Ch 15 - Limitation of accounts & alternative reporting Flashcards
Sustainability reporting
enables organisations to measure, understand & communicated the economic, social & environmental effects of their activities.
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a sustainability report also presents the organisation’s goals, values & model of governance.
What are the 2 ways in which a sustainability report can be produced?
> as a non-financial report
as an intrinsic element of integrated reporting (a more development that combines the analysis of financial & non-financial performance)
Advantages of sustainability reporting
-compels organisations to recognise that ACTIONS taken now have implications for the future
-helps organisations to consider & communicate their SUSTAINABILITY VISION & STRATEGY in the context of their overall goals
-recognises the variety of STAKEHOLDERS involved in the organisation & encourages businesses to consider the overall PUBLIC INTEREST in decision-making
-demands greater TRANSPARENCY, which then enables & empowers businesses, governments, consumers & citizens to make informed decisions
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GRI (Global Reporting Initiative)
international organisation which provides the world’s most widely used standards on sustainability reporting.
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guidelines are broken down in to 3 categories:
i) economic
ii) social
iii) environmental
Why do companies report on their sustainability performance?
because:
-enhances the company’s image & reputation
-attracts & retains employees
-encourages stakeholder involvement
-creates competition within the industry
Why is the reporting of carbon emissions beneficial to stakeholders?
it allows them to appreciate how much financial risk is faced when pricing of carbon emissions (including through the risk of reduced allocations under emissions trading systems, or carbon tax increases) or from having to stop using assets due to their polluting effects. It also allows them to have more info about sustainability issues so that they can base their decisions on the policies & actions of the company.
Emissions trading system
def: is an approach that the government may adopt to address pollution & meet its emissions targets. Under such a system, a government may set overall limits on emissions & issues permits to emit. Organisations which don’t emit carbon (or emit less than their permits allow) can trade permits with organisations with carbon emissions exceeding their permitted allowance.
Disadvantages of sustainability reporting
-difficulties of MEASUREMENT & PROJECTION (e.g estimating the effect of water pollution & projecting these effects into the future)
-there’s a danger that companies report good news & HIDE THE BAD NEWS (such behaviour leads to a lack of credibility in the reports)
Suggest ways in which the potential problem of companies reporting only good news may be addressed.
- companies reporting comparisons with any external benchmarks or industry standards
- consistency over time in what info companies report
- companies always including areas requiring improvement in their reports.
2 types of alternatives to traditional financial reporting
i) Non-financial reporting
ii) Integrated reporting
Non-financial reports
incl. sustainability reports
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increasing trend for companies to produce such additional voluntary reports relating to matters of significant public interest.
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UK strategic report requires companies to explain their strategic plans, business models & the main business risks they face, as well as provide information on policies & practices on prescribed matters, such as the environment and employment.
Integrated reports
aims to produce a snapshot of the co. that reflects how the co. is affected by & manages the full range of influences on its performance & prospects. (holistic context, not only financial numbers)
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led by the IIRC (International Integrated Reporting Council) - it’s mission is to establish integrated reporting & thinking within mainstream business practice as the norm
What issues do an integrated report cover?
- stakeholder relationships
- quality of governance
- use of natural resources
- quality of risk management
