Summary Current Topics In Accounting
Debate 8: The disclosure of non-financial information
Debate 1: Rules-based vs Principles-based Accounting
Debate 2: Self-regulation vs Public Oversight
Debate 3: Small and Medium-sized enterprises
Debate 4: Auditor Reporting and Fraud
Debate 5: Tax Avoicance vs Tax Evasion
Debate 6: Tax on Revenue vs Tax on income
Debtat 7: Real vs Accruals-based Earnings Management
This summary includes all the discussion questions from the presentations on various
topics. The course is heavily reading-based, and aside from the introduction and four
discussion lectures, you are responsible for preparing the topics independently. I
compiled this document using the presentations, reading materials, class discussions,
and several additional academic papers. In the exam, you will be asked two questions
on a topic of your choice and one question on two random topics. I have included my
exam questions here as well. Additionally, during the oral exam, the professor posed a
few small questions—these were literally the discussion questions—but it was more of
an engaging conversation about your views on the topic. Part of your grade is earned
during the lectures, so this document could be very useful! I chose Topic 8 for the
questions of my choice, so it may be a bit more thoroughly prepared. Good luck!
1
,Debate 8: The disclosure of non-financial information
Do firms have a social responsibility and should they be held accountable for
their social and environmental performance rather than just for their economic
performance? That is, do firms have a responsibility beyond shareholder value
maximization (i.e., towards other stakeholders)?
Yes, companies do have a social responsibility that extends beyond the narrow
confines of maximizing shareholder value. In today’s interconnected and rapidly
changing world, the role of businesses has evolved. They are increasingly expected
to consider their social and environmental impacts alongside their financial
performance. This shift reflects a broader understanding that firms must be
accountable to a diverse group of stakeholders, including employees, customers,
communities, and the environment.
Traditionally, the primary objective of a corporation was to maximize profits for its
shareholders. However, this shareholder-centric model has come under scrutiny as
the negative consequences of prioritizing profits above all else have become more
apparent. Issues such as environmental degradation, labor exploitation, and income
inequality have highlighted the need for businesses to adopt a more holistic
approach. Stakeholders are demanding greater transparency and accountability,
pushing companies to engage in practices that contribute positively to society. This
demand is not just ethical; it is increasingly tied to the survival and success of
businesses in a competitive marketplace.
The integration of Environmental, Social, and Governance (ESG) factors into
business strategies exemplifies this shift. Companies that proactively develop strong
CSR policies are better equipped to navigate regulatory changes, adapt to market
shifts, and meet evolving consumer expectations. For instance, firms that invest in
clean technologies and sustainable practices are not only reducing their
environmental footprint but also positioning themselves to comply with future
environmental regulations. This proactive approach can lead to reduced operating
costs, enhanced efficiency, and an improved reputation—benefits that contribute to
long-term value creation. These capabilities, in turn, provide a competitive
advantage, allowing firms to differentiate themselves in the marketplace. By
addressing the interests of a broader set of stakeholders, companies can build trust
and loyalty, which are crucial for long-term success.
However, the emphasis on CSR is not without its critics. Some argue that focusing on
social and environmental issues diverts resources from the core profit-making
activities of a business. From this perspective, the primary responsibility of a
company is to its shareholders, and diverting attention to CSR initiatives could
2
,undermine financial performance. Yet, this view overlooks the potential for CSR to
coexist with, and even enhance, shareholder value.
The approach to CSR also varies across regions. In Europe, firms tend to view CSR
as a fundamental aspect of corporate governance, often leading in efforts to address
social and environmental issues. In contrast, in the U.S., CSR is frequently seen as a
tool for achieving competitive advantage or mitigating risks, rather than an intrinsic
responsibility. Despite these differences, the growing importance of CSR in both
regions underscores its role as a strategic asset in the modern economy.
In conclusion, while the debate over the scope of corporate responsibility continues,
the evidence increasingly supports the view that companies have obligations that
extend beyond merely maximizing shareholder value. By embracing CSR, firms not
only contribute to a more sustainable and equitable world but also secure their own
long-term success. CSR should not be seen as a diversion of resources but rather as
a strategic investment that can yield substantial returns, both ethically and financially.
As businesses navigate the complexities of the global market, those that prioritize the
well-being of all stakeholders will be better positioned to thrive in the years ahead.
3
,Is there an inherent tension between the firm’s goals of profit and the
normative stakeholder perspective that views the goals of stakeholders as
ends in themselves (as, for example, argued by Joseph 2010)?
I don’t believe there is necessarily an inherent tension between a firm’s goals of profit
and the normative stakeholder perspective. Instead, these goals can work
synergistically, especially in the long term. The tension that does exist is more likely
between short-term profits and long-term sustainability.
While traditional profit-maximization often focuses on immediate financial returns for
shareholders, this short-term focus can sometimes conflict with the broader interests
of other stakeholders, such as employees, customers, and the environment.
However, when a firm adopts a long-term perspective, it becomes clear that the
interests of shareholders and other stakeholders can align. By considering the social
and environmental impacts of their operations, companies can create a sustainable
business model that benefits all stakeholders.
While some argue that these goals are fundamentally at odds, I believe that any
tension is not inherent but rather situational, arising primarily from short-term versus
long-term considerations.
Traditionally, the primary objective of a firm has been to maximize shareholder
wealth, a goal that often emphasizes short-term financial returns. This approach can
indeed conflict with the broader interests of other stakeholders, such as employees,
customers, communities, and the environment, particularly when decisions are driven
by the immediate bottom line. For example, cost-cutting measures that improve
short-term profitability might come at the expense of employee welfare or
environmental sustainability, creating a direct conflict between profit and stakeholder
interests.
However, when a firm adopts a long-term perspective, it becomes clear that the
interests of shareholders and other stakeholders can align. The concept of Creating
Shared Value (CSV), as introduced by Michael E. Porter and Mark R. Kramer,
supports this view. They argue that companies can generate economic value in ways
that also create societal value, thus reconciling the goals of profit and stakeholder
welfare. For instance, a company that invests in sustainable practices may incur
higher costs initially, but these investments can lead to long-term benefits such as
greater operational efficiencies, enhanced brand loyalty, and stronger supplier
relationships. These outcomes, over time, contribute to sustained profitability,
demonstrating that the goals of profit and stakeholder well-being can indeed be
synergistic.
4
,I suggest that the tension between profit maximization and stakeholder interests
arises largely because traditional models fail to account for the broader contributions
of all stakeholders to a firm’s success. By integrating stakeholder considerations into
corporate strategy, firms can create sustainable value that benefits both shareholders
and other stakeholders. In this sense, the so-called tension is more about the time
horizon and scope of business strategies rather than an inherent conflict between
profit and stakeholder interests.
Thus, the tension between profit and the normative stakeholder perspective is not
inherent but rather a reflection of the limitations of traditional profit-maximization
models. When firms broaden their focus to include long-term sustainability and the
well-being of all stakeholders, they can mitigate potential conflicts and create a
business environment where profit and social responsibility reinforce each other. The
challenge lies in shifting from a short-term, shareholder-centric mindset to a more
holistic, stakeholder-oriented approach that recognizes the interdependence of
financial success and social value.
5
,Does CSR enhances firm performance?
Yes, Corporate Social Responsibility (CSR) can enhance firm performance, but the
extent and impact of this enhancement depend on how well CSR initiatives are
integrated into the company’s overall strategy and operations. When executed
effectively, CSR can lead to numerous benefits, including a positive corporate image,
increased customer loyalty, and improved employee engagement. Additionally,
companies that proactively manage their social and environmental responsibilities
often experience reduced risks, such as those related to regulatory compliance and
reputational damage, which can further enhance their performance.
The relationship between CSR and firm performance is, however, complex and
multifaceted. Some CSR initiatives might not have an immediate or directly
measurable impact on the bottom line. The true value of CSR lies in its ability to
contribute to long-term sustainability and resilience, which, in turn, fosters a firm’s
overall success.
A key factor in the effectiveness of CSR is how well it is integrated into the company’s
strategic objectives and core values. CSR initiatives that are closely aligned with the
company’s mission and operations tend to be more impactful. For example,
Unilever’s commitment to sustainable procurement not only reduces environmental
impact but also strengthens its supply chains, making them more reliable and
efficient.
Research supports the notion that CSR practices enhance profitability, particularly
when they are part of a coherent strategy rather than isolated initiatives. Studies
suggest that CSR can improve relationships with key stakeholders, such as
customers, employees, and investors. Moreover, when CSR is combined with other
strategic initiatives, such as research and development, it can further drive
sustainable financial growth.
However, it is crucial to note that CSR efforts need to be authentic and genuinely
aligned with a company’s core business strategy to have a meaningful impact on firm
performance. CSR initiatives that are perceived as insincere or superficial—often
referred to as “greenwashing”—can backfire, leading to skepticism from stakeholders
and potentially harming the company’s reputation. Therefore, the success of CSR is
not just about the initiatives themselves but also about how they are perceived and
how deeply they are embedded in the company’s values and operations.
In conclusion, while CSR can indeed enhance firm performance, its effectiveness
hinges on strategic alignment and genuine commitment. Companies that integrate
CSR into their core business strategy and align it with stakeholder expectations are
more likely to see tangible benefits, including improved financial performance.
Conversely, CSR efforts that are disconnected from a company’s business goals or
perceived as insincere may fail to deliver the desired outcomes.
6
,How does CSR relate to other managerial practices?
CSR is deeply intertwined with other managerial practices, especially in areas such
as risk management, corporate governance, and strategic planning. The paper
highlights that CSR should not be treated as an isolated or secondary activity but
rather as a fundamental component of a firm’s overall management framework. By
embedding CSR into the core of managerial practices, companies can ensure that
social and environmental considerations are integrated into decision-making
processes at all organizational levels.
For CSR to be effective, it must be supported by robust management systems that
monitor and report on sustainability metrics, align with industry-specific KPIs, and
contribute to the company’s long-term strategic objectives. Moreover, CSR can
enhance other managerial practices by increasing transparency, strengthening
stakeholder engagement, and fostering ethical behavior throughout the organization.
This approach positions CSR as a catalyst for innovation, efficiency, and competitive
advantage, rather than merely a tool for compliance or public relations.
To be truly effective, CSR should be integrated into the company’s core strategies
and operations, rather than being viewed as a standalone initiative or a public
relations strategy. It should be closely connected with risk management, innovation,
and strategic planning. Furthermore, CSR should not be driven solely by external
pressures; instead, the company should be intrinsically motivated to contribute to
societal goals. Achieving this requires a cultural shift within the organization, with
leadership and engagement at all levels playing a critical role. In conclusion, CSR is
intrinsically linked to other managerial practices, and its success depends on how
well it is integrated into the company’s overall management framework.
7
,Are more rules with respect to CSR reporting desirable?
Yes, more rules regarding CSR reporting are not only desirable but increasingly
necessary. The current landscape, dominated by voluntary CSR reporting, while
progressive, has notable limitations that undermine its effectiveness in offering
stakeholders a clear, consistent, and comparable view of a company’s sustainability
performance.
Implementing more robust rules around CSR reporting would address these issues
by standardizing the reporting process, ensuring that companies provide
comprehensive, consistent, and comparable data. Such standardization is crucial for
enhancing transparency and accountability, enabling stakeholders to make informed
decisions based on reliable and uniform information. Furthermore, standardized
reporting rules would reduce the risk of “greenwashing,” where companies highlight
their positive contributions while conveniently omitting less favorable aspects of their
operations.
Moreover, clear and consistent CSR reporting rules would help foster a culture of
accountability within companies. When firms are required to adhere to specific
reporting standards, they are more likely to take their social and environmental
responsibilities seriously, understanding that their performance will be scrutinized and
compared against that of their peers.
Furthermore, clearer reporting standards would provide companies, especially SMEs,
with a framework to improve their CSR activities and align them with industry
standards. This would not only enhance transparency but also help companies focus
their efforts, ensuring that CSR initiatives are goal-driven and aligned with broader
business strategies. In this way, CSR reporting becomes more than just a compliance
activity; it becomes a tool for continuous improvement and strategic alignment.
Additionally, the success of such rules hinges on how well the standards are
implemented and enforced. Rules must be accompanied by robust monitoring
mechanisms to ensure that companies do not merely tick boxes but genuinely
improve their social and environmental impacts.
In conclusion, more rules regarding CSR reporting are indeed desirable to ensure
transparency, accountability, and comparability in corporate sustainability practices.
But I want to end by saying that a principles-based approach rather than rigid, rule-
based standards are more suited. Many in the accounting profession argue that CSR
activities are too diverse to be captured by a single set of rules, and that a more
flexible approach allows companies to report in a way that best reflects their unique
circumstances and challenges across different industries and regions, and that
companies should have the flexibility to tailor their reporting to their specific context.
So in the initial question not rules in the litteral way, but standards, principles,
guidelines and a more universal framework is desirable.
8
,Who would benefit from more rules?
Several groups would benefit from more rules on CSR reporting:
• Investors: They would gain access to standardized and comparable sustainability
data, enabling them to make more informed investment decisions.
• Regulators: Enhanced transparency would make it easier for regulators to ensure
that companies are complying with relevant laws and guidelines.
• Consumers: Consumers could make better-informed choices based on reliable
information about a company’s sustainability practices.
• Communities and NGOs: These groups could better hold companies accountable
for their social and environmental impacts, leading to more responsible corporate
behavior.
Who should issue such rules and/or set standards for CSR reporting?
Standards for CSR reporting should be issued by recognized regulatory bodies or
international organizations with expertise in sustainability and corporate governance.
Possible bodies include:
• Securities and Exchange Commission (SEC): In the United States, the SEC could
mandate and enforce CSR reporting standards as part of its oversight of public
companies.
• Global Reporting Initiative (GRI): This international organization could continue to
develop and promote global standards for sustainability reporting.
• International Financial Reporting Standards (IFRS) Foundation: Through the
creation of a Sustainability Standards Board, the IFRS Foundation could establish
globally recognized standards for CSR reporting.
9
, Should CSR reporting be mandatory?
While more rules are desirable, CSR reporting should not necessarily be mandatory
for all companies. The effectiveness of CSR reporting lies not just in the act of
reporting but in the genuine integration of sustainability into business practices.
Making CSR reporting mandatory risks reducing the exercise to a mere compliance
activity, where companies focus on ticking boxes rather than driving real change. The
danger is that mandatory reporting could lead to superficial disclosures that meet the
minimum requirements but do not reflect a company’s true commitment to
sustainability.
Mandatory reporting could also impose significant burdens on smaller companies,
which may lack the resources to comply with complex reporting standards. This could
create an uneven playing field, where larger companies with more resources are
better able to meet reporting requirements, while smaller firms struggle to keep up.
A more flexible approach that encourages voluntary reporting while providing strong
incentives, and a standardised framework for companies to disclose meaningful
information could be more effective. This approach allows companies to tailor their
reporting to their specific circumstances, leading to more genuine and impactful CSR
practices and do not simply report for the sake of compliance but are genuinely
committed to improving their sustainability performance.
In conclusion, while more rules around CSR reporting are indeed desirable to
improve transparency and comparability, making such reporting mandatory across
the board may not be the best approach. A combination of standardized rules, strong
incentives for voluntary reporting, and a focus on meaningful disclosures could strike
the right balance, encouraging companies to integrate sustainability into their core
strategies without imposing undue burdens on smaller firms. This balanced approach
would foster a culture of accountability and transparency, leading to better long-term
outcomes for companies and stakeholders alike.
10
