CHAPTER 2

REVIEW OF RELATED LITERATURE AND STUDIES
This chapter presented the related literature and studies concerning the study
that the researchers deemed important and relevant.

Foreign Literature
Currently, many policymakers lack information needed to understand the
potential environmental impacts of their decisions, and the economic implications of
changes to their environment and natural resources. In contrast, a wealth of economic
information is usually available about production and income, which policymakers use to
understand the state of the economy, monitor trends, and make projections that inform
policy debates. Similarly, environmental accounts have the potential to provide key
information that policymakers can use to understand the state of the environment, how
it is changing over time, and the consequences of various policy options.
Environmental accounting provides a framework for organizing information on the
status, use, and value of natural resources and environmental assets—including
fisheries and forest accounts, among others—as well as expenditures on environmental
protection and resource management. The latest categorization of environmental
accounts by the international community include four types of accounts— natural
resource asset accounts, pollution and material physical flow accounts, monetary and
hybrid accounts, and environmentally-adjusted macroeconomic aggregates. Importantly,

There are several advantages environmental accounting brings to business. the complete costs. business partners. Environmental accounting is an inclusive field of accounting. It provides reports for both internal use. controlling overhead and capital budgeting. disclosing environmental information of interest to the public and to the financial community. Environmental accounting is the ability to provide accurate information in the financial statements regarding the estimated social cost occasioned by the production externalities on the environment and how much deliberate intervention cost had been incurred to bridge the gap between the marginal social cost and the marginal private cost by a firm. such as consumers. including environmental remediation and long term environmental consequences and externalities can be quantified and addressed. Companies and other organizations are required to have accountability to stakeholders. notably. Economic development will be sustainable only if it is pursued in a manner which protects the environment. Rising pressures on the environment and increasing environmental consciousness have generated the need to account for the various interactions between all sectors of the economy and the environment. 2010). forest and land resources. generating environmental information to help make management decisions on pricing. Environmental reporting has been seen as a way of increasing accountability of organizations regarding environmental issues. . and that there is a need to pay greater attention to the management of water. and external use.environmental accounting provides a way to link environmental data with the economic data contained in a country’s System of National Accounts (International Organization of Supreme Audit Institutions – Working Group on Environmental Auditing Report.

i. and administration. public goods. The central objective of any environmental report has to be to communicate the company's environmental performance to the report reader. environmental reports can range from a simple public relations statement to a detailed and in-depth examination of the company's environmental performance. practices and future direction. it is deemed important to first define the different audiences. It applies to those environmental aspects that the organization . It is then consulted with key representatives of each of these target groups and identified the most important issues that they want to see presented in an environmental report. or alternatively (2) they can produce ‘specialized’ environmental reports which address all of the requirements of a specific target group. employees. (Azzone. or ‘target groups’. of an environmental report. In practice. Based on the assumption that the vast majority of existing environmental reports are unable to satisfy all of the information requirements of the target groups for which they are written. policies. 2014). the author proposed two separate reporting strategies which companies may pursue for a more effective environmental report: (1) they can produce a ‘generic report’ concentrating on the key points which all target groups accept as being of primary importance. for their business activities (Anand & Srineevasa. local residents.investors. when utilizing environmental resources. 1997) ISO 14001:2004 Environmental Management Systems specifies requirements for an environmental management system to enable an organization to develop and implement a policy and objectives which take into account legal requirements and other requirements to which the organization subscribes. From the results of study of Azzone (1997) called “A Stakeholders' View of Environmental Reporting”. and information about significant environmental aspects.e.

(International Organization for Standardization. oil. Exploration for and evaluation of mineral resources means the search for mineral resources. the nature of its activities. Using ISO 14001:2004 can provide assurance to company management and employees as well as external stakeholders that environmental impact is being measured and improved. 2004) IFRS 6 Exploration for and Evaluation of Mineral Resources. It does not itself state specific environmental performance criteria. natural gas and similar non-regenerative resources . ISO 14001:2004 is applicable to any organization that wishes to establish. The extent of the application will depend on factors such as the environmental policy of the organization. a standard that permits an entity to develop an accounting policy for recognition of exploration and evaluation expenditures as assets without specifically considering the requirements of paragraphs 11 and 12 of IAS 8 Accounting Policies. products and services and the location where and the conditions in which it functions. and to demonstrate conformity with the international standard. to assure itself of conformity with its stated environmental policy. All the requirements in ISO 14001:2004 are intended to be incorporated into any environmental management system. This includes continuing to use recognition and measurement practices that are part of those accounting policies. implement. Changes in Accounting Estimates and Errors. an entity adopting IFRS 6 may continue to use the accounting policies applied immediately before adopting the IFRS.identifies as those which it can control and those which it can influence. maintain and improve an environmental management system. including minerals. Thus.

2004). Exploration and evaluation expenditures are expenditures incurred in connection with the exploration and evaluation of mineral resources before the technical feasibility and commercial viability of extracting a mineral resource is demonstrable. An entity treats exploration and evaluation assets as a separate class of assets and make the disclosures required by either IAS 16 Property. for the cutting down of forests. We are all responsible. as well as the determination of the technical feasibility and commercial viability of extracting the mineral resource. . including its accounting policies for exploration and evaluation expenditures including the recognition of exploration and evaluation assets the amounts of assets. causing the extinction of various species. liabilities. IFRS 6 requires disclosure of information that identifies and explains the amounts recognised in its financial statements arising from the exploration for and evaluation of mineral resources. to one extent or another. Plant and Equipment or IAS 38 Intangible Assets consistent with how the assets are classified. polluting of waterways. Local Literature The Philippines today shares with other countries the formidable problem of protecting the environment and restoring and preserving a damaged and depleted earth. income and expense and operating and investing cash flows arising from the exploration for and evaluation of mineral resources (International Accounting Standards Board.after the entity has obtained legal rights to explore in a specific area.

For many business operations -. Eric Soares of the University of California at Hayward. The survey follows a format developed by Dr.Among many concerned quarters. and asks whether materials procurement. And business executives are increasingly aware of growing legal.have environmental consequences. The class project has student teams conducting an audit of the “earth-friendliness” of the production and marketing of a specific product or service. production and packaging lead to pollution and waste. These pressures imply the need for new approaches. eco-labeling. for businessmen. and ISO 14000 (the internationally recognized certification of an environmental management system). to name a few -. starting even in the elementary school levels. and weave into their teaching and curricula the analytical frameworks. and business schools should respond appropriately. the processes of production. .the use of raw materials. the final disposition of goods after consumption. regulatory and media pressures arising from the citizenry’s expectations that firms and factories should not profit at the expense of a community’s quality of life. educators have for some time been fostering environmental awareness. tools and techniques that can enhance and enlighten the business decisions that impact on our surroundings and habitat. The course covers such topics as green products and packaging. One effort along these lines is the “Green Marketing” elective offered by the Marketing Management department of De La Salle University. packaging. even a new mindset. Business educators should do no less. waste by-products and effluents.

and (3) ensure the attainment of an environmental quality that is conducive to a life of dignity and wellbeing. defensible decisions that make this planet more livable for present and future generations.academia. maintain.2015). and related questions. economic. auditing and tax implications of corporate efforts to comply with more stringent environmental standard and contribute to sustainable development.edu/1152876/The_Philippine_s_Environmental_Policy_is_enunc iated_in_Presidential_Decree_No_1151_1977_ Retrieved August 21. or undertaking planned by them. 2002) The Philippine’s Environmental Policy is enunciated in Presidential Decree No1151 (1977) which declares that it is the continuing policy of the State to: (1) create. (Manalo. . A course in environmental accounting will be a positive step in helping business firms make sound. how the product is disposed of after use. develop. and improve conditions under which man and nature can thrive in productive and enjoyable harmony with each other. and other requirements of present and future generations of Filipinos. which significantly affects the quality of the environment (https://www. which requires private establishments and government agencies to submit Environmental Impact Statements (EIS) for every action. The Decree also established the environmental impact assessment system.how long the product lasts. (2) fulfil the social. Teachers and practitioners of accounting can likewise develop electives that deal with the financial. project.

it can be argued that they have a real commitment to environmental issues. Nevertheless. . and that organizations are then willing to change their business processes and environmental strategies. despite their actions they have little awareness of the benefits that might arise from cost reductions from their environmental-friendly practices. 2008). as evidenced by a willingness to voluntarily contribute to environmental organizations (Gadenne. and how this awareness relates to actions taken within the businesses to reduce the environmental impact of their operations. However. Those influenced by their suppliers act to reduce waste. environmental groups. but do not put into place formal environmental management systems. or use environmental messages to market their goods or services. it has been reported that despite business owner/managers having strong “green” attitudes. financial institutions and suppliers. there has been rising demand for environmental-friendly business practices. researchers in the past examined how influence from various stakeholders is related to awareness of environmental issues. In order to explore the connection between pressures for improved practices and the management actions taken. However. as well as internally by employees and owner/manager attitudes and knowledge. the level of implementation of environmental-friendly practices is low. The results indicate that legislation does result in general environmental awareness. Prior research has shown that the implementation of environmental management practices is influenced by existing and potential stakeholder groups in the form of external pressures from legislators.Foreign Studies With increasing awareness of environmental issues.

which is analysts. it might be worth discussing next one of those stakeholders.Many studies have been conducted in order to investigate the reasons behind the differences in corporate social and environmental disclosure (CSED) practices throughout the world. Investigating the attitudes and behaviours of companies' managers and stakeholders towards the issue of CSED provides insights into the justification of the level and the quality of such disclosure. The impact of these determinants can be seen in the attitudes and behaviours of the two main parties in the issue of CSED. The former benefits from the latter in taking right decisions and. corporate governance. stakeholders put pressure on companies to produce such disclosure and enhance it to be more credible. and the impact of ignoring such disclosure in decisions taken by stakeholders. The level and the quality of CSED made by companies can be justified by investigating and understanding what motivates their managers and stakeholders to involve in social and environmental issues. and contextual factors are provided as influential determinants of the level and quality of CSED. as an example of how useful social and environmental disclosure is. Lastly. Firm’s characteristics. 2012). information preparers and information users. In the study “The Attitudes of Managers andStakeholders towards Corporate Social and Environmental Disclosure”. It is widely believed that stakeholders have an ability to influence firms’ practices in relation to social and environmental performance and disclosure (Elsakit & Worthington. Elsakit & Worthington (2012) concluded that there is a symbiotic relationship between stakeholders and social and environmental disclosure. at the same time. Understanding the reasons behind managers’ .

and social and environmental disclosure: evidence from China” presents an up-to-date investigation into corporate social and environmental disclosure practices within the legitimacy and stakeholder frameworks in the context of China. (Elsakit & Worthington. and auditors tested in this study. and industry classification. those firms that seek to gain or maintain the support of particular powerful stakeholders have begun to adopt a disclosure strategy. Corporate characteristics.decisions of releasing social and environmental information. are all significant factors influencing corporate social and environmental disclosure. According to stakeholder theory. Consistent with legitimacy theory. . and creditors have influenced firms’ disclosures related to their environmental performance. shareholders have influenced firms’ social and environmental disclosures. and stakeholders’ perception of the importance and usefulness of this information. those firms that are more likely to be subject to public scrutiny. such as firm size. However. such as larger firms and firms in highprofile industries. 2012) A study by Lu & Abeysekera (2014) titled “Stakeholders' power. corporate characteristics. disclosed more social and environmental information to meet the expectations of the public. is an important step to improve the practices of this kind of disclosure. The pressures from various stakeholders. profitability. along with the increase in the stakeholders’ concerns about corporate social responsibility behaviors. generally appear to be weak in China at present. The empirical results provide important insights into the influence of stakeholders’ power and corporate characteristics on corporate social and environmental disclosure practices of socially responsible Chinese listed firms. creditors. like government.

Third. However. their implementation on . The study of Lê (2011) titled “A Study on Social and Environmental Accounting. the study looks into the extent of social and environmental disclosure rather than the existence of disclosure. despite extensive efforts made regarding the choice of determinants and the development of accurate proxies for various variables. In developed countries. (Lu & Abeysekera 2014). First. Fourth. it is also acknowledged that the single-year data used for testing the relationships hypothesized in this study may restrict the generalization of findings. the Corporate Social Responsibility: Awareness. subjectivity was inevitable. a relatively small sample was used. owing to the manual collection of disclosure data and a labor-intensive latent content analysis process. China. which may limit the application of the findings to firms outside the social responsibility ranking list. findings of the study must be interpreted with considering the following limitations. Over time there are many studies about Social and Environmental Accounting that have different views and arguments on the importance to the corporate report.The study makes a contribution to the social and environmental accounting literature by expanding the scope of extant research on corporate social and environmental disclosure to the context of a developing nation. the social and environmental accounting has joined the financial report and annual report. The social and environmental issues and the impact of them on the decision making process have been increasingly given attention to the financial reporting. Second. Benefits and Problems Facing by Vietnamese Companies” has an objective of assessing the understanding of Vietnamese people on the social and environmental concept. as the sample comprised socially responsible firms engaging in social and environmental disclosure.

. they do not realize the importance and benefits of CSR. there will be a bright future for CSR to become general practices in Vietnam. a high level of awareness towards CSR may not be a factor to ensure that enterprises will fulfill their CSR obligations and requirements. Vietnamese companies are not willing to report their CSR activities. For managers. For consumers. few of Vietnamese companies is able to quantify the cost and benefits of social and environmental activities as in the financial report (Lê. The majority of consumers focus on the price of products rather than CSR when making purchasing decisions.companies in Hanoi. Although firms commit to provide high quality products and services at reasonable price as important factors in being socially responsible. customers do not have or have very limited information about CSR implementation and CSR achievement of companies. undertaken actions and show their responsibility for society. The results of a research by Hieu (2011) have provided interesting findings on two factors affecting CSR implementation and CSR reporting of enterprises in Vietnam. a large proportion of consumers mentioned that in the course of integration Vietnamese companies would change their behaviors. there are also gaps in CSR disclosure and management belief. the research results show that the awareness of Vietnamese consumers and their purchasing decisions influence significantly on the CSR implementation as well as CSR disclosure of companies. The finding uncovers that although most people understand the importance of social and environmental activities and having corporate social responsibility reports. 2011). if government pays more attention to CSR. as a result. However. although they do not have a clear attitude. Therefore. Moreover. Due to the fact that there were lack of national standards and requirements from investors and customers.

and indirectly also the direction of the economy” need to pay more attention on whether companies’ activities are responsible to society or not (Hansenand Schrader. The results of the research indicate that there is a perception gap in CSR issues between managers and customers. Local Studies A study by Aquino (2009) titled “An Evaluation of Financial and Non-Financial Environmental Disclosures of Ten Publicly-Listed Mining Companies in the Philippines” revealed that there was no uniformity in the environmental disclosures of the 10 mining companies. Moreover.Those findings have challenged for companies to solve CSR issues in which how to operate effectively to bring added-value to customers. consumers that have ability to “influence the profits of competing firms. and how to improve the attitude and awareness of customers towards CSR to gain their loyalty. If the public have strong feeling and sensitive for CSR issues. there was no mandatory requirement for companies to undergo environmental audit. It was discovered as well that there was no existing environmental disclosure is concerned. Therefore. 1997). the environmental and social scandals might be prevented. and there are no generally-accepted standards . Public positive awareness of CRS also encourages firms to act and to behave responsibly and ethically (Hieu. The positive management awareness of CSR is essential but not enough for the success of CSR implementation and practices. 2011).

It also attempted to determine as to what extent these selected firms’ level of involvement in social and environmental activities relate to financial performance. a separate social report. The first three social activities these firms were involved in are (1) the giving of donations and charitable contributions. in company newsletter and in survey to these firms. The study “The Disclosure of Social and Environmental Activities among Selected Manufacturing Firms in the Top 500 Corporations in the Philippines” aimed to determine the disclosure practices on social responsibility and environmental concern among selected firms in the Top 500 Corporations in the Philippines. The social report was called by different names. The firms’ social and environmental involvements were included in the message to stockholders or in a separate body in the annual report. In the absence of standards. The environmental activities they frequently engaged in are (1) waste . Disclosure of social and environmental activities engaged by the respondent firms is more qualitative in nature rather than quantitative. dental and healthcare to non-employees. More disclosure was shown in non-financial reports like the company website. the views of individual practitioners will have a decisive effect on the form of the audit. Disclosure was never found in the body of audited financial statements but in Notes to Financial Statements and limited only to information about the employees’ retirement benefits and employees’ stock option plan. They disclosed ten different types of social activities and five different types of environmental activities. They have the least involvement in providing sports and recreation program to outsiders or non-employees. (2) undertaking community development programs.regulating the nature of audit work. and (3) providing medical. Very little disclosure was made in the annual report.

A distinctive account title like Cost of social activities or Cost of environmental activities has to be used to highlight that these firms are engaged in said activities. Gross Revenue is the independent variable with the most explanatory power to predict social and environmental activities. the costs of doing social and environmental activities have to be disclosed and shown among the operating expenses. The firms are very much involved in social and environmental activities but they significantly differ in their involvement as shown in the pair observations of the two dependent variables. (2) environmental protection. In view of the research findings. and rehabilitation. It is also suggested to disclose the cost of doing social and environmental activities in the Statement of Cash Flows specifically among the cash flows from . and (3) environmental awareness campaign. They have the least involvement in energy conservation. This will not only quantify the social involvement of the firms. the following recommendations are given: Business firms should disclose and include social and environmental activities in the audited financial statements more particularly in the Income Statement. discussions and conclusions.management. Statement of Cash Flows and in Notes Accompanying Financial Statements. this may also place them in a competitive advantage with other firms offering the same products and services. In the income statement. Total assets as independent variable do not have any explanatory power and therefore do not influence the occurrence of social and environmental activities. preservation.

social and environmental activities as depicted in financial statements. Firms engaged in these activities may design a supplementary report depicting the social and environmental activities and call the report by a common name like Social Report. Since financial statements are the responsibility of management. and interpretation of their own findings in the present study. should be made part and parcel of the statement of management’s responsibility for financial statements. Synthesis The literature and studies reviewed and presented by the researchers in this chapter provided them with the background data which guided them in the formulation of their conceptual framework. As stated earlier.operations. it is recommended to undertake a research on social and environmental activities using a specific type of industry to determine if findings will be the same across industries (Bernados. Finally. business firms do not only have economic and legal responsibilities but social responsibilities. 2004). . The various materials provided wealth of information and better insights on the study being conducted. This will supplement the social and environmental activities that are shown in the financial statements. research design. These social and environmental activities should also be disclosed among the Notes Accompanying Financial Statements in quantitative and narrative form. too.

principles and concepts presented in literature and studies reviewed enriched the researchers’ thoughts and perspective concerning the topic.The present study is closely related to the past study presented in this chapter titled “The Disclosure of Social and Environmental Activities among Selected Manufacturing Firms in the Top 500 Corporations in the Philippines” which aimed to determine how companies disclose their environmental activities or practices in financial statements and non-financial reports. the findings and the insights provided by these materials gave this study the information it needed in the realization of the analysis. The theories. . Moreover.