Abstract
Corporate reporting and governance are interlinked: Accounting and reporting inventions created the modern company, and without the modern company there is no entity from which to report. Due to its raison d’etre, reporting remained finance-centered, to protect financial capital providers. From the 1970’s, the question of the interests of ‘stakeholders’ emerged, with attempts of ‘social reporting’, ‘corporate social responsibility’, ‘environmental’, and ‘social and environmental’ and finally ‘integrated’ accounting and reporting. These trends are reflected also in the European Union legal framework, both in regulation of especially financial intermediaries and the ‘non-financial’ reporting. This article is based on an extensive literature review, research conducted in the Sustainable Market Actors for Responsible Trade (SMART) project, and socio-legal and economic empirical research based conceptual analysis of the impact of these reporting systems and their relationship to financial accounting and reporting. The result of the research is that sustainability is reduced to focus on institutional investors and other members in the investment supply chain, and climate change issues only, and new regulatory solutions are required. Based on the most recent developments in EU law and in European jurisdictions, possible paths forward are envisaged to encourage sustainability in reporting and assurance, and through that, in governance. As an outcome a set of regulatory reform proposals are given based on the SMART recommendations.
Highlights
Financial reporting is the cornerstone of traditional corporate infrastructure and of capitalism itself
According to Article 26 (1) of the Auditing Directive, Member States shall require statutory auditors and audit firms to carry out statutory audits in compliance with international auditing standards (defined in Article 26 (2) as International Standards on Auditing (ISA’s), International Standard on Quality Control (ISQC 1) and other related Standards issued by the International Federation of Accountants (IFAC) through the International Auditing and Assurance Standards Board (IAASB), in so far as they are relevant to the statutory audit) adopted by the Commission
The Corporate Reporting Dialogue (CRD), the International Framework does not create integrated reporting in the narrow sense, but a separate report both of existing financial reports prepared according to financial reporting standards as International Financial Reporting Standards (IFRS) and traditional sustainability reports prepared according for instance Global Reporting Initiative (GRI)
Summary
Financial reporting is the cornerstone of traditional corporate infrastructure and of capitalism itself. Social, environmental and sustainability reporting, the International Integrated Reporting Council’s [37] (IIRC) International Framework [20] is, something totally different It is not a sustainability report at all, rather, it is a market-led attempt to promote a different way of thinking about corporate success and reporting [38] Even the at the first sight the most promising attempt, ‘integrated thinking’ and ‘integrated reporting’ (for instance in South African King codes and in the International Framework), is financial capital provider centered, seeing other ‘capitals’ as humans and communities and the nature itself only as factors of production for the benefit of the financial capital providers (shareholders and other investors) These trends, compartmentalised financial reporting, social reporting and environmental reporting and the introduction of integrated reporting, have been reflected in the European Union (EU) legal framework. This is not at all sufficient to facilitate the implementation of sustainability throughout global value chains
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