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Good Essay 1

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bolimemorystick
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Enhancing corporate accountability

In the past, when talking about sustainability or climate change, corporations usually use
narratives to describe what actions are required. However, climate change has recently started
to have an impact on the numbers of financial statements. This can be seen as in 2017,
Munich RE reported a record loss of $140 billion on weather-related insurance. More
climate-change-related incidents are happening, which makes financial reporting an effective
tool to show how companies are affected by climate change and how their actions affect it.

Due to the popularity of the internet recently, more and more users can gain access to
financial reports from different corporations such as Shells plc, and Goldman Sachs.
Therefore, their financial report must be true and fair. The purpose of this is to provide for
recognition, measurement, presentation, and disclosure of specific aspects of financial
reporting in a way that reflects economic reality and hence that provides a true and fair view
(Financial Reporting Council, 2014). Accordingly, pressure groups or the public can apply
pressure on companies regarding their problems and force them to change. If they are not
being true and fair for example: In 2003, AIG materially falsified its financial statements
through a variety of sham transactions and entities whose purpose was to paint a falsely rosy
picture of AIG’s financial results to analysts and investors. (noteslearning.com,2022), not
only did this result in a huge penalty charge from the SEC later but it also misled the
shareholders of the company into thinking that AIG was doing well when in fact, AIG had
made a large loss of more than 2.11 billion dollars in the period covered by the financial
report. So, if the financial report is not true and fair, it is very challenging for users of the
financial report to know what is happening in the company and hold the company
accountable for what it did.

Nowadays organizations such as Tesla focus more on sustainability which is meeting the
needs of the present without compromising the ability of future generations to meet their own
needs (UN Brundtland Commission,1987). Does this conflict with our goal to enhance
corporate accountability? The answer is no. In my opinion, there are a few ways to achieve
this.

We should not completely rely on the frameworks that exist. Numbers and targets make us
forget that for the framework to ensure that we ask corporations the right questions about
their behaviour, the framework should foster doubt rather than certainties about corporate
conduct. Doubt, not prophecies, creates the space for scrutiny (Paolo, 2021). But also, with
these frameworks for example International Financial Reporting Standards are used for
financial values which tend to be numerical. However, for objectives such as sustainability,
you cannot use the same way to measure them because they tend to be objectives. This is
because different companies may have different definitions of what being sustainable means
to them. So, the way we create financial reports needs to be specific to the company because
the ambiguity of the definition can allow loopholes to happen.

Furthermore, I agree with Professor Paolo Quattrone’s work on the value-added statement for
nature. His idea of “add a line in the area of the distribution of value: a Provision for Nature,
which will constitute a related Fund for Nature in the Balance sheet” (Paolo, 2021). This
small change would not change a lot the way we calculate financial values but also offers a
chance for users of the financial reports to see how much the company is contributing to “the
only stakeholders who do not have a voice: Nature” (Paolo, 2021). Additionally, this makes
financial reporting so much more understandable to the public as well, since they do not need
extensive financial knowledge to understand and are less likely to waste their time reading
sustainability reports that companies include in their financial reports because the number is
more readily understandable.

It is crucial that financial reporting offers truth and fairness because it allows users to know
what is happening in the company. However, it should also be relevant to the organization,
rather than adhere to the framework which can be supported by what Bruno Latour describes
in the following paragraph: "A little relativism keeps us from reality; a lot brings us back."
(Latour, 1988). This can help users of the financial report to not only hold companies
accountable for their action but also see whether the company is being sustainable.

Reference:
Financial Reporting Council (2014). True and Fair. (p.3 – 6)
Available at: https://www.frc.org.uk/getattachment/f08eecd2-6e3a-46d9-a3f8-
73f82c09f624/True-and-fair-June-2014.pdf (Accessed: 25 October 2022).
United Nation Brundtland Commission (1978). Report of the World Commission on
Environment and Development: Our Common Future. (p.16)
Available at: http://www.un-documents.net/our-common-future.pdf (Accessed: 27 October
2022).
Paolo, Q. (2021). ‘Seeking transparency makes one blind: how to rethink disclosure, account
for nature and make corporations sustainable’, Emerald Insight, p.4 – 13. Available at:
https://www.emerald.com/insight/0951-3574.htm (Accessed: 25 October 2022).
Latour, B. (1988), “The politics of explanations: an alternative”, in Woolgar, S. (Ed.),
Knowledge and Reflexivity. New Frontiers in the Sociology of Knowledge, Sage
Publications, London, p. 173.
NotesLearning.com(2022). American International Group AIG Accounting Scandel.
Available at: https://noteslearning.com/american-international-group-aig-accounting-scandal
(Accessed at: 25 October 2022).

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