Sustainability Reporting Traditional Financial Reporting

Question: Discuss about the Sustainability Reportingfor Traditional Financial Reporting. Answer: The main Criticisms of Traditional Financial Reporting Introduction Traditional financial reporting only dealt with financial aspect of the company without reporting on environmental and social impacts of the company. With respect to the financial statements These are products of the application of valuation criteria that are not the most appropriate for the economic circumstances of the environment(Alexander and Britton, 2005). This generates important differences between accounting and economic results that translate into complex technical problems for the analysis. financial statements of a corporation shows its economic situation and are the main source of info that third parties rely on about the companys performance. The Financial Statements reflect the concepts of operation and operation of the companies, all the info that shows them must serve to know all the resources, capital, obligations, expenses, costs, revenues and all the changes that were presented by the management of the business, decision-making, analysis and evaluation of managers, exercising control over internal economic items and their contribution to the company. The traditional financial statements do not show what the companys activities have on the external social factors(CFA., Drake and Pamela., 2013). However, they forget about the social and environmental costs that the companys activities have on the community.Traditional financial statements do not show the actions and commitments of a company in this matter and in relation to its employees, customers, shareholders and society. The report does not show the impact of the companys actions on the society and the environment, in particular in the communities where it is present with special attention to the relationship with the ecosystem . this is because they are not inclusive of the sustainability report. Theories behind corporate sustainability reporting Stakeholders Theory This theory was popularized by Edward Freeman. The stakeholder approach defined stakeholder as any individual or group who can affect or be affected by the achievement or actions of the organization in trying to attain its objectives. This theory is based on the premise that the closer or stronger your relationship with external parties, the easier it is for you to meet your objectives. The worse your relationship is with the stakeholders the harder it will be. External stakeholder want to feel that the company is giving as much as it is taking from them. For example, how much is the company is spending on programs intended to giving back to the society. The goal of the stakeholders theory is to enable strengthens the relationship of companies with external parties. Legitimacy Theory This theory explains that for a company to survive or exist it must act in line with societys norms and values. Therefore, a corporation must provide environmental disclosures in their annual report. The theory argues that if a company is to be in existence then it must ensure that it remains legitimate in the eyes of external stakeholders whom it considers to be having the power to affect its legitimacy(COHEN, 2017). One way that make the corporations to remain legitimate in the eyes of the public it by providing voluntary environmental and social disclosures in their annual report. This has been one way to push corporations to publish social and environmental reports. The Costs and Benefits of Providing this Information While the social and environmental aspects of social responsibility and corporate sustainability are often emphasized, good practice also has a clearly economic component, although sometimes it has a long-term effect. Good practices of social responsibility and sustainability reporting are positively valued by investors and shareholders because they entail a reduction of risks, which in turn is what determines the return they demand from the company. Customers traditionally expect companies to provide quality, safe and satisfying products and services that meet their expectations, that their advertising, commercial and contractual actions are responsible, eliminating any type of deceptive practice they present, and if it is the Case, a post-sale service, to admit, process and record your claims(Lourenc?o and Major, 2015). A false belief about corporate social responsibility and sustainability is that it costs money. It is true that, to achieve some of the benefits, changes are required and for this an added effort is required, sometimes additional investments as well, but in the long run, everyone reports a positive return for the company. The extension of the commitments through commercial relations refers to the inclusion, in addition to the classic parameters of quality and price, environmental and social parameters in the process of homologation of suppliers and subcontractors thus making the commitment of CSR of the Contracting organization(Rezaee, 2015). Responsible management of the supply chain, in the long run, brings economic benefits, which can sometimes be very important, such as:Reduction of reputational risks and related costs, since more and more, consumers consider that an organization is responsible for the product and / or service it provides irrespective of its supply chain. Therefore, working with supplier companies that do not meet minimum social responsibility requirements can affect the reputation of the company, and by extension its competitiveness. Carrying out social and environmental audits to the most critical supplier companies with the objective of ensuring compliance with the minimums established in the contracts, as well as identifying improvement actions and being able to raise them, thus implying suppliers in a cycle of continuous improvement(Lourenc?o and Major, 2015). provide your opinion on whether firms should include more than financial information in their annual reports. Yes, firms should provide more than financial information to the general public and this is in regards to environmental and social cost. The knowledge and identification of the environmental risks associated with the companys activities is the cornerstone of any, action, decision or activity related to the protection of the environment in the workplace. Every day it is more important for not only companies but also other shareholders to know, with the greatest possible rigor, the environmental impact they produce or can produce, as they are continually subjected to pressures from different areas to achieve their elimination or reduction(White, n.d.). This is the objective of numerous legislative, economic or training initiatives that have the concept of environmental risk at the heart of its development. It is important for the stakeholders to know From the preparation of Risk Maps, Good Practices and Prevention Plans as instruments of pressure and worker participation, to the negotiation, where necessary, of a just transition in those companies or sectors that require An ecological reconversion of production, through proposals for the implementation of environmental management systems and concrete participation of workers in them(Rezaee, 2015). In conclusion, a company is valued more by investors if it has shown the good will to show that it cares for the environment and other social responsibilities. References Alexander, D. and Britton, A. (2005).Financial reporting. London [etc.]: Thomson Learning. CFA., Drake, P. and Pamela. (2013).Analysis of Financial Statements. John Wiley Sons. COHEN, E. (2017). Sustainability reporting experience. Dulles: stylus Publishing. Lourenc?o, I. and Major, M. (2015).Standardization of financial reporting and accounting in Latin American countries. Hershey, Pa: Business Science Reference. Rezaee, Z. (2015).Business sustainability. Sheffield: Greenleaf Publishing. Sustainability reporting guidelines. (2006). 1st ed. Amsterdam, Netherlands: Global Reporting Initiative. White, G. (n.d.).Sustainability reporting.