Corporate social responsibility (CSR) allows the society or its participants to account financially when there is a certain involvement of the monetary values or assets of organization. Financial accountancy provides us with many dimensions to identify and communicate issues of public interest to both internal and external stakeholders. This goes through social audit which is a detailed evaluation of an organization’s social performance. While bridging the gap between what it takes accounting and financial standards to fulfil the criteria of social responsibility and to assess those standards in the light of ethics, there are some strategies and evaluation.
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For example when majority of the top 500 corporations in the United States included information about their social performance in their annual reports, the main concern was to mention a triple-bottom-line reporting which is an attempt to make public information on the organization’s financial, social, and ethical performance (Sims, 2003, p. 59). Recent years have taught many public accounting firms like Ernst & Young lessons of getting into the business of preparing social and ethical audits just to satisfy the public on ethical foundation, thereby providing them with every reasoning and justification.
The reason behind acknowledging the fact that today investors recognize an ethical organizational climate being the foundation of efficiency, productivity, and profits is that investors know the other end of the story, that would be fines or negative publicity can lower stock prices, diminish customer loyalty, and threaten the long-term viability of the company.
This is evident from many international companies who after experiencing legal problems along with customer dissatisfaction resulting in negative publicity suffered. Another example of ethical mismatch in accountancy is that when the Securities and Exchange Commission (SEC) investigated Sunbeam for errors in accounting procedures that misrepresented sales and profits, the company’s stock fell during several months from a high of $54 to less than $10 (Sims, 2003, p. 83). The alleged wrongdoing of Sunbeam had an enormous impact on the company’s rapport with it’s customers due to which lender-investor confidence in Sunbeam shattered. Accounting loopholes devoid with ethics results in potential negative outcomes and perceived unethical or questionable decisions cause investors to take their investments elsewhere.
CSR arises when accounting problems raises the following questions: why is it that accounting based measures are more included in ethics than market based measures while governing social responsibility? Why is it that auditors are encouraged to make improper compromises which not only pave way for false or fraudulent accounting but also isolates the firms in case anything goes wrong and therefore declines to answer for auditors’ work? This creates a big question and perturbs client confidentiality. However there is an answer to these problems in terms of ethics.
Every financial performance is measured on the basis of performance choices that are measured with a straightforward aspect. Since choices are limited to relatively common financial accounting, they uphold some advantages as well as disadvantages. For example accounting based measures are more easily manipulated and are historically accepted while fulfilling performance expectations (Blackburn et al, 1994). Accounting based measures are ethically risk free and fulfils standards fixed by most of the economic and market factors and are equally relevant for most stakeholder groups.
If we analyze the relationship between CSR and financial performance, it is evident from starting point that empirical studies support and assume it in the context of a traditional view. For example, Baldwin and colleagues when initially in 1986 investigated the relationship found out that the purpose of such study was to produce quantitative estimates of the financial information that as non-market risk investors would have to bear as a result of not being able to invest in various equity securities.
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Accounting regulators ‘constitution’ while keeping in mind the traditional view of the corporation have gone so far as to codify this view by including the significance of CSR that accounting regulators have not left behind in mentioning those potential users of financial information that are most directly concerned with a particular business enterprise (Pava & Krausz, 1995, p. 17). The financial accounting standards have examined CSR performance with respect to different control techniques and while analyzing these techniques, they develop strategies for their organization to grow and adapt the changing accounting trends and practices.
Ethical issues in accounting and financial reporting sometimes occur not because of greed or even fraud but because the way financialists view a situation devoid of ethics (Hoffman et al, 1996, p. 42). Such situations arise because of narrow perspective or failures to view clearly how a financial market may be incomplete or erroneous. Financial reporting and ethics in the context of CSR must adhere to the accounting standards that suggest that information to be provided to the investors and creditors which is useful in making rational investment, credit, and similar decisions (Solomons, 1986, p. 68).
The costs and benefits of social responsibility to the success of the business and the personal well being of the owner/manager depends on figuring out whether business was gained or lost from supporting the community. It is seen that despite being so much modernized in business and finance businesspersons are forced to rely more on faith than cost accounting in determining the net return from good citizenship. Outcome indicators in this respect are those that vary according to the category of social responsibility being considered (Besser, 2002, p. 28). According to Besser (2002) “It is observed that sophisticated accounting mechanisms measure the outcomes related to the economic category of social responsibility and when it comes to public companies, the economic outcomes are validated by public accounting firms and reported to the public in annual reports and in Securities and Exchange Commission filings” (Besser, 2002, p. 28).
According to Solomons (1986) “It is the corporate responsibility of accountants and auditors to visualize and fulfil the standards that provide not only useful information that helps present and potential investors as well as creditors but is also helpful in assessing the risk in timing, and uncertainty of cash receipts from dividends and interests” (Solomons, 1986, p. 68).
We must elaborate the context of accounting in taking off subsequent trajectory which has been one of interesting and significant socio-political tensions and dynamics (Gallhofer & Haslam, 2003, p. 107). In order to mobilize and involve accounting in emancipatory projects there is still a long way to go for the struggle to capture social accounting. Accounting that comprises and focuses gaining of insights and inspiration towards mobilization.
- Besser L. Terry, (2002) The Conscience of Capitalism: Business Social Responsibility to Communities: Praeger: Westport, CT.
- Blackburn V. L., Doran M. & Shrader C. B., (1994) “Investigating the Dimensions of Social Responsibility and the Consequences for Corporate Financial Performance” In: Journal of Managerial Issues. Volume: 6. Issue: 2. Pittsburg State University – Department of Economics.
- Gallhofer Sonja & Haslam Jim, (2003) Accounting and Emancipation: Some Critical Interventions: Routledge: New York.
- Hoffman W. Michael, Kamm Judith Brown, Frederick E. Robert & Petry S. Edward, (1996) The Ethics of Accounting and Finance: Trust, Responsibility, and Control: Quorum: Westport, CT.
- Pava L. Moses & Krausz Joshua, (1995) Corporate Responsibility and Financial Performance: The Paradox of Social Cost: Quorum Books: Westport, CT.
- Sims R. Ronald, (2003) Ethics and Corporate Social Responsibility: Why Giants Fall: Praeger: Westport, CT.
- Solomons David, (1986) Making Accounting Policy: The Quest for Credibility in Financial Reporting: Oxford US: New York.