Financial Reporting
Assignment 2002/2003

How can a financial reporting system, that has evolved to
serve the needs of investors in a capitalist economy, hope to,
or indeed need to, address the wider issue of corporate social reporting?

von

Isabell Keil

This essay will give a short overview of the discussion about corporate social reporting (CSR), its implementation and the contradiction with traditional financial reports. First iIt will explain the role of traditional reporting and the reason for the increasing significance of CSR. The next part is about various Iideas and attempts how to implement CSR in practice will then be discussed with. In the last part, the essay shows the difficulties, advantages and disadvantages of CSR.

A financial reporting system is concerned deals with accountability. Traditionally, accountability is seen regarded as providing a report, a statement of facts in financial terms, about the performance of a company. The basic idea goes back to the 19th century when companies developed and investors wanted to make sure the directors managed their funds in their interests. The original accountant’s role can therefore be seen in providing financial information to reassure the shareholders and creditors. The main elements of accountability in accordance with company law are the production of adequate accounting records in a standardised format and a balance sheet that shows a true statement of capital, property, debts and as well as profit and loss. The balance sheet has to be sent to every shareholder and should be accessible to the public. (Perks, 1993).

Muchene (2001) notes that, historically, companies had to make available financial information available to obtain external financefinancing.. Today’s businesses are still expected to generate profit and create wealth. (Cannon, 1994) Furthermore, they are accountable to many various different groups in society and expected to disclose information additional in addition to financial position and performance. (Perks, 1993). AccountAbility AccountaAbility (1999) identifies core groups as shareholders, customers, the public, employees, suppliers, creditors, the government, trade unions, business partners, competitors, the electorate, non-governmental-organisations, pressure groups and influencer (was meinst Du mit ′influencer′?) and as well as local international communities as core groups. Perks (1993) defines the following points as additional information: as environmental disclosures, energy policies, fair business practices, human resources policies and activities, community involvement activities (e.g. health- related activities or education and arts), disclosures regarding product safety and other social responsibility responsibility disclosures. It can be concluded that current accounting systems are restricted in reporting social issues because of the limitation of most reports only to shareholders and management, the use of monetary measurements and exclusion of externalities.

There are different reasons for the increased significance of the role of business in society. Mathews (1993) distinguishes three justifications for additional disclosures. First is,The first one is that the provision of non-financial information does have value for shareholders and financial markets. Secondly, are socially related arguments are based on the assumption of a social contract between businesses and society. And at lastthe last one is a radical paradigm that refers to cultural aspects that affects disclosure practises. The Corporate Citizenship Company (2002, bdate) argues that the expansion of the private sector and the increasing globalisation process are responsible for the increasing emphasis on the social responsibility of companies. However, Muchene (2001) notes that improved media and communication technology, a more consensus uniform view of the investor community of how companies should behave, and the growing importance of society- responsibleconscious investing led to the expectation of reporting of wider social issues and environmental behaviour. Businesses have to meet the expectations of certain core groups regarding responsible behaviour to assure their reputation; otherwise the longterm success of a business could be damaged. This can happen because For example consumers maywill not buy companies’ products which willanymore and thus then reduce profits., the profit will decrease. Companies might find ithave difficulties to attract and retain retainkeep skilled people employees or to find new business partners. Ethical investments funds could decide not holding to hold their shares in the future. (Business Impact, 2002).

[....]