most innovative
companies of the last 20th century. It was clear case of byword for corruption and
2

mismanagement. Some schemes traders used included portion as third party on a contract trade,
connecting up a buyer and a seller for a future contract. It was as a financial scam that ultimately
led to bankruptcy of Enron corporation. Traditionally, wide companies find it much difficult to
hold certain changes than small firms. Enron always looks for the market which are undergoing
specific modification. They used to search out as much as conceivable about these market and
then provides the best thoughts to take these market forward. Because of this particular incident
many people lost their jobs. Because of sustainability, people are not able to get specific job
opportunity.
Suggestion: In order to make improve CSR aspects required to higher involvement of
stakeholders. As this concept brings transparency among the different transactions of an
organisation. Stakeholders can assist through by contributing in legal approvals process,
improving relationships proactively and resolve CSR roadblock. Investors can get valuable
opportunity to become the part of CSR polices formulations.
Topic 2: “Accountability and governance”
Accountability refers to an authority which an individual or organisation will be
evaluated on the basis of their performance relevant to something for which they are accountable
i.e. responsible. In reporting accountability should be communicated throughout the annual
reports and that is relevant to company business strategies and it also addressing the company
risks and practicality. It is not only about financial aspect; organisation is always responsible for
their non-financial performance.
Corporate governance is the system by which organisation are directed and controlled. It
is about making more accountable, transparent and efficient organisations, owners and regulators
which in-turn builds confidence and trust of investors. A well governed organisation carries
minimum financial and non-financial risks together with generate maximum investor returns.
Companies also have better approach to external finance and decrease systematic risks due to
financial scandals and corporate crises. Timely disclosures, dependable financial reporting and
better accountable management also assist development of stronger markets. Better monitoring
and supervision can discover corporate inefficiencies and minimizes exposure to financial crises.
Corporate Social Responsibility is a self-regulation form of corporate integrated into the
company's model to create a favourable impact on the investors and the surrounding in which
organisation operates. Investors are changing the way they evaluate company’s performance and
3

making decisions based on criteria that include ethical concern. Both corporate governance and
CSR focuses on the ethical practices which result into better image and directly affects
company's performance.
According to Belz and Peattie, 2012, development of any society is meant to increase the
living standards of people. Though, there are challenges of accountability, development is more
likely to be a vision. The current research recognised lack of accountability for sustainable
development that consists of trial leaderships, immoral attitude, poor maintenance, corruption on
the part of public official as well as insufficient funds to perform any new plan. In the series of
governance, it is desirable to make sure that humanity transfers towards sustainable
development. The wrong decision is accountable, particularly at the global level. Good
governance is made up of transparency, contribution of all those with stake in the governance
result is much vital to examine their implications.
In context to Hopkins, 2012, over the past periods, the global governance of sustainable
development has made huge deal of growth on the certain factors. It accesses the data which is
nowadays on routine for all, except for the most intimate of negotiating activities. The internet
allows such kind of information to be largely distributed in actual time-frame to anyone with the
ability to face all kind of issues those are affecting the performance of an organisation. A great
deal of specific ability of stakeholders to participate in appropriate manner. It is not only
associated with effective decision making, but also about the best suitable process for making
that particular decision. It is the responsibility of organisation to survey all those clients that are
associated with the company. as they are credible or not for any kind of finance support. This
research reviews have been based on the use of sustainability accounting which has been
followed within an organisation.
Example: Lehman 4 Brothers (USA) 2008, In September 15,2008, Lehman brothers
trooped for bankruptcy. They have the total debt of $639 billion in assets and $ 619 billion as
liabilities. It was one of the largest filing in history because of their assets far exceeded those
earlier giant. The basic reason for this type of downfall is accountability of good corporate
governance. This example justifies the above mentioned aspect of non-fulfillment of
accountability because of which the company face issues of bankruptcy.
Suggestion: There are certain rules and regulations made in accordance with good corporate
governance. The company respect the right of investors and as the essence of governance that
4

ensure fair and transparent management. It is essential to develop healthy relationship among the
investors. To simplify the organisation inaccuracy functions, the position of the chairman board
and representative business officer as well as CEO would be separated. The majority of owners
shall be independent and neutral. The internal control system and their entire operations would
be implemented to deal with credibility of financial reports can increase accordingly.
Topic 3: “Tax avoidance”
In the view point Hilson, 2012, tax avoidance is one of the legal procedure of tax rule
which is used in a single territory to one’s personal benefits to overcome the total amount of tax
that is payable through means that are based on law. It is an act that can be attained through
taking extreme benefit of taxation allowance and reliefs. Companies tax avoidance has collected
substantial public attention at global level. According to the stakeholder theory, it has been
suggested that businesses required to maintain healthy relationships with stakeholders to become
sustainable.
According to the SDSN (Sustainable Development solution network) has been predicted
that low and middle revenue countries would require to enhance public and private expenses
through $1.4trillion every year in order to reach at the SFGs. This corresponds to increase in 4%
of total countries estimated GDP over the period of time. It is primary sources of generating
revenue for the nations at wide level. In case company cannot be able to pay their tax, the
economy of scale cannot get attained. In the recent past, corporate tax avoidance has become a
major research which is concern with retaining increase overall attention in both practical and
theoretical manner. Tax avoidance techniques are more secretive in nature and need
manipulation of transaction to save certain tax advantage while protecting companies from tax
departments. This used to provide problems at any point of time to their investors to ascertain
their actual tax debts and display managerial decision. As the use of flexible accounting
principles that can allow manager to make analysis of impacts while reported earnings at wide
level. Henceforth, specific standards are expected to make modification upon the relevance,
reliability and comparability of financial reporting that does not be attain by available data.
Subsequent the assumption of IFRS, lot of researchers has been gathered to measure the impacts
of IFRS on financial reporting quality (Bovens, Goodin and Schillemans, 2014). These studies
have been empirically verified the associations with unsettled outcomes.
5

As per, Shah, Murphy and McIntosh, 2017, other do not see any specific improvement in
reporting quality in their financial statements because they does not considered tax related
standards. Most of the researcher used to investigate the association among crucial international
financial reporting standards use. It is necessary to determine that involvement in tax avoidance
after IFRS adoption arises does not targets accrual management, but also from carrying out those
cannot be associated with accruals. A positive image of IFRS is evaluated to make improvement
in reporting and henceforth eliminate the EM. It does estimate that incidence of tax avoidance
would decrease, as manager will have minimum incentives to generate more earnings.
In accordance with Armstrong and et. al., 2015, in case sufficient amount of tax does
collected by the government from the international business the standard of living get
misbalanced. Corporate social responsibility cannot be created up to an extent that can affect the
economy of that particular country. It has been examining that empirical association among CSR
and tax avoidance can lead to proper balance among the overall growth of an organisation. Our
findings recommend that company with additional unreliable CSR activity would have a higher
likelihood of engaging in tax protecting events as well as enduring book-tax difference.
Suggestion: There are various crucial ways for restricting tax avoidance within an
organisation. According to IFRS foundation constitution, 2013, aim of IASB is to develop
through taking public interest into account, a set of high quality and executable at global level.
These standards must be needed for high quality, transparent and comparable data in respect to
assist the investors. To Develop sustainable growth, it is essential to make better decision
regarding tax related rules and regulation. This will help in promoting corporate social
responsibility by providing job opportunity within the nation.
Theme: 2 Harmonization of accounting standards
Topic 4: “Concept, context and relevance”
Accounting harmonization is one of the effective process of enhancing the comparability
of reporting practices through reducing the degree of variation among users. Management of
financial accounting standards is stated aim of IASB which is established for the purpose of
developing IFRS (International financial reporting standards). While ours discipline can hardly
be defendant of being more critical, there are few developing aspects that are trying to take more
vital look at few social implication of corporate behaviour. Differing financial accounting
policies serves as an effective trade barrier due to extra translation cost and availability of data
6

for effective decision makers. Because of multiple financial reporting regulation that represent a
trade barrier and impedes economic growth that can use of various CSR standards. It would
represent trade barrier, impeding social and environmental enactment. Component of CSR
reporting aims at their market based impacts of improved social and external performance of an
organisation.
In the point of McGuire, Omer and Wang, 2012, as corporation is enhancing opposing for
the capital of socially related with investors and improve public wants. It actual improves
debatable and beyond the scope of this particular research. Moreover, in order to deal with the
impacts, decision makers need to have the essential data to make informally held decisions. With
the help of harmonized standards company can easily be able to manager their investors more
effectively. Because they provide decisions makers with certain reports they can equate and
contrast the standards accordingly. It will increase efficiency to international market through
making modification in the information presented to investors and public. The Net political value
of IFRS is the benefits arising from the potential aspects of global accounting standards. In
context to various corporate failure the concept of IFRS is introduced along with their benefits.
IFRS:
International financial reporting standards (IFRS), basically issued by the IFRs
foundation and IASB to provide a specific way for business affairs so that business accounts are
understandable and comparable across national boundaries.
(Source: Functionality, 2018)
7

A harmonisation of accounting policy would assist to provide a “level playing areas” at
international level. Most of the investors and auditors would retain the similar data, facilitating
the valuation process. In the absence of free trade, global accounting norms will allow national
tariffs, quotas and other trade related aspects.
In context to Huseynov and Klamm, 2012, the current expansion of international capital
market has placed on accounting the onus to deliver useful and comparable data across global
boundaries. Plenty of stock exchange, foreign listings are widely related in percentage of total
listing. Because of drastic increase in international trade and globalisation of firms, the
expansions of new communication technologies and beginning of competitive forces is
disturbing the financial environmental largely. IFRS president Gary Kabureck, (2018) is of view
that people who make their investment in global market naturally wants to be able to keep
overall track record of financial position of the securities issuers. It is made so that, financial
statements of the companies are not much difference.
Relevance:
According to Wang, 2014, it is crucial because companies used to operate in a business
segment in which they can easily trade, raise funds and list their securities to attract the investors
in various nations. It has been analysing that most of the investors primary motives is to seek
new investments opportunity throughout the world. In accordance to allow the gains from the
international economy to fully realised according the financial reporting standards. The IASB
norms are developed in various nations under specific kind of legal, economic, social and
cultural environment. There are various benefits of harmonisation of financial statements through
fulfilment of all the standards of IFRS such as reduced reporting cost and international
credibility.
Suggestion: The harmonisation of using IASB standard are oriented to attend the
requirement of investors and capital markets. Plenty of nations those are using numerous
financial reporting would need to determine their accounting norms more accurately. Proper
management of accounting standard can provide great chance of outcomes and future growth for
the country. In order to make improvement in the harmonisation, accounting standards must be
based on IFRS rules. Because of IFRS adoption it can assist in improving comparability of
listing firm’s financial reports at international level.
8

Topic 5: “Implementation and challenges”
According to Brusca and et. al., 2016, IFRS are held responsible for developing various
accounting rules and regulations those are used by the accountant as well as finance officer to
record their daily business transactions. It has been considered as one of the effective trading
norms since the EU that decided to convergence its financial reporting standard. It is associated
with the manifestation of globalization that is related with financial report which is prepared
under IFRS. With the growing globalization of economic trade among business and financial
market certain regulations would need to be followed. As an outcome of growing popularities of
other participating in international economy, investors are increase interested in emerging
markets as they present a variety of opportunity.
In the view point of Yu, G. and Wahid, 2014, in case of high quality financial reporting
the chances of involvement to private sectors growth and minimum volatility get increases. It is
considered as one of the effective reporting which is associated with building block of market
based monitoring of an organisation. It allows shareholders and public investors at large scale to
assess administrative performance to influence their overall behaviour. In case the standard
provided under IFRS are not followed by organisation had direct negative impacts upon their
performance. as this concept is justified by giving the example of Carillion plc which was
liquidated in January 2018 due to underperformance in their contracts. This will result rise in
amount of debts obligation which is not paid off within the specific timeframe.
Implementation opportunities:
As per the Blanchette and Desfleurs, 2015, adoption of IFRS within developing nations is
not only considered as imperative, but also need in order to access the capital market at
international level. The adoption of IFRS will be more benefit the accounting businesses in the
manner that they are able to reduce their skilled services in various nations. There are various
opportunities from using IFRS such as, it will be effectively helpful for the chartered accountant
to get valuable learning ability and knowledge all around that nation. Potential demand of proper
valuation of experts is needed to be recognised at fair value. Intensive IFRS valuation
requirement to be imparted as key management personnel of the companies.
There are various kind of specific challenges that can be effectively helpful for the
accountant because of transitional phase. Some of them are, first time reporting of financial
9

statements as per the mentioned IFRS standards will be critical associated with the factors those
are affecting their profitability position of the company at global level.
Implementation of IFRS provides the opportunity of Regrouping. All the present items
would have been rearranging to conform to the latest innovative method of formulation. In case
of IFRS, reclassification required to be done the same that would be have disclosed separately.
With the proper changeover to IFRS which is being poses a fundamental change in
financial statements. Changes in application of latest policies, configuration of application and
overall maintenance of internal control will all have an effect on the audit risk.
Examples: As mentioned in most of the cases scenario those are facing various issues
related with the finance or other are taken into account. They do not have followed specific
accounting standards which are made by IFRS. The evidence of maximum IFRS use rate among
nation with having moderate governance standards that consists of IFRS norms. Carillion plc
(UK) 2018, has faced such kind of issues with their performance. As they are not being able to
use financial standards that are be prescribe by the IFRS authority bodies.
Suggestion:
The shifting over to IFRS is considered as one of the major challenges, but it is vital to
create opportunity for audit firms to analyse their plan, process and practices to make effective
growth in near future time. The end solution is that; every nation must be liable to make use
IFRS regulations that can assist in effective decision making in respect to generating maximum
return in near future time. With the greater transparency, investors would have scope to examine
account a bit more and safeguard their investments in accordance to gain insight.
Topic 6: Some critical perspectives
In the view point of Zehri and Chouaibi, 2013, accounting standards need to implemented
according to the requirement or size of the business. The main aim of this particular research is
to analyse, whether accounting standards harmonization enhance the comparability of financial
data across global level. There are certain recognise global accounting standards which will be
effectively helpful for the companies to organise and record their financial transaction into their
respective format. The international harmonisation of accounting standards is effectively in
process that brings accounting rules and regulations into account. Accounting has a very wide
history that dates back hundred year ago.
10

According to Christensen, 2012, after the shock of market crash of 1929, many investors
and other market participants felt that insufficient and misleading accounting has inflated stock
prices. Eventually crashed the stock market and followed the great depression. A few years later,
the securities act of 1933 were passed into law to restore investors’ confidence. In order to boost
the accounting standards, the international financial board (IFRS) has been set up. They are held
responsible for managing and regulating every accounting information that are required to be use
while recording of transaction. But there are various issues has been arising such as misconduct
and accounting errors. The board has been facing difficulties in handling those problems. To deal
with them they have decided to found an independent body called IASB. According to the IFRS
13, company can manage their business as per the rules framed by the legal authorities in relation
to regulate their business accordingly. It is associated with fair value of measurement uses in
respect to private equity valuation.
(Source: Key changes, 2018)
In the view point of International and critical perspectives, 2016, the case examines
selected as financial reporting and audit problems in accordance with the positing financial data
into the company’s statements. The empirical results would have indicated that company need to
adopt IFRS with high level of economy growth, along with development of society. The level of
standard can automatically increase in case they used to make plan according to the set standards
which are discussed under the regulations of IFRS. There are significant IFRS development has
11

been seen over the last 10 years. Currently with the issuance of converged earning recognition
standard. Even between the investor and user community, they are bound to be diversity of views
on what the most crucial project ought to be. It can benefit the investors in terms of getting more
suitable return for their entire investments.
Suggestion: As per the latest modification in the IFRS standards, Unbundling of
agreement is allowed only it is needed. Any voluntary unbundling under the present IFRS must
be eliminate on change to IFRS 17. Liability measurement has been allowance for risk
alterations. Investors can protect them from market failure by hedge their investment as by
following standards of IFRS. A prescribed facilities margin to control discharge incomes in
mark with the services.
CONCLUSION
From the above project report, it has been concluded that global issues can easily be
resolved in case proper sustainability and harmonization of accounting standards would be done
accordingly. Benefits of using IFRS and CSR in order to protect the investors and market from
any kind of corporate failure is being resolve by using appropriate standards and norms. On the
basis of above analysis, profitable suggestion can be made to improve upon in the real world in
accordance to protect investors.
12

REFERENCES
Books and Journal:
Armstrong, C.S., and et. al., 2015. Corporate governance, incentives, and tax avoidance. Journal
of Accounting and Economics. 60(1). pp.1-17.
Belz, F. M. and Peattie, K., 2012. Sustainability marketing: A global perspective.
Blanchette, M. and Desfleurs, A., 2015. Critical Perspectives on the Implementation of IFRS in
Canada. Journal of Global Business Administration. 3(1).
Bovens, M., Goodin, R. E. and Schillemans, T. eds., 2014. The Oxford handbook public
accountability. Oxford University Press.
Brusca, I., and et. al., 2016. Public sector accounting and auditing in Europe: The challenge of
harmonization. Springer.
Christensen, H. B., 2012. Why do firms rarely adopt IFRS voluntarily? Academics find
significant benefits and the costs appear to be low. Review of Accounting Studies. 17(3).
pp.518-525.
Hilson, G., 2012. Corporate Social Responsibility in the extractive industries: Experiences from
developing countries. Resources Policy. 37(2). pp.131-137.
Hopkins, M., 2012. Corporate social responsibility and international development: Is business
the solution?. Routledge.
Huseynov, F. and Klamm, B. K., 2012. Tax avoidance, tax management and corporate social
responsibility. Journal of Corporate Finance. 18(4). pp.804-827.
Mathews, J.T., 2012. Managing global issues: Lessons learned. Brookings Institution Press.
McCrone, A., and et. al., 2012. Global trends in renewable energy investment 2012. Frankfurt
School UNEP Collaborating Centre for Climate and Sustainable Energy Finance.
McGuire, S. T., Omer, T. C. and Wang, D., 2012. Tax avoidance: Does tax-specific industry
expertise make a difference?. The Accounting Review. 87(3). pp.975-1003.
Rocheleau, D., Thomas-Slayter, B. and Wangari, E., 2013. Feminist political ecology: Global
issues and local experience. Routledge.
Seabrooke, L. and Wigan, D., 2016. Powering ideas through expertise: professionals in global
tax battles. Journal of European Public Policy. 23(3). pp.357-374.
Shah, R., Murphy, D. and McIntosh, M. eds., 2017. Something to believe in: creating trust and
hope in organisations: stories of transparency, accountability and governance.
Routledge.
Wang, C., 2014. Accounting standards harmonization and financial statement comparability:
Evidence from transnational information transfer. Journal of Accounting Research. 52(4).
pp.955-992.
Yu, G. and Wahid, A. S., 2014. Accounting standards and international portfolio holdings. The
Accounting Review. 89(5). pp.1895-1930.
Zehri, F. and Chouaibi, J., 2013. Adoption determinants of the International Accounting
Standards IAS/IFRS by the developing countries. Journal of Economics Finance and
Administrative Science. 18(35). pp.56-62.
Online
Corporate Social Responsibility, 2018. [Online]. Available through: <
http://cubegroup.com.au/top-5-benefits-of-corporate-social-responsibility/>.
Functionality, 2018. [Online]. Available through: < http://www.st.by/en/product/bi/ifrs-
reporting/>.
13

International and critical perspectives, 2016. [Online]. Available through: <
https://searchworks.stanford.edu/view/11720398>.
Key changes, 2018. [Online]. Available through: <
http://levelnineatwork.blogspot.com/2017/02/framework-summary-and-features-of-
ifrs.html>.
14