1. Describe what is being studied
The study is about the accuracy of social reporting by firms in the United States with a focus on the environmental performance reported in those social reports issued by firms with their annual reports.
Specifically, the study seeks to evaluate the adequacy of environmental disclosures in social reports issued by corporate bodies in their annual reports for subjects with different backgrounds to form homogeneous perceptions of a firm’s environmental performance. The study also further seeks to examine the adequacy of environmental disclosures in annual reports of corporate bodies to objectively evaluate relative environmental performance among firms in the same industry.
2. Describe why this study is important
This study is important because by measuring objectively the accuracy and adequacy of environmental performance by companies in social reports, the companies will be effectively responding to the extensive regulations and pressure for a cleaner environment which as forced companies to take extensive and expensive pollution control actions which need to be measured and reported.
Since studies have shown that there is a positive relationship between the performances on the stock market of firms and their level of positive environmental performance from disclosures in social reports, there is need to develop an objective and accurate measure of environmental performance so that the decisions made by investors based on these reports are objective and do not rely on information which cannot be substantiated.
3. Describe ten aspects of the usefulness, appropriateness or admirableness of the research
The study was conducted with a good sample size of 33 companies. The choice of the sample size is important because it would give credence to the findings of the study and would give a higher level of confidence in the findings.
The samples of the companies chosen to conduct the study were spread over different industries and thus the findings of the study could be said to be objective to some degree of reasonableness. The companies were chosen from three industries; steel, paper and pulp and oil.
The study involved a reasonable number of respondents from different sectors related to the financial performance of companies and environmental regulation. This implies that diverse but well informed opinions would be given and thus makes the study more objective and its results more acceptable. The respondents were financial analysts, MBA students, environmental activists and environmental regulators.
The study is important because it seeks to provide an objective way of measuring environmental performance by firms and thus give investors more objective information to aid in their decision making regarding their investments.
The study is important because it seeks to provide an insight on the important role that environmental performance reporting plays in the performance of companies in the security market.
Objective conclusions based on the findings from the study are given and suggestions made on how the findings can be used by firms to improve their performance in the securities market through objective environmental performance reporting.
The study is useful since it reinforces the findings of earlier studies on the same which found out that there is no association between annual report environmental disclosures and actual environmental performance.
The study is useful since it gives an avenue for further future studies on the subject and offers insights on how future studies of the same subject can be improved.
The study is important since it provides a basis for the conducting of future studies on the subject of environmental performance reporting by companies.
4. Results
The study found out that though subjects were drawn from different areas of expertise and involvement with environmental issues, there is comparatively little difference on the evaluation of environmental performance across the subject groups.
The results indicated that the environmental performance disclosures in annual reports of companies were sufficient for annual report users from different backgrounds to reach the same conclusions about the environmental performance of a firm.
5. Ways of improving the study
Increasing the sample size of the companies used to conduct the research would greatly improve the study since there would be a more diverse choice of companies. This would mean that the confidence level of the results of the findings would be higher and the findings more objective.
Increasing the number of industries from which the companies used for the study were drawn would improve the study. This is because an increase in the industries represented would represent a more objective view of the corporate world in the findings of such a study.
The number of subjects/respondents can be increased from 128 to a higher number to improve on the study. A higher number of subjects would give a more diverse range of opinions and would be more inclusive and thus render the findings more conclusive.
Increasing the time period for conducting the study would improve it since it would ensure that the findings are not affected by a prevailing opinion on a particular issue.
The study can be improved by changing the focus from environmental performance reporting to social reporting. This would make the study better since it would cover a huge range of issues other than just environmental performance reporting.
6. Current requirements by SEC and FASB on environmental disclosure
The current requirements for environmental disclosure by the SEC and the FASB are almost similar, the major difference being in detail. While the SEC makes general requirements, the FASB makes specific requirements regarding reporting and requires more detailed disclosure.
Both require a description of the costs incurred by a company in complying with environmental law. FASB goes further and makes a requirement that the costs be given in a breakdown and in compliance with each specific law.
The SEC and the FASB also require a disclosure on the litigation costs relating to environmental law that the company may have incurred. This is important because it gives an impression on the level of compliance with environmental law by a company. The higher the litigation costs, then the higher the probability that the company is not compliant with environmental law.
A disclosure is also required of the risk factors facing a company relating to environmental issues. Any significant risks that the company may be facing and related to the environment, either to its financial performance or position, should be disclosed to enable users of the annual reports to make informed decisions.
7. Other papers on accounting and environmental issues
Wiseman (1982) conducted a similar study on the environmental performance and corporate disclosure and came up with the same results that Ingram and Frazier (1980) had reached previously on their study on the same subject. They came to the findings that there is not a significant difference in the evaluations made by subjects from diverse level of expertise regarding environmental issues on the disclosure levels of the sample companies from the environmental disclosures made in the annual reports of those companies.
In comparison with the current study, the same findings that the two studies had reached was reached by this study and the conclusions are the same despite the differences in the sample size, number of industries involved in the study and the number of subjects used to conduct the study.
References
Rockness, J. W. (1985), “An Assessment of the Relationship Between US Corporate Environmental Performance and Disclosure” Journal of Business Finance & Accounting, Volume 12, No. 3, pp. 339–354.
Ingram, R. and Frazier, K. (1980), “Environmental Performance and Corporate Disclosure” Journal of Accounting Research, (1980), pp. 614-622
Wiseman, J. (1982), “An evaluation of Environmental Disclosures made in Corporate Annual Reports” Accounting, Organization and Society (1982), pp. 53-63.
