MPA 701 Accounting: Evaluating Traditional Financial Reporting

This essay critically examines traditional financial reporting practices and their limitations in addressing contemporary business needs, particularly concerning environmental and social impacts. It contrasts traditional methods with the concept of corporate sustainability reporting, highlighting the stakeholder and legitimacy theories underpinning the latter. The essay discusses the costs and benefits of incorporating social and environmental information into corporate reports, arguing that firms should expand their reporting scope beyond purely financial data to include environmental and social considerations. By doing so, companies can better manage risks, enhance their reputation, and meet the evolving expectations of investors and the public, aligning with sustainable business practices. Desklib provides access to similar essays and study resources for students.

Running head: PROFESSIONAL ACCOUNTING AND FINANCE
Professional Accounting and finance
[Name of the Student]
[Name of the University]
[Author note]

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.

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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

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and societal disclosures in the annual reports provided by them. This is one of the way by
which the corporation is capable of publishing the social along with the environmental
reports.
The Costs and Benefits of Providing this Information
Often special emphasis is upon the social and environmental aspects that the social
responsibility and the corporate responsibility is having and besides this there also exists
good practices which consists of a clear economic component. These components are often
seen to have a long-term affect. The good practices related to social responsibility and
sustainable reporting are valued in a positive way the investors as well as by the shareholders
as they are entitled with the risk reduction. This in turn is responsible for the determination of
the returns that are demanded from the organization (Shamir 2017). Traditionally the
customers are associated with expecting the fact that the companies would be providing them
products and services which along with being safe would also be of high quality and
satisfying as well. This products or services would then be initially associated with meeting
the expectation that the customers are having. Which means the commercial and contractual
action that they are having is responsible for the elimination of any kind of perceptive
practice that are presented by the customers. In this case the post-sale service gets admitted,
processed and the claims are recorder.
Corporate social responsibility and sustainability does not cost money and the truth is
that in order to achieve the benefits there is a need of changing and this would be requiring an
extra amount of effort along with some additional investments (Frederick 2016). However
while considering the long run it is almost reported by everyone that this would be bringing a
positive return for the company.

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The extensions in the commitment by making use of the commercial relations is
generally associated with referring to the inclusions. Along with the classic parameters
related to the quality and price, there exists the environmental and social parameters in the
process of homologation of the suppliers and the subcontractors. This is generally responsible
for making the commitments for the CSR that the contracting organization is having. The
long term responsible management of the supply chain is associated with bringing a lot of
economic benefits and this benefits are sometimes seen to be very much important like the
Reputational risks and the costs are reduced (Lins, Servaes and Tamayo, 2017). This mainly
happens as more and more consumers are associated with considering the fact that an
organization is entirely responsible for the product or the service that it provides and this
entirely irrespective of the supply chain. For all this reason working with the suppliers which
are not meeting the minimum social responsibility requirement might be associated with
affecting the reputation of the organization aand thereby increasing its competitiveness.
Social and environmental audits are to be carried out so as to audit the supplier
companies which are most critical and this is done with an objective of ensuring the
compliance with the minimums that are established in the contracts along with identifying the
actions required for improvements along with being capable of raising them. This in turn is
responsible for implication the suppliers in the cycle of the continuous improvement.
Opinion on if the firms should include more than financial information in their annual
reports:
From the above discussion it can be suggested that the firms should necessarily be
associated with providing more than financial information to the general public. The
information should mainly be related to the various environmental and social costs (Lins,
Servaes and Tamayo, 2017). The cornerstone for any of the actions, decisions or activities

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that are related to the protecting the workplace environment can be made by having
knowledge and by identifying the various environmental risks faced by the activities of the
company.
Knowing the various type of environmental impact with the greatest possible rigor by
the companies as well as by the shareholders, posed upon the things that they produce or they
can produce is becoming very important day by day. The major reason lying behind this is
that they are being continuously subjected to pressure from the various areas so as to achieve
the elimination or reduction that they are having (Shamir 2017). This is generally considered
to be the objective of the numerous legislative, economic and the training initiatives which
are associated with considering the concept of the environmental risk at the heart of its
development. The company is generally valued more by the investors if they are responsible
for showing a good will of depicting the fact that it cares for the environment as well as the
other social responsibilities.

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References:
Cheng, B., Ioannou, I. and Serafeim, G., 2014. Corporate social responsibility and access to
finance. Strategic management journal, 35(1), pp.1-23.
Cooper, S., 2017. Corporate social performance: A stakeholder approach. Routledge.
Erb, C. and Pelger, C., 2015. “Twisting words”? A study of the construction and
reconstruction of reliability in financial reporting standard-setting. Accounting,
Organizations and Society, 40, pp.13-40.
Frederick, W.C., 2016. Commentary: corporate social responsibility: deep roots, flourishing
growth, promising future. Frontiers in psychology, 7, p.129.
Leuz, C. and Wysocki, P.D., 2016. The economics of disclosure and financial reporting
regulation: Evidence and suggestions for future research. Journal of Accounting
Research, 54(2), pp.525-622.
Lins, K.V., Servaes, H. and Tamayo, A., 2017. Social capital, trust, and firm performance:
The value of corporate social responsibility during the financial crisis. The Journal of
Finance, 72(4), pp.1785-1824.
Macve, R., 2015. A Conceptual Framework for Financial Accounting and Reporting: Vision,
Tool, Or Threat?. Routledge.
Ni, A. and Van Wart, M., 2015. Corporate Social Responsibility: Doing Well and Doing
Good. In Building Business-Government Relations (pp. 175-196). Routledge.
Schwartz, M.S., 2017. Corporate social responsibility. Routledge.

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Shamir, R., 2017. Between self-regulation and the Alien Tort Claims Act: On the contested
concept of corporate social responsibility. In Crime and Regulation (pp. 155-183). Routledge.