Financial Reporting

Financial reporting is the communication that enables users of financial statements to assess the profitability and the financial state of a company( Scott, 2009). This information is provided within an accounting framework to ensure neutrality, comparability and understandability for all users of financial statements. The key role is to reduce information asymmetry between the managers and stakeholders such as investors, creditors, governments, employees, consumers and the general public. These stakeholders are direct or indirect participants in the capital markets from where companies vie for finances in the form of equity or credit(Scott, 2009). In Canada, financial reporting is overseen by the Accounting Standards Board(ASB) whose mandate is to, “ to support informed economic decision-making by maintaining a framework that provides a basis for high quality information about financial performance,”(CICA, 2011). The questions as to whether the ASB should enact new disclosure requirements for firms to report on the environmental performance or sustainable development is fundamentally a question of whether environmental performance and sustainability have a role in economic decision making. The answer hinges on the connection between environmental performance and sustainable development having an influence on financial performance. In this paper, stakeholders to whom this information is important will be discussed, evidence that disclosure is sought and solicited will be presented as well as evidences that environmental performance and sustainability are factors in financial performance will also be discussed. Finally, the case will be made that ASB should enact new disclosure requirements in efforts.

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