The Transitional Change From Financial Accounting

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The Transitional Change from Financial Accounting to Environmental Accounting: Reasons and Consequences Firstly, the purpose of this assignment is to examine the evolution of environmental accounting and its main drivers, and demonstrate the effectiveness and implications of its application. It will start with a brief explanation of the primary financial accounting system and the purpose of accounting disclosures. It will also bring up the debate regarding focusing on maximizing shareholders’ wealth solely or incorporating the environmental and ethical impact of businesses on their valuations (Bainbridge, 2002; Coase, 1988). Recently, there has been increasing recognition and widespread empirical evidence of the relationship between…show more content…
It is a necessity for all organizations to maintain credibility of information disclosed, since is not only to report the value of the firm, but to provide enough information to the internal and external parties interested in assessing the firm’s performance themselves. Another line of thought on stakeholders who pursue information about business performance; a pressure has been increasing on businesses in recent years, because of the belief that businesses are part of the society. Therefore, Businesses should not take only from the society, but consider its activities’ environmental impacts as well. So, a considerable debate emerged about what should accounting actually account and to which parties a business is accountable. On one hand, there is the capitalistic perspective of focusing solely on the maximization of shareholders’ wealth. The god father of management Adam Smith (1776) was the first who pointed out that any person is supposed to act rationally in their own self-interest to maximize efficiency and value for society. Also, (Margolis and Walsh, 2003) believed that shareholders have superiority over other stakeholders and board of directors. In other words, management work towards fulfilling their main responsibility to maximize shareholders’ value (Bainbridge, 2002). To reduce costs and maximize profits in the business world, companies try to reduce its costs by
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