The Need for Transparent and Reliable Reporting
Discuss about the Advanced Issues in Accounting.
BP was earlier known for its complete and transparent sustainability reports, faced serious issues regarding its corporate social responsibility. It was April 2010 when the deepwater horizon drilling rig explosion took place accompanied by offshore oil spill in the Gulf of Mexico. Such a disastrous accident resulted in the death of 11 workers with 17 injured. Considered as one of the most terrific accident in the US history, the CSR reports of such company were in doubt whether the objective of transparency was fulfilled in such reports or not.
There are various approaches of accounting for CSR that the company can adopt to provide a reliable and transparent report, the two of which are discussed below.
The traditional reporting technique is a method of mere report generation from the collected data. Sustainability Reporting is a reporting technique which emphasises on giving information to the internal as well as the external stakeholders about the company’s economic, environmental, social and governance performance (Case, 2012). Sustainability reports are those reports issued by a company or an organisation which highlights and enlightens its stakeholders about the organisation’s economic, environmental and social impacts (Mattessich, 2016). These reports are based on the idea of sustainable development which is defined as the principle which tends to satisfy the needs of the present generations without comprising the ability for the future generations (Donanldson, 2012). Every organisation has the potential of facing certain risks and opportunities and to account for them they need a reporting technique which gives their stakeholders a transparent idea about such risks and opportunities. Sustainability Reporting is one such method of reporting which takes into account the need for transparent report generation where the concerned organisation has the right to consider their impacts of certain sustainability issues (Hubig, 2013). It is synonymous to various other non-financial reporting techniques like the corporate social responsibility reporting, etc. With the increased need for organisations to show concern towards the society at large, it is important for organisations to adapt to such reporting techniques which not only highlight its financial aspects but also the various, much needed non-financial aspects.This method of reporting focusses on an organisation’s ability to present transparent reports on its values and governance model to its stakeholders, which helps the stakeholders to bridge the gap or find a link between the organisation’s planning and strategy to its commitment towards sustainable development of the global economy (Edwards, 2014).
Sustainability Reporting – A Transparent and Reliable Reporting Technique
The given case study about the Deepwater Horizon Drilling Rig states how the organisation was responsible for the death of 11 workers and a massive offshore oil spill in the Gulf of Mexico. Since the ultimate owner, BP suffered significant public relations fall, one of the best reporting techniques for him would be the sustainability reporting because this would help him put forward their renewed commitment to the stakeholders is a better way. Sustainability reporting technique would help the organisation to present to its stakeholders a reliable, consistent and transparent information about the company.As stated above Sustainability reporting is the method of reporting which enables an organisation to ensure higher commitments of sustainable development to its stakeholder. The report generated from such reporting technique helps the organisation to improve internal processes, engage stakeholders and persuade investors. Referring to the given case study, after the massive downfall of the organisation it was important for them to ensure that their stakeholders were still loyal, since no organisation can afford the loss of their stakeholders. Thus they need to give information and ensure the stakeholders about the organisation’s renewed commitments towards the sustainable global economy. This reporting method will help the organisation internally as well as externally. The internal processes tend to improve once an organisation resorts to such reporting methods since it involves finding a link between the financial as well as non-financial measures, hence motivating the employees. Another important benefit to the internal stakeholders is that it helps them to understand the potentiality of future risks and opportunities. This enables the managers is setting long term strategies and business plans in favour of the stakeholders. This method of reporting essentially helps the internal stakeholders by providing them with transparent reports about the operations of the organisation and also emphasising on the accountability factor. These transparent reports ensure trust and loyalty of the internal stakeholders who are thus motivated towards better functioning of the organisation. Sustainability reporting not only benefits the internal stakeholders but also benefits the external stakeholders. It helps in creating brand value and loyalty for the customers. Along with that it gives the investors a better understanding of the organisation’s mission and vision, thereby helping the organisation in demonstrating its commitment towards the growth in the sustainability of global economy.
Thus Sustainability reporting is the process of generating report which focusses on an organisation’s ability and need to provide information about its economic, environmental and social impacts caused by its operations. These reports are published or generated by organisations to ensure transparency in reporting for its stakeholders. This benefits both the internal as well as the external stakeholders to the extent that it ensures improvement in internal processes, motivating the employees for effective and efficient work and persuading the investors by making them believe in the organisations vision and commitment towards sustainable development (Scott, 2014).
Benefits of Sustainability Reporting for Internal and External Stakeholders
Integrated reporting is made by two words i.e. ‘Integrated’ which means combining and ‘Reporting’ which means the process of generating reports (Paul, 2014). Thus in the simplest of form, integrated reporting means combining the financial and other non-financial information of the organization into an integrated model. Corporate executives tend to fall off the radar when thinking of the short term. For any organization to be successful in the long term it is important for the executives to have the long term perspectives in mind while considering the strategies and plans (Pratt, 2009). Any organization operating for long term success would focus on building strong relationships with stakeholders, building a loyal customer base and managing environmental risks, etc. Integrated reporting is the technique of reporting which helps the organization achieve this long term objectives by focusing on the important long term aspects. In simple terms, integrated reporting is the process of communicating information to the stakeholders regarding material sustainable information alongside financial information. Integrated reporting is a combination of both sustainability reporting and financial reporting (Rogers, 2015). This doesn’t mean that integrated reports can replace sustainability or financial reports. Integrated reporting is a process that states the organization’s relationship with its stakeholders. So, integrated reporting focusses on value creation made by the organization not only in the financial terms but in the non-financial terms as well. Thus, integrated reporting helps the organizations to look beyond just the financial information an organization usually generates. There is a major gap between the reports generated by the organizations and what the investors need to know about the organization (Rosenfield, 2009). To bridge this gap, a lot of organizations are adopting the process of integrated reporting which helps them to generate informations for the use of the stakeholders, primarily the investors. Integrated reporting is gaining popularity off late because of its characteristics which makes it user friendly. With the increase attention paid to the stakeholders of any organization, every organization is making all the amendments to make sure that they are investor friendly i.e. they have strong relationship with stakeholders and a loyal customer base. Thus organizations are adopting integrated reporting to fulfill this objective because integrated reporting generates reports that are transparent and easily understandable by the stakeholders, mainly investors and contain those informations which are relevant and material to the stakeholders, helping them understand the vision and mission of the concerned organization (Schroeder, 2014).
Referring to the case study given, the company needs to generate valuable information to regain the trust of its investors as well as its customers after the disaster. For this the company might issue Corporate Social Responsibility and Sustainability reports along with the annual financial reports. But the major problem with this form of reporting is that there is limited linkage between these two outputs. These reports mainly lack easily understandable links to the company’s environmental, social and governance performance thus falls short of linking the reports to the company’s financial performance with its long term goals and objectives. Integrated Reporting is used in these situations because it focuses on communicating the value creation at every step of the operations taken. Thus one of the best ways to ensure transparent and reliable form of reporting for the organization in the given case study is Integrated Reporting. Another very important aspect highlighted in the integrated reporting process is that it helps in bridging the gap between the sustainability reports and financial reports. Integrated reports have the characteristics of consisting the long term strategies, objectives and plans of the management in order to ensure wealth maximization of the stakeholders. These long term strategies help give the investors and other stakeholders better idea of the organization’s mission and operations relating to how they’re working towards achieving the objectives as stated and promised by them. Since the company concerned here faced a massive disaster and thus that lead to immense fall of its public image to regain this image and brand value for them is difficult. Thus the company needs to adopt to those measures which convince the investors to have trust in the objectives of the company again. Integrated Reporting is one such measure as it ensures communicating that information which are material and relevant to the investor. Often, companies’ annual reports are presented in such a way that it does not really provide that information which is needed by the investor. Integrated Reporting is that form of reporting which exactly contains the right combination of financial as well as sustainability reports which are aligned to the companies’ strategies linked with its long term objectives (Wolk, 2013)
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