Running Head: Research Proposal 1

Research Proposal

On

The Impact of Environmental Accounting on Financial Reporting

By

Date
Research Proposal 2

Table of Contents:

Proposal Overall Summary............................................................................................................................ 3

Introduction: ................................................................................................................................................. 3
Introductory: ............................................................................................................................................. 3
Purpose ..................................................................................................................................................... 4
Research Objectives: ................................................................................................................................. 4
Research Questions: ................................................................................................................................. 5
Research Hypothesis: ................................................................................................................................ 6
Significance of the Study:.......................................................................................................................... 6
Scope and Limitation of the Study: ........................................................................................................... 7
Assumptions:............................................................................................................................................. 7
Literature Review: ......................................................................................................................................... 7
Research Methodology: ................................................................................................................................ 9
Research Approach: ................................................................................................................................ 10
Population & Sampling ........................................................................................................................... 10
Sources of Secondary Data ..................................................................................................................... 11
Procedure of Collecting Data: ................................................................................................................. 11
Analysis Plan ........................................................................................................................................... 12
Results ......................................................................................................................................................... 12
References: ................................................................................................................................................. 13
Research Proposal 3

Proposal Overall Summary

The Environmental Sustainability is now one of the limelight issues for the society and

the businesses within it. The urgency of this debate can be witnessed from the fact that the long

standing champions consider this issue no more an issue for the future generations but for the

current generation as well. In the global market, there are a number of ways in which the

businesses and society can work together in order to cope with this issue and drive progress

towards the sustainable development and environmental protection. The achieving of this goal is

imperative in limited time and resources. In this research proposal, we are going to analyze the

impact that consideration of the environmental issues and environmental reporting can have on

the financial reporting of a company. This may provide opportunities for business as well as

some difficulties for the implementation of the environmental reporting in the financial reporting

perspective.

Introduction:

Introductory:

The integration of the environmental issues within the financial reporting is thus crucial

and needs to be looked into in detail from the point of view that it will not only provide

stewardship but give the users of the financial statements about the economic decisions in

context of the environmental issues impact on their assets, and liabilities, expenditure, income

and etc. The role of information in this respect is vital. The accounting information of the

companies can play a key role in this context and provide the high quality options of sustainable

development to the global businesses. Moreover, it will aid in the guidance of the various options

and their possible impact and outcomes.

Research Proposal 4

The impact of the environmental reporting on the financial reporting requirements of the

company can be very huge to very negligent. This will be analyzed in detail in this study. The

research would aid the large companies’ financial statements users who are going to make

decisive strategies about their companies in context of the business opportunities provided by the

accounting information from the integration of the environmental reporting.

Purpose

The purpose of the study is to analyze the range and nature of impact that the integration

of the environmental reporting can have on the financial reporting. The integration may lead to

innovative business opportunities or may lead to difficulties that accompany may have to cope

with in order to incorporate the environmental reporting with its periodic financial reporting.

Moreover, it may lead the companies to have a holistic approach towards risk management.

Other than this, the enhanced profitability, relationship of the company with the employees and

the customers, and reputation of the company with and without the environmental reporting

would be analyzed thoroughly. The requirement of the companies to periodically disclose

information on the environmental opportunities and risks in their financial statements would be

analyzed with its impact on the shareholders and users of the financial statements. Moreover this

study will also support the norm of use of transparency of the strategies and value drivers by the

management of the companies to improve the quality and range of information for the users of

financial information specifically the investors and participants of capital market.

Research Objectives:

The Objectives of this research would be to analyze the positive as well as the negative

impact that the environmental reporting may have on the financial reporting of companies. The

objective of the research is to analyze the possible implications of the inclusion of the
Research Proposal 5

environmental reporting on the financial reporting. The objective of the research study is to

analyze the environmental issues like the planning and assessment, water and land, emissions to

air, the disposing of the waste, and other hazardous products. Other than this, the relevant

organizations need to be aware of the implications of the environmental regulations. It is evident

that almost every business of the world has an impact on the environment of the world. As a

result, there is a wide variety of legislations and regulations covering the environmental

performance. Therefore the impact of the implementation and fulfillment of these regulations is

analyzed on the financial reporting.

Research Questions:

The Research Questions pertaining to our study can be:

 Does the incorporation of the environmental reporting within the financial reporting

provide business opportunities?

 Does the incorporation of the environmental reporting within the financial reporting

provide difficulties for the management?

 What is the impact of the environmental reporting on the financial reporting of the

companies?

 Does the incorporation of the environmental reporting within the financial reporting

provide decisive information to the investor and other users of financial information?

 What are the regulations which are to be considered by the management for the

incorporation of the environmental reporting with financial reporting?

Research Proposal 6

Research Hypothesis:

The Research hypothesis would test the relationship or the impact of the environmental

reporting on the financial reporting by evaluating whether any relationship exists among the

environmental accounting and the companies net profit margin, dividend per share, and Earnings

per share.

The Research hypothesis would test if the company net profit margin, dividend per share,

or earning per share are affected by the company adaptation of the environmental accounting.

Significance of the Study:

The importance of this study is evident from the point of view that this study would

support the norm of use of transparency of the strategies and value drivers by the management of

the companies to improve the quality and range of information for the users of financial

information specifically the investors and participants of capital market.

Other than this, the research study would highlight and bring to focus the key areas of

concern with respect to the environmental reporting. The environmental reporting where also

provides the business opportunities for the users of the financial information; it may also lead the

management to difficulties in aligning with the standardized financial reporting requirements.

Therefore, this study will give the readers about the impact whether positive or negative, of the

environmental reporting on the financial reporting of the companies. Moreover it will also

highlight the significant changes which are required in the financial reporting because of the

incorporation of the environmental reporting and accounting.

Research Proposal 7

Scope and Limitation of the Study:

The limitation of the study can be that it does not gives the company specific information

about the impact of the environmental reporting on the financial reporting. The various industries

like Oil and Gas exploration companies may have more impact on their financial reporting by the

incorporation of the environmental reporting as compared to a software house. Similarly, a

textile or leather manufacturing company would have greater environmental impact and

consequently greater environmental reporting impact on its financial reporting. This factor is not

analyzed in the study which can limit the scope of the study to a limitation of analyzing only the

general impact of the environmental reporting on the financial reporting. Moreover, the research

focuses more on the larger company’s financial reporting impact rather than small sized

companies which if studied in this respect may show that it differs in some specific implications.

Assumptions:

The research study on the impact of the environmental reporting on the financial

reporting of the companies assumes that for all companies the resultant impact would not differ

in greater respects.

Other than this, it is assumed while conducting this research that for various industries

the impact on the financial reporting of the incorporation of the environmental reporting is not

different.

Literature Review:

The literature regarding the impact of the environmental reporting on the financial

reporting includes the studies conducted in the past regarding this concept. This includes the

study of the institutes and well known organizations as well. The study of the Institute of the
Research Proposal 8

Chartered accountants in England and Wales on the impact of the environmental issues on the

financial reporting is one of the key literatures available. This study highlights the key impact of

the incorporation of the environmental issues in the financial reporting and the business

opportunities and risk management faculties that it provides in this respect. This study highlights

the implications of the impact of environmental issues in this regard for the larger companies.

However, it is mentioned in the study that it can also be considered practical enough for the

small sized companies as well. The purpose of the study is to analyze the range and nature of

impact that the integration of the environmental reporting can have on the financial reporting

(Bassey, B., Sunday, & Okon, 2013). The integration can lead to innovative business

opportunities or may lead to difficulties that a company may have to cope with in order to

incorporate the environmental reporting with its periodic financial reporting. Moreover this study

also support the norm of use of transparency of the strategies and value drivers by the

management of the companies to improve the quality and range of information for the users of

financial information specifically the investors and participants of capital market (Beredugo,

BIOBELE, & Mefor, 2012).

Moreover, it may lead the companies to have a holistic approach towards risk

management. Other than this, the enhanced profitability, relationship of the company with the

employees and the customers, and reputation of the company with and without the environmental

reporting is analyzed thoroughly in this study by ICAEW. The requirement of the companies to

periodically disclose information on the environmental opportunities and risks in their financial

statements is analyzed with its impact on the shareholders and users of the financial statements

(ICAEW, 2009).
Research Proposal 9

Other than this, the study in this area by the Audit and assurance companies like the

PricewaterhouseCoopers is also of key importance. Companies like PricewaterhouseCoopers

usually conduct internal studies for studying the implications of the various new regulations on

the financial reporting standards and its implementation for the companies. The impact of the

environmental and many other related obligations and requirements on the financial reporting of

long lived assets, or other heads of accounting information is studied in detail by

PricewaterhouseCoopers. The company has also published many internal studies reports as well.

These studies will be crucial and quite supportive in our study of the environmental reporting

impact on the financial reporting (PWC.com, 2016).

Other than this, there are various empirical studies which have been conducted by

renowned researchers to analyze the impact of the environmental reporting in various contexts

This includes the impact of this domain on the financial reporting of the companies and

ultimately on the financial performance and profitability of the firms as well. Other than this, the

reporting as per environmental obligations effect on the companies in specific geographic and

specific industries has been conducted as well (Jagongo & Makori, 2013).

These all studies would be included in the literature review of our research study and will

be quite constructive of our studies foundation.

Research Methodology:

In order to test the hypothesis of the relationship between the environmental accounting

and the profitability measures of the company reported in the financial reporting, the

methodology used for research would be using the multiple regression analysis through the

Advance Excel functions. The data of the variables used for the testing of the hypothesis would
Research Proposal 10

be regressed to analyze any impact that the environmental incorporation may have on the

company profitability measures and consequently on the companies’ financial reporting. The

variables for the testing of the hypothesis testing and research methodology would be the

profitability measures like dividend per share, earnings per share, and the net profit margin of the

companies. The annual reports of the companies would be enough to gather the data on these

variables needed to use for the regression analysis and hypothesis testing.

Research Approach:

The approach of this research is evaluative and empirical. The empirical study would

judge if any relationship exists among the variables of profitability and the environmental

reporting. For judging this relationship the environmental reporting is denoted by the amount of

the cost which is spent by the company as environmental cost for the incorporation of the

environmental reporting. The nature of the relationship of the environmental cost with the

profitability measures would show the impact of the environmental reporting as well its nature;

whether it is positive or negative. This approach would not only provide insightful information

about the nature of the impact whether the company is witnessed as profitable or increases its

shareholders value, or the cost reduces the profitability of the company making the implications

of the environmental reporting negative for the companies and their financial reporting.

Population & Sampling

The Population for this research study includes the industries of USA of for software or

Information technology company, Oil and Gas Exploration companies, leather manufacturing

companies, consumer product manufacturing company, wholesaler and retailer giants, and

pharmaceutical companies. The sample size would be determined by using an appropriate

number of companies from each of the industries. From each industry two companies
Research Proposal 11

representative of the industry context and also who have adopted the environmental reporting

would be chosen as sample for the population and used in the hypothesis testing.

Sources of Secondary Data

The companies which are listed on the stock exchanges and are publicly traded would be

used in the hypothesis testing of the impact of environmental repotting on the financial reporting

of the companies that is on their profitability measures. The data for the variables of the

environmental cost, net profit margin, and the dividend per share and the earnings per share

would be gathered from the annual and quarter reports of this companies which are periodically

published by the company as a financial reporting requirement. The company’s financial data is

published and is available on their official websites.

Procedure of Collecting Data:

The Data for this research study has been secondary data which has been retrieved from

the official websites of the companies. The annual reports of the companies have been used in

order to gather the data related to the variables like Net profit margin, environmental cost,

earnings per share, and dividend per share. These variables information is periodically published

in the annual reports as a financial reporting standard requirement fulfillment by the companies.

The variables information would be used for a same time period for all the companies used for

the hypothesis testing. For the hypothesis testing, the data for the variables will be gathered for

the companies from various industries. Like the data for software or Information technology

company, Oil and Gas Exploration companies, leather manufacturing companies, consumer

product manufacturing company, wholesaler and retailer giants, and pharmaceutical companies

would be used. The data would be gathered from their annual reports which are published

annually and quarterly as well. The companies which are listed on the stock exchanges and are
Research Proposal 12

publicly traded would be used in the hypothesis testing of the impact of environmental repotting

on the financial reporting of the companies that is on their profitability measures.

Analysis Plan

The plan for conducting the research study on evaluating the impact of the environmental

reporting on the financial reporting is through the empirical study of the various variables of

financial statements of companies which when analyzed through regression analysis would show

the relationship among these variables and their significance as well. The Data for this research

study has been secondary data which has been retrieved from the official websites of the

companies. The annual reports of the companies have been used in order to gather the data

related to the variables like Net profit margin, environmental cost, earnings per share, and

dividend per share. These variables information is periodically published in the annual reports as

a financial reporting standard requirement fulfillment by the companies. These variables would

be analyzed through the use of the statistical models. The statically models which would be used

would be the descriptive statistics model, and the regression analysis. The use of the Correlation

function can also yield effective and insightful information about the relationship of the

profitability variables with the environmental cost. Moreover the analysis would not only

identify any relationship and its significance but also its nature of relationship.

Results

The results of this research study which are expected are;

The environmental cost that is the cost of the environmental reporting, or the cost

incurred by the company on adopting of its environmental reporting has a positive relationship

with the profitability measures of companies including the net profit margin, earnings per share
Research Proposal 13

and dividend per share. This would be true if the regression analysis would result in showing

positive relationship among the variables and the environmental coat. This would be positive

only if the increase in the environmental cost would also increase the net profit margin, dividend

per share and earnings per share value. In retrospect, the negative relationship would be

considered if the increase in the environmental cost would decrease the profitability measures

that is decrease the value of the net profit margin, dividend per share, and earnings per share.

This would shows that the cost of environmental reporting is negative for the companies and

their financial reporting.

References:

Bassey, B., E., Sunday, O. E., & Okon, E. E. (2013). The Impact of Environmental Accounting
and Reporting on organizational performance of selected oil and gas companies in the
Niger Delta Region of Nigeria. Research Journal of Finance and Accounting , 57-73.

Beredugo, BIOBELE, S., & Mefor, I. P. (2012). The Impact of Environmental accounting and
Reporting on Sustainable Development in Nigeria. Research Journal of Finance and
Accounting , 55-63.

ICAEW. (2009). Environmental Issues and Annual Fiancial Reporting. Retrieved November 29,
2016, from ICAEW: https://www.icaew.com/-
/media/corporate/files/technical/sustainability/environmental-issues-and-annual-financial-
reporting-2009.ashx?la=en

Jagongo, A. O., & Makori, D. M. (2013). Environmental Accounting and Firm Profitability: An
Empirical Analysis of Selected Firms Listed in Bombay Stock Exchange, India.

PWC.com. (2016). Environmental and Other Obligations associated with long-lived Assets.
Retrieved November 29, 2016, from PWC.com: http://www.pwc.com/us/en/audit-
assurance-services/accounting-advisory/environmental-financial-reporting.html