REACHING SOCIAL AND ENVIRONMENTAL ACCOUNTABILITY IN MALAYSIA

REACHING SOCIAL AND ENVIRONMENTAL ACCOUNTABILITY IN MALAYSIAABSTRACT In various organisations, social and environmental concerns may have given rise to theadvocating of social and enviro

REACHING SOCIAL AND ENVIRONMENTAL ACCOUNTABILITY IN MALAYSIA

Norhayah Zulkifli,Faculty of Business and AccountancyUniversity of Malaya, Malaysiae-mail: norhayah@um.edu.my

Brian Telford,Business SchoolUniversity of Glamorgan, Walesbtelford@glam.ac.ukProfessor Neil Marriott,Business SchoolUniversity of Glamorgan, Walesnmarriot@glam.ac.uk

REACHING SOCIAL AND ENVIRONMENTAL ACCOUNTABILITY IN MALAYSIA

ABSTRACT

In various organisations, social and environmental concerns may have given rise to theadvocating of social and environmental accounting (SEA) and reporting practices As a relativelynew form of accounting, SEA may provide the basis of knowledge for the increasingly popularapproach in companies reporting and management such as corporate social disclosure (CSD)and/or corporate social responsibility (CSR) Malaysia is inevitably experiencing a rise in itssocial and environmental problems hence adopting these approaches although still in its infancyappear to be justifiable The match or mismatch between the idea of assuming accounting andmanagement approach underlying SEA with the scenario of Malaysians’ understanding andperceptions towards the new accounting area is yet to be explored Qualitative data from fourteenin-depth interviews and responses on the open-ended questionnaire from 222 survey respondentswere obtained from among accounting educators and practitioners in Malaysia The studyprovides a qualitative overview on reaching a state of social and environmental accountability inMalaysia which consists of three aspects – positive direct determinants, indirect external driversand circumstances or accounting orientation

In the Malaysian context, observations on the awareness and understanding of social andenvironmental accounting (SEA) can be gleaned from reports on social and environmentalissues, the development of corporate social responsibility (CSR) and corporate social disclosure(CSD) as practiced by some companies Although relatively small, there has been an increase inCSD (ACCA, 2002, 2003 and 2004) and a commendable increase in participation of companies

in corporate social responsibility activities (see for instance Thevaraj, 2002; Baskin, 2005;Prathaban and Abdul Rahim, 2005) Nevertheless, the ongoing reports on the proliferation ofsocial and environmental problems by the media and the implication of companies with theseproblems indicate that a long-term solution is necessary Apart from promoting adequatereporting of social and environmental activities in companies’ annual reports, conscious embrace

of social and environmental responsibility by corporations are deemed to be critical It isforeseen that adopting SEA and reporting activities based on solid understanding and an embrace

of the concepts would provide meaningful impacts to the organisations, society and theenvironment This study aims to provide insights from accounting practitioners and accountingeducators on their perceptions of SEA and the prospect of realising the relatively new accountingarea in Malaysia, thus paving the way for the nation in reaching a state of social andenvironmental accountability

BACKGROUND AND PURPOSE

As a developing country, Malaysia is no stranger to issues of social and environmental problems

Of late, business activities have been vehemently blamed for the deterioration of rivers, forestreserves and public places The frequent flash floods in Kuala Lumpur, for example, are amanifestation of the environmental problems that the country is now experiencing Unbridledexploitation of highland areas has been identified as one of the primary causes of this misery,costing money and lives (FWWL, 2001) Similarly, many cases of mismanagement and

misappropriation of funds involving billions of dollars have been reported by the media.

Perwaja Steel, the showcase venture into heavy industry and the icon of Malaysia’sindustrialisation drive of the early 1980s, is facing a serious financial crisis and has been underinvestigation for alleged abuse of funds since 1996 (Suh and Poh, 2001)

In the first quarter of 2005, many cases of environmental degradation have hit the headlines ofmajor local dailies, causing concerns on the part of the public and the government Reports onillegal logging, hill cutting1, river pollution, marine pollution, air pollution, improper treatmentand disposal of toxic waste, deterioration of water quality, declining coral reefs, coastal erosion,over-fishing and biodiversity loss are fast becoming a norm Much discussion and fingerpointing ensue from such reports Besides the lack of coordination and enforcement of theactivities of the various agencies responsible for dealing with the environment, it is starkly clearthat there is a lack of knowledge and appreciation of the importance of environmental protectionand conservation As an example, the Fisheries Department is a fragmented and economic-driven entity that does not prioritise biodiversity conservation Hence it is more concerned withthe economic maximisation of fish catch than sustainable fishing activities (Chiew, 2005)

In other cases, some lakes and rivers are drying up due to siltation problem The largestfreshwater lake, Loagan Bunut in East Malaysia, is fast drying up due to sedimentation fromlogging and land clearing activities (Balasegaram, 2005) The problem of siltation and waterpollution are also affecting the Cameron Highlands In addition, the opening up of more land foragriculture will affect the microclimate, resulting in warmer weather (Begum and Teoh, 2005)

A study on hydropower development in the same place shows how the different phases of

development had contributed to the problems of erosion and sedimentation in the river basinsystem (Khairulmaini, 1999) In this regard, mismanagement of river resources has led toincreasing frequencies and magnitudes of environmental hazards such as floods, raped slopefailures, river bank erosion and slumping, accelerated soil erosion, and problems associated withsedimentation (Khairulmaini, 2003).

Corporate culpability in environmental issues is not uncommon It was reported recently in 2005that part of a 41ha area of permanent forest reserve in one of the states in West Malaysia is indanger of being stripped bare by illegal felling of trees In addition, the 800ha Bukit Cahaya SeriAlam Agriculture Park is turning into an “island” as surrounding areas are being developed for

housing (Sim, 2005; Loong, 2005) In the ensuing series of Sessions Court hearings, several

companies were implicated for various misdeeds Four companies pursuing developmentprojects in the agriculture park were fined a total of RM132, 000 for various environmental

violations (The Star Online News, 2005a) In East Malaysia, several wealthy land and property

development companies were found to engage in activities that resulted in wild fires and haze, a

recurrent problem plaguing the region (Then, 2005)

Improper treatment and disposal of toxic industrial waste is another concern as the countrypositions itself to be a fully developed nation by the year 2020 In June of 2004, a foodproducing company pleaded guilty in the Sessions Court to the charge of improper discharging

of toxic effluents (The Star Online News, 2005b) Another company, SynEnviro, was

investigated by the Department of Environment (DOE) for allegedly accepting scheduled waste

from overseas (Maizatul, 2005) Under the Environmental Quality Act, 1974, such offenders can

be imposed a maximum fine of RM500, 000 or jailed for five years or both (Teoh, 2005) Since

industrialisation will continue to be a significant propeller of the nation’s economic progress, theNatural Resources and Environment Ministry is planning to introduce a rating system to

encourage better management of scheduled waste by the industries producing it (The Star Online News, 2005c).

The constant exposure of environmental disasters via the media has better informed the public,the government and the affected agencies on social and environmental obligations.Consequently, there has been a rise in the number of companies engaging in some rudimentaryforms of social and environmental reporting (see Environmental Resources ManagementMalaysia, 2002; ACCA, 2004) At the same time, there is now a spate of research into the state

of such reporting by accounting scholars (refer to Teoh and Thong, 1984; Ho, 1990; Jaffar, 2002;

Muhammad et al., 2001; Thompson and Zakaria, 2004) Nevertheless, SEA requires a much

broader concept of accounting (Mathews, 1993; Gray et al., 1996), one which embraces the idea

of identifying explicitly social costs and social benefits in the decision-making process of

companies (Mobley, 1970; Churchman, 1971; Linowes, 1972) SEA transcends the traditional

boundaries of accounting (see Gambling, 1974; Estes, 1976, Gambling, 1978; Perks, 1993;

Mathews, 1993, 1995; Gray et al., 1996; Gray and Bebbington, 2001) In words more pertinent,

Seidler (1975) and, Bloom and Heymann (1986) report that the idea of social and environmentalresponsibility in accounting is partly due to an increased tendency to question the establishedorder of society as well as a growing concern with the deterioration of the environment

Malaysia is a developing country with an impressive economic growth track record during the1990s, and as indicated by the 9.8% points rise in the Malaysian quality of life index (MQLI), itsquality of life has continued to improve from 1990 to 2002 (Economic Planning Unit, Malaysia,

2005) The country is said to experience an exciting economic expansion at least around and

within the ASEAN (Association of Southeast Asian Nations)2 region (Mahmood, 2002) Thisimpressive growth is not without its pitfalls While significant strides have been made intransportation, communication and the working life, for example, two other components ofquality of life have deteriorated These are public safety and the environment (Wan Abdul

Kadir, 2005) Crime rate per thousand of population has increased from 3.8 per thousand people

in 1990 to 6.2 in 20023 The rapid increase in the number of motor vehicles, urbanisation andindustrial growth have all contributed to the deterioration in the quality of air and water Clearly,growth has its own attendant social and environmental problems To address these problems,several measures are clearly warranted On the whole appropriate implementation of accountingand reporting practices would determine the credibility of the profession in safeguarding publicinterests

Geddes (1995) stresses that the key to professional status lies in the word “human” in Abbot’sabove definition of tasks as “human problems amenable to expert service”; so that the moreimportant the problem is to individual human beings, the higher will be the status of theoccupations which offer to solve the problem Taking a cue from Abbot, Geddes implies that therise of the accountancy profession (at least in Anglo-American countries) is intrinsically linked

to the ascent of financial considerations as a human concern, just as physical well being is ahuman concern that is addressed by the medical profession This is especially true in anincreasingly secular society where being poor is no longer considered a virtue In the case ofSEA, apart from promoting the elements of subjectivity and humanities, which to some extentreduce the technical concentration of accounting, its concerns for corporate activities towards theenvironment and the society is a clear indication of its effort to solve human problems In thisregard, SEA is seen as a new form of accounting which augments the profession to the potentialstatus of an idealised profession

RESEARCH METHODS

Burrage et al., (1990) actor-based framework is adapted in the research approach, in that two

actors namely, academics and practitioners are used instead of four, as outlined in the actualframework “Although an ‘expectations gap’ between academics and practitioners in accounting

is inevitable, the long run health of the profession depends absolutely on the marrying of

academic and practitioner perspectives” (Gray et al., 2001, p 111) Burrage et al (1990)

consider accounting practitioners as one of the key actors engaged in the struggle of occupations

to establish themselves as professions However their framework involves academics (oruniversities), the clients and the state as factors that determine the form and success of theprofessionalisation process Hence in the framework, the perceptions and views of the twogroups of people recognised as accounting educators and accounting practitioners are identified

in understanding and realising the role that accounting can play pertaining to aspects of socialand environmental responsibility Their opinions and insights on the subject matter areconsidered in developing a possible accounting framework on the subject matter

Fourteen respondents took part in the in-depth interviews comprising semi-structured andunstructured questions, and 222 questionnaire survey respondents presented their views through

2 ASEAN consists of ten member countries: Indonesia, Malaysia, Philippines, Singapore, Thailand, Brunei Darussalam, Vietnam, Laos, Myanmar and Cambodia The aims of the association are to accelerate the economic growth, social progress and cultural development, and to promote regional peace and stability among countries in

six open-ended questions Both the survey and interviews were conducted in throughout June

2004 to March 2005 The theme of the interview questionnaire as shown in Table 1 revolvedaround social and environmental responsibility elements in accounting practice and discipline,SEA awareness among the respondents, and the orientation of accounting The objectives of theinterviews were similar to those of the questionnaire survey, but with the anticipation that theinterviewees would offer further insights into the research matter The interviewed educators andpractitioners were determined through convenience sampling based on their availability andwillingness The interviewees comprised seven educators and an equal number of practitionerswhile the questionnaire respondents who provided qualitative data involved 99 educators and

123 practitioners out of a total of 467 respondents of a survey also conducted for this study.Hence, apart from the interviews, this paper focuses on the input of the qualitative data provided

by the respondents on the six open-ended questions of the survey as shown in Table 2 Theresponses of practitioners and educators offer a wealth of information and reflections pertaining

to their views on the general issues surrounding social and environmental accountability, ethicsand the accounting profession It should be noted that for the open-ended questions, responsesobtained from the last two questions which are particularly open provided most of the qualitativedata In addition apart from making an attempt to seek the respondents’ insights on theirperceptions, awareness and understanding towards matters pertaining to social andenvironmental accountability, the study also relates their responses with the position ofaccounting education on social and environmental accounting However, this paper does notinclude the data involving the social and environmental accounting education aspect On thewhole it should be emphasised that also some quantitative and descriptive findings may beprovided, the research methods and analysis of this paper are qualitative by nature, hence thefindings are aimed to provide insights which may lead to an understanding into the subjectmatter of this paper

NViVO, a computer software package specialising in the analysis of qualitative data, processedthe written responses in the questionnaire, which range from nine to 229 words, together with thetranscribed interviews A number of quotations are presented as examples of the views of theeducators and the practitioners on the subjects enquired To ensure the confidentiality of therespondents, their identities are not revealed with the quotations presented in this paper.However for the interviewees, their gender, position and years of teaching or practice whichrefers to the profession of the practitioners, and qualifications are stated in Table 1 Since thenumber of survey respondents is relatively large, listing their background information in a tablewould consume too much space, hence their profile is stated at the end of each quotation Unlikethe interviewees, the vocational positions of the survey respondents are not provided The

following abbreviations are used: EI – educator interviewee; ESR - educator survey respondent;

PI – practitioner interviewee; PSR – practitioner survey respondent The number following the

abbreviations indicates the individual interviewee or survey respondent as recorded by thisresearcher

Table 1 - Interview questions for the respondents

Section 1: Background information

Section 2: Views and perceptions

Table 2- Extraction of the open-ended questions of the survey questionnaire

1 Please state any other accounting concepts/areas relating to social and environmentalaccounting that you know

2 Please state any other developments relating to social and environmental accounting andreporting that you know

3 Please state any other topics not listed in the table relating to social and environmentalaccounting that you have learnt/or intend to put into practice

4 Please specify other possible roles of social and environmental accounting and the education

5 Please state your view/s on the main issues that affect the accounting profession in Malaysiafor the past decades

6 This questionnaire may not have provided you with enough opportunity to state your views onsocial and environmental responsibility and accounting and/or education If you have any furthercomments or suggestions, please use the space provided to express your views

INFORMATION OF INTERVIEWEES

Table 3 outlines the background of the interviewees The fourteen interviewees consist of sevenaccounting educators and seven practitioners The equal number of both groups and the similardistribution between male and female are unintentional Convenience-sampling technique isutilised in determining the participants The gender, years of working experience, professionalqualifications and memberships, as well as Malaysian Institute of Accountants (MIA)memberships are presented here MIA is the regulatory accounting body in Malaysia and itprovides a data base for its registered members of chartered accountants (CA)

Table 3 - Background of interviewees

8 Male, top manager, public accountant, 25 years practice,

CPA

PI8

12 Female, technical manager, 7 years practice, B Acc, ACCA PI12

Three of the accounting educators hold a PhD qualification while another three are associatemembers of MIA None of them has any professional accounting qualification A dean of anaccounting school of a public university is among the interviewed educators and another two are

the educators are on areas relating to SEA All respondents except one are currently involved inresearch related to SEA as well as CSD The definition of accounting practitioners is, by choice,very liberal to include all persons outside the academia who are practicing accounting, whether

in a public practice, industry, commerce or the public sector (Donovan, 2005) All of thepractitioners are members of MIA and four of them hold various professional qualifications andmemberships in Chartered Institute of Management Accountants (CIMA), Association ofChartered Certified Accountants (ACCA)/ Institute of Chartered Accountants England andWales (ICAEW), Malaysian Institute of Certified Public Accountants (MICPA) and CharteredPublic Accountant (CPA) Australia The other three hold accounting degrees from Malaysianuniversities and one practitioner, who has a degree from a UK university, is a member ofICAEW and ACCA Four practitioners hold important positions in the MIA ranging frompresident to managers of departments Three other practitioners are each head of a finance andproject services department (who is also a former cost accountant), an assistant manager and anaccount executive The three of them are affiliates of two public listed companies in Malaysia

FINDINGS

It appears that for the educators, most of the responses centre mainly on the two broad enquiries:issues affecting the accounting profession in Malaysia and comments on SEA relating toaccounting orientation and the profession In contrast to the educators who had research interests

in SEA related areas, none of the practitioners is involved in any form of SEA or CSD practices

in their respective organisations Even though four of the interviewees are representatives of theMIA, the main objectives of the interviews are not to find out about SEA or CSD practices in theorganisations that they are affiliated Rather, the objectives are to elicit their awareness andperceptions on issues related to SEA It can be seen that the themes common to the practitionerspartly differ from those of the interviewed educators, reflecting the practitioners’ inclinationtowards certain issues The themes are specified as follows: awareness of and exposure to SEA;ethics and the accounting profession; functions and traits of the practitioners; issue of SEAvaluation and information worthiness, and business, government and society

In comparison, the written responses of the practitioners cover issues relating to ethics,transparency and independence of accountants Consequently, five themes are drawn up Theseare: issue of standardisation; ethics and accounting orientation, and aspects of SEA Bycombining the written and oral inputs of the practitioners, the qualitative data are analysed incategories similar to the educators but with different areas of emphasis Overall, based on theinterview feedback and the responses to the six open-ended questions, the following groupings ofthemes emerge after the due process of analysis: i) aspects of SEA; ii) accounting orientationand iii) ethical issues Figure 1 and 2 illustrates the emergence of the themes from the nodescreated by NViVO for the educators and practitioners respectively This paper does not intend tofocus on the comparison between educators’ and practitioners’ insights on the research are.However, the study sees that it would be appropriate to separate the data as they are large

Figure 1 - NViVO qualitative data sets and trees of educators

(1)

SEA aspects

Measurement/

valuation issue

(3) Ethical issues

Financial reporting issue

Accounting values Preparer

roles

Accounting change impact

Ethics education

Standardisation issue

Islamic perspective

Unethical business practices

Figure 2 - NViVO qualitative data sets and trees of practitioners

SEA

standards and

enforcement

Public interest and influence

(2) Accounting orientation

Cost control Functions/

traits practitioners

Business stewardship

Profit maximisation trait

Standardisation issue

Local standards issue

Compliance/

enforcement Legislation

(3) Ethical issues

CSR/

unethical business practices

Islamic perspectives

Ethics and SEA

(1) SEA aspects

Audit

ASPECTS OF SEA

Most of the educators interviewed are involved in some SEA related research works and thisimplies that they have a reasonably high level of knowledge and awareness of this particularaccounting area Despite this however, the issue of SEA awareness amongst the educators arestill discussed during the interviews, in addition to the subjects of ethics and Islam Thereason for doing this is to explore other perspectives that the educators may want to share onthe question of awareness Most of the responses provided by the educators on the open-ended questions are related to aspects of SEA Analysis of the data elicited from the twoinstruments provides a range of reflections from the educators and the practitioners that can

be categorised as follows: SEA awareness, financial and non-financial aspect of reporting,

and measurement and valuation issue Apart from the first two issues, the following twothemes also appear to emerge from the responses of the practitioners: information value ofSEA, and participation of business, government and society

Despite the fact that the majority of the educators are involved in some kind of SEA research

as well as CSD, they still feel that in general, the educators are not as aware of the role ofaccounting education in promoting social and environmental responsibility They alsoacknowledge that it is crucial to increase the awareness level among accounting practitionersand the professional bodies

“I am not very familiar with SEA/CSD However, I do not think there should

be any regulation on the [CSD] If one has the awareness to establish a good

environment, he/she should try to make it happen” (EI5)

“From my interactions with the accountants, they are not aware of SEA They

perceive the subject as if it is for the engineers” (EI3)

This enquiry into the level of awareness of SEA is important since it can provide valuablepointers for the development of frameworks relating to the accounting profession inMalaysia In addition, this factor can help expedite the process of incorporating elements ofsocial and environmental responsibility in Malaysia

“There is no best practice in Malaysia yet on SEA There are corporate

general statements on environmental matters and [there is the] best reporting

award for social and environmental reporting Factors involving ‘perceptions

and opinion’ are important and they can influence the implementation of

SEA” (EI4)

Several remarks are made by the respondents on the importance of creating awareness ofSEA among students Coupled with that, suggestions are also put forward on how thisawareness can be accomplished

“Students’ awareness should be increased and it has to start through practice

first In this case, mandatory requirement should be imposed and regulations

on [CSD] should be developed I think it can be encouraged through awards

given to companies’ reporting” (EI1)

In general, the educators are of the opinion that the awareness of SEA is lacking.Nevertheless, there are signs of a growing interest in and concerns for social andenvironmental responsibility among the Malaysian public and corporations (see ACCA 2002;2003; 2004), notwithstanding the fact that in the latter’s case, such interest is driven primarily

by vested business considerations (see Amran, 2006) From the comments provided by theeducator survey respondents, it is evident that they are more aware and informed of SEAcompared to the practitioners, not only concerning its underlying concepts, but alsoconcerning its development as compared to the practitioners For instance, some of themacknowledge their awareness of the ACCA environmental reporting award and the NationalAnnual Corporate Reporting Awards (NACRA) award

“Corporate governance, which is compulsory disclosure [of] matters in [the]

annual report, is showing improvement in company’s accountability towards

shareholders This will surely be shifting from shareholders’ oriented to

social public at large in the future” (ESR396, male, 1-5 years teaching, M

Acc)

“The prosecution for the infringement of an environmental law in Malaysia

that is still pending will be disclosed in the conventional financial reporting

under contingent liability It should be disclosed in the accompanying notes

to the financial statements otherwise there is no transparency in disclosing all

the financial and non-financial information” (ESR433, female, 5-10 years

teaching, M Acc)

“CSR is seen not as public relation, not as philanthropy but as mainstream to

the business justified on sound business grounds” (ESR415, male, exceed 10

years teaching, M Acc)

“Social accounting level of awareness is very low Corporation is not

transparent enough to report the actual case involving social responsibility”

(PSR3, male, 5-10 years practice, M Acc)

Practitioner response to this issue suggests that the level of awareness of and exposure toSEA among their peers is generally low

“I do not know what SEA really is but I can say that I have experienced things

related to the social and environmental aspects in dealing with business in the

manufacturing company I have not seen a manufacturing company that

really think about it and include in their product cost” (PI11)

Despite this observation, the interviewed practitioners are unanimous in their stance that it isimportant to create and enhance such awareness among them The surveyed respondents alsorecognise the efforts of the ACCA of Malaysia and other organisations in instigating theimplementation of SEA reporting and the dissemination of reporting knowledge in thebusiness community However, due to the lack of enforcement, such recognition is seldomtranslated into real actions and ends in apathy To address this, education on SEA is regarded

as necessary and can be delivered by the IHL or the professional accounting bodies

“In general, I think the accounting practitioners are aware of SEA but they donot take it into consideration in the annual report They do not have theguidelines and they thought the environmental reporting has to do with the

environmental department in the Ministry of environment” (PI10)

“I can see that some practitioners do look into SEA but it is not a major thing.They would discuss more on the normal accounting standards rather than the

environment” (PI12)

“The effort made by ACCA Malaysia in organising the inaugural ACCAMalaysia environmental reporting awards (MERA) should be praised It showsthat accountants are also concerned about environmental and not only figures

and facts” (PSR15, female, 5-10 years practice, ACCA)

“Public awareness on the need of SEA is very low It should start with students

in higher learning institutions closely monitored by professional bodies inMalaysia Malaysia is a small country compared to USA and Africa Impact onSEA may be meaningless but this issue will always be exaggerated by bigcountries Therefore, to improve Malaysian standards and be in line with ‘their’requirements, there is no harm In fact, SEA should show that we are aware and

react to it” (PSR212, female, 5-10 years practice, B Acc)

The development of accounting and its effects on the Malaysian accounting profession isamong the points of discussion in the interviews with the practitioners The main intention ofbringing this up for discussion is to explore their responses to SEA practices in Malaysia Inthis way, indirectly the extent of their exposure to SEA can be ascertained besides supportingtheir responses on the awareness issue mentioned in the previous section

For the most part of the interviews, little is said about SEA, indicating minimal or existent involvement with SEA by the practitioners However, in some instances, connectionscan be made to trace the possibility of the profession moving towards realising elements ofSEA in their practices Besides the inclination of most companies to acknowledge theirhuman assets, there seems to be some degree of sensitivity to environmental degradationproblems in the nation In fact, some of practitioners link SEA with the development ofinternational accounting standards To most of the practitioners, the current development ofthe Malaysian accounting profession is marked by the need for a more stringent form ofreporting that includes pertinent disclosures demanded by international partners

non-“As for standards, there is an international pressure, the convergence and so on.

As for SEA, whether you look at convergence of standards as a social issuebecause we are under pressure to compete with other nation so, there are going

to be the issues in this respect which will trickle down from non-compliance or

perceived non-compliance especially standard” (PI13)

“A lot more disclosures are required for example the financial instruments such

as risk management policy, the credit risk, how they manage their risk, all has

to be put in the annual reports Maybe because of Enron that they feel we needmuch more disclosure so that they cannot hide things in their accounts, maybe

that is why all these new standards are coming up” (PI12)

As far as reporting and accounting disclosure is concerned, international pressure andconcern for ethical reporting seem to dictate this development However, to a certain extent it

is also true that the issue of standards on environmental reporting come into prominencewhen IFAC disseminated its progress report on EMA

“Recently IFAC came out with something on environment, which is on EMA.Recently they [IFAC] ask us for comments I think that is one avenue talking

about environment standards” (PI12)

Another change in mindset that attracts the attention of the interviewed practitioners relates

to the interest of shareholders in considering the account for human asset development.Notwithstanding the kind of approach that individual organisations take to recognise thisitem, this concern implies that there is some awareness on the part of the companies to bemore responsible to their employees

“At least now, it seems that the shareholders are buying the idea that they should bewilling to make extra investment on the employees This requires accountingtechnique to account for the investment into asset and consequently brings values to a

company” (PI11)

Another poignant finding from the educators suggests that they view companies as having alackadaisical attitude towards non-financial matters Whether they meant this from areporting aspect or from other aspects, this perception nevertheless reflects the educators’concern on the ability and willingness of business organisations to make a paradigm shift infavour of greater social and environmental responsibility in their management

“In Malaysia, companies have been focusing solely on profits and ignore

other important aspects that contribute to their successes” (ESR312, male,

1-5 years teaching, MBA acc)

“Emphasis has been given more on the financial accounting rather than the

social aspect of it” (ESR450, female, 1-5 years teaching, M Acc)

As indicated in the questionnaire, SEA promotes three types of measurements and reporting:social welfare measurement, qualitative measurement and the provision of non-financialinformation Many written comments by the practitioners highlight concerns with theprofession’s overt focus on financial matters that precludes them from considering social andenvironmental aspects

“Accounting profession in Malaysia has been grossly dominated by financialaspects of the reporting entity as compared to reporting social and

environmental aspects of [social] changes” (PSR75, male, exceed 10 years

practice, B Acc)

“For the past decades, accounting professions have been very concerned on thetraditional view of financial accountability to shareholders In other words,performances are measured on quantitative aspects rather than taking intoaccount qualitative aspects Only recently, they are moving towards those

measures but not much emphasis has been made” (PSR22, female, exceed 10

years practice, M Comm)

There are remarks calling for the accounting profession to consider broader areas of socialand environmental matters, such as reports on customer satisfaction

“There has been too focused on financial reporting We should develop moreemphasis on non-financial reporting in terms of internal business processes andlearning as well as growth perspectives Most importantly on customer’s

perspectives, that includes customer satisfaction reports” (PSR17, male, 5-10

years practice, B Acc)

“Accountancy has traditionally emphasised quantitative performance In view

of changing needs of the economy as well as appreciation of human capital andenvironmental issues, the inclusion of environmental and social reporting is

imperative in corporate activities in Malaysia” (PSR42, male, exceed 10 years

practice, ACCA)

There are also criticisms that SEA is impractical, particularly to non-listed companies, sincethe preparation of such reports would entail additional costs However, there are alsopositive comments on the development of SEA and reporting in Malaysia among theinternational companies

“Environmental and social accounting is still new in Malaysia Malaysians aremore towards financial scope of accounting However many private companiesmerely international are now trying to keep awareness for example Shell etc.,

which strongly suggest healthy environmental alert to the public” (PSR43,

female, 1-5 years practice, ACCA)

A recurring theme that emerges from both the quantitative and qualitative study is the issue

of SEA measurement and valuation Like the interviewed practitioners, some educatorsexpress similar sentiment in their written responses

“Restricted by current accounting framework and regards anything non-monetary

items not accounting” (ESR428, male, exceed 10 years teaching, MBA acc)

“The main issue is the difficulty in measuring and recognising social and

environmental elements and its’ communication” (ESR352, female, exceed 10 years

teaching, M Acc)

Information worthiness and the measurement issue of SEA are the other two aspects of SEAthat the practitioners consider as contentious

The feedback from the practitioners reveals some degree of scepticism on the practicality of

SEA in providing appropriate measurements of social and environmental costs For instance,while certain types of environmental costs lend easily to some form of quantification andvaluation (for example, environmental waste), others, such as pollution, are not that easilymeasured Similarly, how does a company measure costs relating to the consumer? This andother questions suggest that this issue is important enough to be included as one of theelements in a SEA syllabus

“As far as environmental matters are concerned such as waste, I think there is away that we can calculate However, when it concerns consumer, I do not knowhow to measure the case I cannot think of a way to put that into a structured

margin…it depends on whether the whole industry is into it” (PI11)

Overall, environmental as opposed to social matters are regarded as the easier option tomeasure and evaluate Related to the above issue of measurement, the practitioners feel thatSEA would be able to provide meaningful information only to the extent that the reportingcompany can properly and adequately measure and quantify social and environmental costs

“Whatever that [social and environmental reporting] should be exposed to theaccounting professionals, it is more of the value of the information; the value ofthe information is important However, they must be measured and they must be

a value to it, then maybe they [accounting users] will look to it If a companyprovides only one paragraph [on environmental reporting] mentioning its

commitment, there is no value to it” (PI12)

Reflections are also made on the potential benefits accruing to companies from goodwillbecause of their willingness to disclose SEA information

“I think if a company feels that there is some value to the information, theywould accept it, with not only dollar and cents, their name, position, goodwill;

if they see that it is valuable in that sense, they would pursue it For examplethe Shell Company, they want people to see them as being environmentalfriendly, so they pursue it, they go to the extent of coming up with a specialreport BAT for example; they have separate reports on CSR They feel there is

a value to the information that they give people For others who do not value the

information, I do not think they would do it” (PI12)

In practical terms, as long as social and environmental matters can be measured andquantified, the accounting information can provide some value to a company

Apart from raising doubts on the companies’ willingness to consider reporting social andenvironmental costs, the practitioners call for a standardised approach in the quantification ofsocial and environmental matters At the present moment, much of the social andenvironmental reporting practices of the Malaysian companies are more influenced by theneed to legitimise their activities in the eyes of their international business partners Byaddressing the measurement issue and making measurement easier, the companies may beencouraged to go beyond the need to legitimise their companies and start embracing SEA as

a legitimate obligation for the betterment of the society and the environment

“The terms of social justice and environmental quality must be termedaccurately so that they can be quantified in order to measure true performance

of a company” (PSR220, female, exceed 10 years practice, B Acc)

“I would like to learn the environmental accounting concepts but I doubtwhether accounting can specifically answer social cost, what and how do wemeasure the cost and the gain? By not cutting trees for example, we forgo theeconomic development This is not the right strategy How do we measure thecost of social problems? It is a noble intention but I do not think it is practical”

(PSR211, male, 1-5 years practice, B Acc)

In discussing SEA, the practitioners feel that the involvement of the business, thegovernment and the society is inevitable In this regard, two intertwined issues emerge: SEAstandards and enforcement; and public interest and influence