Week 12: Voluntary Social and Environmental Reporting and

accounting for joint operations

Outline:
1. The social and environmental impacts of an organisation
2. Non-mandatory reporting social and environmental reporting (SER)
3. Case studies in SER
4. What are the advantages and limitations of SER and of disclosing in
different media?
5. Who should do this accounting?
6. Joint Operations method, example and evaluation
Technically these questions outlined above were hinted by Matt to be potentially
an essay question that may arise in the final exam.
- pdf of chapter 9 is on blackboard

1. Social and environmental impacts of an organisation
Organisational activities impact on both owned resources (e.g.
recognised assets on the Balance Sheet) and external resources (e.g. the
environment, people)
Undesirable impacts
o E.g. financial losses, staff injury, pollution
Desirable impacts
o Financial profits, staff training, management doing something
about the undesirable impacts e.g. remediation of pollution
Essentially all our expenses in this field are regarded as undesirable
(External resources: pollution (it is a cost however considered an externality).
Should the organisation try to report that loss? Could another performance
statement be produced to record that cost? But thinking about this there will
also be further fees that will have to be expended to make these statements)

The full story triple bottom line
Financial impacts profitability, solvency, liquidity etc
Social impacts workforce safety, training, employment of minor?,
community impacts and programs, customer impacts including product
safety
Environmental impacts on water, atmosphere, biodiversity, ecology.
Potentially very broad and so tricky to account for. Consider the
boundaries of an organisation and a broader understanding of inputs and
outputs:
o Inputs what raw materials are used? Are they scarce?
Environmentally sensitive?
o Outputs:
The product itself how long will it last? What programs do
we have to help consumers sensitively dispose of the
waste?
Other outputs our waste and pollution. What (local and
global) ecosystems are burdened by it? How?
(Dollars allow easier comparability but may offend parties who arguably
disagree with the valuation of social and environmental things. Triple bottom
line is flawed: (financial bottom line net profit after tax) what has been our
financial performance for the year? Social bottom line or environment bottom
line is very complex .. what would be the net environmental impact for the year?
Flawed concept. Financial impacts are recorded in annual financial reports
however the other 2 are too entwined with their impacts.

Should organisations be concerned about their social and
environmental impacts?
Social and environmental management:
Corporate Social Responsibility is a concept whereby companies integrate social
and environmental concerns in their business operations and in their
interactions with their stakeholders on a voluntary basis
- But Corporations Act 2001 Section 181: directs are obliged to act in the
best interests of their corporation. Arguably however because of this act
the social and environmental environments are effected heavily.
Historically when these acts were laid.. corporations were not as large
(consider the concept of magnitude). Now in the 20
th
century, we have
large multinational corporations managers have a problem now as
managers are not focused on environmental and social impacts, the focus
rather is still on profit maximisation. Milton Friedmans theories are
structured around section 181 of the Corporations Act 2001
- Milton Friedman corporate executives have but one social responsibility
and that must be to make as much money as possible for the shareholders
- Corporations are purely self interested, incapable of concern for others,
amoral and without conscious Bakan 2005
- Alternatively understanding of directors duties is evolving a long
term view of shareholders interests are starting to formulate

2. Reporting are social and environmental impacts
disclosed in A- IFRS reporting?
Consider the A-IFRS Conceptual Framework
o users (para 9)
o Objective of Financial Reports (para 12)
Financial Reporters are focused on the financial stuff position and
performance little disclosure mandated of the organisations impact on
the environment, on public goods or on social costs
However:
Corps Law section 299(1)(f) disclose environmental performance
where exposed to significant environmental regulation
Regardless, financial, social and environmental impacts overlap and so
GPFR do provide some insight into the organisations social and
environmental impacts
The 3 things do overlap, conflicting interests are never a good thing
- people who are interested in the social and environmental contributions and
impacts of a company may also refer to the companys annual reports


Voluntary Social and Environmental Reporting (SER)
IN addition to the mandatory disclosures in financial reports,
organisations are also increasingly choosing to provide additional
voluntary social and environmental reporting (SER) describing:
o Social and environmental policies
o Social and environmental impacts
o Details of management initiatives to reduce those impacts
Qualitative and quantitative disclosures
Is it accounting may be used for internal accountability or decision
making (e.g. to inform management goals about pollution reduction) or
may be reported externally or both
Several limited voluntary reporting codes are developing for examples
the GRI indicators. Consider the benefits of having a GAAP e.g.
consistency.


Why provide voluntary reporting
In our study of financial reporting we have considered suggestions of wealth
effect and regulatory capture to enable reporting that makes the organisation
look good. So why would organisations voluntarily disclose information if there
is no legislative requirement? Could it be:
- Public/media pressure?
- To provide information relevant to decision makers (proactive)?
- Accountability, justification, making the organisation look good
(reactive)?
Theories that help us understand why organisations voluntarily
disclose
Stakeholder theory: Powerful stakeholders demand novel disclosures to meet
their information needs. Normative stakeholder theory is a variation that
suggests that stakeholders have a right to information and so businesses
respond.
Legitimacy theory: Organisations are constantly struggling to maintain their
legitimacy and so need to promote themselves as being important community
members. They must maintain a license to operate. Evolving terms in that
licence may demand social and environmental management and/or disclosures
Institutional theories: Organisations operate within fields impacted by
institutional logics e.g. disclosing detail of our good employee workplace
conditions is important. Leading organisations respond first and other seek to
copy.
Media agenda setting theory. Newspaper today -> disclosures tomorrow

SER a lack of interest?
Outcome of Parliamentary Joint Committee into Corporate Responsibility The
Social Responsibility of Corporations December 2006:
- It would be premature and counterproductive to legally mandate SER
given that the form and content of non financial disclosures are still
evolving
- The potential interest is not sufficient. Independent assurance should
remain voluntary
- Strongly supports use of the GRI
Case studies in SER
Where can SE disclosures be made?
i) Separate stand alone reports (sustainability report, corporate social
responsibility report, triple bottom line report e.g. bhp sustainability
report which is rapidly declining in size, 164 pages in 2004 and 48
pages in 2013. Numerical, written and graphical data, other inclusions
in the report:
- CEOs report
- The supplementary report contains copies of the limited assurance
reports prepared by KPMG
- Statements of policy/position on S&E issues
- Stakeholder identification and dialogue
- Mixed units
- GRI indicators referred to in framing the disclosures
ii) Within existing financial reports Qantas Annual report why
provide this in the annual report? The Group Strategy underpins our
vision and positions the Group towards delivering sustainable returns
to our shareholders
iii) Html links or brochures or statements on their websites
iv) Press releases and other communications
v) And coming soon; integrated reporting!
Corporate reporting needs to evolve to provide a concise communication
about how an organisations strategy, governance, performance and
prospects, in the context of its external environment, leads to the creation
of value over the short, medium and long term.


Reflecting on sustainability reporting
- Do particular approaches suggest particular motivations? For example:
o Power stakeholders are demanding the information
o A need to defend actions
o Wanting to greenwash stakeholders or legitimise their existence
o A sense that stakeholders have a right to use information
- Consider which of the following stakeholder groups might value these
disclosures:
o Shareholders?
o Other financially related groups including creditors, customers and
employees?
o Non financial interests including community groups, NGOs?
o Concerned global citizens including people living in other
countries?
o Future generations?
o All/several of the above?
- But are BHPBilliton and Qantas the wrong reporting entities? Shouldnt
our core accounting challenge be trying to visualise the sustainability of
the planet?

Advantages of SER
- Recognise and minimise risks (stakeholder theories?)
- Possible increased revenues or decreased expenses
- Avoiding regulation, bad publicity and criticisms
- Influence regulation or attitudes (legitimacy theory?)
- Green investment dollars, consumers and employees
- Inclusion in ethical investment funds
- Document management commitment (e.g. sustainability)
- Accountability, stakeholder rights values based management
- Competitive argument
- More information is a good thing?
Limitations of SER
- Not mandatory and no detailed accounting guidelines reliability
- Negative impact or profit
- Scrutiny, criticism and regulation
- Incriminating information
- Cost (including audit process)
- Competitive disadvantage
- Audits/assurance process
- Use of the webt
- Information overload? Not read?

Is SER a job for accountants or other professionals?
- What is an accountant? Rule makers, report preparers and rule-enforces.
- What skills do accountants have?
o Developing and implementing reporting frameworks
o Measurement and presentation of relevant and reliable data
o Auditing/analytical skills
o Management accounting
- Perhaps the involvement of professional accountants lends some
legitimacy?
- What do your employers want?! When choosing between two graduate
candidates, each possessing equivalent core skills they are more likely to
engage with the one who demonstrates soft skills
- Consider Leibler, perhaps accountants should get it right with the
financial data first?
- Measurements: technical, hard to verify, mixed units used
- SER goals are about performance whereas accountants just collect
numbers
- Fear negative impact on credibility?
- SER data sources not linked to economic data anyway
- If accountants dont do the SER then who would?
Accounting for joint operations readings
AASB 11 Joint Arrangements

At the conclusion of this topic students will be able to:
- demonstrate understanding of the definitions of joint arrangement, joint
venture, joint control & joint operation
- Identify the differences between a joint operation & joint venture
- Prepare the accounting entries to adopt the accounting methods for joint
operations prior to commencement of production
- Discuss the merits of the line by line (proportional method)

Definitions
Joint arrangements:
An arrangement whereby two or more parties have joint control
Used for large projects in mining, property development & construction
industries as projects require varying degrees of management, resources
and finance
Joint control:
Contractually agreed sharing of control of an arrangement, which exists only
when decisions about the relevant activities require the unanimous consent of
the parties sharing control (para 7)
Need to refer to the joint venture agreement to identify
- what the joint venture will do & for how long
- responsibility for management
- Contribution of funds
- Joint venture control including voting rights of joint venturers
- How the output, income, expenses or results of the joint venture will be
shared
Two types of joint arrangements
Joint operation: is a joint arrangement whereby the parties that have joint
control of the arrangement have rights to the assets, and obligations for the
liabilities
Joint venture: is a joint arrangement whereby the parties that have joint control
of the arrangement have rights to the net assets of the arrangements

Joint operations
Separate entity is generally not formed
Uses joint operators assets & resources
Each operator undertakes their own borrowings
Joint operation maintains accounting records for internal management
purposes only
Accounting method joint operator recognises:
o Share of any assets and liabilities held/incurred jointly
o Share of the expense of the JO + expenses incurred directly
o Share of income of the JO + sales earned directly
o That is, we speak of the line by line method for Jos (i.e.
proportional consolidation) para 20
Joint ventures
Separate entity usually involved (e.g. company, partnership or trust)
Corporate form is often used when limited liability is an issue as a jointly
controlled company can enter into contracts in its own name & borrowed
funds
Usually share profits of the entity but ventures can share in output (thus
we speak of a right to net assets
Joint venture entity maintains accounting records to prepare its own
financial statements
Joint venturer must apply the equity accounting method para 24
So no further discussion of JVs in this lecture

Joint operations the line by line method
Step 1
Record contributed a non-cash asset, consider whether risks of ownership have
been transferred
Step 2
Disaggregate 1 line Investment in joint operation at cost account at the end of
each reporting period by including % of revenue, operators financial statements
Step 3
Record depreciation for %, of JO assets recognised by operator in the operators
financial statements. Depreciation rate determined by each operators
accounting policies


Extract for AASB138 used in tutorial

Evaluation of the line by line method
Does the operators interest in an asset meet the definition of an asset? They
dont control the asset; only an interest in it.
Can distort the operators financial statements in subsidiaries and associates
BUT reflects the substance & economic reality of an operators interest in a JO
the agreement says that operator does have a right to the share of the assets etc