Quiz 37: Accounting for Corporate Social Responsibility

A specific Australian requirement for companies to provide environmental information in their annual reports is available in AASB 137 "Provisions, Contingent Liabilities and Contingent Assets".

The qualitative characteristics identified in the Global Reporting Initiatives (GRI) Guidelines are similar with those provided in AASB 101 "Presentation of Financial Statements"

The Parliamentary Joint Committee on Corporations and Financial Services (PJCCF) is of the view that businesses know that it is in their own self-interest to do the 'right thing' in relation to their social and environmental performance and therefore supported a regulated rather than a voluntary framework.

Social and environmental information are often ignored in financial reporting due to the difficulty of quantifying social and environmental costs.

Disclosure of environmental information is consistent with positive accounting theory paradigm in that it seeks to reduce adverse wealth transfers.

A Sustainability Report is an example of a stand-alone social report.

The traditional view is that business entities are responsible for their financial performance and the impacts they have on stakeholders with whom they interact:

The accounting profession has generally been proactive in generating social reporting frameworks and regulating the associated reporting:

Entities wishing to provide social and environmental reports are able to use the conceptual framework for guidance in reporting social costs:

The traditional accounting model focuses on property rights and market transactions and so tends to treat environmental goods such as air and water as being free and therefore not assets, expenses or revenues that need to be reported.

'Greenwash' is a term applied to environmental reports that are considered to be for the purpose of public relations rather than a balanced report of environmental impacts:

According to Environment Australia, public environmental reporting is the communication of environmental position information by an organisation to its shareholders:

Freeman and Reid provide a broad definition of 'stakeholders' as follows: 'any identifiable group or individual who can affect the achievement of an organisation's objectives, or is affected by the achievement of an organisation's objectives':

Gray, Owen and Adams define accountability as 'the duty to provide an account or reckoning of those activities that have been undertaken by an entity in a specified period of time':

Companies are required to disclose information about payments to directors and executives and the average wage level for their major classes of employees by function within the organisation:

One way in which traditional financial accounting has been able to deal in an environmentally friendly way with the measurement of effects on the environment is through the recognition of pollution permits and emission rights as assets:

The Australian Greenhouse Office has prepared several papers associated with the potential introduction of emissions trading in Australia. The proposal to introduce carbon trading will result to an asset (obligation) when an entity reduces (increases) its greenhouse gas emissions.

It is common for "clean-up" costs to be excluded from traditional financial reports of mining firms because this undertaking is purely voluntary.

The body/bodies that have been proactive in providing environmental reporting guidelines include: A) The International Accounting Standards Board. B) The International Federation of Accountants. C) The Australian Minerals Industry. D) The International Oil and Gas Producers Board. E) None of the given answers.

Factors that may influence perceptions of what the responsibility of an organisation should be include: A) An individual's cultural background. B) The time period (generation) that the individual comes from. C) The individual's role in the community. D) An individual's cultural background and the individual's role in the community. E) All of the given answers.

Social-responsibility reporting may be seen as having two components: A) Responsibility reporting and societal impact accounting. B) Environmental reporting and employment reporting. C) Employment reporting and stakeholder reporting. D) Social reporting and environmental reporting. E) None of the given answers.

Social-responsibility reporting may be defined as: A) The reporting of information relevant to key stakeholders identified by the entity as requiring non-performance information. B) The provision of information about the performance of an organisation in relation to its interaction with its physical and social environment. C) The reporting of events and impacts on the financial and economic well-being of the organisation that stakeholders will find useful for decision-making. D) The provision of financial information about the impacts of the entity on the environment and communities. E) None of the given answers.

Social-responsibility reporting includes reporting about factors such as: A) Level of support for developing countries. B) Health and safety record. C) Training, employment and education programs. D) Interaction with the local community. E) All of the given answers.

Triple bottom line reporting has been defined as providing information about: A) The financial, economic and environmental performance and position of an entity. B) The profitability, sustainability and human relations performance of an entity. C) The social value, economic impact and community support provided by an entity. D) The economic, environmental and social performance of an entity. E) None of the given answers.

Sustainable development has commonly been defined as: A) Development that meets the needs of the present world without compromising the ability of future generations to meet their own needs. B) Development that has continued at a consistent rate of growth over a period greater than 5 years. C) Development that can be financially supported over the mid to long term. D) Development that makes the most effective use of the resources available while balancing the needs of shareholders and other stakeholders for appropriate returns on their investment in the organisation (whether that be in terms of money or time). E) None of the given answers.

Important issues for social-responsibility reporting about which there is still limited consensus include: A) Who should bear the cost of reporting. B) Whether or not independent verification is appropriate. C) Whether or not modified historical cost is an appropriate measurement model. D) What the qualitative characteristics of this type of reporting should be. E) None of the given answers.

Milton Friedman expressed the view in his book, Capitalism and Freedom, that: A) Corporate managers have a moral responsibility to consider the impact of the entity on the environment and society, on the basis that society has an unwritten 'contract' with the entity under which society allows the entity to continue to exist if it offers appropriate benefits back to the community. B) Corporate managers should provide transparent accountability to those who provide capital whether that is in financial, broader economic or social terms. C) Corporate managers have a single responsibility and that is to use the resources of the entity and engage in activities designed to increase profits within the constraints of engaging in free and open competition without deception or fraud. D) Corporate managers should pursue their own best interests since they will be contracted to the entity they manage in such a way that any agency costs of their self-interested behaviour are minimised and so they will generate the most efficient allocation of resources, profits and benefits for society. E) None of the given answers.

According to Gray, Owen and Adams, accountability involves: A) The responsibility to provide an account of an entity's actions. B) The expectation that entities will undertake responsibility for the financial and economic effects of their actions. C) The responsibility to undertake certain actions (or to refrain from taking actions. D) The responsibility to provide an account of an entity's actions and the responsibility to undertake certain actions (or to refrain from taking actions. E) All of the given answers.

'State of the Environment' reports are: A) Reports prepared by corporate entities under the guidelines of the Global Reporting Initiative. B) Reports prepared by local government bodies in support of applications for funding for social and cultural projects. C) Reports generated by governments that provide details of the condition of the environment in a designated area and the natural resource stocks in that area. D) Reports generated by environmental protection authorities that specify areas subject to critical levels of pollution and prioritise areas and species for protection. E) None of the given answers.

In Australia there is a specific requirement for reporting entities in the extractive industries to disclose: A) Information about the potential environmental impact on protected species (as specified by state Environmental Protection Authorities) of any proposed or current extraction activities. The information is to be provided by category of protected species and verified by independent auditors. B) Information about the amount of restoration obligations recognised as a liability in their financial reports and the accounting methods adopted in determining the liability for restoration. C) Provisions for the reconstruction of environments damaged through mining processes. The disclosure should include costs measured using present value and take into account the local Environmental Protection Agency's requirements regarding the state to which the area should be returned on the completion of extraction of the minerals. D) Information about the environmental and social impacts of their operations, which are often in small local communities isolated from other sources of employment and revenue generation. The information to be provided includes average salary levels, training and education opportunities provided, health and safety procedures as well as disclosures about the cost of restoring the environment back to its original condition on completion of mining. E) None of the given answers.

What disclosure does The Corporations Law require in relation to environmental impact? A) An entity that is subject to any significant environmental regulation under a law of the Commonwealth, State or Territory must provide details of the entity's performance in relation to the environmental regulation in the Directors' Report. B) An entity that has a licensing arrangement with an Environmental Protection Agency must disclose the terms and nature of the agreement and details of its compliance with the agreement in the management discussion section of the Annual Report. C) An entity that emits any of the substances on the list of 90 such substances measured in the National Pollution Index is required to report the verified measurement of its emission levels of those substances in the Directors' Report. D) An entity that has a licensing arrangement with an Environmental Protection Agency must disclose the terms and nature of the agreement and details of its compliance with the agreement in the management discussion section of the Annual Report; and an entity that emits any of the substances on the list of 90 such substances measured in the National Pollution Index is required to report the verified measurement of its emission levels of those substances in the Directors' Report. E) All of the given answers.

The view of the Australian Industry Group about community accountability, including environmental reporting, is that: A) Such reporting is a waste of resources for all stakeholders and the entity itself and it should be discouraged. B) Such reporting may be useful in the future, but the lack of well-developed measurement methods and absence of regulation of disclosure means that it is currently not a useful basis for decision-making by stakeholders. C) The imposition of additional costs associated with the reporting requirement in The Corporations Law is a concern for business, and while voluntary reporting is supported by the group it is opposed to mandatory social and environmental reporting. D) Social and environmental reporting are useful additional sources of information for stakeholders of the organisation and such reporting should be regulated and made mandatory at the federal level through the Financial Reporting Council. E) None of the given answers.

An externality can be defined as: A) An impact of an external group or entity on the reporting organisation. B) Impacts that a reporting organisation has on parties that have a direct financial relationship with the organisation. C) Impacts that a reporting organisation has on parties that are external to the organisation; parties that typically have no direct relationship with the organisation. D) Impacts on the organisation that are not of an economic nature and which are caused by environmental protection regulations. E) None of the given answers.

Examples of externalities include: A) Injury to customers as a result of products produced by the entity. B) Pollution of water resources by effluent from the organisation's production processes. C) The effect on communities of the retrenchment of workers. D) The provision of poor conditions for workers and the consequent health and safety effects. E) All of the given answers.

Traditional financial accounting is limited in its ability to reflect the effects of externalities in annual reports because: A) The application of the entity assumption excludes effects not directly related to the entity itself. B) There is no scope to provide non-financial information in annual reports. C) The application of the concept of materiality excludes externalities because they are typically difficult to measure. D) The application of the entity assumption excludes effects not directly related to the entity itself and the application of the concept of materiality excludes externalities because they are typically difficult to measure. E) All of the given answers.

The Global Reporting Initiative has suggested alternative views of the application of the materiality concept in social and environmental accounting, including: A) Materiality thresholds (e.g. 10 per cent) should be lowered in relation to social and environmental costs because of the difficulty in measuring them. B) Liabilities for social and environmental costs should not be discounted before they are evaluated for materiality and therefore inclusion in the accounts. C) Contingent liabilities related to environmental and social issues should be disclosed regardless of whether they are considered 'material' or not according to traditional financial accounting approaches to materiality measurement. D) Materiality measures should reflect the nature and circumstances as well as the scale or magnitude of the item or event. E) None of the given answers.

Discounting liabilities using the present value technique is not ecologically sound because: A) Environmental liabilities are hard to measure. B) The value of a dollar in the present is greater than the value of a dollar in the future. C) Discounting has the effect of reducing the apparent size of the cost of future environmental clean-up and so encourages entities to undertake projects that have large negative (distant) future impacts on the environment. D) It discourages entities from providing sufficient reserves to restore environments after project completion. E) All of the given answers.

Applying the traditional financial accounting approach will mean that an entity that pollutes local waterways until they cannot support life will report: A) No effects in its financial statements in relation to this outcome. B) Only financial effects such as any penalties or fines imposed. C) Extensive contingent liabilities for the damage caused. D) The breach of accepted environmental practice and its effects on other local entities in the Directors' Report. E) None of the given answers.

The Shell Group of companies has developed a Social Responsibility Management system that may be described as: A) An integrated financial reporting system designed to encourage internal decision-making and reporting to incorporate the modified historical cost system's approach to environmental and social reporting into all management systems. B) An integrated means for consistently monitoring, measuring and reporting performance that reflects the underlying values of the entity in line with the expectations of society and its Statement of General Business Principles. C) An integrated management system that incorporates full social costing and environmental damage reports in line with the progressive attitude to environmental and social responsibility adopted by the entity. D) A management system and integrated accounting and reporting system that incorporates both social and environmental concerns within a financial framework that reflects the entity's commitment to social and environmental responsibility. E) None of the given answers.

The Minerals Council of Australia has created a Code for Environmental Management that addresses the environmental performance and public accountability of signatories. Reasons suggested for the Council's proactive approach to developing the Code include: A) It was a means for the Council to enhance its position within the industry and potentially raise the fees it charges to members. B) It was a means of preventing or delaying the imposition of mandatory requirements by governmental bodies. C) It was a means of maintaining the perceived legitimacy of the industry in the face of public concerns over its environmental performance. D) It was a means of preventing or delaying the imposition of mandatory requirements by governmental bodies and it was a means of maintaining the perceived legitimacy of the industry in the face of public concerns over its environmental performance. E) All of the given answers.

The NSW Environmental Protection Authority's report, Corporate Environmental Reporting: Why and How, suggests disclosures including information relating to: A) Stakeholder consultation programs. B) Use of energy in transportation. C) Noise and odour production. D) Use of packaging. E) All of the given answers.

Environment Australia has identified a number of possible benefits for entities choosing to report environmental information, including: A) Gaining the confidence of investors, insurers and financial institutions. B) Creating market opportunities. C) Gaining external recognition/awards. D) Improving stakeholder relations. E) All of the given answers.

The Global Reporting Initiative is: A) An Australian-based group with ties to the electricity production industry worldwide, which has as its aim the production of environmental reporting guidelines for electricity producers. B) A special group formed under the umbrella of the World Trade Organisation to promote environmental reporting guidelines appropriate for a broad range of entities internationally. C) A body sponsored by the International Monetary Fund to develop guidelines for reporting that will enhance the ability of developing countries to raise funds through joint venture arrangements and international capital markets. D) A body initially convened by the US-based organisation Coalition for Environmentally Responsible Economies, which has links to business, accountancy, human rights, environmental, labour and government organisations. E) None of the given answers.

The Global Reporting Initiative's draft guidelines on report content describes sections that may be found in a sustainability report, including: A) Social costs section. B) Non-financial key performance indicators. C) Vision and strategy. D) Stakeholder impact analysis. E) All of the given answers.

The World Business Council for Sustainable Development has encouraged the use of eco-efficiency indicators by businesses. Eco-efficiency indicators are based on: A) Measuring the expected outcome of environmental effects and dividing it by the level of profitability. B) Relating the level of growth in corporate income to the environmental impact. C) Considering the change in the product or service value divided by the related environmental influence. D) Considering the level of environmental costs incurred and relating that to more traditional measures of profitability. E) None of the given answers.

A number of research studies considering what motivates environmental disclosure by Australian entities had common findings that include: A) Environmental reporting patterns support legitimacy theory claims consistently. B) Companies consistently report infringements of environmental codes where they have been successfully prosecuted for them, but do not report outstanding cases at all. C) Environmental disclosures are typically self-laudatory, with very little mention of any negative environmental information about the entity. D) Environmental reporting patterns support legitimacy theory claims consistently and companies consistently report infringements of environmental codes where they have been successfully prosecuted for them, but do not report outstanding cases at all. E) All of the given answers.

There is significant diversity in the approaches adopted to disclose social and environmental information. Examples of broad approaches adopted include: A) Eco-balance approach. B) Target-based reporting. C) Zero-based reporting. D) Eco-balance approach and target-based reporting. E) All of the given answers.

Sustainable cost has been defined by Gray and Bebbington as: A) The amount an organisation must spend to put the biosphere at the end of the accounting period back into the state (or its equivalent) it was in at the beginning of the accounting period. B) The amount an entity is able pay in a sustained way to repair damage to the environment and so achieve an acceptable level of inter-generational equity. C) The cost of sustainable production levels including opportunity costs of production foregone. D) The minimum amount that an entity will need to spend over the midterm to ensure that it meets its environmental commitments to bodies such as Environmental Protection Authorities. E) None of the given answers.

Global Reporting Initiative's (GRI) Sustainability Reporting Guidelines provide guidance to best practice reporting. These include defining the report quality to contain the following qualitative attributes: A) Reliability, relevance, comparability and understandability. B) Inclusivity, materiality, accuracy and timeliness. C) Reliability, clarity, balance, comparability, accuracy and timeliness. D) Inclusivity, materiality, sustainability context and completeness E) None of the given answers.

Global Reporting Initiative's (GRI) Sustainability Reporting Guidelines provide guidance to best practice reporting. These include reference to the following reporting principles: A) Reliability, relevance, comparability and understandability. B) Inclusivity, materiality, accuracy and timeliness. C) Reliability, clarity, balance, comparability, accuracy and timeliness. D) Inclusivity, materiality, sustainability context and completeness E) None of the given answers.

The stand-alone social responsibility reports voluntarily provided by Australian companies since the late 1990s include(s): A) Triple-bottom line report. B) Sustainability report. C) Social responsibility report. D) All of the given answers. E) Sustainability report and social responsibility report.

Guthrie and Parker (1990) undertook a comparative analysis of corporate social-disclosure practices in the USA, the UK and Australia. Their findings include: A) Corporate disclosure in Australia is low compared with the USA and the UK. B) Disclosures made by Australian companies are mostly a reactive response to various social pressures. C) Australian companies rarely provided "bad news" in its activities D) All of the given answers. E) Corporate disclosure in Australia is low compared with the USA and the UK; and disclosures made by Australian companies are mostly a reactive response to various social pressures.

Research in corporate environmental disclosures show that entities typically disclose positive environmental information. This would be consistent with: A) Legitimacy Theory. B) Positive Accounting Theory. C) Stakeholder Theory. D) All of the given answers. E) Legitimacy Theory and Positive Accounting Theory.

Which reporting approaches have been adopted in reporting social and environmental performance? A) income statement, balance sheet, cash flow statement and statement of changes in owners' equity. B) value added statement. C) checklist approach, target based reporting, eco-balance approach and full-cost approach. D) area-of-interest method and full cost method

In boundary setting for sustainability reporting under the Global Reporting Initiatives (GRI) Guidelines, which of the following statements is incorrect? A) In parallel with defining the content of a report, an organisation must determine which entities' (e.g., subsidiaries and joint ventures) performance will be represented by the report. B) The Sustainability Report Boundary should include the entities over which the reporting organisation exercises control both in and through its relationships with various entities in an upstream and downstream activity. C) The Sustainability Report Boundary should include the entities over which the reporting organisation exercises significant influence both in and through its relationships with various entities in an upstream and downstream activity. D) The Sustainability Report Boundary being voluntary pertains to the whole report only not the individual Performance Indicators. E) None of the given answers.

Which of the following statements is incorrect with respect to the Global Reporting Initiatives (GRI) Guidelines? A) The GRI Guidelines are used as basis for mandatory reporting of social and environmental aspects in some jurisdictions. B) The GRI Guidelines have brought about improvements in environmental reporting but falls short on companies being selective on which indicators to report. C) The GRI has established a self-assessment system wherein organisations can rank themselves from "Three" stars (highest) to "one" star (lowest) on the basis of the extent to which the guidelines have been adopted. D) The GRI's ranking system also takes into account whether the reports have been subject to external assurance. E) None of the given answers.

Following are reports prepared by reporting entities: Which of the following identifies all stand-alone social reports from the above list? A) I, II and III; B) I, III and V; C) II, III and VI; D) III, IV and VI; E) II, III and V.

Which of the following statements is a valid criticism of the accounting profession with respect to its consideration of social and environmental reporting? A) Practice of discounting liabilities, particularly those liabilities that will not be settled for many years, allows the recognition of future expenditures on environmental clean-up in the current period. B) Gray, Owen and Adams (1996) argue that discounting makes good economic sense but discourages entities in undertaking environmentally friendly activities. C) The profession has a narrow focus of users of social and environmental reports limiting this to investors, governments and institutional investors. D) AASB 137 "Provisions, Contingent Liabilities and Contingent Assets" limits the obligations relating to environmental performance to legal obligations. E) None of the given answers

Which of the following statements is correct? A) Under legitimacy theory, organisations disclosing information, in an endeavour to appear legitimate to the societies in which they operate. B) Under legitimacy theory, accounting disclosure policies are considered to constitute a strategy for influencing the organisation's relationships with the parties, or stakeholders, with which it interacts. C) Legitimacy Theory relies on the theoretical notion of a social contract, where there is multiplicity of implicit and explicit expectations that society has about how an organisation should conduct its operations. D) Organisations maintain their right to exist by compliance with their social contract by establishing congruence between the social values associated with or implied by their activities and the norms of acceptable behaviour in the larger social system of which they are a part. E) None of the given answers.