Financial Reporting

2134 words - 9 pages

Financial reporting is the communication that enables users of financial statements to assess the profitability and the financial state of a company( Scott, 2009). This information is provided within an accounting framework to ensure neutrality, comparability and understandability for all users of financial statements. The key role is to reduce information asymmetry between the managers and stakeholders such as investors, creditors, governments, employees, consumers and the general public. These stakeholders are direct or indirect participants in the capital markets from where companies vie for finances in the form of equity or credit(Scott, 2009). In Canada, financial reporting is overseen by the Accounting Standards Board(ASB) whose mandate is to, “ to support informed economic decision-making by maintaining a framework that provides a basis for high quality information about financial performance,”(CICA, 2011). The questions as to whether the ASB should enact new disclosure requirements for firms to report on the environmental performance or sustainable development is fundamentally a question of whether environmental performance and sustainability have a role in economic decision making. The answer hinges on the connection between environmental performance and sustainable development having an influence on financial performance. In this paper, stakeholders to whom this information is important will be discussed, evidence that disclosure is sought and solicited will be presented as well as evidences that environmental performance and sustainability are factors in financial performance will also be discussed. Finally, the case will be made that ASB should enact new disclosure requirements in efforts.
Firstly, let us explore what is meant by environmental performance and sustainability. Currently, many countries are measured on an annual basis on the Environmental Performance Index(EPI) as authored my the Yale Centre for Environmental Law and Policy and Columbia University( Kim, 2010). The Environmental Performance Index(EPI) is used by the United Nations to supplement global environmental targets. The Index includes large policy categories such as air pollution, water, biodiversity and habitat, productive natural resources including forestry, fisheries, agriculture as well as climate change. In EPI terms, environmental performance is the impact of activities economic and otherwise upon human health and upon the ecosystem. Based on amalgamation of difference scores, countries are awarded a standing on the EPI index from best to worst. Sustainability on the other hand is a broad term that can mean different things to different industries(Deloitte, 2010). Perhaps a better explanation is summarized by when a sustainability issue arises. Sustainability issues arise when we are faced with the risk of irreversible loss of qualities of the environment as such environmental sustainability includes actions that increase efficient use of resources,...

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