When trying to reconcile “business” performance with the protection of society’s overall interests, the market economy must fast devise ways to “count” firm performance “differently.”
This article aims to explain that you can consider another type of accounting. The future appears to be in a report that includes a BALANCE SHEET in each area: social/societal balance sheet, environmental balance sheet, and economic balance sheet. General accounting rules would apply to each balance sheet: double entry, available chart of accounts, and monetary value. IFRS or national accounting regulations would apply to the economic balance sheet.
These social/societal and environmental balance sheets should adhere to regulations that allow them to be used in financial transactions. In the first phase, the proposed technique would select an example (business case) and quantify its action and societal utility using relevant indicators and monetary numbers based on an estimate generated with stakeholders’ help. In the second step, we will attempt to establish the premises of an accounting model based on an “extension of the conceptual framework.”
Accounting application to these two new areas (environmental and social/societal) must be based on a project that first outlines the functions that this “alternative accounting” is expected to perform: considering man and nature.
This better accounting standard (which considers environmental and societal factors) would allow corporations (and organizations) to be distinguished from those that are both efficient and sustainable. It would also allow investors, consumers, employees, and others to express their choice for standardized and unique data, bringing “business” and “public interest” closer together (Eccles and d’Humieres, 2010).
After describing the current scenario marked by the traditional accounting approach’s infamous inadequacies in assessing a company’s social responsibility, we will define the principles of “extended accounting” before offering an example. We will quantify a specific situation and discuss viewpoints and potential research paths to meet this problem.
The remainder of the limits of accounting for corporate social responsibility
Accounting and financial data do not reflect the measures performed by businesses in sustainability! Many recent polls (Price Waterhouse, Medef, and others) have demonstrated that companies are concerned about sustainable development (SD) and social responsibility (SR). At the same time, they highlight the challenges of gathering and combining non-financial data.
For example, the NRE (New Economic Regulations) Law is an example of a “standard” that aims to bring accounting, financial, social, environmental, and economic data closer together. On the other hand, this standard does not address the issue of “disarticulation” between general accounting (standardized and audited data) and SR management accounting, which can be helpful for a company’s strategic management. This ” disarticulation ” exacerbates this “disarticulation exacerbates the secrecy of the company’s scope and governance methods.”
According to SR principles, governance must affect decisions and the organization’s entire performance will be determined by interactions between the primary stakeholders, not just the financial strategy at the priority service of the single stakeholder who represents the shareholders.
Furthermore, traditional accounting information systems are incapable of apprehending potential development and are limited to preserving standardized facts from the past.
“Green accounting,” its interest and its shortcomings
The SR features of the organization are not included in the standard accounting principles. Nonetheless, accounting based on the “Environmental” pillar has emerged over time. Christophe explains, “Effective information system on the degree of scarcity of natural elements generated by the company’s activity, which may be utilized to minimize scarcity and to alert third parties,” according to green accounting (or “environmental accounting”) (Antheaume and Christophe, 2005)
“Green accounting” may appear to be a nascent tool for integrating corporate social responsibility efforts into financial statements…but “When a company harms the environment, it automatically harms humans. Hence the firm must be held ethically accountable for its actions. This argument is founded on the ethical concept of “do no harm to future generations” (Ayotte, 1995).
In 1996, the National Accounting Council advocated isolating “environmental investments” (e.g., de-pollution) in different account numbers or even determining what percentage of taxes and duties is attributable to the environment (taxes on waste).
With IAS 37 “Provisions, contingent liabilities, and contingent assets,” the IFRS rules consider evaluating “intangible assets,” particularly the environment, at the worldwide level. The latter enables a company to acknowledge “environmental provisions” (for example, by considering the delivery of a site report). Companies can thus be held “accountable” for their performance in decreasing environmental consequences in this new framework.
The corporation only considers the market value when calculating its costs. However, during its operations, particularly in production, the corporation uses human and natural resources that are not accounted for in standard accounting since they are unrestricted. The notion of “negative added value” demands that the cost of consuming natural heritage be considered. The environmental costs of a firm can thus be described as the charges that the company must account for to deal with the environmental repercussions of its operations.
They are aware of the “externalities” that the company generates. An environmental expenditure is one made to prevent, minimize, or correct the damage caused by the company. In practice, assessing them remains challenging, such as determining the “price” of natural heritage. (P. Baret and B. Dreveton, 2010).About Complete Controller® – America’s Bookkeeping Experts Complete Controller is the Nation’s Leader in virtual bookkeeping, providing service to businesses and households alike. Utilizing Complete Controller’s technology, clients gain access to a cloud platform where their QuickBooks™️ file, critical financial documents, and back-office tools are hosted in an efficient SSO environment. Complete Controller’s team of certified US-based accounting professionals provide bookkeeping, record storage, performance reporting, and controller services including training, cash-flow management, budgeting and forecasting, process and controls advisement, and bill-pay. With flat-rate service plans, Complete Controller is the most cost-effective expert accounting solution for business, family-office, trusts, and households of any size or complexity.