International Journal of

ADVANCED AND APPLIED SCIENCES

EISSN: 2313-3724, Print ISSN: 2313-626X

Frequency: 12
line decor
  
line decor

 Volume 8, Issue 9 (September 2021), Pages: 63-74

----------------------------------------------

 Original Research Paper

 Title: Environmental sustainability disclosure and accounting conservatism

 Author(s): Cláudia Pereira, Albertina Paula Monteiro *, Francisco Barbosa, César Coutinho

 Affiliation(s):

 Porto Accounting and Business School, Porto Polytechnic Institute, Porto, Portugal

  Full Text - PDF          XML

 * Corresponding Author. 

  Corresponding author's ORCID profile: https://orcid.org/0000-0002-2146-9807

 Digital Object Identifier: 

 https://doi.org/10.21833/ijaas.2021.09.009

 Abstract:

In this article, we analyzed whether the level of accounting conservatism of a firm is affected by its environmental sustainability information disclosure. For that purpose, we developed two Environmental Disclosure Indices (EDI), one obtained from the mandatory reporting (annual report) and the other from the voluntary reporting (sustainability report), and compared the effects on conditional conservatism. Content analysis was used to develop two indices to evaluate the level of environmental disclosures. Moreover, the technique of multiple linear regression, using panel data, was applied to provide original empirical evidence for Portuguese companies listed on the stock exchange. We found evidence that higher environmental sustainability information disclosure enhances the conservative accounting practice, which is consistent with the argument that a higher level of Corporate Social Responsibility tends to increase financial statements transparency. In addition, we found that environmental information disclosed in specific and voluntary reporting has a superior impact on the level of conditional conservatism. These results showed that managers tend to engage in earnings management activities by being more accounting conservative in order to meet shareholders' expectations and disclose higher levels of environmental information. Therefore, this article brings some insights to the debate about the usefulness of accounting conservatism and the contribution of sustainability goals to monitor and guide managers’ activities. 

 © 2021 The Authors. Published by IASE.

 This is an open access article under the CC BY-NC-ND license (http://creativecommons.org/licenses/by-nc-nd/4.0/).

 Keywords: Conditional conservatism, Earnings quality, Environmental information disclosure, Corporate social responsibility, Sustainability

 Article History: Received 27 March 2021, Received in revised form 21 June 2021, Accepted 24 June 2021

 Acknowledgment 

No Acknowledgment.

 Compliance with ethical standards

 Conflict of interest: The author(s) declared no potential conflicts of interest with respect to the research, authorship, and/or publication of this article.

 Citation:

 Pereira C, Monteiro AP, and Barbosa F et al. (2021). Environmental sustainability disclosure and accounting conservatism. International Journal of Advanced and Applied Sciences, 8(9): 63-74

 Permanent Link to this page

 Figures

 No Figure 

 Tables

 Table 1 Table 2 Table 3 Table 4 Table 5 Table 6 Table 7 Table 8  

----------------------------------------------

 References (82)

  1. Akhtar S and Liu Y (2018). SMEs' use of financial statements for decision making: Evidence from Pakistan. Journal of Applied Business Research, 34(2): 381-392. https://doi.org/10.19030/jabr.v34i2.10138   [Google Scholar]
  2. Akpanuko EE and Umoren NJ (2018). The influence of creative accounting on the credibility of accounting reports. Journal of Financial Reporting and Accounting, 16(2): 292-310. https://doi.org/10.1108/JFRA-08-2016-0064   [Google Scholar]
  3. Al Momani MA and Obeidat MI (2013). The effect of auditors' ethics on their detection of creative accounting practices: A field study. International Journal of Business and Management, 8(13): 118-136. https://doi.org/10.5539/ijbm.v8n13p118   [Google Scholar]
  4. Anagnostopoulou SC, Tsekrekos AE, and Voulgaris G (2020). Accounting conservatism and corporate social responsibility. The British Accounting Review, 100942. https://doi.org/10.2139/ssrn.3677879   [Google Scholar]
  5. Badia F, Bracci E, and Tallaki M (2020). Quality and diffusion of social and sustainability reporting in Italian public utility companies. Sustainability, 12(11): 4525. https://doi.org/10.3390/su12114525   [Google Scholar]
  6. Ball R (2006). International financial reporting standards (IFRS): Pros and cons for investors. Accounting and Business Research, 36(sup1): 5-27. https://doi.org/10.1080/00014788.2006.9730040   [Google Scholar]
  7. Ball R and Shivakumar L (2005). Earnings quality in UK private firms: Comparative loss recognition timeliness. Journal of Accounting and Economics, 39(1): 83-128. https://doi.org/10.1016/j.jacceco.2004.04.001   [Google Scholar]
  8. Ball R, Kothari SP, and Nikolaev VV (2013). On estimating conditional conservatism. The Accounting Review, 88(3): 755-787. https://doi.org/10.2308/accr-50371   [Google Scholar]
  9. Barbosa F, Monteiro AP, and Pereira C (2021). Determinants of environmental responsibility disclosure on mandatory and voluntary reporting of Portuguese listed firms. Journal of Environmental Accounting and Management, 9(3): 219-233. https://doi.org/10.5890/jeam.2021.09.003   [Google Scholar]
  10. Basu S (1997). The conservatism principle and the asymmetric timeliness of earnings. Journal of Accounting and Economics, 24(1): 3-37. https://doi.org/10.1016/S0165-4101(97)00014-1   [Google Scholar]
  11. Baugh M, Ege M, and Yust CG (2020). Internal control quality and bank risk-taking and performance. Auditing: A Journal of Practice and Theory, 40(2): 49–84. https://doi.org/10.2308/AJPT-19-037   [Google Scholar]
  12. Beaver WH and Ryan SG (2000). Biases and lags in book value and their effects on the ability of the book-to-market ratio to predict book return on equity. Journal of Accounting Research, 38(1): 127-148. https://doi.org/10.2307/2672925   [Google Scholar]
  13. Besio C and Pronzini A (2014). Morality, ethics, and values outside and inside organizations: An example of the discourse on climate change. Journal of Business Ethics, 119(3): 287-300. https://doi.org/10.1007/s10551-013-1641-2   [Google Scholar]
  14. Bhasin ML (2016). Creative accounting practices: An empirical study of India. European Journal of Accounting, Finance and Business, Suceava, 4(1): 10-30.   [Google Scholar]
  15. Böcking HJ, Gros M, and Worret D (2015). Enforcement of accounting standards: How effective is the German two-tier system in detecting earnings management? Review of Managerial Science, 9(3): 431-485. https://doi.org/10.1007/s11846-014-0159-z   [Google Scholar]
  16. Boiral O, Heras-Saizarbitoria I, and Brotherton MC (2019). Assessing and improving the quality of sustainability reports: The auditors’ perspective. Journal of Business Ethics, 155(3): 703-721. https://doi.org/10.1007/s10551-017-3516-4   [Google Scholar]
  17. Bowrin AR (2018). Human resources disclosures by African and Caribbean companies. Journal of Accounting in Emerging Economies, 8(2): 244-278. https://doi.org/10.1108/JAEE-07-2016-0065   [Google Scholar]
  18. Branco C and Rodrigues LL (2005). An exploratory study of social responsibility disclosure on the internet by Portuguese listed companies. Social Responsibility Journal, 1(1/2): 81-90. https://doi.org/10.1108/eb045798   [Google Scholar]
  19. Cepêda CLM and Monteiro AP (2020). The accountant’s perception of the usefulness of financial information in decision making-a study in Portugal. Revista Brasileira de Gestão de Negócios, 22(2): 363-380. https://doi.org/10.7819/rbgn.v22i2.4050   [Google Scholar]
  20. Cerqueira A and Pereira C (2020). The effect of economic conditions on accounting conservatism under IFRS in Europe. Review of Economic Perspectives, 20(2): 137-169. https://doi.org/10.2478/revecp-2020-0007   [Google Scholar]
  21. Cho SY, Kang PK, Lee C, and Park C (2020). Financial reporting conservatism and voluntary CSR disclosure. Accounting Horizons, 34(2): 63-82. https://doi.org/10.2308/horizons-17-093   [Google Scholar]
  22. Clarkson PM, Li Y, Richardson GD, and Vasvari FP (2008). Revisiting the relation between environmental performance and environmental disclosure: An empirical analysis. Accounting, Organizations and Society, 33(4-5): 303-327. https://doi.org/10.1016/j.aos.2007.05.003   [Google Scholar]
  23. Dagiliene L, Frendzel M, Sutiene K, and Wnuk-Pel T (2020). Wise managers think about circular economy, wiser report and analyze it: Research of environmental reporting practices in EU manufacturing companies. Journal of Cleaner Production, 274: 121968. https://doi.org/10.1016/j.jclepro.2020.121968   [Google Scholar]
  24. Dalla Via N, Perego P, and Van Rinsum M (2019). How accountability type influences information search processes and decision quality. Accounting, Organizations and Society, 75: 79-91. https://doi.org/10.1016/j.aos.2018.10.001   [Google Scholar]
  25. Decreto-Lei n 89 (2017). Finanças. Diário da República [Republic Diary Gazette]. Available online at: https://dre.pt/application/conteudo/107773645
  26. Diana B and Madalina PC (2007). Is creative accounting a form of manipulation? Economic Science Series, Annals of the University of Oradea, 17(3): 935-940.   [Google Scholar]
  27. English DM and Schooley DK (2014). The evolution of sustainably reporting. The CPA Journal, 84(3): 26-35.   [Google Scholar]
  28. Eugénio T (2004). Contabilidade e gestão ambiental. Áreas Editora, Lisboa, Portugal.   [Google Scholar]
  29. Fehrenbacher DD, Kaplan SE, and Moulang C (2020). The role of accountability in reducing the impact of affective reactions on capital budgeting decisions. Management Accounting Research, 47: 100650. https://doi.org/10.1016/j.mar.2019.100650   [Google Scholar]
  30. Feleagă L, Dragomir VD, and Feleagă N (2010). National accounting culture and empirical evidence on the application of conservatism. Economic Computation and Economic Cybernetics Studies and Research, 44(3): 43-60.   [Google Scholar]
  31. Fernandez-Feijoo B, Romero S, and Ruiz S (2014). Effect of stakeholders’ pressure on transparency of sustainability reports within the GRI framework. Journal of Business Ethics, 122(1): 53-63. https://doi.org/10.1007/s10551-013-1748-5   [Google Scholar]
  32. Figueira JC, Monteiro AP, and Rua OL (2021). Earnings management practices: The certified accountant’s perspective. Portuguese Journal of Finance, Management and Accounting, 7(13): 3-26.   [Google Scholar]
  33. Fordham AE and Robinson GM (2018). Mechanisms of change: Stakeholder engagement in the Australian resource sector through CSR. Corporate Social Responsibility and Environmental Management, 25(4): 674-689. https://doi.org/10.1002/csr.1485   [Google Scholar]
  34. Francis RN, Harrast S, Mattingly J, and Olsen L (2013). The relation between accounting conservatism and corporate social performance: An empirical investigation. Business and Society Review, 118(2): 193-222. https://doi.org/10.1111/basr.12008   [Google Scholar]
  35. Gao L and Zhang JH (2015). Firms’ earnings smoothing, corporate social responsibility, and valuation. Journal of Corporate Finance, 32: 108-127. https://doi.org/10.1016/j.jcorpfin.2015.03.004   [Google Scholar]
  36. Gerged AM, Al-Haddad LM, and Al-Hajri MO (2020). Is earnings management associated with corporate environmental disclosure? Accounting Research Journal, 33(1): 167-185. https://doi.org/10.1108/ARJ-05-2018-0082   [Google Scholar]
  37. Gigler F, Kanodia C, Sapra H, and Venugopalan R (2009). Accounting conservatism and the efficiency of debt contracts. Journal of Accounting Research, 47(3): 767-797. https://doi.org/10.1111/j.1475-679X.2009.00336.x   [Google Scholar]
  38. Givoly D, Hayn CK, and Natarajan A (2007). Measuring reporting conservatism. The Accounting Review, 82(1): 65-106. https://doi.org/10.2308/accr.2007.82.1.65   [Google Scholar]
  39. Gomes SF, Eugénio T, and Castelo Branco M (2015). Sustainability reporting and assurance in Portugal. Corporate Governance, 15: 281-292. https://doi.org/10.1108/CG-07-2013-0097   [Google Scholar]
  40. Gray SJ (1988). Towards a theory of cultural influence on the development of accounting systems internationally. Abacus, 24(1): 1-15. https://doi.org/10.1111/j.1467-6281.1988.tb00200.x   [Google Scholar]
  41. Guthrie J, Petty R, and Ricceri F (2006). The voluntary reporting of intellectual capital: Comparing evidence from Hong Kong and Australia. Journal of Intellectual Capital, 7(2): 254-271. https://doi.org/10.1108/14691930610661890   [Google Scholar]
  42. Hellman D (2008). When is discrimination wrong? Harvard University Press, Cambridge, USA.   [Google Scholar]
  43. Hogarth RM (1993). Accounting for decisions and decisions for accounting. Accounting, Organizations and Society, 18(5): 407-424. https://doi.org/10.1016/0361-3682(93)90039-9   [Google Scholar]
  44. Hong S (2020). Corporate social responsibility and accounting conservatism. International Journal of Economics and Business Research, 19(1): 1-18. https://doi.org/10.1504/IJEBR.2020.10025330   [Google Scholar]
  45. Huang CL and Kung FH (2010). Drivers of environmental disclosure and stakeholder expectation: Evidence from Taiwan. Journal of Business Ethics, 96(3): 435-451. https://doi.org/10.1007/s10551-010-0476-3   [Google Scholar]
  46. IASB (2020). Speech: IASB Chair’s keynote at the IFRS foundation Virtual Conference. International Accounting Standards Board London, UK. 
  47. Jastrzębska E (2016). Reporting of non-financial information as a stakeholder engagement method. Prace Naukowe Uniwersytetu Ekonomicznego we Wrocławiu, (423): 61-78.   [Google Scholar]
  48. Jawad FA and Xia X (2015). International financial reporting standards and moral hazard of creative accounting on hedging. International Journal of Finance and Accounting, 4(1): 60-70.   [Google Scholar]
  49. Karsalari AR, Aghaee M, and Ghasemi F (2017). The effect of mandatory corporate social responsibility on accounting conservatism in Tehran stock exchange corporations. International Journal of Academic Research in Accounting, Finance and Management Sciences, 7(3): 120-125. https://doi.org/10.6007/IJARAFMS/v7-i3/3239   [Google Scholar]
  50. Khatri DK (2015). Creative accounting leading to financial scams-Evidences from India and USA. Journal of Accounting, Business and Management, 22(2): 1-10.   [Google Scholar]
  51. Kim Y, Park MS, and Wier B (2012). Is earnings quality associated with corporate social responsibility? The Accounting Review, 87(3): 761-796. https://doi.org/10.2308/accr-10209   [Google Scholar]
  52. Kurniawan M and Wibowo DH (2009). Analysis on accounting conservatism and CSR disclosures of Indonesian banks listed on IDX from 2004 to 2007. Journal of Applied Finance and Accounting, 2(1): 13-30.   [Google Scholar]
  53. Kvaal E and Nobes C (2010). International differences in IFRS policy choice: A research note. Accounting and Business Research, 40(2): 173-187. https://doi.org/10.1080/00014788.2010.9663390   [Google Scholar]
  54. Lafond R and Roychowdhury S (2008). Managerial ownership and accounting conservatism. Journal of Accounting Research, 46(1): 101-135. https://doi.org/10.1111/j.1475-679X.2008.00268.x   [Google Scholar]
  55. Langberg N and Sivaramakrishnan K (2008). Voluntary disclosures and information production by analysts. Journal of Accounting and Economics, 46(1): 78-100. https://doi.org/10.1016/j.jacceco.2007.11.004   [Google Scholar]
  56. Laudon KC and Laudon JP (2012). Management information system: Managing the digital firm. 12th Edition, Prentice-Hall, Hoboken, USA.   [Google Scholar]
  57. Lawrence A, Sloan R, and Sun Y (2013). Non-discretionary conservatism: Evidence and implications. Journal of Accounting and Economics, 56(2-3): 112-133. https://doi.org/10.1016/j.jacceco.2013.10.005   [Google Scholar]
  58. Lerner JS and Tetlock PE (1999). Accounting for the effects of accountability. Psychological Bulletin, 125(2): 255-275. https://doi.org/10.1037/0033-2909.125.2.255   [Google Scholar] PMid:10087938
  59. Li CW and Chao YY (2020). The effect of auditing assurance levels on accounting conservatism: Evidence from Taiwan. International Journal of System Assurance Engineering and Management, 11(1): 64-76. https://doi.org/10.1007/s13198-019-00925-3   [Google Scholar]
  60. Li T and Zaiats N (2017). Information environment and earnings management of dual class firms around the world. Journal of Banking and Finance, 74: 1-23. https://doi.org/10.1016/j.jbankfin.2016.09.009   [Google Scholar]
  61. Malarvizhi P and Matta R (2016). “Link between corporate environmental disclosure and firm performance”–Perception or reality? The British Accounting Review, 36(1): 107-117.   [Google Scholar]
  62. McAllister DW, Mitchell TR, and Beach LR (1979). The contingency model for the selection of decision strategies: An empirical test of the effects of significance, accountability, and reversibility. Organizational Behavior and Human Performance, 24(2): 228-244. https://doi.org/10.1016/0030-5073(79)90027-8   [Google Scholar]
  63. Monteiro AP, Aibar-Guzmán B, Garrido-Ruso M, and Aibar-Guzmán C (2021). Employee-related disclosure: A bibliometric review. Sustainability, 13(10): 5342. https://doi.org/10.3390/su13105342   [Google Scholar]
  64. Monteiro DS, Maria S, and Aibar‐Guzmán B (2010). Determinants of environmental disclosure in the annual reports of large companies operating in Portugal. Corporate Social Responsibility and Environmental Management, 17(4): 185-204. https://doi.org/10.1002/csr.197   [Google Scholar]
  65. Montenegro TM and Rodrigues LL (2020). Determinants of the attitudes of Portuguese accounting students and professionals towards earnings management. Journal of Academic Ethics, 18(3): 301-332. https://doi.org/10.1007/s10805-020-09376-z   [Google Scholar]
  66. Nobes C (2006). The survival of international differences under IFRS: Towards a research agenda. Accounting and Business Research, 36(3): 233-245. https://doi.org/10.1080/00014788.2006.9730023   [Google Scholar]
  67. Patten DM and Trompeter G (2003). Corporate responses to political costs: An examination of the relation between environmental disclosure and earnings management. Journal of Accounting and Public Policy, 22(1): 83-94. https://doi.org/10.1016/S0278-4254(02)00087-X   [Google Scholar]
  68. Pucheta‐Martínez MC, Bel‐Oms I, and Rodrigues LL (2020). Does stakeholder engagement encourage environmental reporting? The mediating role of firm performance. Business Strategy and the Environment, 29(8): 3025-3037. https://doi.org/10.1002/bse.2555   [Google Scholar]
  69. Rao KK, Tilt CA, and Lester LH (2012). Corporate governance and environmental reporting: An Australian study. Corporate Governance: The International Journal of Business in Society, 12(2): 143-163. https://doi.org/10.1108/14720701211214052   [Google Scholar]
  70. Raupp EH (2001). Desenvolvimento sustentável: A contabilidade num contexto de responsabilidade social de cidadania e de meio ambiente. In the Convenção De Contabilidade Do Rio Grande Do SuL, Anais da VIII Convenção de Contabilidade do Rio Grande do Sul, Gramado, Brazil, 1: 133-153.   [Google Scholar]
  71. Remenarić B, Kenfelja I, and Mijoč I (2018). Creative accounting-Motives, techniques and possibilities of prevention. Ekonomski Vjesnik, 31(1): 193-199.   [Google Scholar]
  72. Ribeiro VPL and Aibar-Guzman C (2010). Determinants of environmental accounting practices in local entities: Evidence from Portugal. Social Responsibility Journal, 6(3): 404-419. https://doi.org/10.1108/17471111011064771   [Google Scholar]
  73. Roberts DH and Koeplin J (2007). Sustainability reporting practices in Portugal: Greenwashing or triple bottom line? International Business & Economics Research Journal (IBER), 6(9): 29–40. https://doi.org/10.19030/iber.v6i9.3403   [Google Scholar]
  74. Roychowdhury S and Martin X (2013). Understanding discretion in conservatism: An alternative viewpoint. Journal of Accounting and Economics, 56(2-3): 134-146. https://doi.org/10.1016/j.jacceco.2013.11.001   [Google Scholar]
  75. Ruch GW and Taylor G (2015). Accounting conservatism: A review of the literature. Journal of Accounting Literature, 34: 17-38. https://doi.org/10.1016/j.acclit.2015.02.001   [Google Scholar]
  76. Salewski M and Zülch H (2014). The association between corporate social responsibility (CSR) and earnings quality–Evidence from European blue chips. HHL Working Paper Series No. 112. https://doi.org/10.2139/ssrn.2141768   [Google Scholar]
  77. Sen DK and Inanga EL (2005). Creative accounting in Bangladesh and global perspectives. In the Partners' Conference Program Book, Partners' Conference, Maastricht, Netherlands: 75-87.   [Google Scholar]
  78. Shahid M (2016). Influence of creative accounting on reliability and objectivity of financial reporting (factors responsible for adoption of creative accounting practices in Pakistan). Journal of Accounting and Finance in Emerging Economies, 2(2): 75-82. https://doi.org/10.26710/jafee.v2i2.41   [Google Scholar]
  79. Sterling RR (1967). Conservatism: The fundamental principle of valuation in traditional accounting. A Journal of Accounting Finance and Business Studies, 3(2): 109–132. https://doi.org/10.1111/j.1467-6281.1967.tb00375.x   [Google Scholar]
  80. Sun N, Salama A, Hussainey K, and Habbash M (2010). Corporate environmental disclosure, corporate governance and earnings management. Managerial Auditing Journal, 25(7): 679-700. https://doi.org/10.1108/02686901011061351   [Google Scholar]
  81. Watts RL (2003). Conservatism in accounting part I: Explanations and implications. Accounting Horizons, 17(3): 207-221. https://doi.org/10.2308/acch.2003.17.3.207   [Google Scholar]
  82. Wiseman J (1982). An evaluation of environmental disclosures made in corporate annual reports. Accounting, Organizations and Society, 7(1): 53-63. https://doi.org/10.1016/0361-3682(82)90025-3   [Google Scholar]