TRIPLE BOTTOM LINE ACCOUNTING

TRIPLE BOTTOM LINE ACCOUNTING

INTRODUCTION

Globalization has brought with it a widerealization that companies do not operate in isolation, but can have significantimpacts on the environment and people at local, national and global levels(International Forum on Globalization, 2008). For the purpose of measuring theimpact of business activities on the environment and the society, Hamilton(2001) noted that the conventional system of business and national accounts isinadequate, because it does not deal with the priceless environmental andsocial externalities, which are important in a sustainable development thusrequires an extension of the standard framework. This has led to an increasingawareness of the “triple bottom-line” of business success – measuring thebusiness not only in its financial performance, but by its social andenvironmental impact as well (Henri & Journeault, 2006).

The triple bottom line (TBL) refers to thesocial, environmental, and economic value of an investment. The concept isincreasingly salient to economic development related fields such as business,finance, planning, and real estate. Triplebottom line is an accounting framework with three parts: social,environmental (or ecological) and financial. Some organizations have adoptedthe TBL framework to evaluate their performance in a broader perspective tocreate greater business value. In traditional business accounting and commonusage, the “bottom line” refers to either the “profit” or “loss”,which is usually recorded at the very bottom line on a statement of revenue andexpenses.

OBJECTIVES OF THE STUDY

Theobjectives of this  seminar paper is toexamine the concept of triple bottom line accountings standard so as ascertainits relevant to the accounting systems of an organization and its impact on thesocial, economic and environmental effects of the firms activities on the localpeople.

SCOPE OF THE STUDY

Aspects of the Triple Bottom Line (TBL) conceptare addressed in economic development literature; however, a clear definitionof TBL economic development is lacking. Furthermore, little research has beenconducted regarding how economic development professionals view and practicethe concept. This study addresses those gaps, paving the way for moreproductive engagement with an important and timely topic. The study begins withan introduction to the TBL concept, review literatures on TBL; discuss thefindings based on the reviewed literatures and draw conclusions.

LIMITATIONS

Thisseminar paper is limited to the above stated scope because of time, lack ofavailable materials and financial implications of the research. However, the researchermakes necessary effort within his reach to ensure that the seminar paper isresearched and conducted to a reasonable conclusion.

LITERATURE REVIEW

The Triple Bottom Line Concept

The triple bottom line term was coinedin the 1990s by business consultant John Elkington to describe economic,environmental, and social value of investment that may accrue outside a firm’sfinancial bottom line (Elkington, 2004). The TBL approach aims to moreaccurately value assets and leverage resources, so that capital is employed asefficiently and effectively as possible. The concept is sometimes referred to asthe 3Ps (people, planet, profit), triple value adding (Roberts & Cohen,2002), and blended value (Emerson, 2003). Triple bottom line thinking isinformed by and relates to the concept of sustainable development—the premisethat development should occur in ways that meet the needs of current generationswhile maintaining conditions and opportunities for future generations to do thesame (World Commission on Environment and Development, 1987). Inherent in the definitionof sustainable development are concepts of environmental stewardship and inter-and intra-generational equity.

Efforts to define and address sustainabilitywere born from the recognition that existing development patterns cannot proceedwithout jeopardizing the environmental systems necessary to sustain life andeconomies, and that significant disparity within and between generations isneither sustainable, ethical, nor in tune with development goals. Triple bottomline and sustainability concepts have gained traction in fields related toeconomic development including business, planning, finance, and real estate.This is evidenced by the growing number of journals, books, professionalorganizations, certifications, and conferences addressing sustainability inrelated topics such as impact investing, responsible property investment, andcorporate responsibility. As discussed below, aspects of the TBL are addressedin economic.

According to Bernardez (2005), sustainable development isa concept, which underscores that the rate of consumption or use of naturalresources should approximate the rate at which these resources can be sustainedor replaced. It is a development process that aimed at achieving the needs ofthe present generation without depriving the future generation the ability toachieve their own needs. There are several approaches to achieving sustainabledevelopment. This paper is however concerned with the application of accountingframework in sustainable development effort. Spreckley (1981) argued thatconsidering the impacts of business activities on the environment and society,enterprises should measure and report on social, environmental and financial performanceto evaluate their contributions to sustainable development. He thereforearticulated the triple bottom line in a publication called Social Audit – AManagement Tool for Co-operative Working. The phrase “triple bottomline” was coined by John Elkington in his 1997 book Cannibals with Forks:the Triple Bottom Line of 21st Century Business (Brown, et al, 2006). A TripleBottom Line Investing group advocating and publicizing these principles wasfounded in 1998 by Robert J. Rubinstein.

Over the last decades, environmentalists andsocial justice advocates have struggled to bring a broader definition of“bottom line” into public consciousness, by introducing full costaccounting. For example, if a corporation shows a monetary profit, but theirasbestos mine causes thousands of deaths from asbestosis, and their copper minepollutes a river, and the government ends up spending taxpayer money on healthcare and river clean-up, how do we perform a full societal cost benefitanalysis? The triple bottom line adds two more “bottom lines” social andenvironmental (ecological) concerns (Magee & Scerri, 2012).

For reporting their efforts companies maydemonstrate their commitment to CSR through the following: top-levelinvolvement- CEO, Board of Directors, policy investments, programmed, signatoriesto voluntary standards, principles – UN Global Compact-Ceres Principles, and reporting– Global Reporting Initiative(Bernardez, 2005; Kaunfman, 2011 ).

Dixon (1994) identified the followingfunctions of triple bottom-line accounting: it assists corporate managers intargeting costs reduction, improving quality in reinforcing quality’ principles;reveals the firm’s financial, social and environmental assets and liabilities,hence employees are motivated to search for creative ways of reducing theliabilities; encourages changes in processes to reduce waste, resources used,recycle waste or identify markets for waste; allocates costs to the appropriateproduct, process, system or facility and thus reveals costs to  responsible manager; provides better estimatesof the true cost to the firm of producing a product and this improves pricing,thereby increasing sales and consequently profit; reassures shareholders and investorsabout the operations and performance of the company and this enables managersreduce the information gap between them and investors, thus gaining investors’confidence. This requires the firm to lower its cost of capital, raise itsstock valuation multiples, increase stock liquidity and enhance interest by institutionalinvestors; and indicates the level of business dependences on environmentalresources thereby serving as a premonition to the business on its use ofnatural resources and the impact on the society (Matthews, 1993).

Economic Development in Practice

Having defined TBL and sustainable economicdevelopment, we consider whether and how the concept has been addressed inpractice. Research regarding how economic development practitioners understandand prioritize TBL or sustainable development is sparse, though consistentlyidentifies the population as having limited engagement with sustainabilitythemes. Jepson (2003) surveyed 500 certified city planners and found that thosewho self-identify as economic developers offered slightly lower support for ecologicallyfocused sustainable development activities than planners with otherspecializations. Zeemering (2009) utilized Q methodology with 28 economicdevelopment officials in the nine-county San Francisco Bay Area and found thatparticipants do not hold a unified conceptualization of sustainability (e.g.,varying levels of emphasis on economic, environmental, and social factors) andthat prioritization of potential actions is influenced somewhat by context(e.g., whether a factor is constrained in their jurisdiction or viewed aswithin the organization’s scope of responsibility). Grodach (2011) exploredbarriers to sustainable economic development in 15 Texas cities throughdocument analysis and interviews with economic development officials. He foundthat economic development officials rarely mentioned TBL themes when asked todefine the purpose of economic development, but did mention TBL themes whenasked to identify important assets for economic development (e.g., humancapital, educated workforce, quality of life, accessibility, and regionalcollaboration).

Sustainability themes were viewed primarilyin relation to how they may negatively impact future growth and as outside theeconomic developer’s control. A competitive and reactive approach to developmentwas identified as a barrier, along with a conventional economic developmentmindset that emphasizes attention to economic growth over social equity andenvironmental protection.

DISCUSSION OF FINDINGS

Triple bottom line and sustainable economic developmentunderstand the purpose of economic development to be improved well-being andquality of life through the creation of jobs and wealth, and the process ofeconomic development to include creation, expansion, retention, andrecruitment, of jobs and businesses through a mix of techniques. Thesetechniques include, for example, business assistance, workforce development,and the cultivation of networks, infrastructure, and amenities that supportbusiness development and influence business location decisions. It adds to thisconventional view a recognition that economic development is inextricablyconnected to environmental and social factors, and that all three must beaddressed for economic development to succeed.

The research indicates that economicdevelopment professionals generally favor the consideration of economic, environmental,and social dimensions when making economic development investments, yet few doso. A number of interrelated factors may contribute to this gap. First,economic development is situated in a broader context in which understanding ofand support for TBL concepts may be limited. Research in related areas ofplanning, administration, and sustainability suggests that organizational andcommunity characteristics impeding uptake and implementation of TBL conceptsmay include insufficient capacity, a weak understanding of and support by keyorganizational and political leaders, and low socioeconomic status (Conroy, 2006;Grodach, 2011; Hammer, 2010; Hammer, Allen, &Meier, 2010; Johnson &White, 2010; Saha, 2009; Saha & Paterson, 2008; Svara, Watt, & Jang,2013; Wang, Hawkins, Lebredo, & Berman, 2012). Second, economic developmentoccurs in a highly competitive environment where much of what affects outcomesis outside the jurisdiction’s control and success is narrowly defined.Furthermore, TBL economic development may be impeded by a lack of integration andcoordination among various policies and programs, with existing programs oftenat odds with TBL principles, and trade-offs between economic, environmental,and social goals assumed to be required. Finally, TBL or sustainability principlesare not core to academic and professional accreditation for economicdevelopers, which likely translates into a lack of knowledge and skills toinfuse TBL concepts into practice. For example, accreditation as a CertifiedEconomic Developer or Accredited Economic Development Organization does notrequire any coverage or proficiency with respect to TBL or sustainabilitytheory or practice.

CONCLUSION

Pareto principle posits that a developmentprocess that makes one better off and another worse off, is not desirable. Inlight of this, a business firm that achieves its financial performance andcauses environmental degradation and social imbalance in the society where itoperates needs to be called to order for sustainable development to strive. Inthis study, it was observed that triple bottom-line accounting operationalizedas financial performance, social performance, and environmental performance,has a significant relationship with sustainable development. These findingsagree with the works of Kaufman (2011), and Dixon (1994). This study confirmedthat increase in the adoption of triple bottom-line accounting will result inabout 59% increase in sustainable development in Nigeria.

REFERENCES

Brown, D., Dillard, J., & R. S. Marshall. (2006). “Triple bottomline: A business metaphor for a social construct.” Portland, Portland StateUniversity School of Business Administration Press.

Dixon, J. (1994) “Economic analysis of environmental impact” London,Earthscan Publishers Ltd.

Hamilton, K. (2001) “Indicators of sustainable development” GenuineSavings, The World Bank; Washington.

Henri, J.F., & Journeault, M. (2006) “Environmental performanceindicators” An Empirical Study of Canadian Manufacturing Firms. Journal ofEnvironmental Management, 86, 143-149.

James, P & Scerri, A. (2010) Auditing cities through circles ofsustainability: In Amen, M., Toly, N.J., Carney, P. L., & Segbers, K. (ed)Cities and Global Governance, 111–36.

Magee, L. & Scerri, A. (2012) “From issues to indicators” A Responseto Grosskurth & Rotmans’, Local Environment, 17(8), 915-933.

Matthew, M., R. (1993) “The emergence of ecological & environmentalaccounting” socially responsible accounting. London, Chapman and Hall.

Quarter, J., & Mond, R. (2007) “Social accounting for business”non-profits & cooperatives in Crolia; Academic Research Review 8 (2),34-41.

Scerri, A. & James, P. (2010) “Accounting for sustainability” Combiningqualitative & quantitative research in developing ‘indicators’ ofsustainability”. International Journal of Social Research Methodology13:41-45.

Spreckley, F. (1981) “Social audit: A management tool for co-operativeworking” Working Paper 6.

QUANTITATIVE TECHNIQUES

QUANTITATIVE TECHNIQUES

INTRODUCTION

Quantitative Techniques are about theanalysis of quantities (measured in physical, so-called objective data). Thesetechniques are scientific in nature, their objective is to provide procedureand process that will aid or assist problem solving. These techniques beingscientific in nature are model (mathematically) – based and therefore, followvery good logical (step by step) order.

Consequently, the areas of applicationsinclude: Accounting – cash flow planning, credit policies, planning ofdelinquent accounting system; Construction – allocation ofresources to projects, determination of proper crew size, maintenance crewscheduling and project scheduling; Facilities planning – factory size andlocation, hospital panning, international logistics system; Marketing– advertising allocation, product introduction timing, selection of productmix; distribution channels; Military – general logistics andsupply; simulation; trajectory etc;

Forecasting – profit, sales volume, market shares, brandswitching, production output, etc; among various others too numerous to listhere. Furthermore, they are devoid of personal opinions or judgment.

The quantitative techniques are essentiallyhelpful supplement to judgement and intuition. These techniques evaluateplanning factors and alternative as and when they arise rather than prescribecourses of action. As such, quantitative techniques may be defined as thosetechniques which provide the decision maker with a systematic and powerfulmeans of analysis and help, based on quantitative data, in exploring policiesfor achieving pre – determined goals. These techniques are particularlyrelevant to problems of complex business enterprises.

REASONS

Quantitative techniques though are a greataid to management but still they cannot be substitute for decision making. Thechoice of criterion as to what is actually best for the business enterprise isstill that of an executive who has to fall back upon his experience andjudgement. This is so because of the several limitations of quantitativetechniques. Important limitations of these techniques are as given below:

1. Theinherent limitation concerning mathematical expressions: Quantitative techniques involve the use ofmathematical models, equations and similar other mathematical expressions.Assumptions are always incorporated in the derivation of an equation and suchan equation may be correctly used for the solution of the business problemswhen the underlying assumptions and variables in the model are present in theconcerning problem. If this caution is not given due care then there alwaysremains the possibility of wrong application of the quantitative techniques.Quite often the operations researchers have been accused of having manysolutions without being able to find problems that fit.
2. Highcosts are involved in the use of quantitative techniques: Quantitative techniques usually prove veryexpensive. Services of specialised persons are invariably called for whileusing quantitative techniques. Even in big business organisations or publicsector we can expect that quantitative techniques will continue to be oflimited use simply because they are not in many cases worth their cost. Asopposed to this a typical manager, exercising intuition and judgement, may be ableto make a decision very inexpensively. Thus, the use of quantitative techniquesis a costlier affair and this in fact constitutes a big and importantlimitation of such techniques.
3. Quantitativetechniques do not take into consideration the intangible factors i.e., nonmeasurable human factors:Quantitative techniques make no allowances for intangible factors such asskill, attitude, vigour of the management people in taking decisions but inmany instances success or failure hinges upon the consideration of suchnon-measurable intangible factors. There cannot be any magic formula forgetting an answer to management problems; much depends upon proper managerialattitudes and policies.
4. Quantitativetechniques are just the tools of analysis and not the complete decision makingprocess: It should always bekept in mind that quantitative techniques, whatsoever it may be, alone cannotmake the final decision. They are just tools and simply suggest bestalternatives but in final analysis many business decisions will involve humanelement. Thus, quantitative analysis is at best a supplement rather than, asubstitute for management; subjective judgement is likely to remain a principalapproach to decision making.

CONCLUSION

Quantitativetechniques helps in cash flow planning, credit policies, planning of delinquentaccounting system in both private and public sector, however due to itslimitations conclude that the use of quantitative techniques for decision onany capital investment in Nigeria is a waste of time since the techniques onlyhelp in analysis while the decision making is left for the managers tocarryout.

REFERENCES

• Simon, M.K., 2011. Dissertation and scholarly research: Recipes for success, Seattle, W.A.: Dissertation Success LLC.
• Younus, M.A.F., 2014. Research Methodology. In Vulnerability and Adaptation to Climate Change in Bangladesh: Processes, Assessment and Effects (Springer Theses). Springer, pp. 35–76. Available at: http://link.springer.com/10.1007/978-94-007-5494-2_2 [Accessed August 1, 2016].

CONCEPT OF CORPORATE GOVERNANCE

CONCEPTOF CORPORATE GOVERNANCE

Corporate governance is the mechanisms, processes andrelations by which corporations are controlled and directed.Governance structures and principles identify the distribution of rights andresponsibilities among different participants in the corporation (such as theboard of directors, managers, shareholders, creditors, auditors, regulators,and other stakeholders) and includes the rules and procedures for makingdecisions in corporate affairs.

Corporategovernance includes the processes through which corporations’ objectives areset and pursued in the context of the social, regulatory and marketenvironment. Governance mechanisms include monitoring the actions, policies,practices, and decisions of corporations, their agents, and affectedstakeholders. Corporate governance practices are affected by attempts to alignthe interests of stakeholders.

Corporate governancehas also been more narrowly defined as “a system of law and soundapproaches by which corporations are directed and controlled focusing on theinternal and external corporate structures with the intention of monitoring theactions of management and directors and thereby, mitigating agency risks whichmay stem from the misdeeds of corporate officers.

Corporategovernance is the acceptance by management of the inalienable rights ofshareholders as the true owners of the corporation and of their own role astrustees on behalf of the shareholders. It is about commitment to values, aboutethical business conduct and about making a distinction between personal andcorporate funds in the management of a company.”

CATEGORYOF CORPORATE GOVERNANCE

Corporate governanceis the policies and procedures a company implements to control and protect theinterests of internal and external business stakeholders. It often representsthe framework of policies and guidelines for each individual in the business.Larger organizations often use corporate governance mechanisms to manage theirbusinesses because of their size and complexity. Publicly held corporations arealso primary users of corporate governance mechanisms.

1.POLICIES AND PROCEDURES

The first typeof corporate governance is a set of policies and procedures that a corporationuses to control and protect the business interest whether they are internal orexternal. This is represented by the policies and guidelines that need to befollowed by every individual in the business. This type of corporate governanceis oftentimes utilized by large corporations. This is due to the fact thatlarge corporations are complex and this type of corporate governance is a meansof simplifying the complexities that entails having a large corporation. Inaddition to that, publicly held corporations also utilize this type ofcorporate governance.

2.BOARD OF DIRECTORS

Another type ofcorporate governance is the board of directors. The board of directors isactually a mechanism that represents the stakeholders of the company. Itprotects their interest in the business. Board of directors is actuallycomposed of the stakeholders that are elected by them. The board is tasked tomanage and or review the company’s overall performance and to removeindividuals if necessary to enhance the company’s financial performance. Theboard of directors is the means employed by the stakeholders to bridge the gapbetween them and the company owners. The existence of the board of directorswill lose its essence if a corporation or company does not have stakeholders.Board of directors may be utilized by large private organizations andcorporations.

A board ofdirectors protects the interests of a company’s shareholders. The shareholdersuse the board to bridge the gap between them and company owners, directors andmanagers. The board is often responsible for reviewing company management andremoving individuals who don’t improve the company’s overall financialperformance. Shareholders often elect individual board members at thecorporation’s annual shareholder meeting or conference. Large privateorganizations may use a board of directors, but their influence in the absenceof shareholders may diminish.

3.AUDITS:

Auditing is another type of corporate governance mechanism. Basicallyaudits are reviews of the corporation’s financial transactions. Audits ensurethat the business or corporation is in concurrence to the guidelines set by thenational accounting authorities. Audits also ensure that the regulations andother external guidelines are met by the corporation. Auditing is an integraltool in the gathering of information by the shareholders or investors or eventhe general public in their assessment of the business or corporation. Auditscan help improve the corporation’s standing n the business scene. This isbecause business will be conducted willingly by other company if the companiesthey will be doing business with have a good track record.

Audits are an independentreview of a company’s business and financial operations. These corporategovernance mechanisms ensure that businesses or organizations follow nationalaccounting standards, regulations or other external guidelines. Shareholders,investors, banks and the general public rely on this information to provide anobjective assessment of an organization. Audits also can improve anorganization’s standing in the business environment. Other companies may bemore willing to work with a company that has a strong track record ofoperations.

4.BALANCE OF POWER

The last type ofcorporate governance mechanism is the balance of power. This ensures that noone person is vested with all the controlling powers of the company. Thisdistributes the powers to the board members, the directors and theshareholders. The roles established by this balance make sure that the companyis flexible and bend with the changing times. This makes the operation of thecompany smoother and without interruptions to the normal operations of thecompany.

Balancing powerin an organization ensures that no one individual has the ability to overextendresources. Segregating duties between board members, directors, managers andother individuals ensures that each individual’s responsibility is well withinreason for the organization. Corporate governance also can separate the numberof functions that one division or department completes within an organization.Creating well-defined roles also keep the organization flexible, ensuring thatoperational changes or new hires can be made without interrupting currentoperations.

CONCLUSION

Effectivecorporate governance is essential if a business wants to set and meet itsstrategic goals. A corporate governance structure combines controls, policiesand guidelines that drive the organization toward its objectives while alsosatisfying stakeholders’ needs.

REFERENCES

Shailer, Greg. An Introductionto Corporate Governance in Australia, Pearson Education Australia, Sydney,2004.

 Luigi Zingales, 2008. “corporate governance,” The NewPalgrave Dictionary of Economics, 2nd Edition.

Williamson, Oliver E. (2002).“The Theory of the Firm as Governance Structure: From Choice toContract,” Journal of Economic Perspectives, 16(3), pp. 178–87,191–92. [Pp. 171–95.]

Pagano, Marco, and Paolo F. Volpin(2005). “The Political Economy of Corporate Governance,” AmericanEconomic Review, 95(4), pp. 1005–1030.

Williamson, Oliver E. (1988).“Corporate Finance and Corporate Governance,” Journal of Finance,43(3), pp. 567–591.