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'Positive accounting theory can explain the greening of financial accounting disclosure; it can not provide a framework for improving it.' Discuss

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MA in FINANCIAL REPORTING SUBJECT 'Positive accounting theory can explain the greening of financial accounting disclosure; it can not provide a framework for improving it.' Discuss with reference to the problems faced in the development of social and environmental reporting both in the UK and overseas. INTRODUCTION This assignment attempts to evaluate the Positive Accounting Theory's (PAT) ability to explain the increasing inclusion of Environmental Reporting (ER) information in the financial accounts and to search if PAT can provide a conceptual framework for the ER. So as to deal with this research, there will be presented both Watts and Zimmerman (W.Z.) job and the job of other researchers arguing about, if and how, can the PAT be related with ER. Secondly, it is going to be examined what can provide a conceptual framework for the ER. Since ER is still based on a voluntary basis and there are not yet developed standards able to provide a satisfactory framework, the answer of this question is going to be found through a survey of the related academic literature and research, the everyday practise of the companies, and the suggestions of the interested parties both in United Kingdom and overseas. ...read more.


In order to get this award those companies paid more attention to social and environmental reporting than companies who are not interested in something like that. Finally they suggest that companies susceptible to high political cost are more likely to apply for such an award than companies not susceptible to it. Milne is arguing against the PAT ability to explain the greening of financial accounting disclosure. He assumes that the main point of the PAT is the managers' willingness to use the financial reporting in order to protect their own wealth interests. Moreover, he points out that W.Z. makes only few references to social responsibility and its relationship with their main arguments. Consequently, he suggests that there can not be links between the PAT and the ER. But, with all due respect, he seems to base his arguments on a word by word examination of the PAT and he does not pay the necessary attention into the theories ability to be expanded in a related subject area. Systems theory for example, was subject of the biology studies but nowadays it is used widely by the business studies literature. Eventually, it seems that PAT can explain the increasing disclosure of environmental reporting information into the firms' annual reports. ...read more.


Even if it is not mentioned by the researchers themselves, one may assume that searching the annual reports is a de facto acceptance of the relationship between the FR explicit conceptual framework and the ER disclosure. The same assumption might be done by studying the Moneva's and Llena's research about the environmental disclosures in annual reports of large companies in Spain. Consequently, apart from the problems concerning with the elements and the verification of the ER information, it seems that Solomon's suggestion that 'the corporate financial reporting has become the implicit, de facto framework for CER' can be verified through the literature and the research work both in UK and overseas. CONCLUSION The above study had the intention to test the PAT ability to explain the greening of financial accounting disclosure and to provide a framework for improving it. Through the related literature can be suggested that PAT is able to explain the inclusion of ER information in the financial accounts due to the companies willingness to avoid high political cost. On the other hand, PAT does not look able to provide a conceptual framework for improving the ER. According to the literature and the research work about the practise, both in UK and overseas, the development of the above framework is more likely to be related with the existing conceptual framework of the FR. ...read more.

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