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Cunningham M. Gary
Jönköping International Business School Jönköping, Sweden
Arne Fagerström
Jönköping International Business School Jönköping Sweden
Lars G. Hassel
Åbo Akademi University Åbo, Finland

Abstract: This working paper responds to increasing calls for more and different forms of
accounting research involvement in accounting for sustainability. It seeks to provide background,
clarify the accounting research issues, and suggest research methods. The background analysis
indicates that accounting for sustainability must go beyond supplemental reporting of ecological
and social information to include such emerging issues as integrated reporting of sustainability
information along with financial reporting. Additional emerging issues are needs of users of
sustainability reports, auditing and other assurance of sustainability information, and sustainability
implications of financial failure, accounting and auditing failures, and lack of enforcement.
Analysis of integrated reporting against traditional financial accounting theory concepts of the
purpose of financial reporting and the postulates of going concern, reporting entity, monetary unit,
and time period, indicates a need for substantial changes in the traditional financial accounting
model if sustainability issues are to be integrated. The agenda concludes with five research issues
and methods:
- An accounting research framework for sustainability using general systems theory
approaches that have been useful for similar emerging issues.
- Reporting of sustainability information which has been the focus of most research to date,
and the emerging important topic of integrated reporting.
- Users of sustainable information, their uses and perceived needs, an area that has been
largely neglected in research to date.
- Auditing and assurance issues that are taking on greater importance as more users
demand assurance for sustainability information. Issues include standards to be used and
users’ expectations and reactions.
- Financial distress and sustainability consequences of accounting and enforcement
failures that are just now being recognized as sustainability issues.

Keywords: accounting for sustainability, integrated reporting, needs of users, audit, assurance
JEL codes: M41, O16, M42

1. Introduction person as well off at the end of the period as

In recent months, calls for more accounting at the beginning of the period. Our working
involvement in sustainability issues have notion of sustainability is that a sustainable
become stronger, more frequent, and more entity is one that is as well off at the end of a
urgent. As discussed below, though, there is period as at the beginning with respect to use
no common notion of sustainability, of all resources: e.g. environmental, human,
especially in an accounting context. For this ecological, social, financial, and
research agenda, we tentatively, as a starting technological.
point, draw upon the classic economist Sir Much of the previous research has used the
John Hicks who developed the concept of definition of sustainability developed by
consumption being what would leave a Buntland (1987) over 25 years ago for the

World Commission of Environment and more involved soon, some other groups
Development of the United Nations. would.
Buntland’s definition focuses on sustainable Thomas L. Friedman, a New York Times
development ensuring that it meets current columnist and award-winning author, in his
needs without sacrificing needs of future recent book on sustainability, Hot Flat and
generations (quoted and cited by Kasperiet, Crowded, Release 2.0 (2009), has explicitly
2011). Buntdland’s definition while used accounting terminology (discussed in
innovative and ground-breaking for the time, more detail below) to describe inadequacies
can be seen as somewhat obsolete for the of current accounting practice for
current era of research into accounting for sustainability. Major international business-
sustainability. Among other things, it focuses oriented newspapers write about essentially
on external sustainability, i.e. sustainability of the same issues. Dedicated research in
ecological and social systems, while the sustainable investing has been ongoing for
current focus of research into accounting for some five years. Notably, the Sustainability
sustainability is on sustainability of an entity, Investment Research Platform (SIRP)
usually sustainability. As the research agenda (www.sirp.se) in Sweden has been a world
progresses, especially with the development leader in such research. It is now recognized
of a research framework, a more by SIRP and others that accounting for
comprehensive definition of sustainability is sustainability is the ongoing next major
expected. research area.
Despite no common notion, the terms The Principles of Responsible Investment
“sustainability” and “accountability”, usually (PRI) Academic Network of the UN
in environmental and social contexts, are (http://academic.unpri.org/), among other
being used widely. New journals are being things, publishes the RI Digest of academic
launched to publish research exclusively or research articles in sustainability.
primarily on accounting for sustainability, Increasingly, the RI digest has been
e.g. Social and Environmental Accountability reviewing accounting research articles,
Journal and Sustainability Accounting, notably about disclosures, e.g. Solomon and
Management, and Policy Journal. A recent Solomon, (2006), reported and reviewed in
major international academic accounting December 2010. The Centre for Social and
conference of the International Association Environmental Accounting Research,
for Accounting Education & Research Accountability, Transparency, Sustainability
(IAAER) held in Singapore in November, (CSEAR) (http://www.st-
2010, featured panel discussions of andrews.ac.uk/~csearweb/) has been created
practitioners and academics that called clearly at the University of St. Andrews in the UK to
for more involvement of academics to do provide information resources, sponsor
research in accounting for sustainability, workshops, and other activities to help
notably in auditing, but also in other researchers and scholars exploring social,
accounting roles. At another recent environmental, and sustainability accounting,
international academic accounting auditing and reporting and related topics.
conference, Asian Pacific Conference on In the immediate Middle Eastern
International Accounting Issues held in revolutionary activity, the terms
Australia in November 2010, a speaker from “sustainable”, “accountability”,
a governmental pension fund agency in “transparency”, and the like are being spoken
Australia was somewhat critical of academic casually and loosely. The Kuwait Fund in its
accountants’ lack of involvement in paid advertisements touts investments in
accounting for sustainability; she indicated sustainable ventures. News commentators
that if the academic accountants did not get talk about sustainable regimes as opposed to

stable regimes. Opposition protestors demand environmental, i.e. ecological, and sometimes
transparency and accountability. It is social issues, and sustainability reporting as
obviously much too soon to develop research telling how ‘green’ and socially responsible a
implications for accounting for sustainability company has been. This view of
for these activities. Nonetheless, the sustainability reflects a common view
increasing use of the jargon of accounting for developed over 25 years ago by the
sustainability cannot be ignored. Brundtland commission of the United Nations
One of the major issues in accounting for (UN) that sustainability is meeting needs of
sustainability it is the lack of a common current generations without sacrificing future
notion of accounting roles in sustainability, generations’ needs (Brundtland 1987). A
nor even what constitutes sustainability in an large number of academic publications
accounting context. The various notions of reflects this view (e.g. Adams 2010, Gray
sustainability and accounting for 2010, and sources cited by them). Panelists at
sustainability, while not conflicting, and the IAAER conference (2010), however, were
indeed complementary, reflect a need for a clear that current approaches to sustainability
more detailed accounting research agenda to reporting are too narrow and inadequate for
identify research issues, establish more many reasons; especially the notion of
precise concepts, definitions, and notions to accounting for sustainability is much broader
provide near-term future directions. This than mere environmental (ecological) and
paper and the agenda it presents are intended social reporting and the role of accounting
to represent a first step in that direction by involvement must be much broader to include
giving structure to identifying and discussing such activities as risk assessment and
specific groups of research issues for providing assurance including auditing.
accounting for sustainability, along with It is now widely recognized, but not well
possible methodologies and data sources. The documented in academic publications, that
remainder of this paper is organized as sustainability goes beyond mere
follows: environmental (ecological) and social issues,
Section 2 presents background and includes sustainability of an enterprise as
information underlying the groups of a business involving production, sales, and
research issues that are indentified. marketing, as well as being sustainable
Section 3 analyzes issues in financially, legally, and in other similar ways.
accounting for sustainability with Poor environmental (ecological) and social
respect to traditional accounting performance can indeed lead to unsustainable
practice, notably the four postulates business activity as evidenced by such
of accounting. phenomena as consumer boycotts of some
Section 4 Presents specific research large retail enterprises that were viewed as
issue along with research methods selling products made by suppliers using
and sources. Some of these issues are child labor and other socially and
better developed than others. environmentally unacceptable practices.
Section 5 gives a concluding Users of financial information consistently
discussion including identifying indicate a desire to have more information to
contributions of the research. allow them to assess sustainability and risk
related to sustainability. Thomas L. Friedman
2.0. Background (2009), the award winning author mentioned
During the past few years, many accounting in the introduction, links both financial
academics, and indeed many accounting sustainability in the recent financial crisis and
practitioners, have viewed sustainability environmental sustainability as being part of
almost exclusively as representing the same phenomenon: inadequate accounting

that does not adequately consider risk: If the are the basis of all life and prosperity.’
true risks involved in these subprime (Friedman 2009 pg. 25).
mortgages or default insurance had been Under current accounting standards, the value
priced into these products, they would never of ecological resources used would not
have been rated the way they were. Investors normally be used to measure product prices
would have been much more wary and or report values in financial reports; thus
demanded much higher yields before buying Friedman seems to advocate a new
them, which would have forced the mortgage accounting paradigm for accounting for
brokers to be more careful in deciding to sustainability that incorporates use of
whom to give these mortgages and the banks environmental and social resources in
to be more careful in choosing which ones to accounting measurements. In both of these
bundle. (Friedman 2009, pg. 15). situations, as well as throughout the book,
While pricing of products might be viewed as Friedman, a well read, literate, and articulate
a marketing issue, under IFRS and accounting writer, but a non-accountant, uses accounting
standards of most industrialized countries, terminology to link both financial and
valuation of the cost of the products sold and ecological sustainability failures and attribute
the inventory of buyers would require an the cause of both to the same phenomenon,
adequate risk assessment to measure amounts underpricing of assets and products sold due
in financial statements of both sellers and to failure to consider sustainability risk.
buyers. Furthermore, the principle of going Similar calls for a new accounting model to
concern applies to all valuations in financial incorporate external costs have been made by
statements and underpricing of financial risk others, e.g. the Accounting for Sustainability
raises serious issues of going concern. The Group (2006) and Epstein (2008).
going concern principle is essentially the Recent attention to so-called integrated
same as sustainability when making financial reporting has come from the Accounting for
accounting valuations. (Going concern issues Sustainability Project
are discussed in more detail shortly.) As a (www.accountingforsustainability.org)
result, sustainability failures in the recent among other places. As discussed in more
financial crisis related to inadequate pricing detail shortly, this project includes initiatives
of risk in products are indeed issues of of the International Integrated Reporting
accounting for sustainability. Then, when Committee (IIRC)
writing about environmental issues discussing (http://www.integratedreporting.org/) to
a 2005 report of the Millennium Ecosystem develop a new reporting model that will
Assessment of the United Nations, Friedman better reflect the interconnected impact of
comments: financial, environmental, social and
Yet because most nations do not put a price governance factors. There is, however, no
on [the natural resources consumed] they too common notion of what constitutes integrated
are ‘underpriced’ and therefore reporting. Many believe that ‘integrated’ is
overexploited—with the profits privatized merely including environmental and social
and the losses socialized. (Friedman 2009 pg. information along with financial information,
25) while others view ‘integrated’ as
Then quoting the World Wild Life Fund’s incorporating sustainability factors within
Living Planet 2008 Report: accounting measurements.
‘The world is currently struggling with the
consequences of over-valuing its financial 3.0. Accounting for sustainability with
assets, but a more fundamental crisis looms Respect to Traditional Accounting
ahead—an ecological credit crunch caused by When environmental (ecological), social, and
undervaluing the environmental assets that other social issues reporting are viewed from

the perspective of accounting for complete its obligations. This concept affects
sustainability, many issues emerge that have valuation bases for measurements of many
not yet been addressed and now need to be items on financial reports. It is also the basis
examined from the perspective of traditional for auditors’ reports on financial statements.
accounting and financial reporting practice. Sustainability is essentially the same concept
as going concern because lack of
3.1. Integrated reporting sustainability implies lack of a going concern,
The recent call for integrated reporting and a sustainable entity must necessarily be a
involves reporting sustainability issues in going concern. As discussed in more detail
parallel with financial reports, incorporating shortly, well-known going-concern failures
sustainability issues in accounting such as Enron and sub-prime mortgage
measurements in financial reports, or both. collapses have resulted massive social costs
Many inconsistencies arise, though, that have and clearly represent lack of sustainability.
not been considered and should be analyzed The reporting entity concept defines
along with respect to traditional financial the entity for which financial reports are
reporting theory and concepts. Among the prepared. Traditionally, financial reports are
inconsistencies that arise, in Anglo-Saxon prepared for an economic entity, usually
countries, the purpose of financial reporting is defined in legal terms as being a consolidated
expressed as assessing the likelihood and group in which one dominant entity controls
timing of future cash flows, thus implying of the group. With integrated financial
that accounting measurements should be reporting, the appropriate reporting entity for
ultimately related to cash flow. The theory sustainability reporting may differ
adds, though that future cash flows are best considerably from the reporting entity for
assessed by accrual accounting. Many of the financial reporting purposes. As two
suggestions about including sustainability examples: First, recent publicity about retail
into accounting measurements would not companies that sell clothes made by child
involve direct future cash flows, such as use labor, and similar situations in other
of environmental resources, unless for industries, indicate that transparent and
circumstances when a carbon tax or carbon informative reporting should include the
permits might be assessed. Therefore, it entire supply chain in an entity’s
would be very difficult to include such sustainability reporting. Second, as has been
measurements without changing a major discussed recently, the environmental impact
aspect of traditional financial reporting theory of a company’s products is also a significant
that exists in most countries. Also, the element to be considered in assessing a
conceptual framework of the IFRS, US company’s sustainability so the reporting
GAAP, and similar concepts of accounting entity for integrated reporting might consider
principles in many countries contain the customers or other users of a company’s
following four fundamental postulates, products.
although these concepts predate both IFRS Traditional financial reporting is based on
and the US GAAP conceptual frameworks, monetary units in which all non-monetary
and terminology varies. items are reported as an equivalent monetary
-Going concern amount. Almost all environmental and social
-Reporting entity information in reports to date are in narrative
-Monetary unit non-monetary terms. Under some notions of
-Time period integrated reporting, environmental and social
The going concern concept assumes that an information would be incorporated into
entity will be in business for the foreseeable accounting measurements. Also as discussed
future and will be able to realize its assets and above, Friedman (2009) and others imply a

new accounting in which environmental risk, GAAP, but the revenue-expense approach
which included financial risk, is incorporated remains in some countries, notably Finland.
into product pricing. Under the costs attach The asset-liability approach is clearly more
principle of traditional financial accounting, compatible with sustainability accounting as
costs are included in product prices and indicated in the introduction because it
similar measurements if there is a payment focuses on consumption of resources that
(or similar actual use of resources owned); would leave a company as sustainable at the
there has been no measurement method to beginning as at the end. Nonetheless, both
incorporate use of “free” environmental approaches are problematic for integrated
resources nor potentially damaging reporting because of the rigid notion of
environmental resources through emissions of financial reporting that occurs in annual
such things as carbon dioxide and other increments. Many issues of sustainability
greenhouse gases. Carbon trading schemes relate to long term consequences for the
are in their earliest stages of development in environment, for example from past
Europe and some other places, but so far no environmental damage as in the oil fields of
accounting measurement has been proposed Nigeria and coal mining regions of the U.S,
to include the cost of carbon emission and damage from emissions over the life
purchases into products and similar cycle of products like automobiles.
accounting measurements. Figge and Hahn
(2004) in their Advance project have 3.2. Auditing and other assurance
developed the Advance Model (see also The panel discussion at the IAAER
http://advance-project.org) in which, among conference (November 2010) clearly
other things, sustainable value added is contained a call for accounting researchers to
computed in monetary terms for various types be involved in additional roles in accounting
of emissions. These sustainable values, for sustainability, notably auditing. Users of
though, are not incorporated into accounting financial information, notably investors, it is
measurements, but could conceivably be claimed, need, almost demand, increasing
reported in integrated reports. Sustainable levels of assurance on sustainability
values as now computed are more suitable for information, notably assurance of information
management control and management in management commentaries and
accounting purposes. environmental reports. The anecdotal
Under the time period concept, traditional statements claim that investors require such
financial reporting is based on specific time assurance in order to make proper risk
periods, almost always one year, based on assessments of sustainability, especially
perceived users’ needs for timely information because of documented false environmental
covering discreet time periods of optimal statements presented in annual reports. In the
length to make meaningful decisions. Two Massey Coal case in the US, as part of a legal
approaches have traditionally been used settlement, Massey agreed to provide audited
although with variations among countries: statements of workplace safety and
First the revenue-expense approach measures protections of the environment (Harris 2011).
revenues earned during a year to derive a The call for more auditor assurance of
profit for the year; assets and liabilities are environmental reports is also reflected in
residuals. Second, the asset-liability approach personal interviews with international
measures assets and liabilities at the end and accounting firms. Some countries, e.g.
the beginning and of a year, subtracting the Sweden, allow auditors to offer both positive
difference as profit for the year divided into and negative assurance on environmental
revenues and expenses. The asset-liability reports, i.e. positive assurance in which
approach has been adopted by IFRS and US auditors examine evidence as in a financial

audit and give a professional opinion about its sustainability. Research has shown, however,
reliability, and negative assurance in which continued lack of compliance with accounting
the auditor states there is no reason to suspect standards and apparent lack of enforcement,
the information is not reliable. Companies especially in Europe (e.g. Carrara et al. 2010;
choose to provide environmental and social Fagerström et al. 2009, 2007a, 2007b). It is
information, it is claimed, to obtain also recognized that lack of adequate
reputational benefits not necessarily related to enforcement of accounting standards within
risk. Assurance, if any, would be used to in the EU is contributing to lack of reliability
achieve greater reputational benefits; few of published accounting reports and thus the
companies are willing to pay for positive ability of users of financial reports to assess
assurance because of limited perceived sustainability risks. As widely reported in the
benefits. Calls for greater assurance business media, in October 2010, the
of sustainability information, however European Commission announced its
defined, are based on anecdotes, assertion, intention to examine compliance with
conjecture, etc. It seems fairly certain, accounting standards, the role of auditors, and
though, that interests of investors and enforcement. It is too soon to assess the
creditors in assessing sustainability risk in consequences of this action by the European
making decisions have been largely ignored Commission, but it is clearly an issue within
and are just now being realized. As a result accounting for sustainability.
there is a current need for accounting research
to assess investors’ and creditors’ perceived 4. Research Issues
needs for assured sustainability information, With the analysis above of accounting for
how they use it, market reaction to the sustainability in the context of traditional
information, etc. accounting theory and practice, and recent
events, this agenda now develops some
3.3. Financial failures, Reporting and specific research issues along with research
Auditing failures, and Enforcement methods and data sources.
Yet another set of accounting-for-
sustainability situations within the past few 4.1. A Research Framework for Accounting
years are the well-known financial for Sustainability
sustainability failures and near failures of A conceptual framework to guide researchers
companies like Enron, WorldCom, Parmalat, and practitioners in accounting for
and Ahold and financial institution failures in sustainability is an essential first step in this
due to sub-prime mortgages. These financial research agenda because of various notions of
sustainability failures resulted not only in sustainability and the roles of accounting in
investor and creditor losses but also massive accounting for sustainability that exist at the
losses for society and are clearly social and moment, and lack of a common language.
environmental sustainability issues as well. Such frameworks have been successful in
The sustainability failures were directly guiding emerging areas of accounting
related to non-compliance with accounting research in the past. In the 1970s, as the
standards, audit failures, and enforcement phenomena of multinational companies
failures. In addition, the going concern became sufficiently large to warrant ongoing
concept implies financial sustainability and accounting research, a seminal study, An
these organizations clearly were not going Accounting Research Framework for
concerns. While there have been extensive Multinational Enterprises (Cunningham
research and publication about the high- 1978) facilitated accounting research for
profile cases, little research has been multinational enterprises for coming decades.
conducted in the context of accounting for A similar but less elaborate framework also

facilitated research into accounting research -Developing a common language to
for performance reporting and accountability discuss and guide future research.
in governmental entities (Cunningham and Similar to An Accounting Research
Harris 2005) when this issue emerged as an Framework for Multinational Enterprises
issue for accounting research. Such a (Cunningham 1978, pg. 1), this research
framework in accounting for sustainability framework seeks to facilitate continuing
would, among other things, identify, explore, research in accounting for sustainability by
and analyze systematically: describing in detail gaps in current
-Various notions of sustainability to knowledge, specific issues that require
assess which ones represent roles for research, factors that should be considered
accounting, and to what extent. when conducting the research, and suggesting
-Groups and individuals who have or research approaches. One important aspect is
potentially could have an to identify failures in past research and means
involvement in accounting for to overcome the failures. It also provides a
sustainability, including Assistant common taxonomy and language for
Lecturers of reports; users of such continuing research. Following Cunningham
information, e.g. banks and (1976, pp. 31-61) and sources cited by him,
investment analysts; assurers of such this part of the research agenda uses a general
information, i.e. auditors or similar systems theory approach as the primary
groups; regulators; other methodological and analytical tool (described
organizations, e.g. the United in more detail shortly). General systems
Nations and its PRI academic theory is especially well suited to develop
network, who have taken a direct conceptual frameworks in business contexts
interest and action in the issue; and and especially for accounting research
policy makers such as the European because it allows researchers to explore such
Commission. relevant aspects as:
-Different forms and levels of -The scope of the agenda and which systems
accountability, e.g. financial are included in this scope.
reporting and assurance thereof; -System boundaries, i.e. what is included in a
integrated reporting of financial and system and what remains outside in the
other sustainability accounting environment. It is important to note (as
information; reporting sustainability discussed below) that the word
information outside the financial “environment” has a different meaning
reports and assurance thereof; than is commonly used in the literature on
incorporating sustainability risk and accounting for sustainability so far. For this
use of resources in accounting framework, boundary considerations are
measurements; other elements of important for such issues as defining
accountability for sustainability sustainability in accounting contexts; what is
risks; managerial accounting; inside systems of accounting for
management control systems; etc. sustainability, and what remains outside in
-Identifying and describing various the environment; and whether sustainability
notions of a sustainable entity that reporting and financial reporting are separate
would be the object of systems or can become integrated into a
accountability. single reporting system.
-Matching the interests of groups and -System regulation and control. For this
individuals with regard to framework, regulation and control factors
sustainability with different forms deal not only with such obvious issues as
and levels of accountability. standards and enforcement, but also what

type of outputs from accounting for typically occurs outside a system in the
sustainability are to be produced and for environment, depending on how the boundary
whom. between a system and its environment is
defined. Regulation represents activities and
4.1.1. Methodology subsystems designed within a system to
This part of the research agenda uses the achieve the desired outcomes somewhat
general systems methodology discussed in automatically without explicit intervention.
Cunningham (1978 Chapter two). General Notions of what constitutes regulation and
systems theory is not a theory per se but control differ depending on how the system
instead an approach to guide analysis and of interest and the environment is defined.
development of more specific research The concepts of regulation and control have
approaches. It is also a first step in grounded obvious implications for accounting for
theory approaches which represent back and sustainability. One example is establishing
forth analyses of a system and its standards for sustainability reporting, a
environment to build a theory. control function, and the steps taken by an
-Under general systems theory, each system entity to assure compliance with standards.
is viewed as part of a larger system and each
system can be viewed as having one or more 4.2. Reporting Sustainability Information
subsystems. The issue is to identify the In some countries, e.g. Sweden, a form of
system of interest for the research issue at integrated reporting is required for certain
hand, and the boundaries of that system. companies, e.g. those with state ownership,
Thus, the system of interest can be defined in following the triple bottom line of the Global
different ways for different research Reporting Initiative (GRI)
purposes. As discussed above, from a (www.globalreporting.org/Home). In
sustainability perspective, the system of addition, several other companies have been
interest can include a company and its supply voluntarily reporting environmental and
chain as well as users of its products during social information for some years. Recent
the product life cycle. In defining the attention to so-called integrated reporting has
boundary of the system of interest, everything come from the Accounting for Sustainability
that remains outside the boundary is Project
considered to be the environment. As noted (www.accountingforsustainability.org). This
above, this definition of “environment” is project includes initiatives of the International
different from the term “environment” Integrated Reporting Committee (IIRC)
used in the research literature to date (http://www.integratedreporting.org/) to
which typically views environment as develop a new reporting model that will
representing ecological resources. Among better reflect the interconnected impact of
other things, the analysis considers properties financial, environmental, social and
of the system of interest, properties of governance factors. The IIRC includes,
subsystems, and properties of the among others, representatives from the major
environment, including influences of each on international accounting firms, securities
the other. exchanges, the Financial Accounting
Other important aspects of general systems Standards Board (FASB) of the US, and the
theory are the notions of regulation and International Accounting Standards Board
control. Control is generally defined as (IASB). As mentioned above, though, there
setting expectations, monitoring outcomes is, however, no common notion of what
against those expectations, and taking actions constitutes integrated reporting.
if necessary to make necessary changes to Also as mentioned above, anecdotally,
achieve desired outcomes. Thus control companies report such so-called sustainability

information and sometimes seek assurance of Field studies can be useful to assess the
such to achieve reputational benefits. reputational benefits companies attempt to
Research is needed to identify what type of achieve from reporting environmental and
reputational benefits companies expect to social information. Field study research by
achieve. A further issue is Cunningham and Harris (2005) on a similar
establishing standards for sustainability topic about performance reporting of
reporting. The Global Reporting Initiative governmental entities was a significant
(GRI) (www.globalreporting.org/Home), a contribution to accountability research for
network-based organization based in the such entities and can also be used as a model
Netherlands, provides standards for voluntary in this research.
reporting of supplemental sustainability
disclosures. GRI reporting standards are 4.3. Users of Sustainability Information.
required in Sweden for the companies that are As mentioned in the background, research
required to report the so-called triple bottom and discussion in accounting for
line. The IIRC as part of the UN PRI is also sustainability so far have almost exclusively
establishing reporting standards. Research focused on companies that prepare and
could be useful to determine the criteria by present sustainability information. There is
which companies, accounting firms and very recent recognition that the needs of users
others choose reporting standards. of the information must be considered as
well. The research framework for accounting
4.2.1. Research Methods for sustainability as described in 4.1 would
The primary research methods for this set of necessarily address some of these issues.
issues would be content analysis and field Research is also needed to address directly
studies. With respect to content analysis, users’ perceived needs and reactions to them.
because of different notions of what Anecdotal evidence suggests that financial
represents integrated reporting, it would be analysts, one major user group, routinely
useful to examine actual reports under the discard supplemental environmental
different approaches to learn differences and disclosures. Instead, anecdotally, analysts
their impacts. Content analysis might also be want information that allows assessment of
used to examine reports of different risk. Somewhat contradictory prior research
companies that use different types of has shown that financial analysts, do consider
reporting standards to assess different sustainability risk information when making
impacts. A further analysis of the groups recommendations to their clients (H. Nilsson,
promulgating the standards to determine their et al. 2008). Other research reported by the
intentions and desired results can be useful. SIRP (www.sirp.se) indicates a market
Such content analyses can be complimented reaction to sustainability risk under certain
by field studies of the companies that situations thus suggesting that some users of
currently report sustainability information to sustainability information do use such
determine the difficulty or ease of information. Research is needed not only to
implementation and extent of compliance. assess whether sustainability risk information
Field studies represent a form of grounded is desired and used, but the form in which
theory in which researchers engage with the sustainability risk incorporated in accounting
field to discover phenomena of interest to be reports, e.g. in integrated reports, in product
used to develop a theory. Field studies by prices according to as suggested by Friedman
Fagerström et al. (2009, 2007a, 2007b) have (2009), and in other accounting
examined similar issues in implementation measurements.
and compliance with reporting standards and
provide a model for this research agenda.

4.3.1. Research methods 4.4. Auditing and Other Assurance of
Field study research methods similar to those Sustainability Information
discussed above (Fagerström et al. 2009, As mentioned in the introduction,
2007a, 2007b) are useful to learn more about background, and discussions above, a major
potential users of integrated reports, what emerging issue is the extent to which users of
they expect, different formats they prefer, and sustainability information expect assurance;
similar items. The primary research method at what level, negative or positive; and in
for this issue could be experimental research what form, supplemental or incorporated in
along the lines used by Baker and financial measurements. A further issue
Cunningham (1993) when assessing the within this agenda issue is establishing both
perceptions of bankers about different sets of standards for sustainability reporting and
assurance standards on their loan decisions is standards against which assurance is given.
a model for this analysis. With respect to As mentioned above, the Global Reporting
experiments, persons in each treatment group Initiative (GRI), a network-based
would be a priori viewed as essentially organization based in the Netherlands,
identical and making the same types of provides standards for voluntary reporting of
decisions following the approach of supplemental sustainability disclosures. The
Cunningham and Baker (1992). In their IIRC as part of the UN PRI is also
study, subjects of experiments were attending establishing reporting standards. For
training and education classes sponsored by a assurance, as one example, major accounting
professional bankers’ association; the firms in Sweden use assurance standards
association supported the type of research and published by Föreneningen Auktoriserade
virtually all participants voluntarily chose to Revisorer (FAR) (www.far.se) in FAR
participate. The subjects for this and similar RevR6
issues in this research agenda could be (http://www.far.se/pls/portal/docs/PAGE/FA
similar, not necessarily in educational classes, R_2010/FAR_TYCKER/INFORMATIONS
but groups of professionals who use reports MATERIAL/GRANSKNINGAVHALLBAR
of sustainability information. In addition, or HETSREDOVISNING.PDF), although use of
alternatively, students could be used as such standards is apparently voluntary. FAR
surrogates for users of sustainability RevR6 is taken from (essentially a translation
accounting information. Numerous of) the International Standard on Assurance
accounting-related experiments using Engagements 3000 (ISAE 3000)
students as surrogates have been conducted (http://www.accountability21.net/uploadedFil
and published by Michael Shields and es/Issues/ISAE_3000.pdf) developed in the
Graeme Harrison, among others; these studies Netherlands. A competing set of assurance
are too numerous to cite here, but can be standards, though, has been developed by
readily located and examined. Similarly, AccountAbility
experimental studies in sustainability under (http://www.accountability.org/) in its
the auspices of the SIRP (www.sirp.se) have AA1000 AS. Despite the organization’s claim
used students as surrogates for professionals of wide-spread acceptance, there is no
who use sustainability information. These indication that such standards are used in
studies cite evidence that students perform as Nordic countries. Yet another set of standards
well as actual subjects in these types of is incorporated in the Greenhouse Gas
experiments. Protocol Initiative
These sets of assurance standards, while not
always in direct competition because they
relate to different types of sustainability

information, overlap sufficiently to create distress, often related to failure to consider
uncertainty and complexity in accountants’ different types of sustainability risk, non-
roles of providing assurance. Because of compliance with financial reporting
multiple sets of standards for both reporting standards, and enforcement of accounting
and assurance, yet another set of issues to be standards, is an issue of accounting for
addressed in this research agenda is the sustainability. As discussed in the
criteria by which companies and introduction and background, though,
organizations providing assurance voluntarily Friedman (2009) views ecological risk and
choose standards to use in reporting and in financial distress to be integrally related
assurance engagements. When sustainability through inadequate accounting for risks. Even
information is included in accounting though financial and other sustainability risks
measurements, e.g. pricing products to are recently receiving attention, the going
include external resource costs and including concern concept has been an essential
sustainability risk in financial products, concept in financial reporting and auditing for
additional issues of reporting standards and many years. Research would be useful to
assurance standards are presented. Similar assess the extent to which users of financial
issues are presented in integrated reporting information, notably banks, investment
when environmental and social concerns analysts, and financial analysts, view the link
would be included in accounting between financial distress risk and ecological
measurements. Current accounting standards risk as being integrally related as does
in almost every country, including Nordic Friedman (2009).
countries, do not permit such accounting Non-compliance with financial reporting
measurements; likewise auditing standards standards has been an accounting research
for such measurements are not available. topic for at least the last 10 years in which
wide-spread non-compliance was discovered,
4.4.1. Research Methods and by implication apparent lack of
The previous research by Baker and enforcement (e.g. Carrara, et al. 2010,
Cunningham (1993) discussed above, is an Fagerström et al. 2009, 2007a, 2007b; and
ideal model for the type of research on sources cited by them). Such research,
assurance levels in this research agenda. In though, focused on detecting non-compliance
that experiment, bank loan officers were without implications for sustainability. As
asked to make decisions based on financial indicated in these studies, non-compliance
statements prepared using, among other with accounting standards and lack of
things, different levels of audit assurance and enforcement are readily apparent and should
different accounting standards. Field be apparent to users of financial reports.
studies like Fagerström et al. (2009, 2007a, Research could assess the impact on apparent
2007b) and Cunningham and Harris (2005) non-compliance with accounting standards on
are a grounded theory approach useful users of the information, notably bankers and
models to examine auditors’ perceptions of bank investment analysts.
different levels of assurance and standards. A very recent study by the publishers of the
Asset 4 data base has indicated that
4.5. Financial Distress, Non-compliance companies that report sustainable information
with Financial Reporting Standards, and also have abnormal returns, suggesting that
Lack of Enforcement investors and/or analysts do not consider
Despite the fact that past financial failures, sustainability information in their decisions.
notably Enron and sub-prime mortgage By implication, failure to consider
crises, have resulted in massive social costs, sustainability risk could lead to abnormally
there is only recent recognition that financial low returns or loss through financial failure.

Research is useful to assess any relation of what represents integration exist,
negative or lack of reported sustainability however.
information on low returns or failure. - Interests of users of sustainability
information, including integrated reports,
4.5.1. Research Methods must be considered.
This line of research could follow an - Calls for expanded roles of auditors and
approach by Baboukardos (2011, 2010). The other assurers.
research would involve content analysis of - Expanding research issues of financial
publicly listed European companies to failures, accounting and auditing failures,
identify lack of compliance. Examination of and lack of enforcement to recognize an
stock market reaction to the lack of essential sustainability component.
compliance and other faulty financial After presenting background, the paper
information could then use the well-known analyzes the emerging issues against
value relevance model and other well known traditional accounting concepts, notably the
models that assess market reactions to postulates of going concern, entity, monetary
accounting information. Among others unit and time period, the paper identified
outputs, the well known measurement of many research issues that need to be resolved.
Tobin’s Q gives an indicator of risk. Similar These were presented in five sets of research
research methods can be used to assess the issues for accounting for sustainability
value relevance of negative sustainability In the process, the paper presented
information. In addition, the well known background material and then identified five
bankruptcy prediction models can be used to sets of research issues in accounting for
assess the ability of negative sustainability sustainability along with methods and data
information to signal financial failure. The sources for each:
existence of the Asset 4 data base now - An accounting research framework for
facilitates research methods using large sustainability to be based on similar
samples and more sophisticated quantitative frameworks for other emerging
methods. accounting research issues using general
systems theory approaches. This
5.0. Concluding discussion framework identifies systems of interest
This purpose of this paper has been to give and the environment and necessarily
structure to the diverse, disjointed area of challenges the traditional notions of
research into accounting for sustainability, reporting entity and time period, among
providing background, including identifying others.
research issues, and possible research - Reporting of sustainability information
methods. In introduction and background which has been the focus of most research
discussions, it was apparent that the focus to to date, and the emerging important topic
date on reporting environmental, i.e. of integrated reporting. The analysis
ecological, and sometimes social and challenges entity, monetary unit, and time
governance information is narrow and period concepts as well as addresses
inadequate. Instead, new additional research which standards are to be used and how to
areas are emerging and some traditional incorporate environmental and social
research areas are taking on new perspectives. issues into accounting measurements.
These include: - Users of sustainable information, their
- A call for integrated reporting that uses and perceived needs. This is an area
integrates environmental (ecological), that has been largely neglected in research
social, and governance information along to date. Research using field studies and
with financial reports. Differing notions of

experiments is needed to assess users’ Brundtland, Gro H. (1987), Our Common
needs and expectations. Future: The World Commission on
- Auditing and assurance issues that are Environment and Development. Oxford, UK:
taking on greater importance as more Oxford University Press.
users demand assurance for the 5. Carrara, Mario, et al. (2010), “The impact
sustainability information. Issues of which of IFRS on reporting for business
standards to be used can be explored and combinations: an in-depth analysis using the
experiments would be used to assess telecommunications industry”, paper
users’ expectations and how they react to presented at Asian-Pacific Conference on
different types and levels of assurance. International Accounting issues, Gold Coast,
- Financial distress and sustainability Australia, and Nordic Financial Accounting
consequences of accounting and Conference, Copenhagen, Denmark,
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Research using traditional market Accounting Research Framework for
methods, notably the value relevance Multinational Enterprises. Ann Arbor, MI,
model and bankruptcy prediction models USA: UMI Research Press.
This agenda while ambitious gives definite 7. Cunningham, Gary M. and Harris, Jean E.
structure and clearly indicates a substantial (2001),“A Heuristic Framework for
change in traditional view of accounting, Accountability of Governmental Subunits”
reporting, and auditing in a new era of Public Management Review, Vol. 3 No. 2,
sustainability. June 2001, pp. 145-165.
8. Cunningham, Gary M. and Harris, Jean E.
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