New Approaches to CSR, Sustainability and Accountability, Volume III (Accounting, Finance, Sustainability, Governance & Fraud: Theory and Application) 9811693633, 9789811693632

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Accounting, Finance, Sustainability, Governance & Fraud: Theory and Application

Kıymet Tunca Çalıyurt   Editor

New Approaches to CSR, Sustainability and Accountability, Volume III

Accounting, Finance, Sustainability, Governance & Fraud: Theory and Application Series Editor Kıymet Tunca Çalıyurt, Iktisadi ve Idari Bilimler Fakultes, Trakya University Balkan Yerleskesi, Edirne, Turkey

This Scopus indexed series acts as a forum for book publications on current research arising from debates about key topics that have emerged from global economic crises during the past several years. The importance of governance and the will to deal with corruption, fraud, and bad practice, are themes featured in volumes published in the series. These topics are not only of concern to businesses and their investors, but also to governments and supranational organizations, such as the United Nations and the European Union. Accounting, Finance, Sustainability, Governance & Fraud: Theory and Application takes on a distinctive perspective to explore crucial issues that currently have little or no coverage. Thus the series integrates both theoretical developments and practical experiences to feature themes that are topical, or are deemed to become topical within a short time. The series welcomes interdisciplinary research covering the topics of accounting, auditing, governance, and fraud.

Kıymet Tunca Çalıyurt Editor

New Approaches to CSR, Sustainability and Accountability, Volume III

Editor Kıymet Tunca Çalıyurt Trakya University Edirne, Turkey

ISSN 2509-7873 ISSN 2509-7881 (electronic) Accounting, Finance, Sustainability, Governance & Fraud: Theory and Application ISBN 978-981-16-9363-2 ISBN 978-981-16-9364-9 (eBook) https://doi.org/10.1007/978-981-16-9364-9 © The Editor(s) (if applicable) and The Author(s), under exclusive license to Springer Nature Singapore Pte Ltd. 2022 This work is subject to copyright. All rights are solely and exclusively licensed by the Publisher, whether the whole or part of the material is concerned, specifically the rights of reprinting, reuse of illustrations, recitation, broadcasting, reproduction on microfilms or in any other physical way, and transmission or information storage and retrieval, electronic adaptation, computer software, or by similar or dissimilar methodology now known or hereafter developed. The use of general descriptive names, registered names, trademarks, service marks, etc. in this publication does not imply, even in the absence of a specific statement, that such names are exempt from the relevant protective laws and regulations and therefore free for general use. The publisher, the authors, and the editors are safe to assume that the advice and information in this book are believed to be true and accurate at the date of publication. Neither the publisher nor the authors or the editors give a warranty, expressed or implied, with respect to the material contained herein or for any errors or omissions that may have been made. The publisher remains neutral with regard to jurisdictional claims in published maps and institutional affiliations. This Springer imprint is published by the registered company Springer Nature Singapore Pte Ltd. The registered company address is: 152 Beach Road, #21-01/04 Gateway East, Singapore 189721, Singapore

Acknowledgement

As founding president of the International Group on Governance Fraud Ethics and CSR (IGonGFESR), I would like to dedicate this book to distinguished academician PROF. DATO’. DR. HJ MUSTAFFA BIN MOHAMED ZAIN Professor of Corporate Social Responsibility First time, we met Prof. Zain was at a conference in London in 2003. Afterwards, I found several chances to meet with distinquished Prof. Zain and exchange ideas at conferences in different countries. As a professor with accounting background, Prof. Zain persistently and determinedly worked on CSR in the early 2000s, when accountants were far from the v

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Acknowledgement

subject of CSR and accounting academics were criticized for CSR studies. In this 20-year period, he graduated thousands of students, mentored dozens of doctoral students, published many papers, spoke at many conferences in order to create more accountable, greener, socially responsible, more transparent and better business world. He tried to make the world a more socially responsible place. Thanks to Prof. Zain, I had many friends from UiTM, UiTM has signed agreement with Trakya University, we found an opportunity to visit UiTM Shahlam and Kedah Kampus with my previous rector Prof. Dr. Yener Yörük, we found an opportunity meet the vice-chancellor and deans, and we joined graduate ceremony of Law Faculty. It was an honour for us to organize a joint conference within Edirne, Balkan Congress Hall at Trakya University. 3rd INTERNATIONAL CONFERENCE ON GOVERNANCE AND ACCOUNTABILITY (ICGA) 5th INTERNATIONAL CONFERENCE ON GOVERNANCE FRAUD ETHICS AND SOCIAL RESPONSIBILITY https://icga-icongfesr.trakya.edu.tr/

Acknowledgement

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It was an honour for us to visit our rector Prof. Erhan Tabakoglu with Prof. Zain and other distinguished professors from Canada and Turkey during the 3rd International Trakya Accounting Finance And Auditing Symposium conference on October 1–4, 2018.

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Acknowledgement

https://isletme.trakya.edu.tr/pages/2018-konferans-kitabi

I would like to present Prof. Zain’s successful resume with the help of Professor Zain’s wife Rashidah Mohammad. Thanks for her cooperation.

Acknowledgement

ix

Curriculum Vitae

A.

Personal Details 1.

2. 3. 4. 5. B.

PROF. DATO’. DR. HJ Mustaffa Bin, Mohamed Zain, Professor of Corporate Social Responsibility, Level 6, Bangunan Canseleri, Universiti Teknologi MARA, Shah Alam, 40450, Selangor. e-mail: [email protected]. Mobile No: 0139367000 Employee No.: 107534 Department: Accounting Date of Appointment: 28 December 1987 Date of Confirmation: 28 December 1988

Academic Qualification 1. 2. 3.

4. 5.

Ph.D. (1999), University of Sheffield, United Kingdom. First Malaysian to complete a thesis on Corporate Social and Environmental Accounting Master of Business Administration (Accounting) (1987), St Louis University, Missouri, USA. Completed MBA in 10 months Bachelor in Business Administration (Accounting) (1986), St Louis University, Missouri, USA. Completed BBA in 18 months Awards: Who’s Who In American Universities and Colleges National Deans List Award Cum Laude Beta Gamma Sigma Diploma in Accountancy (1980), Universiti Teknologi MARA, Dungun, Terengganu Certificate In Qualitative Research Method (Georgia) 2004

x

C.

Acknowledgement

Professional Memberships (Selected) 1. 2. 3. 4. 5. 6. 7. 8. 9. 10.

11. 12. 13. 14. 15. 16. 17. 18. 19. 20. 21. 22.

Editor-in-Chief, Journal of Financial Reporting, UiTM-ACCA FRRC, 2014–Current Editorial Board, Social Responsibility Journal, SRRNet, 2006–Current Editorial Board, Issues in Social and Environmental Accounting Journal, 2009–Current Editorial Board, Malaysian Accounting Review, UiTM, 2002–Current Editorial Board, Journal of Financial Reporting, UiTM-ACCA FRRC, 2002–Current Editorial Board, National Accounting Research Journal, UiTM, 2003– Current Advisor, Asia Pacific Centre for Sustainability (APCeS), 2007–Current Visiting Professor at Griffith University, Brisbane, Australia, Jan 2011– March 2011 Panel Judge, Malaysian Environmental and Social Reporting Award, ACCA Malaysia 2007 and 2008. Scientific Committee Member of International Conference Series on Corporate Governance, Fraud, Ethics and Social Responsibilty. Trakya University, Turkey. 2009–Current Founder, Centre for Responsibility and Islamic Accounting Chairman for Lembaga Kualiti Buku Teks Perakaunan (2001–2002), Kementerian Pendidikan Malaysia. Editor, Akademic Journal, UiTM Terengganu, 2001–2005 Advisory Board, Institut Tadbir Negarah Wilayah Timur, 2002–2005 Chairman, IRDC, UiTM Terengganu, 2001–2005 Evaluation Panel, Cadangan Penyelidikan untuk Melanjutkan Pelajaran di Peringkat Ph.D., Fakulti Perakaunan, UiTM Shah Alam, 2003. Fello Researcher, Journal of Financial Reporting, UiTM-ACCA FRRC, 2002–Current Committee Member, Teknologi Pendidikan Terengganu, 2001–2005 Committee Member, Penggerak Sains dan Matematik Terengganu 2001– 2005 Committee Member, Biro Pendidikan UMNO Terengganu 2001–2005 Committee Member, Lembaga Pengurus asrama Anak Yatim Darul Iman, Terengganu 2001–2005 Member, Sarawak Development Institute, 1999–Current

Acknowledgement

D.

xi

Previous Working Experience Organization

Address

Kumpulan LYK Sdn 364, Jalan Sultan Bhd Omar Kuala Terengganu

Position

Duration

Accounts Executive

1983 1984

–

Accounts

1981 1983

–

Terengganu Pesama Corp

Timber Jalan Jakar Kemaman,

Supervisor

Terengganu Malayan Bhd

Banking

Jalan Tunku Abd Rahman,

Sub-Acountant II

Kuala Lumpur

E.

Service a)

Administration Position 1. Deputy Vice-Chancellor Academic and International Jun 2007–Jun 2010 2. Assistant Vice-Chancellor Institut of Quality and Knowkledge Advancement Jan 2006–May 2007 3. Campus Director UiTM Terengganu Dec 2000–Dec 2005 4. Deputy Provost Student Affairs UiTM Sarawak, 1998–2000 5. Head of Program, Diploma in Accountancy UiTM Sarawak, 1993–1994

b)

Advisory Board/Committees/Representatives (Selected)

1981

xii

Acknowledgement

1. 2. 3. 4. 5.

6. 7. 8. 9. 10. 11. 12. 13. 14.

Editor-in-Chief, Journal of Financial Reporting, UiTM-ACCA FRRC, 2014–Current Editorial Board, The Journal of Social Responsibility, 2006–Current Editorial Board, Issues in Social and Environmental Accounting, 2010–Current Chair, Potential Ph.D. Panel, Faculty of Accountancy, UiTM, 1 Sept 2013–Sept 2015 Chair, Lembaga Temuduga Jawatan Kumpulan Pengurusan & Professional (Akademik) Dan Kumpulan Sokongan 1 (Penolong Pensyarah) UiTM. 1 April 2012–30 March 2014 Visiting Professor, Griffith University, Brisbane, Australia, Jan 2011–March 2011 Senate Member, Universiti Teknologi MARA, 2002–2010 Chair, Pengurusan Dalaman Universiti Teknologi MARA Terengganu, 2001–2005. Board Member, Kolej Tengku Abdul Rahman, 2008–2011 External Examiner, City University College, Diploma in Accountancy, 2016 Member, Committee for Kursus-kursus Pengajian, Kolej Tengku Abdul Rahman, 2008–2011 Member, Service Committee, Kolej Tengku Abdul Rahman, 2008– 2011 Editor, Journal of Financial Reporting, UiTM-ACCA FRRC, 2002– Current Panel Member Cadangan Penyelidikan untuk Melanjutkan Pelajaran di Peringkat Ph.D., Fakulti Perakaunan, UiTM Shah Alam, 2003.

Acknowledgement

15. 16. 17. 18. 19. 20. 21. 22. 23. 24. 25. 26. 27. 28. 29. 30. 31. 32. 33. 34. 35. 36. 37. 38. F.

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Editorial Board, National Accounting Research Journal, UiTM, 2003–Current Editor, Jurnal Akademik, UiTM Terengganu, 2001–Current Chairman, Tabung Amanah Pelajar, UiTM, 2007–Current Chairman, Jawatan Kuasa Rayuan, Pemilihan Jawatan Kuasa Perwakilan Pelajar (JPP), 2010–2011 Chairman Perancangan Strategik, UiTM Terengganu, 2001–2005 Member, Ninth Malaysian Plan UiTM, 2003–Current Member, Penubuhan ITM, 2004 Member, Jawatan Kuasa IT dan E-Learning UiTM, 2003–2009 Chairman, Jawatan Kuasa IT UiTM Terengganu Chairman, Jawatan Kuasa Sebut Harga, UiTM Terengganu, 2001– 2005 Chairman Lembaga Akademik, UiTM Terengganu, 2001–2005 Chairman, Jawatan Kuasa Pemandu Kualiti (JPK), UiTM Terengganu, 2001–2005 Deputy President, Persatuan Sukan dan Kebajikan Kakitangan UiTM, 2003 Chairman, Majlis Sukan Dan Kebajikan Kakitangan, UiTM Terengganu, 2001–2005 Chairman, KEKITA, UiTM Sarawak, 1993–1994 Chairman, Minggu Mesra Siswa, UiTM Terengganu, 2001–2005 Deputy Chairman, J/Kuasa Lembaga Tatatertib Pelajar UiTM Sarawak 1998–2000. Chairman, Tabung Amanah Pelajar, UiTM Terengganu, 2001–2005 Deputy Chairman—Jawatankuasa Induk Minggu Wawasan Siswa, UiTM Sarawak, 1998–2000 Timbalan Pengerusi Minggu Silaturrahim ITM Sarawak, 1994 Deputy Chairman, Kutipan Derma Masjid UiTM Sarawak, 1999– 2000 Deputy Chairman, Program Latihan Eksekutif Muda ITM Sarawak, 1998–2000 Panel, Evaluation and selection of New Lecturers, UiTM Sarawak, 1998–2000 Chairman, Projek Khidmat Masyarakat UiTM Sarawak, 1998–2000

Awards, Recognitions, Clubs and Associations (Selected) 1. 2. 3. 4. 5. 6.

Darjah Dato Paduka Setia Mahkota Kelantan (DPSK), 2010 Darjah Setia Sultan Mizan Zainal Abidin Terengganu (SMZ), 2005 Lt Colonel, 7513851, Pasukan Simpanan Askar Wataniah, 2009–Current Major, 7513851, Pasukan Simpanan Askar Wataniah, 1998–2009 Anugerah Khas Naib Canselor, Universiti Teknologi MARA, 2005 Anugerah Khidmat Cemerlang, Universiti Teknologi MARA, 2005

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Acknowledgement

7. 8. 9. 10. 11. 12. 13. 14. 15. 16. 17. 18. 19. G.

Anugerah Khas Sukan, Persatuan Sukan dan Kebajikan Staf (PSKK), UiTM, 2004 Best Student (Overall), Senior Command Course, PUSWATAN, 2002 Best Student (Academic), Company Commander Course, PUSWATAN, 2002 Best Student (Overall), Potential Officer Course, Regimen 511 Askar Wataniah, 1998 Outstanding Service to the Teaching Profession, American Biographical Institute, 1993 Beta Gamma Sigma, St Louis University Chapter, 1986 National’s Dean’s List, American Universities and Colleges, 1985 Who’s Who In American Universities and Colleges, 1985 President, Malaysian Student Association, Huddersfield, 1996–1997 President, KEKITA (Kelab Sukan Kebajikan Kakitangan, UiTM Sarawak) 1993–1994 Secretary, Malaysian Student Association, St Louis, Missouri, USA, 1986–1987 Committee Member, Kelab Golf Desa Dungun, 2002–2004 Member, Kelab Rekreasi Tentera Udara, 2002–2009

Research, Publication and Other Academic Work I.

Teaching Abroad

No

University

Program

Year

1

Trakya University, Edirne, Turkey

Mevlana Exchange Program–Postgraduate students

22–29 September, 2014

2

Griffith University, Brisbane, Australia

Visiting Professor, Researcher

1st Jan 2011–31st March 2011

II.

Innovation and Academic Awards 1. 2017, Gold Medal, ITEX slamic Social Responsibility Assessment System (i-SRAS), Faizah Darus, Haslinda Yusoff, Mustaffa Mohamed Zain and Suriyani Ariffin, 28th International Invention & Innovation Exhibition 11–13 Mei 2017 Di Kuala Lumpur Convention Center, ITEX 2. 2017, Gold Mrdal, ITEX, Environmental Social Governance (ESG) Screener, Nur Syuhada Jasni, Haslinda Yusoff, Noreena Md Yusoff, Nor Syafinaz Shafee and Mustaffa Mohamed Zain, 28th International Invention & Innovation Exhibition, 11–13 Mei 2017 Di Kuala Lumpur Convention Center, ITEX 3. 2017, Winner of the Best Paper Award, The Effects of Internal Corporate Governance on Performance of Federal Statutoty Bodies

Acknowledgement

4.

5.

6.

7.

8.

9.

10.

III.

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in Malaysia, Abd Rahman Ali, Mustaffa Mohamed Zain, Zubaidah Zainal Abidin and Roslaini Embi, 8th International Conference on Financial Criminology (ICFC), Dorsett Putrajaya, Malaysia, April 2017 2016, Gold Medal, Islamic Social Responsibility Assessment System (i-SRAS), Faizah Darus, Haslinda Yusoff, Mustaffa Mohamed Zain and Suriyani Ariffin, Invention, Innovation & Design Exposition 2016 iidex 2016, Gold Mrdal, The Application of Environmental Social Governance (ESG) Grid to measure Annual Report Narratives, Nur Syuhada Jasni, Haslinda Yusoff, Noreena Md Yusoff, Nor Syafinaz Shafee and Mustaffa Mohamed Zain, Invention, Innovation & Design Exposition 2016 iidex 2016 First Runner Up, Best Paper Award: ‘Corporate Social Resposibility in Malaysian Organizations: Community Environmental Domension and Islamic Perspective’, 7th Asia Pacific International Conference on Environemntal Behavior Studies, Edinburgh, Scotland, UK 27–30 July 2016 2015, Gold Medal, Simply The Process of Granting Tax Incentives to SMEs, Nadiah Abd Hamid, Rohaya Md Nor, Mohd Ridhuan Dangi, Nurshamimi Sabli, Mustaffa Mohamed Zain at Invention, Innovation and Design Exposition 2015 2014, Winner of the Best Paper Award, by Janggu, T., Darus, F., and Mohamed Zain, M., for the paper entitled, “The Impact of Board Directors’ Oversight Characteristics on Risk Management: An Empirical Analysis”, presented at the ICGA IConGFESR 2014 Conference, Trakya University, Edirne, Turkey 23–26 September 2014 2014, Silver Medal, Faizah Darus, Mustaffa Mohamed Zain, Haslinda Yusoff and Azlan Amran, for Innovation, Invention and Design (IIDEX 2014) Project—i-CSR Statement of Recommended Practice (SORP)—organised by University Technology MARA 2014, Winner of the Best Paper Award by Janggu, T., Darus, F., Mohamed Zain, M., and Sawani, Y., for the paper entitled “Does good corporate governance lead to better sustainability reporting? An analysis using structural equation modelling”, presented at the International Conference on Governance and Strategic Management (ICGSM) 2014, Manchester 14–16 April 2014

Refereed Publications (Selected) a. Empowering social responsibility of Islamic organizations through Waqf, Faizah Darus, Nurul Huda Ahmad Shukri, Haslinda Yusoff, Aliza Ramli, Mustaffa Mohamed Zain, Nur Ain Abu Bakar, 2017/12/1, Research in International Business and Finance, Volume 42, Pp. 959–965, Elsevier

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Acknowledgement

b.

c.

d.

e.

f.

g.

h.

i.

j.

Social responsibility disclosure in Islamic banks: a comparative study of Indonesia and Malaysia, Azlan Amran, Hasan Fauzi, Yadi Purwanto, Faizah Darus, Haslinda Yusoff, Mustaffa Mohamed Zain, Dayang Milianna Abang Naim and Mehran Nejati, 2017/4/10, Journal of Financial Reporting and Accounting, Volume 15/1. Pp. 99–115, Emerald Publishing Limited The Effects Of External Corporate Governance On Performance Of Federal Statutory Bodies In Malaysia, Abd Rahman Hj Ali1 , Mustaffa Mohamed Zain2 , Zubaidah Zainal Abidin3 and Roslani Embi4 , Journal of Governance and Intergrity, UMP, (in Print Nov 2017) Corporate Waqf: A Sustainable Model of Islamic Wealth Creation and Distribution, Mustaffa Mohamed Zain, 2 Faizah Darus, 3 Haslinda Yusoff, 4 Aliza Ramli and 5 Azlan Amran, Advance Science Letters (In Print Dec 2017) Environmental Reporting Practices by SMEs in Malaysia, Nik Zam Nik Wan, Siti Haliza Asat and Mustaffa Mohamed Zain, Proceedings of the Global Conference on Business and Economics Research (GCBER) 2017 14–15 August 2017, Universiti Putra Malaysia, Malaysia The Management And Mitigation Of Social Issues: Empirical Evidence From The Plantation Industry In Malaysia And Indonesia, Faizah Darus, Haslinda Yusoff, Yussri Sawani, Tamoi Janggu, and Mustaffa Mohamed Zain, International Journal of Econmic Management (In Print Dec 2017) Q4 Corporate Waqf: Discovering The Primary Challenges, Haslinda Yusoff, Faizah Darus, Mustaffa Mohamed Zain, Dayang Milianna Abang Naim and Azlan Amran, Humonamoids (Submitted May 2017—Review) Q2 Social responsibility disclosure in Islamic banks: a comparative study of Indonesia and Malaysia, Amran, Fauzi, Purwanto, Darus, Yusoff, Mohamed Zain, Abang Naim and Nejati, Journal of Financial Reporting and Accounting, Vol. 15 Issue: 1, pp. 99–115, doi: 10.1108/JFRA-01-2015-0016 (2017) Exploring Corporate Social Responsibility of Takaful Organizations Through the Lense of an Islamic CSR Framework, Faizah Darus, Haslinda Yusoff, Mustaffa Mohamed Zain and Mehran Nejati, International Journal of Business and Globalization, 2016, Vol. 17, No. 2, Pp 263–278 CSR TO i-CSR: Enhancing Corporate Social Accountability Practices of Islamic Organisations, Faizah Darus, Haslinda Yusoff, Mustaffa Mohamed Zain and Azlan Amran, Middle-East Journal of Scientific Research 24 (4) Pg. 1094–1103, 2016, ISSN 1990–

Acknowledgement

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9233, © IDOSI Publications, DOI: 10.5829/idosi.mejsr.2016.24. 04.22930 ISI, Scopus Q4, Scopus: H Index 10, Q3 Islamic Ethical Practices and the Marketplace: Evidence from Islamic Financial Institutions, Mustaffa Mohamed Zain, Faizah Darus and Aliza Ramli, Procedia Economics and Finance, Elsevier, Volume 28, 2015, Pages 266–273 (Sept 2015) An Islamic CSR Framework: Perception from Practitiners, Academicians and the General Public, Faizah Darus, Haslinda Yusoff, Normahiran Yatim, Aliza Ramli and Mustaffa Mohamed Zain, Procedia Economics and Finance, Elsevier, Volume 31, 2015, Pages 495–502 (Nov 2015) The Level of Knowledge of Corporate Governance in Federal Statutory Bodies in Malaysia, Abd Rahman Hj Alia, Mustaffa Mohamed Zain, Zubaidah Zainal Abidin and Roslani Embi, Procedia Economics and Finance, Elsevier, Volume 28, 2015, Pages 170–175 Fraudulent Financial Statement Detection Using Statistical Techniques: The Case Of Small Medium Automotive Enterprise, Journal of Applied Business Research, Volume 31, Number 4; Pg 1466 - 1 July/August 2015 Islamic Corporate Social Reporting: Perspective of Makasid al Shariah, Ahmad Issalih, F.M., Amran, A., Darus, F., Yusoff, H., and M Zain, M, (2015), Journal of Islamic Economics, Banking and Finance, Vol 11, No 1 (Jan–March 2015), 93–121 (ERA) Tax Incentive Booklet for SMEs in Malaysia, Nadiah And Hamid, Mustaffa Mohamed Zain, Rohaya Md Noor, Mohd Ridwan Mat Dangi, Rozainun Ali and Norshamimi Sabli, UPENA UiTM (2015) Islamic Corporate Social Responsibilities (i-CSR) Framework for Islamic Banks: Application of Maqasid al-Syariah and Maslahah Principles, Darus, F., Yusoff, H., Abang Naim, DM., M Zain, M., Amran, A., Fauzi, H., and Purwanto, Y., Issues in Social Environmental Accounting Vol 7, Issue 2, 102–112. 2014, (ISEA), ISSN: 1978–0591. (ERA) (under the review of Scopus and Copernicus index) Corporate Ibadah: an Islamic Perspective of Corporate Social Responsibility M Zain, M., Darus, F., Yusoff, H., Amran, A., Fauzi, H., Purwanto, Y., and Abang Naim, D.M. Middle-East Journal of Scientific Research 22 (2): 225–232, 2014, ISI, Scopus Q4, ISSN 1990–9233. Scopus: H Index 10, Q3 Does Good Corporate Governance Lead to Better Sustainability Reporting? An Analysis Using Structural Equation Modeling, Tamoi Janggu, Faizah Darus, Mustaffa Mohamed Zain, Yussri Sawani, Elsevier, Procedia—Social and Behavioral Sciences,

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ac.

Volume 145, 25 August 2014, Pages 138–145, ISSN: 18770428 (Scopus, H Index 12) Corporate Social Responsibility of Malaysian Islamic Banks: Are They Complying with the Shariah Principles?, Darus, F., Yusoff, H. Abang Naim, D.M., M Zain, M., Amran, A., Fauzi, H., and Purwanto, Y., Submitted to International journal of Business and Society (UMS) Scopus Q4 Under review Social Responsibility Reporting of Islamic Banks: Evidence from Indonesia, Darus, F., Fauzi, H., Purwanto, Y., Yusoff, H., Amran, A., M Zain, M, Abang Naim, D.M., and Nejati, M., (2014), International Journal of Business Governance and Ethics, Vol 9, No 4, 356–380. ISSN: 14779048, 1741802X (Scopus, H-index 6, Q3) Islamic Corporate Social Reporting: Perspective of Makasid al Shariah, Amran, A., Darus, F., Yusoff, H., M Zain, M., Fauzi, H., Purwanto, Y., and Abang Naim, D.M., Submitted to Journal of Islamic Economics, Banking and Finance ERA—C First review Social Responsibility Reporting of Islamic Banks: Evidences from Indonesia, Darus, F., M Zain, M, Yusoff, H., Amran, A., and Nejati, M., International Journal of Business Governance and Ethics, Vol. 9, No. 4, 2014 Scopus Q3 Islamic Corporate Social Responsibility (i-CSR): Application on Takaful Organisations, Darus, F., Yusoff, H., M Zain, M., Amran, A., Fauzi, H., Purwanto, Y., and Abang Naim, D.M., Submitted to Journal of Business Ethics Scopus Q1 Under review Islamic Social Responsibility Disclosure in Islamic Banks: A Comparative Study of Indonesia and Malaysia, Amran, A., Fauzi, H., Purwanto, Y., Darus, F., Yusoff, H., M Zain, M., Abang Naim, D.M., and Nejati, M., Submitted to Accounting Research Journal Scopus Q4 Impediments to CSR Assurance in an Emerging Economy Yussri Sawani, Faizah Darus, Mustaffa Mohamed Zain and Tamoi Janggu, Managerial Auditing journal (2014), Vol. 29 Iss: 3, pp. 253–267. [Scopus: Impact factor 3; H-Index = 15, Q2; ERA (B)] A Critical Evaluation of Assurance Statement on Corporate Social Responsibility and Sustainability Reporting in Malaysia, Tamoi Janggu, Yussri Sawani, Faizah Darus, Mustaffa Mohamed Zain, American Journal of Economics, ISSN: 2166–4951 e-ISSN: 2166–496X, 2013; 3(2): 100–102 Assurance of CSR and Sustainability Reports: Empirical Evidence from an Emerging Economy, Tamoi Janggu, Faizah Darus, Yussri Sawani, Mustaffa Mohamed Zain, Journal of Energy Technologies anf Policies, Vol 3, No 11 (2013), pp. 382–289, ISSN 2224–3232 Handbook of CSR and Sustainability, Mustaffa Mohamed Zain and Hasan Fauzi, UiTM Press (In Press)

Acknowledgement

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am.

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Developing and Implementing CSR, Hasan Fauzi, Kamil M. Idris, Mustaffa M. Zain, Lois Mahoney, and David Crowther, Gower Publishing Co. (UK) (2013) The Role Of Voluntary Codes In Improving Corporate Social Responsibility (CSR) Standards In The Australian Mining And Petroleum Industries, Tapan Sarker, Mustaffa Mohamed Zain, Azlan Amran and Maliah Sulaiman, Asian Journal of Business Ethics (Springer), (in Press) Empowering society for Better CSR: The Case of Malaysia, Azlan Amran, Tapan Sarkar, Mustaffa Mohamed Zain, Maliah Sulaiman and Say Keat Ooi, Kajian Malaysia, Vol. 31, no.1, Pp 57–58 The Impact of Firm Characteristics, Industry Types and Financial Ratios on SMEs Utilization of Tax Incentives, Nadiah Abd Hamid, Rohaya Md Noor, Mustaffa Mohamed Zain and Barjoyai Bardai, Journal of Modern Accounting and Auditing, Vol 8, No 6, Pg 749– 763 Factors Affecting Smes Successful Utilization Of Tax Incentives In Manufacturing Sectors. Nadiah Abd Hamid, Rohaya Md Noor and Mustaffa Mohamed Zain, Malaysian Accounting Review, Vol. 10 No. 1, 1–16, 2011. CSR Disclosure and its Determinents: Evidence from Malaysian Government Linked Companies, Nor Hawani Abd Rahman, Mustaffa Mohamed Zain and Norashfah Hanim Yaacob Yahaya Al-Haj (2011), Social Responsibility Journal, Vol. 7 Iss: 2, pp. 181–201 Preliminary Insights on Sustainability Reporting and Assurance Practices in Malaysia, Yussri Sawani, Mustaffa Mohamed Zain, Faizah Darus, (2010), Social Responsibility Journal, Vol. 6 Iss: 4, pp. 627–645 Editorial Notes, Issues in Social and Environmental Accounting, Sebelas Maret University, Indonesia, Vol 4 No 2, December 2010, pp 87–88. Environmental Reporting: Bringing ‘Public Eyes’ to Assist the Monitoring Process, Nik Zam Nik Wan, Mustaffa Mohamed Zain and Ruhaya Atan, IMPAK, Issue 4/2009, pp11. http://www. doe.gov. Corporate Social Disclosure in Government Linked Companies, Mohamad Fauzi Saat, Mustaffa Mohamed Zain, Rashidah Mohammad and Mohd Rashidee Alwi, a Chapter in Khairul Anuar Kamaruddin, Muhd Kamil Ibrahim, Wan Adibah Wan Ismail and Mustaffa Mohamed Zain (eds), ‘Financial Reporting in Malaysia: Further Empirical Evidence, UPENA, 2009 Corporate Responsibility: Concepts and Emerging Issues, Roshayani Arshad, Faizah Darus, Suani Othman, Mustaffa Mohamed Zain and Tay Kay Luan. UPENA 2009

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at. au.

av.

aw.

ax.

ay.

az.

Corporate social Responsibility Issues: Embracing Sustainability, Mustaffa Mohamed Zain, a Chapter in Roshayani Arshad, Faizah Darus, Suani Othman, Mustaffa Mohamed Zain and Tay Kay Luan, ‘Corporate Responsibility: Concepts and Emerging Issues’, UPENA 2009 Professorial Lecture: Corporate Social Responsibility in Malaysia, Mustaffa Mohamed Zain, UPENA 2009 Financial Reporting in Malaysia: Further Empirical Evidence, Khairul Anuar Kamaruddin, Muhd Kamil Ibrahim, Wan Adibah Wan Ismail and Mustaffa Mohamed Zain (eds), UPENA 2009 Malaysia: Value Relevence in Accounting Numbers, Mazurina Mohd Ali, Muhd Kamil Ibrahim, Rashidah Mohammad, Mustaffa Mohamed Zain and Mohd Rashidee Alwi, A Chapter in Samuel O. Idowu and Walter Leal Filho (eds), Global Practices of Corporate Social Responsibility, Springer 2009 Societal Advancement and Gender Equality, Sharifah Zahrah Syed Ahmad, Mustaffa Mohamed Zain and Nurol Ain Mustapha (eds), Ministry of Women, Family and Community Development, 2008 New Perspectives in Corporate Social Responsibility, David Crowther and Mustaffa Mohamed Zain (eds), UPENA, 2007 Understanding the Mindset of Administrators of Higher Learning Institutions in Malaysia—A Pilot Study. Mustaffa Mohamad Zain Norashfah Hanim Yaakop Yahaya Al-Haj and Nurol’ain Mustapha Oxford Business and Economics Conference, 24–26 June 2007 ISBN 978-0-9742114-7-3 CSR in Malaysia: The Dawn of a New Beginning, Mustaffa Mohamed Zain, a chapter in New Perspectives in Corporate Social Responsibility, David Crowther and Mustaffa Mohamed Zain (eds), UPENA, 2007 Positioning Malaysia in the International Arena, [Editors] Mustaffa Mohamed Zain, Norashfah Hanim Yaacob Yahaya, Nurol’ain Mustapha, Mimi Zaleha Abd Ghani, Perdana discourse series, No.5/2006, UPENA The Impact Of Environmental Marketing On The Manufacturing Companies (Food And Beverages): A Sarawak State Perspective, Mohd Rashidee Alwi, Mustaffa Mohamed Zain and Rashidah Mohammad, a chapter in New Perspectives in Corporate Social Responsibility, David Crowther and Mustaffa Mohamed Zain (eds), UPENA, 2007 The Impacts Of Network Relationships On Smes’ Internationalization Process, Mustaffa Mohamed Zain and Siew Imm Ng, Thunderbird International Business Review Volume 48, Issue 2, pages 183–205, March/April 2006 Political Stability and Sustainability as Key Success Factors in Developing Malaysia, (Editors), Mustaffa Mohamed Zain,

Acknowledgement

ba.

bb.

bc.

bd.

be.

bf.

bg.

bh.

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IV.

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Norashfah Hanim Yaacob Yahaya, Nurol’ain Mustapha, Mimi Zaleha Abd Ghani and Zarina Abu Bakar, (2006), Perdana Discourse Series No 4/2006, UPENA Corporate Social Responsibility Disclosure in Malaysia, Mustaffa Mohamed Zain, Rashidah Mohammad and Muhd Kamil Ibrahim, UPENA, 2006 Corporate Social Disclosure (CSD) of Construction Companies in Malaysia, Mustaffa Mohamed Zain and Tammoi Janggu, Malaysian Accounting Review, Volume 5, No 1, May 2006 Corporate Social Disclosure: The Effect of Culture and Religion Mustaffa Mohamed Zain and Rashidah Mohammad, (2005), a Chapter in Kiymet Tunca Caliyurt and David Crowther Globalisation and Social Responsibility, Cambridge Scholars Press, April 2006 Corporate Responsibility Disclosures: Miscommunication Between Providers and Users of information, Mustaffa Mohamed Zain, Rashidah Mohammad and Mohd Rashidee Alwi, Social Responsibility Journal U.K., Volume 2, No1, May 2006 Pergerakan kualiti di UiTM, Mustaffa Mohamed Zain Mustaffa Mohamed Zain: Shah Alam: Pusat Penerbitan Universiti (UPENA), Universiti Teknologi MARA, ISBN: 9833644120, 2006. Financial Reporting in Malaysia: Some Empirical Evidence* Khairul Anuar Kamaruddin, Muhd Kamil Ibrahim and Mustaffa Mohamed Zain (eds), Utusan Publication Distribution. 2004 An Investigation of Voluntary Disclosure in Annual Reports: The Malaysian Evidence, Mohd Shatari Ghaffar, Muhd Kamil Ibrahim and Mustaffa Mohamed Zain, Chapter in Khairul Anuar et al. (eds), Financial Reporting in Malaysia: Some Empirical Evidence Utusan Publication Distribution, 2004 Disclosure of Financial Ratio in Annual Report: Evidence from Malaysia, Mokhtar Awang, Mustaffa Mohamed Zain dan Muhd Kamil Ibrahim, Chapter In Khairul Anuar Kamaruddin et al (eds), Financial Reporting in Malaysia: Some Empirical Evidence Utusan Publication Distribution, 2004 The Driving Forces Behind Malaysian Corporate Social Reporting, The National Accounting Research Journal, Vol 2, No. 1/ 2004. Pp. 89–111.

Abstract in Journals 1. The Driving Forces Behind Malaysian corporate Social Reporting, Social Responsibility World of RecordPedia, ANSTED University, 2004 2. The Effect of Culture and Market in Malaysian Corporate Social Disclosure*Mustaffa Mohamed Zain and Rashidah

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V.

Mohammad, Journal of Financial Reporting, Universiti Teknologi MARA UiTM—ACCA, Financial Reporting and Research Centre (FRRC) 2002 Corporate Social Reporting in Malaysia: Is There a Gap* Mustaffa Mohamed Zain, Journal of Financial Reporting, Universiti Teknologi MARA UiTM—ACCA, Financial Reporting and Research Centre (FRRC), 2002 The Philosophy of Science and Corporate Social Reporting* Mustaffa Mohamed Zain, Journal of Financial Reporting, Universiti Teknologi MARA UiTM—ACCA, Financial Reporting and Research Centre (FRRC) 2002

Proceedings, Non Refereed Journals and Monographs (Selected) 1. Motovations to Corporate Socail Responsibility Assurance Practices: Evidence From the Manufacturing Industry, Yussri Sawani, Faizah Darus, Mustaffa Mohamed Zain and Tamoi Janggu, 8th International Conference on Financial Criminology (ICFC) 2017, Dorsett Putrajaya, Malaysia 2. The Effects of Internal Corporate Governance on Performance of Federal Statutoty Bodies in Malaysia, Abd Rahman Ali, Mustaffa Mohamed Zain, Zubaidah Zainal Abidin and Roslaini Embi, 8th International Conference on Financial Criminology (ICFC) 2017, Dorsett Putrajaya, Malaysia 3. Exploring Corporate Waqf Management And Its Challenges In Malaysia, Haslinda Yusoff, Faizah Darus, Mustaffa Mohamed Zain and Aliza Ramli, 4th ICGA, Melaka 25–27 Sept, 2016 4. Content Analysis In ESG Reporting: The Development Of Esg Grid And Application In Malaysian Companies, Nur Syuhada Binti Jasni, Haslinda Yusoff, Mustaffa Mohamed Zain, Noreena Md Yusoff and Nor Syafinaz Shaffee, 4th ICGA, Melaka 25–27 Sept, 2016 5. Empowering Social Responsibility Of Islamic Organizations Through Waqf, Chong Faizah Darus, Nurul Huda Ahmad Shukri, Haslinda Yusoff, Aliza Ramli, Mustaffa Mohamed Zain and Nur Ain Abu Bakar, 4th ICGA, Melaka 25–27 Sept, 2016 6. The I-CSR Disclosure And I-SORP: Some Evidence From Shari’ah Compliant Companies, Syaima’ Binti Abdul Ghani, Mustaffa Mohamed Zain, Faizah Darus and Haslinda Yusoff, 4th ICGA, Melaka 25–27 Sept, 2016 7. Islamic Corporate Social Responsibility (i-CSR) and Stakeholders Engagement: A Conceptual Framework, Mustaffa Mohamed Zain, Aliza Ramli, Fadzlina Mohd Fahmi and Faizah Darus, 3rd International Corporate Givernance and Accountability Conference, Erdine, Turkey ICGA (2014) 8. Islamic Corporate Social Responsibility (i-CSR) and the Marketplace Mustaffa Mohamed Zain, Faizah Darus, Azlan Amran and

Acknowledgement

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Haslinda Yusoff, 3rd International Corporate Givernance and Accountability Conference, Erdine, Turkey, ICGA (2014) The Impact of Board of Directors’ Oversight Characteristics on Risk Management: An Empirical Analysis. Janggu, T., Darus, F., and Mohamed Zain, M., (2013). Conference proceeding. 3rd International Conference and Accountability (ICGA 2014), Balkan Convention Center Trakya University, Turkiye. September 23–26, 2014 Does Good Corporate Governance Lead to Better Sustainability Reporting? An Analysis Using Structural Equation. Janggu, T., Sawani, Y., Darus, F., and Mohamed Zain, M., (2014). International Conference on Governance & Strategic Management (ICGSM 2014). April 14–16, 2014. Corporate Social Responsibility Assurance Practices in Malaysia: The Stakeholder and Institutional Perspectives’, Yussri Sawani, Faizah Darus, Mustaffa Mohamed Zain and Tamoi Janggu, ICEBR 2013 Critical Evaluation of Assurance Statement on Corporate Social Responsibility and Sustainability Reporting in Malaysia, Tamoi Janggu, Yussri Sawani, Faizah Darus and Mustaffa Mohamed Zain, 2nd Global Conference for Academic Research on Management and Economics CORPORATE IBADAH, Mustaffa Mohamed Zain, Faizah Darus, Haslinda Yusoff, Azlan Amran, Hasan Fauzi, Yadi Purwanto and Dayang Milianna Abang Naim, Terengganu International Business and Economic Conference, Pantai Primula Hotel Terengganu, 18– 21st October 2012 (ISBN: 978-983-99919-7-0) “Islamic Corporate Social Responsibility (i-CSR) Framework for Islamic Banks: Application of Maqasid al-Syariah and Maslahah Principles”, Darus, F., Yusoff, H., Abang Naim, DM., M Zain, M., Amran, A., Fauzi, H., and Purwanto, Y., (2012), International Islamic Accounting and Finance Conference (IIAFC) 2012, Kuala Lumpur, Malaysia, 19–21 November 2012, (ISBN No: 978-967-11199-8-3). “Islamic Corporate Social Reporting: Perspective of Makasid al Shariah”, Issalih, F.M., Amran, A., M Zain, M., and Darus, F., (2012), International Islamic Accounting and Finance Conference (IIAFC) 2012, Kuala Lumpur, Malaysia, 19–21 November 2012, (ISBN No: 978-967-11199-8-3). “Corporate Social Responsibility of Malaysian Islamic Banks: Are They Complying With the Shariah Principles?” Darus, F., Yusoff, H., Abang Naim, DM., M Zain, M., Amran, A., Fauzi, H., and Purwanto, Y., 2012, Islamic Banking, Accounting and Finance Conference 2012, Faculty of Economics and Muamalat, Islamic Science University of Malaysia, Bandar Baru Nilai, Negeri

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17.

18.

19.

20.

21.

22. 23.

24.

25.

26.

27.

Sembilan, Malaysia 2–3 October 2012, (ISBN No: 978-967-585220-6) Environmnetal Guidelines For Malaysian SMEs to be Equally Accountable’, Nik Zam Nik Mustadffa Mohamed Zain and Ruhaya Atan, Asean Entrepreneurship Conference 2012, 5–6 November 2012, Sunway Hotel Resort & Spa, Kuala Lumpur, Malaysia Impact of Tax Incentives on SMEs Performance’, Nadiah Abd Hamid, Rohaya Md Noor, Mustaffa Zain and Barjoyai Bardai, 2011 International conference on Economics, Business and Management (CEBMM, 2011), 11–13 March, Shanghai, China Determinants of successful Utilization of Incentives in SMEs Manufacturing Sectors’, Nadiah Abd Hamid, Rohaya Md Noor, Mustaffa Zain and Barjoyai Bardai, 2010 International Conference on Science and Social Research (CSSR 2010), Dec 5–7, Kuala Lumpur, ISBN 978-1-4244-8987-9 The Effect Of Environmental Reporting On Share Price Among Companies In Malaysia, Inayah Abdul Aziz, Moktar Awang, Merani Che Ali, And Mustaffa Mohamed Zain The Effect Of Covergence To Ifrs On The Value Relevance Of Accounting Numbers: The Case Of Malaysia And Singapore 783– 789 Noraini Mohd Nasir, Muhd Kamil Ibrahim, Mustaffa Mohamed Zain and Radiah Othman, Proceedings of Applied International Business Conference 2008, 6–8 November 2008, Grand Dorsett Hotel, FT. Labuan, Malaysia Mustaffa Mohamed Zain, (2006), “Pergerakan Kualiti UiTM”, UPENA ISBN: 9833644120 Understanding the Mindset of Administrators of Higher Learning Institutions in Malaysia– A Pilot Study. Mustaffa Mohamad Zain, Norashfah Hanim Yaakop Yahaya Al-Haj and Nurol’ain Mustapha, Oxford Business and Economic Conference (2007) ISBN 978 0 9742114 7 3 ‘Corporate Social Reporting in Malaysia: Is There a Gap?’, Mustaffa Mohamed Zain, (2001), Proceeding in the 3rd Asian Accounting Academic Conference ‘The Driving Forces Behind Malaysain Corporate Social Disclosures’, Mustaffa Mohamed Zain, (2004), Proceeding in 2nd. Corporate Social Responsibility Conference in Peneng ‘Corporate Social Disclosure: The Effect of Culture and Religion’ Mustaffa Mohamed Zain and Rashidah Mohammad, (2005), Proceeding in the 3rd Corporate Social Responsibility Conference in Udaipur India ‘Corporate Social Disclosure: Miscommunication Between Providers and Users of Information’ Mustaffa Mohamed Zain, Rashidah Mohammad and Mohd Rashidee Alwi (2005), Proceeding in the 4th Corporate Social Responsibility Conference in London,

Acknowledgement

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29.

30.

31.

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‘Laws of Marriage: Christianity Versus Islam’, Mustaffa Mohamed Zain dan Rashidah Mohammad (1994) Jurnal Akademik, UiTM Sarawak, Malaysia. ‘How to remember better and longer–the old-fashioned way’, Mustaffa Mohamed Zain, (2005), Resipi Kecemerlangan Diri II, UPENA, UiTM Terengganu ‘Kegagalan Pelajar Menamatkan Pengajain Dalam Tempoh Minima Yg Ditetapkan’, Rosman Mahmood, Mustaffa Mohamed Zain, Mokhtar Awang, Ahmad Suffian Mohd Zahari, (2005) Proceeding in The 4th Acedemic Conference, UiTM Terengganu ‘Keperluan Pusat Pelajar Di Kampus UiTM Terengganu’, Mustaffa Mohamed Zain, Zamri Mohd Noor, Rosman Mahmood, Hussin Dollah, Mohd Rafi Yaakob. (2005) Proceeding in The 4th Acedemic Conference, UiTM Terengganu ‘Perlaksanaan ISO: Cabaran dan Kesediaan Warga’ Mustaffa Mohamed Zain, Rosman Mahmood and Md Noh Majid, (2005), Proseeding in the Seminar Kebangsaan Perlaksanaan Piawaan ISO 9001:2000 di IPTA, Bukit Kluang Beach Resort, Terengganu

Research Grants, Contracts and Projects 1. Social Accountability Value: Integrating Governance And Risk Management Business Model For Social Enterprises 600IRMI/FRGS 5/3 (071/2017) RM55,000 2. Strategic Environment, Social and Governance for Effective Sustainability Value Creation, 600-IRMI/FRGS 5/3 (059/2017) RM65,720 3. Waqf and Its impact on SMEs Wealth Creation, Mustaffa Bin Mohamed Zain Faizah Binti Darus, Aliza Bte Ramli, Haslinda Binti Yusoff, 600-RMI/ARI 5/3, 2016–2017, RM10,000 4. Integrated Sustainability Risk Management and Value Creation: An Institutional Approach, Faizah Darus, Mustadffa Mohamed Zain, Tamoi Janggu and Yusri Sawwani, FRGS, RM 59,500 2015– 2016 5. I-CSR General Reporting Framework For Islamic Organisations, Faizah Binti Darus, Mustaffa Bin Mohamed Zain, Nawal Binti Kasim, Aliza Bte Ramli, Haslinda Binti Yusoff, Normahiran Binti Yatim and Fadzlina Bt Mohd Fahmi, 600-RMI/ARI 5/3(13/2013), RM100,000 6. I-CSR General Practice Framework Islamic Organizations, Faizah Darus, Mustaffa Mohamed Zain, Haslinda Yusoff, Azlan Amran, Hasan Fauzi, Yadi Purwanto and Dayang Milianna Abang Naim. Accounting Research Institute (ARI), Phase 2, RM40,000 7. Fraudulent Activities In Small Medium Automative IndustryControl Mechanism Model Part 2, Rohana Bt Othman, Mustaffa Bin Mohamed Zain, Siti Maznah Binti Mohd Arif and. Nooraslinda

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Binti Abdul Aris, 600-RMI/DANA 5/3/PSI (356/2013), RM 40,000 ‘Formulating a new model in explaining Malaysian companies’ behaviour towards social responsibility assurance’ with Faizah Darus, Yusri Sawani and Tamoi Janggu. RM50,000 Sept 2010– Feb 2012 ‘Improving corporate social responsibility (CSR) standards in the oil and gas industry: A comparison of Malaysia and Australia’, with Tapan Sarkar, Malcolm Mcintosh, Maliah Suilaiman and Azlan Amran, Australia-Malaysian Institute, RM90,000, September 2010–June 2011 The Effectiveness of Investment Tax Incentives on SMEs’ Performance: Pioneer Status and Investment Tax Allowance’, with Rohaya Md Nor and Nadiah Abd Hamid, Grant amount RM 44,400. March 2010–February, 2012 ‘The Stages of CSR Development: A Comparison Between Developing Countries (Indonesia and Malaysia) and Developed Country (UK), with Hasan Fauzi and David Crowther, Grant Amount RM100,000 September 2010–August 2013 Mustaffa Mohamed Zain et al. “Samarahan Environmental Master Plan”, Sarawak State government, Grant Amount RM250,000, 2003–2005 ‘An Investigation of the Voluntary Disclosure in the Annual Reports: The Malaysian Evidence’ with Shatari Abd. Ghaffar and Muhd Kamil Ibrahim (2002), Conference on Created on 12/21/2003 3:13 PMFinancial Reporting, UiTM-ACCA Financial Reporting Research Centre (FRRC), Intekma Resort, Shah Alam, Malaysia. ‘The effect of Environmental Reporting on Share PricesAmong Companies in Malaysia’ with Inayah Abd Aziz, Mokhtar Awang and Merani Che ali (2005–2008, Research Management Institute, Grant Amount: RM10,000 ‘Selection of External Auditor: Emperical Evidence from Malaysian Market’, with Muhd Kamil Ibrahim and Johari Samidi, IRDC, Grant Amount: RM12607 An Analysis of Corporate Donations: Malaysian Evidence’ with Muhd Kamil Ibrahim and Rashidah Mohammad, IRDC, Grant amount RM13,000 “E-Learning for full time Students in UiTM Terengganu” With Rosman Mohamed, Norazman Harun, and Nasrudin Mohammed, Institute of Research, Development and Commercialization, UiTM, Research Grant RM 9,900

Acknowledgement

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“Determinants of Bachelor in Accounting Students: A Tracer Study” with Jamaluddin Helmi and Norazamina Mohamad, Institute of Research, Development and Commercialization, UiTM, Research Grant RM10,000 “Kegagalan Pelajar Menamatkan Pengajain Dalam Tempoh Minima Yg Ditetapkan”, Rosman Mahmood, Mustaffa Mohamed Zain, Mokhtar Awang, Ahmad Suffian Mohd Zahari, Institute of Research, Development and Commercialization, UiTM, Research Grant RM9,000 “Keperluan Pusat Pelajar Di Kampus UiTM Terengganu”, Mustaffa Mohamed Zain, Zamri Mohd Noor, Rosman Mahmood, Hussin Dollah, Mohd Rafi Yaakob Mokhtar Awang, Mustafa Mohamed Zain dan Muhd Kamil Ibrahim, (2002) “Disclosure of Financial Ratio in Annual Report: Evidence from Malaysia” Mokhtar Awang and Mustaffa Mohamed Zain, (2002), “The Determinants of Firms’ Extensive Disclosure of Financial Ratio” Allan Chang, Mustaffa Mohamed Zain (1993), “Kajian Sistem Keselamatan ITM Sarawak” Geran Penyelidikan: IRDC UiTM Sarawak RM5,000 Mustaffa Mohamed Zain, (1994) Mengkaji, Menilai dan Menyiapkan Sistem Perakaunan “Grant Perundingan: Kumpulan Prosel Electrical and Supplies, Terengganu, Amount RM24,000

Key Note Addresses and Paper Presentations (Selected) 1. Terengganu Bendahari 2. Motivation Talk ‘Ibadah and at the Workplace’, Program Pemantapan Diri dan Minda, Accounting Research Institute, Kundasang Sabah, 17 May 2017 3. The I-CSR Disclosure And I-SORP: Some Evidence From Shari’ah Compliant Companies, Syaima’ Binti Abdul Ghani, Mustaffa Mohamed Zain, Faizah Darus and Haslinda Yusoff, 4th ICGA, Melaka 25–27 Sept, 2016 4. Forum Panelist, ‘Building successful partnerships between academics and industry: Sustainable and accountable practices’, 4th ICGA, Melaka 25–27 Sept, 2016 5. ‘Islamic Corporate Social Responsibility (i-CSR) and Stakeholders Engagement: A Conceptual Framework’, Mustaffa Mohamed Zain, Aliza Ramli, Fadzlina Mohd Fahmi and Faizah Darus, 3rd ICGA Conference, Trakya University, Turkey, 23th Sept, 2014 6. Islamic Corporate Social Responsibility (i-CSR) and the Marketplace Mustaffa Mohamed Zain, Faizah Darus, Azlan Amran and Haslinda Yusoff, 3rd ICGA Conference, Trakya University, Turkey, 23th Sept, 2014

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Acknowledgement

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8.

9.

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11.

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13. 14.

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CSR to i-CSR: Enhancing Corporate Social Accountability Practices of Islamic Organisations, Faizah Binti Darus (Dr), Haslinda Binti Yusoff (Dr), Mustaffa Bin Mohamed Zain (Dato’ Prof.) (Dr.) (Haji), Azlan Amran, Mehran Nejati, 3rd International Conference on Governance & Accountability, Trakya University, Turkey, 23th Sept, 2014 Fraudulent Financial Statement Detection in Small Medium Automotive Using Statistical Techniques, Nooraslinda Binti Abdul Aris, Siti Maznah Binti Mohd Arif, Rohana Bt Othman (Prof. Dr.), Mustaffa Bin Mohamed Zain (Dato’ Prof.) (Dr.) (Haji), Global Conference on Business and Social Science, Kuala Lumpur, 15th Dec 2014 Islamic Corporate Governance and Accountabity, Workshop for Islamic CSR, Islamic Banks and Finance Institute Malaysia (IBFIM), Nov 6th, 2012 Petronas CSR and Sustainability Practices: A Case for Accountability, Asia Pacific Centre for Sustainability (APCeS) Workshop 14–15 th June 2011 PETRONAS CSR and sustainability Practices: Accountability or Legitimacy’, Visiting Professorial Lecture Griffith University, Brisbane, Australia. March 12th 2011 CSR in Malaysian Oil and Gas Industries: PETRONAS, Asia Pacific Centre for Sustainable Enterprise Workshop, Griffith University, Brisbane Australia, October 1–3, 2010. Leadership for Creating World Class University Brand and Positioning. AKEPT, 13, 14, 15 and 16 December 2010 Environmental Management Screening and Via Scorecard, 1st International Conference on Governance and Accountability, Solo, Indonesia 2010 Asia-Pacific International conference on Forensic Accounting and Financial Criminology. Jointly organized by ARI, Royal Malaysian Police, Association of Certified Fraud Examiners (ACFE Malaysia Chapter), the Centre for Fraud and Financial Crime, Teesside University (United Kingdom, Menara Kuala Lumpur, 16th June 2009 ‘Quality Learning and Teaching in Higher Education’ Organized by Australian Higher Educatiopn and The Ministry of Higher Education Malaysia, Hotel Nikko, KL, 10th–11th August Meeting The Educational Needs of Matured Students and Working Adults: What Should be the focus’ 2nd Annual Higher Education Conference, Berjaya times Square, KL, 25th–26th June 2009 ‘CSR and its Competitive Advantage, Conference on Corporate Social Responsibility. Jointly organized by Asia Pacific Centre for sustainability (APCeS) and Association of Certified Cartered

Acknowledgement

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20. 21. 22.

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Accountant (ACCA), Grand Bluewave Hotel, Shah Alam, 2nd July 2009 CSR Practices in Malaysia: Do They Need to Change?’, Global Conference on Enhancing the Role of Philanthropy in Challenging Times. Organized By Philantrophy Asia. Nikko Hotel, KL, Jul 22– 23, 2009 Academic Blue Print’, Konferensi Pendidikan Islam, Pasir Gudang Johor, 18th–20th June 2009 Embracing Internationalization: Our Formula’, Academic Conference, UiTM, 15–16 December, 2008 The Effect Of Covergence To Ifrs On The Value Relevance Of Accounting Numbers: The Case Of Malaysia And Singapore 783–789 Noraini Mohd Nasir, Muhd Kamil Ibrahim, Mustaffa Mohamed Zain and Radiah Othman, Proceedings of Applied International Business Conference 2008, 6–8 November 2008, Grand Dorsett Hotel, FT. Labuan, Malaysia ‘A Study on Knowledge Sharing Behaviour among Academics at UiTM Shah Alam’, The Seventh International Conference on Knowledge, Culture and Change Organization, Singapore Management University, 24–27 July Norashfah Yaakop Yahaya Al-Haj, Mustaffa Mohamed Zain, Nurol’Ain Mustapha (2007) Understanding the Mindset of Administrators of Higher Learning Institutions in Malaysia– A Pilot Study. Oxford Business and Economics Conference, 24–26 June 2007, Mustaffa Mohamad Zain, Norashfah Hanim Yaakop Yahaya Al-Haj and Nurol’ain Mustapha The Impact Of Environmental Marketing On The Manufacturing Companies (Food And Beverages): A Sarawak State Perspective”, 6th International Conference on Corporate Social Responsibility in Kuala Lumpur 2007, Mohd Rashidee Alwi, Mustaffa Mohamed Zain and Rashidah Mohammad Corporate Social Disclosure in Government Linked Companies”, 5th Corporate Social Responsibility Conference in Erdine, Turkey 2006, Mustaffa Mohamed Zain, Mohamad Fauzi Saat, Rashidah Mohammad and Mohd Rashidee Alwi. Corporate Social Disclosure: Miscommunication Between Providers and Users of Information, 4th Corporate Social Responsibility Conference in London, UK, Mustaffa Mohamed Zain, Rashidah Mohammad and Mohd Rashidee Alwi (2005) Corporate Social Disclosure: The Effect of culture and Religion, 3rd Corporate Social Responsibility Conference in Udaipur India, 2005 Mustaffa Mohamed Zain and Rashidah Mohammad The Driving Forces Behind Malaysain Corporate Social Disclosures, 2nd. Corporate Social Responsibility Conference in Peneng 2004

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31. VIII.

Perlaksanaan ISO: Cabaran dan Kesediaan Warga Seminar Kebangsaan Perlaksanaan Piawaan ISO 9001:2000 di IPTA, Bukit Kluang Beach Resort, Terengganu, Mustaffa Mohamed Zain, Rosman Mahmood and Md Noh Majid, (2005) Corporate Social Reporting in Malaysia: Is There a Gap?, 3rd Asian Accounting Academic Conference

Supervision 1. ‘Ethical Strategies on Corporate Social Behaviour for Business Sustainability: A Study of FTSE4 Good Bursa Malaysia Index’ Nur Shuhada Binti Jasni, Ph.D., Fakulti Perakaunan, UiTM 2016, (Ongoing) 2. ‘The Effects of Corporate governance On Financial Performance of Federal Statutory Bodies in Malaysia’, Dato Sri Abd Rahman Hj Ali, Ph.D., Faculty Perakaunan, UiTM 2013 (Ongoing) 3. ‘CSR in Oil and Gas Industry: Employees Awareness’, Fahimmatul Azian Mokhtar, Master In Accounting, Fakulti Perakaunan, 2013 (Completed) 4. ‘Sustainability Practices: Water’, Master In Accounting, Nur Farhana Suffari, Fakulti Perakaunan, 2013 (Completed) 5. “Measuring the benefits of Community Engagement from Students’ perspective” Ellen Chung Siew Mee, Ph.D. dissertation, University of Melbourne, Australia (Completed) 6. ‘The Dominance of Directors, Audit Committee Effectiveness and Accounting Conservatism: Malaysian Evidence’, Mohd Shatari Abd Ghafar Ph.D. Dissertation, Fakulti Perakaunan, UiTM Shah Alam, 2011 (Completed) 7. ‘Sustainability—Beyond enterprise risk management: Malaysian environment’, Tamoi Janggu Ph.D. Dissertation, Fakulti Perakaunan, UiTM Shah Alam, (On Going) 8. ‘Corporate Social Responsibility Assurance Practices in Malaysia: A Stakeholder and Institutional Forces Perspectives’, Yusri Sawani, Ph.D. Dissertation, Fakulti Perakaunan, UiTM Shah Alam (On Going) 9. ‘Corporate Environmental and Sustainability Development: The Malaysian Perspectives’, Nik Zam Nik Wan, Ph.D. Dissertation, Fakulti Perakaunan, UiTM Kelantan (On Going) 10. ‘Tax Incentives And Companies’ Performance: An Investigation On Successful And Unsuccessful Utilization Of Tax Incentives By Smes In Malaysia. Nadiah Abd Hamid, Ph.D. Dissertation, Fakulti Perakaunan, UiTM Shah Alam 2015 (Completed) 11. “Value Relevence of Book Values and Earnings Comparison Between Malaysia and Singapore”, Noraini Mohd Nasir, Ph.D. Dissertation, Fakulti Perakaunan, UiTM Shah Alam (On-going).

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‘CSR Disclosures and its Determinents: Evidence from Malaysian Government Link Companies’ Nor Hawani Wan Abd Rahman, Master In Accounting, Fakulti Perakaunan, UiTM Pahang, 2008–Completed ‘Corporate Disclosure of the Elements of Management Commentary in the Annual Reports of Malaysian Companies’, Tina Stephen, Master In Accounting, Fakulti Perakaunan, UiTM Sarawak, (On-going) ‘Corporate Social Disclosure in Plantation Companies in Malaysia’, Hasniza, Master In Accounting, Fakulti Perakaunan, UiTM Shah Alam, 2008—Completed ‘The Determinants of GST’ Isa @ Daniel Sulaiman, Master In Accounting, Fakulti Perakaunan, UiTM Sarawak, (2006) Completed “Corporate Social Disclosure in Government Linked Companies”, Mohamad Fauzi Saat, Master In Accounting, Fakulti Perakaunan, UiTM, (2005)—Completed “Corporate Social Responsibility of Sarawak-based Companies Listed In KLSE”, Tamoi Janggu, Master In Accounting, Fakulti Perakaunan, UiTM Sarawak, (2004)—Completed “Environmental Management Accounting: An Exploratory study of Current Practice for ISO 14001 Malaysian Companies Accredited by SIRIM”, Yusri Sawani, Master In Accounting, Fakulti Perakaunan, UiTM Sarawak, (2004)—Completed “The Determinents of Firms Extensive disclosure of Financial Ratios in the Annual Reports: An Empirical Evidence”, Mokhtar Awang, Master In Accounting, Fakulti Perakaunan, UiTM Shah Alam, (2002)—Completed An Empirical Investigation of Fixed Asset Revaluations: Malaysian Evidence, Mohd Rizuan Abd Kadir, Master In Accounting, Fakulti Perakaunan, UiTM Shah Alam (2002)— Completed A Study on the Payment of Retirement Benefits of Employee Provident Fund, Mos Bin Bujang, Bachelor in Accounting, UiTM Sarawak, (1998)—Completed Financial Statement as Decision Makaing Tools for Managers: A Case Study on Bank Pertanian Malaysia, Chebby Loren, Bachelor in Accounting, UiTM Sarawak, (1998)—Completed

13.

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Examiner 1. ‘Environmental Accounting Practices in Indonesia: Casec Study on State Owned Enterprises’ Sarah Yuliani, Ph.D., UUM, 2017 2. ‘Understanding the Practices of Accounting Policy Treatment for Zakat Measurement in Islamic Banks: The Case of Bank Islam Malaysia Bhd’, Salaheddin Alasheg, Ph.D., UiTM, 2017

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3. 4.

5.

6.

7.

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11.

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14.

15.

‘CSR and Customer Satisfaction: The Case of Islamic Banks in Palestine’, Nael Y. M Syed Ahmed, Ph.D., UIA, 2017 ‘Women Directors, Corporate Social Responsibility Disclosure and the Moderating Role of Political connection and CultureEvidence from Listed Companies in Malaysia’ Intan Maiza Abd Rahman, Ph.D., UUM 2016 ‘Corporate Social Respinsibility and customer Satisfaction: The case of Islamic Banks in Palestine’, Nael Y M Sayadahmed, Ph.D., UIA, 2016 ‘The Relationship Between Religiosity Awareness of Corporate Social Responsibility, Demograghics and Perception of the Importance of CSR among Muslim Jordanian Investors, Jehad Saleem Mohammad AlTawil, Ph.D., USM (2016) ‘Earnings Management and Corporate Tax Planning: The Impact on Firms’ Value’, Nik Mohd Norfadzillah Bin Nik Mohd Rashid, Ph.D., Ph.D., Faculty of Accountancy, UiTM (2016) ‘Environment Disclosures and the Potential Contributing Factors: An Investigation on the Consumer Products Indusrty in Malaysia’, Siti Rubiah Kadir, Master of Accounting, UiTM, 2016 The Effect of Goods and Services Tax (GST) implementation on Tax Agents Job Burn-Out, Hakimah ‘Aisyah Mohammad Taib, Master of Accounting, UiTM, 2016 ‘Carbon Disclosure in Malaysia: A Resource Constraint Perspective’, Hidayatul Izati Binti Mohd Zuki, Master of Accounting, UiTM, 2016 Investigating the effect of Demographic Background, Core Competency Functions and Effective Training Towards the Performance of Tax Auditors in Inland Revenue Board Malaysia’, Siti Hajar Binti Abdul Kadir, Master of Accounting, UiTM, 2016 The Role of Consistence in Syariah Status on the Relationship Between Internal Corporate Governance Mechanisms and Investors’ Confidence: Evidence Among Indonesian Shariah Compliant Companies, Risna Wiyayanti, Universiti Sains Malaysia, (2015) Adoption of Environment Management Accounting: An Investigation of Companies in Environmentally Sensitive Industries, Avylin Roziana Bt Mohd Ariffin, Ph.D., International Islamic University Malaysia (2015) Tax Non-Compliance of Small and Medium-Sized Corporations (SMCs) and Tax Auditor’s Aggressiveness in Judgement When Auditing SMCs, Nor Azrina Bt Mohd Yusof@Ghanu, Ph.D., Faculty of Accountancy, UiTM (2015) Board Diversity, Corporate Governance Mechanism and Corporate Responsibity Disclosure Of Jordanian Listed Companies

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(2015) Abdul-Hadi Muhammad Ahmad Ibrahim, Ph.D., Faculty of Economics and Muamalat, USIM Social Accounting Disclosure From The Islamic Perspective: A Case of Islamic Banks (2015), Fairoz Mhemed Ahmad Issalih, Ph.D., USM Why Does the Business Involve in Corporate Social Responsibility?: A Case Study of Multinational Corporations and Government Link Company (2015), Fathilatul Zakimi bin Abdul Hamid, Ph.D., Faculty of Accountancy, UiTM Influences Of Market Orientation On Sustainability Of Islamic Microfinance Institution In Malaysia, Sohiel Kazeman, Ph.D., UiTM, (2014) The Relationship Between Environmental Performance and Financial Performance: An Empirical Study on Saudi Arabia, Manal Mohammed Moudani, Ph.D., International Islamic University Malaysia (2014) Factors Influencing Corporate Social Respionsibility Disclosure by Islamic Banks, Abdullah Awadh Abdullah Bakar, Ph.D., Universiti Utara Malaysia (2014) The Effects of Corporate Efficiency Performance on the Relationship Between Corporate Efficiency Strategy and Corporate Financial Performance, Rafat (Moh’d Soudki) M Albatayneh, Ph.D., Universiti Utara Malaysia (2014) Factors Influencing Environmental Management Practices Towards Clean Development Mechanism in Malaysia, Zainorfah Binti Zainuddin, Master of Accounting, Universiti Sains Malaysia (2014) Towards Goods and Services Tax (GST): Insights from Business Field, Haida Binti Sharim, Master Forensic Accounting, UiTM (2014) Tax Compliance Behaviour Amongst Academician of Higher Education Provider (HEP) at Alor Gajah District, Azuan Che Lah, Master of Accounting, UiTM. (2014) Sustainability and Organizational Change: A Case Study of a Malaysian Public Listed Company, Rusliana Yusoff, Ph.D., Universiti Sains Malaysia (2013) CSR and Value Creation: A study among Financial Institutions in Malaysia, Salina Binti Ahmad, Master of Accounting, Fakulti Perakaunan, UiTM Shah Alam (2013) The Influence of Governance and Financial Performance on CSR Disclosure From the Perspective of Agency and Signalling Theories, Noorhayati Mohamed, Master of Accounting, Fakulti Perakaunan, UiTM Shah Alam (2013) The Effect of Perception towards Social Responsibility and Stakeholders’ influence on Responsible Business Behaviors of Micro,

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Small and Medium-sized Enterprises (MSMEs) in Malaysia and their Subsequent Outcomes, Mehran Nejati, Ph.D., USM (2013) Internal Audit Effectiveness in the Malaysian Local Authorities: An Integrated Resource Based Institutional Perspectives Halimah@Nasibah Ahmad, Ph.D., Fakulti Perakaunan, UiTM (2013) Board of Director and Audit Committee Effectiveness, Ownership Structure and Intellectual Capital Disclosure of Listed Banks in GCC Countries Abood Mohammad Salmeen Alebel, Ph.D. (Accounting, UUM (2013) Quantity and Quality of corporate Social Responsibility Disclosure (CSR) From the Perspective of Resource-Based View and Stakeholder Theories. Noreena Binti Md Yusoff. Master of Accounting, Fakulti Perakaunan, UiTM Shah Alam (2012) Government Ownership and capital Market Performance Of Malaysian Government-Linked Companies After The Transformation Program. Harlina Binti Tomadi. Master of Accounting, Fakulti Perakaunan, UiTM Shah Alam (2012) Board Composition, Institutional Ownership, Firm performance and Islamic Social Responsibility Disclosure, Muhammad Mukhlis Bin Abdul Fatah, Master of Accounting, Fakulti Perakaunan, UiTM Shah Alam (2012) The Influence of Financial Performance and Corporate Governance Mechanisms on corporate Fraud, Nor Hidayah Binti Ahmad Damanhuri, Master of Accounting, Fakulti Perakaunan, UiTM Shah Alam (2012) Comparative predictive abilities of accrual-based accounting and operating cash flows information for future operating cash flows prediction: An empirical study from Malaysia, Chong Ki Woi (James), Doctor of Philosophy, Kuala Lumpur Infrastructure University College (2011) Corporate Social Responsibility Reporting and Corporate Reputation: An Institutional and Resource-Based perspective, Suaini Osman, Doctor of Philosophy, UiTM (2011) Corporate Social Disclosure in United Arab Emirates: Determinants and Stakeholders’ Perceptions, Yousef Mohammed Hassan, Doctor of Philosophy, Universiti Utara Malaysia (2011) Corporate Social Performance and Financial Performance In Indonesia Firms, Hasan Fauzi, Doctor of Philosophy, Universiti Utara Malaysia (2010) Companies Resources, Ownership Structures and Corporate Responsibility (CSR) Disclosure, Noraida Saidi, Master in Forensic Accounting and Accounting Criminology (2010)

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Pelaporan Kewangan Menerusi Internet: Indeks, Tahap Pelaporan dan Faktor Penentunya, Mohd Noor Azli Ali Khan, Doctor of Philosophy, Universiti Utara Malaysia (2009) Financial Disclosure and Environmental Disclosure in the Internet Ali Salleh Ahmed Alarussi, Doctor of Philosophy, Universiti Utara Malaysia (2008) The Relationship Between Growth and Corporate Profitability In Malaysia, Mohamad Najib Haji Mohamed, Master of Accounting, Fakulti Perakaunan, UiTM Shah Alam (2006) The Information Content of Non-Current Asset, Zaleha Shukor, Doctor of Philosophy, UiTM Shah Alam, (2006) Income Smoothing and Value Relevance of Accounting Numbers: An Investigation on Depreciations, Safiah bt Mohamed, Master in Accountancy, Fakulti Perakaunan, UiTM Shah Alam (2002) Market Perceptions on Current Assets: Empirical Evidence on Debtors, Zawati Hamzah, Master in Accountancy, Fakulti Perakaunan, UiTM Shah Alam (2002) An Empirical Investigation into the Determinants of Firms’ Disclosure Policies in Malaysia, Mohd Shatari Abd. Ghaffar, Master in Accountancy, Fakulti Perakaunan, UiTM Shah Alam, (2002). Empirical study on the Relationship between Smoothing and Shareholders Wealth among Malaysian Listed Companies, Rusliana Hj Yusoff, Master in Accounting, UiTM, Shah Alam (2002) An empirical Investigation of Extraordinary Items: Malaysian Evidence, Wan Adibah, Master in Accountancy, Fakulti Perakaunan, UiTM Shah Alam (2001) Market Value and Book Value: Malaysian Evidence (Raudah), Master in Accountancy, Fakulti Perakaunan, UiTM Shah Alam (2000).

Reviewer 1. Investigating Sustainability Reporting from the Lens of Stakeholder Pressures and Isomorphism, Business, Strategy and the Environment Journal, 2. Investigating Sustainability Reporting from the Lens of Stakeholder Pressures and Isomorphism, Business, Strategy and the Environment Journal, 2018 3. The Impact of Existence of Royal Family Directors on Environmental, Social and Governance Performance: A Servant Leadership Perspective ID SRJ-07-2017-0138 4. Nexus Of Environmental Accounting And Business Objectives In Nigeria: An Empirical Analysis Of Selected Quoted Companies. International Journal of Business and Finance Management Research (IJBFMR), 2017

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Malaysia’s Response and Strategies towards Climate Change’, World Review of Entrepreneurship, Management and Sustainable Development (WREMSD), 2017 Enabling Climate Change Reporting in Malaysia’, World Review of Entrepreneurship, Management and Sustainable Development (WREMSD), Inderscience 2016 The Impact of Banks Recapitalization on Employment Generation, International Journal of Business and Finance Management Research (IJBFMR), 2016 “Use of the Web in Corporate Sustainability Disclosure: Malaysian Evidence”, submitted for the World Review of Entrepreneurship, Management and Sustainable Development (WREMSD), Inderscience 2016 Corporate social responsibility disclosures in Malaysia: evidence from large companies, Social Rsponsibility journal (SRJ), 2016 Corporate Social Responsibility (CSR) Reporting Practices in Banking Companies in Bangladesh for Journal of Financial Accounting and Reporting (2015) “An Examination of Linkages between CSR and Cross-Buying” for the Social Responsibility Journal (2014). Corporate Social-Responsibility Disclosure in Islamic and Conventional Financial Institutions: Evidence from Kuwait, for the Social Responsibility Journal 2014 Forestry Accounting in Indonesia, for Issues In Social And Environmental Accounting, 2013 for ISCEARD Determinants of CSR Reporting: The Brazilian Case, for Social Responsibility Journal, 2013 Corporate social responsibility: government intervention and control, for Social Responsibility Journal 2013 Corporate Social Responsibility: An Outlook Of Indian Financial Institutions, for The Journal of Sustainability Science and Management 2012 Accountants and Environmental Accounting and Reporting in Malaysia: An Agent for Sustainability Practice?, for The Journal of Sustainability Science and Management 2012 Corporate Community Responsibility an Outcome of Individual Embeddedness for Social Responsibility Journal 2012 Multinational Corporations and Poverty Alleviation: Approaches and Challenges in Developing Countries, For Social Responsibility Journal 2012 The International Financial Reporting Standard For Small And Medium-Sized Entities (Ifrs ForSmes): Suitability For Small Businesses In Ghana, for The Journal of Financial Reporting and Accounting 2012

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Multinational Corporations and Poverty Alleviation: Approaches and Challenges in Developing Countries, For Social Responsibility Journal 2012 Culture and financial reporting quality: The relevance of ethnic background. For International Conference of Governance and Accountability 2011 Corporate Social and Environmental Reporting (CSEAR) Research, Malaysia’s Experience’, for Asian Academy of Management Journal of Accounting and Finance 2011 Corporate Social Responsibility and Organization Comitment: Empirical Findings from a Developing Country, for The Corporate Social Responsibility & Environmental Management Journal 2011 The International Financial Reporting Standard For Small And Medium-Sized Entities (Ifrs For Smes): Suitability And Challenges For Small Businesses In Ghana, for the Journal of Financial Reporting and Accounting 2011 The Association of Financial and Environmental performance of firms: A Preliminary evidence from Indonesia’, for the Issues in Social and Environmental Accounting 2011, Sebelas Maret University, Indonesia. Attitude of Malaysian SME Managers towards Corporate Social Responsibility’ for Social Responsibility Journal 2011, Emerald Group Publishing Limited Collective Public-Private approach to Resolve energy crisis and stimulate related social-economical development—A case study of recent oil exploration in Barmer region in India.’ On behalf— Prof. Malcolm for the Sustainability Accounting, Management and Policy Journal. Emerald Group Publishing Limited 2011 Internet Financial Reporting of Companies Listed in Shanghai, for Journal of Financial Reporting and Accounting (JFRA), (ISSN: 1985–2517), Emerald Group Publishing Limited, 2010 Towards a Conceptual Design for Environmental and Social Cost Identification and Measurement’ for the Journal of Financial Reporting and Accounting. Green Suppply Chain Management Practices: Evidence from Malaysia’, Noor Sufiawati Khairani, Indra Devi Rajamohan and Nagarethnam Thirumanickam Corporate Social Responsibility disclosure By Malaysian Telecommunication Firms’, Ruhaya Atan and Fathilatul Zakimi Abdul Hamid. The Ashgate Research Companion to Corporate Social Responsibility, Crowther and Capaldi (eds) 2008 Turkey: CSR in Practice’, Global Practices of Corporate Social Responsibility, edited by Samuel O Idowu and Walter Leal Filho (Eds), Springer (2009)

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The Ashgate Research Companion to Corporate Social Responsibility, Edited by David Crowther, De Montfort University, UK and Nicholas Capaldi, Loyola University New Orleans, USA, ISBN: 978-0-7546-4777-5, Ashgate (2008) Disclosure of Loans Loss Provision and the Effects of Loan Portfolio Composition: An Empirical Evidence of Malaysian Banks, (2005) The National Accounting Research Journal The Level of Awareness On The Islamic Unit Trust Among Academicians in Terengganu, (2005), MFA Conference and Capital Market Review Conceptualising Challenges Confronting Malaysian Accounting Profession: The Use of Delphi Technique, (2004), The National Accounting Research Journal Perception of Auditor Independence By Commercial Loan Officers Of Malaysian Banks, (2004), The National Accounting Research Journal Prof. Dr. Kıymet Tunca Çalıyurt Founding President—IGonGFESR

Contents

Part I 1

The Role of the Curriculum in Business Schools in the Widespread Use of ESG Reporting . . . . . . . . . . . . . . . . . . . . . . . . Kıymet Tunca Çalıyurt

Part II 2

3

4

Introduction Chapter 3

New Developments on Environmental Issues

Training Accounting, Finance and Internal Auditing Staff on Environmental Issues, Sustainability and Climate Change Risk . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Birsel Sabuncu Determinants of Environmental Credit Risk Management: Empirical Evidence from European Banks . . . . . . . . . . . . . . . . . . . . . . Junmei Qi, Edina Eberhardt-Toth, and Elisabeth Paulet Analysis of Provisions and Contingent Liabilities Relating to the Company’s Environmental Disaster Samarco Mineração . . . . Henrique Formigoni, Liliane Cristina Segura, Ingrid Euflausino Fogaça de Souza, and Raquel Popadiuk

9

17

37

Part III New Developments on Corporate Governance and Accountability 5

6

Internal Ve External Dimensions of Corporate Governance: A Cluster Analysis in Logistics Enterprises . . . . . . . . . . . . . . . . . . . . . . ˙Ismail ˙Iyigün Cryptocurrency Awareness in Kosovo . . . . . . . . . . . . . . . . . . . . . . . . . . . Simeana Beshi, Flaka Braha, and Luan Vardari

63 81

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Contents

7

Corporate Governance Processes in the Adoption of New Business Models Due to the Pandemic . . . . . . . . . . . . . . . . . . . . . . . . . . . 101 Feyza Ça˘gla Oran and Agah Sinan Ünsar

Part IV New Developments on Innovation and Transformation 8

Regional Innovation Factors and the Future of Work . . . . . . . . . . . . . 117 Milen Baltov

9

Impact on Operating Profitability by Greenhouse Gas Statements: A Research in BIST Sustainability Index Companies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 133 Esra Atabay and Kıymet Tunca Çalıyurt

10 Impact of Climate Change and the Role of Accounting & Accountants on Water Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . 153 Merve Öztürk, Muhammet Bezirci, and Yunus Ceran 11 Faculty-Led Short Study Abroad Program Effects on Professional Identity: A Qualitative Study from India . . . . . . . . . . 169 Christo Joseph 12 Abuse of Creative Accounting in Practical Application . . . . . . . . . . . . 187 Vedran Šupukovi´c, Sanel Jakupovi´c, and Bogdana Vujnovi´c-Gligori´c Appendix A—Checklist—Financial Statements 2015 . . . . . . . . . . . . . . . . . . 221 Appendix B—Checklist—Financial Statements 2016 . . . . . . . . . . . . . . . . . . 227 Appendix C—Checklist—Financial Statements 2017 . . . . . . . . . . . . . . . . . . 233 Index . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 237

About the Editor

Kıymet Tunca Çalıyurt, CPA, CFE, was born in Istanbul in 1969. She graduated from Be¸sikta¸s Atatürk High School in 1986. In 1990, she graduated from the Faculty of Business Administration at Marmara University, Istanbul, Turkey. Her Master’s and Ph.D. degrees are in Accounting and Finance Programme from the Social Graduate School, Marmara University. She completed her doctoral studies under the supervision of Prof. Dr. Osman Altu˘g who is one of the most well-known academicians in the field of accounting and the informal economy in Turkey. Her Ph.D. thesis topic was cost accounting scheme in sunflower oil industry enterprises. With this thesis study, accounting application was carried out in extraction and pressing methods. She has research and keynotes on fraud prevention in the sunflower oil industry. During her Ph.D., she has been invited by John Molson Business School, Concordia University in 2001. During her research in Montreal, she visited oil companies like Craft. Prof Caliyurt organizes International Sustainable Cooperative and Social Entrepreneurship Conference to meet with oil industry representatives in Turkey like Trakya Birlik. She has worked as an auditor in Horwath Auditing Company, manager in McDonald’s and finance staff in Singapore Airlines. After vast experience in the private sector, she has started to work in academia. She is holding CFE and CPE titles. Her research interests are in accounting, auditing, fraud, social responsibility, corporate governance, finance and business ethics, with a special interest in aviation management, NGOs, women’s rights in business. She has been a visiting researcher in Concordia University, Canada, and Amherst Business School, Massachusetts University, USA. She is the founder of the International Group on Governance, Fraud, Ethics and Social Responsibility (IGonGFE&SR) which was founded in 2009. In 2009, she also founded the International Women and Business Group, which organizes a global, annual conference. she has published papers, book chapters and books both nationally and internationally on fraud, social responsibility and ethics in accounting/finance/aviation disciplines in Springer and Routledge. She is a book

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About the Editor

series editor in Springer with the title Accounting, Finance, Sustainability, Governance & Fraud: Theory and Application, and book series editor in Routledge with the title Women and Sustainable Business. Some book titles: – – – – – –

Emerging Fraud, Corporate Governance: An International Perspective, Women and Sustainability in Business: A Global Perspective, Sustainability and Management: An International Perspective, Globalization and Social Responsibility, Regulations and Applications of Ethics in Business Practice, Ethics and Sustainability in Accounting and Finance, Volume I.

She is acting as a member of the Editorial Board Journal of Financial Crime, International Journal on Law and Management, Journal of Money Laundering Control. She is a regular speaker at the International Economic Crime Symposium in Jesus College, Cambridge University. She is a partner of Herme Consulting in Trakya University Technopark.

List of Figures

Fig. 3.1 Fig. 5.1

Fig. 6.1 Fig. 6.2 Fig. 6.3 Fig. 6.4 Fig. 7.1 Fig. 8.1

Fig. 8.2

Determinants of environmental credit risk management: empirical evidence from European banks . . . . . . . . . . . . . . . . . . . . Dendrogram Graph Based on Average of Intergroup Relations. Yasal: legal, sözle¸sme: aggreement, etik: ethical, ekonomik: economic, s¸effaflık: transpareny, çevresel: environmental, adaletlilik: being fair, gönüllülük: volunteering . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Top ten cryptocurrencies in 2020. Source https://www.coi nmarketcap.com/ (Accessed: May 18th, 2020) . . . . . . . . . . . . . . . . Top ten cryptocurrencies in 2022. Source https://www.coi nmarketcap.com/ (Accessed on March 20th, 2022) . . . . . . . . . . . . How does a blockchain work? Source Financial Times, https://www.ft.com/content/ (Accessed May 20, 2020) . . . . . . . . . Charts on general demographic information of the persons surveyed (Citations: Authors calculations) . . . . . . . . . . . . . . . . . . . Components of a Business Model. Source Rayna and Striukova (2016), p. 217 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Dominance of the services-related industries (the value added percentage change between 2000 and 2015, in EU28 and in the USA). Source DG EMPL, Employment and Social Developments in Europe Annual Review 2018 . . . . . . . . . . . . . . . . Robotization is increasing (Level and growth of the operational stock of robots in EU 28). Source DG EMPL, Employment and Social Developments in Europe Annual Review 2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

23

74 88 88 89 92 111

119

128

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List of Tables

Table 3.1 Table 3.2 Table 3.3 Table 3.4 Table 3.5 Table 3.6 Table 4.1 Table 4.2 Table 4.3 Table 4.4 Table 4.5 Table 4.6 Table 4.6 Table 4.7 Table 4.8 Table 4.9 Table 4.10 Table 4.11 Table 5.1 Table 5.2 Table 5.3

Framework for determining the environmental credit risk management (ECRM) level . . . . . . . . . . . . . . . . . . . . . . . . Key characteristics of sample banks . . . . . . . . . . . . . . . . . . . . . Descriptive statistics of dependent and independent variables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Spearman’s correlations and variance inflation factor (VIF) tests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Linear regression results . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Hypothesis verification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Resources for the Renova Foundation (R$ × 1,000) . . . . . . . . Schedule of future resource allocations to the Renova Foundation (R$ × 1,000) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Miscellaneous Provisions (In 31/12/2017) . . . . . . . . . . . . . . . . Provisions for socio-environmental and socio-economic recovery Samarco (Reais—R$ × 1,000) . . . . . . . . . . . . . . . . . . Discount rate at present value of provisions (% year) . . . . . . . Movements in provision for socio-environmental and socio-economic recovery (R$ × 1,000) . . . . . . . . . . . . . . . Expenses for socio-environmental and socio-economic recovery (R$ × 1,000) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Samarco infringement proceedings (R$ × 1,000) . . . . . . . . . . Compliance with Samarco’s Financial Statements to CPC Standards 25 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Samarco Liquidity Ratios . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Loans and Financing (R$ × 1,000) . . . . . . . . . . . . . . . . . . . . . . Loans and Financing from Shareholders (R$ × 1,000) . . . . . . Frequency table (Börtiçine and ˙Iyigün 2017) . . . . . . . . . . . . . . Factor loads and reliability analyzes . . . . . . . . . . . . . . . . . . . . . Correlation coefficients and descriptive statistics . . . . . . . . . . .

25 28 29 30 30 32 49 49 50 51 52 53 53 53 54 54 55 56 69 70 71

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Table 5.4 Table 6.1 Table 6.2 Table 6.3 Table 6.4 Table 6.5 Table 6.6 Table 6.7 Table 6.8 Table 6.9

Table 9.1 Table 9.2 Table 9.3 Table 9.4 Table 9.5 Table 9.6 Table 11.1 Table 11.2 Table 12.1 Table 12.2 Table 12.3 Table 12.4 Table 12.5 Table 12.6 Table 12.7

List of Tables

Clusters and proximity matrix . . . . . . . . . . . . . . . . . . . . . . . . . . Cryptocurrency information based on the gender of the participants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Answers to what the cryptocurrency is perceived as, by gender . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cryptocurrency purchase and purpose . . . . . . . . . . . . . . . . . . . POS terminals and e-banking usage rates by gender and age . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Zero cells (0.0%) have an expected count of less than 5. The minimum expected count is 17.32 . . . . . . . . . . . . . . . . . . . E-banking, cryptocurrencies, and blockchain knowledge . . . . Zero cells (0.0%) have an expected count of less than 5. The minimum expected count is 55.43 . . . . . . . . . . . . . . . . . . . Use of cryptocurrency depending on legal regulations . . . . . . Chi-square test. a. 0 cells (0.0%) have an expected count of less than 5. The minimum expected count is 16.92.; b. Computed only for a 2 × 2 table . . . . . . . . . . . . . . . . . . . . . . List of BIST Sustainability Index companies selected for study . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . CSR reports—general findings . . . . . . . . . . . . . . . . . . . . . . . . . T-test results of possession of an assurance report on company profitability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Profitability of companies possessing an assurance report, by sector . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Profitability-based sectoral ranking of companies possessing an assurance report . . . . . . . . . . . . . . . . . . . . . . . . . Assurance engagement requests, by year . . . . . . . . . . . . . . . . . Participant’s information and country of visit . . . . . . . . . . . . . Categories and themes related to professional identity of faculty members . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Bases for valuation of balance sheet items . . . . . . . . . . . . . . . . Appearances of fraud in financial statements . . . . . . . . . . . . . . Frequency of fraudsters to commit more than one type of professional fraud . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Departments with a high risk of fraud in the financial statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Duration and average detection losses of individual schemes of professional fraud . . . . . . . . . . . . . . . . . . . . . . . . . . The most common programs of professional fraud in the financial statements of various industries . . . . . . . . . . . . Log of cost provisions for harmful contract risks within the warranty period . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

73 93 93 93 94 95 96 97 97

98 141 145 146 146 147 148 171 175 189 195 195 197 198 198 204

List of Tables

Table 12.8 Table 12.9 Table 12.10

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Log of the impact of revaluation on production costs through inventory costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Allocation of depreciation costs for accounting and tax purposes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Log of the sale of the facility at a higher value than the book value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

212 214 215

Part I

Introduction Chapter

Chapter 1

The Role of the Curriculum in Business Schools in the Widespread Use of ESG Reporting Kıymet Tunca Çalıyurt

Abstract If we want companies to report ESG reporting, we have to ensure that managers, CEOs, CFOs of the future receive detailed courses on ESG during their university education. Since ESG reporting is not just the area of management sciences, we should give interdisciplinary training to students who will be managers in the future. In this section, the importance of ESG reporting will be covered by the innovations of business schools. Keywords ESG · Training · Curriculum · University · Accounting · IFAC

1.1 Introduction When we search for "ESG Training" on Google, 107,000,000 results are available. The first training is seen as Columbia Business School Certificate in ESG Investing. Millions of managers, students take courses on ESG, thousands of educational institutions and educators try to teach ESG and reporting. Companies allocate significant amount of money to employ ESG experts, get certification for reporting, and participate in trainings. What should ESG training be, who should teach it, and how should business schools employ ESG experts? Environmental Social Governance (ESG) reporting legislation and enforcement has been increasing rapidly in recent months since 2000s. The International Federation of Accountants (IFAC), which comprises 180 member and associate organizations and represents over 3 million professional accountants globally, welcomes the establishment of the International Sustainability Standards Board (ISSB) working in close cooperation with the International Accounting Standards Board (IASB), under the governance structure and leadership of the IFRS Foundation. (IFAC,

K. T. Çalıyurt (B) Founding President for International Conference On Governance Fraud Ethics and CSR, CFE, CPA, Trakya University, Edirne, Turkey e-mail: [email protected] © The Author(s), under exclusive license to Springer Nature Singapore Pte Ltd. 2022 K. T. Çalıyurt (ed.), New Approaches to CSR, Sustainability and Accountability, Volume III, Accounting, Finance, Sustainability, Governance & Fraud: Theory and Application, https://doi.org/10.1007/978-981-16-9364-9_1

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2021) IFAC also welcomes commitments to combine the CDSB (Climate Disclosure Standards Board)1 and Value Reporting Foundation with the IFRS Foundation— providing much-needed consolidation and contributing support and resources toward the success of the new ISSB. This positions the ISSB to build upon the high-quality work of existing sustainability-related initiatives and harmonize the standard-setting landscape—delivering a comprehensive global baseline of sustainability information material to enterprise value, connected to financial reporting through the fundamental concepts and guiding principles of integrated reporting.(IFAC, 2021) Accounting academics in business schools are soon to add sustainability standards to their curriculum. However, how they will do this should be discussed especially in business schools in developing and underdeveloped countries. While the subject of CSR reporting and corporate sustainability has not yet been placed in the curriculum, it is not easy that the standards published by the ISSB (International Sustainability Standards Board) are taught to students by accounting academics. International investors with global investment portfolios are increasingly calling for high quality, transparent, reliable and comparable reporting by companies on climate and other environmental, social and governance (ESG) matters (IFAC, 2022a). The International Sustainability Standards Board (ISSB), established at COP26 to develop a comprehensive global baseline of sustainability disclosures for the capital markets, today launched a consultation on its first two proposed standards. One sets out general sustainability-related disclosure requirements and the other specifies climate-related disclosure requirements (IFRS, 2022b).2 GRI and IFRS have also joint plans and agreement for future. The agreement reflects the importance of ensuring compatibility and interconnectedness of investorfocused baseline sustainability information that meets the needs of the capital markets, with information intended to serve the needs of a broader range of stakeholders. The IFRS Foundation and GRI recognize the considerable public interest in aligning where possible their respective work programmes, terminology and guidance, helping to reduce the reporting burden for companies and to further harmonize the sustainability reporting landscape at an international level. By working together, the IFRS Foundation and GRI provide two ‘pillars’ of international sustainability reporting—a first pillar representing investor-focused capital market standards of IFRS Sustainability Disclosure Standards developed by the ISSB, and a second pillar

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On 31st January 2022, the Climate Disclosure Standards Board (CDSB) was consolidated into the IFRS Foundation to support the work of the newly established International Sustainability Standards Board (ISSB). While this site and its resources remain relevant for preparers looking to improve sustainability disclosure until such time as the ISSB issues its IFRS Sustainability Disclosure Standards on such topics, no further work or guidance will be produced or published by CDSB. 2 https://www.ifrs.org/news-and-events/news/2022/03/issb-delivers-proposals-that-create-compre hensive-global-baseline-of-sustainability-disclosures/

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of GRI sustainability reporting requirements set by the GSSB, compatible with the first, designed to meet multi-stakeholder needs(IFRS, 2022c).3 However, with the announcement of the rapidly increasing sustainability standards since 2020, how it will be reflected in financial reporting will begin to be clarified in 2022. An ESG report is a report published by a company or organization about environmental, social and governance (ESG) impacts. It enables the company to be more transparent about the risks and opportunities it faces. It is a communication tool that plays an important role in convincing sceptical observers that the company’s actions are sincere (PwC,2021).4 ● ● ● ● ● ● ● ● ●

Introduction to ESG The ESG Market Environmental Factors Social Factors Governance Factors Engagement and Stewardship ESG Analysis, Valuation, and Integration ESG Integrated Portfolio Construction and Management Investment Mandates, Portfolio Analytics, and Client Reporting

ESG reporting, which is generally given with the following content in the curriculum, will begin to be given with the accounting content as the ISSB starts to publish the standards. The standard education published by ESG and ISSB should be given by academicians who are experts in their fields, in order for the graduates of the faculty of business who will become senior managers in the future to understand how the new standards of ISSB will be reflected in the financial reports. Generally, aspects of consulting in the ESG reporting process are as follows; ● Identify, collect and evaluate the relevant requirements of all stakeholders through structured stakeholder dialogue questionnaires and subsequent assessment. ● Set the concept and compile contributions to the ESG report based on GRI standards methodology. Determine the structure of the strategic framework of the sustainable development goals, verify according to the GHG protocol or the AA1000 standard. ● Management of risks and opportunities arising in connection with ensuring sustainable company growth. ● Coordinate cooperation with representatives of individual programs/departments. ● Supervise the information balance of the report with regard to the strategic importance of individual topics with an emphasis on accurate and transparent reporting. ● Provide graphic design in line with corporate identity rules. ● Set the optimal communication strategy, external and internal communication, including preparation of supporting materials. 3 4

https://www.ifrs.org/news-and-events/news/2022/03/ifrs-foundation-signs-agreement-with-gri/ https://www.pwc.com/sk/en/assets/PDFs/Sustainability_Reporting_EN.pdf.

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● Reporting process automation; identification and implementation of technologies that can be used in monitoring goals and metrics and in preparing an ESG report. ● Provide an independent audit of the data and metrics published in the ESG report and verification of compliance with the methodology or the declared level of methodology. ● Evaluate the annual results, identify weak points and formulate recommendations for the next period in order to achieve the declared goals of the medium- or long-term strategy(PwC, 2021).5 PwC’ s list of reporting process shows us ESG curriculum in the universities may organize according to.

1.2 Discussion In the early 1980, CSR, later sustainability and now ESG, value reporting were considered the farthest working or research area for academics and practitioner working in accounting, finance, auditing areas. Thanks to the new boards described by IFAC, ESG has settled at the heart of its accounting, finance and auditing areas. All faculties who train management sciences should include ESG in their curriculum. In this context, the best way of teaching sustainability, climate change, environmental management-reporting, social entrepreneurship, corporate governance is to found new SCHOOL OF SUSTAINABILITY. (Stanford, History 2022) Stanford Doerr School of Sustainability will be opened September 2022. I hope Doerr will be a good starting to open school of sustainability around the world.

References IFAC (2021) Pledges ongoing support for new ınternational sustainability standards board. https:// www.ifac.org/news-events/2021-11/ifac-pledges-ongoing-support-new-international-sustainab ility-standards-board. Accessed 5 March 2022 IFRS (2022a) ISSB delivers proposals that create comprehensive global baseline of sustainability disclosures. https://www.ifrs.org/news-and-events/news/2022/03/ifrs-foundation-signsagreement-with-gri/. Accessed 6 May 2022 IFRS (2022b) ISSB delivers proposals that create comprehensive global baseline of sustainability disclosures. https://www.ifrs.org/news-and-events/news/2022/03/issb-delivers-proposalsthat-create-comprehensive-global-baseline-of-sustainability-disclosures/. Accessed 5 May 2022 IFRS (2022c) About the international sustainability standards board. https://www.ifrs.org/groups/ international-sustainability-standards-board/. Accessed 5 Feb 2022 PwC (2021) Sustainability_Reporting, https://www.pwc.com/sk/en/assets/PDFs/Sustainability_ Reporting_EN.pdf. Accessed 6 May 2022 Stanford, History (2022) https://sustainability.stanford.edu/history. Accessed 12 May 2022

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https://www.pwc.com/sk/en/assets/PDFs/Sustainability_Reporting_EN.pdf.

Part II

New Developments on Environmental Issues

Chapter 2

Training Accounting, Finance and Internal Auditing Staff on Environmental Issues, Sustainability and Climate Change Risk Birsel Sabuncu Abstract Due to the activities of human beings in the world, the negative effects on the basic elements such as air, water, soil, daylight that are necessary for the life of living things in nature and the negative effects on the lives of living things are environmental issues. Environmental pollution is all the phenomena that adversely affect the lives of humans, animals and plants. One of the biggest environmental threats encountered in recent years is climate change. Increases in temperature, drought, floods, increases in severe weather events and melting glaciers pose a risk for the creatures in nature. This study focuses on raising awareness and training of staff who perform the accounting profession in the process of adapting environmental issues, climate change and climate change risks to the process of changes and innovations in accounting. Accounting, finance and internal auditing staff should be informed and subjected to training on the innovations and changes brought about by climate change and environmental issues to accounting practices. They should be subjected to external and in-company extrail training in order to include environmental issues in accounting records, to reflect natural disasters and climate change risks to financial reporting, to raise awareness about corporate sustainability processes and to ensure their competence in professional issues. It should be ensured that accounting, finance and internal auditing staff have knowledge about sustainability reporting, carbon accounting, green accounting, reflect the climate change risk on financial reporting, and perform environmentally sensitive accounting profession such as greenhouse gas assurance audits. In accounting practices, company managements and governments should especially make a separate effort to raise awareness of accountants and working professionals about of environmental issues and climate change and sustainability. Keywords Environmental issues · Sustainability · Climate change risk · Accounting · Finance · Internal auditing · Staff training

B. Sabuncu (B) Pamukkale University, Denizli, Turkey e-mail: [email protected]; [email protected] © The Author(s), under exclusive license to Springer Nature Singapore Pte Ltd. 2022 K. T. Çalıyurt (ed.), New Approaches to CSR, Sustainability and Accountability, Volume III, Accounting, Finance, Sustainability, Governance & Fraud: Theory and Application, https://doi.org/10.1007/978-981-16-9364-9_2

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2.1 Introduction Today, environmental issues and global climate change are accepted by countries. Depending on industrialization, the use of fossil fuels in energy production and industrial processes, deforestation, transportation, changes in land use, agricultural activities cause global warming and climate change. International studies show that global climate change causes increase in glaciers and snow layers, increases in sea level, irregularities in atmospheric movements, and increases in earth surface temperature. Increase in environmental pollution and changing climate conditions affect many areas from natural resources to socio-economic structure. In order to cope with the negative effects of environmental pollution and global climate change and to manage these impacts, it is important to raise awareness, in order to combat climate change. In combating this situation, it is important to develop methods of combating climate change and to understand the effects of climate change well. According to the Intergovernmental Panel on Climate Change-IPCC, the costs of combating climate change will be much lower than the cost of the damage caused by climate change. In efforts to combat environmental issues and global climate change, countries should rapidly maintain their legal regulations by strengthening their existing legal, technical, institutional, political and administrative infrastructures. In this study, the importance of training of accounting, finance, internal auditing staff on environmental issues, sustainability and climate change risk in the process of changes and innovations that will be caused by environmental pollution and climate change is emphasized and what needs to be done is discussed. It is necessary to provide training to the staff on the preparation of financial reports, measuring, budgeting, classifying, accounting, and auditing the risks related to change, taking into account the changes brought about by environmental issues, sustainability and climate change risks. In addition, it is important to raise awareness of accounting, finance and auditing staff about environmental issues and the importance of combating climate change, and to create sustainability environmental awareness and social responsibility awareness.

2.2 Environmental Issues, Climate Change Risk and Sustainability All living and lifeless beings such as natural events, climate, plants, animals and humans in the world affect each other. Mutual harmony and balance are required for a healthy continuation of this interaction. Unfortunately, this balance has been lost today. Environmental pollution, which is the result of the industrialization process, has caused negative changes in the quality of the elements that make up the environment. Issues caused by situations such as people’s ambition to take advantage of nature more and more and excessive consumption have exceeded the ability of the

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environment to renew itself (Kele¸s and Hamamcı 2005: 25). Thus, issues arise in the environment consisting of alive and lifeless things. Changes in climates, water, soil, air pollution, chemical wastes and noise occur. With the environmental issues becoming visible, the concept of sustainability has been on the rise. Sustainability is the ability of something to survive for a certain period of time without decreasing. With population growth and industrialization, the demand for and pressure on natural resources has increased, and it has been understood that natural resources are not infinite and may be depleted one day, and natural resource wealth is in danger. Thus, the concept of sustainability has emerged as a result of a more comprehensive assessment that includes economic, social and environmental factors, rather than evaluating the continuity of the development of societies only from an economic perspective. Sustainability is an order that addressing environmental balance and economic growth together, ensures efficient use of natural resources and attaches importance to environmental quality, and meets the needs of future generations without endangering their own needs. Sustainability is that corporate interests do not conflict with social interests, and social and environmental issues become an economic and profit-oriented perspective as well as the responsibility of companies. The sustainable system is about social justice, gender equality, health, welfare, education, not harming and respecting the needs of future generations. The popularization of the term sustainable development started after the Brundtland Report put this concept at the center of the report. According to the Brundtland Report, “sustainable development is to meet the needs of present without compromising the ability of future generations to meet their own needs” (https://www.bri tannica.com/topic/Brundtland-Report). Addressing sustainable development principles at company level is expressed as corporate sustainability (Signitzer and Prexl 2008: 2). Corporate sustainability is a management approach that aims to balance the negative effects of company activities on the social and environment with its positive economic and social effects (Pothong and Ussahawanitchakit 2011: 1). In general, climate change, regardless of the reason, is the change in climatic conditions that have large scale and local effects, spanning a long period and developing slowly (Türke¸s 1997: 37). When climate change started to affect all people, it has become a global climate change (Ba¸so˘glu 2014: 176). In order to be able to make applications on behalf of climate and climate change, various organizations to conduct research were needed. Some arrangements such as the Framework Convention on Climate Change, Kyoto Protocol, Paris Agreement made among governments have been made. The Intergovernmental Panel on Climate Change-IPCC was established in 1988 by the World Meteorological Organization and the United Nations Environment Program, which are affiliated to the United Nations. IPCC’s reports are used as a guide in international policies and climate change negotiations. The most famous global consensus aimed at reducing greenhouse gas emissions has emerged on the Kyoto Protocol. In the fifth assessment report of the IPCC, it was stated that natural causes and human-induced reasons affect climate change by acting together and stated that the

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human impact on the climate system reached the highest level (https://www.ipcc. ch/report/ar5/syr/). As a result of climate change changing the amount and forms of rainfall, the risks of global average sea-level rise and coastal erosion are also increasing, and there is an increase in the severity of natural disasters related to weather. Changing water levels, rising temperatures affect many sectors such as agriculture, health, industry, tourism and transport. One of the important consequences of global warming and climate change comes to the fore in terms of water ecosystems. Scientific studies show that water ecosystems, cycles and regimes will be negatively affected due to climate change, and while some regions of the world will experience floods, some regions will experience drought (Miller 2008: 35). The increase in the amount of greenhouse gases released into the atmosphere increases global warming and causes climate change. Depending on the global climate change, various health issues affect people directly or indirectly. Deaths due to heat waves, floods and hurricanes are increasingly among its direct effects. In addition, it causes population migrations by causing injury and infectious diseases. Thus, diseases spread faster due to population migrations. As a result of the decrease in water and food resources, increases in contagious diseases, diseases and deaths due to air quality and pollution have been observed (Çelik et al. 2008: 28).

2.3 Training Accounting, Finance and Internal Auditing Staff on Environmental Issues, Sustainability and Climate Change Risk Today, our world is seriously faced with environmental issues and climate change. While people are producing or consuming, their insensitivity to the environment and their lack of environmental focus cause climate change and environmental issues. Human and human activities constitute the basis of environmental issues and unpredictable and irreducible environmental damage occurs. The effects of climate change on the world are gradually increasing. The environment, plants, animals and people are at serious risk due to the increase of extreme weather events and their effects, such as rising temperatures, drought, floods, severe hurricanes, rising sea levels, melting glaciers. Since climate change, which is a serious risk for all living things, affects production and costs in the world, companies need to adapt to this process. For companies, the risk of climate change is too important to ignore. There are also harmful effects on sectors such as agriculture, tourism, farming, fishing, industry, transportation, energy and economy. It is necessary to stop the harm to the world for centuries, consciously or unconsciously. In this context, although international conferences are held on environmental issues and climate change risk, the damage to the environment has not been stopped.

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Companies should realize that they are approaching the limits of the world in terms of natural resources, using the natural resources obtained from the environment not efficiently, not filtering solid wastes, polluted water and emissions resulting from production. They must be sensitive about recycling waste, use environmentally friendly clean technologies in production, and adopt environmental protection as a philosophy, not just because it requires laws. The existence of an accounting and financial system that does not take into account the environmental issue in companies does not bear a social responsibility awareness. It is not possible for an accounting system that does not take into account the use of environmental resources to be impartial, honest and reliable. The idea of protecting the interests of the whole society in the execution of accounting practices does not allow the environmental issue, which is an extremely vital issue that concerns the whole society, to be excluded from accounting (Bengü and Can 2009: 158). Social responsibility awareness has caused accounting to be placed in environmental issues and as a result of the interaction between accounting and environment, the concept of green accounting has emerged. Green accounting is geared towards integrating environmental issues into accounting. It includes the accounting of financial transactions related to the environment and their inclusion in the financial reporting. Green accounting includes information and control system activities to identify and reduce adverse environmental impacts, to further define environmental costs and profits, to determine efforts to eliminate environmental impacts, and to encourage environmentally sound management decisions. The purpose of green accounting is to balance the economy and the environment in a way that will serve sustainable development. Carbon accounting, which is a sub-branch of green accounting, has emerged as a result of the importance of carbon emissions, which play an important role in global climate change, with the handling of environmental activities that cause global warming in the accounting information system (Stechemesser and Guenther 2012: 17). Carbon accounting, on the other hand, is the collection of data on company activities, the calculation and classification of carbon emissions, and the conversion of the resulting figure into carbon dioxide value by taking the emission factors into account (Uyar and Cengiz 2011: 56). There is a low carbon economy in the economy. Article 17 of the Kyoto Protocol defines the emission trading mechanism aimed at reducing greenhouse gas emissions. This mechanism is implemented by the authorities in a way that allows emission trading between companies, which creates new assets and liabilities that companies need to account for. ISAE 3410, published by the International Independent Auditing and Assurance Audit Standards Board (IAASB), regulates assurance audits conducted by independent auditors to report on a company’s greenhouse gas. The main objectives of the Sustainability Reporting Guidelines prepared within the framework of the Global Reporting Initiative-GRI (https://www.mas-business. com/docs/G3.1-Guidelines-Incl-Technical-Protocol.pdf): (a) The comparison and evaluation of the sustainability performance of the laws, regulations, performance standards, (b) the determination of how and in what direction the sustainable development demands of the companies are affected, (c) the comparison of the sustainable

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performance over time. GRI provides the framework that can be used by organizations of different sizes and in different regions, creating reliable and transparent conditions. The importance of integrated reporting for companies is increasingly understood. It is one of the most important issues to follow effective ways in presenting, measuring, reporting and sustainability studies in companies. The accounting, auditing and reporting units of the companies are required to prepare an action plan regarding what to do now. It should be known by company employees that they are sensitive to environmental issues and are involved in efforts to solve the issues, and companies should adopt the philosophy of being environmentally friendly. It should be ensured that company personnel include environmental issues, climate change risk in accounting records and financial reporting applications, participate in green accounting and carbon accounting trainings, and their practices within the company should be audited. In order to ensure the environmental and green sensitivity of the financial, accounting and internal auditing staff of the companies, it is necessary to organize in-company training courses and to establish environmental awareness in a short time. In addition, staff should be supported and trained if they have deficiencies in terms of accounting for financial transactions and preparation of financial reporting, making calculations taking into account the risk of climate change in budget studies and the need to reflect these calculations in financial reporting. It is important that competent accounting, finance internal auditing staff provide sustainability services in green accounting, combating climate change and sustainable company management, add value to company values and support them in improving their production. Thus, accounting, finance and internal auditing staff develop their own equipment, work and gain the competence to provide sustainability services. Ensuring the awareness of company staff that their environmental activities should reflect environmental performance in financial reporting or independent reports, and the sensitivity of the company in this regard should be emphasized to finance, accounting and internal auditing staff. Trainings on green accounting, carbon accounting and sustainability should be provided. Documents should be prepared for accounting, finance and internal auditing staff to learn and apply the environmental accounting system, and an accounting system for environmental data should be established to include qualitative environmental information in the accounting records. It should be ensured that the staff attend courses, seminars and symposiums within and outside the company so that environmental issues are included in the accounting records and that the climate change risk is included in financial reporting and that the staff receive training from competent persons for sustainability practices at company trainings should be training for the staff by academic person expert from the universities. Units for combating climate change should be established in the company, courses and seminars should be organized for the staff. In addition, courses on sustainability, climate change risk and the effects of environmental issues on accounting should be included in the accounting and

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finance education of accounting candidates at universities. Organizing environmental awareness-raising campaigns and competitions regarding environmental issues, climate change risk and sustainability should be ensured to increase the awareness of the society against environmental issues.

2.4 Conclusion Environmental issues, global climate change issues contain extremely important political, economic, ecological and social dimensions. Today, especially the protectionist and environmentalist perspective of popular culture tools and media, many governments and non-governmental organizations have an approach that emphasizes individual measures for climate change. Although governmental, non-governmental organizations, associations, private sector, efforts to advance the sustainability agenda and raise awareness are inadequate in eliminating environmental issues. Increasing environmental issues require accounting in combating climate change, recording and reporting data pertaining to the traditional definition of realized transactions, functions far beyond its framework. Accounting, finance, internal auditing staff should take part in their work for today and the future, while protecting the past data on accounting. Sustainability reporting and corporate sustainability processes are also of critical importance in moving companies forward as professionals become leaders. Companies need to establish separate units to work on sustainability, and work against environmental issues and climate change risks. Management should increase the awareness of the staff by ensuring their participation in congresses, conferences, events and seminar organized on sustainability. The importance of green accounting practices cannot be ignored. In accordance with the definition of green accounting, it is necessary to implement issues such as energy cost reduction, using alternative energy sources, waste reduction, less input use and efficient equipment use in accounting practices. Nature disasters caused by climate change should be reflected in financial reporting. Climate change risk practices should be included in the budgeting, accounting, reporting and auditing process because of the loss of assets of companies due to disasters such as floods, hurricanes, tsunamis, icing, cancellation of contracts, loss of customers, and environmental issues such as recording, measuring and reporting. The duty of fulfilling such accounting practices belongs to accounting staff. It is necessary to ensure that finance, accounting, internal auditing staff are informed about green accounting, sustainability reporting, carbon accounting, integrated reporting. It is important to include such subjects in the accounting courses within the university that trains professional staff, and to ensure that the staff receive training from competent persons and institutions in order to provide the training of accounting, finance and internal auditing staff. Certificates and course attendance certificate should be sought in order for the staff to be informed especially on these issues in recruitment. Training programs

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should be organized in the company for the staff regarding the new regulations. Staff should be provided with training by making an agreement with the authority persons. It is necessary for the government to enact laws on the prevention of climate change and environmental issues.

References Ba¸so˘glu A (2014) Küresel ˙Iklim De˘gi¸sikli˘ginin Ekonomik Etkileri. Karadeniz Teknik Üniversitesi Sosyal Bilimler Dergisi 7:175–196 Bengü H, Can AV (2009) ‘Çevre Muhasebesinin Temel Kavramlarından Sosyal Sorumluluk Kavramı’, Celal Bayar Üniversitesi Sosyal Bilimler Enstitüsü Yayınları, 7(1):155–160 Çelik S, Bacanlı H, Görgeç H (2008) Küresel iklim De˘gisikli˘gi ve insan Sa˘glı˘gına Etkileri. Telekomünikasyon Sube ¸ Müdürlü˘gü, Ankara Kele¸s R & Hamamcı C (2005) Çevre Politikası, 5. Baskı, ˙Imge Yayınevi, Ankara Miller, KA (2008) Climate change and water resources: the challenges ahead. J Int Aff 61(2):Spring– Summer, 35–50 Pothong O, Ussahawanitchakit P (2011) Sustainable accounting and firm survival: an empirical examination of Thai listed firms. J Acad Bus Econ 11(3):1–28 Signitzer B, Prexl A (2008) Corporate sustainability communications: aspects of theory and professionalization. J Public RelatS Res 20:2–3 Stechemesser K, Guenther E (2012) Carbon accounting: a Systematic Literature Review. J Clean Prod 36:17–38 Türke¸s M (1997) Hava ve ˙Iklim Kavramları Üzerine. TÜB˙ITAK Bilim ve Teknik Dergisi, 355:36– 37, Ankara Uyar S, Cengiz E (2011) Karbon (Seragazı) Muhasebesi. Mali Çözüm Dergisi 47–68

Chapter 3

Determinants of Environmental Credit Risk Management: Empirical Evidence from European Banks Junmei Qi, Edina Eberhardt-Toth, and Elisabeth Paulet

Abstract This chapter explores determinants of banks’ environmental credit risk management (ECRM) level. Content analysis is used to quantify the ECRM level of 50 banks in Europe between 2016 and 2018. The impact of stakeholder power and banks’ characteristics on ECRM is investigated through a regression model. This chapter finds that banks in Europe that adopt higher levels of ECRM are Equator Principles signatories, are larger and have more financial strength, while the legal environments of their domiciliation countries and cooperative bank business models are not significant. The proposed ECRM framework synthesizes previous ECRM measurements. It can be used as a new rating system to compare banks’ ECRM levels. It is argued that banks can serve as powerful change agents in reducing the impact of corporations on the environment by influencing the behaviors of borrowing firms through ECRM. Keywords Environmental credit risk management · European banks · Stakeholder power

3.1 Introduction At the 21st Annual Conference of Parties (COP21) held in 2015, world leaders agreed to pursue efforts to limit the globe’s increasing temperatures to within 2 °C of preindustrial levels (Herbohn et al. 2019). Increasing number of organizations have sought to integrate systematic approaches to environmental considerations into every J. Qi (B) School of Accounting, Wuhan Textile University, Wuhan, China e-mail: [email protected] E. Eberhardt-Toth (B) · E. Paulet ICN Business School, CEREFIGE research laboratory, Nancy, France e-mail: [email protected] E. Paulet e-mail: [email protected] © The Author(s), under exclusive license to Springer Nature Singapore Pte Ltd. 2022 K. T. Çalıyurt (ed.), New Approaches to CSR, Sustainability and Accountability, Volume III, Accounting, Finance, Sustainability, Governance & Fraud: Theory and Application, https://doi.org/10.1007/978-981-16-9364-9_3

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aspect of business management (Jabbour and de Sousa Jabbour 2016). Furrer et al. (2012) analyzed 114 worldwide listed banks’ fiscal year 2006 climate strategies, and found that few banks had implemented environmental actions through their core businesses such as lending. Attention paid to integrating environmental issues into bank lending procedures has been increasing since the 1990s. Environmental risk management aims to screen potential environmental risk events, analyze the likelihood of their occurring and assess whether their consequences are within acceptable limits (Santomero 1997). Environmental credit risk management (ECRM) corresponds to banks’ environmental risk management in bank lending decisions. ECRM is defined as banks’ practices of monitoring environmental risks during the bank lending process (Weber et al. 2008a). Existing research has focused on ECRM in reference to three aspects: sources of environmental risk, motivations for considering corporate environmental aspects in lending businesses and means of consideration. First, prior literature has mainly defined environmental risks from three risk sources: direct, indirect and reputational (Thompson 1998). Direct risks arise when a bank must bear the costs of cleaning up and/or remediation costs for contaminated collateral and property of their borrowers. Indirect risks occur when borrowers become involved in activities causing environmental damage, resulting in heavy financial penalties and reducing the ability to pay back loans. Reputational risks emerge when banks extend loans to firms that are environmentally irresponsible, drawing public criticism and adverse customer reactions. Second, in the motivational literature, the lowering of default risks is the most widely recognized driver of ECRM (Weber et al. 2008; Campbell and Slack 2011). Various authors also analyze the motivation of reducing the pressure from regulators, stakeholders and clients (Thompson and Cowton 2004; Gutiérrez-Nieto et al. 2016; Zhou et al. 2020). Moreover, with a green strategy product design, banks signal to the community that they support business activities that benefit the environment and avoid those that are harmful to the environment. Furthermore, having an environmental protection-oriented product can differentiate banks from their market competitors by recognizing new market opportunities and gaining possible competitive market advantages (Thompson and Cowton 2004; Mengze and Wei 2015). Finally, banks are motivated to adopt corporate social responsibility (CSR) activities including environmental activities for improving their financial performance (Wu and Shen 2013; B˘atae et al. 2021). Third, the existing literature on how banks consider environmental risks in their lending business models has mainly applied two perspectives: incorporating environmental risk criteria into the credit evaluation framework (Weber et al. 2010; Zeidan et al. 2015; Gutiérrez-Nieto et al. 2016) and connecting bank loan costs to CSR performance (Nandy and Lodh 2012; Cheung et al. 2018). For example, Weber et al. (2010) incorporated fifteen corporate environmental indicators into the traditional credit risk evaluation framework based on a sample of German bank loans. Gutiérrez-Nieto et al. (2016) and Zeidan et al. (2015) both proposed a credit score system including environmental indicators by conducting case studies on the bank lending process, while Cheung et al. (2018) found that firms with higher corporate social performance are more likely to enjoy lower loan costs.

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However, the extant CSR literature concerning banks is mostly descriptive (Scholtens 2009). Few articles consider banks’ indirect environmental impacts through their lending businesses. This study intends to contribute to the extant literature in the following aspects. The study first measures ECRM levels by using public disclosure information for a sample of European banks. Previous research has considered non-public (Weber et al. 2010; Gutiérrez-Nieto et al. 2016) or non-European information (Mengze and Wei 2015) or only one aspect of ECRM (Weber et al. 2008). The study also examines the impact of influencing factors on ECRM levels. The proposed comprehensive framework of ECRM level measurement can be used as a rating system to compare banks’ levels of environmental engagement. The remainder of this chapter proceeds as follows. Hypothesis development is presented in the next section. Subsequent sections describe the methods and data used, and report and discuss the results.

3.2 Hypothesis Development The CSR literature indicates that stakeholder power and organizational characteristics are the main influencing factors of firms’ CSR behaviors. Stakeholder power includes the influence of various stakeholder groups interested in corporate environmental aspects of firms such as shareholders (Reverte 2009; Lu and Abeysekera 2014), creditors (Branco and Rodrigues 2008; Reverte 2009), governments (Park and Ghauri 2015) and non-governmental organizations (Park and Ghauri 2015; PerezBatres et al. 2012). Organizational characteristics influencing CSR behaviors that are typically examined in the literature include size (Branco and Rodrigues 2008; Scholtens 2009), profitability (Reverte 2009; Dal Maso et al. 2018) and industry classification (Branco and Rodrigues 2008; Reverte 2009). Stakeholder power and organizational characteristics hypotheses are developed hereafter.

3.2.1 Stakeholder Power Hypotheses According to stakeholder theory, firms face different groups or individuals who affect, or are affected by, the achievement of their business goals. Freeman (2010) identified these groups or individuals as stakeholders. Gaining stakeholder support is necessary for firm survival, and stakeholders are becoming increasingly interested in corporate environmental issues (Gray et al. 1996). The banking industry is no exception. Banks make strategic business decisions on environmental protection in part to inform their most important and environmentally sensitive stakeholders. Lending constitutes one of the core activities of banks. Therefore, ECRM practices are expected to serve as an effective management tool for developing banks’ environmental responsibility and for demonstrating their environmental commitment to various stakeholder groups.

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The effects of three main stakeholder groups are considered in this work: shareholders, government regulators and non-governmental organizations. Shareholders are one of the primary stakeholders for banks. In addition, social and political players such as governmental environmental actors and non-governmental organizations (NGOs) are stakeholders who support banks’ goals by providing their approval of the organizations’ activities, thereby rendering them acceptable (Park and Ghauri 2015).

3.2.1.1

Shareholder power Cooperative banks Versus Non-cooperative banks

The European banking industry is composed of a collection of several different types of banks. A different business model characterizes cooperative and non-cooperative banks. In cooperative banks, owners and providers of equity are called members, and one member has only one vote and cannot sell shares if the member wants to exit (Bülbül et al. 2013). Cooperative banks illustrate stakeholder value business models where profitability is one objective but not the sole or even the most important aim (Groeneveld and Vries 2009). The objectives of cooperative banks are more balanced across the different interests of various stakeholders in society (Ayadi et al. 2009). In practice, a cooperative bank does not pursue profit maximization as a shareholder value bank does (Llewellyn 2005). Thus, compared to other banks, cooperative banks are expected to bear more environmental responsibility in business decision-making. Therefore, it is argued that cooperative banks based on their stakeholder value business models are more likely to consider environmental risks in their lending decision-making than their counterparts. Therefore, the following is hypothesized. H1. Level of environmental credit risk management is higher in cooperative banks.

3.2.1.2

Government Power Country CSR Sensitivity

Governmental sensitivity to CSR issues may vary based on firms’ country domiciliation. Firms are more likely to make socially responsible business decisions when they are based in environments of well-enforced government regulation (Campbell 2007). The presence of legal CSR regulation in the area where a firm is domiciled will not only lead to higher levels of environmental responsibility but will also establish stronger social expectations regarding CSR behaviors (Kolk and Perego 2010). Firms domiciled in countries with more CSR regulations are more likely to adopt a stakeholder corporate governance model, and firms based in countries with fewer CSR regulations are more likely to adopt a shareholder corporate governance model (Cheung et al. 2018). Varied external pressures faced by banks to engage in CSR behaviors exist between banks in different CSR legal environments in addition to variations in the different perceptions and reactions of stakeholder groups regarding

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their CSR engagement (Jackson and Apostolakou 2010). Specifically, in countries with higher levels of CSR sensitivity, stakeholder groups have higher expectations regarding the CSR reputations of banks. Therefore, when based in such environments, banks are more motivated to adopt ECRM to gain reputational competitive advantages. In contrast, consideration of ECRM may not be rewarding when the external environment does not recognize the CSR investments of banks. Even worse, in such cases, banks have no reputational competitive advantages in their lending markets and may face risks of losing customers since stricter customer lending conditions are identified without external CSR image differences. Thus, a given level of CSR behavior among banks is more likely to yield benefits in countries with more CSR sensitivity than in countries with less CSR sensitivity. Considering the above analysis, the following is hypothesized. H2. Level of environmental credit risk management is higher among banks domiciled in more CSR sensitive countries.

3.2.1.3

NGO Power Equator Principles Banks Versus Non-equator Principles Banks

Non-governmental organizations are responsible for changes in corporate CSR behaviors, using their stakeholder status to spur changes in local markets (Guay et al. 2004) and resulting in more creation of voluntary self-regulation codes among companies. Campbell (2007) also showed that corporations are more likely to consider social responsibility during business decision-making when a system of well-organized and effective industrial self-regulation is present. Self-regulation codes have gradually become important tools through which firms demonstrate their commitment to a more sustainable future (Perez-Batres et al. 2012). Thus, banks that are environmental code signatories accept broader levels of perceived environmental responsibility: they are more likely to act in an environmentally responsible way (Chih et al. 2010). One of the most prominent industrial self-regulation codes for bank CSR in lending is the Equator Principles (Weber et al. 2008). Equator Principles signatories are banks that voluntarily assess and manage environmental and social risks in project financing. Therefore, it can be assumed that banks that are Equator Principles signatories are more aware of their ECRM. Based on the above statements, the following is hypothesized. H3. Level of environmental credit risk management is higher among banks that are Equator Principles signatories.

3.2.2 Organizational Characteristic Hypotheses According to slack resource theory, a company uses limited resources to carry out its activities. Therefore, external and internal goals are grounded in slack resources

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(Buchholtz et al. 1999). Waddock and Graves (1997) extend this concept of slack resources to financial aspects. The availability of slack (financial and other) resources motivates companies to invest in social (including environmental) domains. This investment in social (environmental) domains can build and enhance a company’s competitive advantage through its image, reputation and long-term cost savings (Miles and Russell 1997). Hence, the ECRM levels of banks are closely linked to their slack resources. It is then argued that a bank’s financial strength and size–two organizational characteristics–lead to a higher level of ECRM. Moreover, prior studies have established various relationships between organizational characteristics (e.g., firm size, industry classification and profitability) and CSR activities. These studies have shown that firms with prominent organizational characteristics are more likely to be scrutinized by society, increasing the need to match their values with those of society (Neu et al. 1998).

3.2.2.1

Bank Financial Strength

Corporate social—including environmental responsibility activities are widely regarded as costly programs, and many previous studies (Chih et al. 2010; Lu and Abeysekera 2014) have provided evidence showing that firms with weaker financial contexts have fewer resources to invest in environmentally responsible activities than firms with stronger financial contexts. In the banking lending industry, financial strength provides protection against sudden financial loss (Ogboi and Unuafe 2013). Therefore, it is argued that banks with more financial strength are more likely to apply ECRM. In summary, the following hypothesis on financial strength is proposed. H4. Level of environmental credit risk management is higher among banks with more financial strength.

3.2.2.2

Bank Size

Usually, larger organizations have greater effects on the community than smaller organizations. Therefore, larger organizations normally face a larger group of stakeholders that influence their decision-making (Knox et al. 2005) since larger firms are more politically visible and have more stakeholders interested in their business activities. Thus, larger banks are subject to more scrutiny by the public than smaller banks; therefore, such banks are more likely to act in more environmentally responsible ways in their business activities to legitimize their image. Additionally, prior research has cited a significant, positive link between the size of organizations and their engagement in socially responsible activities (Chih et al. 2010; Lu and Abeysekera 2014). Based on these arguments, the following hypothesis is formulated. H5. Level of environmental credit risk management is higher among larger banks (Fig. 3.1).

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Fig. 3.1 Determinants of environmental credit risk management: empirical evidence from European banks

3.3 Data and Methods This section describes the data sample, regression models and variable measurements used.

3.3.1 Sample The sample analyzed is composed of banks from the list of banks compiled by the European Banking Authority. Banks on this list are the most representative banks in Europe and include the top 30 banks in Europe, which represent more than 80% of the market share (Schoenmaker and Peek 2014). The list of banks from the fiscal year 2017 was considered in this study. To be included in the sample, a bank needed to (1) have produced an environment, social, and/or sustainability report for 2017 or 2016 (some banks report on CSR only every two years) as a separate report, or, when not available, an annual report (or integrated report) with the bank’s CSR-related information in English; or have an accessible English language bank website (accessed from October to November 2018) with webpages disclosing the bank’s CSR-related information and (2) have data on all independent variables of the proposed research model. A final sample of 50 banks from 13 countries was identified. For each bank, one year of observations was considered.

3.3.1.1

Measures

Dependent Variable Measurement ECRM Level Rating agencies such as the KLD and EIRIS Sustainability Indexes are generally recognized as the most authoritative measurement tools for CSR research (Deckop et al. 2006; Wu and Shen 2013). These agencies mainly calculate corporate environmental responsibility values based on a firm’s direct environmental pollution or protection activities (e.g., negative variables such as hazardous waste and carbon gas emissions and positive variables such as recycling and clean energy). Thus, final calculated values from these agencies are suitable for measuring a

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company’s direct involvement in environmental activities. However, banks, as important capital providers during lending, do not directly harm the environment. But banks’ borrowing clients can directly negatively impact the environment with, for example, pollution during their production cycle. The present work is more focused on how banks consider their environmental responsibility proactively in one of their core business domains: lending. Therefore, existing CSR-related measurement databases are not suitable for this research. Studies conducting quantitative analyses of ECRM are limited. Coulson (2002) was the first to explore environmental responsibility among the lending businesses of 10 banks in the Pan-Europe region based on four factors: environmental policymaking, policy implementation, risk assessment processes and risk monitoring. Following almost the same evaluation framework, the United Nations Environment Programme Finance Initiative (UNEP FI 2007) extended Coulson’s study by distributing a questionnaire to 22 banks in South Africa and Nigeria to assess banks’ sustainability credit risks. In 2008, Weber et al. (2008) conducted a survey of 42 European banks to investigate the consideration of environmental risks in credit risk evaluation phases. The latest work was conducted by Mengze and Wei (2015) who developed a four-dimensional ECRM performance evaluation framework to rank 120 banks from the Asia-Pacific region. This existing research provided us with a foundation from which to develop a general framework for discussing the measurement of ECRM. In summary, existing works describe ECRM mainly based on two general aspects: (1) ECRM policies that identify the degree to which environmental issues are addressed through organizations’ policies and (2) ECRM implementation focused on how banks execute ECRM within their organizations, including the management and monitoring of its scope, tools and methods. To measure how banks approach ECRM policy-making, three subsections with seven items under the section entitled ECRM Policy (A) are considered. This section is presented in the first part of Table 3.1. First, subsection Policy Approach (A1) was developed based on Coulson (2002), (UNEP FI 2007) and Mengze and Wei (2015). This subsection is measured by two items: general environmental policies across a bank’s core activities and services (A11) and environmental risk criteria considered specifically in credit decision-making (A12). Second, subsection Influential Issues (A2) was developed based on Coulson (2002) and (Mengze and Wei 2015). This subsection focuses on exclusion policies: excluding financing activities that affect climate change (A21) and excluding financing activities that endanger biodiversity and ecosystems (A22). Third, subsection Product Coverage (A3) was developed based on Coulson (2002) and Mengze and Wei (2015). This subsection concerns ECRM applied to project lending (A31), loans to large firms (A32) and small and medium-sized business loans (A33). To measure the translation of ECRM policies into practical guidelines, a section entitled ECRM Implementation (B) was created. For its measurement, thirteen items grouped into four subsections were used. These are presented in the second part of Table 3.1. First, a Priority Assessment Conditions (B1) subsection was developed based on Coulson (2002) and (Mengze and Wei 2015). This subsection regroups the main conditions that affect environmental assessment in banks: the presence of

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Table 3.1 Framework for determining the environmental credit risk management (ECRM) level Sections

Subsections Items

A ECRM Policy

A1 Policy Approach

A11 General environmental policy across the bank’s core activities and services A12 Environmental risk criteria considered specifically in credit decision-making (Coulson 2002; UNEP FI 2007; Mengze and Wei 2015)

A2 Influential Issues

A21 Exclude financing activities that affect climate change (e.g., uranium mining, coal-based power plants) A22 Exclude financing activities that endanger biodiversity and ecosystems (Coulson 2002; Mengze and Wei 2015)

A3 Product Coverage

A31 ECRM policy applied to project lending A32 ECRM policy applied to loans to large firms A33 ECRM policy applied to small and medium-sized business loans (Coulson 2002; Mengze and Wei 2015)

B ECRM B1 Priority B11 Consider sensitive sector guidelines as a factor triggering Implementation Assessment ECRM Conditions B12 Consider legislation as a factor triggering ECRM (including influence of legislation in different countries) B13 Consider physical geographic location of borrowers as a factor triggering ECRM (such as land use situation, special regions) (Coulson 2002; Mengze and Wei 2015) B2 Tools

B21 Provide a general illustration paragraph or a flowchart, to guide the entire ECRM procedure B22 Use checklists, questionnaires or website tools for identifying borrowers’ environmental risks B23 Use banks’ inner risk matrices, or external CSR criteria rating agencies, or international standards to assess borrowers’ environmental risks B24 Use external experts, consultants or specialized institutions for ECRM procedures (Coulson 2002; Mengze and Wei 2015)

B3 Procedures

B31 Environmental risk identification/screening (including due diligence) in lending decision-making B32 Environmental risk categories in lending decision-making B33 Environmental risk mitigation and monitoring in lending decision-making (Coulson 2002; Weber et al. 2008; UNEP FI 2007; Mengze and Wei 2015) (continued)

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Table 3.1 (continued) Sections

Subsections Items B4 Human Resources

B41 A department or a committee responsible for the environment or for sustainable development, and that is responsible for ECRM B42 A centralized environmental risk support service team provides advice on ECRM policy implementation B43 Environmental risks-related training sessions or workshops are provided to lending or risk management employees (Coulson 2002; UNEP FI 2007; Mengze and Wei 2015)

sensitive sector guidelines (B11), legislation (B12) and the geographic locations of borrowers (B13). Second, subsection Tools (B2) was developed based on Coulson (2002) and (Mengze and Wei 2015). Four types of tools are considered: a general illustration paragraph or flowchart to guide the entire ECRM procedure (B21); checklists, questionnaires or website tools for identifying borrowers’ environmental risks (B22); banks’ inner risk matrices, external CSR criteria rating agencies and use of international standards to assess borrowers’ environmental risks (B23) and banks’ use of external experts, consultants or specialized institutions for ECRM procedures (B24). Third, subsection Procedures (B3) was developed based on Coulson (2002), Weber et al. (2008), (UNEP FI 2007) and Mengze and Wei (2015). This subsection covers environmental risk identification/screening (including due diligence) in lending decision-making (B31), environmental risk categories in lending decision-making (B32) and environmental risk mitigation and monitoring in lending decision-making (B33). Fourth, a Human Resources (B4) section based on Coulson (2002), (UNEP FI 2007) and Mengze and Wei (2015) was considered and measured with two items: the presence of a department or committee responsible for the environment or sustainable development, and that is responsible for ECRM (B41) and a centralized environmental risk support service team that provides advice on ECRM policy implementation (B42). In addition, an item on environmental risks-related training sessions or workshops provided to lending or risk management employees (B43), which the prior literature has neglected, was considered. Thus, based on the above literature and analysis, a framework evaluation checklist was established to measure the level of ECRM among banks in the sample. A content analysis was conducted to obtain ECRM levels. The simplest form of content analysis involves detecting the presence or absence of information (i.e., Scholtens 2009; Relano and Paulet 2012). The framework developed in the present research for the level of ECRM includes two dimensions and seven subdimensions with a total of 20 items shown in the third column of Table 3.1. Sustainability, environmental and social reports and annual (financial) reports for 2016–2018 were used to conduct the assessment. Banks’ disclosure information listed on their websites was also used and screenshots were taken as evidence of these data. When a bank disclosed information about an item, the item was valued at 1; otherwise, it was valued at 0. Any unclear descriptions or lack of information were assigned a value of 0. Finally, the scores of

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each item were summed to determine the overall ECRM level score for each bank. The present study focuses on the overall ECRM level constituted of 20 items. As detailed in Table 3.1, of the overall ECRM level: ECRM Policy level is measured with 7 A items, and the ECRM Implementation level is measured with 13 B items.

Independent Variables’ Measurement The five independent variable measures used are presented below. (1)

(2)

(3)

(4)

(5)

Cooperative banks The banks were divided into two groups: cooperative and non-cooperative banks. A score of 1 was assigned for cooperative banks and a score of 0 was assigned for other banks. Country CSR sensitivity In this study, a country’s CSR sensitivity represents the corresponding government’s regulatory CSR power. The legal environment in which a firm is domiciled determines expectations on CSR and therefore the adoption of sustainability assurance statements (Kolk and Perego 2010). Since disclosure information from banks was used to evaluate ECRM, CSR disclosure regulations were used to measure governmental CSR regulatory power. A value of 1 was assigned when a country required mandatory CSR-related disclosures for industrial firms, and a value of 0 was assigned otherwise; this approach follows from (Crifo and Rebérioux 2016). Equator Principles signatory Equator Principles signatories are banks that voluntarily assess and manage environmental and social risks in project financing. To identify Equator Principles signatories, a value of 1 was assigned to signatories and a value of 0 was assigned to others. Data were drawn from the official website of the Equator Principles. Bank financial strength Bank financial strength is measured as the ratio of a bank’s core equity capital to total risk-weighted assets (CET1 ratio). The ratio of tier 1 capital to total risk-weighted assets, from a regulator’s point of view, is a core measure of a bank’s financial strength. All else being equal, a bank’s performance after a crisis is anticipated to be positively related to the tier 1 capital ratio since a bank with more capital would suffer less from the debt overhang problem (Aebi et al. 2012) and would have more flexibility to respond to adverse shocks. Moreover, as endogeneity issues might arise between environmental and financial variables (for this study between the financial strength independent variable and the ECRM dependent variable), the lagged CET1 ratio (CET1t-1 ) was used (Allison et al. 2017), therefore the CET1 ratio one year before the ECRM data. Data were collected from annual reports for the year 2016. Bank size Following prior research, bank size is measured as the natural logarithm of total assets. Data were collected from annual reports for the year 2017.

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Empirical Model In light of the above analysis, the main factors influencing banks’ levels of ECRM in lending decision-making were empirically examined by employing the following OLS linear regression model, where COP is the cooperative bank, EPS is the Equator Principles signatory, CTY_CSR is the bank’s domiciled country’s CSR sensitivity, CET1t-1 is the bank’s financial strength and SIZE is bank size: ECRM = a + b1 COP + b2 EPS + b3 CTY _CSR + b4 CET 1t−1 + b5 SIZE + e The variables used in this study are defined in the previous sections. They are summarized in Appendix A.

3.3.2 Results and Discussion 3.3.2.1

Descriptive Statistics

The profiles of the sampled banks are presented in Table 3.2. Among the 50 banks, half are based in Germany (8 banks), Spain (7 banks), the Netherlands (6 banks), the Table 3.2 Key characteristics of sample banks COUNTRY

Signatories Non-signatories Low of Equator of Equator Country CSR Principles Principles sensitivity (CTY_ CSR = 0)

High Total number Country CSR sensitivity (CTY_ of banks CSR = 1)

AUSTRIA

0

2

2

0

2

BELGIUM

1

0

1

0

1

UK

4

1

0

5

5

DENMARK

0

3

0

3

3

FINLAND

1

0

1

0

1

FRANCE

5

0

0

5

5

GERMANY

2

6

8

0

8

ITALY

1

3

4

0

4

NETHERLANDS 3

3

6

0

6

NORWAY

1

0

0

1

1

SPAIN

5

2

0

7

7

SWEDEN

3

1

0

4

4

SWITZERLAND

1

2

3

0

3

Total number

27

23

23

27

50

Frequency (%)

54%

46%

46%

54%

100%

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Table 3.3 Descriptive statistics of dependent and independent variables Variable

N

Minimum

Maximum

Mean

Std. Deviation

ECRM

50

3.00

18.00

13.34

3.80

EPS

50

0.00

1.00

0.54

0.50

CTY_CSR

50

0.00

1.00

0.54

0.50

COP

50

0.00

1.00

0.14

0.35

SIZE

50

9.83

14.56

12.73

1.11

CET1t-1

50

8.15

50.50

15.68

6.79

UK (5 banks) and France (5 banks). Approximately half of the 50 banks have adopted the Equator Principles. Regarding country CSR sensitivity, which was measured as described in Table 3.2, 46% of the banks are from low CSR sensitivity countries, while 54% of the banks are from high CSR sensitivity countries. Descriptive statistics for the 50 banks of the sample with minimums, maximums, means and standard deviations of the dependent and independent variables are shown in Table 3.3. Considerable variability in ECRM is observed across European banks. ECRM scores range from a minimum score of 3 to a maximum score of 18 with a standard deviation of 3.80. As the mean value is 13.34, levels of ECRM adoption in lending processes show room for improvement. The EPS variable has a high mean value of 0.54, indicating that most of the sampled banks are Equator Principles signatories and have demonstrated their social responsibility commitments through their lending activities. The average CET1t-1 ratio is 15.68%, indicating that most banks in the sample were well-capitalized. Even the lowest CET1t-1 of 8.15% is considerably higher than the prevailing regulatory requirement of 4.50% (Basel Committee on Banking Supervision 2000).

3.3.2.2

Correlation Matrix and Univariate Results

Before testing the hypotheses via linear regression analyses, tests for multicollinearity problems were conducted. First, all variables for normality were tested using the SPSS skewness-kurtosis test, and the variables were not found to be normally distributed. Therefore, Spearman’s correlation test was applied to ECRM and all independent variables of the model. The results are reported in Table 3.4. No significant correlation coefficient of greater than 0.50 was found between the independent variables, and the highest value was recorded as 0.38. In addition, no independent variables’ variance inflation factors (VIFs) exceeded the recommended value of 10 (Field 2009); the highest value was 1.33, and the mean value was 1.17. Thus, multicollinearity is not a problem in this study. From Table 3.4, as hypothesized, a bank that is an Equator Principles signatory is highly positively associated with ECRM (t = p < 0.01), which is coherent with the fact that the Equator Principles are practice-oriented. This outcome is also consistent with Mengze and Wei (2015), suggesting that self-regulation code signatory banks more deeply consider

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Table 3.4 Spearman’s correlations and variance inflation factor (VIF) tests Variable

VIF

ECRM

EPS

1.23

0.48**

EPS

CTY_CSR

COP

SIZE

CET1t-1

1.00

CTY_CSR

1.12

0.06

0.28

1.00

COP

1.02

0.08

0.03

0.03

1.00

SIZE

1.33

0.58**

0.38**

0.26

0.13

1.00

CET1t-1

1.15

0.00

−0.16

0.02

−0.28*

−0.01

1.00

** Correlation is significant at the 0.01 level (2-tailed) * Correlation is significant at the 0.05 level (2-tailed)

ECRM than non-signatory banks. Bank size is also highly positively correlated with the dependent ECRM variable (t = p < 0.01), which is consistent with previous similar research (Branco and Rodrigues 2008; Scholtens 2009). This result provides preliminary evidence that larger banks exhibit higher levels of ECRM in their lending processes.

3.3.2.3

Regression Results

While the above descriptive and correlation analyses provide some insight into average levels and univariate relations between the variables, the present study is more focused on multivariate results. Three OLS regression models are thus presented in Table 3.5. They all present a Chi-square p-value of 0.000 and signs of the coefTable 3.5 Linear regression results Variables

Model 1

Model 2

Model 3

Dependent variable

ECRM

ECRM

ECRM

0.19 (0.17)

_

_

Independent variables COP CTY_CSR

−0.76 (−0.94)

_

_

EPS

2.49*** (2.89)

_

2.31*** (2.78)

CET1t-1

0.15** (2.45)

0.16** (2.53)

0.16** (2.61)

SIZE

2.04*** (5.00)

2.42*** (6.09)

2.02*** (5.04)

Constant

−16.00*** (−2.95)

−20.09**(−3.65)

−16.05*** (−3.00)

50

50

50

Observations Adjusted

R2

Chi-square p-value

0.48

0.42

0.49

0.000

0.000

0.000

Note t statistics in parentheses The estimated equation regression is ECRM = f (all independent variables listed above) * p < 0.10. ** p < 0.05. *** p < 0.01

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ficients of variables tested remain unchanged across models, demonstrating overall robustness and consistency. Model 1 includes all the independent variables with the ECRM dependent variable. Its adjusted R2 (0.48) value demonstrates the model’s strong explanatory capacity. Model 2 measures only bank characteristics. After adding shareholder power variables to Model 2, forming Model 1, the model is significantly improved with the adjusted R2 changing from 0.42 to 0.48, which provides empirical evidence that shareholder power is contributing to ECRM. Model 3 presents only significant variables. The model includes one variable for shareholder power and two variables for bank characteristics with an adjusted R2 of 0.49. The model is thus similar to the full model (Model 1). Hypothesis 1 is not supported in the multivariate results, suggesting that cooperative banks are not likely to exhibit a higher level of ECRM than other banks. This result may be attributed to the following. First, the study sample includes only 7 cooperative banks domiciled in France, Germany, Austria, the Netherlands, Finland and Spain. Other countries such as the UK have strongly demutualized their banking systems with few cooperative banks. Second, since the latest trend of integrated European financial system development, cooperative banks’ practices have been relatively similar to those of commercial banks (Kalmi 2017). The linear regression results do not support Hypothesis 2 either. The predicted positive relationship between country CSR sensitivity and ECRM rating scores is found to be nonsignificant in the multivariate analysis, suggesting that there is no difference in the banks’ ECRM under different environmental governmental regulations of banks’ domiciliation countries, especially regarding CSR disclosures. This result is consistent with Lock and Seele (2016), according to whom governmental CSR regulations lose power when fostering CSR behaviors. The nonsignificant relationship might be attributable to the fact that the European banking sector already pays much attention to direct CSR-related disclosure issues (Scholtens 2009), though CSR awareness in their lending activities has still drawn little attention. For the 50 banks sampled, all (compared to 91% in Scholtens (2009)) have reported their direct quantitative environmental performance and emissions targets. Another reason for CSR sensitivity of country domiciliation being nonsignificant can be that banks in the sample operate often in many countries. Therefore, the CSR sensitivity of country domiciliation might be less important for these banks. Hypothesis 3 is supported in the multivariate results with a positive association between Equator Principles signatories and ECRM ratings at a significant level (in Model 1: t = 2.89, p < 0.01, and similar in Model 3), which is consistent with stakeholder theory. From this result, it is inferred that self-regulation environmental codes constitute one NGO tool that is effective in the banking industry. Banks committed to environmental responsibility in their lending activities, as signatories of the Equator Principles, consider ECRM to satisfy outside nonprofit regulators and to develop a green image.

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Table 3.6 Hypothesis verification Hypothesis number Hypothesis quote

Statistical result

Level of environmental credit risk management is higher … 1

… in cooperative banks

Inconclusive

2

… among banks domiciled in more CSR sensitive countries

Inconclusive

3

… among banks that are Equator Principles signatories

Supported

4

… among banks with more financial strength

Supported

5

… among larger banks

Supported

Regarding the financial strength of banks, consistent with much of prior research (Chih et al. 2010; Lu and Abeysekera 2014), there is a significantly positive association between CET1t-1 and ECRM (in Model 1: t = 2.45, p < 0.05, and similar in the other two models), supporting hypothesis 4. Banks with more capital have more financial strength to undertake costly ECRM considerations, which is consistent with slack-resource theory. The other bank characteristic variable, bank size, also shows a very significantly positive correlation with ECRM levels (in Model 1: t = 5.00, p < 0.01, and similar in the other two models), which is consistent with much of prior research (Chih et al. 2010; Lu and Abeysekera 2014). Larger banks, which are naturally subjected to more scrutiny from the public, act in more environmentally responsible ways in their business strategies. Therefore, hypothesis 5 is also strongly supported. Table 3.6 summarizes the findings in relation to the hypotheses. Hypotheses 3, 4 and 5 are supported: ECRM levels are higher among banks that are Equator Principles signatories, or banks with more financial strength or that are larger banks. Hypotheses 1 and 2 are inconclusive: no support was found in this research for ECRM levels being higher among cooperative banks or among banks domiciled in more CSR sensitive countries.

3.3.2.4

Discussion

ECRM levels of banks were assessed in the present research through a measurement framework based on 20 items derived from their disclosure information. Due to this methodology, the study has the following limitations. First, the item scores chosen were voluntarily binary to define a systematic accounting method. Some banks are very clear and provide long reports on their procedures while others disclose less information. The degree and intensity of corporate conduct were not considered, resulting in a lack of nuance in the study’s results concerning corporate behavior and constituting a limitation of this study. Second, as the presented research findings are based on information disclosed by banks, they do not necessarily always correspond with banks’ practices (Demir and Min 2019).

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While previous works provide insights into motivations to consider environmental risks in bank loan lending, motivations to integrate environmental factors into lending decisions have almost exclusively been researched from the perspectives of banks. However, a bank lending covenant is signed by two entities: lenders and borrowers. Therefore, further studies should explore ways to motivate these two stakeholders and realize mutual monitoring and mutual environmental commitments. The results of such research could help policymakers find effective ways to enforce the integration of environmental performance into financial decision-making by financial managers of both banks and corporations.

3.3.2.5

Conclusion

This work proposes a two-dimensional 20-item evaluation framework for quantifying banks’ efforts for ECRM. The two dimensions are ECRM policy and ECRM implementation. More importance was considered for implementation than for policy, respectively, measured by 13 and 7 items. A content analysis was conducted to quantify levels of ECRM for 50 banks in Europe between 2016 and 2018 based on their disclosure information. The presented regression results have three main outcomes: banks adopting higher levels of ECRM are more likely to be Equator Principles signatories, be larger in size and have more financial strength, while the legal environments of banks’ domiciliation countries and cooperative bank business models are not significant. The goal of ECRM is to influence not only banks, but corporations. The present work shows that the ultimate goal of ECRM is to encourage corporations to consider their impact on the environment and not only the financial outcomes of loan conditions. In previous research, this final goal of banks’ ECRM has not been identified as prominent. By providing capital to banks based on their minimum corporate financial and environmental performance rather than strictly based on their corporate financial performance, banks could become key drivers of corporate environmental responsibility. Regulating or incentivizing the banking sector to consider their indirect impacts on corporate environmental performance through the inclusion of corporate environmental performance indicators into bank loan conditions could further help meet the COP21 agreement goals. Acknowledgements This work was supported by the China Scholarship Council (No. 201606410064) for the doctoral research of Junmei Qi on which is based this chapter.

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Chapter 4

Analysis of Provisions and Contingent Liabilities Relating to the Company’s Environmental Disaster Samarco Mineração Henrique Formigoni, Liliane Cristina Segura, Ingrid Euflausino Fogaça de Souza, and Raquel Popadiuk Abstract This study aims to verify, in the light of CPC 25—Provisions, Contingent Liabilities and Contingent Assets, how the company Samarco Mineração S.A. treated its financial statements, the provisions and contingent liabilities arising from the environmental disaster that occurred on November 5, 2015, with the disruption of the Fundão dam in Minas Gerais. The research is descriptive, with documentary procedures, since the company’s financial statements were analyzed, including the explanatory notes. As a data collection instrument, a checklist was used containing the main points required by CPC 25, in order to facilitate the reading of the statements, and allowing the comparability of data between the publications of the three years selected as a sample, 2015, 2016 and 2017. The results revealed that the adherence to the company’s financial statements, with regard to the recognition, measurement and disclosure of the provisions and contingent liabilities resulting from the accident corresponds to 74.3%, on average, of what is required by the standard, for the three years addressed. Gaps were identified in some main points required by the standard, such as the measurement, which, due to the high degree of uncertainty of the facts resulting from the disaster, the estimates of probable losses and the disclosure of possible losses, were not adequate to represent the disbursement necessary to settle the obligations. H. Formigoni Rua Santos, 343, casa 78, São Bernardo do Campo 09666-000, Brazil e-mail: [email protected] L. C. Segura (B) Rua Martinico Prado, 392 Ap 41, Sao Paulo 01224-010, Brazil e-mail: [email protected] I. E. F. de Souza CEP, Cidade, Brazil e-mail: [email protected] R. Popadiuk Rua Desembargador Plinio Novaes de Andrade, 116, São Paulo 05171-600, Brazil e-mail: [email protected] © The Author(s), under exclusive license to Springer Nature Singapore Pte Ltd. 2022 K. T. Çalıyurt (ed.), New Approaches to CSR, Sustainability and Accountability, Volume III, Accounting, Finance, Sustainability, Governance & Fraud: Theory and Application, https://doi.org/10.1007/978-981-16-9364-9_4

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Keywords CPC 25 · Provisions · Contingent liabilities · Samarco · Environmental disaster

4.1 Introduction The rapid development of the production of goods and services over the years, driven mainly after the Industrial Revolution in the XVIII century, reveals a worrying reality. With the increasingly intensified production scale resulted in excessive exploitation of non-renewable natural resources and the consequent dumping of waste into the environment. (Campos 2017). Environmental problems, such as the exploitation of non-renewable natural resources, and potential environmental disasters resulting from economic activities, have not always been discussed or were part of business concerns. The concept initially accepted about the role of companies focuses on generating profits for their shareholders (Oliveiran 2016). As Friedman mentions (2004), the prevailing view was that companies should efficiently produce goods and services and leave social responsibility to the appropriate government agencies, as corporate managers cannot determine the urgency of social problems. This thinking has changed as discussions about our current model of production and consumption increase, making companies become responsible for their actions that directly impact the dynamics of the natural environment (Oliveira 2016). The new mentality about the social and environmental responsibility incorporated in companies has led society to require from organizations a more ethical posture with social, cultural and environmental reality. According to Tinoco and Kraemer (2011), there have been several advances in the environmental area regarding the technical, political and legal means, making the consolidation of practices and the formulation of guidelines (addressing the environmental issue) met in a systemic and integrated manner. Social responsibility has become a competitive advantage and managers must incorporate it into the organization’s strategies (Willard 2014). Still to Friedman (2004), the concept of social and environmental responsibility started to incorporate companies more broadly, making them comply with all legal issues regarding the environment. Other factors that contributed to the increase in social and environmental demands in Brazil were the various accidents that occurred in the 1980s, such as the gasoline pipe leak, followed by a fire in 1984 in Vila Socó, Cubatão city in São Paulo, Brazil, which were estimated to leak 700 thousand liters of gasoline into the environment and generated about 500 deaths. One of the most recent environmental disasters in the country, which has had a huge environmental impact on its surroundings, has been the rupture of the Fundão, which gives Mineradora Samarco, a joint venture between Vale S.A. and BHP Billiton Brasil Ltda., in Mariana (MG), considered by Brazilian Institute of Environment and Renewable Natural Resources—IBAMA as the largest socio-environmental disaster in the country in the mining sector. According to IBAMA (2018), 34 million

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cubic meters of tailings were released into the environment. The wave of tailings, which travelled about 663,2 km of watercourses, devastated a district, causing several victims and causing numerous profound environmental, economic and social damages. The disaster caused the destruction of 1,469 hectares, including Permanent Preservation Areas (PPAs). In addition to irreparable damage to the environment, Silva (2016, p. 39) comments that it is noteworthy that the disruption of the Fundão dam has significantly influenced the company’s equity situation and its results, with the possibility of Samarco company being able to compensate the damages caused to the population and the environment. Faced with events such as these, regulatory bodies and society at large have required strategic decision-making organizations to consider the social and environmental responsibility of the entities. Accounting plays a key role in an organization’s relationship with the society in which it operates, compiling, recording and disseminating relevant information to support decision-making, according to Leite (2010). In a context of such social and economic relevance that occurred the environmental disaster of the company Samarco, we can say that accounting provides important information and general interest of society about the assets of Mineradora and measures taken as a result of the accident. In this scenario, environmental accounting is responsible for identifying, measuring and clarifying the economic and financial events and transactions related to the protection, preservation and environmental recovery that occurred in a given period, aiming at disclosing the equity situation of an entity (de Souza Ribeiro 2010). Disclosure of environmental liabilities in a company is extremely important for an analysis of external users, because with access to them you can obtain information regarding several possible risks. In the accounting area, the subject of environmental liabilities is governed by Technical Pronouncement CPC 25—Provisions, Contingent Liabilities and Contingent Assets, approved by the Brazilian Securities Commission—CVM, through Resolution nº. 594, of September 15, 2009, and whose Resolution of the Federal Council Accounting Practice nº. 1180/09 transformed CPC 25 (2009) into a Brazilian Standard for General Technical Accounting—NBC TG 25 and in 2014 was amended and consolidated as NBC TG 25 Revision 1 (R1) (2014). The Finance Department mentions that “the contingent liabilities […] are mostly related to labor, civil, tax and, in some cases, to environmental causes”. In carrying out its operations, its sales, acquisitions and related efforts, the entity incur liabilities, Martins and Lintz (2013, p. 367) about this theme explains that liabilities are made up of defined obligations, with an expected value and payment date. However, he points out that there are liabilities without a fixed payment date or even without an exact expression of their values because the liabilities must be accounted for all known and calculable obligations, charges and risks. Accordingly, CPC 25 (2009) defines that provisions are liabilities of uncertain terms or value. The same Statement states that provisions should be recognized when: there is a present obligation arising from a past event; an outflow of resources

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is likely to settle the obligation and a reliable estimate of the value of the obligation is made. If these requirements are not met, a provision should not be recognized. In addition to characterizing provisions as liabilities of uncertain terms or future disbursement values for the organization. Still, within the scope of Technical Pronouncement CPC 25, Hendriksen and Van Breda (1999) define the concept of contingent liability as a probable sacrifice of economic benefits arising from present obligations of an entity that will in future transfer assets as a result of transactions or past events. Contingent exigibility is an obligation that may arise, depending on a future event, according to Iudícibus et al (2013). Given the above, the following question was elected for the present study: How does Samarco Mineração S. A. treat in its financial statements the provisions and contingent liabilities related to the environmental disaster? To address the proposed problem, this paper aims to analyze, in the light of CPC 25, the behavior of provisions and contingent liabilities related to the environmental disaster of Samarco Mineração S. A. It is necessary to consolidate this assessment to pursue the following specific objectives: Present the concepts and norms that guide the research regarding the recognition, measurement and disclosure of provisions and contingent liabilities; analyze the company’s financial statements; verify the level of disclosure and comprehensibility of the financial statements with respect to requirements CPC 25. The environmental disaster dealt with in this study has caused immeasurable impacts on nature, and some irreversible impacts such as the loss of human life. It is important that the theme of social and environmental responsibility be the subject of discussions in the society in which we live, as our economic model based on environmental exploitation is increasingly aggressive. The relevance of this study is justified by the possibility of debating on environmental issues, allowing those involved in the accident and society as a whole to know the consequences of an economic activity associated with incorrectly managed environmental exploitation. In addition, the work helps other companies to identify important factors based on accounting standards, on the treatment of provisions and contingent liabilities.

4.2 Theoretical Reference The following are important definitions for conducting the search.

4.2.1 Accounting In view of the advancement of accounting over the years, business accounting today is based as essential for the development of any company, Padoveze (2006) states that the accounting information system depends on accountability, to support the

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capital market, enabling the expansion of organizations and the formation of today’s complex corporations. From this idea, Padoveze (2006) adds that the importance of accounting for any organization is that everyone must have control over their activities and operations and express their transactions with the outside world. About the concept of the object of accounting, Santos (2014) states that accounting can be understood as a science that studies the heritage of people and organizations, having some goals, which are to record, inform, analyze and interpret facts that affect the heritage of an individual or company.

4.2.2 CPC 25 and IAS 37 Fipecafi (2009), argues that, following the global economic crisis, the need for a unified accounting language that allows comparison and analysis became more noticeable in the financial statements of different countries and companies in different markets. In the midst of this finding, International Accounting Standards (IFRS) gained relevance in the global business environment, meeting the potential needs of global companies and investors. Issued standards pose significant challenges in bringing about conceptual changes in the way companies interpret, apply and develop their companies concepts and transactions (Fipecafi 2009). The Accounting Pronouncements Committee (CPC) was created by the Federal Accounting Council (CFC) through Resolution CFC nº. 1055, dated 10/07/2005, with the purpose of studying, preparing and issuing technical pronouncements, always taking into consideration the convergence of the Brazilian accounting standard to the international standard (Costa et al. 2012). Within the scope of CPC 25—Provisions, Contingent Liabilities and Contingent Assets are the definitions of the concepts of liabilities, provisions and contingent liabilities, in which the following are the theoretical foundations.

4.2.3 Liabilities For CPC 25 (2009), the liability is a “present obligation of the entity, derived from events that have already occurred, the settlement of which is expected to result in an outflow of resources from the entity capable of generating economic benefits”. Sá (2006, p. 63) mentions that liabilities are the “quantitative expression of patrimony that represents the wealth of third parties that served as a source for the formation of patrimonial substance”. Iudicibus (2009 p. 57) states that liabilities “ […] imply the entity’s commitment to consume assets, on a given or determinable date, to satisfy or extinguish them and always derive from events or transactions that have already occurred, although disbursement will only occur. in the future”.

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Santos et al. (2005) adds that according to IASB some characteristics must be taken into consideration in order for an item to be considered a liability, namely: a present obligation assumed by the entity that generates a probable future transfer of an asset required when a specific event occurs. on a particular date, and the obligation cannot be avoided, and the event obliging the entity has already occurred. According to CPC 25 (2009 p.25), the present obligation that characterizes the liability arises from “an event that creates a legal or non-formalized obligation that causes the entity to have no realistic alternative but to settle that obligation.” For Padoveze et al. (2011, p. 268), legal obligation “is an obligation that derives from a contract, legislation or other legal provisions”. According to Iudícibus (2017), examples of legal obligations are the amounts payable corresponding to goods and services received. Non-formalized obligations are described by CPC 25 (2009) as a result of the entity’s actions that by way of an established standard of previous practices, the entity has indicated to other parties that it will accept certain responsibilities and, as a result, creates in them a valid expectation that it will fulfill those responsibilities.

4.2.3.1

Provisions

Gelbcke and Martins (2018, p. 367) mentions that “[…] there are liabilities that must also be recorded, although they have no fixed date for payment or even contain no exact expression of their values. This is because the liabilities must be accounted for all obligations, charges and risks, known and calculable”. The Basic Conceptual Pronouncement (2011) mentions that some liabilities are only measured by a significant degree of estimate. In Brazil, these liabilities are named provisions. In order to clearly define the concept of provisions, the statement adds that if the provision involves a present obligation and meets the other defined criteria, it is a liability, even if its amount has to be estimated. CPC 25 (2009) defines provision objectively as liabilities of uncertain terms or value. Given the above, it is concluded that the provision is a liability, and what distinguishes it from other liabilities is the uncertainty as to the amounts to be disbursed in the future and their term. According to Padoveze et al. (2011, p. 268), “Provisions are distinguished from other liabilities that have certain known amounts and payables, such as suppliers and payables, because they, in accordance with IAS 37 and CPC 25, are characterized by uncertainty of realization”. Gelbcke and Martins (2018) contextualizes that in Brazil, accounting professionals used to attribute the term provision as a reference to any obligation or reduction in the value of an asset, such as accumulated depreciation. Although widely used for asset rectifying accounts, the author defines that the most correct term is “estimated losses”. For example, the line formerly known as Allowance for Doubtful Credit is now called Estimated Losses for Doubtful Credit. Also for Gelbcke and Martins (2018), this change of nomenclature is necessary to meet the new concepts presented in CPC 25 regarding the criteria for recognizing the provision.

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It is also necessary to highlight the differentiation between the provisions themselves and the provisions derived from accruals. According to Gelbcke and Martins (2018), the provisions derived from accruals are existing obligations, recorded in the accrual period, in which there is no relevant degree of uncertainty. Thus, they are already characterized as genuine liabilities and should not be recognized as provisions and yes as, for example: vacation payable, thirteenth payable, social charges payable, or dividends payable. CPC 25 (2009, p. 5) mentions that “Accruals liabilities are often disclosed as part of accounts payable, while provisions are disclosed separately.“

4.2.3.2

Recognition, Measurement and Disclosure in Accordance with CPC 25

CPC 25 divides the recognition of provisions, contingent liabilities and contingent assets into three points: Provision Recognition, Contingent Liability Recognition, and Contingent Asset Recognition. In this session, address the first two types of recognition mentioned. Regarding the recognition of the provision, we have, according to CPC 25 (2009), that it should only be recognized when the entity has a present obligation resulting from past events, it is probable that an outflow of resources embodying economic benefits will be required. to settle the obligation, and a reliable estimate of the amount of the obligation can be made. Under the CPC, if these conditions are not met, no provision should be recognized. As for the recognition of contingent liabilities, CPC 25 (2009) states that it should not be recognized but disclosed unless there is a remote possibility of an outflow of resources embodying economic benefits, in which case no registration or disclosure should be made. The statement draws attention to the fact that contingent liabilities develop unexpectedly and must therefore be periodically evaluated. If there is a change in the probability estimate, from possible to probable, a provision should be recorded in the statements, on the date the probability estimate was changed. Toledo (2016) reports that provisions and contingent liabilities cannot be measured with certainty and are therefore only estimated. In most cases, entities are able to make an estimate that is reliable to be used in the recognition of a provision or contingent liability. Regarding the measurement of provisions and contingent liabilities, we have provided in CPC Pronouncement 25 (2009) that the amount to be recognized as a provision should be the best estimate of future disbursement to settle the present obligation at the balance sheet date. The estimate is based on management’s rational judgments, taking into account all available evidence. All risks and uncertainties linked to future events should also be taken into account to arrive at the best estimate. The amount of the provision should also be adjusted to highlight the present value of the obligation. According to CPC 25 (2009), as for the disclosure of provisions and contingent liabilities, for each class of provision, the entity shall disclose: the book value at

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the beginning and end of the period, additional provisions and increase of provisions, amounts incurred and written off against provision during the period, amounts reversed during the period. Comparative information is not required.

4.2.3.3

Contingent Liabilities

The Finance Department states that the term contingent is used for liabilities not recognized in the companies’ financial statements because their existence depends on one or more uncertain future events that are not entirely under the company’s control. Iudícibus (2009, p. 144) concedes that “a contingent liability is an obligation that may arise, depending on a future event”. The distinction between provisions and contingent liabilities, according to item 13-b of CPC 25 (2009) lies in the fact that these are not recognized because they are obligations that, possibly, and not likely, will lead to an outflow of features that incorporate economic benefits. In addition, contingent liabilities may not have a sufficiently reliable estimate of the obligation’s value. According to Gelbcke and Martins (2018), a provision should only be recognized when: (a) it is a present legal or non-formalized obligation, as a result of a past event; (b) the outflow of funds is likely to settle the obligation, and (c) the amount of the obligation can be reliably estimated. In the same vein, Padoveze et al. (2011, p. 268) adds that “In the general sense, all provisions are contingent liabilities due to their uncertainty as to maturity and value. The term ‘contingent liability is used for liabilities that do not meet the recognition criteria in the financial statements”. Fipecafi (2010) concludes that the provisions are recognized as liabilities and contingent liabilities are not recognized, as in the first case the disbursement of resources necessary to settle the obligation is likely and in the second it is possible to disburse resources.

4.3 Social and Environmental Responsibility The Ethos Institute (2004) states that social responsibility is the form of management that relates business ethics and transparency with respect to the sustainable development of society, thus preserving environmental resources for future generations. Social and environmental responsibility has become one of the focus of many companies, as society has been concerned with organizations’ practices towards people and the environment. According to Tinoco and Kraemer (2011), there have been several advances in the environmental area regarding the technical, political and legal means, making the

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consolidation of practices and the formulation of guidelines (addressing the environmental issue) are met in a systemic and integrated manner by companies. Based on this principle, Félix and Borda (2009, p. 15) reports in his work that “The company must monitor its business management, incorporating instruments and tools that facilitate diagnosis and positive change in reducing impacts and expanding results. social and environmental issues”. The company acquires new roles as an employer and as part of society, in this context, Barbieri (2016, p. 15) discusses that “Total corporate social responsibility requires the simultaneous fulfillment of economic, legal, ethical and philanthropic responsibilities. Put more pragmatically, it means that the company must be profitable, obey the laws, meet society’s expectations, and be a good citizen”. Social responsibility has become a competitive advantage, so managers must incorporate it into the organization’s strategies to ensure healthy business growth and good market insight (Willard 2014).

4.4 Environmental Management and Accounting The lives of people in society and the performance of companies require the use of natural resources, which has become the focus of much of the population by understanding the impacts of society’s practices on the environment. “The importance of environmental management within organizations is the result of the historical evolution of concern for the environment, its quality and its ability to support human life.” (de Sousa Jabbour and Jabbour 2013, p. 6). According to Barbieri (2016), to correctly manage aspects related to the environment, environmental management emerged to manage quality processes and social responsibility. Given that the company’s image is linked to its environmental performance, it is essential that companies adopt this management to make better use of natural resources. About environmental impacts, Fencker (2015) states that every human action has an impact on the environment and affects the conditions in which man lives. Thus, it is necessary that the individual and the organizations in which he works are attentive to the environmental issue. Donaire (1999) points out that environmental management has been growing more and more within companies, because these measures taken for environmental protection were not created to hinder the country’s economic growth, but because it is a general necessity, thus maintaining environmental stability. It is understood that environmental management is fundamental for all companies, especially for those that deal with environmental risks in their operations, based on this principle, Tinoco and Kraemer (2011) states that environmental management includes the organizational structure, planning activities, processes and resources to develop, implement and maintain the environmental policy, to minimize or eliminate the negative effects caused by the company’s activities in the environment.

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To show users how environmental management has been, Environmental Accounting emerges, which for Antonovz (2014), its purpose is to register and control the activities carried out by the company, focusing mainly on activities that may result in consequences for the environment, as well as their effects on assets, liabilities or equity. According to Ferreira (2003), Environmental Accounting provides information relevant to the characteristics of environmental management. Ferreira (2003) complements it is important to note that Environmental Accounting refers to a set of information that adequately reports, in economic terms, the actions of the entity that modify its assets. This set of information is not about other accounting, but about specialization. According to Paiva (2003), Environmental Accounting is a system that provides information on the effects of the entity’s activity on the environment and shows the measures taken to prevent rarefaction. Therefore, Environmental Accounting is understood as the recognition of facts and records of environmental events. To de Souza Ribeiro (2010, p. 45) “Environmental Accounting is not a new science, but a segmentation of the already widely known traditional”. For him, the objective of environmental accounting is “to identify, measure and clarify the economic and financial events and transactions related to environmental protection, preservation and recovery”.

4.5 Methodology This section of the paper presents the research method used as a strategy. According to Almeida (2011), this research is a case study, characterized, in terms of type, as applied, because it makes use of the knowledge that has already been systematized, in order to clarify organizational or human problems. As for the objective, the research is of a descriptive nature, since it analyzes the compliance with normative guidelines of provisions and contingent liabilities of the studied company, with the purpose of describing the object of the study, its characteristics and the related problems. As for the procedures, this research is documentary, because reports and data from the researched company were analyzed. The data study sample consists of the financial statements of the company Samarco Mineração S.A., published in December 2015, 2016 and 2017. As for the approach, it is a qualitative research, whose data were collected from the financial statements of the company Samarco Mineração S.A., published in December 2015, 2016 and 2017. For the collection of data, the indirect documentation technique was used, based on the financial statements made available on the company’s website, as well as in the explanatory notes and reports of the management, in addition to consultations with news reports brought by the media and government agencies, in order to better contextualize the information. Data collection was guided by the provisions of CPC

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25 (2009) for each of the recognition, measurement and disclosure phases for provisions and contingent liabilities. A checklist was adapted (Toledo 2016) with the main points required by the standard, in order to be used as a data collection instrument, and as a research driver. Considering the authors’ definitions, it is understood that the chosen methodologies are the most appropriate for the proposed study type.

4.6 Results and Data Analysis Once the data were collected by means of a checklist—presented in full in the Appendix—it was decided to structure the analysis of the results by following the information contained in the checklist. occurred at Samarco. The information is presented comparatively between the Annual Financial Reports published in 2015, 2016 and 2017. The following is a brief contextualization about the company and the incident that occurred in Minas Gerais, followed by the analysis of the data obtained. In addition to the proposed problem, we have included chapter 4.3 with considerations regarding business continuity.

4.6.1 Analysis Contextualization 4.6.1.1

About the Company

Founded in 1977, Samarco is a privately held Brazilian company that operates in the mining segment. Its main product is iron ore pellets sold to the steel industry in countries of the Americas, the Middle East, Asia and Europe. Samarco’s shareholders are: BHP Billiton Brasil Ltda. and Vale S.A., a world leader in the production and export of iron ore and pellets. Shareholders have shared control over Samarco, in which each holds a percentage equivalent to 50%. Its mission is “to optimize the transformation of mineral resources into value for society, in a safe, efficient and innovative way, today and in the future” (Samarco 2018). The company plays an important role in the Brazilian economy, having, in 2015, occupied the position of 12th largest exporter in the country, as disclosed on the Business page (Exame.com 2016). Samarco’s revenue mainly impacts the GDP of Minas Gerais and Espírito Santo. In some locations, taxes generated directly by Samarco’s activities are vital to the local economy of the municipalities. Samarco’s product is iron ore pellets, small agglomerates (or pellets) made from ultra-fine iron particles generated from ore beneficiation. Pelletizing is the process of compression or molding of these particles and results in a spherical product. The

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pellets are mainly used to feed blast furnaces in steel mills. By having a higher concentration of ore, the physical/chemical properties of the pellet make the process more efficient. From the pellet, steel is produced, which will be used in the construction of bridges, airplanes, houses, and electronics, among others. The tailings are left over from the iron ore beneficiation process and are composed of iron ore, sand and water. It is not toxic, corrosive or flammable. Samarco produces two types of tailings: sandy and mud. According to their chemical and physical characteristics, these tailings become raw materials for other productive sectors.

4.6.1.2

About the Accident

According to the technical report published by IBAMA (2018), on November 5, 2015, the Fundão dam, located in the Bento Rodrigues sub-district, 35 km from the center of the Brazilian municipality of Mariana, Minas Gerais, was breached. Considered one of the largest environmental disasters, it has had a significant impact on the environment, with a total of 62 million cubic meters of tailings dumped into the environment. The disruption caused damage to the infrastructure of the city of Mariana, increased turbidity of the Rio Doce waters, with impacts on water supply in the cities of Minas Gerais and Espírito Santo, cultural damage to historical monuments, damage to fishing activity and tourism in affected locations and, saddest, countless deaths of the residents of the region.

4.6.2 Financial Statement Analysis The company is a party to lawsuits and administrative proceedings involving civil, labor and environmental issues arising from the breach of the Fundão dam. These lawsuits brought by individuals, private companies, non-governmental organizations and public and governmental entities seek remediation and compensation for environmental and socio-economic impacts, material and moral damages and loss of life, as well as a series of compensation for the affected municipalities. On November 16, 2015, Samarco and the Public Prosecution Service of the State of Minas Gerais signed a Preliminary Commitment Agreement (PCA) with the purpose of establishing a socio-environmental fund/guarantee by Samarco in the total amount of R$ 1,000,000. (one million Reais) exclusively for the cost of prevention, containment, mitigation, reparation and compensation measures for socio-environmental or socio-economic damages resulting from the accident. As presented in an explanatory note to all financial statements published on March 2, 2016, after the environmental disaster occurred, Samarco together with its shareholders Vale and BHP Billiton Brasil, signed the Conduct Transaction and Adjustment Agreement (CTAA), in order to establish programs that include measures

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and actions for reparations and socio-environmental and socio-economic compensations resulting from the accident. This instrument is structured so that competent public authorities can give their opinion, evaluate, and approve projects developed within the programs, and will oversee the execution of all programs through an InterFederative Committee. In addition, expert figures and technical advisory panels have been designed to resolve scientific controversies in a scientific and informed manner. In compliance with CTAA, on August 2, 2016, Samarco, Vale and BHP established the Renova Foundation in order to develop and implement reparation and compensation programs. Samarco is responsible for providing resources to the Foundation, subject to the schedule and other conditions set forth therein. To the extent that Samarco does not meet its financing obligations under the Agreement, both Vale and BHP have financing obligations in accordance with the terms of the Agreement in proportion to their 50% stake in Samarco. As of December 31, 2017, CTAA has a total of 42 programs, 23 of which are socioeconomic and 19 socio-environmental. In addition to these programs, remedial and compensatory measures will be implemented. CTAA also provides for the possibility of creating new programs, if necessary, to implement the actions provided for in the agreement. The term of the Agreement is 15 years, renewable for periods of one year, successively, until all obligations under the CTAA are fulfilled. Under the terms of the CTAA agreement, Samarco and its shareholders provided funds to Fundação Renova, as shown in Table 4.1. The 2017 Annual Financial Report also discloses the expected allocation of funds to the Renova Foundation for the coming years, as shown in Table 4.2. For the years from 2022 onwards, the amounts to be contributed to the Foundation will be based on the planning of programs approved by the Foundation on the same Table 4.1 Resources for the Renova Foundation (R$ × 1,000)

Company

2016

2017

Samarco Mineração S.A

216,462

594,831

Vale S.A

238,744

640,000

BHP Billiton Brasil Ltda

238,744

640,000

Total

693,950

1,874,831

Source Annual Financial Report 2017 p. 40 (Prepared by the Authors)

Table 4.2 Schedule of future resource allocations to the Renova Foundation (R$ × 1,000)

Year

Amount

2018

1,965,000

2019

800,000 a 1,600,000

2020

800,000 a 1,600,000

2021

800,000 a 1,600,000

Source Annual Financial Report 2017 p. 40 (Prepared by the Authors)

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date. CTAA did not specify a minimum or maximum value in this period. By June 30, 2018, the Renova Foundation had already allocated about R$ 4 billion to socioenvironmental and socio-economic remediation programs. Among other initiatives, financial aid is being paid to approximately 22,000 people, three districts will be rebuilt, over 40,000 hectares will be reforested and dam structures in the Germano Complex have been strengthened. Mention of the CTAA is necessary due to its relevance in the composition of the provisions for social and environmental and socio-economic compensation and recovery arising from the dam disruption, since, besides expenses incurred, Samarco recorded the provisions based on the programs established in the referred agreement. In its financial statements, Samarco reports that it has already incurred expenses and has provisions for future disbursements that were accounted for and disclosed in accordance with CPC 25—Provisions, Contingent Liabilities and Contingent Assets. In its financial reports, Samarco presents in detail the amounts provisioned and contingent liabilities arising from the Fundão dam rupture. In its liabilities, the Miscellaneous Provisions class includes provisions for socio-environmental and socio-economic recovery arising from the accident. In the cut-out of Table 4.3, the book value at the beginning and end of the period for 2017 of the Miscellaneous Provisions is shown. According to Samarco’s financial report (2017, p. 6), “for each of the programs set out in the CTAA, provisions are recorded as liabilities”. As already mentioned, the Miscellaneous Provisions class includes the amounts related to the dam rupture. The main classes of provision for socio-environmental and socio-economic recovery constituted are referred to as Provisions for (a) Emergency and Migratory Actions, (b) Remedial Programs, (c) Compensatory Programs and (d) Other actions not contemplated in the Agreement. The amounts provisioned for the years ended 2015, 2016 and 2017, according to the respective published financial statements, are shown in Table 4.4. Table 4.3 Miscellaneous Provisions (In 31/12/2017) Parent Company and Consolidated 2017

2016

Electricity provision

(a)

1,130

1,536

Provision for socio-environmental and socio-economic recovery

(b)

1,737,222

1,634,522

1,738,352

1,636,058

(d)

350,58

319,863

Current total Provision with obligation to demobilize assets Provision of mining rights

(c)

112,222

112,222

Provision for socio-environmental and socio-economic recovery

(b)

9,516,701

5,576,590

9,979,503

6,008,675

Total non-current Source Annual Financial Report 2017 p. 66—Samarco

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Table 4.4 Provisions for socio-environmental and socio-economic recovery Samarco (Reais—R$ × 1,000) Provisions for:

2015

2016

2017

Emergency and migratory actions

304,831

–

–

Remedial programs

5,920,148

3,952,511

7,616,117

Compensatory programs

3,296,438

2,760,202

2,910,668

Other actions not contemplated in the Agreement

483,385

498,399

727,138

Total

10,004,802

7,211,112

11,253,923

Source Annual Financial Report 2015, 2016 and 2017 (Prepared by the authors)

In the annual financial report published in December 2017, item 3-g.a, p. 41, the explanatory notes show some of the main actions that contributed to the increase in provisions compared to previous years: ● Inclusion of new beneficiaries in financial aid programs and compensation for impacts to fishermen; ● Inclusion of new eligible by 2020 for unregulated professional fishermen in the light of the revised revision policy; ● Maintenance of virtual cards for the 2019 and 2020 budget, and inclusion of new cards in the financial aid program; ● Adequacy of Rio Doce Panel costs and inclusion of biodiversity monitoring costs; ● Compensation impacted through the Mediated Compensation Program (MCP) with respect to compensation for fatalities and impacted in general, among others; ● Redesign of activities and costs for public facilities, housing construction and resettlement infrastructure; ● New resettlement packages: Mariana landfill, bridge building, land management legal services, social housing allotment, restraint services, support and purchase staff, site support staff, besiege infrastructure, due diligence and business intelligence. According to data collection of Samarco’s financial statements, guided by the checklist containing the CPC 25 standards, presented in full in the Appendix for 2015, 2016 and 2017, regarding the recognition, measurement and disclosure of provisions and contingent liabilities, we have what follows in the next paragraphs. In general, the requirements for recognition of provisions have been met, except for the reliable estimate of the present obligation value, as mentioned in note 3, item g, p. 41, of the financial statements ending in 2017: The extent, full scope, timing and cost of future remediation and remediation programs are subject to a high degree of uncertainty because they depend on the completion of expert studies, the preparation of action plans and the outcome of judgments. of the judicial demands. Accordingly, we understand that provisions set forth herein are subject to significant uncertainty and actual amounts may differ significantly from those recorded.

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Regarding the measurement of provisions, the amounts were revalued and adjusted at the balance sheet date as required by the standard, since, according to the notes to the reports ended 2015, 2016 and 2017, the provisions were recorded based on current information, including the technology available at current prices, for future disbursements related to the present obligation that was generated by the Fundão dam disruption. In addition, the obligations represent the present value of disbursements expected to be required to settle the obligations. Table 4.5 presents the risk-free rates at which provisions were discounted to the present value for 2015, 2016 and 2017. As for the disclosure in Samarco’s financial statements, for the years 2015, 2016 and 2017, were disclosed for the socio-environmental and socio-economic recovery provisions classes, presented in Table 4.4, a brief description of the nature of the obligation, as well as the benefits schedule. resulting economic benefits, already shown in Tables 4.1, 4.2 and 4.3. The main assumptions adopted regarding future events were also disclosed, as per note 2.2-i, p. 23, of the financial statements ending in 2017: The provision for socio-environmental and socio-economic recovery is constituted upon the identification of an impacted area or the request for reparation of civil damages incurred, which generate a present obligation for the Company. This process involves complex estimates in determining the amount of future disbursement expected by Management and its external advisors, as disclosed in Note 3.

Note 3, intended to disclose the impacts of the Fundão dam disruption, in the financial report for the three years considered here for analysis, in item g.b, considers that, as the evolution of actions and knowledge of impacts, changes in key assumptions may result in substantial future changes in the amounts provisioned in future publications, and highlights such as: the method used to remove remaining tailings in the rivers, the criteria used to compensate the impacted, and the repair costs for the resumption of operation. The main movements in the provision accounts arising from the Fundão dam rupture were disclosed in the notes to the financial statements for the three years considered for this analysis, as shown in Table 4.6. The breakdown of expenses related to the prevention, remediation, containment and compensation of environmental and social impacts resulting from the Fundão dam disruption incurred in the analyzed periods were disclosed in notes and are shown in Table 4.7. With respect to contingent liabilities, the company generally complies with CPC 25 requirements for recognition. Contingent liabilities were disclosed in notes, and Table 4.5 Discount rate at present value of provisions (% year)

Year

Risk free rate:

2015

7,185

2016

10,621

2017

8,334

Source Annual Financial Report 2015, 2016 and 2017 (Prepared by the authors)

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Table 4.6 Movements in provision for socio-environmental and socio-economic recovery (R$ × 1,000) Provision for socio-environmental and socio-economic recovery

2015

2016

2017

Realization of provision

−144,350

−2,068,663

−566,529

Financial Update

–

746,914

797,428

Increase (reversal) of provision

–

1,471,941

3,811,912

Source Annual Financial Report 2015, 2016 and 2017 (Prepared by the authors)

Table 4.6 Expenses for socio-environmental and socio-economic recovery (R$ × 1,000) Expenses for socio-environmental and socioeconomic recovery

Expenses incurred 2015

2016

2017 –

Emergency and migratory actions

90,184

–

Remedial Programs

34,483

1,618,491 415,836

Compensatory programs

–

11,915

8,084

Actions not contemplated in the agreement

19,683

438,257

142,609

Total

144,350 2,068,663 566,529

Source Annual Financial Report 2015, 2016 and 2017 (Prepared by the authors)

Table 4.7 Samarco infringement proceedings (R$ × 1,000)

Infringement notices

Amounts

2015

432,536

2016

819,966

2017

887,348

Total

2,139,850

Source Annual Financial Report 2015, 2016 and 2017 (Prepared by the authors)

according to the company, are periodically evaluated to determine whether an outflow of resources embodying economic benefits has become probable. Regarding this requirement of the standard, the financial statement published in 2017, in item 3-h of the explanatory notes, p. 44, says: Only in the fullness of time and in the natural development of disputes and process maturity, with new settlements reached and/or legal decisions, will it be possible to understand the real magnitude of the impacts and the Company’s exposure. These items may lead to significant impacts on provisions and result in further adjustments to existing provisions and/or the recognition of new provisions for disbursements that cannot currently be projected and/or measured.

In the topic regarding the measurement of contingent liabilities, the risks and uncertainties in preparing the best possible estimate are considered, as published in the statement ending December 2017, items 3-g and h, p. 41 and 44:

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H. Formigoni et al. As actions evolve and knowledge of impacts, changes in key assumptions may result in substantial future changes in the amounts provisioned in future publications. [...] Management has also considered other claims that are classified as possible and/or likely to be in the early stages and which present significant uncertainties.

As disclosed in the explanatory notes, Samarco was assessed by the environmental agencies, being assessed by IBAMA due to environmental damage caused by the discharge of solid and liquid waste (mining tailings). in Rio Doce waters, and assessed by SESD (Secretariat of Environment and Sustainable Development), and SIEWR (State Institute of Environment and Water Resources) of Espirito Santo for causing pollution and environmental degradation resulting in damage to water resources. Samarco has filed its defence against these charges and is awaiting a response from the agencies. Losses and outflows resulting from these infraction notices are classified as possible and are therefore considered contingent liabilities. Following is Table 4.8, the estimate of its financial effects. Unfavorable outcomes related to these existing disputes can significantly worsen the company’s equity position. Taking into consideration the main requirements of CPC 25, related to the Recognition, Measurement and Disclosure of provisions and contingent liabilities related to the Fundão dam rupture, in Minas Gerais, and listed in the checklist applied in the financial statements of Samarco’s financial statements, we consider that the company addresses what the standard recommends clearly in its reports. From the proposed diagnosis, shown in the Appendix, it can be observed that Samarco meets the treated items, as shown, in percentage, in Table 4.9. Table 4.8 Compliance with Samarco’s Financial Statements to CPC Standards 25

Year of publication

Adherence percentage (%)

2015

68.20

2016

77.30

2017

77.30

Average

74.27

Source Prepared by the authors

Table 4.9 Samarco Liquidity Ratios

Liquidity ratios:

2015

2016

2017

Chain

1.17

0.034

0.012

Dry

0.97

0.013

0.011

Immediate

0.66

0.003

0.003

Source Prepared by the authors based on published financial statements

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4.7 Operational Continuity As Samarco’s main operations consist of the integrated mining, beneficiation and concentration of low quality iron ore in the municipality of Mariana, in the state of Minas Gerais, as well as the transportation of this concentrated ore from the Company’s plants located in Minas Gerais to the pelletizing plants in Espírito Santo, through pipelines. Due to the Fundão dam disruption on November 5, 2016, until the date of publication of the 2017 financial statements on October 8, 2018, Samarco’s mining and processing activities remain suspended. This significantly affected the Company’s ability to generate positive cash flows and meet its financial obligations. Samarco believes that resuming operations is essential for the company to continue its business. However, the return on operations will depend on resolving factors beyond your control, such as obtaining necessary operating permits to safely resume operations, satisfactorily renegotiating debt obligations and conditions with your creditors, and adequate funding to support operations before and during the restart, as described in a note to the financial statement published in 2017. Liquidity risk is the likelihood that the Company will not have sufficient resources to meet its obligations in due time, according to Martins et al. (2017, p. 126). “Liquidity ratios present the financial position of a company against the financial commitments assumed, that is, they demonstrate their ability to bear the debts assumed, which ultimately signals the condition of their own continuity.“ Table 4.10 shows the company’s liquidity ratios, calculated based on the financial statements published in December of the years analyzed. We can observe from these indices that the Company’s management has been facing liquidity risk challenges due to the suspension of its production operations after the Fundão dam rupture. The current liquidity ratio, which shows the company’s short-term ability to pay (current assets against current liabilities) decreased by approximately 99% from the date of the accident to the current financial situation, revealing that, in fact, the company has lost strength in its ability to settle its shortterm debt, as a current liquidity ratio of 1 (one) or higher is sufficient to meet a company’s operational needs. The dry liquidity ratios, which do not consider the effects of inventories and prepaid expenses on current liabilities, and the immediate liquidity that considers the cash and cash equivalents of current assets in relation to current liabilities, also showed a decrease of close to 100% of the company’s Table 4.10 Loans and Financing (R$ × 1,000)

Loans and financing

Amounts Short term

Total Long term

2015

436,631

14,742,659

15,179,290

2016

13,738,599

8,818

13,747,417

2017

16,181,280

–

16,181,280

Source Prepared by the authors based on published financial statements

56 Table 4.11 Loans and Financing from Shareholders (R$ × 1,000)

H. Formigoni et al. Loans and Financing:

Amounts

2016

1.390.000

2017

1.506.051

Total

2.896.051

Source Prepared by the authors based on published financial statements

liquidity capacity, 98.9% and 99.5%, respectively. This decrease is justified by the 673% increase in current liabilities between 2015 and 2017, notably in the Loans and Financing account (4,623%), against a decrease of 1,443% in current assets in the same period. According to note 15 of the financial statement ending in 2017, due to the nonoperating situation of the company, since the Fundão dam rupture, some covenants present in its loan and financing agreements have not been fulfilled. In addition, the Company failed to repay principal and interest on loans due in the year. As a consequence of this default, all loans and financing were reclassified to the short-term, which also reflects accrued interest on overdue instalments and the application of default interest. Samarco has loans and financing (including finance charges payable), as shown in Table 4.11. Given the challenges faced, Samarco, Vale and BHP shareholders have sustained the company’s liquidity. They were triggered to meet Samarco’s current CTAA obligations and to support its operations through short-term loans, as shown in Table 4.12. In the first half of 2018, additional contributions of R $ 266,865 were made, of which R$ 231,155 was allocated to support operational needs and R$ 35,709 to cover CTAA programs still under Samarco’s supervision. For the second half, shareholders announced financial support of R$ 398,968. The company stated in its explanatory notes to the 2016 and 2017 statements that short-term loans will allow Samarco to continue to repair, stabilize and support its operations. The company has hired advisors, who are in contact with creditors to discuss a restructuring of their existing loan and financing agreement conditions because of their current financial condition. As the company’s operations are suspended, its ability to generate positive cash flows from its operations has been affected. In the year ended 2017, the company presented negative equity of R$ 14,602,955 and presented in 2017, according to the notes, cash flows from negative consolidated operating activities in the amount of R$ 1,534,472 in its operations consolidated. As of the same date, its consolidated current liabilities exceed consolidated current assets by R$ 17,967,735. Obtaining operating licenses is necessary to allow the resumption of activities. According to the audit report on the financial statements for 2017, given the uncertain situation of the current licensing process, Samarco is still unable to provide a reliable estimate as to when its operations may resume.

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4.8 Final Remarks The objective of this research was to verify, in the light of CPC 25, how Samarco company treated in its financial statements the provisions and contingent liabilities arising from the environmental disaster that occurred in November 2015, in Mariana—MG, exposed during the work. With the regulatory requirements of the accounting pronouncement and the expectations of those directly and indirectly affected by the environmental catastrophe, we were able to verify how and how much the company recognizes, measures and discloses in its financial statements, the liabilities arising from the environmental accident. Being a descriptive research, with documentary procedures, to achieve the objective of the study, we analyzed the financial statements of the company in its entirety, and we emphasize that the explanatory notes were essential in the verifications performed and scored. The checklist used as a collection instrument facilitated the reading of the statements and allowed the comparability of data on the entity’s liabilities. The survey sampled the financial statements published for 2015, 2016 and 2017 financial years. In general, Samarco treats in its statements the provisions and contingent liabilities arising from the environmental disaster considered here, in compliance with the standards required by CPC 25. The checklist, an instrument for collecting this information, allowed the percentage representation of the compliance of the company’s financial statements with accounting rules, as regards the recognition, measurement and disclosure of provisions and contingent liabilities. This adherence percentage is around 74.3% on average for the three years covered, in which gaps were left in some main points required by the standard, such as measurement, which, is due to the high degree of uncertainty of the consequent facts. In the event of a disaster, estimates of probable losses and disclosure of possible losses could not be the best to represent the disbursement required to settle the obligations. Regarding the limitations found, we point out the lack of information and details of some data in the 2015 financial statements, not least, the percentage of adherence of the statements to this year’s accounting standard was the lowest for the three years covered, about 68, 2%. The demonstrations of the following years were more complete and continued to allow comparability of data. In addition to the proposed problem, we look at the financial statements for evidence of business continuity, and identify that the company has not complied with its financial obligations in its loan and financing agreements, and that its postdisaster liquidity ratios are adverse. Samarco is not yet in a position to present a reliable estimate as to when its operations may resume. In view of this, we conclude that the event that occurred on November 5, 2015, with the Fundão dam rupture, which allowed the elaboration of this research work, will impact the company’s stakeholders for a time that cannot be determined, and we encourage the approach through the checklist in future financial publications of the company, in order to verify important items in dealing with provisions and contingent liabilities, as well as the development of its economic and financial situation.

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References Antonovz T (2014) Contabilidade ambiental. Intersaberes, Curitiba Barbieri JC (2016) Responsabilidade social empresarial e empresa sustentável: da teoria à prática. Saraiva, São Paulo Campos FB (2017) A saga da Samarco: as revelações do relatório contábil-financeiro após o desastre de Mariana. Revista De Contabilidade Da Ufba, Salvador 11(2):1393–2157 Costa JA, Theóphilo CR, Yamamoto MM (2012) A aderência dos pronunciamentos contábeis do CPC às normas internacionais de contabilidade. Revista Contabilidade, Gestão E Governança. Brasília 15(2):110–126 De Iudícibus S (2009) Teoria da contabilidade, 9th edn. Atlas, São Paulo de Souza Almeida M (2011) Elaboração de projeto, TCC, dissertação e tese: uma abordagem simples, prática e objetiva. Atlas S.A., São Paulo Donaire D (1999) Gestão ambiental na empresa, 2nd edn. Atlas, São Paulo Exame.Com. (2016) Negócios: as 40 maiores exportadoras do Brasil Em 2015. Https://Exame. Com/Negocios/As-40-Maiores-Exportadoras-Do-Brasil-Em-2015/ Félix JDBF, Borda GZ (2009) Gestão da comunicação e responsabilidade socioambiental: uma nova visão de Marketing e comunicação para o desenvolvimento sustentável. Atlas, São Paulo Ferreira ACS (2003) Contabilidade ambiental: uma informação para o desenvolvimento ssustentável. Atlas, São Paulo Fipecafi; Ernst & Young (2010) Manual de normas internacionais de contabilidade: IFRS versus normas brasileiras, 2nd edn. Atlas, São Paulo Gelbcke ER, Martins E (2018) Manual de contabilidade societária: aplicável a todas as sociedades: de acordo com as normas internacionais e do CPC, 3 ed. Atlas, São Paulo Hendriksen ES, Van Breda MF (1999) Teoria da ccontabilidade. Tradução de antonio zoratto sanvicente. Atlas, São Paulo Instituto Brasileiro Do Meio Ambiente E Dos Recursos Naturais Renováveis - Ibama. Ministério Do Meio Ambiente (2018) Rompimento Da Barragem De Fundão: Documentos Relacionados Ao Desastre Da Samarco Em Mariana/Mg. http://Www.Ibama.Gov.Br Iudícibus S, Martins E, Gelbcke ER (2013) Manual de contabilidade societária: aplicável a todas as sociedades de acordo com as normas internacionais e do CPC, 2ª. Atlas, São Paulo De Iudícibus S, Marion JC, De Faria AC (2017) Introdução à teoria da contabilidade: para graduação, 6th edn. Atlas, São Paulo Leite C (2010) Contabilidade básica. Quileditora, Rio De Janeiro de Martins GA, Lintz AC (2013) Guia para elaboração de monografias e trabalhos de conclusão de curso. Atlas, São Paulo Martins E, Miranda GJ, Diniz JA (2017) Análise didática das demonstrações contábeis. Atlas, São Paulo Padoveze CL (2006) Introdução à contabilidade: com abordagem para não-contadores: texto e exercícios. Cengage Learning, São Paulo Padoveze CL, de Benedicto GC, Leite JD (2011) Manual de contabilidade internacional IFRS-US Gaap-BR Gaap: teoria e prática.. Cengage Learning, São Paulo de Paiva PR (2003) Contabilidade ambiental: evidenciação dos gastos ambientais com transparência e focada na prevenção. Atlas, São Paulo De Sá AL (2006) Teoria da contabilidade, 4th edn. Atlas, São Paulo Samarco (2018) Informações sobre a Samarco. http://Www.Samarco.Com/A-Samarco/ Santos AS (2014) Contabilidade. Pearson Education Brasil, São Paulo dos Santos Oliveira N (2016) O desempenho ambiental de companhias brasileiras: uma análise das companhias do ISE. Rev Gestão Sustentabilidade Ambient Florianópolis 5(1):352–370 Santos JLD, Schmidt P, Machado NP (2005) Fundamentos da teoria da contabilidade, 6th edn. Atlas, São Paulo Da Silva TBB (2016) Desastre em mariana: um estudo de caso dos impactos nas demonstrações contábeis da empresa mineraçãosamarco. Tese – Universidade De Brasília

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de Souza Ribeiro M (2010) Contabilidade ambiental, 2nd edn. Saraiva, São Paulo de Sousa Jabbour AB, Jabbour CJC (2013) Gestão ambiental nas organizações: fundamentos e tendências. Atlas, São Paulo Tinoco JEP, Kraemer ME (2011) Contabilidade E Gestão Ambiental, 3rd edn. Atlas, São Paulo De Toledo BLB (2016) A aplicação do CPC 25 em um contexto de relevante sinistro ambiental: um estudo de caso da Samarco Mineração. 68 F. Tese – Departamento De Finanças E Controladoria, Universidade Federal De Juiz De Fora Willard B (2014) Como fazer a empresa lucrar com sustentabilidade. Saraiv, São Paulo

Part III

New Developments on Corporate Governance and Accountability

Chapter 5

Internal Ve External Dimensions of Corporate Governance: A Cluster Analysis in Logistics Enterprises ˙ ˙ Ismail Iyigün

Abstract In recent years, corporate governance has come to the forefront in terms of sustainability of companies in a successful manner that respects the interests of all stakeholders. There are a number of important dimensions in corporate governance and these dimensions form the basis of corporate governance. The main motivation of this study is to determine the basic dimensions of corporate governance and to group them within themselves. For this purpose, nine different components of corporate governance have been identified. While some of these components are related with company employees, some others are related with stakeholder groups other than employees. In this study, it is sought to answer the questions of how many clusters of corporate governance dimensions divide within itself, which components are within the company and which components are directed towards the stakeholder groups of the company. For this purpose, an application has been carried out on logistics businesses. The data showed that the components of corporate governance were divided into two clusters. When the characteristics of governance components are examined, economic, legal, ethical and contractual internal governance; volunteerism, environmental, fairness, transparency and network dimensions are related to external governance. The findings provide guidance to researchers and professionals. Keywords Corporate governance · Logistic

5.1 Introduction Common administration appeared during the 1990s as a notion and became an administration philosophy which was promptly adopted by global corporations, governments, enterprise and academic surroundings. At the beginning of the 2000s, the collapse of giant companies such as Enron, Worldcom and Parmalat brought the management and audit deficiencies to the agenda and the importance and necessity of corporate governance became more evident (DiPiazza and Eccles 2002). Governance ˙I. ˙Iyigün (B) Trakya University, Edirne, Turkey e-mail: [email protected] © The Author(s), under exclusive license to Springer Nature Singapore Pte Ltd. 2022 K. T. Çalıyurt (ed.), New Approaches to CSR, Sustainability and Accountability, Volume III, Accounting, Finance, Sustainability, Governance & Fraud: Theory and Application, https://doi.org/10.1007/978-981-16-9364-9_5

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generally involves the foundation of mechanisms for establishing, controlling and structuring organizational change (Heide 1994). Corporate governance is one of the concepts that has increased in popularity in recent years and it is stated that management function in corporate governance is carried out with stakeholder groups. The aim of inter organizational governance is to reduce and eliminate uncertainty, conflict and opportunism between the parties as much as possible (Jain and Dubey 2005). In this chapter of this book, firstly corporate governance and its dimensions will be explained, then, an application that reveals the clusters of corporate governance dimensions will be carried out.

5.2 Corporate Governance The concept of corporate governance encompasses the relationships between stakeholder groups such as companies’ management, board of directors, shareholders and investors. Therefore, it covers all interest groups that claim rights on the enterprise, namely employees, creditors, customers, funders and the state’s relations with senior management. The root of the notion is relied on the anticipation that enterprises ought to be understandable to their partners, display the real position of the business, defend their rights, adhere to ethical requirements and behave responsibly. The corporate governance structure is a concept that determines the truths and obligations of the members, including the board of managers, partners and opposite attentive bodies (stakeholders, creditors, dealers, government, credit associations, etc.) and the contacts among them (Macey and O’Hara 2000; Jesover and Kirkpatrick 2005). As regards administration, collective governance is a structure that makes required plannings for administration systems and enterprises to perform in line with these principles so as to enhance the performance of firms. (OECD 2004; Luo 2005). Collective administration ought to be viewed as a change but not an obligation. The right collective administration is sharply linked to superior practical administration, improved market expense and more conversion (Drobetz et al. 2004). Favorable common administration influences the efficiency of the company positively. Shareholders are becoming keener in high-performing enterprises and the market profit of stocks is rising. As the market profit of stocks rises, investment in enterprises rises and the transformation rate purses a positive course for the company. In short, corporate governance is the system in which the companies are directed and controlled and essentially includes the series of relations between the management of the company, the board of directors, shareholders and other interest groups (Yakup 2011). If corporate governance is considered on the basis of the relationship between stakeholder groups, it can also be defined as a bundle of relations between management, board of directors, shareholders and other interest groups (OECD 2004). Accordingly, corporate governance should implement social responsibility, transparency, accountability, fair practices and participatory management style

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towards stakeholder groups within their own management structures. The dimensions of corporate governance discussed in the literature will be explained briefly below.

5.2.1 Financial Accountability The main focus of corporate governance principles is to protect the rights of the company’s stakeholders. Since financial reporting is the most important source of information for the stakeholders of the company, financial statements can be used as a tool to increase corporate governance effectiveness. From this perspective, effective implementation of corporate governance principles can play a very important role in improving the quality of financial accountability and thus gaining confidence in financial reporting. While financial accountability generally increases the profitability of firms, it aims to maximize the expectations of its stakeholders by complying with laws and other legal norms (Galbreath 2009).

5.2.2 Ethical Responsibility Ethical responsibility can be defined as observing ethical values and conducting them without compromising ethical values (Chahal and Sharma 2006). Ethical responsibility can be explained by two main approaches. The first approach is to focus on more striking improvements in the ethical context of firms’ internal behavior, business processes and policies. The second approach is to focus on ethical accountability for external interest groups. In other words, the first approach leads the company to ethical consciousness, the second approach leads to ethical behavior, and these two approaches form ethical responsibility (Colle and Gonella 2002). Accordingly, righteous duties encompass norms, standards and prospects which display the belief of workers, consumers, partners and global communities in protecting the moral rights of stakeholders.

5.2.3 Legal Responsibilty The principle of legal responsibility relates to the ability of legally responsible accountants to make decisions and actions. Legal accountability relates to legal responsibilities to government agencies, business interests, and other parties affected by corporate activities (Kluvers and Tippett 2010). The legal approach to corporate governance is based on the protection of the rights of potential shareholders and lenders to the company through laws and their implementation. If the shareholders’ voting rights and the lenders’ right to reorganize the business and receive shares from

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liquidation are regulated extensively by law and are well enforced by law enforcement or courts, investors will be more eager to provide financing to businesses. However, if external investors, such as potential shareholders and business lenders, are not protected by the legal system, the good functioning of corporate governance and external financing mechanisms becomes difficult for businesses (La Porta et al. 2000).

5.2.4 Environmental Responsibility Environmental responsibility has become an extremely important issue today. The corporate environmental responsibility of firms can be assessed in three parts: (1) company managers should be responsible for the environmental impacts of their decisions, (2) companies should be held accountable for their environmental issues, (3) public authority should set standards for environmental accountability, and firms should publish their corporate environmental responsibility applications complying with these standards (Shafer 2006). To contribute public awareness, to help to the prevention of environmental pollution, and to use environmentally friendly and recyclable products that do not harm nature and living things are examples of responsibility for firms to take part in activities that will contribute positively to the environment. In particular, the fulfillment of this responsibility can also be ensured to a large extent by environmental reporting within the scope of environmental accounting.

5.2.5 Voluntariness It is important for companies to voluntarily disclose information on their own in the capital market in order to inform all shareholders (Bouaziz 2014). The principle of voluntarism is the voluntary sharing of financial or non-financial information by the company without being requested by any stakeholder or authority. This sharing is also made without the necessity of any internal rules or legal regulations. The source of this shared information is usually executives and board members. Indeed, companies with strong corporate governance often inform their shareholders more voluntarily (Ho and Taylor 2013). As management activities of companies are becoming more and more complex, voluntary disclosures need to be made in more ways to eliminate the information gap and help shareholders make the right decision (Schuster and O’Connell 2006).

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5.2.6 Transparency The principle of transparency in corporate governance can be defined as the approach of publicly disclosing financial and non-financial data concerning the firm in a timely, exact, understandable, explainable and attainable aspect, with the exclusion of business mysteries and data not still revealed to the community (Millar et al. 2005). Bushman et al. (2004) clarified clarity as the convenience of firm-specific data to external investors and stakeholders. Black (2001) declared that so as to establish firm capital markets, minority partners should have adequate proficiency of the firm’s operations. Therefore, complex legal and institutional structures that would prevent minority partners from making decisions which would deteriorate the value of their investments should be formed. So as to succeed this, enterprises should be transparent and provide all kinds of information that may affect investors’ decisions in a complete, timely, exact and trustworthy manner to partners and stakeholders. If firms do not obey the necessities of transparency, asymmetric information will be formed in the market.

5.2.7 Fairness Fairness is often a concept that stands out as a distributional rule in organizations. Fairness refers to the equal treatment of stakeholders in all activities of the company management and the prevention of possible conflicts of interest (Kabanoff 1991). The management of the company should be at an equal distance to all stakeholders directly or indirectly affected by the decisions taken in the conduct of its activities (Freeman 2010). Corporate governance requires an equal approach of all stakeholders, including minority and foreign shareholders, in order to protect the interests of all stakeholders. In particular, legal arrangements should be made to provide effective compensation for violations of rights that could lead to inequality. In this way, abuse of the shares of minority and foreign rights holders can be prevented (Martey 2014).

5.2.8 Contract Liability The contract focuses on handling written communication, in compliance legal norms, that regulates the business processes requirements, relationships between firms which are in distribution channel (Kluvers and Tippett 2010). Thanks to the contracts arranged in accordance with the requirements of the agreements, the parties establish a climate of trust among the channel members by specifying a number of standard elements up to what should be done, the legal basis of the agreement and the performance requirements (Maile 2002). Thus, contracts prevent that one or both parties

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tend to avoid opportunistic behavior, and provide achieving institutional goals, especially in both high and low uncertainty conditions (Ferguson et al. 2005; Canon et al. 2000).

5.2.9 Network Governance Inter-company networks play an increasingly important role in the relationship between supply chain integration (Rudberg and Olhager 2003). Networking therefore creates a large economic capacity to regulate both complex operational dependency and collaboration dependency between companies (Grandori and Soda 1995). Since organizational structures and processes are different from each other, inter-company networks will also be different from each other. The company holding power can make other companies in the supply chain dependent on itself and all coordination can be carried out by this company (Zhuang and Zhou 2004). In this study, answers to two basic questions will be tried to answer. (1) What are the dimensions of corporate governance, (2) Whether the dimensions of corporate governance are divided into clusters will be investigated.

5.3 Method In this study, the determinants and clusters of corporate governance were investigated. In order to test the research model, data were collected by questionnaire method. The survey was conducted on the customers of third-party logistics service providers and the customers were asked to evaluate the logistics service providers. According to this, the companies that obtained logistics services through outsourcing constituted the main mass of this study. The questionnaire was obtained by sending interviewers to randomly selected companies from the members of Marmara Region Chamber of Commerce and Industry. For the scales used in the questionnaire, primarily the studies in the literature were examined. The corporate governance scale was measured in nine dimensions and consisted of financial, legal, ethical, contractual, voluntariness, environmental, fairness, transparency and network responsibility dimensions. Financial responsibility was created by the authors based on the definitions in the literature and a scale consisting of five items was prepared within this scope. The scale of legal responsibility was prepared by the author and consists of five items. Environmental responsibility dimension was created by benefitting from the studies of Shafer (2006), Shafer et al. (2007) and Vaccaro and Echeverri (2010), and was tested with four items. The scale of ethical responsibility is adapted from the study of Murphy et al. (1991) and measured with four items. The Voluntariness dimension was composed by the author and consists of four items. The transparency scale was developed using the studies of Eggert and Helm (2003) and Hung and Wong (2009) and was measured with

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nine questions. The fairness dimension means that the company management is at an equal distance from all its customers, and is treated fairly in pricing, delivery and transaction processes. This dimension was measured by four items and developed by the authors. Contract accountability refers to the service provider’s accountability that the client will act in accordance with the terms of the contract, measured by nine items and developed by the authors. The network responsibility is the accountability of the service provider to the companies in the network. This scale is described in Paulraj et al. (2008) and measured with six items. The scales used in the questionnaire are shown in Annex-1. Likert type scales were used, and the meaning the the scoring items as follows: 1 = strongly disagree and 5 = strongly agree.

5.4 Analysis And Findings. 5.4.1 Characteristics of Sample In order to examine the characteristics of the respondents, the frequency distributions and descriptive statistics are shown in Table 5.1. The questionnaire was applied on 207 firms, the participants were mainly male individuals and the average age was 36, and it was mainly composed of people with high school and above education level. Table 5.1 Frequency table (Börtiçine and ˙Iyigün 2017) Gender

Frequency

Percent

Departments

Frequency

Percent

Male

178

69

Purchasing

28

10,9

Female

75

29,1

Production

31

12

Total

253

98,1

Corporate

49

19

Missing

5

1,9

Logistics/SC

46

17,8

Total

258

100

Foreign trade

55

21,3

Position

Frequency

Percent

Other

36

14

Expert

51

19,8

Missing

13

5

Middle level manager

126

48,8

Total

258

100

Assistant general manager

9

3,5

Graduating

Frequency

Percent

General Manager

18

7

Primary

5

1,9

Owner

21

8,1

College

49

19

Other

15

5,8

Technical school

20

7,8

Missing

18

7

Undergraduate

89

34,5

Total

258

100

Graduated

26

10,1

Total

189

73,3

Missing

69

26,7

Total

258

100

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70

When the departments of the respondents are examined, it is seen that the employees who have a direct business relationship with the 3PL company respond to the survey and these participants are mostly middle level managers.

5.4.2 Validity and Reliability Before the factor analysis, the normality test of the scale and the adequacy of the sample for factor analysis were evaluated with the Kaiser–Meyer–Olkin (KMO) test and the KMO value was found to be 0.914. This value is greater than 0.500 shows that the data set is sufficient for factor analysis (Field 2009, p. 651). In the exploratory factor analysis, the factor loads of the variables in each structure were over 0.4. Accordingly, it can be said that the scales have convergent validity (Table 5.2). Cronbach’s Alpha and Average Variance Extracted (AVE) values were examined for reliability of the scales. Since the Cronbach’s alpha reliability coefficients are over 0.70, it can be said that the scales used are internally consistent and reliable (Nunnally and Bernstein 1994). On the other hand, the AVE values of the factor groups were audited and these benefits were found to be higher than 0.5. The square root of the AVE values is greater than the interaction coefficients among the binary variables in the model. Therefore, the condition of discriminant validity is provided (Afthanorhan 2013).

Table 5.2 Factor loads and reliability analyzes Variable structures

M. Sa

Eigen value

Clustering Exp. Variance

F. Load (min)

F. Load (max)

Cronbach’s Alfa

AVE

Financial

3

16.091

11.777

0.489

0.733

0.604

0.518

Legal

3

3.151

20.797

0.555

0.691

0.719

0.641

Ethical

4

2.086

28.205

0.534

0.720

0.835

0.670

Voluntariness

4

1.838

35.470

0.638

0.797

0.891

0.755

Environmental

4

1.635

42.735

0.584

0.776

0.863

0.709

Contractual

5

1.525

49.888

0.654

0.780

0.872

0.663

Fairness

5

1.298

56.824

0.395

0.774

0.849

0.626

Transparency

4

1.229

63.698

0.659

0.777

0.860

0.704

Network

5

1.035

67.947

0.604

0.749

0.832

0.599

4.19(0.63)

4.06(0.70)

3.74(0.86)

3.88(0.79)

4.14(0.61)

3.83(0.76)

3.75(0.75)

3.89(0.66)

Legal

Ethical

Voluntariness

Environmental

Contractual

Fairness

Transparency

Network

0.720

Fin.

0.511** 0.472**

0.496** 0.431** 0.524**

0.605** 0.553**

0.472**

0.869 0.842 0.814

0.791

0.548**

0.839

0.554**

0.375**

0.774

0.519**

0.418**

0.509**

0.387**

0.363**

0.325**

0.581**

Network

0.529**

0.387**

0.419**

0.562**

Transp.

0.559**

0.819

0.587**

0.398**

0.606**

Fair.

0.529**

0.801

0.588**

0.400**

0.469**

Cont.

0.441**

0.361**

0.565**

Env.

0.409**

0.439**

0.339**

Vol.

Eth.

Legal

The Pearson correlation matrix is on diagonals (**significant at 0.01 level, 1-tail). The square root of the AVE values of the variable structures is shown in the diagonals

4.14(0.66)

Financial

Mean (Sd)

Table 5.3 Correlation coefficients and descriptive statistics

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5.4.3 Correlation Analysis Pearson correlation coefficients and descriptive statistics of variable structures are given in Table 5.3. When correlation coefficients are examined, there are significant and positive relationships between variable structures and mean and standard deviation values indicate that variable structures are suitable for normal distribution.

5.4.4 Hierarchical Clustering Analysis Cluster analysis is used to identify homogeneous groups of people that vary between clusters. The main purpose of cluster analysis is to divide the sample into a small number of groups based on similarities. In cluster analysis, unlike discriminant analysis, groups were not defined before (Hair et al. 2006). The hierarchical clustering analysis essentially consists of two main steps: First, each of the data is transformed into a proximity matrix according to the distances or similarities between them. Secondly, after selecting the clustering method, objects that are similar to each other with the help of the dendogram graph are clustered (Landau and Everit 2004). By using hierarchical clustering analysis method, the number of clusters of corporate governance dimensions is investigated and it is revealed that it is a structure consisting of two clusters. Since non-staged methods are preferred in clustering applications where number of clusters is not known, intergroup relations method, which is one of a staged clustering method, is preferred in this study. The square of the Euclidean distance is chosen as the distance measure. Because squaring the Euclidean distance weakens the importance of small distances and increases the importance of large distances. For similar objects, the distance measure is small and the proximity coefficient is large. In the clustering analysis, the procedure stated by Yim and Ramdeen (2015) was followed. Cluster groups and proximity index values of the structures are given in Table 5.4. When the proximity matrix values are analyzed, the closest corporate governance variables are economic and contractual responsibility variables. The most distant variables are transparency and ethical variables. In general, the variables of transparency and network governance are far from other corporate governance dimensions. The dendrogram graph in Fig. 5.1 confirms this. In Fig. 5.1, it is seen that the dimensions of corporate governance are grouped into two main groups. In the first cluster, financial, legal, ethical and contractual dimensions come together. When the common characteristics of the variables in this set are examined, it is understood that these principles are related to internal applications of the firm. In the second cluster, volunteering, environmental, fairness, transparency and network variables were collected. Their common features are that they are related with the external stakeholders and practices of the firm. The dimensions of corporate

2

Network

140.065

2

2

Fairness

Transparency

94.385

1

Contractual

171.896

128.03

146.514

146.493

2

2

Voluntariness

Environmental

1

Ethical

103.444

100.847

1

1

Financial

Fin.

Legal

Clusters

Table 5.4 Clusters and proximity matrix

125.252

157.625

110.254

61.341

131.938

172.118

83.625

Legal

121.505

151.903

109.607

76.677

96.993

137.465

Eth.

122.937

117.479

109.922

146.092

124.375

Vol.

126.89

124.66

96.6

120.82

Env.

90.475

138.621

104.95

Cont.

111.555

110.626

Fair

101.616

Transp.

5 Internal Ve External Dimensions of Corporate … 73

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˙I. ˙Iyigün

Fig. 5.1 Dendrogram Graph Based on Average of Intergroup Relations. Yasal: legal, sözle¸sme: aggreement, etik: ethical, ekonomik: economic, s¸effaflık: transpareny, çevresel: environmental, adaletlilik: being fair, gönüllülük: volunteering

governance included in these two clusters were evaluated with marketing academicians who are experts in their fields and named “internal and external corporate governance”.

5.5 Conclusion In this study, in general, it has been tried to reveal the dimensions of the corporate governence and also tried to find out whether these dimensions can be divided into clusters. For this purpose, nine of the dimensions in the corporate governance, namely economic, legal, ethical, contractual, voluntariness, environmental, fairness, transparency and network, have been handled within the scope of corporate governance. The research findings contribute to the corporate governance literature and other related areas.

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75

One of the most important aspects of this study, which has contributed literature, that it has been determined that corporate governance dimensions can be divided into two clusters using hierarchical clustering analysis. In particular, it provides a different perspective on what the internal and external corporate governance dimensions can be. The findings of the study show that the internal and external dimensions of corporate governance dimensions should be evaluated differently, because revealing that corporate governance is a structure consisting of two clusters will contribute to the solution of the problems that may arise in this field. The internal corporate governance cluster includes economic, legal, ethical, contractual responsibility dimensions, while voluntariness, environmental, fairness, transparency and network responsibility dimensions are included in external corporate governance.

Appendix: Measurement Scales The following questions have been answered by participants with 1: strongly disagree and 5: strongly agree.

Financial Responsibility 1. 2. 3. 4.

Logistic company can account to customers in financial matters. Accountable to shareholders on financial matters. To be able to account to financial institutions on financial matters. Can account for the cost of logistics service.

Legal responsibility 1. 2. 3. 4. 5.

The logistics company acts in accordance with legal procedures. Acts in accordance with bilateral agreements. Managers comply with legal rules. Provides the social rights and wages of its employees in accordance with the law. Employees are not discriminated against by age, gender, race or similar.

Ethical Responsibility 1.

The employees of the logistics company act in accordance with the ethical principles.

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2. 3. 4.

Avoid misinformation and misleading behaviors. Acts with ethical responsibility while providing information to customers Has the responsibility to account for all employees ethically

Voluntariness 1. 2. 3. 4.

Provides regular information about our market situation Provides regular information about our customers Provides regular information about the progress of our sales and distribution activities Provides regular information on possible future sales forecasts

Environmental Responsibility 1. 2. 3. 4.

Logistics company follows environmental protection policies The logistic company has the responsibility to account for its impact on the environment (eg emission, waste and waste and energy use) Logistics company takes care of recycling and re-use The logistics company we get service is responsible for the protection of the environment

Contractual Responsibility 1. 2. 3. 4. 5.

Logistics company remains loyal to pre-designated contractual provisions including transport, storage etc. Adheres to the contractual provisions for the sale and release of our products. Acts in accordance with the instructions specified in the contract. Faithfully committed to the provisions of the contract. Adheres to the obligation to keep secrets related to the articles of the contract.

Fairness 1. 2. 3. 4.

The logistics company has equal distance to all customers. Makes fair pricing to customers. Treats our customers fairly in delivery. Serves customers in accordance with a priority in terms of their arrival times.

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Transparency 1. 2. 3. 4.

The logistics company shares economic issues with its stakeholders in a transparent manner. If a change is made in the organizational structure of the logistics business, it clearly shares it. Transparency is at the forefront of the business processes of the logistics company. Logistics company provides information through annual reports.

Network Governance With the main logistics service provider, 1. 2. 3. 4. 5.

Logistics company provides the necessary infrastructure to improve communication Logistics company and main logistics service provider have relationships based on interdependence rather than power Logistics company and main logistics service provider can define their relationships as a flexible structure that creates common value Logistics company and main logistics service provider form a joint decisionmaking mechanisms. Logistics company and main logistics service provider establish relationships at different managerial levels.

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Chapter 6

Cryptocurrency Awareness in Kosovo Simeana Beshi, Flaka Braha, and Luan Vardari

Abstract Even after more than a decade since the first issue of bitcoin, the cryptocurrencies are not yet used and recognized for the purpose they are created, i.e. cash for online transactions. Kosovo, a new developing country, still in transition, makes no exception to this issue. Kosovo has a young population and very high internet use, even so, the trust in a currency without insurance, is understandably low, especially when the method in which the currency is created is not fully comprehended by the majority. While most of the persons who participated in the survey have heard of cryptocurrencies, they have none or very little knowledge of the blockchain technology, which is the very foundation of the currency itself. In this study, we have analyzed the relation between age, level of education, use of digital options for payments, and cryptocurrency awareness and perception among the population. A factor with a direct impact on the possible use of bitcoin is its legal regulation, the absence of which impacts also on the perception about cryptocurrency. Therefore, the issue of normative framework seems to be crucial for the future of cryptocurrencies so that the perception of many may be changed and trust in a currency created by a new technology may be gained. We determine that the millennials could be the generation that will use the cryptocurrency in the future since their perception of this issue is considerably different from the ones that now are holders of the capital. Keywords Cryptocurrency · Currency · Bitcoin · Blockchain technology

S. Beshi (B) · F. Braha Financial Law Department, University of Prishtina “Hasan Prishtina”, Prishtine, Kosovo e-mail: [email protected] F. Braha e-mail: [email protected] L. Vardari University “Ukshin Hoti” Prizren, Prizren, Kosovo e-mail: [email protected] © The Author(s), under exclusive license to Springer Nature Singapore Pte Ltd. 2022 K. T. Çalıyurt (ed.), New Approaches to CSR, Sustainability and Accountability, Volume III, Accounting, Finance, Sustainability, Governance & Fraud: Theory and Application, https://doi.org/10.1007/978-981-16-9364-9_6

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6.1 Introduction The cryptocurrency phenomenon is the latest topic in finance. In recent years, cryptocurrencies have been attracting a lot of interest. They are regularly mentioned in the news, scholarly papers, social media, etc. Cryptocurrencies are designed to serve as digital cash for online transactions as a faster, cheaper, and more reliable option than the traditional money. Being able to transact without going through financial institutions, make transactions with cryptocurrencies more affordable and faster. The most popular cryptocurrency is Bitcoin, which was the first cryptocurrency created in 2009, by a person (or group) known by the pseudonym Satoshi Nakamoto, who published the paper “Bitcoin: A Peer-to-Peer Electronic Cash System” (Armknecht 2015), giving the solution for an electronic payment system which substitutes trust in third parties (i.e. financial institutions) with cryptographic proof. Cryptocurrency is digital money created through the process of validation of transactions called mining, which is the “computer process of recording and verifying information on the digital record known as the blockchain. Each computer that fulfills this process earns a cryptocurrency as a reward” (Private-Key 2018). The blockchain technology, used by thousands of cryptocurrencies, creates permanent, secure digital records of the transactions; therefore, they don’t rely on any single person or group. Blockchain can record any kind of information, so it can be used for other purposes other than cryptocurrency transactions. Although this technology offers secure transactions, without the need of a third trusted party, the cryptocurrency use is not embraced by the general public as high as it could be expected for a secure method of payment. The semi-anonymous nature of cryptocurrency transactions makes them wellsuited for a host of illegal activities, such as money laundering (http://www.investope dia.com), financial crime, and tax evasion, diminishing the trust in the currency itself. As we will see from the research results, users of e-banking services are more likely to perform cryptocurrency transactions in the future. The lack of legal regulation has also a high impact on the willingness of the public to use them. Cryptocurrencies would be used more to conduct transactions if they would have been regulated by law. However, most of the world’s countries have stated that they are in the process of regulating the operation of cryptocurrencies, some have even done so, creating an environment that promotes global trade and mutual prosperity. Therefore, from a regulatory perspective, the ongoing attention paid to regulating cryptocurrencies is welcome.

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6.2 Literature Review This literature review provides a synopsis of the relevant points related to cryptocurrency research. It includes a review of the literature relating to cryptocurrencies and blockchains, thus providing some solutions for the research questions identified in this paper. It also looks at various theories and conclusions of other authors on cryptocurrency being able to solve the liquidity crunch faced by various nations and the factors that influence the adoption of cryptocurrency by the society.

6.2.1 Literature on General Information ● A cryptocurrency is a new form of digital asset based on a network that is distributed across a large number of computers. This decentralized structure allows them to exist outside the control of governments and central authorities. ● The word “cryptocurrency” is derived from the encryption techniques which are used to secure the network. ● Blockchains, which are organizational methods for ensuring the integrity of transactional data, is an essential component of many cryptocurrencies. ● Many experts believe that blockchain and related technology will disrupt many industries, including finance and law. ● Cryptocurrencies face criticism for a number of reasons, including their use for illegal activities, exchange rate volatility, and vulnerabilities of the infrastructure underlying them. However, they also have been praised for their portability, divisibility, inflation resistance, and transparency (http://www.investopedia.com). ● Mining is the act of creating valid bitcoin blocks, which requires demonstrating proof of work, and miners are devices that mine or people who own those devices. (https://www.developer.bitcoin.org) Research works were published by academicians and practitioners focused on blockchain and cryptocurrency from a different perspective which are listed in the following list: ● Saraswat and others (Saraswat et al. 2017) mentioned that a unique inherently experiment begun by Satoshi Nakamoto presented to the world an alternative financial system and bitcoin cryptocurrency in 2008. After three years of development by enthusiasts and cyber anarchists, in 2012 the system began to gain popularity and they started talking about cryptocurrency at the level of states and international organizations. ● Bouoiyour and Selmi have stated that (Bouoiyour and Selmi 2015) unlike traditional fiat currencies (dollar, euro, and yen), whose value is determined by law, bitcoin is not convertible and not formally backed by a government or legal entity. Bitcoin operates as a free market system since it does not rely on a central bank

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to issue it or a commercial bank to store it. Instead, investors perform their business transactions themselves without any intermediary. The peer-to-peer network eliminates the trade barriers and makes business easier. Every passing day, the increase in the number of companies that accept bitcoin is making its perceived value real. Nevertheless, security concerns, the inelastic money supply coded via mathematic formula, and unsustainable volatility have profoundly plagued this digital money. Morisse has mentioned that (2015) cryptocurrencies are a subset of digital currencies, which may have either centralized institutions or are based on a decentralized network. Frankenfield (2020) says in his research that cryptocurrencies are systems that allow for secure payments online which are denominated in terms of virtual “tokens,” which are represented by ledger entries internal to the system. “Crypto” refers to the various encryption algorithms and cryptographic techniques that safeguard these entries, such as elliptical curve encryption, public–private key pairs, and hashing function. A recent white paper, co-authored by CPA Canada and AICPA (2017), outlines the ramifications of blockchain technology on the accounting profession. Specifically, the white paper’s market-oriented research demonstrates the opportunities generated by the blockchain itself, and the possible developments stemming from connecting blockchain to existing roles and responsibilities. According to a report published by COSO (2020), it is stated that the uses of blockchain will continue to develop and evolve and expanded adoption will likely transform how businesses operate. Many have expressed guarded optimism about the potential effect of blockchain on financial reporting and internal control. As with any disruptive technology, there is a need for each organization, in its own specific context, to evaluate the challenges, better understand the related risks, and work together to determine the best course of action and remediate those risks. Dai and Vasarhelyi (2017) have stated that a blockchain is a different paradigm where entities keep data in external stores and share these with partners in the value chain. A large number of industries are experimenting with different forms and approaches to the usage of blockchains.1 Eventually, a set of acceptable models and paradigms of usage will emerge. Vincent and Davenport (2021) have mentioned that during recent years, cryptocurrency has gained the attention of many large companies such as Facebook, Expedia, Apple, and Overstock to name a few. The acceptance and use of cryptocurrency in business transactions can have a major impact on a company’s accounting system. However, accounting research exploring issues related to cryptocurrencies is sparse. Therefore, we identify research questions that the accounting profession should address concerning cryptocurrencies. They have categorized these research questions using Rogers’ theory of diffusion of innovation in an attempt to encourage and extend accounting research in cryptocurrencies

50 + Examples of How Blockchains are Taking Over the World, https://www.medium.com/mat teozago/50-examples-of-how-blockchains-are-taking-over-the-world-4276bf488a4b. 1

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to influence the design, development, adoption, implementation, and operation of the technology. At the end of their research, they recommend that researchers take a more prescriptive approach to research, rather than a descriptive approach, given that cryptocurrency is in the infancy stage of development and adoption. Cong et al. (2019) have focused on several questions that come to our attention to be addressed throughout their paper. Will disruption happen in the business measurement world that includes methods of capturing sources of data, data processing, algorithms to measure effects, and methods of disclosure and dissemination of data? To answer Question 1, we start with the changing relational database for storage, access, and computing in enterprise resources planning (ERP) systems and we introduce blockchain in the core to disrupt business process and financial reporting. The blockchain disruption is further discussed in two subsections: (1) continuous reporting/monitoring in the world of blockchain, and (2) advanced continuous audit. Will disruption happen in the process assurance world including the processes to be assured, frequency of the assurance, methods of assurance reporting, and providers of these services? To answer Question 2, we present progressive information irrelevance and its disruption to business, accounting, and assurance, followed by the overall disruption to the business value chain. We summarize our editorial in the conclusions. A large set of research needs have emerged that perhaps require a disruptive change in academic research with changing topics and methodologies. Wild et al. (2020) aim to address the aforementioned drawback by adopting blockchain to replace TPA and designing a blockchain-based fair payment smart contract for public cloud storage auditing. In our system, dataowner and cloud service provider (CSP) will run a blockchain-based smart contract. The contract ensures that the CSP is required to submit data possession proof regularly. The CSP gets paid only if the verification is passed; otherwise, it gets no remuneration but has to pay the penalties. To reduce the number of interactions in the execution of contract, we present the notion of non-interactive public provable data possession and design a blockchain-based smart contract for public cloud storage auditing based on this primitive.

6.2.2 Is Bitcoin a Currency? Compared to standard fiat currencies, such as US dollars or Euro, a distinguishing feature of bitcoin is that the quantity of units in circulation is not controlled by a person, group, company, central authority, or government, but by a software algorithm. Bitcoins are created in a “mining” process, in which computer network participants, i.e. users who provide their computing power, verify and record payments into a public ledger called blockchain. In return for this service they receive transaction fees and newly minted bitcoins. A fixed amount of bitcoins is issued at a constant a priori defined and publicly known rate, according to which the stock of bitcoins

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increases at a decreasing rate. In 2140, the growth rate of bitcoin will converge to zero, when the maximum amount of bitcoins in circulation will reach 21 million units; according to the current algorithm it will not change after 2140 (Ciaian et al. 2016). Bitcoins can be used to buy goods or services worldwide, provided that the transaction partner accepts bitcoin as a means of payment. A transaction implies that the owner of bitcoins transfers the ownership of a certain amount of bitcoins, in exchange for other currencies, goods, and services. A continuously growing number of companies accept bitcoins as payments for their goods and services; at the beginning of 2015, there were more than 100,000 venues accepting bitcoins (Cuthbertson 2015). Yermack (2013) argued that bitcoin does not behave much like a currency according to the criteria widely used by economists. Instead, bitcoin resembles a speculative investment similar to the Internet stocks of the late 1990s. Money is typically defined by economists as having three attributes: it functions as a medium of exchange, a unit of account, and a store of value. Bitcoin somewhat meets the first of these criteria, because a growing number of merchants, especially in online markets, appear willing to accept it as a form of payment. However, the worldwide commercial use of bitcoin remains minuscule, indicating that few people use it widely as a medium of exchange.

6.2.3 Characteristics of Cryptocurrencies Some of the characteristics of cryptocurrencies, taking Bitcoin in comparison with central bank-issued currencies, are listed below: ● No intermediary is needed; all transactions are peer to peer ● Units of value are owned by the holders—one’s holding of Bitcoin is for specific units and is based on the transaction history of those units ● Transactions themselves are transparent to all parties, though the parties themselves are (pseudo) anonymous ● Transactions cannot be altered or changed (they are immutable in a public, distributed ledger) because each block containing the transactions relies on the previous block not changing ● Transaction throughput is low, although processing is fast compared to some traditional batch-based payments networks ● Transaction fees are determined by the network using “Dutch auction” techniques—the higher the fee you attach to your transaction the greater the chance of it being included in a block ● The value is not pinned to any country’s economic policy (as with fat currencies), asset, or index, so volatility, driven by the market, is high and speculative ● Anyone can set up a wallet and participate with no entry requirements (Blakstad and Allen 2018).

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6.2.4 Advantages and Disadvantages There are many benefits and also many risks that come with cryptocurrency use. Ivashchenko (2016) has provided a list trying to determine all of the advantages and disadvantages of using cryptocurrencies for small and medium enterprises. The advantages that were identified by the author are as follows: 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14.

Open code for mining cryptocurrency No inflation Peer-to-peer cryptocurrency network Unlimited possibilities of transaction No boundaries Low BTC operation cost Decentralization Easy to use Anonymity Transparency Speed of transaction It belongs only to the wallet owner No chances to use some personal data for fraud The possibility of investing funds in the transparent and profitable resource. On the other hand, the disadvantages identified were: a. b.

Strong volatility Large risks of investing in cryptocurrency that should be considered in the medium and long term.

6.2.5 Types of Cryptocurrencies In this part, we will share top ten cryptocurrencies between 2020 and 2022. As of May 18, 2020 and at cryptocurrency market coinmarketcap.com, we count (Figs. 6.1 and 6.2).

6.2.6 Blockchain Technology The decentralized blockchain technology on which most of today’s largest cryptocurrencies are built upon acts as public ledgers where all of the transactions that have been performed within the network are stored for anyone to independently verify. Public ledgers are what make the trustless peer-to-peer transactions possible because the users of that digital currency know that all of the transactions on the network will be confirmed and displayed on the blockchain.

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Fig. 6.1 Top ten cryptocurrencies in 2020. Source https://www.coinmarketcap.com/ (Accessed: May 18th, 2020)

Fig. 6.2 Top ten cryptocurrencies in 2022. Source https://www.coinmarketcap.com/ (Accessed on March 20th, 2022)

On a blockchain, transactions are recorded chronologically, forming an immutable chain, and can be more or less private or anonymous depending on how the technology is implemented. The ledger is distributed across many participants in the network—it doesn’t exist in one place. Instead, copies exist and are simultaneously updated with every fully participating node in the ecosystem. A block could represent transactions and data of many types—currency, digital rights, intellectual property, identity, or

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property titles, to name a few. (The first cryptocurrency was bitcoin, which was created in 2009. Satoshi Nakamoto (the unknown inventor of bitcoin) on January 9, 2009 announced the first release of bitcoin, a new electronic cash system that uses a peer-to-peer network or blockchain to prevent double-spending. It is completely decentralized with no server or central authority. The creation and value setting of these currencies are entirely dependent on public and market forces (Akshay 2019) (Fig. 6.3).

6.2.7 Regulatory Framework The key issue that needs to be addressed to adequately capture cryptocurrencies and cryptocurrency players, particularly users, in legislation is to unveil the anonymity, varying from complete anonymity to pseudo-anonymity that surrounds them (IMF Staff Discussion Note 2016). This is the biggest problem for combating money laundering and countering terrorist financing: the anonymity prevents cryptocurrency transactions from being adequately monitored, allowing shady transactions to occur outside of the regulatory perimeter, allowing criminal organizations to use cryptocurrencies to obtain easy access to “clean cash” (both cash in/out). Relating to terrorist financing, the story of Ali Shukri Amin who provided instructions over Twitter on how to use Bitcoin to

Fig. 6.3 How does a blockchain work? Source Financial Times, https://www.ft.com/content/ (Accessed May 20, 2020)

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mask the provision of funds to Daesh is a striking example of the risks brought by the anonymity surrounding cryptocurrencies (FATF 2015). Anonymity is also a major issue when it comes to tax evasion. Entering into taxable cryptocurrency transactions without paying taxes is tax evasion. But, when a tax authority does not know who enters into the taxable transaction, because of the anonymity involved, it cannot detect nor sanction this tax evasion. This makes cryptocurrencies a very attractive means for tax evaders (IMF Staff Discussion Note 2016). Some commentator’s instruments such as bitcoin were even described as “tomorrow’s tax havens” (Mandjee 2016). From a regulatory perspective, an initiative on a global framework for regulating and overseeing cryptocurrencies, to the extent necessary, would be welcome. The regulation should not prevent cryptocurrencies from achieving their positive potential. On the other hand, regulation should prevent cryptocurrencies from becoming a vehicle for criminal activity. Therefore, the regulation of cryptocurrencies should not treat any cryptocurrency as a homogeneous instrument. Rather, the idea is to deconstruct cryptocurrencies into their unique traits, dealing with their vices and virtues separately. For example, decentralization is a positive trait that should not be disrupted. Anonymity should be targeted only to the extent that it increases the likelihood that individuals use cryptocurrencies to engage in criminal behavior (Marian, 2015). We may conclude that, in general, the absence of a legal framework may impede the use of cryptocurrency as a currency, because any business can decide individually on the acceptance/not acceptance of it.

6.3 Methodology and Findings 6.3.1 Methodology This research aims to measure the awareness and attitude about cryptocurrency in Kosovo. In this context, the answers of the participants in the research about demographics, internet banking, cryptocurrency, and blockchain have been collected. A questionnaire with a total of 20 questions has been prepared, to measure the demographic characteristics of the participants (5 questions), internet banking usage information (2 questions), and their knowledge and opinions about cryptocurrency and blockchain (13 questions). For sample selection: The “Simple Random Sampling” method was approved and the questionnaire was distributed to people through various social media. In the analysis part, the demographic analyses were made first and then the responses of the participants about demographic and cryptocurrency were compared. Frequency, Crosstab, and Chi-Square analyses were made using the SPSS 26 program. The research framework consists of the research question and two hypotheses:

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Research Question: How much possibility is there for the use of cryptocurrency in Kosovo? Hypothesis 1 H1: People who use digital payment systems have more knowledge about cryptocurrencies. H0: People who use digital payment systems are not inclined to have more knowledge about it. Hypothesis 2 H2: Cryptocurrencies would be used more to conduct transactions if they would be regulated by law. H0: Law regulations would not impact the use of cryptocurrencies to conduct transactions.

6.3.2 Findings The data was collected from April 10, 2020 to April 20, 2020. A total of 560 participants participated in the study; 298 of them were male, 262 of them were female, and the demographic characteristics of the participants are given below. The age of the participants varies from 18 to over 50, with the group of the age range 31–40 years has the higher rate of 31.1%. The education status of 83.7% of the participants is university or higher graduates; 72.8% of participants were employed, while 47.7% of the participants’ profession is classified as “other”; 22.1% of the options are classified as economists, while being employed and 27.2% are not (Fig. 6.4). Table 6.1 contains the answers given to questions about cryptocurrency in terms of gender. Accordingly, it was determined that the information of the male participants participating in the questionnaire about the cryptocurrency was higher than the female participants. While 80.2% (239 people) of the male participants answered yes, only 19.8% (59 people) answered no. When we look at the responses of female participants, 82.2% (217 people) of the participants indicated that they had information about the cryptocurrency (they chose the option “Yes”) and 17.2% (45 people), the female participants indicated that they did not have information and they chose the option “No”. Table 6.2 shows the responses about the perception of the participants on cryptocurrency. From the results on the table, the general perception is that cryptocurrency is virtual money, and a few other answers were given. Gender doesn’t seem to make any difference in the results obtained. According to the results, 82.0% (245 people) of male participants responded that cryptocurrency is digital currency. In female participants, this rate is 84.4% (221 people). Compared with the results of Table 6.1, more respondents of both genders have answered the question of Table 6.2. As seen in Table 6.6, 83.3% of the respondents answered “No” to the question of “Have you ever bought/sold cryptocurrencies?”. Looking at the previous analysis, this shows us that most of the participants had knowledge about cryptocurrencies,

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Fig. 6.4 Charts on general demographic information of the persons surveyed (Citations: Authors calculations)

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Table 6.1 Cryptocurrency information based on the gender of the participants Have you heard of cryptocurrencies? Gender

Total

Yes

No

Male

239 80.2%

59 19.8%

298 100.0%

Female

217 82.8%

45 17.2%

262 100.0%

Table 6.2 Answers to what the cryptocurrency is perceived as, by gender Which of the following do you think best describes cryptocurrencies?

Total

Virtual money Securities Pyramid scheme Money laundering Gender Male

245 82.2%

Female 221 84.4%

17 5.7%

23 7.7%

13 4.4%

298 100.0%

13 5.0%

17 6.5%

11 4.2%

262 100.0%

Table 6.3 Cryptocurrency purchase and purpose If so, what is the reason you bought/sold them?

Have you ever bought/sold cryptocurrencies? Total

Total

To perform online transactions

As an investment to earn in the future

Didn’t buy it

Yes

22 23.2%

73 76.8%

0 0.0%

95 100.0%

No

0 0.0%

0 0.0%

465 100.0%

465 100.0%

22 3.9%

73 13.0%

465 83.0%

560 100.0%

but did not buy or sell them. On the other hand, the ratio of the participants who have ever bought or sold cryptocurrencies is only 16.9%; 76.8% of whom stated that they bought them as an investment and 23.2% indicated that they use the cryptocurrency for online payment transaction. According to the obtained results, we can say that the number of participants who use cryptocurrency and invest is very low in general. Considering the ratio of the participants who have more information about the cryptocurrency, the fact that most of the participants do not trade with the cryptocurrency gives us the impression that their trust is still low. Table 6.4 shows the answers we received, regarding the online banking transactions of the participants according to gender and age. According to the results we obtained, regarding the expenditures made with the credit card; 72.1% of men state

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Table 6.4 POS terminals and e-banking usage rates by gender and age Do you use a credit/debit card for payment in POS terminals? Age

Total age

Female

Male

Total gender

408 72.9%

193 73.7%

215 72.1%

408 72.9%

16 32.0%

152 27.1%

69 26.3%

83 27.9%

152 27.1%

50 100%

560 100%

262 100%

298 100%

560 100%

18–25

26–30

31–40

41–50

50-

Yes

45 45.1%

82 69.5%

147 84.5%

99 85.3%

34 68.0%

No

56 54.9%

36 30.5%

27 15%

17 14.7%

Total

102 100%

118 100%

174 100%

116 100%34

Gender

Do you make payments via e-banking? Yes

49 48.0%

75 63.6%

123 84.5%

90 77.6%

29 58.0%

366 65.4%

166 63.4%

200 67.1%

366 65.4%

No

53 52.0%

43 36.4%

51 29.3%

26 22.4%

21 42.0%

152 27.1%

96 36.6%

98 32.9%

152 27.1%

Total

102 100%

118 100%

174 100%

116 100%34

50 100%

560 100%

262 100%

298 100%

560 100%

that they use credit/debit cards at POS for payment, while this rate is 73.7% for women. These rates show that the credit card and the payment rate are equal in terms of both sexes and the ethics of the participants prefer to pay with the credit card. The average age of persons paying by credit card is 31–40 age range, with 84.5% (147 people) of positive answers from this group, while the second largest group with positive answers on this issue is the group with the age range of 41–50, more concretely 85.3% (99 people). Furthermore, the participants were asked for information about electronic banking. According to the results obtained, 67.1% (200 people) of men use electronic banking, while this rate is 63.4% (166 people) for women. In both credit/debit card and e-banking transactions, it seems that the gender does not make any difference. While on the other hand, when we analyze the use of e-banking in the age ratio, 70.7% (123 people) in the age range of 31–40 is the highest age range that uses e-banking services. Chi-square analysis was used to test the accuracy of the results we obtained. According to the results we obtained from the Chi-square test, which is shown in Table 6.5, we can say that there is a linear relationship in our crosstab analysis since the rate of Pearson Chi-square is less than 0.05. First Hypothesis: H1: People who use digital payment systems have more knowledge about cryptocurrencies. H0: People who use digital payment systems are not inclined to have more knowledge about it. Table 6.6 shows the results for the questions regarding e-banking usage and the knowledge on cryptocurrency and blockchain. According to the results obtained,

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Table 6.5 Zero cells (0.0%) have an expected count of less than 5. The minimum expected count is 17.32 Chi-square tests Value

Df

Asymptotic Significance (2-sided)

Pearson Chi-square

24.722a

4

0.000

Likelihood ratio

24.609

4

0.000

Linear-by-linear association

10.516

1

0.001

No. of valid cases

560

64.4% of the participants use e-banking, and only 35.6% do not use e-banking. In our first analysis, we compared the knowledge of the participants about e-banking and cryptocurrency. According to the results obtained, 81.4% of the participants using e-banking were determined to know about the cryptocurrency, while 18.6% of the participants did not have any information about the cryptocurrency. Another result obtained was that only 56.3% of the participants using e-banking said they knew cryptocurrency types, and 43.8% stated that they did not have any information about cryptocurrency types. When asked how the cryptocurrency system works, 28.8% of the participants using e-banking stated that they knew how cryptocurrency works, 42.7% stated that they had little information, and 28.6% of participants did not have any knowledge about how cryptocurrency works. Participants who were using e-banking were asked about their knowledge about blockchain; 68.0% of the participants stated that they did not have any knowledge about blockchain, and only 32.0% stated that they knew blockchain. According to the data we have confirmed, H1 Hypothesis, “People who use digital payment systems have more knowledge about cryptocurrencies” but we cannot say the same for their knowledge on blockchain. Based on the participant’s responses to these two questions, the cryptocurrency market has to have legal regulation, in order for the participants to increase both the use and the trust of cryptocurrency. Also, our Chi-square analysis in Tables 6.7 and 6.8 proves that there is a linear relationship between the questions. According to the results we obtained, the H1 Hypothesis was accepted and H0 Hypothesis was rejected. Second Hypothesis: H2: Cryptocurrencies would be used more to conduct transactions if they would be regulated by law. H0: Law regulations would not impact the use of cryptocurrencies to conduct transactions. In Table 6.9, we seek an answer to our second hypothesis. According to the answers given by the participants in the analysis, the hypothesis will be accepted or rejected. We ask if cryptocurrency is legally regulated, do you perform transactions with? Looking at the responses given, 46.6% of the participants stated that they would be used after the legal regulation of the cryptocurrency, while only 41% answered

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Table 6.6 E-banking, cryptocurrencies, and blockchain knowledge Have you heard of cryptocurrencies? Do you make payments via e-banking?

Yes

No

Total

Yes

331 90.4%

35 9.6%

366 100.0%

No

125 64.4%

69 35.6%

194 100.0%

456 81.4%

104 18.6%

Total

Do you know the types of cryptocurrencies? Do you make payments via e-banking?

Yes

No

Total

Yes

238 65.0%

128 35.0%

366 100.0%

No

77 39.7%

117 60.3%

194 100.0%

315 56.3%

245 43.8%

560 100.0%

Total

Do you know how cryptocurrencies work? Do you make payments via e-banking?

Yes

No

Less

Total

Yes

130 35.5%

76 20.8%

160 43.7%

366 100.0%

No

31 16.0%

84 43.3%

79 40.7%

194 100.0%

161 28.8%

160 28.6%

Total

239 42.7%

560 100.0%

Do you have any knowledge of blockchain technology? Do you make payments via e-banking?

Total

Yes

No

Total

Yes

145 39.6%

221 60.4%

366 100.0%

No

34 17.5%

160 82.5%

194 100.0%

179 32.0%

381 68.0%

560 100.0%

NO while the answer was YES. The cryptocurrency usage is still distant to half of the participants. It is necessary to connect this with the answers containing the information about the cryptocurrency in our previous tables. About 83.6% of the respondents stated that the regulation of the cryptocurrencies would impact their decision to use them, while 16.4% answered NO. Most of the participants in the research think that the main issue to be regulated is cryptocurrency market, with 44.2% of the participants; 31.9% of the participants who said yes stated that taxes should be regulated. Cryptocurrency production and

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Table 6.7 Zero cells (0.0%) have an expected count of less than 5. The minimum expected count is 55.43 Chi-square tests Value

Df

Asymptotic significance (2-sided)

Pearson Chi-square

39.638a

2

0.000

Likelihood ratio

40.158

2

0.000

Linear-by-linear association

4.986

1

0.026

No. of valid cases

560

Table 6.8 Use of cryptocurrency depending on legal regulations If so, what should be regulated?

Do you think cryptocurrencies should be regulated by law?

Total

The Production

The market

Taxes

Technology

Yes

75 16.4%

202 44.2%

146 31.9%

34 7.4%

457 100.0%

No

69 67.0%

11 10.7%

12 11.7%

11 10.7%

103 100.0%

144 25.7%

213 38.0%

158 28.2%

45 8.0%

560 100.0%

Total

If cryptocurrency transactions were to be regulated by law, would you use them for online transactions?

Do you think cryptocurrencies should be regulated by law?

Yes

No

Maybe

I don’t trust online transactions, whatever they may be

Yes

202 44.2%

16 3.5%

220 48.1%

19 4.2%

457 100.0%

No

28 27.2%

22 21.4%

41 39.8%

12 11.7%

103 100.0%

230 41.1%

38 6.8%

261 46.6%

31 5.5%

560 100.0%

Total

Do you think that the lack of regulation of cryptocurrencies has left room for misuse? Do you think cryptocurrencies should be regulated by law? Total

Total

Total

Yes

No

Yes

420 91.9%

37 8.1%

457 100.0%

No

77 74.8%

26 25.2%

103 100.0%

63 11.3%

560 100.0%

497 88.8%

(continued)

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Table 6.8 (continued) Do you think that the regulation of cryptocurrencies would affect their use to a greater extent? Yes Do you think cryptocurrencies should be regulated by law?

Total

No

Yes

410 89.7%

47 10.3%

457 100.0%

No

58 56.3%

45 43.7%

103 100.0%

468 83.6%

92 16.4%

560 100.0%

Total

Table 6.9 Chi-square test. a. 0 cells (0.0%) have an expected count of less than 5. The minimum expected count is 16.92.; b. Computed only for a 2 × 2 table Chi-square tests Value

Df

Asymptotic significance (2-sided)

Pearson Chi-square

68.317a

1

0.000

Continuity correctionb

65.905

1

0.000

Likelihood ratio

56.373

1

0.000

Fisher’s exact test Linear-by-linear association

68.195

No. of valid cases

560

1

Exact sig. (2-sided)

Exact sig. (1-sided)

0.000

0.000

0.000

technology issues are the least preferred options of the participants in the legal regulation. The proportion of participants who chose legal regulation for cryptocurrency production is 16.4%, and the rate of participants who say that technological regulation is required is 7.4%. On the other hand, the rate of the participants who say that there is no need for legal regulation was 10.7%. When we asked the participants, “Do you think that the lack of regulation of the cryptocurrencies has left room for misuse?”, 88.8% of the participants have stated that yes, legal regulations are necessary; otherwise, the market is open to manipulation and there is no legal security. Taking into consideration the answers given on the issue of lack of regulation it has a direct impact on the use and trust of the cryptocurrencies on a larger scale. Also, Chi-square verifies the relationship between questions in analysis. Accordingly, Pearson Chi-square results are below >0.05. According to these results, the H2 hypothesis is accepted as “Cryptocurrencies would be used more to conduct transactions if they would be regulated by law”, while H0 hypothesis is rejected.

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6.4 Conclusion and Recommendations Cryptocurrency, the latest topic of finance, technology, law, and many other fields, is now a part of our lives. Not yet in the scale their inventors would have predicted for this 10-year period, and not for the exact purpose they were intended, still they have made a big difference in the development of many fields, especially technology and finance, while testing the lawmakers every day. The first cryptocurrency, Bitcoin, launched in 2009 by Satoshi Nakamoto from a single cryptocurrency has emerged in a growing investment and payment system. They provide low budget and faster transfer. Cryptocurrency awareness is increasing day by day according to the data we have obtained and the literature review. We have researched the awareness of people about cryptocurrencies and their habits. 53% of participants participating in our research are male and 57% are female, most of which were university graduates, and the age groups 26–30 and 31–40 were dominant. The findings of our research have confirmed both of the hypotheses raised. Thus, we can conclude that the persons who use digital methods of payment like e-banking are more likely to have knowledge about the cryptocurrencies, but their will to use cryptocurrencies is directly linked with cryptocurrencies‘ legal regulation. Another factor that may have influenced the peoples’ hesitation to use cryptocurrencies, besides their lack of legal regulation, is also that the people do not yet comprehend how these currencies work. Accordingly, we conclude that the participants see cryptocurrencies rather as an investment instrument than an online payment means. Taking into consideration all the findings, the legal regulation of the cryptocurrencies is more than necessary if the goal is to include cryptocurrencies as virtual money, on a larger scale.

References AICPA, CPA Canada, and Deloitte (2017) Blockchain technology and its potential impact on the audit and assurance profession. https://www.us.aicpa.org/content/dam/aicpa/interestareas/frc/ assuranceadvisoryservices/downloadabledocuments/blockchain-technology-and-its-potentialimpact-on-the-audit-and-assurance-profession.pdf AIS elibrary. https://aisel.aisnet.org/ Akshay A (2019) A Study on the Awareness and Perception of Cryptocurrency in Bangalore. Indian J Appl Res 9(4) (2019). PRINT ISSN No 2249-555X, 2019, p 15 Armknecht F, Karame GO, Mandal A, Youssef F, Zenner E (2015) Ripple: overview and outlook. In: Conti M, Schunter M, Askoxylakis I (eds) Trust and trustworthy computing Bitcoin. https://www.developer.bitcoin.org/. Accessed 27 May 2020 Blakstad S, Allen R (2018) Central bank digital currencies and cryptocurrencies. In: FinTech revolution. Palgrave Macmillan, Cham. https://doi.org/10.1007/978-3-319-76014-8_5 Bouoiyour J, Selmi R (2015) What does bitcoin look like? Ann Econ Fin 16–2, 449–492 (2015), p 450. http://www.down.aefweb.net/AefArticles/aef160211Bouoiyour.pdf Ciaian P, Rajcaniova M, Kancs D (2016) The digital agenda of virtual currencies: can BitCoin become a global currency? Inf Syst E-Bus Manage 14:883–919. Springer. https://doi.org/10. 1007/s10257-016-0304-0

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Cong Y, Du H, Vasarhelyi MA (2019) Technological disruption in accounting and auditing. J Emerg Technol Account 15(2):1–10 COSO (Committee of Sponsoring Organizations of the Treadway Commission), Blockchain and Internal Control, The COSO Perspective (July 2020), https://www.coso.org/Documents/Blockc hain-and-Internal-Control-The-COSO-Perspective-Guidance.pdf. Accessed 8 June 2021 Crypto-Currency Market Capitalizations. [Online]. http://www.coinmarketcap.com/. Accessed 16 May 2021 Cuthbertson A (2015) Bitcoin now accepted by 100,000 merchants worldwide. International Business Times. https://www.ibtimes.co.uk/bitcoin-now-accepted-by-100000-merchants-worldwide1486613. Accessed 4 May 2020 Dai J, Vasarhelyi MA (2017) Toward blockchain-based accounting and assurance. J Inf Syst 31(3):5– 21. https://doi.org/10.2308/isys-51804 FATF (2015) Report on emerging terrorist financing risks. October 2015. http://www.fatf-gafi.org/ media/fatf/documents/reports/EmergingTerrorist-Financing-Risks.pdf. Accessed 5 May 2020 http://www.scholarship.law.ufl.edu/facultypub/695. Accessed 30 Apr 2020 IMF Staff Discussion Note (2016) Virtual currencies and beyond: initial considerations. January 2016, p 27. https://www.imf.org/external/pubs/ft/sdn/2016/sdn1603.pdf Investopedia. https://www.investopedia.com/terms/c/cryptocurrency.asp Ivashchenko AI (2016) Using cryptocurrency in the activities of Ukrainian small and medium enterprises in order to improve their investment attractiveness, p 272. https://www.core.ac.uk/ download/pdf/84322916.pdf. Accessed 27 May 2020 Mandjee T (2016) Bitcoin, its Legal Classification and its Regulatory Framework. 15 J Bus Sec L 157. https://www.digitalcommons.law.msu.edu/jbsl/vol15/iss2/ Morisse M (2015) Cryptocurrencies and bitcoin: charting the research landscape. In: Twenty-first Americas conference on information systems, Puerto Rico, p 2. https://www.core.ac.uk/reader/ 301365720 OECD, Tax challenges arising from digitalization—interim report (2018) 206, No 501, Bratspies RM, Cryptocurrencies and the myth of the trustless transaction, March 2018, p 43. https://www. ssrn.com/abstract=3141605 Omri Marian A (2015) Conceptual framework for the regulation of cryptocurrencies. 82 U Chi L Rev Dialogue 53 (2015). Private-Key: Defined in Cryptocurrency. https://www.cryptouranus. com/2018_08_09_archive.html. Accessed 5 Mar 2021 Saraswat S, Chauhan VS, Faujdar N (2017) Analysis on crypto-currency. Int J Latest Trends Eng Technol 9:185–189. https://www.ijltet.org/journal/150700238528.%20prdp4.pdf, https://doi.org/ 10.21172/1.91.28 Vincent NE, Davenport SA (2021) Accounting research opportunities for cryptocurrencies. J Emerg Technol Account. https://doi.org/10.2308/JETA-19-11-14-46 Wild J, Arnold M, Stafford P (2020) Technology: Banks seeks the key to blockchain. Financial Times. https://www.ft.com/content/eb1f8256-7b4b-11e5-a1fe-567b37f80b64. Accessed: 7 May 2020 Yermack D (2013) (Revision 2014) Is bitcoin a real currency? An economic appraisal. Natl Bureau Econ Res p 2. https://www.nber.org/papers/w19747, https://doi.org/10.3386/w19747

Chapter 7

Corporate Governance Processes in the Adoption of New Business Models Due to the Pandemic Feyza Ça˘gla Oran and Agah Sinan Ünsar

Abstract We are in a time where digital nomadism has arisen in the general sense. When it is generally considered, there is the implementation of information and communication technologies in the traditional business processes at the background of the electronic business model that has come to the fore following the pandemic. Information technologies emerge as the driving force of the changes in the business organization processes and approaches. It has a role in retrieving, processing, analyzing, and distributing information electronically. This comes to the forefront in changing the traditional business models through this way. Home office working order requires digitizing the working space, downloading the business applications to a smartphone and tracking the processes instantly, and using technology actively in order to increase the productivity for home office operations. Home office technologies enable advanced connection and communication networks while providing employers with saving on space, time, and money. In the past century, the prominent concepts were strict working programs, hierarchies, and repetitive tasks. The disappearance of the classical workplace concept with the digitalization of the entity will change the relationship between the social partners. Institutions have tried to use their creativity during the pandemic. All institutions have started to adapt informaticsbased business models at the same time and develop their experiences and skills. Digitalization has become prominent in many sectors such as education, sports, banking, and health. The performed changes indicate that the targeted point in the business models focuses on digitalizing and flexibility. It has been observed that institutions that have an informatics infrastructure and focus on functional flexibility especially during the pandemic process have continued to actively conduct their business during this crisis. This period identified as the “new normal” has changed many habits that we are accustomed to. Keywords Flexible working · Home office · Business models · Pandemic period F. Ç. Oran (B) Tekirda˘g Namık Kemal University, Tekirda˘g, Turkey e-mail: [email protected] A. S. Ünsar Trakya University, Edirne, Turkey © The Author(s), under exclusive license to Springer Nature Singapore Pte Ltd. 2022 K. T. Çalıyurt (ed.), New Approaches to CSR, Sustainability and Accountability, Volume III, Accounting, Finance, Sustainability, Governance & Fraud: Theory and Application, https://doi.org/10.1007/978-981-16-9364-9_7

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7.1 Introduction It was announced that there is a Coronavirus 2 (SARS-CoV-2) outbreak, which is a severe acute respiratory distress syndrome, in China by Wuhan Municipal Health Commission on December 31, 2019. The Government of China has started to take extensive precautions in order to keep the outbreak under control quickly. However, as the pandemic has accelerated and started to spread over other countries, a lot of truth about healthcare systems have started to come to light. There were some serious shortages regarding the emergency medical supplies and protective equipment, particularly the masks and medical protective clothing. This situation has been pointed out as one of the main factors that triggered the spread of the pandemic (Wang et al. 2020, p. 3). Several workplaces have been closed within the scope of the precautions. Some business fields have changed into the shift pattern. There has been an increase in the number of companies adopting the flexible working and home office approach through online systems. In the education industry, schools have brought together students and teachers through distance learning. However, employee motivation, flexible working hours, and work-family-life balance have started to come to the forefront under the home office working conditions. It is expected that fundamental changes will occur in subjects such as new business models and employee motivation tactics in the upcoming period. It has been observed that institutions that are able to act proactively against unexpected events and have invested in their information technology infrastructure have less difficulty against changing environmental factors and have adapted to new conditions.

7.1.1 The Impact of Pandemic on Business and Educational Life Employees working in private and public sectors have shifted their working routines into e-based works with the COVID-19 pandemic. Software and information systems have become prominent with the pandemic. Working from home by using modern technology products such as video conference and cloud-based files has become compulsory for the employees. Awareness of flexible working has become prevalent in many companies. An opportunity has also arisen for companies to experience the advantages and disadvantages of the flexible working system. Schools have also moved into the online education system in order to keep the physical distance. Courses have started to be carried out through virtual channels. The healthcare industry has gained experience in the pandemic and weaknesses have been acknowledged. It has been also an opportunity to evaluate the quality and capabilities of institutions operating in the field of medical research (Gudi and Tiwari 2020, p. 110). In addition, the importance of software companies and their role within daily life have increased. Traceability of the real-time risk maps has been provided through the phones during the pandemic. Information technologies have

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also become prominent in tracking threats to public health. These tools have been used by people in order to protect themselves by tracking their surroundings and risk levels through the data flow displayed by instant tables. These tools have increased data transparency and helped the authorities to disseminate information in order to protect public health (Boulos and Geraghty 2020, pp. 4–12). When the e-commerce business is considered, it has been observed that companies that have invested in their own distribution network and equipment have entered the pandemic process more prepared compared to the companies that have experienced difficulty in their distribution network in the unordinary days due to the capacity problems. It has been observed that companies that have completely digitalized their order and delivery processes or received support from third parties at this stage have differed from other companies with their successful management styles (https://www.ntv.com.tr/, 2020). In addition to these, 3D printing technology has also become prominent with mask production during the pandemic process. 3D printers have been placed on the business models that will create a new economic system since they provide the production of various products. They are regarded as a faster and cheaper product development method since they provide direct production at home. The production of these products is within the fastest growing segment of the industry with its 60% annual growth rate. This technology has already been used for the production of parts in some companies (Montes 2016). It is regarded as a technology within the new economic model. In the banking sector, bank employees have also moved to the home office discipline after their branches have been closed. The competition environment, which has become stronger in the banking sector, has brought the digitalization investments into the forefront in today’s economic climate. The banking sector has been in the search for new business models (Kherdali et al. 2018, p. 22). Corporate banks have entered into an environment in which they need to carry out operational processes, go over their information systems, and implement new strategies during the digitalization process. However, they feel under pressure about the legal rules and compliance rules that may prevent this process from continuing fast and easy. On the one hand, they need to take risk while updating the technology; on the other hand, they need to make innovations. This situation causes banks to enter into an innovation paradox (Kherdali et al. 2018, p. 32). It has been observed that mobilization has also increased in the banking sector with the pandemic. Therefore, it has been understood that how much this innovation matter is important for the banking sector. We are in a time where digital nomadism has arisen in the general sense. It can be expressed that institutions that have built a business model on the digitalization and strengthened their informatics infrastructure have got the hold of effective working conditions in the pandemic process, too.

7.1.2 Business Models to Become Prominent in Future Business models can be regarded as the conceptualization of the business manners of companies in general (Abrahamsson, Boter, & Vanyushyn 2019, p. 77). New business

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structures or restructuring the current models can be regarded as new methods to manage the qualities of provided values that focus on satisfying the new demands of customers. Therefore, it can be stated that innovations in business models are key factors that are needed to be considered in the strategies of companies along with the fluctuations in the market (Schiavi and Behr 2018, p. 349). The process of adaptation to the new business model is also among the strategies of the entity during this process. The new business model may also appear before the entity, which completely changes its business model, as a destructive factor. The selection and adaptation of the business model are described as a strategic decision regarding the entity (Cozzolino et al. 2018, p. 1193). Business models that are based on value creation and building productivity through values and built on foundations placed on values have become important (Abrahamsson et al. 2019, p. 77). The main functions of a business model can be listed as follows (Jovarauskien˙e and Pilinkien˙e 2009, p. 84): ● Emphasizing the technology-based value. ● Determining an objective part of the market. ● Determining the value chain structure of the company in order to create and spread a corporate value. ● Predicting the possible expenditures and potential profit during the process. ● Emphasizing the benefits of the product or service and forming the value chain structure (Fig. 7.1). When it is generally considered, there is the implementation of information and communication technologies in the traditional business processes at the background of the electronic business model that has come to the fore following the pandemic (Jovarauskien˙e and Pilinkien˙e 2009, p. 87). Currently used e-commerce and online transaction have secured their position in the economy. Using online transactions as a tool contributing to productivity by reducing the time and distance have accelerated (Angelovska and Ivanovska 2019, p. 753). In the post-Fordist economy, labor processes have gradually started to be organized around valuation for immaterial. It has started to be suggested that immaterial labor has become less addicted to material space. The opinion stating that immaterial labor creates value in business is now settled (Dijk 2019, p. 468). It is observed that there is a gradually increasing freelance working order in the cities. This situation includes flexible and mobile workers whose numbers are gradually increasing around a post-Fordist working style. Productive activities that are required and valued by the immaterial labor are more dependent on their employees’ mobilizing their personal characteristics contrary to the capacities valued in the production of previous Fordist material goods. In such a post-Fordist working organization, individuals entirely become a part of the production process with their “knowledge and impacts.” As the workers become mobile, some changes are experienced regarding the role and requirements of the space for the business. Here, the subject of the value of working spaces is opened up for discussion (Dijk 2019, p. 469). Value creation in the business model innovation focuses on the economic potential and relationships based on the governance with customers and suppliers. Financial performance is also needed to be

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taken to the focal point during the innovation process. The restructuring process has been started in terms of administration. In the sectors that have a rapid pace, resource access comes to the forefront rather than resource ownership. Value chain activities should be focused on. Each emerging opportunity features inter-entity cooperation (Abrahamsson et al. 2019, p. 79). Regulations and differences in the subjects of taxation are also concomitant for the entrepreneurs working home office (McClain and Spero 2001, p. 74). The term business model determines the development process of electronic business models within the scope of cooperation of business associates. It has been observed that electronic commerce has gained speed when considered within the frame of today’s pandemic conditions. Information and communication technologies play a significant role in changing the traditional business approach and developing and popularizing new business models. In the concept of business model, the main objective is to generate profit along with being the management of the organization in a company (Jovarauskien˙e and Pilinkien˙e 2009, p. 83). Increasing and improving the smart operations of entities through knowledge will also enable the continuance of remote working with minimum problems. For this purpose, it is needed to increase entities’ rate of utilization from information technologies, system integration of information systems, and business process automation. It can be expressed that these concepts are the reference points of the new business models. At this stage, entities need to implement the innovation potential and create conditions supporting the effect on the administrative decision-making processes (Pomffyová et al. 2017, p. 221). Information is essential in all businesses. Information technologies emerge as the driving force of the changes in the business organization processes and approaches. It has a role in retrieving, processing, analyzing, and distributing information electronically. This comes to the forefront in changing the traditional business models through this way (Pomffyová et al. 2017, p. 222). The home office working manner is actually regarded as unused potential. The studies support that theoretically 40% of the business can be conducted from home. However, in most cases, employers do not find the employees’ demand for working from home favorable. When the positions of employees are evaluated by the employers, it is observed that the shares of the ones who work from home may exceed 30%. It is observed that employees that are interested in working from home are qualified, full-time employees. The driving factor of working from home may be the parents living alone as well as the youth who demand more autonomy in managing their time. However, certain cases disturbing the work-life balance such as doing unpaid overtime or working longer hours may occur in such situations. Nevertheless, studies indicate that job satisfaction may also be higher (Brenke 2016, p. 95). In addition to these, working from home system also provides a tax advantage for entrepreneurs. Taxpayers, who use a part of their homes for commercial purposes, can have the opportunity to reduce certain parts of household expenses including rent over mortgage interest, insurance, utilities, repair, maintenance, amortization, and tax (Kluwer 2019, p. 1). Home office working order requires digitizing the working space, downloading the business applications to a smartphone and tracking the processes instantly, and using

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technology actively in order to increase the productivity for home office operations (Lintzer 2019, p. 34). Technology has opened the doors of home-based entrepreneurship and brought more freedom and flexibility in working styles. However, computers are not the only things required now. As the world gets digitalized, customers expect more from companies. Making payments by using the preferred communication method or simplified ways of successfully managing the projects are among these expectations. Smartphones, cloud storage spaces, and document management system conducted through these have become a part of the operations that provides instant communication and access with their productivity and portability. Risks can also be minimized in the digital environment through multi-factor authentication. Home office technologies enable advanced connection and communication networks while providing employers with saving on space, time, and money (Lintzer 2019, p. 36). According to the study of Cıcei, remote workers experience less time and stress conflict. Flexible time use reduces the stress-based conflict. From this perspective, the research results addressed the achievement of flexible working in managing the work-home interface. For this reason, the institutions should enable and allow their employees to work in flexible time. The work-family conflict can be reduced in this way. According to the author, institutions should give informal support to their employees (Cıcei 2015, p. 723). Workplace flexibility is conceptualized through flexible time and flexible space definitions. Two different types of workplace flexibility can be explained as follows: (1) flexibility in proactively coping with the predictable demands of employees and (2) flexibility of reactively coping with the unpredictable demands of employees. Reaching an agreement between the flexibility and work-life balance should be a priority when performing the flexibility concepts (Halinski and Duxbury 2020, p. 162).

7.1.3 Job Satisfaction in Home Office Working Employee satisfaction plays an important role in the development of companies in the market. A satisfied employee is more loyal, determined, and motivated. Consequently, they display a higher performance. Benefits given to employees have a significant part in ensuring employee satisfaction. These benefits build a balance including opportunities such as personal and professional development, pension plan, flexible working hours, and working from home (Zubr 2015, p. 372). According to a study conducted in the Czech Republic, working from home provides individuals with flexible use of time and time- and cost-saving. It was stated that employee satisfaction and motivation are higher in the companies allowing working from home. It was also observed that productivity increased in these companies. However, there are also disadvantages of home office working. The biggest problem is the challenges experienced in administrative burden, calculation of the rights within the employment law, and protection of the trade secrets and confidential information. According to the results of the same study, while three out of four participants of the study expressed that they prefer to work from home, this

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option is less preferred by employees over the age of 45 (Zubr 2015, p. 377). Working from home is preferred by qualified employees and employees working at jobs that have flexible working hours. It was observed that employees who can also work from home display higher job satisfaction and the ones who are not satisfied already tend to change jobs frequently. The desire for more autonomy in organizing the working day is regarded as an effective factor in motivating the employees (Brenke 2016, p. 103). Especially modern communication technologies enable remote working. Entities that do not show regard to their employees and establish strict rules within the workforce that will probably shrink in the future will start leaving these rules. They will have to implement a modern human resource policy. The gap here focuses on the risks entailed by working from home on the employees. Conducting the business from home may extend the working hours and overtime wages are ignored in such a case. Company agreements and collective agreements may become prominent in such cases. In addition, employees need to be conscious and trained regarding time management. They need to focus on time management and discipline and distinguish housework and leisure time concepts (Brenke 2016, p. 103). If these subjects are considered, risks of remote working regarding human resources management will be minimized. A study conducted in the USA indicates that almost 70% of U.S. workers think that business in the future will be conducted remotely instead of a traditional office. Remote workers are more committed to their jobs, more productive, and tend to have a less stressful working life contrary to the employers who approach working from home with suspicion. They think that a private working area is needed at home in the case of communicating with employers and coworkers about the job through digital platforms (Bufete 2017, p. 9). The home office environments also appear before us as a freelancing opportunity. Studies have stated that taking regular breaks in working from home increases productivity and creativity in mental tasks. Skipping breaks, on the other hand, causes stress and exhaustion (Nation 2016, p. 43). In the new business models, networking skills are the leading factor characterizing the intangible labor among the mobilized worker. This new working style is described as “network sociality.” This improves a labor market in which a mobile, projectbased, informal working culture has a role instead of hierarchical, long-term, safe carrier path and which uses and manages social networks. Securing the job will gradually become a more valuable concept. Material space both reflects and creates social dynamics. However, post-Fordist network sociality will render it necessary to recreate and analyze the relationship dynamics of employees (Dijk 2019, p. 470).

7.1.4 Focal Points of Human Resources During the Restructuring Process The concept of digitalization, which has become prominent today, especially following the pandemic, has changed the relationship between the employer and the

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employee. The employer and the employee have a relationship based on the agreement within the framework of classic employment. Tasks, wages, and working hours are among the main agreement subjects. The employer and the employee are in the same place during the working hours and the employee is under supervision. In the digitalization, on the other hand, instant connections may be interrupted since there is a distance between the employee and the employer. It can be expressed that the economy and the working life may undergo a deep transformation with the digitalization. In the past century, the prominent concepts were strict working programs, hierarchies, and repetitive tasks. The disappearance of the classical workplace concept with the digitalization of the entity will change the relationship between the social partners. The work conducted in a platform at home is carried out as customized in a mobile device. First of all, it should be defined that where will be the workplace. This is required for the dematerialization of the workplace. The legal background is also needed to be redrawn in terms of the employee and the employer. In addition, labor law designates the working manner. The lawmaker cannot follow up on the social innovation process and the new working manners are generally excluded from legal areas (Mélypataki 2019, pp. 671–682). In such a case, the human resources need to enter into a restructuring process with the changing work environment of the employees. The following points are needed to be focused during the restructuring processes of human resources (Huang 2014, pp. 1290–1291): Functional flexibility strategy is the employment of multitalented employees who can quickly respond to the changes and technical development required by the job while conducting business or tasks in certain areas. The functional flexibility indicates the skill of integrating the “job competency” (Huang 2014, pp. 1290– 1291). In his study, Huang states that functional flexibility aims to develop employee skills. Organizing a flexible working team through functional flexibility enables the quick transfer of employees to different functions according to demands and other competencies during the production decline. In this way, capacity and labor force are not lost while labor costs are reduced. When the market re-increase, quick changes can be made again in order to meet the costs and demands (Huang 2014, p. 1298). Numerical flexibility strategy is the ability of an entity to respond to the changes requiring labor and variety by implementing the number of employees flexibly. It is a strategy including the ability to quickly respond to the changes such as the number of employees, working hours, planning the part-time employees when needed, and planning the employment of the temporary employees when needed (Huang 2014, pp. 1290–1291). Huang states that numerical flexibility has to be determined in accordance with the basic capacity of the micro-enterprise. Strategically, the basic capacity of the micro-enterprise should be kept to itself and outsourcing should be preferred regarding the additional resources. It can be expressed that the entity will be less affected in this way during the periods when there is a recession in the economy (Huang 2014, p. 1298). Temporary flexibility strategy indicates the establishment of policies in which the life quality, the increase in the number of female employees, plans through which the fixed costs are reduced, and both the administration and the employees become

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winners are considered. Arrangements can be made through different working hours when needed. Wage flexibility strategy is a method in which the wage, bonus, profit share, and welfare can be provided through changeable ways. That is to say, the wage is directly evaluated by combining it with personal performance, department performance, and the whole organizational performance (Huang 2014, pp. 1290–1291). It can be expressed that some food production companies consider situations based on the supply chain such as food shortage that may be experienced during the crises such as pandemic and check their logistic structures and supply chain processes before this period. Logistic entities and entities operating in food, health, water, and energy fields that are in the position of decision-maker in charge have a critical role during the pandemic processes. It is observed that they adopt the simulation model regarding the management of scenario-based optimization processes that focus on the difficulties that may be experienced especially in the case of disasters. Particularly in such cases, closing the stores and reducing the current number of employees are the first decisions taken. Usual consumer behaviors also change since most people stay home. Healthy persons may prefer to increase stocks in their homes. Scenarios have been built considering the various cases through these simulations and evaluations have been made for the entities by their decision-making mechanisms. The decisionmakers who work on the various cases through these simulations can come out from disaster and pandemic periods with minimum losses thanks to the precautionary actions (Schätter et al. 2015, pp. 146–148). Considering the general evaluations, the effect of information technologies and communication tools on the employees and the employer cannot be ignored. The development of new communication technologies and creative industries have created favorable conditions for new business models to emerge. They have also facilitated the use and adoption of the new model by the parties during cases such as pandemic and disaster. Following the financial and economic crisis experienced after the 2007–2008 crisis, a new working manner and alternatives have emerged toward the cooperation between companies. In the past, open-plan offices were pointed out as trends of the future. Now, the home office has started to be a rising trend. Environments that are used for working spaces both enable freelancing and are also identified as “work alone, but together” (Isac 2019, p. 36). The widespread adoption of information and communication has enabled people to turn toward e-activities in their daily lives. In the socio-demographic context, Internet use habits and attitudes toward e-working, e-commerce, and e-shopping have been settled in entities as new business models. This change can be defined as the split in time and space (Loo & Wang 2018, p. 365). It has been observed that these have secured their position in daily lives with the pandemic process we experience today. While the consumer preferences have shaped through the e-shopping, companies that never experienced working from home have updated their business models as home office. It can be expressed that human resources may change their whole employee training activities into e-learning after this process. In the digitalization age, there will be other subjects that human resources will consider such as cooperative learning,

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lifelong learning, learning everywhere, knowledge creation methods, and creating collective intelligence within the e-learning ecosystem (Emilova p. 21).

7.1.5 Evaluations and Suggestions Institutions have tried to use their creativity during the pandemic. They have implemented new business models in order to reach potential consumer groups. These are actually the models that are based on informatics infrastructure and already used by certain companies. All institutions have started to adapt informatics-based business models at the same time and develop their experiences and skills. In fact, it can be expressed that there has been a compulsory entrance into the digitalization. Each sector has had to change its business manners in their own perspective. Digitalization has become prominent in many sectors such as education, sports, banking, and health. Distance learning has come to the fore in the education sector. Universities have continued their education through online exams and presentations. In the healthcare sector, there are some hospitals using the appointment system in which patients make video calls with doctors through phone applications. Interest in the e-sports industry has increased. The e-sports industry has gradually met the need for socializing and communicating within the competitive video game industry (Peša et al. 2017, p. 129). During the pandemic, many industrial firms have changed their production methods. Companies producing industry products have changed their production lines and started to produce respiratory equipment required by the healthcare system and companies in the textile sector have changed their production lines into producing surgical masks and protective clothing for healthcare professionals. The change in consumer buying behaviors has led the institutions to revise their supply chain and stock management. It has been observed that people have gone beyond the habits of business manners in many fields. The performed changes indicate that the targeted point in the business models focuses on digitalizing and flexibility. It has been observed that institutions that have an informatics infrastructure and focus on functional flexibility especially during the pandemic process have continued to actively conduct their business during this crisis. It can also be stated that automation has also become prominent as an appreciated concept during this process. It can be expressed that automation and robotics used in the workplaces, especially in factories, that are closed due to the pandemic in most places have a positive effect on working from home and the continuance of the manufacturing systems in crisis situations besides productivity. It can be said that the process in which the automation and robotics will substitute the labor force in the factories, where it is dangerous for people to stay together, will be adopted more quickly now. The increase in unemployment and the possible accumulation in the new fields of education may be pointed out as the disadvantages of the transition process to new business models. Especially during the working from home process, it may be observed that coworking spaces become a

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new form of urban social infrastructure allowing contacts and collaborations between people, ideas, and places of connection (Isac 2019, p. 40). People have started to return to their daily lives during the process when pandemic has been taken under control. This period identified as the “new normal” has changed many habits that we are accustomed to. Many suggestions can be seen in various areas in order to control and get over this period. Since people prefer houses and workplaces with balconies and gardens instead of collective places, high-rise plaza buildings, or residences will be substituted by detached houses. That is why the real estate market will undergo a transformation and planning process. Many offices may decide to continue their business in spacious and low-rise buildings for employee motivation and health. The continuance of office orders can be provided through minimum employee and shift systems within the home office period. In this way, flexible working and autonomy demands of generation Z will be satisfied and their job satisfaction and motivation will be increased. For the education sector, continuing courses with theoretical course flow through distance learning methods during the normalization period may be counted among the suggestions that can be given to the educational institutions providing theoretical training.

Fig. 7.1 Components of a Business Model. Source Rayna and Striukova (2016), p. 217

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Part IV

New Developments on Innovation and Transformation

Chapter 8

Regional Innovation Factors and the Future of Work Milen Baltov

Abstract The start of the third decade of twenty-first century changed much of the dynamics both in the regional landscape of the innovations and for the work processes following them. The online platforms through which a lot of employments started to be generated crossed with the first applications of the artificial intelligence (AI). Thus the influx of models and processes related to the Future of Work expected at a predictable pace accelerated much more due to the initial pandemic crisis in the 2020 and the expected at the late 2021 emerging recession with further serious challenges for governments and economic operators to come. In this chapter, both the outlines of the regional levels of innovation and types/sectors of technological changes and the elements of the future of work, which occur as a follow-up will be identified. For the purpose, already a field research was performed in the frames of a project financed under the Bulgarian National Scientific Fund, and a lot of assumptions were discussed in the frames of an initiative on the multidisciplinary innovation. The objectives of this chapter are set out towards outlining the effects both of the innovative actions as a whole, and of some focused achievements for the AI applications over the processes by which the Future of Work vocations will be fulfilled. The understanding in the chapter is that the processes will be further accelerated not in the range of decades, but in less than several years. In the concept of the chapter is that the results of the acceleration of the Future of Work processes the working relations are and will be significantly demassified, and many industries, as well as the balance between them, will change. Those industries in the entertainment sector especially will be increasingly inferior, and the health and social care activities and sub-sectors may attract more work force on the other extreme. At the same time, the collection, management and use of process automation data as well as the mechanization of multiple productions and services will attract significant investment and replace human labour more and more. Keywords Innovation factors · Regional profiles · Future of work · Artificial intelligence · Smart specialization M. Baltov (B) Bourgas Free University, Burgas, Bulgaria e-mail: [email protected] © The Author(s), under exclusive license to Springer Nature Singapore Pte Ltd. 2022 K. T. Çalıyurt (ed.), New Approaches to CSR, Sustainability and Accountability, Volume III, Accounting, Finance, Sustainability, Governance & Fraud: Theory and Application, https://doi.org/10.1007/978-981-16-9364-9_8

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8.1 Introduction Forty years ago, the futurist and economist Alvin Toffler drew up a world of economic and labour relations in which socialization would not be linked to the physical presence of many people in one work environment, but would take place in the time-free workplace the choice of the persons who have benefited from demassification. These processes were already underway in the 1980s and 1990s and intensified significantly after the previous economic downturn (2008–2010). In this chapter, the backgrounds of the emergence of Industry 4.0, first defined by leading economists and coined by the Organization for Economic Co-operation and Development and further developed by the International Labor Organization in terms of expected employment relationships and occupations will be bridged to the artificial intelligence design and application. In a report of the Director-General for Employment and Social Affairs of the European Commission, Mr. Servoz, in 2018 outlined the major changes related to the future of the professions with a perspective of 2030 and now we mays say that the future of work, the regional innovation activities and the elements of the artificial intelligence are set in an institutional for the European Union level. In the chapter it is considered that if all these processes were to be expected at a predictable pace, the just emerging recession and the current pandemic in early 2020 have led to an incredible acceleration of processes and a serious challenge for governments and economic operators. Already a field research behind a substantial part of the content in this chapter was accumulated on the results of the IRISI (“Indexing the Regional Innovative Levels in the Sectors of the Economy—scenario for the identified in the ISSS four priority thematic areas for smart specialization and their positioning towards the circular economy”) project financed under the Bulgarian National Scientific Fund. Thus, the following objective of this chapter set out is that the current AI investments and spread out had accelerated the processes by which the Future of Work vocations will be fulfilled, not in the range of decades, but in less than several years. As a result, work will be significantly demassified, and many industries, as well as the balance between them, will change—those in the entertainment sector will be increasingly inferior and health and social care activities and sub-sectors may attract more work force. At the same time, the collection, management and use of process automation data as well as the mechanization of multiple productions and services will attract significant investment and replace human labour more and more.

8.2 Changes in the Regional Innovation Economic Focus For the last decade, a lot of changes happened not only in the regions where the highest concentration of research and development (R&D) funding is attracted—the leader and the strong innovators according to the European Commission (Hollanders et al. 2020), but also to the so alleged moderate and the modest. The predominant factor behind is the diffusion of the new emerging industries, which appear in regions

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in which the investments in R&D are modest. This new drive is correlated to the future of work also and the less limitations across countries and regional boundaries. Robotization and digitalization as they are embedded in the same products and services and are interconnected. Therefore, it is hardly possible to distinguish their respective impacts on labour markets from one another. The deployment of automation technologies and artificial intelligence builds upon and is enabled by the different components of the digitalization of the economy, such as mobile internet connections, widespread use of smartphones and laptops, and cloud computing (Fig. 8.1). At the same time, the digitalization is an enabling factor for automation (as an intermediary stage with less disruptive effect on labour markets) and artificial intelligence is a potential game-changer for some industries and occupations. Artificial intelligence refers to systems that display intelligent behaviour by analysing their environment and taking actions—with some degree of autonomy—to achieve specific goals (Matsuzakia et al. 2020). AI-based systems can be purely software-based, acting in the virtual world (e.g. conversational assistants, image analysis software, search engines, speech and face recognition systems) or can be embedded in hardware devices (e.g. advanced robots, autonomous cars, drones or internet of things applications). Already today, AI is used by workers on a daily basis, for example, radiologists use it to detect tumours more accurately by instantly comparing x-rays with a large amount of other medical data (The Economist 2020). Coming back to the assumption of the diffusion of the new emerging industries, the IRISI project team had upgraded on the results from inter-regional project held in 5 countries in South East Europe. Thus in 2017 already (Baltov and Pashova 2017a) there were several categories of emerging industries are closely followed by: ● Creative industries, which comprise activities related to the creation, production and/or distribution of creative goods and services as well as with the integration of creative elements into wider processes and other sectors. Creative industries are sometimes referred to as the cultural industries. The term creative industries encompass a broader range of activities which include the cultural industries as well as all cultural or artistic production, whether live or produced as an individual unit. Fig. 8.1 Dominance of the services-related industries (the value added percentage change between 2000 and 2015, in EU28 and in the USA). Source DG EMPL, Employment and Social Developments in Europe Annual Review 2018

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● Mobile services industries, which cover companies whose activities enable the provision of telecommunication, information, and entertainment services, including voice, internet, SMS, text. They include conversation services (mobile voice and person-to-person messaging), data access services (GSM, GRPS, CDMA, EDGE, UMTS, WLAN/Wi-Fi and other methods), and content services (SMS-based, MMS-based, browser-based, downloadable applications and others), targeting both consumers (messaging services, transaction-based services, news/information services, entertainment services, mobile marketing services, consumer portal offers) and corporations (messaging services, WiFi wireless access services, mobile office solutions, task-based applications, sector-based applications, corporate and professional portals). ● Personalized Medicine industries comprise sectors whose activities are designed to supply innovative products and services in the fields of medical technology, medical and surgical equipment and devices, Personalized Medicine information technology, Personalized Medicine infrastructure and services, clinical trials, as well as preventative Personalized Medicine care and general well-being (natural Personalized Medicine care, sport and recreation, community services, Personalized Medicine information, Personalized Medicine homes). ● Eco industries comprise of those industries that provide innovative products and services intending to positively influence the natural environment. This includes cleaner technologies, products and services that reduce environmental risk and minimize pollution and resource use”. Among these are activities related to pollution control, collection and treatment of waste and sewage, renewable energy, recycling/recycled materials, sustainable water management and eco-construction. For furthering the understanding of the needs and requirements of the emerging industries in terms of resources, clusters and internationalization a field research with main aim of exploration; was conducted, with the applied research methodology based on inductive logic. The research objectives both in the INNOPlatform and the current IRISI project included: ● Exploring the development of the industries (growth of sales, growth in employment, internationalization); ● Identifying future opportunities for growth at regional, national and international level; ● Identifying major challenges with a focus on key resources and strategic partnerships; ● Identifying and exploring mechanisms of support with a specific focus on the needs and requirements of companies; The data collection method involved semi-structured interviews with managers of companies operating in the emerging industries. Semi-structured interviews cover a set of predefined open-ended questions with an aim to provide conceptualized and well-categorized information, while at the same time reflecting the specifics of the situation faced by each interviewee. The data collection process incorporated

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interviewing companies operating in the sectors of the emerging industries. The data collection instrument was a questionnaire with a set of open-ended questions. Data is analyzed at an aggregate level, privacy and confidentiality of respondents were addressed as the highest priority. All findings are reported at an aggregate level. The feedback from the regions in the 5 South East European countries (regions in Bulgaria, Greece, North Macedonia, Albania and Cyprus) emphasized the rapid growth in terms of demand and markets that exist in their sectors. The software developers, mainly operating in the mobility industry emphasized the volatility of the growth as they are always required to put resources in just staying in the game, aka frequent updates of existing software and significant demand for new solutions. Their companies developed in the same period in terms of revenues, market share; however, not as much in employment. It appeared that the market demand in the past five years increased in national and international markets. At national markets, customers are willing to compromise quality for a lower price. The market is immature when it comes to “recognition of IT services, great deal of software piracy, great corruption on all levels, lack of properly educated and skilled professionals (not only for IT, but also for sales, marketing, finance fields)”. The national market was also burdened by a political instability, which inhibited companies to invest (Zhecheva et al. 2019). At international market, the focus is placed on quality and higher prices. In terms of international markets both companies work in the wider South East Europe. The focus is mainly placed on selling and providing support on the existing software solutions among the software companies, which belong to the creative industries, and support and solution in the companies that operate in the mobility industries. The international markets however, ask for a constant update on the software products, something which consumes IT senior programmers who are in constant demand. The other sectors of the mobility industries, face an increased demand at national and international markets, while the companies are slowly adapting to rapid changes in the environment. At the international markets, companies operate in the neighboring countries; however, they also undertook jobs in the EU and Africa (Husnain et al. 2017). In the last year, they had a request for projects in Belgium, Netherlands and other EU countries. Unfortunately, they cannot undertake more contracts in the area of services, as they lack human resources; however the planning in the production capacities is always projected at 20% free capacities in order to accommodate potential new customers. The experience and creative industries also face sectors with a high growth. The demand is growing internationally and nationally; however, the value of their services and products at international markets is higher, which is why they choose to target international markets. In order to facilitate the growing demand their companies have invested in increasing their capacities (hotel accommodation, machines, printing equipment), machinery, equipment, ERP solutions and people; but also in creating of well-established brands which are predominantly targeting the regional and lately the English speaking markets. For some of the interviewed companies, in the past five years, their focus on international markets increased the exports while the targets are to have 50% of their revenues coming from exports in 2019 (Zhecheva et al.

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2019). In many cases, the demand is volatile and seasonal. The interviewee from the personalized medicine industry which works in the area of provision of elderly care also notes a radical growth in the demand at national and international markets. This demand for personalized medicine resulted in increase of 25% of their capacities and 25% in revenues for the past 5 years. The demand for care and accommodation for elderly has increased dramatically in the past 5 years. Speaking at national level, the number of private nursing homes has increased from 12 to 28 (Zhecheva et al. 2019). The growth in demand reflected in the growth of companies in terms of revenues and employment; however, access to finances was the major obstacle for growing further as the sector is capital incentive and companies have to invest in general and specialized physical facilities. Regional profile and the smart innovative specialization—the case of the South East region in Bulgaria According to the National Innovation Strategy for Smart Specialisation 2014– 2020, manufacturing is a leading sector in the country, providing almost 80% of the production output. Although advanced manufacturing is not explicitly mentioned under one of the four thematic areas in the above-mentioned strategy, it can be found indirectly in most of the priority directions related to “Mechatronics and clean technologies”, “Industry for Healthy lifestyle and BioTech”, “New Technologies in the Creative and Recreative Industries” deemed as the key thematic areas in the South East region. Leading among medium–high and medium–low tech economic activities in this region are the production of metal products, transport equipment and rubber/plastics (NSI 2017). More concretely, according to a study published by the Ministry of Economy on regional specialization there is a high concentration of medium–high and medium–low tech production of automobiles in Burgas and Yambol, of machinery and equipment in Sliven and Yambol and of transport equipment in Burgas. In addition, there is a high concentration of medium–high and medium– low tech production of basic metals and fabricated metal products, of electrical equipment, of rubber/plastics products and of machinery/equipment in Stara Zagora. As already mentioned Bulgaria is traditionally a highly centralised country and therefore most of the measures and initiatives related to innovation and support programmes are coordinated centrally. However, it is expected that innovative companies and research institutions from the region will be funded through the announced procedures „Support for the introduction of innovation in enterprises “ and “Development of products and production innovations” under Operational Programme “Innovation and Competitiveness” 2014–2020 and/or procedure “Creation and development of centres of competence and centres of excellence” under Operational Programme “Science and Education for Smart Growth”.

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The main challenges for advanced manufacturing to contribute to the future of industry in the region are related to the shortage of technical and engineering experts, the need for better cooperation science–business, the PPP promotion and the internationalization of the businesses. The main organizations that are involved in supporting advanced manufacturing technology development and R&D in the region are the Bulgarian Industrial Cluster Association, the Marine Cluster, Burgas Free University, Trakia University, University “Prof. Dr. Asen Zlatarov” together with leading companies such as Yazaki Bulgaria, SE Bordnetze-Bulgaria, Standard Profil, Caproni, HES Plc, Bulmetal and others. The eco industries are least represented among the emerging industries in the regions of the 5 countries in SEE—number of companies and employees. However, the interviews indicate that the demand for their services is far from low. Both interviewed companies are at a level of waste management, which is why the industry growth looked from their perspective is local. At the moment they manage the waste with a potential to export recycled waste, in particular glass. This is where the opportunities in the industry lay. At the moment and at local level, the demand for their services is mainly driven by government legislation, and unfortunately their services are limited because of the poor enforcement of the same. The glass recycling companies are approaching the large companies which generate waste at the market level, offering them to buy their waste (for example glass), instead of being paid for managing their waste, as it is in majority of EU countries (Baltova and Baltov 2016). The essence of the growth in of the recycles is possible cooperation with the Green Dot system provider in the country. The same applies for the waste transportation companies. The IT companies operating in the mobility industries reported on opportunities which are closely related to their current offers, mainly in the field of software development and software-related services. These opportunities will be fewer at national level compared to the international markets. At international level, the interviewees foresee growth in the demand for Artificial Intelligence, Cloud technologies, Robotics and Autonomous driving technologies. The companies are managing to capitalize on the opportunities in these industries however; in general this capitalization is very small. The main obstacle to their growth along with the growth of the industry is the lack of available human resources, skills and knowledge. At the moment this is mitigated through the use of the resources of other companies from the country and abroad, aka strategic partners, and through the use of freelancers. Managers from all categories of industries (those reviewed in the regions o the 5 SEE countries) express strong awareness and solid knowledge on the trends and developments in their respective sectors and the forthcoming opportunities. They also expressed concerns on whether they will be able to capitalize on these opportunities due to limitations in their internal resources and capacities.

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The managers from the mobility industries identify future opportunities for growth in their industries coming from the growth of the geographical reach of the services along with the continuous technological innovations. The opportunities are many at national and international markets. Interviewees expect that the growth of their companies within these markets will be driven through existing customers and partners. They expressed serious concerns on whether they can capitalize on these opportunities. In some cases, they are limited due to limited capacity to meet the demand as is in the wired infrastructure development. Customer satisfaction and good customer relationship management are the keys to winning new contracts; however, “when we undertake a contract we need to ensure that we will deliver better than the previous company, not as well as them, but better, if we cannot do that, then we are not taking the job.” The managers expressed pessimism that they will be able to capitalize on the forthcoming opportunities (Zhecheva et al. 2019). The creative and experience industries agree that the growth of the industry in the forthcoming period will be as high and as volatile as in the past. The opportunities are recognized at national and international markets. Capitalization however, is another moment. It could be achieved with good people, good organization and processes and investments in innovative products and services. The experience industries also emphasized the need to have political and economic stability. The interviewed manager from the personalized medicine sectors emphasized that she expects a dramatic increase of demand for their services in the next 5 years, specifically in the areas of rehabilitation treatments, Alzheimer treatment and home care services. The managers however are cautious when it comes to investment in projects and they are only looking for projects where they are investment will be risk free. The interviewees from the eco industries identified strong growth in demand in the next 5 years closely “related to government’s determination for reaching set EU targets and the support from the social community and its commitment to clean environment.” (Zhecheva et al. 2019).

8.3 Trend and Dynamics in the Industries and Possible E Implication on the Future of Work The specialized, experienced and licensed caregivers will be demanded in the PCM industries. In order to attract the best AI talent in the world, it is not enough to provide pools of AI excellence in Europe and to offer motivating salaries to potential candidates. AI specialists are mobile by definition, they will move to places and environments that are mobility friendly. This is not fully the case in Europe. The legal immigration rules should be adapted to people who will stay in Europe to pursue a specific project for a number of years and then move on; they want to have the possibility to move to and work in all European countries. Hence, the adoption of the Blue Card proposal is an essential element of attracting talent from outside the EU, in particular because of the flexibility it gives individuals.

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At the same time the EC should build on the existing mobility schemes (Marie Curie, Erasmus Pro, Your first Eures job, etc.) to create a specific mobility scheme designed to attract the best young AI professionals to work in Europe for a period of 1–2 years, and to send the best European AI professionals abroad to be trained in AI. Obviously, such a scheme would require some features that are different from those of classic Erasmus programmes. The financial resources would need to be substantial, not only stipends to support individuals during their stay in Europe, and the scheme would need to be organised through a bilateral agreement between two companies or organizations (Parrillia et al. 2020). The recently launched digital opportunities traineeship financed by Horizon 2020 and implemented through Erasmus + is a useful first step, and could be built upon. It gives students of all disciplines the opportunity to get hands-on digital experience in fields in which market demand is high. Member States and the Commission have a role to play in addressing this recommendation. Governments should agree on a system to facilitate the immigration of AI specialists from outside the EU. The Commission can help to make this system operational. Drivers of waste management vehicles are in short supply in the eco industries. Data incorporates the EU member states before the Brexit. In the case with mentioned already moderate and modest innovation regions in the 5 countries in SEE (research through the INNOplatform project, Baltov and Pashova 2017b), there is predominantly expressed concerns on whether they will be in a position to capitalize on the growth of the industry in the next five years, mainly identifying, human resources, lack of skills, knowledge and know how as key limiting factors for their growth. The companies from the experience and PCM industries also spoke about the need to have a better access to finances for increasing physical capacities, while the managers from the eco industries emphasized the relatively few public campaign, which does not accomplish much in terms of educating the citizens and companies in waste recycling. In general, there was a wide agreement among the interviewees that the emerging industries are not overly regulated, although there is a problem with poor implementation of the regulation, and the frequent changes in legislation. Both software development companies, emphasized that they will be able to capitalize on these developments at national level only if the market becomes more mature in terms of demand; however, in general their main concern are people. IT senior staff is in high demand, while most of the available talent in the area prefers freelancing. Lately, these categories of skilled employees are rapidly leaving the country and migrating to countries with a higher quality of life. “Salaries are not an issue. We have even offered as high as 5 000 EUR per month for a senior IT; simply people with IT and related disciplines leave the country in large numbers. The low quality of life could be the reason.” (Zhecheva et al. 2019). At the same time, the available junior talent in the past several years got employed by FDIs which opened operations in the country and got many privileges in terms of social and pension contribution. These privileges allowed them to provide much

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higher salaries and grow faster. At the same time, the low quality of higher education provides junior talent which requires 18–24 months on-the-job training to be developed at a professional level. This is too long for a company to finance, without a subsidy. In general however, companies managed to develop good strategic partnerships with various companies from the same sector in the past, and they expect that the growing demand could be facilitated with their participation as well. Productivity growth is also limited by the availability of digital infrastructure. This is why EU Member States’ investment in digital infrastructure and other enabling factors is paramount. Countries vary in this respect: some, such as the Netherlands, have been investing heavily in digital infrastructure, while others, such as Italy (Parrillia et al. 2020), have neglected the issue. Investments in this area are important from a regional perspective as well, as existing regional divides are only likely to be exacerbated by automation and the increased uptake of AI, unless the infrastructure gap is addressed. For example, one of the focuses of China’s push to AI supremacy is to address rural and regional development gaps—in fields such as healthcare or education, where large disparities between major cities and the rest of the country are observed. The impact of AI on productivity is extremely important because of how it affects labour markets. Strong productivity growth means better wages and the promise of quality jobs. History suggests that technological developments bring higher productivity and better living standards in the long run. However, this transition has not always been very smooth (McKinsey 2017). During the industrial revolution in nineteenth-century England, real wages stagnated for almost 50 years and only started to rise again thanks to substantial social policy reforms. Wages will be under pressure for some categories of workers, especially those who have not attended university, depending on sector and country. Some estimates (McKinsey 2017) put it that in advanced economies, a polarization of wages that has particularly affected middle-wage jobs is likely to continue. The impact on wages of the spread of AI in the economy is hard to predict, as it will depend on many factors. As already discussed, the main one of these is the extent to which AI boosts productivity growth. Another important factor concerns how the impact of AI affects workers with different levels of skills. One of the most negative wage development scenarios includes overall productivity growth continuing to stagnate while AI affects mostly low- and medium-skilled jobs. While it is harder to predict the productivity variable in this equation, the existing evidence suggests that the second part of the equation (impact on skill levels) is quite likely to hold true. Such a scenario leads to lower wages for the low-skilled and further labour market polarization. Indeed, it seems that automation. Similar, the mobility industries and mobile services industries face poor quality of skills at the labour market along with intensified immigration of the qualified labour. The lack of resources will limit their growth potential. The companies in these sectors are relatively small in terms of employees and in terms of revenues and cannot invest in internal training centres, while the time requirement for training a network technician is two years. “At the same time, our education institutions, especially the secondary schools and the VET schools do not develop people with

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the required skills and knowledge for our sector. In general the qualified workforce is aging and the numbers are declining due to their immigration, while the young lack basic skills and knowledge.” The interviewees also found the frequent changes in regulation a limiting factor because the frequent changes in regulation are difficult to follow (Zhecheva et al. 2019). The creative industries face a similar shortage of people and skills. This shortage of qualified people is the only limitation for growth in the next five years. The recruitment process is ongoing but the available pool of qualified people is poor, due to the low quality of the higher education, and the poor motivation of young people to participate in the economic activities of the society. “Unfortunately, the pool of potential candidates from the career centres at the Universities, along with the other people who apply to our company, has poor skills and knowledge for the job, and questionable work attitude and values. I believe that there has been a drop in the quality of education in the past ten years.” Other potential limitations include the lack of subsidies for exports and poor regulation of public procurement (Zhecheva et al. 2019). The experience industries face the same resource limitations in terms of human resources, skilled and educated people; however, some managers from the hotel sectors also require access to capital as they need more capacities. And the eco industries believe that implementation of the legislation will enable them to capitalize on the growth in industry. Skilled people are not required in the waste management facilities as the technology is the prime generator of value; however, the waste transporters face difficulty in localized and skilled and licensed drivers. The lack of qualified and skilled personal in medical care is also a major concern which limits the expectations for growth of the company with the market in the next period along with lack of “suitable specialization programs for Alzheimer recognition and treatment.” (Zhecheva et al. 2019). “It is evident from the interviewees that the complex content of the emerging industries is reflected onto their beliefs for the skills and knowledge in short supply in their sectors. In general the focus is placed on specialists with good general skills and knowledge, mainly in sales, management and communication. The interviewees emphasize this shortage but search a very high combination of skills into one person instead of thinking about a team of people.” The software developers indicate the lack of system administrators or IT systems specialists, Senior IT programmers with project management skills. The shortages in skills cannot be classified as one skill only, rather a combination of skills which are required in one employee The demand at the moment and in the next years will be focused on software developers with and without experience by international software companies that have offices in the regions of the five SEE countries part of this research (Baltov and Pashova 2017a). The mobility and mobile services industries identify shortage of a network technicians and telecommunications engineers with good managerial skills, while the interviewees from the creative industries believe that there is a demand for designers and account and brand managers. “I am guessing that these skills could be sought under the project management body of knowledge—a mixture of hard and soft skills.”

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Fig. 8.2 Robotization is increasing (Level and growth of the operational stock of robots in EU 28). Source DG EMPL, Employment and Social Developments in Europe Annual Review 2018

There is also a demand for sales personnel, engineers to deal with the development of the production processes and service technicians. When considering the work organization and the future of work, a universal safety net as we are moving to a new economy where the delineation between labour and the provision of services is becoming blurred, it is important to ensure that the costs of social safety nets are shared by individuals, companies and the State (Rhisiart et al. 2017). Today, social contributions based on work-related income still represent the largest part of social protection receipts. However, the financing of social protection is gradually shifting. Regarding the labour market impact of AI and robotization, there are two competing effects we need to consider. Automation can directly displace workers from performing specific tasks (displacement effect). However, it can also expand labour demand through the efficiencies it brings to industrial production (productivity effect). The result of the interplay between both effects predetermines the overall impact on jobs and is very hard to predict (as the diverging estimates below seem to suggest). Some studies on the impact of industrial robots on employment and wages in six European Union countries (Chiacchio et al. 2018) demonstrate that account for 85.5% of the EU market for industrial robots (Fig. 8.2 above). They find that one additional robot per thousand workers reduces the employment rate by 0.16–0.20 percentage points (Servoz 2018). Thus a significant displacement effect dominates. The displacement effect is particularly strong for medium-skilled workers and for young cohorts (Baltov 2019). Interregional collaboration is definitely a way for collaborative economy and network economy, especially considering the moderate and modest innovation regions. And the majority of managers in the regions of the 5 SEE countries (Baltov and Pashova 2017b) do not have a previous experience in collaboration with companies from the Balkan med area, apart some small and basic collaboration. The potential for collaboration however was assessed very high due to the growth of their sector, while the interviewees believe that the major mechanisms for supporting the collaboration are: matchmaking events, conferences, specific online collaboration tools which will enable collaboration of both the junior teams of the companies along with the senior managers, banks of demand and supply of work and contracts. The interviewees also mentioned the need for a Business platform where companies

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will have opportunities to network and share experiences, along with developing opportunities for mutual participation in EU projects, projects of the World Bank and UNDP. The businesses welcome the possibility for a third-party support in the area, mainly focused on business support organizations for provision of trainings and know-how, support for the implementation of new technologies, machines, and knowledge, organizing B2B events, participating at international fairs, etc. The support of chambers is seen in voicing concerns and demands regarding the regulation in their industries. “I think we need more information and data on available support, national, international or EU on activities and projects where we could receive help in terms of educating our people and staff. We also need education as well in terms of following the novelty in the industry, following the technology. We are behind at this point and I am concerned that the gap will increase.” The governments are seen as facilitators mainly in international markets. “I would like to see more contracts signed for free trade and reduced tariffs for our products and services. I did not find the government support programs for subsidizing employment, as feasible for my company.” Already there is a developed idea on measures at regional level for promoting AI hubs. To it one of the implications is on top-class computer infrastructures and access to large investment facilities, funded from public resources as well as by consortiums of companies pooling their funds. Several super laboratories funded by public resources should be created to offer the necessary computing capacity for SMEs and researchers to develop AI algorithms and process data sets. The European High-Performance Computing Joint Undertaking could be the basis for this. Many of these hubs should act both as a centre of excellence for research and as an education centre that disseminates expertise on AI, running programmes for students and academics specialized in AI. In fact, students and researchers should be offered the flexibility to combine different activities, for example working in a lab while at the same time working in an industry on a specific project. The hubs are connected to industries, so that the most promising research results can be quickly transformed into industrial innovation, and so that the students who have developed expertise in AI have the opportunity to quickly make their expertise operational (Mina et al. 2020). A common pool of money should be made available to finance AI-related masters and PhD programmes. This could be financed for 125 examples from the digital skills strand of the Digital Europe programme and combined with contributions from Member States, universities and industry (Servoz 2018). To address labour market needs, universities should review their curricula to offer more computer science programmes focusing on AI and robotics. A dedicated AI University along the lines of the MIT AI College should be set up and properly funded. These AI hubs should be based on excellence rather than the principle of “juste retour”. To make them credible, the hubs should have global impact and relevance. As such, they cannot be based in all Member States (Veldhuizen 2020). Nevertheless, to avoid further intensifying geographical cleavages between frontier and laggard regions, the benefits (such as knowhow) should be more widely

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distributed. To scale up and lead to innovation, these hubs will require financial and operational autonomy from Member States and the Commission. The EIT has been created based on the concept of a virtuous triangle between research, industry and education. Potentially, the EIT could have been the basis for the AI hubs as well. However, the volatility of some of the parameters and the need for quick adaptation requires agility and flexibility, making the EIT an unlikely candidate to operationalize the AI hub concept. One solution is to endorse existing academic approaches to a European effort on AI (Servoz 2018). However, there should be a European scale to the effort and a more consolidated approach, as in this case more competition is not necessarily a good thing. Such an approach would need to make sure that there is a clear link between fundamental and applied research. Furthermore, the founders of the ELLIS and CLAIRE initiatives do not seem to want to merge them, though this might change given appropriate public policy stimuli. Another solution is to create a consortium run by corporations active in AI. Many US companies have started research labs in universities. They include Amazon, Microsoft and Apple in Cambridge, Facebook in Paris, Google in London and Paris and Qualcomm in Amsterdam. However, these operations are fragmented; they need to have a structure that pools resources, to organize attractive programmes for researchers and students, and to ensure their transition to employment that benefits European AI needs. Member States, academic institutions, industry and the European Commission all have a role to play in addressing this recommendation. Member States can facilitate cooperation between industry and academia, while universities and industry can build on already existing networks. The Commission should provide some logistical and financial support.

8.4 Conclusions From the analysis of the conducted in this chapter towards the moderate and modest performoing regions in EU and the EU accession countries the sectors in the dominant emerging industries are experiencing high growth in demand in the past five years, a situation which has reflected in the expansion of these companies in the same period at the national and international markets; their growth in terms of revenues and employment. Interviewed managers expressed strong awareness and solid knowledge on the trends and developments in their respective sectors and the forthcoming opportunities in their industries. Almost all managers express concerns on whether they will be in a position to capitalize on the growth of the industry in the next five years, mainly identifying, human resources, lack of skills, knowledge and know-how as key limiting factors for their growth. The capital incentive sectors also require access to finance as they need to increase their physical capacities. In general, there was a wide agreement among the interviewees that the emerging industries are not overly regulated, although there is a problem with poor implementation of regulation, and with the frequent changes in legislation.

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It is evident that the complex content of the emerging industries is reflected in their beliefs for the skills and knowledge in short supply in their sectors. In general the focus is placed on specialists with good general skills and knowledge, mainly in sales, management and communication. The businesses emphasize this shortage but search a very high combination of skills in one person, and do not readily recognize the opportunities coming from teams of people through strategic partnerships and outsourcing. The emerging businesses already show proactivity in addressing these shortages. Within their companies they are addressing these shortages through trainings, on-the-job trainings, shadowing and mentorships. They also offer internships, and lecturing and trainings at the VET schools. The companies also have begun using outsourcing and strategic partnerships for a combined use of resources when working on a contract or project. There is a lack of awareness on the value of strategic partnerships in undertaking more projects and work. The growth is seen only within the company, not in the creation of a network of companies. The majority of businesses welcome the possibility for a third party support focused on the business support organizations primarily for provision of trainings and specific know how, support for implementation of new technologies, machines, and knowledge, in provision of opportunities for B2B events, international fairs and internationalization. Based on that several recommendations for the possible scope and content of governmental and regional stakeholders must be derived. Definite domination of service and web 2.0 solutions for B2B communication among the companies covering tools for fast identification of good partners, communication and contact. Need for sustainable service and web 2.0 solutions for registering events of particular relevance for the companies in the explored industries focusing on matchmaking, networking and trainings. A possible “bank” of business support organizations, also universities, research institutions, and other types of experts as companies requested know-how, and opportunities to follow the trends in technology in their respective sectors might appear in the regions. Potential solution of a job bank for freelancers in a form of a web 2.0 service. The expected reaction from the EU and many of the regions might be to foster AI development in the EU, a number of European AI hubs should be created. These hubs would be where researchers, academics and investors work closely together. This solution would need to take into account the value-driven and human-centric approach that characterizes Europe’s attitude towards AI development. Given that none of the eight global companies driving AI development efforts today arec European, this approach would not necessarily be conducive to truly independent European capabilities in the sphere of AI.

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References Baltov M, Pashova V (2017a) Innovation potential and dominant emerging industries—Yugoiztochen Region (NUTS 2), Bulgaria. In: Regional reports of the innoplatform innovations platform and tools for increasing the innovation capacity of SMEs in the Balkan Mediterranean Area. Skopje Baltov M, Pashova V (2017b) InnoScores for Bulgaria/BalkanMed Region. In: Innoscorecards of the innoplatform innovations platform and tools for increasing the innovation capacity of SMEs in the Balkan Mediterranean Area. Skopje Baltov M (2016) Circular economy—durability of resources and assets utilisation, “The Sea—a Border or Gate”, Black Sea Institute, Burgas Baltov M (2019) Enhancing innovation capacity of smes in balkan-mediterranean area through regional based centers of excellence as technology drivers. In: ICERI 12th annual international conference of education, research and innovation Baltov M (2020) Methods for indexing the innovation activities. In: Proceedings of the international scientific conference “Economic Development and Policies: Realities and Prospects”, Prof. Marin Drinov Publishing House of Bulgarian Academy of Sciences, Sofia, pp 581–587 Baltova S, Baltov M (2017) Value creation and co-creation in professional business services: a challenge in digital environment. Bus Posoki N 1:3–20 Chiacchio F, Petropoulos G, Pichler D (2018) The impact of industrial robots on EU employment and wages: a local labour market approach, in Working papers, Bruegel Directorate-General for Employment, Social Affairs and Inclusion to the EC (2018) Employment and Social Developments in Europe Annual Review 2018, European Commission, Luxemburg Hollanders H, Es-Sadki N, Merkelbach I, Khalilova A (2020) European Innovation Scoreboard 2020. Publications Office of the European Union, Luxembourg Husnain M, Baltov M, Quayyoum S (2017) Role of financial education activities towards investment decisions in an emerging country of Pakistan. In: Proceedings of the “Circular Economy”, IV ICGSM. Mara Malaysia and BFU, Burgas Matsuzakia T, Shigenob H, Uekic Y, Tsujib M (2020) Innovation upgrading of local small and medium-sized enterprises and regional innovation policy: an empirical study. Indus Market Manag McKinsey (2017) jobs lost, jobs gained: workforce transitions in a time of automation. McKinsey Global Institute Mina S, Kimb J, Sawngc Y-W (2020) The effect of innovation network size and public R&D investment on regional innovation efficiency. Technol Forecast Soc Change 155 Parrillia MD, Balavacb M, Radicic D (2020) Business innovation modes and their impact on innovation outputs: regional variations and the nature of innovation across EU regions. Res Policy 49 Rhisiart M, Störmer E, Daheim C (2017) From foresight to impact? The 2030 Future of Work Scenarios. Technol Forecast Soc Chang 124:203–213 Servoz M (2018) AI - The Future of Work? Work of The Future! On how artificial intelligence, robotics and automation are transforming jobs and the economy in Europe. European Commission, Brussels The Economist (2020) The future of the office Covid-19 has forced a radical shift in working habits Veldhuizen C. (2020) Smart Specialisation as a transition management framework: driving sustainability-focused regional innovation policy? Res Policy 49 Zhecheva V, Baltov M et al (2019) Enhancing innovation capacity of smes in balkan-mediterranean area through regional based centers of excellence as technology drivers. In: Proceedings of ICERI2019 International conference of education, research and innovation. Seville, pp 1727–1736

Chapter 9

Impact on Operating Profitability by Greenhouse Gas Statements: A Research in BIST Sustainability Index Companies Esra Atabay and Kıymet Tunca Çalıyurt Abstract This study determines whether greenhouse gas (GHG) emission statements are subject to assurance audits, and whether they affect the operating profitability of companies. Two secondary questions are explored. First, does the profitability of companies requesting assurance engagements vary by sector? Second, are regulations relating to the verification of GHG emissions in Turkey an effective control over the companies’ assurance demands? This study used data from fifty BIST Sustainability Index companies’ sustainability reports from 2011 to 2017. It was determined whether the sustainability reports included a company-disclosed assurance report on GHG emissions, and the results were summarized in Microsoft Excel. Profitability ratios were used to determine whether and to what extent assurance engagements were performed by verification bodies (ROA—return on assets ratio, ROE -Return on Equity). The data were subjected to frequency, crosstab, and parametric and nonparametric analyses using SPSS statistical software. The rate of BIST Sustainability Index companies requesting an assurance engagement was quite low (at 20%), and possession of an assurance engagement did not significantly affect company profitability. By sector, although there was a significant difference in the profitability of companies with an assurance engagement report, those in the financial sector were found to be more profitable than in other sectors. However, companies with an assurance engagement report in the transportation, telecommunication, and warehousing sectors exhibited the lowest profitability among the sectors. This study takes a research-based approach to investigate assurance engagements in GHG emission reports in Turkey. The study is original because there are few studies in Turkey.

E. Atabay Department of Accounting and Tax, Vakfıkebir Vocational High School, Trabzon University, Akcaabat, Turkey e-mail: [email protected] K. T. Çalıyurt (B) Department of Accounting and Finance, Faculty of Business Sciences and Economics, Trakya University, Edirne, Turkey e-mail: [email protected] © The Author(s), under exclusive license to Springer Nature Singapore Pte Ltd. 2022 K. T. Çalıyurt (ed.), New Approaches to CSR, Sustainability and Accountability, Volume III, Accounting, Finance, Sustainability, Governance & Fraud: Theory and Application, https://doi.org/10.1007/978-981-16-9364-9_9

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Keywords Carbon emissions · Assurance engagements · Sustainability Reports · Operating Profit

9.1 Introduction Climate change has become a critical environmental narrative of the twenty-first century. The climate is no longer just the subject of meteorologists that this is also one of the critical risks factors for the business world. The use of nature as a raw material to meet the inexhaustible needs of people and the failure to put this use in place have triggered climate change. Nowadays, there are new stakeholders besides creditors, tax authorities, shareholders, customers, suppliers that companies need to account for environment and future. (Caliyurt 2020) As with financial accounting and reporting, generally accepted GHG accounting principles are intended to underpin and guide GHG accounting and reporting to ensure that the reported information represents a faithful, true, and fair account of a company’s GHG emissions (WBCSD 2004).1 Reporting of financial information is well established, and with convergence of IFRS with US GAAP (Generally Accepted Accounting Principles) accounting standards underway, there could eventually be one clearly defined and globally consistent financial accounting standard. But it has taken more than a century to arrive at this point. In contrast, non-financial reporting is a new area, with competing rather than consistent standards. For example, for greenhouse gases there is a global standard – the Greenhouse Gas Protocol, which is used by about 70% of companies globally. But almost one-third of companies measure their carbon emissions according to different standards (PwC 2011).2 The need to reduce greenhouse gas (GHG) emissions following the 1997 Kyoto Protocol, and more recently highlighted by the 2015 World Conference on Climate, 1

Herman (2018) has mentioned that even though accounting principles have developed differently in various countries in the past, the basic components of accounting are the same worldwide, consisting of a balance sheet, a profit and loss statement or an (internal) income statement, and, depending on the size of a company, a cash-flow statement. While the balance sheet accounts for inventories on a reporting date, the profit and loss statement is a periodical calculation that accounts for changes in the inventories (Pellens et al., 2014; Watts & Zimmerman, 1978). Levy, Bouheni, Ammi described Net Operating Profit After Taxes is an expression of operational profitability: NOPAT = result of the activity − corresponding tax. (2018). Investopedia has stated that the term “operating profit” refers to an accounting metric measuring the profits a company generates from its core business functions, where the deduction of interest and taxes is excluded from the calculation. This operating value likewise excludes any profits earned from the firm’s ancillary investments, such as earnings from other businesses a company may be partially vested in. Operating Profit = Operating Revenue - Cost of Goods Sold (COGS) - Operating Expenses Depreciation – Amortization. (https://www.investopedia.com/terms/o/operating_profit.asp). 2 BIST Sustainability Index, https://www.borsaistanbul.com/en/indices/bist-stock-indices/bistsustainability-index

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has motivated regulatory bodies worldwide to introduce mechanisms that affect firm behavior (Allini et al. 2018). At Davos 2020, the World Economic Forum’s (WEF’s) International Business Council (IBC), in a largely glowing blaze of publicity, issued a consultation draft proposal outlining a set of common environmental, social and governance (ESG) metrics for inclusion in mainstream company annual reporting (AccountancyAge 2020). Climate change is the one of the greatest challenges of our time and its effects are being felt all across the world, with adverse effects on both people and economies. Climate change can be defined as “a statistically significant variation, persisting for an extended period of time, in the mean state of all weather conditions experienced or observed anywhere on earth, in the course of many years, in terms of both the mean characteristics of such weather conditions and their frequency of occurrence extended over time” (Türke¸s 2008). According to the United Nations Framework Convention on Climate Change, climate change is defined as “a change of climate, which is attributed directly or indirectly to human activity that alters the composition of the global atmosphere, and which is in addition to natural climate variability observed over comparable time periods.” The underlying causes of climate change may appear in the form of internal and external factors. The factors considered, by experts, among the causes of natural climate change, include ocean current systems, shifts in wind direction, global warming, the greenhouse effect, and the atmospheric window effect (“Radiations with wavelengths that cannot be absorbed by natural greenhouse gases very well, are reflected back to the atmosphere, which is referred to as atmospheric window”) (Aksay et al. 2005). The atmospheric concentrations of greenhouse gases required for the climate system have been ever increasing since the industrial revolution. In particular, the amount of carbon dioxide in the atmosphere has been rapidly increasing, mainly due to the use of fossil fuels in various fields. However, deforestation and excessive forest destruction, which can be observed especially in tropical rainforests, show that the new vegetation, which replaces forest cover in other parts of the world, is also contributing to this increase (Öztürk 2002). In particular, companies operating in industry-intensive sectors, such as the metal, mining, and energy industries, play a critical role in climate change, and attach great importance to the amount of greenhouse gases emitted into the atmosphere as a result of their activities. These companies develop plans to reduce the amount of greenhouse gases emitted to the atmosphere, as part of the Carbon Disclosure Project (CDP). The plans are announced to show their commitment to the environment, thereby gaining a competitive advantage. In Turkey, the ‘monitoring of GHG emissions’ started with a regulation enacted on May 17, 2014. Published in the Official Gazette, on December 02, 2017, the “Communiqué on the Verification of Greenhouse Gas Emission Reports and the Authorization of Verifiers” emphasized the need to report GHG emissions (Gazette 2017). Auditing reported gas emissions via independent verification bodies, increases confidence in companies, and indirectly facilitates a competitive advantage. Even if the accounting profession and standard setters have also been very slow in putting forward concrete proposals to regulate the assets and liabilities that carbon trading entails, but, it does not mean there have been no interesting initiatives (Allini

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et al. 2018). Auditors audit documents of GHG emission statements, sustainability reports prepared by company’s accountant and control profit account for providing assurance to tax authorities because companies usually apply for tax exemptions for their published voluntarily GHG emission statements, sustainability reports. Budgeting, reporting, measuring and auditing reports for companies on these matters should have been prepaid by accountants and auditors. The most important question asked by companies’ stakeholders after annual financial statements disclosed is the cost effectiveness of GHG emission reporting (mostly embedded in sustainability report) on profitability and benefits on tax payment.3 The aim of this study is to determine the impact of assurance engagements on companies’ financial standing, by examining whether there is a statistically significant difference between the operating profitability of those with an assurance report on their GHG emission statement, and those without.

9.2 Literature Review There is an abundance of studies on general sustainability reporting, as well as GHG emission reporting. Below is a summary of domestic and foreign literature that most strongly represent the subject matter of this study. Unerman and O’Dwyer (2007) pointed out that the social and environmental interests of all stakeholders may not be in line with the company goal of short or medium-term profit maximization and so some stakeholders may suffer at the expense of company profits. Sullivan and Gouldson (2012) have stated that a mandatory reporting system might be an effective mechanism to resolve the problem that the information in firms’ voluntary disclosure lacks comparability between companies so it is not useful enough for investors to make material decisions. Chu et al. (2012) have aimed to investigate the factors driving greenhouse gas reporting by Chinese companies. It was found that most Chinese companies reported neutral and good news. The results also indicate larger companies operating in an industry which has higher level of carbon dioxide emissions tend to have higher levels of greenhouse gas disclosures, consistent with the expectation of legitimacy theory. In a study made by Matsumura et al. (2014), a research was made on) studied the impact on firm company value by, of carbon emissions and the voluntary carbon emission disclosure law on grounds of carbon emission data that had been, based on S&P companies’ voluntarily disclosed by S&P companies carbon emission data, under the Carbon Disclosure Project, between the years 2006 and 2008. The study, 3

Broad-based provisions of the tax code are likely to have two kinds of impacts on GHG emissions. First, they may change the composition of national output from high (low) GHG-insentive sectors to low (high) GHG-intensive sectors. Second, they may increase or reduce the overall size of economy (Nordhaus et al. 2013).

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it was found that disclosure of carbon emission amounts led to an increase in firmcompany value, and that the average firm valuesvalue of companies disclosingthat disclosed their carbon emissions werewas 2.3 billion dollars higher compared tothan those whothat did not disclose their carbon emissions. Li et al. (2014) tried to determine whether carbon emission intensity and, as well as companies’ emission reduction plans of companies, affected their borrowing and equity costs. According to findings obtained by them, borrowing and equity costs are affected by emission reduction plans. While although a positive correlationship was found between borrowing cost and carbon emission intensity, it was determined that there was no relationship no correlation was found between equity cost and carbon emission intensity. Altu˘g and Özkan (2015) examined the impact of GHG emissions on the climate, and the phases and processes of the voluntary and mandatory monitoring, verifying and reporting of GHG emissions, to mitigate the impact. The study analyzed the relationship and contribution of the processes to management systems, examined the current national and international legal status, investigated international work on monitoring GHG emissions for global warming and climate change regulation development, and discussed the practices that will be made mandatory in designated sectors, by Turkey’s regulations. They also compared the situation in Turkey with the situation in EU and other countries that are parties to the Kyoto Protocol. Comyns and Figge (2015) contribute to the literature on sustainability reporting by providing the first longitudinal study of GHG reporting quality in the oil and gas industry, so filling an important gap and adding to the currently limited literature on GHG reporting. Their study results show that while companies do voluntarily adopt GHG reporting standards, perhaps as an extension of good business management, this alone does not result in good quality reporting. Depoers and Jérôme (2016) investigate the consistency of the GHG information voluntarily disclosed by French-listed firms through two different communication channels: corporate reports (CR) and the Carbon Disclosure Project (CDP). Their study has stated that firms increase the CR figures’ traceability when there is a discrepancy between disclosures in the two channels. Gürtürk and Hahn (2016) analysed content, applied standards, assurance engagements, and providers by applying content analysis to the assurance statements in nonfinancial reports. The results indicate differences in the content, executed processes, and concrete implementation of the standards. Selimo˘glu and Çalı¸skan (2016a) dealt with addressing the conceptual framework of global warming and sustainability, as well as the theory of international and national legal regulations on a theoretical basis. Selimo˘glu and Çalı¸skan (2016b) aimed to provide both academicians–scholars and practitioners with a new perspective on the standards and practices of international accounting and assurance engagement to be, used as a guidance in accounting, reporting and assurance engagement, in voluntary carbon markets. In their study, they explained in detail elaborated on the conceptual and practical aspects of the assurance engagement standard, on GDS 3410 greenhouse gas GHG statements.

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In addition, and addressed the general standards applicable to carbon accounting practices within the context of GDS 3410 were also addressed in general terms. In their study, Griffin et al. (2017) asserted that investors would price the greenhouse gas companies’ GHG emissions of companies as a negative equity component, and that this appraisal reduction in appraisal did not cause any difference between companies who that voluntarily made a disclosure discloses emissions, under the Carbon Disclosure Project, and those whothat did not. Wegener et al. (2018) suggest that the collection and consolidation of facility level direct greenhouse gas emissions estimation could fail to produce highly commensurable and hence meaningful greenhouse gas emissions reports. Allini et al. (2018) highlight the current accounting approaches to greenhouse gas (GHG) emissions and also update the knowledge about current institutional developments and company practices on emission rights, it could help the International Accounting Standard Board (IASB) to develop a standard. Salbiah and Mukhibad (2018) examined the impact on future profitability, of company size, leverage ratio, the formation of an authorized commission for carbon emission disclosure. The study was conducted with 107 manufacturing companies, listed on the Indonesian Stock Exchange. Data were tested using correlation analyses, and it was found that size had a positive impact on carbon emission disclosure, unlike leverage ratio and the formation of authorized commissions. Consequently, the authors concluded that, generally, carbon emission disclosure had no beneficial effect for companies. Ganda and Milondzo (2018) examined the impact of the three scopes of carbon emissions (Scopes 1, 2 and 3), on the financial performance of 63 South African CDP companies, based on the 2015 fiscal year. ROE, ROI, and ROS were used as financial performance indicators, and data were analyzed using multiple regression analyses. A negative correlation was found between carbon emissions and corporate financial performance. Rahman et al. (2018) studied 114 listed companies, in carbon-intensive industries, in Malaysia. Via regression analyses, their research showed that the quality of voluntarily reported carbon statements, affects company value. A domestic literature review indicates that few studies are directly related to the subject of this study, but research on corporate sustainability has increased gradually in recent years. The following is an overview of the studies directly related to the subject of this study. Gökten et al. (2018) adopted a theoretical approach to determine whether reporting of GHG emissions is a matter of choice or obligation. They concluded that, although GHG emissions reporting may seem like a matter of choice for companies, it has become an obligation, as companies face pressure, based on legitimacy, stakeholder, and corporate theory. Gabriella and Tony (2019) have stated that GHG emissions disclosures have a significant positive effect on firm value. Therefore, the higher the level of GHG emissions disclosure carried out by the firm, the higher the value of the firm. Ababneh (2019) examined the impact of carbon accounting on corporate financial performance by, using the annual reports of Jordanian electricity companies for the

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over a 16-year-period between 2000 and 2015. The average Asset Profitability was considered as the dependent variable, whereas the amount of carbon dioxide, in metric tons, was considered as the independent variable. As a result of a linear regression analysis, it was found that there was showed a negative correlations between the amount of carbon dioxide emissions, and corporate financial performance. As evidenced by the studies summarized in the literature review, although studies on the topic entered into national literature in 2014, GHG emissions are rarely addressed. The abundance of international studies on the topic can be interpreted as an international emphasis on the issue. National and international literature focus on the theoretical assessment and explanatory study of GHG emissions reporting, and it is generally found that emission statements and amounts are related to operating profitability or company value. However, rather than addressing the reporting of GHG emissions, this study aims to determine whether these reports affect operating profitability, if there is assurance engagement. This study stands out from other studies in the literature because it adopts a research-based approach to the assurance engagement aspect of GHG emission reports.

9.3 Assurance Engagement Regarding Greenhouse Gas Statements Greenhouse gas retains heat in the atmosphere and is composed of various gases, such as carbon dioxide, methane, nitrous oxide, hydrofluorocarbons, perfluorocarbons, and sulfur hexafluoride (Gökten et al. 2018). The amount of greenhouse gases in the atmosphere is referred to as greenhouse gas emission. GHG emissions are increasing due to human factors, such as the use of fossil fuels, deforestation, the use of synthetic fertilizers, industrial processes, and livestock activities. To prevent climate change, companies are looking for ways to minimize environmental damage, and their demonstration of sensitivity to the environment gains them competitive advantage. Companies base their GHG emission reporting activities on the Global Reporting Initiative Sustainability Reporting Standards (GRI Standards). GRI Standards consist of various standard series: the GRI 100, 200, 300 and 400 series. The standard series applicable to companies for reporting GHG emission, is GRI 305, of the GRI 300 series. GRI 305 includes seven separate headings that serve as guidance during reporting activities: GRI 305–1 is direct (Scope 1) GHG emission; GRI 305–2 is energy indirect (Scope 2) GHG emission; GRI 305–3 is other indirect (Scope 3) GHG emission; GRI 305–4 is GHG emission intensity; GRI 305–5 is GHG emission reduction; GRI 305–6 is emission of ozone-depleting substances; and GRI 305–7 is nitrogen and sulfur oxide, and other significant air emissions (Global Reporting Initiative 2016). Although there are certain regulations for reporting GHG emissions, to date, GRI Standards are among the first to be implemented.

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Notably, companies operating in sectors such as chemistry, mining, metals, and energy, disclose carbon emissions data, in accordance with aforementioned standards, to demonstrate environmental sensitivity as part of sustainability. In Turkey, the reporting processes for GHG emissions is in accordance with the Ministry of Environment and Urbanization, as described by number 29003 of the “Regulation on Monitoring of Greenhous Gas Emissions,” published in the Official Gazette on May 17, 2014. The regulation provides for the monitoring of GHG emissions at plant level, in sectors that constitute a significant part of Turkey’s national GHG emissions, such as power and steam generation, and the production of cement, iron and steel, ceramics, lime, paper, and glass. Annual emission reports must be verified, by a verification body bearing a competence certificate, and submitted annually to the ministry by April 30. Verification of these disclosures by an independent body is essential to reducing the risk of misrepresentation in reporting, and, within the framework of emission reduction projects or product comparisons, provides assurance for any environmental claims that may be brought against the company (Selimo˘glu and Çalı¸skan 2016b). This ensures that those who have to make company decisions, make reliable and correct decisions. Institutions or organizations that have been, or will be, accredited by TÜRKAK, to perform all stages of the verification process, are referred to as “verification bodies.” In line with the principle of independence, GHG emissions (carbon emissions) disclosed in company sustainability reports, are audited by a verification body in possession of a verification body competence certificate, thus providing an assurance. Companies that provide assurance on the verification of GHG emissions are usually either engineering companies, or accounting and independent auditing companies. The requested assurance engagement is in accordance with ISO 14064, established by the International Organization for Standardization, together with the GDS 3000 prepared by the Public Oversight, Accounting and Auditing Standards Authority (KGK), and the International Standard on Assurance Engagements (ISAE) 3410, enforced by the International Federation of Accountants (IFAC). The standard series ISO 14064 consists of three separate standards. ISO 14064– 1 is an organizational-level standard on specification, for the quantification and reporting of GHG emissions and removals. ISO 14064–2 is a project-level standard on specification, for the quantification, monitoring and reporting of GHG emission reductions or removal enhancements. ISO 14064–3 is a standard that provides guidance for verification and auditing bodies, on the specification, validation and verification of GHG assertions. This standard provides guidance for a process, aiming to reassure target users that an organization’s or project’s GHG statements are complete, correct, relevant and transparent, with the exception of errors of fact (https://www.seragazidogrulama.com/iso-14064-3-standardi-nedirsera-gazi-beyanlarinin-dogrulanmasi-ve-onaylanmasi-standardi). The GDS 3000 is the Turkish version of IFAC’s ISAE 3000, translated by the KGK. The GDS 3000 provides an overall framework for assurance engagement standards. Along with this standard, the ISEA 3410 (the only assurance engagement standard that has not yet been enforced in Turkey, compared to international audit standards) is also used to prepare assurance reports for GHG emissions.

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Table 9.1 List of BIST Sustainability Index companies selected for study Index companies from November 2018, to October 2019 Ak Enerji

Anadolu Efes

Brisa

Ere˘gli Demir Çelik

Koç Holding

Akbank

Anel Elektrik

Cimsa

Ford Otosan

Kordsa Teknik Tekstil

Aksa

Arçelik

Coca Cola ˙Içecek

Garanti Bankası

Logo Yazılım

Aksa Enerji

Aselsan

Anadolu Cam

Aygaz

Do˘gan Holding Global Yatırım Holding ˙ I¸sbank Do˘gu¸s Otomotiv

Otokar

Pegasus

Sekerbank ¸ Tat Gıda

Migros Ticaret Neta¸s Telekom

Petkim

Polisan Holding

Sabancı Holding

Si¸ ¸ se Cam

Soda Sanayii

T.Halk Bankası

TSKB

Tav Havalimanları

Tekfen Holding Tofa¸s Otomobil Fabrikası

Tüpra¸s

THY

Türk Telekom

Türk Traktör

Turkcell

Ülker Bisküvi

Vakıflar Bankası

Vestel

Vestel Beyaz E¸sya

Yapı Kredi Bankası

Zorlu Enerji

9.4 Research Methodology 9.4.1 Purpose and Scope The purpose of this research is to determine whether assurance engagement and reports, undertaken and obtained for companies’ GHG emission statements, affect their operating profitability (Table 9.1). The aim of the BIST Sustainability Index is to create an index of companies that are traded on the Istanbul Stock Exchange (BIST) that have superior corporate sustainability performance, to increase the understanding, knowledge and sustainability practices of Turkish companies. The superior sustainability performance of BIST Sustainability Index companies is why only these companies were included in the scope of this study.

9.4.2 Research Limitations The purpose of this study is to examine the relationship between the verification of the GHG emission statements, and operational profitability. Because obtaining information about the profitability of these companies, depends on the availability of their financial reports, the scope of this research is limited to BIST Sustainability companies with accessible financial reports. This research is also related to the period

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of time, as 2014 was selected as a base year, the effective date of the “Communiqué on the Verification of Greenhouse Gas Emission Reports and the Authorization of Verifiers.” There have been three reports published since, so this study includes the three-year reports prior to 2014, and the processes involved in reporting a company’s seven-year sustainability. Another important limitation in terms of accounting in especially developing countries is calculating data, evaluating the cost of the GHG emission reporting, reflecting data into the financial and non-financial reporting, explaining the necessity of disclosure of GHG emission reporting to stakeholders. Busch et al. (2012) has stated that the complete set of impacts of climate change is neither entirely clear nor tangible in the regulatory, market, and natural environments. Yet the intensifying impacts of the changing climate, and the resulting pressures within all three of these environments, means firms that do not address these pressures through adequate mitigation and adaptation strategies endanger their competitiveness, their profitability, and potentially even their survival. The other limitation of the article is that the tax issue affecting profitability is not mentioned. In order to expand sustainability reporting and companies’ greenhouse gas reporting, companies are given a discount on their tax calculations. In this study, tax exemption and tax fraud issues were not addressed while calculating operating profit. Addressing these issues in future studies will overcome the important deficiencies related to the reflection of GHH emission reporting in the literature on accounting and tax areas.

9.4.3 Practical and Social Implications Corporate sustainability reports are extremely important in providing a framework for users on the social, economic, and environmental perspectives of business. Verification, by authorized and independent bodies, of the correctness of the declared emissions information, can help companies reduce the number of greenhouse gasses emitted into the environment. The most important users for a company are investors. Particularly, investors who are environmental volunteers can make investment decisions, based on the reduction of environmental damage caused by the company’s emissions, thus increasing operating profitability. Verification of GHG emissions, especially by auditors and based on international assurance standards, is extremely valuable in the long run because the provided assurance facilitates a competitive advantage. The research also emphasizes social responsibility. GHG emissions consist of gases that retain heat in the atmosphere and increase daily, due to people’s unconscious behavior. Greenhouse gases cause a thinning of the ozone layer, resulting in many adverse effects on human health and the environment, such as skin burns from ultraviolet rays, skin cancer, and a weakened immune system (Altu˘g and Özkan 2015). Increasing amounts of greenhouse gases cause climate change. Climate

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change has increased due to industrialization and people’s unconscious activity, especially since the nineteenth century. In a sustainability report, companies declare the number of greenhouse gases they emit into the environment through their activities, to demonstrate their sensitivity to this issue, thereby verifying the information to external, authorized bodies. Environmentally friendly companies that decide to audit the correctness of their declarations, seek to minimize the damage to both themselves and nature.

9.4.4 Data Collection and Analysis Data were obtained for this research by examining the sustainability reports of 50 BIST Sustainability Index companies, from 2011 to 2017, to determine whether they included company-disclosed assurance reports on GHG emissions. The results were compiled into Microsoft Excel. To define the timeframe for the research, 2014 was selected as a base, the year of implementation of the “Communiqué on the Verification of Greenhouse Gas Emission Reports and the Authorization of Verifiers.” Given that only three reports have been published since the base year, reports three years prior to the base year were also included. Consequently, the companies’ seven-year sustainability reporting processes were analyzed. Profitability ratios were used to determine whether the GHG emissions declared by the companies, within scope of their sustainability reports, had an impact on their profitability, if an assurance engagement was conducted by verification bodies. The impact measurement was based on the profitability ratios of return on assets (ROA) and return on equity (ROE). To determine these ratios, the companies’ independently audited financial statements, for the designated years, were examined. Financial data related to the companies’ total assets, equity totals and net profits for the period, were obtained and the ratios were calculated in Microsoft Excel. The data obtained were subject to frequency, crosstab, and parametric and nonparametric analyses, using the SPSS statistical software package. Similar to the methodology used in this study, other studies conducted analyses, using accounting-based financial performance indicators, to determine the relationships between companies’ social responsibility disclosures (Ta¸sdemir 2017), financial performance (Önder 2017) and corporate sustainability, on the profitability of the BIST-100 index companies. These include studies on the investigate the relationship between company characteristics and the extent of the environmental disclosures of Turkish companies (Akbas 2014); company management and financial performance (Arsoy et al. 2012); companies that are included in the chemistry, petroleum, plastic index, traded on the Borsa Istanbul (Ba¸sar 2014); all reporting corporate social responsibility according to GRI criteria and financial performance indicators. Ganda and Milondzo (2018) used multiple regression analyses to determine the impact of carbon emissions on the companies’ financial performance (ROE, ROI, ROS). Nisak and Yuniarti (2018) used F-tests, t-tests and multiple regression analyses to determine the relationship between carbon emission statements, and profitability and leverage.

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9.4.5 Research Questions The primary research question intended to determine whether the possession of assurance reports by BIST Sustainability Index companies, which incurred an assurance engagement, impacts their GHG emission statements and operating profitability, based on their financial performance ratios, namely, their return on assets and return on equity. Therefore, the question was formulated as follows: Is there a significant relationship between a company’s possession of an assurance report on their greenhouse gas statements, which incurred an assurance engagement, and their profitability? The secondary research questions were as follows: A.S.1: Is there a sector-based difference in the profitability of index companies with assurance reports? A.S.2: Compared to the years before and after the base year, is there any change in index companies’ assurance engagement requests? A.S.3: What is the sectoral ranking of the impact on profitability, of the indexed companies’ assurance reports?

9.5 Results 9.5.1 Sustainability Reports—General Within the scope of this research, the seven-year data of 50 companies included in the 2018 BIST Sustainability Index, were examined considering the companies’ possession of corporate sustainability reports, and whether assurance engagements were undertaken. Table 9.2 Summary of the findings obtained from frequency analysis. Table 9.2 shows that the BIST Sustainability Index companies in this study, operate primarily in the sectors of manufacturing (n = 112; 32%) and financial institutions (n = 112; 32%). These companies have published a total of 209 corporate sustainability reports, between 2011 and 2017—a share of 59.7%, of which 20% percentage undertook assurance engagement for the GHG emissions disclosed. This low percentage point indicates the low awareness of assurance engagement, among companies operating in Turkey.

9.5.2 Company Assurance Reports and Profitability This section presents the results of an analysis, based on the seven-year activity of the companies included in the BIST Sustainability Index. Return on assets (ROA) and return on equity (ROE) were the ratios considered to determine a company’s profitability. An independent sample t-test was applied to determine whether the

7 2

14

Food, beverages and tobacco

2 6

59,7 40,3 100,00

7

21

Frequency (n)

209

141

350

Construction and public works

Transportation and warehousing

CSR Status

Available

Not available

Total

Percentage (%)

32

7

112

Telecommunication

Manufacturing industry

6

21

Electricity, gas and water

Percentage (%)

Frequency (n)

Sector of BIST Sustainability Index Companies

Table 9.2 CSR reports—general findings

Total

Not available

Available

Assurance engagement on carbon emissions

Wholesale, retail trade, hotels and restaurants

Technology

Metalware, machinery and equipment

Financial institutions

Chemistry, petroleum, rubber and plastic products

Sector of BIST Sustainability Index Companies

209

168

41

Frequency (n)

14

21

14

112

7

Frequency (n)

100,00

80,38

19,62

Percentage (%)

4

6

4

32

2

Percentage (%)

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Table 9.3 T-test results of possession of an assurance report on company profitability Profitability ratio

Assurance engagement

N

Mean

S

SD

t

p

ROA

Available

168

0,423

0,761

207

0,198

0,843

Not available

41

0,397

0,638

Available

168

3,179

6,106

207

−0,368

00,714

Not available

41

3,572

6,230

ROE

possession of an assurance engagement by a company, would make a significant difference in these ratios. Table 9.3 shows that assurance engagements undertaken on GHG statements, by Turkish companies included in the 2018-BIST Sustainability Index, do not result in a statistically significant difference in return on assets or return on equity. In other words, a company’s profitability is not affected by whether it undertakes an assurance engagement, via an independent verification body, on its GHG emissions. This may be due to the company’s lack of awareness and knowledge of assurance engagement, or the company’s inability to request assurance engagement, due to its high cost, or that it does not believe it will benefit the company. This finding answers the primary research question formulated for this study.

9.5.3 Company Assurance Reports and Profitability, by Sector This section presents the results, by sector, of the profitability analysis of the 41 companies that have untaken an assurance engagement on their GHG statements. The data did not meet the assumption of homogeneity, therefore, a nonparametric Kruskal–Wallis test was employed for analysis (Table 9.4). Table 9.5 shows that among the companies with an assurance engagement report on their GHG emission statements, those with the highest ROA operate in the “financial institutions” sector (34.73%), followed by companies operating in the “chemistry, petroleum, rubber and plastic products” sector (24.13%). The third-ranking sector is the “manufacturing industry” (17,83%), and the sector with the least impact on ROA is the “transportation, telecommunication and warehousing” sector (5,50%). In terms of ROE, companies in the “financial institutions” sector have highest rate, followed Table 9.4 Profitability of companies possessing an assurance report, by sector Return on assets

Return on equity

Chi square

24,744

27,530

SD

5

5

p

0,000

0,000

Level of significance p < 0,05.

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Table 9.5 Profitability-based sectoral ranking of companies possessing an assurance report Sectors ROA

Food, beverages and tobacco

Mean rank

8

11,31

15

17,83

4

24,13

11

34,73

Wholesale, retail trade, hotels and restaurants

1

13,50

Transportation, telecommunication and warehousing

2

5,50

Manufacturing industry Chemistry, petroleum, rubber and plastic products Financial institutions

Total ROE

N

Food, beverages and tobacco Manufacturing industry Chemistry, petroleum, rubber and plastic products Financial institutions

41 8

10,13

15

17,20

4

23,00

11

35,27

Wholesale, retail trade, hotels and restaurants

1

30,00

Transportation, telecommunication and warehousing

2

6,00

Total

41

by companies in the “wholesale, retail trade, hotels and restaurants” sector (30,00%), and the “chemistry, petroleum, rubber and plastic products” sector (23%). As with ROA, least affected in ROI is the “transportation, telecommunication and warehousing” sector (6%). These findings answer the first and third research questions formulated for this study.

9.5.4 Change in Assurance Engagement Requests, by Year A crosstab analysis was employed to test whether the companies’ assurance engagement requests changed, before and after the base year. The aim was to determine whether the establishment of Turkey’s “Communiqué on the Verification of Greenhouse Gas Emission Reports and the Authorization of Verifiers” had any impact on the companies’ assurance engagement requests. Table 9.6 shows that, although the 50 2018-BIST Sustainability Index companies requested a total of nine assurance engagements prior to the base year, 2014, 32 assurance engagements were requested from 2014 to 2018, which is evidence that the “Communiqué on the Verification of Greenhouse Gas Emission Reports and the Authorization of Verifiers” positively influenced companies’ assurance engagement requests. This finding answers the second research question formulated for this study.

148 Table 9.6 Assurance engagement requests, by year

E. Atabay and K. T. Çalıyurt Assurance engagement Year 2011

Not undertaken 48

Undertaken 2

2012

47

3

2013

46

4

2014

45

5

2015

43

7

2016

42

8

2017

38

12

Total

309

41

9.5.5 Conclusion and Suggestions After many environmental and corporate scandals caused by companies, stakeholders, and institutions force the companies to disclose many different non-financial reports. Owen et al. (2001) mentioned that “notwithstanding differences in terminology, as well as major variations in the length of report and rigor of reporting, together with issues and constituencies addressed, one striking common feature of current social and ethical accounting, auditing and reporting initiatives lies in a purported aim to address the information needs and concerns of organizational stakeholders.” Accounting and auditing institutions like to protect organization stakeholders’ rights and asked companies to report on environmental issues. However, reporting environmental issues needs well-educated accountants and auditors with digested related legislation. However, accountants and auditors are not familiar with non-financial issues and it is not easy to collect financial dates on environmental expenses and cost. For example, The International Accounting Standards Board has voted to withdraw IFRIC 3 ‘Emission Rights’, which had been issued in December 2004 and was scheduled to go into effect for annual periods beginning on or after 1 March 2005. It is apparent that there is disparity between regulator and practioner. Some of the Board’s constituents had expressed concern about a resulting ‘accounting mismatch’ because the intangible asset is measured at historical cost while the provision is measured at the market value of the allowances needed to settle it (Deloitte 2005). The consent between regulator, accountant, auditor and executive committee will help parties to prepare GHG emission reports. When it comes to profit, tax authorities are very concerned with greenhouse emission reporting and how it is deducted from revenue. The reason for this is the reduction of expenses related to GHG emission when calculating operational tax. In this context, accountants and auditors must comply with national and international regulations. Firm’s profitability, which was measured using net operating income, is one of the considerations in making investment decisions by investors. High profitability is responded positively by the public, because of the public views these firms as

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having good management capabilities, and thus making investors more confident in investing in these firms (Lubis et al. 2017). If the company announced a loss in the financial year-end, the stakeholder will query the costs of preparing of GHG emission report to the company. Corporate sustainability reports which are non-financial one serve as a tool for companies to demonstrate their transparency and accountability, in which information on the companies’ economic, social, and environmental factors are publicly declared. In addition to information about a company’s economic activity, these reports also include the company’s approach towards social activities and its sensitivity towards the environment. The accessibility of a company’s approach to social events and its sensitivity to the environment for all users, are factors that influences a user’s investment decisions. One of the most important variables that indicate a company’s sensitivity to the environment in a corporate sustainability report, is carbon emissions. Each year, carbon emissions are disclosed in corporate sustainability reports, with the ultimate aim of a yearly reduction in emissions. The regulation on the auditing of carbon emission statements by verification bodies, was implemented in 2014, and demonstrates Turkey’s prioritization of the issue. Although there are numerous studies on the relationship between companies’ declarations of GHG emissions and financial performance, no studies have been conducted on the influence on financial performance of assurance audit reports on these statements. Therefore, the results of this study are not comparable to the result of similar studies. This study first determined whether companies included in the 2018-BIST Sustainability Index possessed an assurance engagement for their GHG emission statements. Subsequently, it was investigated whether the possession of an assurance engagement significantly affected company profitability. The results revealed a low rate of BIST Sustainability Index companies requesting an assurance engagement (20%), and that the possession of an assurance engagement did not significantly affect company profitability. Although there is a significant sector-based profitability difference among companies possessing an assurance report, those in the “financial institutions” sector were shown to be more profitable than other sectors. On the other hand, companies in possession of an assurance report, and that operate in the “transportation, telecommunication and warehousing” sector, are the least profitable. The 2014 establishment of the regulation on GHG emission auditing by verification bodies, has almost quadrupled Turkish companies’ requests for assurance engagement. Although very few assurance engagement were requested prior to 2014, there has since been a gradual increase. Despite the increase in the assurance engagements on GHG emission statements since 2014, it cannot be generally stated that Turkey is fully aware of assurance engagement. Therefore, information seminars should be organized by professional organizations, and similar academic studies should conducted, so that stakeholders can focus on assurance engagement. The fact that greenhouse gas statements and thus optional are adversely affects the development of non-financial reporting in this business world. Examples of such statements and the audit based on International

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Financial Reporting Standards reporting in developing countries such as Turkey must be made legally mandatory. This will help stakeholders and the public to have environmental data what they are doing while purchasing, storage, production, sales procedure. In a company that has prepared data for GHG emission reporting, it will be easier for accountants and auditors to audit environmental costs and operating profit, to calculate the company’s value and to benefit from social investment opportunities.

References Ababneh A (2019) The impact of carbon accounting on corporate financial performance: evidence from the energy sector in Jordan. In: Proceedings of the international conference on industrial engineering and operations management. Pilsen, Czech Republic. http://ieomsociety.org/pilsen 2019/papers/330.pdf. Accessed 19 Sept 2020 AccountancyAge (2020) From tyranny to salvation: the credibility of common metrics for ESG reporting. https://www.accountancyage.com/2020/06/01/from-tyranny-to-salvation-the-cre dibility-of-common-metrics-for-esg-reporting/. Accessed 3 June 2020 Akbas (2014) Company characteristics and environmental disclosure: an empirical investigation on companies listed on Borsa Istanbul 100 Index. Muhasebe ve Finansman Dergisi Aksay CS, Keteno˘glu O, Kurt L (2005) Küresel isinma ve iklim de˘gi¸sikli˘gi. Selçuk Üniversitesi Fen Edebiyat Fakültesi Dergisi 25:29–41 Allini A, Giner B, Caldarelli A (2018) Opening the black box of accounting for greenhouse gas emissions: the different views of institutional bodies and firms. J Clean Prod 172:2195–2205 Altu˘g T, Özkan FZ (2015) Sera gazi emisyonlarının izlenmesi, do˘grulanması ve raporlanması. Verimlilik Dergisi 2:67–86 Arsoy AP, Arabacı Ö, Çiftçio˘glu A (2012) Corporate social responsibility and financial performance relationship: the case of Turkey. J Account Finance 53 Ba¸sar B (2014) Kurumsal sosyal sorumluluk raporlaması ve finansal performans arasındaki ili¸ski: borsa Istanbul’da i¸slem gören kimya-petrol-plastik sektörü s¸irketleri üzerine bir ara¸stırma. Yönetim ve Ekonomi Dergisi 21(2) Busch TI, Berger SG, Paquin RA (2012) Managing for climate risk, environmental leadership : a reference handbook, Editor: Deborah Rigling Gallagher, SAGE Publications Ltd. Caliyurt (2020) Why do we need to talk about climate change risk as accountants and auditors urgently? New Approaches to CSR, Sustainability and Accountability, Volume I, Book series: Finance, Accounting, Sustainability, Governance & Fraud: Theory and Application, Springer Nature, Singapore. Chu CI, Chatterjee B, Brown A (2012) The current status of greenhouse gas reporting by Chinese companies. Managerial Audit J 28(2):114–139 Comyns B, Figge F (2015) Greenhouse gas reporting quality in the oil and gas industry. Account, Audit Account J 28(3):403–433 Deloitte (2005) IASB withdraws IFRIC 3 ‘Emission Rights’, IASB Meeting 2005. https://www.ias plus.com/en/news/2005/June/news2147. Accessed 5 June 2020 Depoers, Jérôme J (2016) Voluntary disclosure of greenhouse gas emissions: contrasting the carbon disclosure project and corporate reports. J Bus Ethics 134(3):445–461. Springer Gabriella T (2019) The effect of greenhouse gas emissions disclosure and environmental performance on firm value: Indonesia Evidence. Jurnal Ilmiah Akuntansi dan Bisnis 106 14(1), Januari 2019, hal 106–119

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Ganda F, Milondzo KS (2018) The impact of carbon emissions on corporate financial performance: evidence from the South African firms. Sustainability 10:2398. https://doi.org/10.3390/su1007 2398(accessedMarch15th,2019) Gazette O (2017) Communiqué on the verification of greenhouse gas emission reports and the authorization of verifiers. Turkish Official Gazette, Num. 30258 Art. 4. https://pmrturkiye.csb.gov. tr/wp-content/uploads/2017/04/Turkey_GHGE-verification-communiqu%c3%a9.pdf. Accessed 5 June Gökten PO, Mar¸sap B, Gökten S (2018) Sera gazi emisyon raporlaması bir tercih mi yoksa bir zorunluluk mu? Kuramsal bir de˘gerlendirme. Muhasebe Bilim Dünyası Dergisi 20:911–922 Griffin PA, Lont DH, Sun EY (2017) The relevance to investors of greenhouse gas emission disclosures. Contemp Account Res 34(2):1265–1297 Gulturk A, Hahn R (2016) An empirical assessment of assurance statements in sustainability reports: smoke screens or enlightening information? J Clean Prod 136, Part A:30–41 Herman, (2018) The decision usefulness of additional fair value disclosures: one disclosure type does not fit all nonprofessional investors’ needs. Springer Gabler, Germany International Bank for Reconstruction and Development, The World Bank (2018) State and Trends of Carbon Pricing, Washington. https://openknowledge.worldbank.org/bitstream/handle/10986/ 29687/9781464812927.pdf?sequence=5&isAllowed=y. Accessed 13 March 2020 Levy B, Ammi (2018) Financial management: USGAAP and IFRS Standards, vol 6, Wiley, New York Li Y, Eddie IA, Liu J (2014) Carbon emissions and the cost of capital: Australian evidence. Rev Acc Financ 13(4):1–28 Luo L, Tang Q (2014) Does voluntary carbon disclosure reflect underlying carbon performance? J Contemp Account Econ 10(3):191–205 Matsumura EM, Prakash R, Vera-Munoz SC (2014) Firm-value effects of carbon emissions and carbon disclosures. Account Rev 89(2):695–724 Mukhibad SH (2018) Carbon emission disclosure and profitability—evidence from manufacture companies in Indonesia. KnE Soc Sci 53–67. https://knepublishing.com/index.php/Kne-Social/ article/view/3118. Accessed 20 March 2019 Nisak K, Yuniarti R (2018) The effect of profitability and leverage to the carbon emission disclosure on companies that registered consecutively in sustainability reporting award period 2014–2016. In: IOP conference series: earth and environmental science, vol 164 Önder, S¸ (2017) I¸sletme karlılı˘gına kurumsal sürdürülebilirli˘gin etkisi: BIST’te bir uygulama. Muhasebe Bilim Dünyası Dergisi 19(4) Owen DL, Swift T, Hunt K (2001) Questioning the role of stakeholder engagement in social and ethical accounting, auditing and reporting. Account Forum 25:264–282 Öztürk K (2002) Küresel iklim de˘gi¸sikli˘gi ve Türkiye’ye olasi etkileri. Gazi Üniversitesi, Gazi E˘gitim Fakültesi Dergisi 22(1):47–65 PwC (2011) How to assess your green fraud risks, https://www.pwc.co.uk/assets/pdf/greenfraud. pdf. Accessed 5 June 2020 Rahman NRA, Rasid SZA, Basiruddin R (2018) Voluntary carbon disclosure and firm value: evidence from Malaysian carbon-intensive industries. Global Bus Manag Res 10(3) Salbiah, Mukhibad H (2018) Carbon emission disclosure and profitability – evidence from manufacture companies in Indonesia. In: International conference on economics, business and economic education 2018. KnE Social Sciences, pp 53–67 Selimo˘glu KS, Çalı¸skan ÖA (2016a) Sürdürülebilirlik ba˘glaminda: uluslararasi güvence denetim standardi GDS (ISAE) 3410—greenhouse gas beyanlari—I. Muhasebe ve Denetime Bakı¸s Dergisi 47:1–22 Selimo˘glu KS, Çalı¸skan ÖA (2016b) Sürdürülebilirlik ba˘glaminda: uluslararasi güvence denetim standardi GDS (ISAE) 3410—greenhouse gas beyanlari—II. Muhasebe ve Denetime Bakı¸s Dergisi 48: 1–20

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Sera gazi emisyonlarının takibi hakkında yönetmelik (2014) Resmi Gazete, vol 29003, available at: http://www.mevzuat.gov.tr/Metin.Aspx?MevzuatKod=7.5.19678&MevzuatIliski=0&source XmlSearch=sera. Accessed 17 May 2019 Sullivan R, Gouldson A (2012) Does voluntary carbon reporting meet investors’ needs? J Clean Prod 36:60–67 Ta¸sdemir B (2017) Sürdürülebilirlik raporları kapsamında kurumsal sosyal sorumlulu˘gun finansal performans üzerindeki etkisi: BIST sürdürülebilirlik endeksinde bir ara¸stırma, Master’s thesis, Nev¸sehir Hacı Bekta¸s Veli Üniversitesi Türke¸s M (2008) Küresel iklim de˘gi¸sikli˘gi nedir? Temel kavramlar, nedenleri, gözlenen ve öngörülen de˘gi¸siklikler. ˙Iklim De˘gi¸sikli˘gi Ve Çevre 1:26–37 Unerman J, O’Dwyer B (2007) The business case for regulation of corporate social responsibility and accountability. Account Forum 31(4):332–353 WBCSD (2004) A corporate accounting and reporting standard, A revised edition, World resources institute and world business council for sustainable development. https://ghgprotocol.org/sites/ default/files/standards/ghg-protocol-revised.pdf. Accessed 5 June 2020 Wegener M, Labelle R, Jerman L (2018) Unpacking carbon accounting numbers: a study of the commensurability and comparability of corporate greenhouse gas emission disclosures. J Clean Prod 211:652–664

Chapter 10

Impact of Climate Change and the Role of Accounting & Accountants on Water Management Merve Öztürk, Muhammet Bezirci, and Yunus Ceran

Abstract Global climate change is one of the factors that triggers the water crisis besides rapid population growth, industrialization, and globalization. Various climatological effects of climate change have adverse impacts on water resources. Vitally important water and its management today should be carried out regarding the effects of climate change. In the water management models implemented by taking the impact of climate change into account, not only water managers but also all stakeholders who use water have essential duties. Therefore, decisions in water management should be made by gathering all decision-makers and stakeholders under the concept of accountability and participation. This review-based paper aims to illustrate the role of accountants as one of the stakeholders and the accounting profession on water management. Changing the function of accounting and the ability of accountants about using accounting terminology in other fields will be evaluated within the frame of water management. Keywords Water management · Climate change · Sustainable development environmental accounting · Water accounting

10.1 Introduction It is known that human beings who have adopted the hunter-gatherer and nomad lifestyle before agriculture and animal husbandry have no contribution to nature in terms of production, and they only maintain their lives as consumers. The increase in M. Öztürk (B) Department of Business Administration, Istanbul Bilgi University, Istanbul, Turkey e-mail: [email protected] M. Bezirci · Y. Ceran Department of Business Administration, Konya Selcuk University, Konya, Turkey e-mail: [email protected] Y. Ceran e-mail: [email protected] © The Author(s), under exclusive license to Springer Nature Singapore Pte Ltd. 2022 K. T. Çalıyurt (ed.), New Approaches to CSR, Sustainability and Accountability, Volume III, Accounting, Finance, Sustainability, Governance & Fraud: Theory and Application, https://doi.org/10.1007/978-981-16-9364-9_10

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the population of the period compared to that time brought people face to face with decreasing the resources they were provided. Against this problem, some of them focused on the nomadic lifestyle and started to explore other parts of the world by leaving the regions in Africa and the Middle East. The rest did begin to settle down by adopting the idea of dwelling in one place contrary to nomadic life. With the adoption of settled life, people started to domesticate animals and cultivate plants for the first time switched from a consumer lifestyle to a productive lifestyle. The first farmers inaugurated to change the face of the planet gradually. With the idea of owning their tenure, the concepts of wealth, trade, power, and money began to emerge (Mebratu 1998: 495; E˘gilmez 2017: 1). Agriculture was developed as a successful response to the famine problem of the hunter-gatherer society. With the onset of development, population growth continued to increase rapidly. Although settled life and agriculture have been seen as a solution to the scarcity problem of wildlife, this solution was the preface of new and chain issues. The rapidly increasing population this time faced the challenge of energy and land shortages, and people became unable to meet their long-term needs only with agriculture. The transition from agricultural production to mechanization has been found as a solution to this problem. The industrial revolution and the use of coal were laid down in England. Coal transformed the course and pioneered the use of steam engines. These engines have become applicable to the industry, and this resulted in mechanized processes to manufacture (Mebratu 1998: 495; Sander 2012: 30–31). Signals of ecological scarcity in the consumption society were first pointed out in the 1790s by the academicians establishing a relationship between the increasing population and environmental evaluation. The crashing increase in production, development, and growth accelerated the population growth, industrialization, and use of coal. These developments affected environment, health and climate issues. As part of environment, water has also been affected by all these developments and involved in degeneration and extinction. Water, which is one of the limited resources, was used excessively and unconsciously, and its importance came to light with the threat of extinction. The insatiable increase in water demand with each passing day, excessive and unconscious use and inefficient water management have brought the world to the brink of the water crisis. The necessity of effective water resources management has come into view as never before because ensuring the sustainability of water resources is closely related to fields such as environment, economy, society, and health (Barlow 2016: 2; Özsözgün Çalı¸skan 2014: 247). According to World Bank water resources management is defined as “the process of planning, developing, and managing water resources, in terms of both water quantity and quality, across all water uses.” This is a process including the institutions, information systems, infrastructures, and incentives, it also entails managing waterrelated risk, including floods, droughts, and contamination. Due to its nature, water management is complicated and the complexity of relationships between water, and economies, ecosystems, and households, requires integrated management methods (The World Bank 2017). Compared to the past, it is seen that the use of traditional methods in water resources management has lost its validity. Today, in water management, it is necessary to consider circumstances with many uncertainties instead of

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well-defined problems. Hence, water resources are managed in an integrated manner and with a participatory approach by taking environmental, economic, social, and political uncertainties into consideration. In this context, one of the uncertainties that worsen the water resources altering hydrological cycles, quality, and making water more unpredictable is global climate change. Possible impacts of climate change on water resources should be thoroughly evaluated, and management should be carried out effectively with possible scenarios. With a participatory understanding, not only water managers and water service providers, but also all stakeholders who use water should take responsibility, and be included for water management. At this point, essential duties fall upon the accountants who can use the accounting terminology in new fields and accounting profession, boundaries of which change over time and are updated according to the times in new areas. This paper discusses the roles and responsibilities of accountants and accounting for water problems triggered by climate change. It evaluates the accounting profession’s changing position and the importance of accounting about providing information in an organization within the framework of water resources management. The paper is structured as follows: the literature on global warming and climate change has been reviewed. The impact of climate change on water resources and water management is presented. Then the concept of accountability, the role of accounting, and accountants in water management are illustrated, finally, conclusions followed.

10.2 Global Warming and Global Climate Change NASA defines the global warming as “the long term heating of Earth’s climate system observed since the pre-industrial period (between 1850 and 1900) due to human activities, primarily fossil fuel burning, which increases heat-trapping greenhouse gas levels in Earth’s atmosphere”. Until the industrial revolution, human life activities were not in a way to affect the atmosphere or change the environment radically. However, the industrial revolution has transformed the globe in a way that it has never been before. To meet the needs of the increasing population, the change in production modality, the rapid progress of industrialization, the excessive use of fossil fuels such as coal have ended up with the excessive emission of these gases. Due to the greenhouse effect of these gases such as carbon dioxide, methane gas, and cobalt released to the atmosphere during the industrialization process, the surface temperature on the Earth has gradually risen. These human-produced temperature increases are commonly referred to as global warming (NASA). Global warming has caused a chain of events to endanger the existence of all living creatures. The essence of the event is humans using fossil fuels such as coal, oil, and natural gas excessively and unconsciously, which have been formed underground over hundreds of thousands of years. With the increase in the emissions of the mentioned gasses, the global average temperature has increased by 0,9 degrees since the Industrial Revolution. The increase in the global average temperature in seas and air has led to climate change. According to the current IPCC (Intergovernmental

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Panel on Climate Change) reports, it is foreseen that the rise will reach 1.5 degrees between 2030 and 2052. On the other hand, the World Bank projects that the average global temperature increase will reach 4 degrees in 2060 (Çapar 2019). The world has already experienced warming and cooling periods since its formation process. As many plant and animal species have become extinct during these periods, and new plant and animal species have emerged to keep up with the changing order. Nevertheless, these events occurred within nature’s cycle and conditions, independent of human activities. Nonetheless, the global warming experienced today has emerged as a phenomenon different from the past climate changes that occur directly due to human activity (Akın 2006: 32). With the Industrial Revolution, the share of CO2, which has the highest percentage in greenhouse gases in the atmosphere, increased by 47%. An essential part of this increase is by reason of fossil fuels taken by humans. Similarly, Methane Gas, which does have the most greenhouse gas effect after CO2 , has increased by 151% since the Industrial Revolution. The emission of methane gas occurs both from fossil fuel use and as a corollary of human activity such as the burial of waste and residues, animal husbandry, and especially rice agriculture. Apart from these gases, Diazo oxide is one of the gases that has increased 17% as a result of human activity since the Industrial Revolution, and halocarbon gases and carbon monoxide have increased their emissions in the atmosphere as a result of social movements. Naturally, the percentage of these gasses in the atmosphere is quite low (less than 0, 1%). It is of vital importance to maintain their past levels in terms of ensuring the sustainability of climate systems. The significant increase in the ratio of these greenhouse gases in the atmosphere compared to the past has culminated in global warming, bringing about extraordinary climatic events to occur. The excessive emission of these gases was the beginning of the series of events that will threaten living life with the label of global warming (Akın 2006: 31–33).

10.2.1 Global Climate Change The gradual increase in the population with the economic development via agriculture fetched out against the famine problem of hunter-gatherer life has pushed people to seek a new economic and social order. This new economic and social order is called as the industrial revolution. During industrialization, an increase in the rate of globalization paved the way to increase numbers and profitability of multinational companies. They accordingly spread their production facilities throughout the world to meet the consumption demand of the increasing population, and the release of established facilities accelerated global warming (Elçin 2012: 14). While the increase in the number of products and services meant more options such as more employment, income, and a better life, importantly, too, it meant more use and pollution. In this process of industrialization, climate change has become an inevitable end. (Uydurano˘glu Öktem and Aksoy 2014: 10; Acar 2018: 69).

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Climate change is a general term expressing the changes arising in many climatological factors such as temperature and precipitation (drought, melting glaciers, floods, floods) from global scale to local scale (Akın 2006: 36; Çapar 2019). Natural disasters such as floods, landslides, erosion, the decrease of living species in the warming seas and oceans, the spread of desertification in the world, the increase of forest fires, mutation of the chromosome number and structure of living creatures due to extraordinary heat and cold, thus changing their genetic structures, disasters such as tornadoes and lightning are possible consequences of climate change caused by warming (Akın 2006: 36). Global climate change, which is predicted and observed to affect the natural environment, also affects economic and social development. Drought, water scarcity, decline in agricultural incomes due to loss of agricultural productivity, increase in water and electricity prices and consequently increase in price of production output, forest fires, and loss of biodiversity and decrease in tourism revenues are possible consequences of climate change. Another problem derived from climate change is the water problem, which has become a direct threat to existence today.

10.2.2 The Impact of Climate Change on Water Resources The fact that water, existence of which is expressed as the guarantee of the future, has started to run out, is among the top three risks that prompt concern for both the continuation of life and the world economies. When the water distribution for the use of living beings in the world is examined, freshwater resources constitute only 2.5% of the water resources on the planet. While the global supply of fresh water is sufficient to meet the foreseeable water demand of all living things today, the temporal and spatial distribution of this freshwater is not adequate to meet this (Cosgrove and Loucks 2015: 4823). Because 70% of the freshwater amount is hidden in glaciers and snow masses, the water available for human beings is even less than 1% of the total freshwater existence. What makes the water problem more important than others is that the water amount is constant, the water distribution is unfair, and the water demand multiplies day by day. Today, in many regions of the world, freshwater resources are insufficient to meet domestic, economic development, and environmental needs. In such areas, people suffer from water shortages; in turn, they cannot meet their drinking water needs and cleaning needs. This is a real constraint in terms of human health efficiency, economic development, and maintaining a clean environment and healthy ecosystems (Cosgrove and Loucks 2015: 4823). However, there is a fact revealed by the research that in 2050, more than 40% of the world population is expected to live in basins suffering from water stress (Uydurano˘glu Öktem and Aksoy 2014: 10). Here, one of the factors that create constraints on the future of water is climate change. Human activity is the principal driver of environmental change. Climate is also one of the factors affected by human activities. Actually, there is a complicated relationship between water and climate change. Water problems, drought, and water

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shortage are not the first-hand result of climate change. The water problem, which is experienced today and effects of which will intensify in the future, is primarily a result of globalization. With the effect of industrialization, the recognition of concepts such as boundlessness, transportation, distribution, and circulation increased; interaction between countries has increased, globalization has become more dominant in the world. Human activities, unconscious consumption, overproduction, development, and population growth that intensified with the increase in globalization triggered global warming, and global warming triggered global climate change. Even though population growth, unconscious and excessive use of water, and pollution as a result of industrialization are shown to be the leading causes of the water-related problem, there is also a relationship between climate change and water problem. Industrialization, population growth, and the increasing population’s unconscious movement are the reasons that underlie either event. Water, which was instantly affected by the industrialization process, is today seen and mobilized as a global resource rather than a local resource. Hence, it is straightforwardly related to areas such as the environment, economy, society, and health, and its importance occupies the countries’ agenda. This priceless resource plays a role in every product produced especially within the neo-liberal policies included in the production cycle (Barlow 2016: 23; Cosgrove and Loucks 2015: 4823). The danger of drought, the decrease in the amount, and deterioration of water quality are among the prominent problems related to water with each passing day. This natural resource, which is important enough to cause water wars between countries, is expressed as today’s oil (Barlow 2016: 12). According to Çapar (2019), there is a close relationship between climate change and water resources. Climate change dictates water resources in terms of quantity and quality. Changes in temperatures due to climate change affect the total precipitation and the temporal and spatial distribution of rainfall and disrupt the cycle of water resources (Trenberth 2011). The physical and economic consequences of climate change on water resources can be listed as follows: ● In both inland and coastal areas, water quality is reckoned to have been affected by climate change. ● More sediments and chemical runoff will be transported into streams and groundwater systems due to high-intensity rainfall events causing erosion. ● Rising sea levels are another factor that could reduce water quality and availability. Especially, groundwater quality is expected to be affected via saltwater intrusion. ● It causes floods and droughts on a basin basis. ● As it diminishes clean power generation by changing the basin flows, the hydroelectric power loss will cause the energy prices to rise accordingly. ● It has negative impacts on water sets and habitats in deltas. ● Increases the risks of drought and heatwaves and their intensity. ● Extreme rainfall and dry periods increase. ● The increase in evaporation rates, therefore the decrease in water supplies.

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● Rather than snow, a higher proportion of precipitation is expected as rain due to rising surface temperatures. ● Snowpack levels are also expected to form later in the winter, accumulate in smaller quantities, and melt earlier in the season, leading to reduced summer flows (Adams and Peck 2008: 12). ● PH change is observed in the ocean and sea waters. ● Water price is expected to be affected because of water shortage. Increasing water price affects the price of agricultural and industrial goods. ● Agricultural yield loss, fall in farming and tourism income, and total planted acreage might be reduced. ● Boom in number of forest fires and a decrease in biodiversity. ● More uncertainty in water availability. ● Higher frequency of extreme water events, more rapid return flows of water to the atmosphere.

10.3 The Impact of Climate Change on Water Resources Management Water resources management aims to utilize water by ensuring there is sufficient water of adequate quality for drinking water and sanitation services, food production, energy generation, inland water transport, and water-based recreation, as well as sustaining healthy water-dependent ecosystems and protecting the aesthetic and spiritual values of lakes, rivers, and estuaries (The World Bank 2017). The decisions having been taken in water resources management in the past have neither helped water sustainability nor water security. Surface and underground waters, coastal waters, and even oceans were labefied and even destroyed, especially to achieve short-term economic goals. All of these consisted of decisions and implementations lacking concern for the future and without considering the long-term economic and environmental effects (Cosgrove and Loucks 2015: 4823–4824). Actually, water was not even an issue discussed in the final declaration of the UN Conference on Environment and Development held in Rio de Janeiro in 1992. Water has only been mentioned as the key element of sustainable development in the text “Strategic Approaches to Freshwater Management” adopted by the UN’s Sustainable Development Commission since 1998. With the 3rd World Water Development Report published in 2009, water has been associated as the best way to ensure sustainable development (Cosgrove and Loucks 2015: 4836). Recently, the world has encountered humankind’s ability to transform the atmosphere, degrade the biosphere, and alter the lithosphere and hydrosphere. The Earth, therefore, began to fail to fulfill its functions. Water has become the central issue at this point, the necessity of ensuring the sustainability and effective management of water and the awareness of transferring it to future generations with the perception of heritage have revealed the need to take severe steps regarding water. It was stated that reducing the severity of the global water crisis would be possible by changing

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the management and governance style of water (Batchelor et al. 2017: 1). Water management is a series of processes that involves effective management of water through policy and management reforms by decision-makers with the support of stakeholders (Chalmers et al. 2012b, a: 275). The rational use and effective management of water resources impose upon the whole world economy. This is because there is an unmediated relationship between the economic growth rates of countries and their accessibility to water resources. Given 9 out of the 10 most crowded river basins in the world are located in growing economies, it is seen that water has a crucial role in economic development. The risks that will arise in case of ineffective water management are expensive energy, failure to ensure sustainable development, loss of competitive advantage, migration of the population, economic, social, administrative and political problems. Environmental health and food safety, even further, will be dramatically jeopardized. To eliminate these risks with efficient water management, the processes regarding how and by whom the water resources are used should be disclosed to other users in a transparent and accountable manner, and ways of developing and improving water resources should be sought. While ensuring development and growth, the water-oriented environmental dimension thus will not be ruled out (Uydurano˘glu Öktem and Aksoy 2014: 10). Today, the implementation of water management policies must take into account political, economic, environmental, and social realities and uncertainties of the given river basin. Climate change is one prominent type of uncertainty in the water management process. While it was about the solution of predictable problems in water management models carried out in the past, today, the unpredictable effects of climate change and its possible consequences on water resources make it difficult for water administrators and make long-term historical data meaningless. The variability of data makes it challenging to implement water management effectively (Pahl-Wostl et al. 2007). Climate change has emerged as one of the many problems faced by water managers. Today’s management paradigm is needed to account for all the uncertainties in a more comprehensive context. New knowledge regarding system behavior or changes in environmental or socio-economic conditions may require changes in management strategies. Here, the administration needs to broaden the public debate and grasp this kind of uncertainty. Hence, it entails a transparent and open discourse between scientists and policymakers. Climate change emerges as one of the environmental difficulties that should be borne in mind in water management besides economic, social, and political uncertainties. Infrastructure investments to be made, especially in the field of water, should be planned considering the possibility of climate change and extraordinary weather conditions. Accordingly, risk and cost analysis should be included in the investment process for climate change can change and reshape the entire probability of distribution of water demand and future hydrological events. Technological developments, especially in agriculture and energy production, urbanization, and water demand in terms of human behavior, are also affected by climate change (Sen ¸ 2005; Cosgrove and Loucks 2015: 4826; Pahl-Wostl et al. 2007).

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10.3.1 Integrated and Participatory Water Management Style The water management method, which was dominated by the understanding of “using water from the closest source” in the past, has changed in parallel with the development of civilizations to meet people’s needs. With the increasing population and diversifying human need, countries have embraced water management approaches following their historical, institutional, and physical structures. Along with these altered structures, water management has kept pace with the day in a dynamic structure throughout history. Traditionally, water infrastructure and water management systems are developed based on statistical analysis and interpretation of historical observations on consumption trends, hydrological data, and climate to predict the likelihood of certain events. In the past, water resources management was mostly aimed at solving precisely defined problems. In particular, activities in the management process are aimed to solve urgent problems for industrial and agricultural productivity, public health or meeting the demand for drinking and utility water in the short term. Yet unwanted results caused by these problems in the long term were ignored. The traditional water management system has been based and been characterized as a command-andcontrol approach. This traditional system design was targeted at highly predictability and controllability. Today, water management has evolved into an integrated and participatory management style. For the last twenty years new and more integrated approaches to water resources management have been developed and been applied to eliminate the shortcomings of earlier water management approaches. Here “integrated” refers to a desire to deal with a range of perspectives, coordinated development, and management of water, land, and related resources. During the last decade, the principle of integrated water resources management (IWRM) has been recruited as a framework for water management. Such an approach targets to overcome the shortcomings of traditional water management style. The IWRM approach, however, builds on the heritage of a command-and-control paradigm that has been affecting the water management community for decades. Such a management model requires that system behavior be highly predictable. Today, the implementation of water management policies must conceive political, economic, environmental and social realities and uncertainties of the given river basin and thus necessitate a transparent and open discourse between scientists and policymakers (Pahl-Wostl et al. 2007). IWRM consists of three main elements: evaluating the movements toward both supply and demand in water in a specific way, including the institutions and organizations that play a role in water management in the decision-making process, continuous monitoring of water resources, and providing qualified information. This management method handles surface and groundwater, water, and soil resources together. It includes determining the fundamental relationship of the ecosystems that need water, the relationship between the upstream and downstream of the basin, and the establishment of legal and institutional mechanisms. With this method, environmental and social interactions within the basin and neighboring basins will be taken ¸ 2005). IWRM, which is seen as the into account (Kibaro˘glu et al. 2006: 186; Sen

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best water management practice implemented today, will contribute to the process of adaptation to climate change. The prominent strategies in water management in recent years are toward demand management and changes in corporate practices. These methods are carried out independently from climate change. Addressing climate change in water management is an afterthought. Decision-makers on the water were asked to consider climate change in assessing the future state of resources. It was emphasized that the systems to be developed to manage water effectively should regard the probability of being affected by climate change. It has also been pointed out that the ability to include climate change in water management will add a competitive advantage to the administrations (Sen ¸ 2005). The participatory management style of water is another side of new water management systems. It indicates that all potential water users must be in the decision-making process. The awareness about the scarcity of natural resources is increasing each passing day. The demand for information on the use of these resources therefore has increased in a global context. At this point, the issues of how water is used, allocated, and pricing has gained importance in society’s eyes. This situation has revealed the necessity to include all users in the management process within the frame of participation and accountability (Chalmers and Godfrey 2012: 275).

10.3.2 Accountability on Water Management The education, health, and infrastructure services provided by the administrations are universally recognized indicators of development. However, ensuring the sustainability of these services is possible if the environment we live in allows this. Today, environmental constraints that prevent sustainable development are on the list of governments as more critical agenda items than ensuring development. Water is provided by governments as a public service. Today, within the framework of the New Public Management understanding, the good governance mechanism, which expresses the participation of multi-actor management and stakeholders in the management processes, is also applicable in the management of water provided as public service. The transparency, fairness, and accountability dimensions of the new governance ensure that water management is carried out transparently, by protecting all stakeholders’ rights and within the framework of accountability. At this point, accountability is the clarification and ability of decision-makers as using what they receive from their stakeholders. Accountability for water refers to transparency, equality, efficiency, and democracy, integrity in water management (Randa and Tangke 2015: 666). Recently, water services are insufficient in many parts of the world, especially in developing countries. Water services are associated with low-quality drinking water, a high rate of water waste, operational inadequacy, and corruption. In developed countries, the water service quality and the cost of using water are among the problems. The addressees of these problems are both public and private sector decision-makers

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and users. At this point, everyone who benefits from water resources has to undertake the accountability within the framework of the understanding that water is a common heritage (Benitez and Saphores 2010: 203). Considering that clean, healthy, high quality, and sufficient water is vital for protecting the lives of all living things, the role of water in ensuring the development is more than thought. Today, the threat of scarcity in water has revealed the need for effective and efficient management, and the obligation to provide qualified information, and the need for accountability regarding how water is obtained, distributed, and used (Chalmers and Godfrey 2012: 1–13). Despite participatory management style and accountability emerging as an obligation, it was remarked that main weakness of water management was water governance, however. Water governance is expressed here as a set of political, social, economic, and administrative processes in the management and development of water resources. Water governance refers to multi-actor water management. In an integrated water management approach adopted today, the core meaning of the concept is the development of water management with the participation of all stakeholders (FAO 2018). Thus, with this participatory approach to be followed in water management, the decision-making process, monitoring, and inspection stages of the basins are aimed to improve (Karada˘g 2006: 213).

10.4 The Role of Participants on Water Management Water is a resource that has been attributed to cultural and spiritual values by societies, is seen as sacred, and must be passed down from generation to generation with the consciousness of trust. In this way, the spiritual value of water reveals the need for social scientists to be included in the planning and management process. For this reason, interdisciplinary work is of great importance in water management strategies’ long-term success and increasing social awareness of water. In this context, scientists, engineers, managers, politicians, public authorities, decision-makers and stakeholders should promote strategies cooperatively to make out and disclose the value of natural resources that have been ignored until today and to ensure their sustainability (Cosgrove and Loucks 2015: 4828). Accountants are one of the stakeholders that will take an active role in water management.

10.4.1 The Role of Accounting and Accountants on Water Management Accounting is an information system and a powerful measurement system that provides information concerning organizations’ financial activities. This information system’s boundaries have been changed and updated over time, according to

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what time has brought. Significant transformations and applications have come to the fore in the accounting profession. The perception of “accounting for information” has gradually replaced the perception of “accounting for the tax” that has been coming for years. The profession is not just about recording and recognizing procedures for determining the tax and auditing. It is a system that will steer more comprehensive plans, development, growth, and ensure the sustainability of these concepts. Significant transformations of the accounting domain involving the development of new practices occur wherein the existing implementations, practices and approaches are applied to new fields. Overcoming the boundaries of accounting and the gradual change in its structure and accountants’ ability to transform terminology and traditional concepts into new fields have brought the water crisis to the schedule of accounting. Therefore, recording and reporting structures germane to financial accounting have been adopted and applied for water management. Today, the increasing importance of environmental issues and social responsibility activities have encouraged accounting to use this discipline’s informative function in this direction. (Chalmers et al. 2012b, a: 276). Demand for transparency, responsibility and accountability in the management process of natural resources has increased during last 2 decades. Here, accounting is a technical tool to determine the source of information about monitoring, identifying, measuring, and programming, and managing these scarce natural resources. Similar to corruption and crises in accounting and financial reporting, severe droughts in nature, long-term water shortages, floods and overflows have caused water crises that seriously affect nations. These water crises caused economic, social and political crises both within nationally and internationally. Hence, the need for qualified information on water has emerged to solve the globalized water problem (Chalmers et al. 2012b, a: 282). Water has become a competitive tool, so the need for providing qualified information and of accountability regarding how it is obtained, to whom it is allocated and how the allocated water is used, changes in water resources, water supply, and water demand revealed (Chalmers and Godfrey 2012: 1–13). Nationally and internationally, various accounting systems that report different information, for measuring and reporting water are developed. These systems are labeled as “water accounting”. General Purpose of Water Accounting (GPWA) is one of the internationally accepted approaches initiated by the Australian water industry for the general purpose of financial reporting. Similar to the accruals-based statements of general purpose financial reporting “the Statement of Water Assets and Water Liabilities” and “the statement of Changes in Water Assets and Water Liabilities” have been developed under GPWA. The recording and reporting structure of financial reporting has been associated with water to provide useful information to external and internal users to evaluate the decisions. Similarly, accountants’ help is vital in preparing another statement called as “Statement of Physical Flows” that shows how much water is in circulation during the reporting period, similar to cash flow statements. How much water resources are used by whom, to whom it is allocated, changes occurring in the basin, and their economic values will be determined with accountants’ help. Periodically measuring the changes in water resources, and reflecting them into a statement

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format as an asset and obligation table will provide transparency respecting management. Like financial reporting standards, establishing water standards for providing information on the water will ensure that the data is presented in a qualified manner. It was also commenced in Australia in 2007. Here the role of financial accounting academics to draft conceptual framework for water standards is essential (Chalmers and Godfrey 2012: 4; Chalmers et al. 2012b, a: 275–277; Chalmers et al. 2012b, a: 1002–1003). System of Environmental-Economic for Water (SEEAW) developed by United Nations Statistics Division, Water Footprint Accounting (WFA), International Water Management Institute Water Accounting (IWMI WA) are other most known water accounting systems. The common purpose of these systems is to provide information about water to stakeholders. The origin and creators of the systems differentiate them. Another thing is, the leading actors in sustainable development are corporations that use natural resources for production and management activities. They are responsible for creating various environmental problems. The management and financial accounting reports of these firms are the essential outputs of their operating activities this is how the traditional reporting system does it. However, recently corporations have faced demand for presenting environmental and social responsibility activities beyond calculating profit, investment, and shareholder value. Since the interest in the ecological and social consciousness of the customers and other stakeholders has increased, reporting the results of their operating activities on the economic, environmental, and social structure has become a necessity. The reason is that they are seen as responsible for creating various environmental problems. According to stakeholders, “What you measure is what you attribute importance to” mentality underlies reporting social, environmental and economic outcomes of corporate actions as a whole. In accordance with the mentality, enterprises taking heed of environmental and social issues to be able to safeguard the environment perform activities and share these activities with stakeholders in an unfiltered way. Herein, the role of corporations in society and the environment is vital as well as in national and global economies. The importance of business world and corporations in sustainability through the world gained attention (Özsözgün Çalı¸skan 2014: 247–249). Customers and other stakeholders see corporations as responsible for the destruction of resources in as much as they use natural resources to satisfy their stakeholder’s needs, to make profit, to maximize shareholders’ value. Destruction of natural and environmental resources, devilish consumption, air and water pollution, global warming are the outcomes of these corporations’ operations. As the scarcity of natural resources and societal problems rise, the demand for accurate, timely, relevant, and comparable information gained importance. In the eye of the customers, firms that attach importance to environmental and social issues could perform to protect the environment, provide information and share this transparently. The role of accounting as an important measurement system, therefore, has become crucial about preparation of non-financial results of the operations’. Accountants will act as a bridge in the preparation of sustainability reports as a complement to traditional profit-oriented accounting reports; that is, a link will be established between financial and non-financial activities. At this point, accountants

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should update the traditional accounting structure which is not able to generate information needed, and organize training activities on this subject. Accountants should determine the sustainable reporting needs of companies, sustainable implementation plans should be prepared and implemented as performance indicator and independent audit and review processes should be managed accordingly. The deficiencies in the traditional corporate reporting system must be eliminated in monitoring the nonfinancial performance of the corporations because it cannot generate the information needed to measure business performance ecologically and socially. Specifying the concept of sustainable development for corporations and transferring the idea into practice and providing information about non-financial activities via sustainability reports need to be met by accountants. These reports can be recruited as an instrument for balancing economic development with environmental and social needs. Corporations can disclose how they contribute to the environment in their supply chain (Özsözgün Çalı¸skan 2014: 250–257; Haigh and Saphiro 2012). In these sustainability reports, how much water is consumed in the production process, how water resources are protected from pollution, or how they save the water or corporations’ modalities with regard to wastewater can readily be monitored and measured and disclosed to both internal and external stakeholders. Accountants and accounting organizations have an influential role in calling for climate change mitigation and adaptation. They can encourage and enable meaningful action on climate crisis as influential advisors in governments and organizations by providing relevant, timely and accurate insights, analysis and reporting Accountants should support their organizations ‘and customers’ efforts to respond the climate change. Enterprises’ steps in the use of or conservation of water should be clearly displayed to all stakeholders with these reports (Cohn 2019). The accounting profession and accountants can assist in establishing an internal control system for controlling the objectives set for the protection and development of water resources by water management units and organizations. The position of accountants in carrying out internal audit processes to monitor water organizations’ internal control activities can be stated as another way of using this profession in water management. This helps water managers in planning and conducting operations effectively. Furthermore, accounting can contribute to independent auditing over the results of water units and organizations’ activities develop standards, determine the level of realization of the targets.

10.5 Conclusion As the demand for water increases day by day, it is uncertain how much water is left to meet human needs in the future or how long the remaining water will ensure the sustainability of the natural ecosystem. Today, researches and scientific studies on water help water users consider the water crisis, increase the awareness as to the issue, and comprehend water to a great extent (Cosgrove and Loucks 2015: 4827). Considering that water scarcity will affect 2 out of 3 of the world population in a

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few decades, the realization of effective water management emerges as a situation that should not be delayed. In an effective and efficient water resources management, the methods and governance of water must be updated and different types of uncertainties and different perspectives must be taken into account. Designed policies to define the problem should include scenario analyses to identify critical risks, especially for particular conditions like climate change. All these processes must be participatory. Water managers should not ignore the need to work in coordination with various disciplines in water management. Moreover, it requires a continuous variable and dynamic management style according to the requirements of the day, and managers always have to do it with a participatory approach in cooperation with professionals who have sufficient technical, economic, social, financial, and environmental networks and skills. Integrated water resources management, which has already been adopted by many countries recently, also calls for a comprehensive governance approach. In this regard, all people who consume water, from individual users to corporate executives, from government officials to water managers, have a great responsibility. As one of the stakeholders, accountants have an essential role in water management. It means several new responsibilities for accountants and accounting due to the nature of the profession. What is expected from accountants and accounting is to provide information about water resources and operations of organizations that use water and manage water. The information refers to the interaction between the planet, people, and profit. Thus, the demand for transparency, responsibility, and accountability in the management of natural resources is fulfilled. In risk identification and scenario analysis and forecasting, the promotion of policies for managing water resources, preparation, and implementation of sustainability of water resources plans are other ways of contributing the water management. This study aims to demonstrate the role of accountants and accounting in water management. The relationship between global climate change and water management is discussed. Then, the changing function of accounting is evaluated under the frame of water management. In this regard, the paper may give insight into accountants for academics and professionals reforming the accounting implications toward water management. The new role and responsibilities of accountants in all sectors could be updated.

References Akın G (2006) Küresel Isınma, Nedenleri ve Sonuçları. Ankara Üniversitesi Dil Ve Tarih- Co˘grafya Fakültesi Dergisi 46(2):29–43 Batchelor C, Hoogeven J, Faures J-M, Peiser L (2017) Water Accounting and Auditing-A Source Book (Revised Edition- November 2017). Food and Agriculture Organization of the United Nations, Rome Benitez I, Saphores J-D (2010) Public Accountability and Performance of Two Border Water Utilities. Water Policy 12:203–219

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Chalmers K, Godfrey J, Lynch B (2012a) Regulatory Theory Insıghts into the Past, Present, and Future of General Purpose Water Accounting Standard Setting. Accounting, Auditing & Accountability Journal, Vol. 25. Iss 6:1001–1024 Cosgrove W, Loucks D (2015) Water Management: Current and Future Challenges and Research Directions. Water Resour Res 51:4823–4839 Haigh M, Shapiro M (2012) Carbon reporting: does it matter? Account Audit Account J 25(1):105– 125 Pahl-Wostl C, Sendzimir J, Jeffrey P, Aerts J, Berkamp G, Cross K (2007) Managing change toward adaptive water management through social learning. Ecol Soc 12(2):30 Randa F, Tangke P (2015) Developing accountability model of local government organization: from anagerial accountability to public accountability (Naturalistic Study on Local Government Tana Toraja). Soc Behav Sci 211:665–672 Trenberth K (2011) Changes in precipitation with climate change. Climate Res 47(1):123–138 Acar, E. (2018). Küreselle¸sme Neoliberalizm ve Su Yönetimi. Bursa: Ekin. Adams, R., & Peck, D. (2008). Effects of Climate Change on Water Resources. https://www.choice smagazine.org/2008-1/theme/2008-1-04.htm (Accessed on March 5th, 2021) Barlow, M. (2016 (1. Baskı)). Su Hakkı. (A. Timur, Dü., & A. Köse, Çev.) ˙Istanbul. ˙ Çapar, G. (2019). Su Kaynakları Yönetimi ve Iklim De˘gi¸sikli˘gi. Ankara: ˙Iklim De˘gi¸sikli˘gi E˘gitim Modülleri Serisi 8. Chalmers, K., & Godfrey, J. (2012). Introduction. J. Godfrey, & K. Chalmers (Dü) içinde, Water Accounting International Approaches to Policy and Decision-Making (s. 1–17). Cheltenham, UK, Northampton, MA, USA: Edward Elgar. Chalmers, K., Godfrey, J., & Potter, B. (2012b). Discipline-Informed Approaches to Water Accounting. Australian Accounting Review, No. 62, Vol.22, Issue.3, 275–285. Climate.nasa.gov. Overview: Weather, Global Warming and Climate Change: https://climate.nasa. gov/resources/global-warming-vs-climate-change/ (Acccessed on March 5th, 2021) Cohn, M. (2019, December 04). Accountants work to Counter Climate Change. July 14, 2020 tarihinde accountingtoday.com: https://www.accountingtoday.com/news/accountants-work-to-cou nter-climate-change (Acccessed on March 5th, 2021) E˘gilmez, M. (2017, Mayıs 8). Kendime Yazılar. Mayıs 17, 2018 tarihinde mahfie˘gilmez.com: http:// www.mahfiegilmez.com/2017/05/endustri-40.html , (Accessed on June 4th, 2021) Elçin, A. B. (2012). Küreselle¸smenin Tarihçesi. Ankara. FAO (2018) Water accounting for water governance and sustainable development. Marseille: Food and Agriculture Organization of the United Nations. Karada˘g AA (2006) Avrupa Birli˘gi Su Politikaları Çerçevesinde Türkiye’deki Su Kaynakları Yönetiminin De˘gerlendirilmesi. TMMOB Su Politikaları Kongresi, (s. 210–219). Ankara. Kibaro˘glu A, Sümer V, Kaplan Ö, Sa˘gsen ˙I (2006) Türkiye’nin Su Kaynakları Politikasına Kapsamlı Bir Bakı¸s: Avrupa Birli˘gi Su Çerçeve Direktifi ve ˙Ispanya Örne˘gi. TMMOB Su Politikaları Kongresi, (s. 184–194). Ankara. Mebratu D (1998) Sustainability and sustainable development: historical and conceptual review. Environ Impact Assess Rev 18(6):493–520 Özsözgün Çalı¸skan A (2014) How accounting and accountants may contribute in sustainability? Soc Respons J 10(2):246–267 Sander O (2012) Siyasi Tarih- ˙Ilk Ça˘glardan 1918’e (23. Baskı). ˙Imge Yayınevi, Ankara Sen ¸ Z (2005) ˙Iklim De˘gi¸sikli˘gi ve Su Kaynaklarına Etkisi. 22 Mart Dünya Su Günü “˙Iklim De˘gi¸sikli˘ginin Su ve Enerji Kaynaklarımıza Etkisi” Paneli, Su Vakfı, 2005, Nadir Kitap, ˙Istanbul The World Bank (2017) Water Resources Management. https://www.worldbank.org/en/topic/wat erresourcesmanagement#1. Accessed 2 Sept 2021 Uydurano˘glu Öktem A, Aksoy A (2014) Türkiye’nin Su Riskleri Raporu. Ofset, ˙Istanbul.

Chapter 11

Faculty-Led Short Study Abroad Program Effects on Professional Identity: A Qualitative Study from India Christo Joseph

Abstract This explorative qualitative study examined the effect of short-term study abroad program (SAP) on nine faculty members of a Private University in India. The analysis of faculty professional identity in SAP has garnered significance due to the increasing success of such programs. Study abroad program are academic programs of short duration ranging from one week to eight weeks, in which faculty members accompanied along with students to other countries (Sachau et al., J Manag Educ 34:645–670, 2010). This research aims to evaluate the critical parameters and insights that truly reflect the accompanying faculty’s professional identity and growth. The findings of our qualitative explorative study found a sense of growth in both self and professional identity of faculty members. The presented explorative qualitative study is unique in adding value to the existing literature on the professional identity development of faculty, enrichment of faculty members’ understanding, and broadening the vision of participating faculty. Keywords Academic competence · Faculty-led short study program · Professional identity · Pedagogical beliefs · Teaching identity · Thematic analysis

Abbreviation SAP

Study Abroad Program

C. Joseph (B) Garden City University, Bangalore, India e-mail: [email protected] © The Author(s), under exclusive license to Springer Nature Singapore Pte Ltd. 2022 K. T. Çalıyurt (ed.), New Approaches to CSR, Sustainability and Accountability, Volume III, Accounting, Finance, Sustainability, Governance & Fraud: Theory and Application, https://doi.org/10.1007/978-981-16-9364-9_11

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11.1 Introduction The higher education institutions rely on new ways to cope with contemporary issues, such as shrinking international boundaries, shifting cultural demography, collaborative learning, and growing digitization to impart knowledge effectively (Kahn and Agnew 2017; Shiri 2015). The short-term faculty-led study abroad programs are an imperative and essential aspect of higher education throughout the world (Loebick 2017). These programs promote the internationalization of higher education institutions and develop the intercultural expertise of both the professor and students (Mills 2010). Additionally, these programs deliver a structured, precise, academically rigorous, and economical package to students and faculty to attain substantial benefits (Salisbury et al. 2008b). Such programs may take on many different formats such as direct admission to an university abroad or courses provided by a third-party supplier or faculty-led program and the study spans over a short-term (eight weeks or less), mid-length (one semester), or long-term (academic year) depending on the different requirements and constraints (Kartoshkina 2013; Sachau et al. 2010). The faculty-led short-term study abroad programs have demonstrated promising and sustained objectives of global and multicultural awareness (Fairchild et al. 2006). Considering the tangible benefits for globally competent higher education faculty, the short-term study abroad practices are gaining increased focus and attention among higher education institutes (Sachau et al. 2009). Previous studies have documented the benefits of short-term faculty-led program on students and found increased awareness of other’s language and culture with their own identity (Gaia 2015; Hilton 2007; Williams 2005), understanding of international issues and incorporating knowledge into personal and professional lives (Shibata 2019; Sutton and Rubin) and increased confidence and long-term benefits in career (Norris and Gillespie 2009; Pence and Macgillivray 2008). However, in these published studies, main focus of study was students and university faculty members were rarely focused, especially on investigating the Identity and professional growth of accompanying faculty members on short-term studying abroad programs. This research explores the impact of study abroad program on higher education faculty’s professional identity that leads and accompanies such programs. The presented study is qualitative and manifests a deeper understanding of the professional identity of higher education faculty leading the short study abroad programs. The study underpins and contributes to how the role of faculty affects the faculty’s professional identity, overall learning perspectives, and perceived differences in professional careers. This paper will look at the professional identity of faculty in terms of their perceived knowledge gained, their effects on their outlook, and what value SAP has added to their professional career. This study expands the focus of faculty-led programs to examine the learning experience of nine university faculty of a private university in India, who led students on short-term Study Abroad Programs (SAP) to different international destinations (Ref. Table 11.1).

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Table 11.1 Participant’s information and country of visit Name

Department

Duration

Country

Programme name

Interviewee 1

Computer science

8 days

France, Paris

International certificate in marketing

Interviewee 2

Management

8 days

France, Paris

International certificate in marketing

Interviewee 3

Management

15 days

France and Spain International certificate in health, media and education

Interviewee 4

Tourism

15 days

France and Spain International certificate in health, media and education

Interviewee 5

Health sciences

20 days

Spain—Madrid

International certificate in sports physio

Interviewee 6

Management

20 days

Spain—Madrid

International certificate in sports physio

Interviewee 7

Tourism

10 days

Malaysia

International certificate in management and tourism

Interviewee 8

Tourism

10 days

Malaysia

International certificate in management and tourism

Interviewee 9

Management

15 days

Malaysia and Singapore

International certificate in marketing

11.2 Literature Review Previous empirical studies have established the excellence and impact of SAP for students and teachers in the form of cultural immersion, focused learning skills, teaching prospects, appreciation for diversity, reflection, and collaboration (Loebick 2017). The well-designed short-term experiences have greater potential to deliver knowledge, developing novel ideas for conducting research, instigating globalmindedness, and promoting professional identity (Loebick 2017). These programs promote the identity of higher education institutes and develop intercultural proficiency for teachers and students (Mills 2010). Even though the current published literature is more aligned and focused on student outcomes from faculty-led programs, faculty also have valuable outcomes from such programs (Goodwin and Nacht 2009). The involvement in an international activity enhances the faculty’s capability to integrate new ideas for their research activities and extended collaboration with professional teams (Savishinsky 2012; Siaya and Hayward 2003).

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Studies on pre-service teachers highlighted an acquiring in-depth understanding about diverse educational systems and practices, become more globally inclined teachers, and adapt cultural diversities and empathy (Cushner and Chang 2015; Doppen et al. 2015; Palmer and Menard-Warwick 2012; He et al. 2017). Through a short SAP, teachers develop intercultural competence, adding value to their culturally relevant pedagogy to effectively communicate and collaborate with students from various cultural backgrounds (Mansilla and Jackson 2012; Mullens and Cuper 2012; Moseley et al. 2008). Moreover, Viafara González and Ariza Ariza (2015) revealed significance of contextual circumstances in manipulating intercultural learning during a short SAP. Furthermore, Keese and Brien (2011) explained that a short faculty-led SAP makes accompanying faculty more competent, innovative, enhances professional identity, leverage ideas for research, and assist in developing administrative skills. Additionally, Mikulec (2019) study found increased autonomy, tolerance for uncertainty, flexibility, compliance, and interactive skills. Colville-Hall et al. (2011) applied the intercultural development continuum model proposed by Hammer et al. (2003) and found the positive impact of a 3-week short-term faculty-led abroad program in France. Despite growing interest, there are varied models in use and there is no one best model to serve as a perfect practice to follow. Research studies have shown that collaboration is an implied component in short-term SAP. The host country and the institute’s collaboration enrich the participating faculty’ intercultural aptitude and academic competence (Anderson and Lawton 2011). The faculty leading these short programs is responsible for preserving academic rigor. Salisbury et al. (2009) identified the impacts of financial constraints on faculty’s decision making process, professional and personal development and overall learning process leading to a short SAP. Considering this, research studies (Cushner and Chang 2015; Gleeson and Tait 2012) have emphasized the effective design of SAP for adequate learning and meaningful insights for the professional growth of escorting teachers. Professional identity has been perceived and evolved as a vital area of research that integrates the characteristics of beliefs, values, and career growth (Beijaard et al. 2004; Weinrach et al. 2001). Professional identity is a process and not a product that involves both contextual and knowledge factors related to human relationships and the subject of Study (Beijaard et al. 2004). For enhancing the professional identity of faculty members, institutional contexts play an essential role and the structure of the social world influences identity formation (Bourdieu 1993). In an academic setting, the professional identity of faculty members is inspired by innovative practices and international collaboration opportunities (Chedzoy and Burden 2007; Hung 2008). Past researchers have found that faculty’s potential improves with working in a wider institutional context (Beijaard et al. 2004) and faculty’s landscape reflected their professional identity into their teaching and research experience (Coldron and Smith 1999). Starr et al. (2006) proposed six essential characteristics that promote the professional identity among academic professionals: internal satisfaction, proficient knowledge, and adept skills, a sense of belonging to educating the community, teaching commitment to transfer knowledge, and rewards for the teaching services.

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The development of the professional identity of faculty members in the context of higher education is a complex process. In the current study, professional identity is looked at from the sociocultural perspective, which forms the professional identity of higher education faculty in the social and cultural context (Holland and Lachicotte 2007; Penuel and Wertsch 1995). Previous research on faculty abroad programs has been done in Western countries, and it is imperative to know if faculty-led study abroad programs from India would also lead to the professional identity of faculty members. Additionally, the social and cultural barriers and facilities differ between Indian and western faculties, which may lead to different challenges mainly related to Indian faculty (Keese and Brien 2011; Gaia 2015; Olsen and Buchanan 2017). To achieve these aims and objectives, this study addresses the following questions: 1. 2. 3.

What are the effects of faculty-led programs on the professional identity of higher education faculty? How does a faculty member link their pedagogical learning and professional identity in a study abroad program? What are the challenges faculty members faced during the study abroad program?

11.3 Methodology The study was designed as an explorative qualitative study to enlighten a great representation of faculty members’ experiences who led different groups of students to different parts of the world. Qualitative study is defined as a “situated activity that locates the observer in the world” and permits explaining and presenting existing experiences (Denzin and Lincoln 2005, p. 3). The explorative study investigates the problem that has not been studied thoroughly and gives better insight into the existing problem (Mason et al. 2010). This qualitative study provides readers with an in-depth understanding of how faculty members feel about their professional identity, challenges, and substantial gains after leading such short-term Study abroad programs.

11.3.1 Participants In this study, university-level faculty members of a private university in India are selected, leading short study programs abroad to different countries. A total of nine (n = 9) faculty members who have experienced an international study program were selected through purposeful sampling. The selection criteria was the participant’s experience of leading SAP programs to Asian and European cities such as Paris, Spain, Malaysia, and Singapore (Ref. Table 11.1) and they were approached via email for the study. The participants were briefed about the study and signed the informed consent. The gender breakup of the participants was 5 female 4 male

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faculty. The participants had different career level with minimum of five years and maximum 22 years of extensive academic and research experience in diversified fields of studies. The age of the participants was between 32 and 50 years.

11.3.2 Instruments and Procedures The study was conducted at a private university in India. Google Meets was used to conduct semi-structured interviews. Each interview took approximately 60 min. The participants were provided with the necessary support (breaks, empathy) when required. Interviews were designed by adding some sub-questions with the main question that could illustrate the information on the purpose and scope of each research question. The interview questions were open-ended, with neutral tone (wording that avoid influence on answers) and used simple language to increase the effectiveness in instigating the data (McNamara 2009). The interviews were conducted online in a friendly atmosphere without any judgments or conditions. The interviews enabled the researcher to elicit varied responses from the faculty members who were willing and openly shared their opinion about their experiences during the Study abroad program. Interviews were transcribed using Otter software. For Data analysis Nvivo 12 plus software was used. Inductive thematic analysis technique was used to identify key faculty learning based on the three research questions mentioned above. Analysis was done at a latent level which aims at the conceptualization of underlying patterns in the transcripts. As it was an inductive thematic analysis, codes were formed during the analysis. The codes were grouped into categories based on similarity, and then similar categories were included in the themes. The themes are repetitive consistent expressions commonly found in the interview transcripts (Kyale 2007). Through the inductive analysis of the narratives, the study was able to derive five themes. Table 11.2 represents the themes and categories that emerged during the analysis.

11.4 Effects on the Professional Identity of Faculty Several effects were mentioned by all leading faculty members in different study abroad programs. These effects inculcate different learning methods and technical skills. Interview transcripts elicit two themes Theme 1: Value added in Personal and Professional Identity Four categories of “values added in self,” “influential factors in professional identity,” “values added in professional identity,” and “professional Identity” were included in this theme. Participants shared their opinion regarding the understanding of professional identity. They believed professional identity comprises certain skills related to a specific profession and being identified as a member of that professional group.

11 Faculty-Led Short Study Abroad Program Effects … Table 11.2 Categories and themes related to professional identity of faculty members

Categories

175 Themes

Q.1 What are the positive effects of faculty-led programs on professional identity of higher education faculty? Values added in self Values added in professional identity

Value added in personal and professional identity

Professional identity Influential factors in professional identity Quality of education in study Perception of change and abroad programs challenges faced Perception of change Feelings of unsupportive environment Challenges faced during program Q.2 How does a faculty member link their pedagogical learning and professional identity in a study abroad program? Past experiences helped in program

Pedagogical learning in study abroad program

Helped in academic role Role played by teacher Reasons to be chosen for program

Motivation and role played by faculty

Motivation to take part in study abroad program Q.3 What are the challenges faculty members faced during the study abroad program? Recommendation for faculty learning

Recommendation related to study abroad program

Benefits of study abroad program Improvement in SAP

They related “research,” “academician,” “mentor,” and “teacher” as part of one’s professional identity. When asked about their life roles and their connection with professional identity, participants had varied responses. The majority of female faculty believed that professional identity is enclosed in their roles of daughter, mother, and wife and plays an integral part. As one faculty member quotes Interviewer 6 So, when I describe professional identity, I would say that it is towards my profession. That is a physiotherapy profession, and of course all these other things as you mentioned, are the elements of who the person is, who it is being identified. So, you cannot exactly separate all that.

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All male participants believed personal and professional roles are different and “gender is separate from my professional identity” and professional identity is related to one’s profession only. They considered professional identity comprises the capabilities and skills learned during the education and can’t be linked with the personal identity. Participants also shared the influential factors, including confidence, learning, management, positive attitude, time management, and the opportunity to connect with people that shaped their professional identity. Being an academician an “understanding what kinds of academic curriculum” taught and use of techniques would also contribute into the professional identity. Participants revealed that SAP had added value to their personal and professional identity, and had feelings of recognition among their university fellows and were frequently asked about their experiences. It helped them grow not only professionally but from the managerial point of view. SAP increases their professional capability and skills which can be transmitted to the students of their country and would encompass their professional learning experience. Faculty member 6 went on saying “learning at this point of time will be more than having 25 years of experience.” Another benefit SAP provided to the faculty member was the professional collaboration and established networking with other faculty member in foreign country. Majority of faculty alleged that they had developed networks with foreign faculty, which they would not have if not for the opportunity to study abroad. Faculty member 7 stated as Yeah, in terms of networking definitely yes, I could make more contacts I could meet teachers from there, and some of them are connected with me.

It was also revealed that all faculty felt elated to lead a program among all the other members and made them feel important and wanted in the organization. It increased their prestige and gave them and added advantage in the resume “if I should say I think I can put this on my resume” (7). In addition to this, all faculty felt that their roles and responsibility had increased after leading the program, and they were involved in more administrative meetings and jobs within the university. Faculty member 3 expands these findings by stating below Now, in the institution, my superiors already know that I have had this kind of a experiences leading programs internationally this will give me an edge over the others.

Overall, the study abroad program improved the existing professional and personal identity of faculty members. Theme 2: Perception of change and challenges faced The four categories of “perception of change,” “feelings of unsupportive environment,” “quality of education in study abroad programs,” and “challenges faced during the program” are included in this theme. The most prominent change participants reported was improved their communication skills and “become more confident in conversations with” faculty members from Western countries. It broke “those myths” of Western being more advanced and having more technical skills than Indian. They

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have been engaged in discussions that boosted their logical thinking and confidence. Furthermore, the challenges they faced during travel arrangement and management of students grow their self-confidence. They received compliment from the other about the changes in their personality, mostly related with speaking style. Along with confidence, it increased their understanding of different situations, experiences, and cultures. SAP broaden their thinking on global issues and increased the flexibility for other’s culture, and religion. These changes have been mentioned in the below statements Interviewee 5 So I can say I really started to think from a global perspective after this programme and this is very important to me.

Another change participants reported was learning of student engagement activities and friendly interaction with them. They learned “to respect the children in terms of the generation gap I have with them” (1), and increased their approachability to students. They felt the changes in their thought process in designing syllabus or preparing content for student and how it can match to the international standards. Faculty member 4 stated When I’m designing a syllabus I try and think more in an international perspective because of my experience visiting foreign country.

Majority of the participants in this study didn’t experience unsupportive behavior or envy from colleagues after the SAP. Three participants reported unsupportive behavior and envy from colleagues. Participants 4 and 7 felt their colleagues had feelings of jealousy from them because they were chosen. Another participant 5 shared that senior’s complaint about her upon selection because of her less experience and pointed out her gender. Participants 8 and 9 believed that people often hide their feelings of envy and don’t share explicitly. Interviewee 9 That’s what I’m saying that they were not very direct, but sometimes you can understand the body language alongside their statements.

When participants were asked to compare the quality of education in India from the country they visited on SAP, participant 6 believed that education in India shouldn’t be compared with the education of developed countries. Developed countries had better knowledge level and more student oriented whereas in India the education is teacher’s oriented and students needed to be spoon fed. However, comparison of India with other developing countries makes Indian education better than others. It is stated as below Interviewee 6: I think what I feel personally is, we should not compare the boards because one is a developed country and one is the developing country, probably we should compare ourselves with a developing country, then I think we can say that Indian education is better.

Participants 3, 7 and 9 had an opinion that India provides quality education and had the same knowledge level as other countries. The difference could be in teaching style or innovative thinking but on subject level it was the same. Other differences could be the availability of technical tools and infrastructure that India doesn’t have and

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this difference vanishes when it is compared to neighboring countries than Western countries. Interviewee 3: First, I will compare the quality of education in India with Malaysia. We have faculty members teaching who are master’s degree holders or doctorates. But in Malaysia, almost all of them are doctorates. But the pedagogy of teaching is almost the same quality. If I compare with Spain, I would say it is much better in Spain.

Faculty members had perception that Indians are more intelligent, but when teaching practices in India were compared to Western countries, they believed Indian education is related to rote learning and far from practical experiences. The focus of Indian education is related to product not the process and obsession with marks makes the difference and stated as follows; “But here, that traditional rote method of learning" (1). During the visit, the faculty felt that the major challenge was the well-being and safety of the students, the faculty was always on their guard, and that sense of responsibility was a constant pressure that they had in their minds. The faculty had constant pressure to deal with teenage students and ensure they didn’t fall sick or injured during the trip. Interviewee 1 The challenge was definitely the students. Always through the number of days that we were there I had this feel that what if one of them went missing and we are unable to find them. The second thing running in my mind was what if they became unwell.

Other than this faculty members faced challenges related to management of finances, time, language and alignment with short duration of courses. Although the faculty feel overcoming that pressure and having a successful trip has boosted their confidence levels to higher heights, which has also affected their outlook on their profession. A sense of achievement in their professional life leading students of study abroad programs.

11.5 Pedagogical Learning and Challenges Participants highlighted important pedagogical learning and issues during the short study programs. The participants mentioned that the short study program offers particular challenges in taking care of students’ logistics, a timely accomplishment of classes that are different from the traditional ways, performing different case studies, etc. Following theme emerged under the research question of how faculty member links their pedagogical learning and professional identity in a study abroad program. Theme 3: Pedagogical Learning in Study abroad program This theme included two categories of “past experiences helped in a program” and “helped in an academic role.“ Most of the participants shared that their previous

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teaching experience played an essential role in the study abroad program. Additionally, SAP played a positive role in their academic learning, majority of participants learned the practical teaching style and active interaction with their students. Academic learning for faculty was mainly understanding of innovative ways of teaching, it was not something substantial, most of the learning was not subject specify but more on the experience and acting as a facilitator to the learning for the students. As stated by faculty member 3 Overall, I have learned how teaching is different or similar when I am in Southeast Asia and Europe and whether these similarities and differences are positive or superior. So, I could analyze and evaluate these things when I came back to India after these sorts of educational trip.

They also implemented the techniques learned in SAP and shared their knowledge and execution of lesson plans with their colleagues. Participant 6 asked other faculty members to add research articles in post-graduate classes to sharpen analytical reasoning. Interviewee 6 I had asked my faculty to incorporate relevant research articles when they were doing the teaching for the postgraduate students.

Theme 4: Motivation and role played by faculty The categories of “role played by teacher,” “reasons to be chosen for the program,” and “motivation to take part in study abroad program” was included in this theme. The majority of the participants had the role of leading and facilitating the program. Few participants were also involved in the planning and arrangement of the program. Most of the programs were of a short duration of seven days to a maximum of two weeks. Interviewee 2 Yes we had a lot of discussion on how to go about and how to have the planning of it. I was also part of all that.

Participants shared their motivation to attend the Study abroad program. Few participants 3, 7, and 9 had urged for learning and were motivated to learn more. Participant 8 shared that she was motivated to go for a study abroad program and saw the offer as an opportunity. Interviewee 8 I saw this opportunity as one of a kind. I wasn’t sure if I’d be selected but I felt so motivated to go and I literally prayed to God for this opportunity.

Participants were asked to share their understanding of reasons they believed contributed to their selection for the study abroad program, and participants shared varied reasons. Participants 3, 4, and 9 believed that their previous work experience was the reason for selection. Participants 2, 3, and 4 believed that their field was similar to the study abroad program subject matter and was the reason for selection. Other reasons were shared confidence, abilities, dedication, and hard work. Only participant 1 had believed that selection was based on rotation rather than any particular purposes.

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11.6 Overall Perspective of a Short Faculty-Led Program and Recommendation Overall, the faculty members mentioned that SAP gives an edge to their professional identity and growth. According to the faculty members, these programs have definite outcomes and must be planned frequently. These do not include adding the knowledge, cultural understanding, and pedagogical skill, but also introduce some other perspectives that are difficult to determine without experiencing such programs. The following theme emerged under the research question of the overall perspective of a faculty member accompanying this short-term study program regarding education quality. Theme 5: Recommendation related to study abroad program The categories of “recommendation for faculty learning, “benefits of study abroad program,” and “improvement in SAP” were included in this theme. The majority of participants recommended the study abroad program for faculty and students. Participants 3 and 8 suggested that faculty members keep their minds open for exposure and innovation for more learning. They also shared that participants emphasize the research before sightseeing and should involve academic learning in those areas. Interviewee 8 The first advice that I would give them is to keep an open mind. But you should learn because there is learning in everything. Second thing is that if you are getting a chance, you must have enough network to help you in creating more collaborative work like a qualitative research oriented or conducting conferences and various factors are there.

When participants were asked about the overall benefits of the SAP, participants 2, 3, and 8 believed SAP is beneficial for both students and faculty. It enhances their experiences and allows them to learn and interact with others. SAP gives international exposure to faculty and improves collaborative skills of individuals. The study abroad program is beneficial for everyone and increases the motivation of faculty. Interviewee 3 It is beneficial both for the students as well as the faculty members, there’s no doubt about it. Now, it was an exposure for us, for me as a faculty and my thought process about a travel study abroad programme has widened.

When participants were asked to provide suggestions for the SAP, four faculty members 1, 2, 4, and 6 wanted to improve the duration of the program. They believed the duration of five days was minimum, and it should range between 8 and 15 days. Also, they believed that half days should be assigned for academic learning and a half for sightseeing and exploration of other countries. Interviewee 2 We actually had seven days programme there. If you asked me personally, it could have been another one more week, that is totally a fortnight or 15 days programme.

Participant 5 believed that different countries should be selected as different countries have different set of skills and changing countries for SAP would enhance the learning experiences. Another faculty member 3 had an opinion to conduct a different program in different universities of the same country and felt it would improve the

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goals of SAP program improving the diversity of learning. Participant 6 believed that the focus should be on one technique for a longer duration and after completion of program certificate should be awarded. She also designed one year course to be taught six months in India and six months on other country and hoped it would be implemented once the situation is improved. Interviewee 6 Maybe I felt that the time was short. So probably I would make it a one programme instead of having many. Just one technique, where they learn for three or four weeks, and they get a certificate from the university.

Participant 4 believed that the following study abroad program should also include the exclusive learning objective for faculty members. Other suggestions were to increase the interaction with a university, adding the subject specialist, and adding more trips to bring diversity. Interviewee 5 I think different countries should be selected for different courses. So, each country has their own specialty right.

11.7 Discussion and Recommendation This research has shown the impact of SAP on the role of accompanying faculty that affected their professional identity, learning, effect on their outlook, and difference it made in their professional career. Participants considered professional identity as combination of skill sets related to a specific profession and member of related professional group. Their sense of professional identity broadened after the SAP as their sense of worth increased among their fellow teachers, and incorporating techniques and learned practices expanded the benefit of SAP among their fellows and students at home country. It is in line with the previous studies reporting that academic identity is related to subject or discipline-based teaching and research activities (Deem 2006). In addition, the concept of professional identity was different for female faculty than males. Females incorporated their gender role in their professional identity and perceived their professional identity through the lens of being a woman, wife, daughter, and mother. One explanation could be the influence of Indian culture and prevalent norms of society that expect women to perform multiple roles than men through socialization. Another finding of this study was participants’ perception of change in different aspects of personality. Professionally, it enhanced their collaborative research skills, a sense of satisfaction, and recognition among colleagues after the study abroad program. During the program, they encountered several challenges that required their managerial skills and problem-solving skills which improved their confidence, managerial skills, and sense of accomplishment in their careers and improved job satisfaction. Additionally, SAP broadened their thinking on global issues and appreciation of multiple perspectives, increasing flexibility for other cultures and religions. These personality changes were also reported by their friends, family, and colleagues. The reported changes are similar to a previous study that explains the

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benefit of collaborative skills that prepare individuals to work in multicultural environments and different pedagogical beliefs (Salisbury et al. 2009). Additionally, previous research has indicated that job satisfaction, accomplishment (Podolny and Baron 1997), promotion (Burt 1992), and career success of individuals are influenced by their networks (Hansen 1999). Participants in this study indicated improved communication with students to cover the generation gap between them, which they never thought hinders transmitting knowledge to students. It also allows them to evaluate their education system, recognizing the strengths and weaknesses compared to other countries’ education. SAP experience allowed them to ditch their dogmatism and develop openmindedness to incorporate innovative learning into the preparation of the syllabus, enhancing ownership of students in their learning process, encouraging class discussion, and infusing teaching practices according to the international level (Quezada 2004). Another finding was the participant’s motivation to learn and lead the SAP. The study abroad program was an opportunity to grow as a professional, and they wanted to avail it. They were intrinsically motivated to join SAP, similar to the research finding faculty members’ motivation for study abroad programs indicating the role of intrinsic motivation in their commitment to travel along with students overseas (Davis 2014). Faculty members have also viewed their opportunity to study abroad program as recognition in their institutions, similar to previous study (Davis 2014). During the program, participants faced many challenges, including weather, students’ safety, time management, and financial issues, and dealt with them successfully. Moreover, participants developed a tolerance of ambiguity, flexibility, and autonomy when faced with challenges. Gonsalvez (2013) had found similar results that participants of the study abroad program grew their resiliency and were comfortable in an uncomfortable environment. Finally, for extracting the maximum benefits, participants proposed the duration of SAP was one week to two weeks. Less than one week was considered a concise duration to transfer the learning effectively, and more than two weeks was considered a financial burden on students and the institute. Furthermore, they suggested the extensive learning of a single technique instead of a combination of different techniques. Additionally, they recommended choosing different universities in the same countries to understand the cultural and educational differences better. Previous literature has already established the facts that well-designed study abroad programs have the possibility of stimulating open-mindedness through reflective thinking, providing comfort in unacquainted contexts, and improved professional skills and capabilities (Wilson 1993; Malewski and Phillion 2009; Pence and Macgillivray 2008).

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11.8 Conclusion This study develops a deeper understanding of the growth of the professional identity of higher education faculty when accompanying students for SAP. Overall, the study abroad program has a positive effect on faculty members’ personal and professional identity. They believed the study abroad program was a great learning experience for them, and what was evident with all of them was that they felt more confident, globally aware, and felt that the trip added much value in terms of their professional growth. All faculty also sensed that studying abroad should become a mandatory part of higher education as it opens new knowledge and understanding things from a different perspective for both the student and faculty. This study contributes to the literature by focusing on the accompanying faculty role and its effect on their professional identity, learning, outlook, and difference in their professional career and gives some pointers on improving the SAP experience for the faculty. Limitation While this study highlights the faculty members’ professional identity development after leading study abroad programs, it has limitations. First, all the faculty members belonged to the same private university in India. Therefore, the findings of this study are limited to relative context and may not be the same for other faculties of other universities. Future research should include varied faculty members from different universities and different cities to incorporate the faculty perspective. Furthermore, data collected through the medium of Google meet had a disadvantage. Unlike faceto-face interviews, video interviews lack a similar physical space for both interviewer and interviewee and prevent the researcher from observing the physical space of participants and adequately responding to the interviewee’s body and emotional language (Gray et al. 2020). Additionally, participants’ chosen space can lack privacy and have a distraction. Also, only interviews may not generate a holistic view of faculty. Future researchers should combine multiple data sources to develop a comprehensive understanding of faculty, including face-to-face interview, focus groups, before and after analysis and direct observation. Implications of this Study The study findings contribute by adding value to the literature on the professional identity development of faculty. It also contributes to the understanding of the enrichment of faculty members for university authorities. Lastly, it helps identify possible opportunities for professional development and growth through faculty-led study abroad programs.

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Chapter 12

Abuse of Creative Accounting in Practical Application Vedran Šupukovi´c, Sanel Jakupovi´c, and Bogdana Vujnovi´c-Gligori´c

Abstract The aim of general-purpose financial statements is to provide fair and objective information about the financial position, performance, and cash flows of a business entity. Such reporting, in the initial theoretical idea, was sought to be provided through creative accounting, i.e. through the introduction of certain flexibility based on the choice of different methods of estimating fair value. The complexity and dichotomy in determining fair value have led to manipulations in the financial statements, and thus to the biased presentation of balance sheet items. Flexibility techniques, i.e. manipulations, are numerous and often complex so that the bias of financial reporting can hardly be noticed in time. The potential for abuse of creative accounting increases with the allowable flexibility of applicable accounting frameworks. This paper aims to point out critical points in accounting manipulations and reveal the techniques of abuse of creative accounting, with an emphasis on possible forms of false financial reporting and ways of their manifestation. The seriousness of this phenomenon is highlighted by the results of research by the American Association of Chartered Fraud Investigators (ACFE), according to which the largest loss globally is caused by fraud in financial statements. The aim of this paper is to identify indications that may point out to the abuse of creative accounting through the presented techniques and procedures for recognizing business events. Keywords Creative accounting · Accounting manipulations · Accounting procedures and abuses in accounting

V. Šupukovi´c · S. Jakupovi´c (B) · B. Vujnovi´c-Gligori´c Pan-European University “Apeiron”, Banja Luka, Bosnia and Herzegovina e-mail: [email protected] V. Šupukovi´c e-mail: [email protected] © The Author(s), under exclusive license to Springer Nature Singapore Pte Ltd. 2022 K. T. Çalıyurt (ed.), New Approaches to CSR, Sustainability and Accountability, Volume III, Accounting, Finance, Sustainability, Governance & Fraud: Theory and Application, https://doi.org/10.1007/978-981-16-9364-9_12

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12.1 Introduction The basic premise for the successful functioning of business entities is the existence of sufficient, accurate and timely accounting information. Providing such information is an imperative of modern accounting, which is a “service activity or function within a business entity, whose task is to provide quality information, primarily of a financial nature about the economic activity of the entity” (Gulin et al. 2001, 617). Quality information must be presented in the most objective way possible in order to meet the goals of the business entity. However, accounting information is often subject to manipulation, with the intention of presenting business results in a better light than they really are. Accounting manipulations can be legal and illegal (Vašiˇcek et al. 2008, 525–527). Legal accounting manipulations involve the ability to choose different accounting policies (and tax alternatives) to measure and recognize certain balance sheet items. Illegal accounting manipulations refer to the intentional presentation of accounting information on an inaccurate or incomplete basis. The regulatory framework in accounting provides the possibility of choosing basic and alternative methods of valuing balance sheet items, all within the framework of creative accounting, according to which the choice of methods is made in accordance with the nature of business, with the aim of presenting financial statements as objectively as possible. However, complex and insufficiently clear practical explanations in the application of methodology, and accounting standards in general, formed the basis for manipulation, so that over time, creative accounting became synonymous with manipulative accounting. Creative accounting went beyond its scope in order to create a false image of the company’s business and thus moved into the criminal area of application of “creative accounting”. Procedures that use “creative accounting” can range from the simplest, which are easy to detect, to very complicated, which are often discovered only in bankruptcy. This paper seeks to explore manipulative techniques in the field of creative accounting, which would also be a guideline for more objective reading and evaluation of financial statements by its users.

12.2 Theoretical Aspects of Creative Accounting 12.2.1 True Financial Reporting The financial statements are prepared in accordance with the applicable financial reporting framework and in all material respects must provide a true and fair view of the financial position of the entity. “For a perfectly fair presentation, the display needs to have three features. It should be complete, neutral and error-free” (Conceptual Framework for Financial Reporting, CC12). Of course, perfection is difficult to achieve because the preparation and presentation of data often require the need to exercise discretion, especially in estimating the elements of financial statements (assets, liabilities, income, profit, loss). The assessment and evaluation of

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the elements of financial statements are performed in accordance with the law and bylaws governing the field of accounting, the application of International Accounting Standards (IAS), International Financial Reporting Standards (IFRS) and accounting policies. Certain bases are used for evaluation, in different measures and in different combinations, which are the following: ● ● ● ●

Historical cost Current cost Realizable value (settlement value) Present value (Conceptual Framework for Financial Reporting, 4.55) (Table 12.1).

Every business entity is obliged to apply a basis that will ensure a perfectly fair presentation in terms of completeness, neutrality and the absence of errors. A complete overview includes all the information, with descriptions and explanations, that is necessary for the user to understand a particular economic phenomenon. Neutral presentation implies impartiality in the selection and presentation of financial information. Its focus is not to influence users’ decisions at any cost, but to present relevant information that can facilitate their users’ decisions. The error-free presentation refers to the accuracy of a fair presentation, i.e. that there are no omissions and errors in describing the phenomena, and that the method selected and applied in compiling and presenting information without errors. Since Table 12.1 Bases for valuation of balance sheet items Valuation of assets

Valuation of liabilities

Historical cost

In the amount of cash or cash equivalents paid or the fair value of the compensation given for their acquisition at the time of their acquisition

By the amount of compensation received in exchange for the liability, or in some circumstances (for example, income tax), in the amount of cash or cash equivalent expected to be paid to settle the liability in the regular course of business

Current cost

In the amount of cash or cash equivalents that would have to be paid in order for the same or equivalent assets to be acquired

At the undiscounted amount of cash or cash equivalent that would be necessary to settle the liability in the current period

Realizable value

In the amount of cash or cash equivalents that could currently be obtained from the sale of assets through regular sales

By their settlement value; that is, at the undiscounted amount of cash or cash equivalent that would be necessary to settle the liability in the regular course of business

Present value

At the present discounted value of future net cash inflows that the item is expected to generate in the regular course of business

At the present discounted value of future net cash outflows that are expected to be necessary to settle the liability in the regular course of business

Source Association of Accountants and Auditors of Republic of Srpska, Conceptual Framework for Financial Reporting, item 4.55, p. 24

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these are estimates in which it is impossible to achieve absolute accuracy, they must be credibly described. The description refers to the amount of the assessment that must be clearly and precisely determined, while the choice, nature and limitations of the assessment method applied must be explained.

12.2.2 The Term Creative Accounting Different authors have given different definitions of creative accounting, of which we can single out the following: ● “Some or all of the steps used to play the game of financial numbers, violent (aggressive) selection and application of accounting principles, inside and outside accounting standards as well as falsification of financial statements”. ● “Disputed, low-quality or legal and/or professionally unacceptable action in accounting and financial reporting” (Koletnik and Koletnik Korošec 2011, 226–227). ● “Transformation of financial accounting representations from what is real, into what the entity wants to present using existing rules, and/or ignoring some of them” (O’Regan 2006, 369). ● “Reasonable use of accounting numbers” (Pilji´c 2018, 107). ● “Transformation of financial figures from what they really are to what we want them to be, by abusing the existing rules or ignoring some of them or even all of them” (Naser 1993, 272). ● “All accounting practices that deliberately deviate from the standard in order to present to extreme users the desired, and not the actual profitable and financial strength of the company” (Škari´c 2007, 60). Different definitions, essentially similar, point to a single view that “creative financial reporting seriously derogates from the use value of financial statements, either in terms of direct use of information contained in them, or as an information basis for a serious analysis of company performance” (Malini´c 2009, 138–155). Depending on the degree of flexibility of the applied accounting procedures in relation to the regulatory framework, creative accounting can move through essentially different zones (Jones 2013, 227). ● zone of inflexible regulatory framework (in which accounting choice is not allowed), ● flexible regulatory framework (choice through accounting policy), ● marginal flexibility of the regulatory framework (due to ambiguities and inaccuracies, dubious application of accounting rules is possible) and ● outside the regulatory framework (manipulative accounting). The main features of creative accounting can be noted through its practical application, which are the following:

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● “adjusting the financial statements to obtain a picture as desired by the reporting entity, ● legal possibilities of choosing flexible accounting methods, procedures and estimates are used, ● marginal “strained” reporting capabilities are used, as well as unclear areas of accounting standards that make it difficult to control and audit, ● emphasizing the importance of information that benefits the reporting entity, and diminishing and hiding the importance of information that does not suit it and ● many abuses are also applied, which significantly exceed the legal framework and turn into a crime that is difficult to detect”(Pilji´c 2018, 107). The use of flexibility within accounting regulations and rules should take place within the limits allowed, i.e. business entities are allowed to choose accounting and valuation systems that suit their business, which is in line with the requirements of creative accounting. When an accountant exceeds the allowable limit of accounting rules and regulations, then creative accounting turns into manipulative accounting, which often appears under the title “the financial numbers game”, and, due to the negative connotation in practice, the following terms are used: “ironing” taxes, “adjusting” profits, “falsifying” financial reports, “cosmetic” accounting or financial engineering (Kneževi´c et al. 2013, 54). “Creative accounting” is focused on the target result, i.e. a result that gives a wrong picture of the company’s position, in order to lead users to make the wrong decision, most often to their own detriment.

12.2.3 Motives for the Application of Creative accounting Motives for the application of creative accounting, i.e. for presenting the target financial results are different, and most often are the following: ● reduction of fiscal and regulatory burdens, ● cheap capital increase (through a better financial result, showing lower indebtedness), ● protection of the interests of creditors, i.e. restrictions and limitations imposed on them during borrowing (in order not to change the agreed conditions or terminate the contracts), ● hiding business from control and regulatory institutions, ● obtaining bank loans, ● concealing profitability from competition, ● targeted results and assets for the purpose of attracting investors (increase or maintenance of share prices), ● increasing the wealth of managers (through salaries, allowances, bonuses, discretionary investments, etc.), ● gaining personal reputation and reputation of management with less effort, etc.

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Motives do not always necessarily include the direct financial benefit of an individual or group. Motives are mainly focused on the creation of financial statements that suit the business entity, i.e. creating the most favorable image or creating a false image. The entity prepares financial statements that are convenient, whose veracity can hardly be formally challenged because it is within the limits allowed by regulations, although accounting policies are chosen that are conducive to targeted reporting. Through creative accounting, management reaches the following goals (Raffaelli 2012, 54): ● to achieve a true and fair view of performance and financial position, within the given flexibility of the accounting regulatory framework, ● to use the flexibility of the accounting regulatory framework in accordance with the needs of management, ● to use the flexibility of the accounting regulatory framework to create a better image of the company, ● to go beyond the scope of the accounting regulatory framework in order to create a false image of the company. A worse financial picture is presented with the aim of delaying the payment of taxes, concealing the results from the competition, not attracting the attention of control and regulatory bodies, keeping the profit for the days of worse business, etc. In general, business entities want to present the most favorable financial picture, while within the framework of flexibility they use rules that are on the border of the prescribed accounting frameworks. Such rules allow for different interpretations and flexibility in estimates, especially in the area of revenue recognition, provisions, write-offs of receivables and inventories, accruals, revaluation of long-term assets, etc. The reasons why management strives to show good and stable business with upward trends are usually: “attracting investors, increasing or maintaining the share price, increasing the market value of the company, achieving managerial bonuses, avoiding the risk of takeovers due to poor results, etc.” (Belak 2011, 145). Exceedances in the application of the prescribed accounting frameworks, whether it is about creating a more favorable or worse image, fall within the criminal area. Very simple procedures that can be easily detected, as well as very sophisticated procedures whose detection and proof are quite complicated are always present in this area, which are often detected in the bankruptcy of a company. Fraudulent behavior and disclosure of false financial information are indicated by certain indicators, the most recognizable of which are the following: ● ● ● ● ● ● ●

“Accounting staff are weak or inexperienced in their duties, Decentralization without adequate supervision, Unexpected overdrafts or reductions in the cash balance—decrease in cash, Reluctance to provide information to auditors, Frequent conflicts and disputes with auditors, An individual or group dominates management decisions, Lack of clear organizational responsibility,

12 Abuse of Creative Accounting in Practical Application

● ● ● ● ● ● ● ●

193

Managers show significant incompliance with regulatory bodies, Weak internal controls, Compensation program that is out of proportion, Financial transactions that do not make sense, Service contracts that have no effect on the organization, Photocopied or missing documents, Rumors of conflict of interest, nepotism, breaches of duty and/or favoritism, Lack of transparency” (Vukoja 2019, 193).

12.2.4 Consequences of Publishing Incorrect Financial Information Biased financial reporting points to many shortcomings, both in the work of regulatory institutions, supervisory institutions, control and supervision institutions, and unprofessional work, unethical, lack of accountability of business entities and inadequate management. All this raises serious concerns for: (Rezaee and Riley 2010, 10). ● the role of corporate governance (including the board of directors and the audit committee), ● honesty and ethics of management, especially top management, ● inefficiency of the audit profession, ● numerous trials and lawsuits filed by injured parties, ● timeliness and efficiency of existing regulations. The consequences of publishing misinformation in the financial statements are numerous, as they affect all users of financial statements, in different dimensions. Manipulations are mostly created by management and accountants, although independent auditors often take part, who deliberately overlook such (silent) activities. Lost confidence in reporting entities by investors is difficult to regain, as reflections are made on the allocation of capital and the development of the entire economy. The negative consequences of publishing misinformation are further reflected in the reduction of credibility of the business entity, loss of confidence in the capital market in the veracity of financial information, shocks in financial markets and other markets, bankruptcies, negative impact on economic growth and prosperity, doubts in the accounting and auditing profession. All of the above speaks in favor of the importance of timely recognition of warning signs and timely response to irregularities.

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12.2.5 Responsibility for Financial Statements In order to minimize manipulative actions, it is necessary to apply legally defined standards, methods and techniques when recognizing and measuring balance sheet items. In addition, it is necessary, as a precaution, to implement certain additional measures, and above all to know the indicators that point out to manipulative actions, although they do not have to be related to this intention. Indicators are especially important for assessing the risk of using certain information in decision-making or their combination with information from other sources. In order to prevent manipulations in the financial reports, it is necessary to have transparency of their data, i.e. readiness to bring the data as close as possible to the public, especially to certain interest groups, such as service users, creditors, beneficiaries, investors and the like. Managers and persons directly involved in the preparation of financial statements have the greatest responsibility for the quality of financial statements. Numerous manipulative actions were created with the aim of realizing their personal interests, which resulted in large financial and material losses for investors, creditors, financial markets and the entire economy. The state also has a great role in preventing manipulative actions, through the adoption of adequate regulations and accounting standards, and also through the control of their application. An important role in preventing manipulative actions in the financial statements is played by the accounting and internal control of the business entity, external and forensic audit, through its professional work and objectivity. Quality information can be achieved through the application of ethical standards and the professional and synergistic work of managers, accountants, auditors as well as government and regulatory authorities.

12.3 Global Analysis of Frauds Involving Financial Statements The world’s largest anti-fraud education and training organization, the Association of Certified Fraud Examiners (ACFE), investigates this phenomenon every year with the aim of drawing public attention to the devastating consequences of professional fraud and abuse. Professional fraud, in this context, means “the use of one’s interest in personal enrichment by deliberate abuse or misuse of the resources or assets of an employment organization” (ACFE 2020, 6). According to the forms, ACFE has grouped professional frauds into: misappropriation of funds or alienation of property, false financial reporting and corruption. Within this grouping, fraud in the financial statements is further classified into two groups with the corresponding forms (Table 12.2): Below is an analysis of professional fraud and embezzlement according to the ACFE survey, in the period from January 2018 to September 2019, which included

12 Abuse of Creative Accounting in Practical Application Table 12.2 Appearances of fraud in financial statements

195

Overestimation of net profit

Underestimation of net profit

Time adjustment (switching transactions from period to period)

Time adjustment (switching transactions from period to period)

Fictitious sale

Underestimation of income

Hidden liabilities and costs

Overestimation of liabilities and costs

Incorrect asset valuation

Incorrect asset valuation

Incorrect data presentation

Incorrect data presentation

Source Adjusted according to ACFE. Report to the Nations on Occupational Fraud and Abuse, 2020, p. 11, available at ACFE Inc (US), https://acfepublic.s3-us-west-2.amazonaws.com/2020Report-to-the-Nations.pdf. Accessed 3 Oct 2020

2,504 cases from 23 different industries and 125 countries around the world (ACFE 2020, 6). According to the ACFE survey for 2020, out of the three basic categories of professional fraud and asset abuse, the most common is abuse of property (in 86% of cases, causing losses of about $ 100,000 per case), followed by corruption (in 43% of cases with financial losses of about $ 200,000 per case), and the lowest percentage refers to fraud in the financial statements (in 10% of cases, but with the largest financial losses of about $ 954,000 per case) (ACFE 2020, 10). Table 12.2 shows the frequency of certain forms of professional fraud according to the ACFE report from 2020 (Table 12.3). According to the data in the table, fraudsters committed more than one of the three basic categories of professional fraud. Thus, 26% of fraudsters participated in property fraud and corruption, 5% participated in all three categories of professional fraud, 3% embezzled property and committed fraud in the financial statements, while 1% committed both corruption and fraud in the financial statements. Table 12.3 Frequency of fraudsters to commit more than one type of professional fraud Types of professional fraud

Frequency in %

Only illegal use of property

53

Unlawful appropriation of property and corruption

26

Only corruption

11

Corruption, embezzlement and fraud in financial statements

5

Unlawful appropriation of property and fraud in financial statements

3

Only fraud in financial statements

2

Corruption and fraud in financial statements

1

Source Adjusted according to ACFE. Report to the Nations on Occupational Fraud and Abuse, 2020, p. 12, available at ACFE Inc (US), https://acfepublic.s3-us-west-2.amazonaws.com/2020-Reportto-the-Nations.pdf. Accessed 3 Oct 2020

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Regarding departmental risk, most fraud in financial statements is committed by executive/management bodies (30%), accounting (15%) and finance (14%). The least fraud is committed in customer service (1%), and procurement and management operations (7% each) (Table 12.4). The results of the research show that the detection of individual schemes of professional fraud lasts from 13 to 24 months, with the fastest detection of non-cash schemes (13 months), while the detection of several schemes takes 2 years, including the detection of fraud in financial statements (Table 12.5). Further, the research found that the average monthly loss of all professional fraud schemes is $ 8,300. The biggest loss is caused by financial reporting schemes ($ 39,800 per month), followed by corruption schemes ($ 11,100 per month). This research should be the basis for deciding which investments to prevent professional fraud should be preferred. A smaller monthly loss is caused by register disbursements ($ 800) and expense reimbursements ($ 1400), which means they should be given priority before the losses become significant. The following table presents the results of research on the most common schemes of professional fraud with financial reports in industries with at least 50 reported cases. The highest risks of financial statements are expressed in construction (25%), production (18%), and in work with professional services and real estate (15% each), and the lowest in transportation and warehousing (3%) and government and public administration (4%) (Table 12.6).

12.4 Forms of Manipulation Through Creative Accounting In the case of “creative accounting”, the principle of discretion from the codes of ethics is violated, according to which financial information must not be in the function of leading another person to wrong conclusions, decisions or regulations. The most common “forms of abuse of discretion in order to achieve inappropriate outcomes include: ● determining estimates, such as estimating fair value, so that profit or loss is misrepresented; ● selecting or changing an accounting policy, or a specific one of two or more methods permitted by the applicable financial reporting framework, such as selecting an accounting policy for long-term contracts to misstate profit or loss; ● timing the transaction, for example, the sale of assets towards the end of the fiscal year in order to lead to erroneous conclusions; ● structuring transactions, such as financial transactions, for the purpose of misrepresenting the balance of assets and liabilities or classifying cash flows; ● choosing which data to publish, for example, omitting or concealing data concerning financial or operational risk in order to lead to erroneous conclusions” (International Ethics Standards Board for Accountants 2018, 42–43). The abuse of accounting in practice is carried out through four basic techniques:

116

277

15%

Cases

Fraud in financial statements 8%

225

Sales

30%

234

Executive/management bodies 1%

175

Customer service 7%

96

Procurement

14%

101

Finances

7%

288

Management operations

Source Adjusted according to ACFE. Report to the Nations on Occupational Fraud and Abuse, available at ACFE Inc (US), 2020, p. 42, https://acfepublic.s3us-west-2.amazonaws.com/2020-Report-to-the-Nations.pdf. Accessed 3 Oct 2020

8%

Admin. support

Accounting

Departments

Table 12.4 Departments with a high risk of fraud in the financial statements

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Table 12.5 Duration and average detection losses of individual schemes of professional fraud Professional fraud schemes

Duration Average monthly loss of various professional fraud schemes in $

Payroll

24

2600

Check and payment tampering 24

4600

24

800 39,800

Register disbursements Financial statement fraud

24

Expense reimbursements

24

1400

Billing

24

4200

Cash larceny

21

4000

Corruption

18

11,100

Skimming

16

2900

Cash on hand

15

1700

Noncash

13

6000

Source Adjusted according to ACFE. Report to the Nations on Occupational Fraud and Abuse, available at ACFE Inc (US), 2020, pp. 15–16, https://acfepublic.s3-us-west-2.amazonaws.com/ 2020-Report-to-the-Nations.pdf. Accessed 3 Oct 2020 Table 12.6 The most common programs of professional fraud in the financial statements of various industries

Industry

Cases

In %

Banking and financial services

364

10

Government and public administration

189

4

Manufacturing

177

18

Health care

145

14

Energy

89

9

Retail

89

6

Insurance

82

11

Education

82

7

Construction

77

25

Transportation and warehousing

64

3

Technology

63

13

Telecommunications

62

6

Food service and hospitality

59

8

Services (professional)

54

15

Real estate

52

15

Source Adjusted according to ACFE. Report to the Nations on Occupational Fraud and Abuse, available at ACFE Inc (US), 2020, p. 30, https://acfepublic.s3-us-west-2.amazonaws.com/2020-Rep ort-to-the-Nations.pdf. Accessed 3 Oct 2020

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● ● ● ●

199

manipulation of estimates, classification manipulations, alternative accounting policies and real transactions (Aljinovi´c Bara´c and Grani´c 2015, 173–198).

12.4.1 Manipulations of Estimates Fair value is “the amount for which an asset could be exchanged, or a liability settled, between knowledgeable, willing parties in an arm’s length transaction” (IAS 16: paragraph 6). The assessment of the fair value of balance sheet items is based on official market information. If such information is not available (in the absence of an active market, stability and liquidity, etc.), then a value based on valuation techniques based on data from available markets, historical and other information is used. Given that fair value is determined on the basis of changing factors and changing circumstances and that it is performed by experts of different skills and education, it is justified that it can take on different values. Exactness in assessments cannot be expected even if competent external experts are hired, because there is always the possibility of choosing an alternative assessor or providing manipulative data used for assessment. The most common abuse of creative accounting is in the part of recognition, i.e. assessment of the value of income, accruals, provisions, revaluation of long-term assets, write-off of receivables and inventories, etc.

12.4.2 Classification Manipulations Classification manipulations are classified in the simplest form of manipulations, and they refer to the classification of items in financial statements outside the prescribed standards. Namely, by using the gray zone in the standards, through classification manipulations, more favorable variants are selected that are not precisely regulated by the standards. As an example, we can cite categories from the cash flow balance whose treatment is not unambiguously prescribed, so that they can be classified into both business and financial activities. For the investor, the information about both activities is important because they are crucial for making a decision on acquiring or selling the acquisition. Classification manipulations are carried out through the following activities: ● ● ● ●

inadequate breakdown of balance sheet categories, incorrect grouping of balance sheet items, inadequate marking of balance sheet items and application of the net principle.

Inadequate breakdown of balance sheet categories occurs in cases where the broken down parts are not homogeneous units, or when there is an insufficient or

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excessive degree of breakdown of balance sheet categories in relation to the needs of users. “The clarity of the balance sheet can be jeopardized by a number of reasons that go beyond the required breakdown and use of gross principles. These are the following reasons: ● use of different titles for the same items in the balances of consecutive accounting periods, which prevents comparability over time; ● inclusion under a common title of subjects that have nothing or little in common; ● change of the method of breakdown in the balance sheet and income statement and change of the titles of individual balance groups or accounts from year to year, which leads to difficulties in grouping positions for the purposes of analysis; ● inadequate separation or non-separation of business and non-business events in the income statement; ● merging regular and extraordinary transactions. Uniform balance schemes are an instrument that are used to avoid the mentioned ambiguities. Uniform balance schemes are reluctantly changed without a major reason, precisely in order to ensure formal continuity” (Pavlovi´c 2008, 29). Inadequate grouping of balance sheet items is usually done in order to blur the balance sheet. In order to avoid such activities, certain principles of grouping, i.e. compiling the balance sheet, have been established. “The principles of compiling the balance sheet are: ● According to the principle of functionality, fixed assets are entered in the asset, grouped by function (e.g. in a manufacturing company: buildings and other constructions, machines, devices and installations, means of transport, operational and business inventory), and afterwards assets according to the flow reproductions, cash, receivables, materials, work in progress and finished goods). Liabilities include first capital, then long-term and then short-term liabilities. ● According to the principle of liquidity, balance sheet items are classified so that the most liquid parts of assets are entered in the balance sheet first: cash, debtors, inventories of materials, work in progress, finished products, and finally the most illiquid - fixed assets. Liabilities are classified so as to take maturities into account: current liabilities, short-term, long-term liabilities and finally long-term provisions and other sources. ● Classification of balance sheet items according to the principle of security implies that according to this principle, the security of creditors’ claims is emphasized. According to this principle, investments are entered in the assets first, then stocks (commodity forms of funds) and finally funds in monetary forms”. Inadequate marking of positions Adequate marking of balance sheet items means marking the disaggregated parts of economic categories in such a way that their content can be unambiguously determined from their title.

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Application of net principles The application of the net principle refers to the breaking of items and the presentation of only the broken amount, without insight into the value of each individual item. In this way, users are deprived of significant information, especially if it is not explained in the notes to the financial statements.

12.4.3 Alternative Accounting Policies Accounting principles and policies allow for a choice between different accounting methods and techniques. “Policies provide guidelines for the establishment and evaluation of operations that take place in a way that is consistent with the strategic objectives of business entities” (Mencer 2012, 261). In practice, alternatives are used for the purpose of distorting the economic reality of the reporting entities in accordance with the goals of management, or personal goals in general. The space for manipulation increases with the fact that there is a certain duality, ambiguity and ambivalence in the interpretation in the application of accounting methods (Mencer 2012, 263). In addition, there is a thin line of demarcation between legal (selected alternative accounting policies) and illegal accounting manipulations (which mislead investors).

12.4.4 Real Transactions Real transactions refer to actual business events. Criteria for assessing the reality (and objectivity) of financial statements arise from accounting principles and standards, legal regulations, and are defined by accounting policies. Despite the expressed requirement to present real transactions, unrealistic and fictitious transactions often occur in the financial statements. A special place is occupied by manipulations with income, either through their overestimation (expression of higher income) or underestimation (expression of lower income). Overestimation of income is done through fictitious recognition of income or early recognition (recording of an apparent business event). These two recognitions differ in the degree of aggressiveness, whereby in the case of early recognition of income in the income statement, income is recorded before the real time of its occurrence, while in the case of fictitious income, income that never occurred is recognized in the income statement. Records of fictitious (non-existent) income from the sale of goods or services are usually made in the following ways: ● recognition of income even though the conditions for its recognition are not met ● recording of non-existent revenues, ● double posting of the same customer invoices (less often due to the obligation to calculate VAT)

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sale of products to non-existent customers, fictitious sales of products or services to customers recognition of financial and other income as operating income recognition of a discount on the price approved by the supplier as revenue, etc.

Early recording of income in practice is most often carried out through the following techniques: ● ● ● ● ●

before delivery of goods or services (or at the time of receipt of the order), in the final phase of the sales contract, when the goods are delivered for consignment sale, when the goods are sold with the possibility of return, when invoicing is performed for services that have not occurred, especially towards affiliated companies.

Underestimation of income, i.e. showing lower revenues than actually generated “is done with the intention that the revenue does not jump too high above the previous and especially the following year. Revenue reduction is carried out by various techniques such as: non-invoicing of continuous deliveries at the end of the period, deferral of revenue in different ways, undeclared sales and debiting of expenditures in production, non-invoicing of partially performed services, transfer of revenues to later accounting periods, etc.” (Belak 2011, 155–156). In practice, the reduction of income by transferring current income to later accounting periods is quite common, and is carried out through the following techniques: ● transfer of the realized reserves of the company to the revenues of the future accounting period, ● transfer of sales from the current accounting period to the future accounting period and ● inadequate calculation of derivatives in order to reduce the income of the current period. Warning signs of the creation and transfer of reserves from the current accounting period to the income of future periods can be: ● ● ● ● ● ● ● ● ●

“Windfall gains over several years; Improper accounting of derivative financial instruments in order to reduce income; Retention of income immediately before closing the acquisition; Creation of reserves related to acquisitions and their presentation in the form of income in the later period; Transfer of sales of the current period to a later accounting period; Sudden and unexplained decline in deferred income; Changes in revenue presentation policy; Unexpectedly consistent earnings during unstable times Signs of retention of revenue by the target company immediately before the closure of the acquisition” (Pevec 2018, 4).

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Similar manipulations are carried out with costs, and depending on the motives and goals, appropriate methods are used to reduce or increase costs. Increased costs are charged to the current period, in order to show a higher profit in the following period and thus create a reserve. On the other hand, with the reduction of costs, the profit increases (the loss is hidden) and thus the right to transfer the tax loss is used. Recording of costs is done at the time of receipt of goods, or arrival of the incoming invoice from the supplier. Manipulations can be noted when the incoming invoice is recorded at the time of payment, whereby the recording of costs is prolonged for the next period, thus increasing the business performance of the current period.

12.5 Procedures in Creative Accounting Certain procedures are common in creative accounting, of which we will present only some that are, either on the border of not/allowed or within the framework of flexible regulations. The subject of observation is transactions that are most exposed to manipulations, which are: provisions, write-offs of receivables and inventories, accruals, revaluation of long-term assets and other transactions.

12.5.1 Manipulations with Provisions 12.5.1.1

Transfer of Profits to the Next Accounting Period by Provision

In practice, the option to carry forward profits to non-tax-deductible provisions is often used. For example, for goods sold under warranty, it is necessary to calculate the cost of the provision, whereby the account Costs of Provision is debited, and the Liabilities for Provisions are approved. Provisions are reversed upon expiry of the warranty period or in the event of a reassessment (and disclosed in accordance with paragraph 98 of IAS 1: Presentation of Financial Statements) in favor of Revenue from the Reversal of a Provision, increasing the profit for the current financial year. The amount of the provision is determined by estimation and there is always the possibility of manipulation, i.e. equalization of profits and creating an image of good business over a long period, although the procedures are on the verge of being allowed or exceeded. Provision costs will be tax deductible if the provisions are within the scope of tax regulations. If the provisions are not within the scope of tax regulations, such as, for example, provisions for harmful contracts, then the provision may be recognized but will not be tax deductible. According to IAS 37: Provisions, Contingent Liabilities and Contingent Assets, paragraph 68, a harmful contract is defined as “a contract in which the unavoidable costs of meeting the obligations under that contract exceed the economic benefits expected from that contract. Inevitable costs under the contract shall reflect at least the

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net cost of leaving the contractual relation, which is lower than the cost of fulfilling it and any compensation or penalty incurred for non-performance of the contract.” Example of cost provision during the warranty period (1) (2)

Let us suppose that the estimated cost of a provision for product repair services, within a two-year warranty period, is 5,000 currency units (hereinafter c.u.). In the next business year, a new assessment was made and it was determined that instead of 5000 c.u., it will amount to 3000 c.u.

Table 12.6Log of cost provisions for risks within the warranty period No

Description

Owes

(1)

Warranty provision costs

5000

Claims

Provisions for costs within the warranty period

5000

Provisions for repair services within the warranty period (2)

Provisions for costs within the warranty period

2000

Revenue from cancellation of provisions for costs within the warranty period

2000

Cancellation of provisions for repair services within the warranty period

Example of cost provisions for harmful contracts (1) (2)

A provision was made for a harmful construction contract in the amount of 4000 c.u. On the day of the next balancing, a new assessment was performed and it was determined that the contract would cause damage, instead of 3000 c.u., in the amount of 1000 c.u. (Table 12.7).

Rationale: In the current year, the costs were increased by 3000 c.u., which reduced the business result. Since this is a non-tax deductible expense, the operating result is further reduced by the amount of income tax. Table 12.7 Log of cost provisions for harmful contract risks within the warranty period No

Description

Owes

(1)

Provision costs under harmful contracts

3000

Provisions under harmful contracts

Claims 3000

Recognition of the provision cost under harmful contract (2)

Provisions under harmful contracts Revenues from cancellation of long-term provisions under harmful contracts Cancellation of the provision cost under harmful contract

2000 2000

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Reductions in the cost of provisions in the following year increased the business result by 2000 c.u. and reduced the tax base by the same amount, since the tax has already been paid. Construction contracts are conducive to creative accounting because they are most often realized through tenders and auctions for which, in order to get a job, minimum costs and prices are proposed. They call them harmful because of the usual subsequent works, which basically do not have to be harmful, but only have a greater basis for manipulating costs that are difficult to control. Certain construction costs can be reversed and transferred to inventory, while others can be recorded even if they have not actually been incurred. Controlling them is quite difficult, and sometimes impossible, due to the fact that the state of construction and unfinished works is changing every day.

12.5.2 Manipulations with Write-Offs 12.5.2.1

Write-Off of Suspicious and Disputable Receivables

For more successful management of trade receivables, in addition to the balance of receivables, it is necessary to continuously monitor the maturity of receivables. The receivables collection period reflects the average value, so receivables ranges can take on extreme values, from relatively short to total cessation of payments by some customers. Receivables are analyzed according to the statute of limitations (up to 30 days, from 30 to 90; 90 to 180, etc.), and in accordance with them, the uncollectible value is assessed, which is credited to the Expenses, in favor of Suspicious and Disputable Receivables. The analysis of collectibility is carried out by the census commission and the management, based on the assessment of the creditworthiness of the customer (blockage of the customer’s transaction account, the number of reminders before the lawsuit, statute of limitations, etc.). An important role in assessing trade receivables and their adjustments is entrusted to internal and external auditors, who give an opinion on the veracity and fair presentation of financial statements. Different approaches in the assessment of uncollectible receivables generate different values of suspicious and disputable receivables, which directly affects the business result. The operating result is additionally affected by taxes on unrecognized expenses. Profit is reduced by the amount of written-off receivables, increased by tax on unrecognized expense. If the written-off part manages to be collected in the next accounting period, then it is recognized as income, without the obligation to pay income tax because it was paid in the previous accounting period. Expenses and revenues based on value adjustment and/or write-off of receivables are tax recognized under the following conditions (Law on Profit Tax, Article 17 and Ordinance on Application of Profit Tax, Article 38):

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● that there is a reconciliation of debts and receivables with the debtor, not older than six months, ● that the receivables have not been collected within 12 months from the due date of collection, or ● that a lawsuit has been initiated for the claims or ● that enforcement proceedings have been initiated or ● that the claims have been reported in liquidation or bankruptcy proceedings against the debtor. Expenses from the write-off of receivables are not recognized up to the amount of the liability from those persons to whom it is owed at the same time. Write-off of receivables and their subsequent collection are recorded in the books as follows: (1)

(2)

(3)

Transfer of trade receivables to suspicious and disputable receivables due to late payment: they owe the account Suspicious and Disputable Receivables from customers, and claim the account Customers. Transfer to expenses—write-off in full, if it is estimated on the balance sheet date that the receivable will not be collected: they owe the account Expenses on the Basis of Value Adjustment and Write-off of Receivables from customers, and claims the account Suspicious and Disputable Receivables from customers for the disputable amount). Collection of previously written-off receivables: the Transaction Account is debited, and the account Suspicious and Disputable Receivables from customers is approved, and then the following position is carried out: debit of account Value Adjustments of Trade Receivables and approval of account Collected Written-off Receivables from customers.

12.5.2.2

Impact of Inventory Write-Off on Costs

Inventories are written off in cases when they are damaged, obsolete or their price is reduced. Write-offs are made up to the amount of their net determinable value, i.e. the value at which they can be realized through sale or use (IAS 2: Inventories, paragraph 28). The assessment of the net marketable value is made on the basis of current and reliable evidence, and the purpose of holding inventories (agreed price for certain quantities of inventories). Accordingly, the value of the write-off is estimated, which opens space for subjectivity and abuse of opportunity to achieve the desired financial result. Write-offs are often made in years when good financial results are achieved, in order to increase costs and transfer part of the profit to the next business years in which poorer financial results are expected. Write-offs can also be done in bad business years, in order to perform a “big clean-up” and enter business results in the following years with greater optimism. When inventories are written off, this affects the expenses of the current business period and reduces the business result of the current year. However, from the tax point of view, write-off expenses are recognized only when those inventories are

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sold or used in other ways, which means that tax non-recognition of expenses and its subsequent recognition will not significantly affect the financial result. The write-off of inventories is recorded by debiting the account Adjustment of the Value of Inventories, and by approving the account Expenses Based on the Reduction and Write-off of Inventories, for the value of the estimated write-off. The final effect of such a transaction is that net profit is reduced by the value of the write-off and by the value of income tax (base written-off value). The tax reduces the net profit due to the fact that there was an increase in the tax base for the value of the written-off. When inventories are sold (in the next business year), the Customers account is debited for the value of inventories increased by value added tax, the Inventories account and the Value Added Tax account are approved according to issued invoices, and then the value of inventories is reduced by debiting the account Reconciliation of the Value of Inventories (for the amount of write-offs) and the account Costs of the Reduced Value of Inventories (for the value of the difference between the initial value of inventories and the value of write-offs), while the account Inventories (for the initial value of inventories) is approved. The effects of this transaction are reflected in the fact that in the period of sale of inventories, the profit increases by the value of write-offs, and the costs of sold products are lower (by the value of write-offs) since they were recorded in the previous business period. An alternative would be to record the initial amount of inventories, which were the subject of write-offs, with expenses, while recognizing the income from the reversal of the value of adjustment (the amount of write-offs). Creative accounting uses such a process to create a picture of revenue growth.

12.5.3 Manipulations with Accruals Accruals have the function of allocating income and expenses in the periods when they occurred, in order to more objectively express the financial result. Pursuant to paragraph 20 of IFRS 14: Accruals, accrued receivables and accrued costs are established. Accrued receivables are classified in the assets of the balance sheet, within longterm and short-term assets, and relate mainly to prepaid expenses and accrued but uncollected income. Accrued costs are found in the liabilities of the balance sheet, under the items of long-term and short-term sources of funds, and are related to prepaid income and incurred expenses that have not yet been paid. The need for accruals arises for business events that begin in one accounting period and end in another. In that case, each accounting period is allocated income and expenses that contributed to its realization, regardless of the invoicing and payment periods (IFRS 15: Revenue, paragraph 35). False accruals in business books can be created through the following techniques and activities (Arežina 2016, 138):

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● non-matching of related revenues and expenses in accordance with IFRS 15: Revenues (e.g. revenues are recorded at the end of the year, and related expenses at the beginning of the next year, whereby the financial statements of both years are falsified), ● early recognition of revenue from services to be performed or revenue from sales before final acceptance by the customer, ● manipulations with construction contracts (e.g. in the case of a long-term turnkey construction contract, revenues are recognized upon completion of the project as a whole, and in the case of payments in the project completion stages, revenues and costs are recognized at the end of each phase. Manipulations are conducted in the part of the percentage of completion of the project and the estimated costs of the project with the aim of early presentation of income or in order not to exceed the contract), ● Overcrowding of sales channels (this technique is implemented in such a way that at the end of the year large quantities of products are delivered to customers who are not able to sell them within the usual deadlines. In this way, revenue is inflated, and with it the financial result).

12.5.4 Manipulations with Revaluation 12.5.4.1

Valuation of Intangible Assets

Different methods of assessing the value of intangible assets open space for the action of creative accounting. This can be best seen in the accounts within the group Intangible Assets (licenses, software, capitalized contract costs, etc.), which can be expressed according to the cost model (cost less impairment and total accumulated impairment losses) or revaluation model (IAS 38: Intangible Assets, paragraph 72). Estimates are expressed in the costs of developing a new product (software) that is protected by a patent (e.g. 10 years from the date of application), when the business entity may decide not to record development costs to the costs of that year if they contribute to revenue generation in subsequent accounting periods. However, if a result of research and development creates no means that will generate income in the future, then the costs of research are recorded in the income statement. The basis for subjectivity, in this group, also occurs in the calculation of depreciation, whereby depreciation is calculated if the new product is technologically feasible. The decision on technological feasibility is made by the business entity, which is further reflected in the item of profitability and capital through depreciation costs or costs when incurred. Intangible assets include goodwill, which is also estimated. Goodwill occurs in the balance sheet of an entity that purchases other entities if the purchase price is greater than the fair value of the seller’s net assets. Goodwill is not a sign that the subject was purchased at an overvalued value, but that the higher price was influenced by its intangible value (client list, brand, copyright, tradition, reputation, quality staff, etc.).

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According to IAS 38: Intangible Assets, item 8, goodwill is not amortized because it is considered that it does not lose value over time but becomes more valuable. Since goodwill is not depreciated, depreciation costs do not increase, and thus the profit is higher, which raises stock prices. Derecognition of goodwill would reduce the company’s capital, and it can often happen that liabilities become greater than the remaining assets.

12.5.4.2

Impairment of Assets

At the end of each accounting period, the entity assesses whether there has been an impairment of assets. “The recoverable amount of an asset or cash-generating unit is either its fair value less costs to sell or its value in use, whichever is greater” (IAS 36: Impairment of Assets, paragraph 6). If any such indication exists, the recoverable amount (recoverable through the sale or use of the asset) should be estimated. Impairment testing is performed every year and at any time during the year, provided that it must be performed at the same time in subsequent years (IAS 36: Impairment of Assets, paragraphs 9 and 10). If an asset is stated at a higher than recoverable amount, then the difference is recognized in Impairment Loss (IAS 36: Impairment of Assets, paragraph 1). Upon subsequent reversal of an impairment loss, the book value of the asset (cashgenerating unit) is increased to the revised estimated recoverable amount of the asset, with the higher book value not exceeding the book value that would have been determined had there been no recognized loss on the asset (cash-generating unit) in previous years due to impairment. A reversal of an impairment loss is recognized immediately in profit or loss. Opportunities for embezzlement arise in the part of estimating the recoverable amount, which may vary depending on the qualification of the appraiser, the applied appraisal technique, the quality of supervision, etc., and thus significantly affect the final business result, value of assets and capital.

12.5.4.3

Taxation of Revaluation Gain

After the initial recognition of assets (property, plant and equipment), it is necessary, on the day of preparation of financial statements, to adjust its book value to fair value, i.e. to report assets at revaluation amount (fair value less accumulated depreciation and impairment losses). Revaluation is performed in cases where there are significant differences between the book value and the fair value that can be measured reliably at the balance sheet date. “When the book value of an asset increases as a result of a revaluation, that increase will be recognized in other comprehensive income and cumulatively recognized in equity as a revaluation reserve. However, a revaluation increase should be recognized in profit or loss to the extent that it reverses a revaluation decrease in the value of the same asset that was previously recognized in profit or loss. When the book value of

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an asset decreases as a result of a revaluation, the decrease should be recognized in profit or loss. However, a revaluation decrease should be charged directly to other comprehensive income to the extent that this decrease does not exceed the amount that exists as a revaluation reserve for the same asset. A decrease recognized in other comprehensive income reduces the amount cumulated in equity as a revaluation reserve” (IAS 16: paragraphs 39 and 40). This indicates that revaluation corrects the item of profit, which is the basis for taxation, and opens up opportunities for manipulation. “In some jurisdictions, the revaluation or change in the value of an asset to fair value affects the taxable profit (tax loss) of the current period. As a result, the property tax base is adjusted and no temporary differences arise. In other jurisdictions, the revaluation or change in the value of an asset does not affect the taxable profit of the revaluation or change period and, therefore, the property tax base is not adjusted. However, future reimbursement of the book value will result in a taxable inflow of economic benefits to the entity, and the amount that can be deducted for tax purposes will differ from the amount of those economic benefits. The difference between the book value of the revalued asset and its tax base is a temporary difference that results in a deferred tax liability or asset. This is true even if: (a)

(b)

the entity does not intend to dispose of the assets. In these cases, the revalued book value of the asset will be recovered through use and this will result in taxable profit exceeding the depreciation that will be allowed for tax purposes in future periods; or capital gains tax is deferred if proceeds from the alienation of assets are invested in similar assets. In such cases, the tax will eventually become a liability after the sale or use of similar assets” (IAS 12, paragraph 20).

According to the above, the models of taxation are different, and they mainly move in two directions: taxation of unrealized profit and taxation of revaluation profit at the moment of realization, i.e. when the asset is alienated, withdrawn or used. The model of taxation of unrealized gains is unfavorable for taxpayers because the depreciation of revaluation surplus is later recognized in tax expenses. In addition, the profit was not realized and any tax payment would have the characteristics of lending to the state. According to the second model of taxation, the entire revaluation reserve (included in equity) is transferred to retained earnings when the asset is withdrawn from use or disposed of, while in the case of assets that are still used, only some reserves can be realized, and these are realized reserves which make “the difference between depreciation based on the revalued book value of assets and depreciation based on the original cost of assets” (IAS 16, item 41). As the revaluation reserve is transferred directly to the accumulated profit or loss, no entries are made in the income statement. At the moment when the revaluation reserves are transferred to the accumulated profit, then the revaluation profit, according to the model of realized revaluation profit, becomes taxable. Profit is increased by the amount of revaluation reserve less income tax. If a loss is realized, then the revaluation reserves will be “drowned” in the loss, and the final result will be completely non-transparent.

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Different variants with the use of revaluation create space for manipulation with the financial result, which significantly changes the information base for investors, shareholders and other stakeholders. The techniques for posting revaluation loss taxation are as follows: (1) (2) (3)

The account Equipment is debited for the amount of revaluation, and the account Revaluation Reserve of Equipment is approved. When the equipment is sold, then the Buyers account is debited, and the Equipment account is credited, for fair value (purchase + − revalued value). The following paragraph transfers the value of revaluation to profit and calculates income tax by debiting the account Revaluation Reserve for the total amount of revaluation, and approving the account Liabilities for Profit Tax (10% of the revaluation part), and for the difference, the account Retained Earnings from Previous Years is approved.

12.5.4.4

Impact of Revaluation on Production Costs

The effects of the revaluation of property, plant and equipment, recognized in equity as a revaluation reserve, are recognized in other comprehensive income (paragraph 39, IAS 16: property, plant and equipment). The gain/loss is adjusted for the amount of the revaluation increase to the amount of the previous revaluation decrease of the value of that asset that has already been recognized in profit/loss. Possible malversations occur with further depreciation of the revaluation part, when hidden reserves can be created, and thus a misstatement in the balance sheets. Namely, international financial reporting standards did not provide guidelines or techniques for posting depreciation of the revaluation part, so that opportunities for errors and manipulations open up. Differences in interpretations are particularly present in recognizing the impact of the revaluation of fixed assets on production costs and expenses through inventory costs. In the following example, under items (1) and (2), the recording of depreciation of the revaluation part is shown, and under items (3) and (4) the recording of the impact of revaluation of fixed assets on costs. Example (1)

(2)

(3) (4)

Office desk, purchase value 10,000 c.u. and written-off value 3000 c.u. is revalued at a rate of 10%. (Revaluation effect 10,000 c.u. × 10% = 1000 c.u.; 3000 c.u. × 10% = 300 c.u.). It is necessary to calculate the depreciation costs for the revalued asset, whose useful life is 10 years, i.e. the depreciation rate is 10%. (Calculated depreciation = 11,000 c.u. × 10% = 1100 c.u., and revaluation depreciation 11,000 c.u. × 10% − 10,000 c.u. × 10% = 100 c.u.). 70% of products related to increased depreciation costs were sold. The revaluation reserve is transferred to retained earnings less tax (Table 12.8).

From paragraphs (3) and (4) one can see the records of the transfer of increased depreciation on the basis of revaluation to retained earnings, where there are also

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Table 12.8 Log of the impact of revaluation on production costs through inventory costs No

Description

(0)

Equipment

Owes

Claims

10,000

Equipment value adjustment

3000

Capital

7000

Initial state (1)

Equipment

1000

Equipment value adjustment

300

Equipment revaluation reserves

700

Equipment revaluation and value adjustments (2)

Depreciation of equipment up to tax deductible expenses Depreciation—temporarily unrecognized expense

1000 100

Equipment value adjustment

1100

Depreciation of the revaluation part (3)

Costs excluded from inventory value

70

Other accruals

30

Costs of increased depreciation based on equipment revaluation

100

The impact of revaluation of fixed assets on production costs through inventory costs (4)

Equipment revaluation reserves

70

Retained earnings from previous years

60

Income tax liabilities

10

Taxation of revaluation gain

major ambiguities and divisions in interpretations and recognition. Only that part of the increased depreciation for sold products is transferred to retained earnings, while the part of depreciation related to unsold products is carried forward to the following year through accruals.

12.6 Other Manipulations 12.6.1 Impact of Depreciation on Business Results and Tax Liabilities Depreciation is related to non-current assets and is regulated by IAS 16: Property, Plant and Equipment. According to paragraph 50 of the said standard, the depreciation amount of an individual asset should be allocated systematically over its useful life. “The useful life of an asset is estimated, although tax regulations specify a maximum

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useful life. The minimum useful life is not specified, which indicates that depreciation does not even have to be calculated.” For business entities that have a high value of fixed assets, which is subject to depreciation, it is important to determine the correct depreciation period of their duration. If an entity, for example, decides to depreciate an asset for six, instead of three years, then it will show a cost that is 50% lower in the income statement. At the same time, the balance sheet will contain a lower amount of accumulated depreciation, i.e. a higher value of fixed assets. Larger assets also mean showing a higher value of share capital. Determining the useful life of property, equipment, plant and intangible assets is based on historical experience, technological changes, and changes in economic and industrial factors. The depreciation rate is reviewed at the end of the financial year. It is subject to control by audit authorities, although they also cannot reliably determine the actual useful life of assets, which in turn creates space for creative accounting to operate in order to present targeted results. However, the greatest inconsistencies with depreciation costs are made to reduce the tax base. The reduction is limited by the minimum amount of depreciation that must be included in the tax base. In tax terms, only depreciation costs for used assets are recognized. If the property is used seasonally, as is the case in agriculture or construction, then the degree of its utilization does not affect tax liabilities. However, if the asset is not used due to market disturbances, then the depreciation of such asset is not used for tax purposes. Example Due to the decrease in sales, a retail facility with a purchase value of 100,000 c.u. and an estimated useful life of 40 years (annual depreciation expense is 2500 c.u.) was closed. In this case, the depreciation cost cannot reduce the tax base and the business entity is obliged to calculate a tax of 250 c.u. (2500 c.u. × 10%). An entity may use the deferred tax model, recording it by debiting the Deferred Tax Liabilities account and approving the Expenses account based on current tax liabilities. According to International Accounting Standard 12: Income Tax, paragraph 5, the recognition of deferred tax assets is justified only if the entity expects to recover those assets in the future at the expense of future taxable profit. In our example, the actual depreciation expense incurred, of 2500 c.u. in the accounting period, cannot be recognized for tax purposes. Accordingly, the reduction in results for accrued income tax liabilities, which relate to the unrecognized depreciation expense, is justifiably linked to the future accounting/tax period, when the unrecognized depreciation expense will be included in the tax base (but not in the income statement). According to the Law on Profit Tax of the Republic of Srpska (Article 12), accelerated depreciation of assets for tax purposes is also allowed, which differs from the calculation of depreciation for accounting purposes. Given that there are two different entity laws in Bosnia and Herzegovina, then the calculations of accelerated depreciation are different. In the entity Federation of Bosnia and Herzegovina, accelerated depreciation is carried out at rates that can be up to 50% higher than

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Table 12.9 Allocation of depreciation costs for accounting and tax purposes Year Basis for accounting depreciation

0

1

Amount of Depreciation Depreciation depreciation for basis for tax amount for accounting purposes purposes tax purposes (1 × 20/100)

Depreciation difference, cumulative (4 – 2 + previous year 5)

2

5

3

4

1

95,000

19,000

100,000

40,000

+21,000

2

95,000

19,000

100,000

30,000

+32,000

3

95,000

19,000

100,000

30,000

+43,000

4

95,000

19,000

0

+24,000

5

95,000

19,000

0

+5000

Svega:

95,000

100,000

Source Adjusted according to Aleksi´c et al., Finansijski menadžment, PEU Apeiron, Banja Luka, 2020, p. 30

prescribed. In the entity Republic of Srpska, a taxpayer may carry out accelerated depreciation by applying a rate of 40% to the cost of equipment in the first year, 30% to the cost in the second year and 30% to the cost in the third year. In that case, it is necessary to record deferred tax liabilities whenever the useful life of the asset lasts three or more years. Example Equipment, purchase value 100,000 c.u. and an estimated useful life of 5 years, is amortized using the straight-line method. It is also estimated that the residual value of the asset at the end of the depreciation period will be 5000 c.u. It is necessary to make an overview of the schedule of depreciation costs for accounting and tax purposes (Table 12.9). Therefore, in the first year of use of the equipment, a lower income tax will be calculated than in the case of accelerated depreciation by 2100 c.u. (21,000 c.u. × 10%). An entity may choose to record the entire amount in favor of deferred tax liabilities, depending on when it wishes to take advantage of the tax treatment of the residual value of the equipment in the event of accelerated depreciation. If it uses this benefit in the first year, then the deferred tax liabilities at the end of the first year will amount to 1600 c.u. (2100 c.u. − 500 c.u.). The balance on the tax account in the second year of using the equipment will increase by 1100 c.u. [(30,000 c.u. − 19,000 c.u.) × 10%] and in the third year for an additional 1100 c.u. [(30,000 c.u. − 19,000 c.u.) × 10%], for a total of 3800 c.u. The balance begins to decrease in the fourth year by 1900 c.u. per year, and reduces to zero after the expiration of the fifth year (Aleksi´c et al. 2020, 30–31).

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Table 12.10 Log of the sale of the facility at a higher value than the book value No

Description

(0)

Construction facilities

Owes

Claims 120,000

Impairment of the construction facility

20,000

Capital

100,000

Initial state (1)

Buyer claims Impairment of the construction facility

130,000 20,000

Construction facilities Profits from the sale of construction facilities

120,000 30,000

Sale of the construction facility

12.6.2 Impact of the Sale of Assets on the Financial Result In good business years, a business entity may decide to buy long-term equipment, which it will later sell in crisis situations at a price that is above the purchase price. In this way, operating losses are covered and the impression of good business is created. Often the data are presented on a net basis, so it is not possible to see what the net profit is structured from. Net profit is further the basis for the distribution of dividends, while maintaining the value of shares on the stock exchange. “Gains or losses arising from derecognition of property, plant and equipment should be included in profit or loss when they are derecognised (unless IAS 17: Leases require otherwise in a sale and leaseback transaction). Gains are not classified as sales revenue … gains or losses arising from derecognition of an item of property, plant and equipment should be determined as the difference between the net disposal amount and the book value of the asset.” (IAS 16, paragraphs 68 and 71). Example Let us suppose that the company, in order to improve the business result, sold the facility, with a purchase value of 120,000 c.u. and written-off values of 20,000 c.u., for 130,000 c.u. In this case, the following postings would be made (Table 12.10): From the previous posting, it can be seen that revenues increased by 130,000 c.u., and net profit by 117,000 c.u. (130,000 c.u. − 10% income tax). In case of an operating loss, it will be compensated with the profit from the sale of the construction facility, so that it will give a distorted picture of the business.

12.6.3 Capitalized Contract Costs Improper capitalization of costs, as a form of fraud, is reflected in the inclusion of borrowing costs in the cost of the asset.

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According to IAS 23: Borrowing Costs, paragraph 8: “Borrowing costs that are directly attributable to the acquisition, construction or production of a qualifying asset are an integral part of the cost of that asset. Other borrowing costs are recognized as an expense. An entity is required to capitalize borrowing costs that are directly attributable to the acquisition, construction or production of a qualifying asset as part of the cost of that asset. An entity shall recognize other borrowing costs as an expense in the period in which they are incurred.” Under paragraph 6 of the same standard, borrowing costs may include: (a) interest on bank overdrafts, short-term and long-term borrowings; (b) depreciation of the discount or premium related to the loan; (c) depreciation of ancillary costs incurred in connection with borrowing arrangements; (d) the finance charges of finance leases recognized in accordance with IAS 17 Leases; (e) exchange differences arising on borrowings in foreign currencies, to the extent that they are considered an adjustment to interest expense.” Through the capitalization of various costs, unrealistic assets (fixed and current assets) are created, which inflates the financial result of the company. An example of irregular capitalization is found in investments in the construction of buildings where the interest paid on construction loans has the same treatment as the purchase of construction materials needed for the construction of the facility, etc., and is classified as property. The decision as to whether to capitalize interest on a loan or recognize it as an expense for the period is governed by the entity’s accounting policies. Through inadequate capitalization, a business entity can increase the financial result by transferring operating expenses to a certain asset on the balance sheet. In that way, the business entity prolongs the costs for the following accounting periods, through the depreciation of the asset. The following example shows the manner of posting borrowing costs that are capitalized as part of the cost of acquiring long-term assets. Example The Bank has issued an interest calculation on a long-term construction loan in the amount of 5000 c.u., of which 4500 c.u. refers to the period from the moment of using the loan to the activation of the facility, and the difference of 500 c.u. refers to the period after the activation of the facility. In this case, for the amount of interest that is capitalized (4500 c.u.), the account Real Estate in Preparation (as part of fixed assets) is charged, while for the amount of interest recognized in expenses of the period is charged to the account Financial Expenses, and for the total value of interest, the account Interest Liabilities from the Bank is approved. The accrual of interest on the part before and after the activation of the facility is a matter of assessment.

12 Abuse of Creative Accounting in Practical Application

217

12.7 Conclusion The presentation of financial statements requires a true and fair view of the value of all balance sheet items. The initially recognized book value of balance sheet items is reviewed at each balance sheet date and adjusted to fair value. Fair value is determined by appraisal, and each appraisal carries with it a risk with an outcome in material adjustments to the present value of assets, liabilities, equity, income and expenses in subsequent accounting periods. The use of adequate estimates does not jeopardize the reliability of financial statements, but the problem arises mainly due to the uncertainty of business activities and a certain distinctiveness in the understanding of accounting and economic value, when balance sheet items can take on different values. Subjectivity in the assessment can also be based on the attitude of management on the relevance of individual business risk and the intensity of its impact on individual balance sheet items. For the purposes of subsequent valuation of balance sheet items, historical cost is most often used, by itself or in combination with other measurement bases (current cost, realizable value and present value). Creative accounting can make a great contribution to the objective valuation of balance sheet items. It was initially conceived as a tool for compiling a realistic and fair presentation in the financial statements, and in accordance with the accounting standards with which the fair value category was introduced, a certain flexibility in valuing balance sheet items was established. However, due to a certain “exploitation” of allowed flexibility, creative accounting is often transformed into manipulative accounting with the basic goal of generating targeted results and financial position of the business entity. Abuses are most often committed through the assessment of income and expenses, and then in the part of provisions, write-offs of receivables and inventories, accruals, revaluation of longterm assets, and assessment of other balance sheet items. The paper deals with the procedures and techniques of the stated abuses with a focus on the present ambiguities, ambivalences and uncertainties in interpretation in the application of accounting methods. To emphasize the importance of preventing manipulation through creative accounting, the basic results of the global analysis of professional abuse by the Association of Chartered Fraud Investigators (ACFE) in the period from January 2018 to September 2019, which included 2,504 cases from 23 different industries and 125 countries around the world. The results of the research indicate that the prevalence of fraud in the financial statements, globally, is 10% in relation to the total professional fraud (which also includes corruption and abuse of property), with the largest financial losses of about 954,000 USD per case. In terms of departmental risk, most fraud in financial statements is committed by executive/management bodies (30%), accounting (15%) and finance (14%). Furthermore, the results of the research indicate that the detection of fraud in the financial statements lasts up to 2 years and that the highest risks of fraud in the financial statements are expressed in construction (25%), manufacturing (18%), and working with professional services and real estate (15% each).

218

V. Šupukovi´c et al.

This speaks to the seriousness of the approach to estimates and the need to strengthen financial intelligence in reading and analyzing financial statements. In addition, there is a constant problem of developing adequate instruments and tools for the most accurate valuation of balance sheet items. The importance is enhanced by the fact that all balance items from the income statement and balance sheet (excluding cash) are subject to the need for subsequent valuation or assessment.

References ACFE (2020) Report to the nations on occupational fraud and abuse. https://acfepublic.s3-us-west2.amazonaws.com/2020-Report-to-the-Nations.pdf. Accessed 30 Sept 2020 Aleksi´c M et al (2020) Finansijski menadžment. PEU Apeiron, Banja Luka Aljinovi´c Bara´c Ž, Grani´c M (2015) Dragovoljno izvještavanje u godišnjem izvješ´cu – praksa hrvatskih menadžera. Ekonomska misao i praksa, Dubrovnik, br 1 Arežina N (2016) Validnost dokaza u ekonomskoj-finansijskoj forenzici, doktorska disertacija. Univerzitet Singidunum, Beograd Belak V (2011) Poslovna forenzika i forenziˇcko raˇcunovodstvo. Belak Excellens d.o.o, Zagreb Gulin D et al (2001) Raˇcunovodstvo trgovaˇckih društava uz primjenu Medunarodnih - i financijskih raˇcunovodstvenih standarda i poreznih propisa. Hrvatska zajednica raˇcunovoda djelatnika, Zagreb International Code of Professional Ethics for Accountants (International Ethics Standards Board for Accountants) (2018) Sarajevo: Association of Accountants and Auditors of FBiH. http://www. srr-fbih.org/File/Download?idFi=3200. Accessed 18 Sept 2020 Jones M (2013) Creative accounting, fraud and accounting scandals, acc. to: Islambegovi´c S. & Islambegovi´c N., Model okrivanja raˇcunovodstva “velikog cˇ iš´cenja” u financijskim izvještajima s posebnim osvrtom na otpisana potraživanja. http://www.slideworld.com/slideshow.aspx/Cre ative-Accounting-Fraud-and-Accounting-Scandals-ppt-2760608. Accessed 30 Sept 20 Kneževi´c G, Staniši´c N, Mizdrakovi´c V (2013) Analiza finansijskih izveštaja. Univerzitet Singidunum, Beograd Koletnik F, Koletnik Korošec M (2011) Razumijevanje forenziˇckog raˇcunovodstva – I dio. Raˇcunovodstvo, revizija i financije, br 5, acc. to: Islambegovi´c S. i Islambegovi´c N., Model okrivanja raˇcunovodstva “velikog cˇ iš´cenja” u financijskim izvještajima s posebnim osvrtom na otpisana potraživanja, Zagreb Malini´c D (2009) Savremeni izazovi integralnog istraživanja kvaliteta finansijskih izveštaja, vol 57, no 1. Ekonomika preduze´ca, Beograd Mencer I (2012) Strateški menadžment: upravljanje razvojem poduze´ca. TEB, Zagreb Naser K (1993) Creative financial accounting: its nature and use. Prentice Hall, Hemel Hempstead O’Regan P (2006) Financial information analysis. Wiley, acc. to: Islambegovi´c S. i Islambegovi´c N., Model okrivanja raˇcunovodstva “velikog cˇ iš´cenja” u financijskim izvještajima s posebnim osvrtom na otpisana potraživanja. http://www.slideworld.com/slideshow.aspx/Creative-Accoun ting-Fraud-and-Accounting-Scandals-ppt-2760608. Accessed 30 Sept 20 Pavlovi´c V (2008) Teorija i analiza bilansa. Univerzitet Megatrend, Beograd Pevec D (2018) Shifting current income to a later period/Prebacivanje teku´cih prihoda u kasnije razdoblje Pilji´c J (2018) Kreativno raˇcunovodstvo i prijevare u financijskim izvještajima. FINconsult, Zbornik radova, Tuzla Raffaelli B (2012) Uloga i znaˇcaj forenziˇcnog raˇcunovodstva u suzbijanju financijskih prevara. Revicon d.o.o, Porezni savjetnik, Sarajevo Rezaee Z, Riley R (2010) Prijevara u finansijskim izvještajima. Mate doo, Zagreb

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Stajˇci´c T (2017) Raˇcunovodstvo - prezentacija Škari´c JK (2007) Kreativno raˇcunovodstvo – motivi, instrumenti i posljedice. Zbornik radova sa 11. Kongresa SRRRS, Banja Vru´cica Vašiˇcek V, Vašiˇcek D (2008) Raˇcunovodstvene manipulacije u sustavu budžeta-proraˇcuna. Ekonomske reforme u BiH i Evropske integracije, XI Medžunarodni simpozij, Zbornik radova, Neum Vukoja B (2019) Otkrivanje manipulacija u financijskim izvještajima i primjene metoda kreativnog raˇcunovodstva u BiH. Sveuˇcilište/Univerzitet “VITEZ”, FIRA Nauˇcno - Struˇcna konferencija, Vitez

Appendix

A—Checklist—Financial Statements 2015

CHECKLIST—CPC 25 FINANCIAL STATEMENTS SAMARCO ON 12/31/2015 1. RECOGNITION 1.1 PROVISION ITEM

YES NO

REFERENCE

1.1.1 Is there a present obligation as a result of past event?

X

Samarco; 2015; p. 34; item 3-g

1.1.2 Is the outflow of funds likely to settle the obligation?

X

Samarco; 2015; p. 34; item 3-g

1.1.3 Can the amount of the obligation be reliably estimated?

X

Samarco; 2015; p. 35; item 3-g. “The extent, full scope, timing and cost of future remediation and remediation programs are subject to a high degree of uncertainty because they depend on the completion of expert studies, the preparation of action plans and the outcome of judgments. of the judicial demands.”

1.2 CONTINGENT LIABILITY ITEM

YES NO

REFERENCE

1.2.1 Are contingent liabilities disclosed in the notes?

X

Samarco; 2015; p. 36—item 3-h (continued)

© The Editor(s) (if applicable) and The Author(s), under exclusive license to Springer Nature Singapore Pte Ltd. 2022 K. T. Çalıyurt (ed.), New Approaches to CSR, Sustainability and Accountability, Volume III, Accounting, Finance, Sustainability, Governance & Fraud: Theory and Application, https://doi.org/10.1007/978-981-16-9364-9

221

222

Appendix: A—Checklist—Financial Statements 2015

(continued) 1.2.2 Are they periodically evaluated to determine whether an outflow of resources embodying economic benefits has become probable?

X

Samarco; 2015 p 36—item 3-h. “Until new facts arise and the uncertainties mentioned are resolved, it is not possible to reliably estimate or measure any other liabilities arising from them or their impacts on the Company’s disbursements. Therefore, it was not possible to record provisions for such items. Only over time and the natural development of the discussions and maturity of the proceedings, such as new settlements and/or court decisions, will it be possible to understand the actual proportion of the impacts and the Company’s exposure. Such items may have significant impacts on the amounts provisioned and may result in new adjustments to current provisions and/or the initial recognition of new provisions for disbursements that could not currently be anticipated and/or measured."

2. MEASUREMENT 2.1 PROVISION AND CONTINGENT LIABILITY ITEM 2.1.1 Is the amount of the provision the best estimate of the disbursement required to settle the obligation?

YES NO X

REFERENCE Samarco; 2015; p.4. “The amounts that will be effectively paid by the Company in relation to the dam disruption may differ from those estimated by its Management, as a result of the confirmation of the assumptions used and which depend on several factors that are not exclusively under the Company’s control. Accordingly, the provision now constituted is subject to significant uncertainty and the actual amounts may differ significantly from those recorded on December 31, 2015.” (continued)

Appendix: A—Checklist—Financial Statements 2015

223

(continued) 2.1.2 Have risks and uncertainties been considered in making the best possible estimate?

X

Samarco; 2015; p.35; item 3-g. “As the actions evolve and knowledge of impacts, changes in key assumptions may result in substantial future changes in the provisioned amounts. (…) Management has considered other actions, classified as possible and/or probable losses, which are at an early stage. significant uncertainties arising from the overlapping of claims with CTAA, the definition of amounts involved, indemnity time lapse, new demands, and judicial and extrajudicial settlements, as well as lawsuits and claims to which the Company has not yet been cited. which could also result in future disbursements.”

2.1.3 Does the obligation represent the X present value of disbursements expected to be required to settle the obligation?

Samarco; 2015; P. 35; item 3-g. “The provision recorded was discounted to present value using the risk-free rate of 7.185% per year and is based on a 10-year Brazilian bond in the international market with reference date December 31, 2015, obtained from Bloomberg.”

2.1.4 Were the amounts revalued and adjusted at the balance sheet date?

Samarco; 2015; P. 34; item 3-g. “As of December 31, 2015, a provision was recorded based on existing current information including the technology available at current prices for future disbursements related to the present obligation that was generated by the Fundão dam disruption.”

X

3. DISCLOSURE 3.1 PROVISION ITEM

YES NO

REFERENCE

3.1.1 Has a short description of the X nature of the obligation been disclosed for each class of provision at the balance sheet date?

Samarco; 2015; p. 35 e p. 36; itens 3-g.1, g.2, g.3 e g.4

X 3.1.2 Was the expected schedule of any resulting economic benefit outflows disclosed, as well as an indication of uncertainties about the value or timing of such outflows?

Samarco; 2015; p.34; item 3-g

(continued)

224

Appendix: A—Checklist—Financial Statements 2015

(continued) 3.1.3 Were key assumptions made regarding future events disclosed?

X

Samarco; 2015 p. 17; item 2.2-i. “The provision for socio-environmental and socioeconomic recovery is constituted upon the identification of an impacted area or the request for compensation for civil damages incurred, which generate a present obligation for the Company. This process involves complex estimates in determining the amount of future disbursement expected by Management. and their external consultants, as disclosed in Note 3. ”

3.1.4 Was the book value disclosed at the X beginning and end of the period?

Samarco; 2015; P. 64—item 20-c.. The book values at the beginning and end of the period of the sundry provisions account referring to the Fundão dam rupture were disclosed. Note 3 (p. 31), specifically for disclosing the impacts of the incident, did not detail the opening of balances at the beginning and end of the period, by provision class

3.1.5 Were additional provisions made in X the period disclosed, including increases in existing provisions?

In a specific note to the disclosure of the impacts of the Fundão dam disruption (Samarco; 2015; p. 31—item 3), no additional mention was made of the period. However, in the framework of miscellaneous provisions (Samarco; 2015; p.64—item 20), it is possible to arrive at the amount of the provision increase

3.1.6 Were the amounts used (ie incurred X and written off against the provision) disclosed during the period?

Samarco; 2015; P. 37 item j—Expenses for environmental and social reparation

3.1.7 Were unused amounts disclosed and reversed during the year?

X

Not disclosed in the annual report ended December 31, 2015

3.1.8 Has the amount of any expected repayment been disclosed, stating the value of any asset that has been recognized on account of that expected repayment?

X

Not disclosed in the annual report ended December 31, 2015

3.1.9 Was the increase over the period discounted to present value from the passage of time and the effect of any change in the discount rate?

X

Not disclosed in the annual report ended December 31, 2015

3.2 CONTINGENT LIABILITIES (continued)

Appendix: A—Checklist—Financial Statements 2015

225

(continued) ITEM

YES NO

3.2.1 Has a brief description of the nature of the contingent liability been disclosed for each class of contingent liabilities at the balance sheet date?

X

REFERENCE Not disclosed in the annual report ended December 31, 2015

3.2.2 Was the estimate of its financial effect disclosed when practicable?

X

Samarco; 2015; p.36 item 3-h

3.2.3 Were the uncertainties related to the amount or timing of any exit disclosed when practicable?

X

Samarco; 2015 p 36—item 3-h. “Until new facts arise and the uncertainties mentioned are resolved, it is not possible to reliably estimate or measure any other liabilities arising from them or their impacts on the Company’s disbursements. Therefore, it was not possible to record provisions for such items. time and the natural development of the discussions and the maturity of the proceedings, such as new settlements and / or court decisions, it will be possible to understand the actual proportion of the impacts and the Company’s exposure. These items may have significant impacts on the amounts provisioned and may result in new adjustments to current provisions and / or the initial recognition of new provisions for disbursements that could not currently be anticipated and / or measured

3.2.4 The possibility of any refund when practicable?

X

Not disclosed in the annual report ended December 31, 2015

Appendix

B—Checklist—Financial Statements 2016

CHECKLIST—CPC 25 FINANCIAL STATEMENTS SAMARCO ON 12/31/2016 1. RECOGNITION 1.1 PROVISION ITEM

YES

1.1.1 Is there a present obligation as a result of past event?

X

Samarco; 2016; p. 40; item 3-g

1.1.2 Is the outflow of funds likely to settle the obligation?

X

Samarco; 2016; p. 40; item 3-g

1.1.3 Can the amount of the obligation be reliably estimated?

NO

REFERENCE

X

Samarco; 2016; P. 41; item 3-g. “The extent, full scope, timing and cost of future remediation and remediation programs are subject to a high degree of uncertainty because they depend on the completion of expert studies, the preparation of action plans and also the outcome of trials of judicial demands. ”

NO

REFERENCE

1.2 CONTINGENT LIABILITIES ITEM

YES

1.2.1 Are contingent liabilities disclosed in the notes?

X

Samarco; 2016; p. 42—item 3-h (continued)

© The Editor(s) (if applicable) and The Author(s), under exclusive license to Springer Nature Singapore Pte Ltd. 2022 K. T. Çalıyurt (ed.), New Approaches to CSR, Sustainability and Accountability, Volume III, Accounting, Finance, Sustainability, Governance & Fraud: Theory and Application, https://doi.org/10.1007/978-981-16-9364-9

227

228

Appendix: B—Checklist—Financial Statements 2016

(continued) 1.2.2 Are they periodically evaluated to determine whether an outflow of resources embodying economic benefits has become probable?

X

Samarco; 2016 p 43—item 3-h. “Only in the fullness of time and in the natural development of disputes and process maturity, with new settlements reached and/or legal decisions, will it be possible to understand the actual magnitude of the impacts and the exposure of the Company. These items can lead to significant impacts on provisions and result in new adjustments to existing provisions and/or the recognition of new provisions for disbursements that cannot currently be projected and/or measured. ”

2. MEASUREMENT 2.1 PROVISION AND CONTINGENT LIABILITY ITEM 2.1.1 Is the amount of the provision the best estimate of the disbursement required to settle the obligation?

YES

NO

REFERENCE

X

Samarco; 2016; p.4. “In addition to the expenses incurred, the Company also recorded provisions, segregated by programs, and made disclosures regarding estimated disbursements. The assumptions and bases used by management to record these provisions were determined with the support of specialized external consultants hired for such purpose. Since amounts will be effectively paid by the Company in respect of the dam disruption, they are subject to significant uncertainty due to the possibility of changes in the final assumptions and reliance on a number of factors not exclusively under the Company’s control.“ (continued)

Appendix: B—Checklist—Financial Statements 2016

229

(continued) 2.1.2 Have risks and uncertainties been considered in making the best possible estimate?

X

Samarco; 2016; P. 42; item 3-g and h. “As actions evolve and knowledge of impacts, changes in key assumptions may result in substantial future changes in the amounts provisioned in future publications. (…) Management has also considered other claims classified as possible and/or likely to be in the early stages and which present significant uncertainties due to the fact that the claims overlap with the TTCA, the definition of the amounts involved, the term of compensation, and other judicial and extrajudicial decisions. ”

X 2.1.3 Does the obligation represent the present value of disbursements expected to be required to settle the obligation?

Samarco; 2016; P. 41; item 3-g. “The provision recorded was discounted to present value using the risk-free rate of 10.621% per year. It is based on a 12-year Brazilian security in the international market with a maturity date of January 5, 2024, obtained from Bloomberg, and considering the expected disbursement flow over the next 15 years by December 31, 2030.”

2.1.4 Were the amounts revalued and adjusted at the balance sheet date?

Samarco; 2016; P. 41; item 3-g. “As of December 31, 2016, a provision was recorded based on existing current information including the technology available at current prices for future disbursements related to the present obligation that was generated by the Fundão dam disruption.”

X

3. DISCLOSURE 3.1 PROVISION ITEM

YES

NO

REFERENCE

3.1.1 Has a short description of the X nature of the obligation been disclosed for each class of provision at the balance sheet date?

Samarco; 2016; p. 42; itens 3-g.1, g.2, g.3 e g.4

3.1.2 Was the expected schedule of any X resulting economic benefit outflows disclosed, as well as an indication of uncertainties about the value or timing of such outflows?

Samarco; 2016; p.41; item 3-g

(continued)

230

Appendix: B—Checklist—Financial Statements 2016

(continued) 3.1.3 Were key assumptions made regarding future events disclosed?

X

Samarco; 2016 p. 24; item 2.2-i. “The provision for socio-environmental and socioeconomic recovery is constituted upon the identification of an impacted area or the request for compensation for civil damages incurred, which generate a present obligation for the Company. This process involves complex estimates in determining the amount of future disbursement expected by Management. and their external consultants, as disclosed in Note 3. ”

3.1.4 The book value was disclosed at the X beginning and end of the period?

Samarco; 2016; p.41 item 3-g; p. 72—item 20-c

3.1.5 Were additional provisions made in X the period disclosed, including increases in existing provisions?

Samarco; 2016; p. 41 item 3-g.b

3.1.6 Were the amounts used (ie incurred X and written off against the provision) disclosed during the period?

Samarco; 2016; p.44 item k—Expenditure for environmental and social reparation

3.1.7 Were unused amounts disclosed and reversed during the year?

Samarco; 2016; p. 41 item 3-g.b

X

3.1.8 Has the amount of any expected repayment been disclosed, stating the value of any asset that has been recognized on account of that expected repayment?

X

3.1.9 Was the increase over the period X discounted to present value from the passage of time and the effect of any change in the discount rate?

Not disclosed in the annual report ended December 31, 2016

Samarco; 2016; p. 41 item 3-g.b

3.2 CONTINGENT LIABILITY ITEM

YES

3.2.1 Has a brief description of the nature of the contingent liability been disclosed for each class of contingent liabilities at the balance sheet date? 3.2.2 Was the estimate of its financial effect disclosed when practicable?

X

NO

REFERENCE

X

Not disclosed in the annual report ended December 31, 2016

Samarco; 2016; p.42 e 43 item 3-h (continued)

Appendix: B—Checklist—Financial Statements 2016

231

(continued) 3.2.3 Were the uncertainties related to the X amount or timing of any exit disclosed when practicable?

3.2.4 The possibility of any refund when practicable?

Samarco; 2016 p. 43—item 3-h. “Management has also considered other possible and/or probable claims that are at an early stage and that present significant uncertainties due to the fact that the claims overlap with the TTCA, the definition of the amounts involved, the compensation term, and other decisions. (…) Until new facts are developed and the uncertainties already mentioned are resolved, it is not possible to provide a range of results or a reliable estimate of Samarco’s obligations arising from these matters X

Not disclosed in the annual report ended December 31, 2016

Appendix

C—Checklist—Financial Statements 2017

CHECKLIST—CPC 25 FINANCIAL STATEMENTS SAMARCO ON 12/31/2017 1. RECOGNITION 1.1 PROVISION ITEM

YES

1.1.1 Is there a present obligation as a result of past event?

X

Samarco; 2017; p. 41; item 3-g

1.1.2 Is the outflow of funds likely to settle the obligation?

X

Samarco; 2017; p. 41; item 3-g

1.1.3 Can the amount of the obligation be reliably estimated?

NO

X

REFERENCE

Samarco; 2017; P. 41; item 3-g. “The extent, full scope, timing and cost of future remediation and remediation programs are subject to a high degree of uncertainty because they depend on the completion of expert studies, the preparation of action plans and also the outcome of trials of judicial demands.”

1.2 CONTINGENT LIABILITIES ITEM

YES

1.2.1 Are contingent liabilities disclosed in the notes?

X

NO

REFERENCE Samarco; 2017; p. 42—item 3-h (continued)

© The Editor(s) (if applicable) and The Author(s), under exclusive license to Springer Nature Singapore Pte Ltd. 2022 K. T. Çalıyurt (ed.), New Approaches to CSR, Sustainability and Accountability, Volume III, Accounting, Finance, Sustainability, Governance & Fraud: Theory and Application, https://doi.org/10.1007/978-981-16-9364-9

233

234

Appendix: C—Checklist—Financial Statements 2017

(continued) 1.2.2 Are they periodically evaluated to determine whether an outflow of resources embodying economic benefits has become probable?

X

Samarco; 2017 p 44—item 3-h. “Only in the fullness of time and in the natural development of disputes and process maturity, with new settlements reached and/or legal decisions, will it be possible to understand the actual magnitude of the impacts and the exposure of the Company. These items can lead to significant impacts on provisions and result in new adjustments to existing provisions and/or the recognition of new provisions for disbursements that cannot currently be projected and/or measured. ”

2. MEASUREMENT 2.1 PROVISION AND CONTINGENT LIABILITY ITEM

SIM

2.1.1 Is the amount of the provision the best estimate of the disbursement required to settle the obligation?

2.1.2 Have risks and uncertainties been considered in making the best possible estimate?

NO

REFERENCE

X

Samarco; 2017; p.5. “Accordingly, the carrying amounts and disclosures of possible losses may not reliably reflect actual losses and may differ materially from those booked and disclosed in the financial statements.”

X

Samarco; 2017; P. 41 and 44 item 3-g and h. “As actions and awareness of impacts evolve, changes in key assumptions may result in substantial future changes in the amounts provisioned in future publications. (…) Management has also considered other claims classified as possible. and/or likely to be in the early stages and with significant uncertainties. ”

2.1.3 Does the obligation represent the X present value of disbursements expected to be required to settle the obligation?

Samarco; 2017; P. 41; item 3-g. “The provision recorded was discounted to present value using the risk-free rate of 8.3340% per year, is based on a 12-year Brazilian security in the international market with the maturity date of January 5, 2024, obtained from Bloomberg, and considering the expected disbursement flow over the next 15 years through December 31, 2030. ” (continued)

Appendix: C—Checklist—Financial Statements 2017

235

(continued) 2.1.4 Were the amounts revalued and adjusted at the balance sheet date?

X

Samarco; 2017; P. 41; item 3-g. “As of December 31, 2017, a provision based on current prices was recorded for future disbursements related to the present obligation that was generated by the Fundão dam breach.”

3. DISCLOSURE 3.1 PROVISION ITEM

YES

NO

REFERENCE

3.1.1 Has a short description of the nature X of the obligation been disclosed for each class of provision at the balance sheet date?

Samarco; 2017; p. 42; itens 3-g.1, g.2 e g.3

3.1.2 Was the expected schedule of any X resulting economic benefit outflows disclosed, as well as an indication of uncertainties about the value or timing of such outflows?

Samarco; 2017; p.40; item 3-g

3.1.3 Were key assumptions made regarding future events disclosed?

Samarco; 2017 p. 23; item 2.2-i. “The provision for socio-environmental and socioeconomic recovery is constituted upon the identification of an impacted area or the request for compensation for civil damages incurred, which generate a present obligation for the Company. This process involves complex estimates in determining the amount of future disbursement expected by Management. and their external consultants, as disclosed in Note 3. ”

X

3.1.4 Was the book value disclosed at the X beginning and end of the period?

Samarco; 2017; p.66—item 20-b; p.41 item 3-g

3.1.5 Were additional provisions made in X the period disclosed, including increases in existing provisions?

Samarco; 2017; p. 41—item 3-g.b

3.1.6 Were the amounts used (ie incurred X and written off against the provision) disclosed during the period?

Samarco; 2017; p.45 item k—Other operating expenses

3.1.7 Were unused amounts disclosed and X reversed during the year?

Samarco; 2017; p. 41—item 3-g.b (continued)

236

Appendix: C—Checklist—Financial Statements 2017

(continued) 3.1.8 Has the amount of any expected repayment been disclosed, stating the value of any asset that has been recognized on account of that expected repayment?

X

3.1.9 Was the increase over the period X discounted to present value from the passage of time and the effect of any change in the discount rate?

Not disclosed in the annual report ended 12/31/2017

Samarco; 2017; p. 41—item 3-g.b

3.2 CONTINGENT LIABILITY ITEM

YES

3.2.1 Has a brief description of the nature of the contingent liability been disclosed for each class of contingent liabilities at the balance sheet date? 3.2.2 Was the estimate of its financial effect disclosed when practicable?

NO

REFERENCE

X

Not disclosed in the annual report ended 12/31/2017

X

Samarco; 2017; p.42 e 43 item 3-h

3.2.3 Were the uncertainties related to the X amount or timing of any exit disclosed when practicable?

3.2.4 The possibility of any refund when practicable?

Samarco; 2017 p. 44—item 3-h. “Management has also considered other claims that are classified as possible and / or likely to be in the early stages and have significant uncertainties. (…) Until new facts are developed and the uncertainties already mentioned are resolved, it is not possible to provide a range a reliable estimate of Samarco’s obligations arising out of such matters. ” X

Not disclosed in the annual report ended 12/31/2017

Index

A Accounting, 3–6, 9, 10, 12–15, 32, 39–42, 45, 46, 57, 66, 84, 85, 134, 135, 137, 138, 140, 142, 143, 148, 153, 155, 163–167, 187–194, 196, 197, 200–203, 205, 207–209, 213, 214, 216, 217 Accounting information, 13, 40, 188 Accounting manipulations, 187, 188, 201 Accounting policies, 188–190, 192, 196, 199, 201, 216 Accounting procedures, 190 Accurate financial reporting, 5, 165, 166

B Bank financial strength, 22, 27 Bank size, 22, 27, 28, 30, 32 Bitcoin, 81–86, 89, 90, 99 Blockchain technology, 81, 82, 84, 87 Brazil, 38, 42 Business life, 102 Business model innovation, 104 Business models, 17, 18, 20, 33, 101–105, 107, 109–111

C Climate change, 6, 9–16, 24, 25, 134, 135, 137, 139, 142, 143, 153, 155–160, 162, 166, 167 Climate change risk, 9, 10, 12, 14, 15 Company, 3–5, 9, 11–16, 21, 22, 24, 37–41, 44–50, 52–57, 63–70, 75–77, 84–86, 102–104, 106, 107, 109, 110,

120–131, 133–150, 156, 166, 188, 190–192, 200, 202, 209, 215, 216, 222–225, 228, 230, 234, 235 Compliance, 6, 46, 49, 54, 57, 67, 103, 172 Content analysis, 17, 26, 33, 137 Cooperative bank, 17, 20, 27, 28, 31–33 Corporate governance, 6, 20, 63–68, 72, 74, 75, 193 Corporate Social Responsibility (CSR), 4, 6, 18–29, 31, 32, 45, 143, 145 Country CSR sensitivity, 20, 27–29, 31 COVID-19, 102 Creative accounting, 187, 188, 190–192, 196, 199, 203, 205, 207, 208, 213, 217 Cryptocurrency, 81–91, 93–99 Currency, 81–91, 99, 204, 216

D Digital money, 82, 84 Disaster, 9, 12, 15, 37–40, 48, 57, 109, 157

E Educational life, 102 Emerging countries, 123, 130 Enterprises, 4, 63, 64, 67, 85, 87, 108, 122, 165, 166 Entrepreneurship, 6, 106 Environment, 10–13, 17, 18, 20, 21, 23, 24, 26, 27, 33, 38, 39, 41, 44–46, 48, 54, 66, 76, 82, 103, 106–109, 118–121, 124, 134, 135, 139, 140, 142, 143,

© The Editor(s) (if applicable) and The Author(s), under exclusive license to Springer Nature Singapore Pte Ltd. 2022 K. T. Çalıyurt (ed.), New Approaches to CSR, Sustainability and Accountability, Volume III, Accounting, Finance, Sustainability, Governance & Fraud: Theory and Application, https://doi.org/10.1007/978-981-16-9364-9

237

238 149, 154, 155, 157–159, 162, 165, 166, 175, 176, 182 Environmental credit risk management, 17, 18, 20–23, 25, 32 Environmental issues, 9–16, 18, 19, 24, 38, 40, 45, 48, 66, 148, 164 Environmental responsibility, 19–21, 23, 24, 31, 33, 38–40, 44, 66, 68, 76 Equator principle signatory, 21, 27–29, 31–33 Ethical responsibility, 65, 68, 76 European banks, 19, 23, 24, 29 External dimension, 75 F Faculty development, 183 Faculty identity, 169, 170, 172–176 False financial reporting, 187, 194 Financial accountability, 65 Financing, 21, 24, 25, 27, 49, 55–57, 66, 89, 128 Flexible working, 102, 106–108, 111 Fraud in the financial statements, 194, 195, 197, 198, 217 Fraud programs in financial statements, 198 Fraud schemes in financial statements, 198 Functional flexibility strategy, 108 G Governance, 3–5, 63–65, 68, 72, 77, 104, 135, 160, 162, 163, 167 Government power, 20 H Home office, 101–103, 105–107, 109, 111 Human resources, 26, 107–109, 121, 123, 125, 127, 130 I Indian faculty, 173 Internal auditing, 9, 10, 12, 14, 15 Internal dimension, 63 Internationalisation, 123 J Job satisfaction, 105–107, 111, 181, 182 K Kosovo, 81, 90, 91

Index L Law, 13, 16, 45, 65, 66, 75, 82, 83, 91, 95, 97–99, 106, 108, 136, 189, 205, 213 Legal responsibiltity, 65, 68, 75 Liabilities, 13, 37, 39–44, 46, 47, 50–57, 67, 135, 164, 188, 189, 195, 196, 199, 200, 203, 206, 207, 209–214, 216, 217, 221, 222, 224, 225, 227, 228, 230, 233, 234, 236 Logistic, 63, 68, 69, 75–77, 109, 178

M Manipulations in accounting, 187, 188, 196 Manipulations In estimating balance sheet items, 187, 188, 199

N Non-Governmental Organization (NGO) power, 21 Numerical flexibility strategy, 108

O Organizational characteristics, 19, 21, 22

P Pandemic period, 109 Procedures in creative accounting, 203 Professional identity, 169–176, 178, 180, 181, 183 Provision, 37, 39–44, 46, 47, 50–54, 57, 76, 90, 120, 122, 128, 129, 131, 136, 148, 192, 199, 200, 203–205, 217, 221–225, 227–230, 233–235

Q Qualitative study, 169, 173

R Reporting, 3–6, 9, 13–15, 65, 66, 84, 85, 134–140, 142, 143, 148–150, 164–166, 181, 187–193, 196, 201, 211 Risk, 5, 9, 10, 12, 14, 18, 20, 21, 24–27, 33, 39, 42, 43, 45, 52, 53, 55, 84, 87, 90, 102, 103, 106, 107, 120, 124, 134, 140, 154, 157, 158, 160, 167, 192,

Index

239 194, 196, 197, 204, 217, 223, 229, 234

S Samarco, 37–40, 46–57, 221–225, 227–231, 233–236 Shareholder power, 20, 31 Slack resource theory, 21 Smes, 129 Staff training, 9, 10, 12, 14, 15 Stakeholder power, 17, 19 Study abroad program, 169, 170, 173–176, 178–183 Sustainability, 3–6, 9–15, 23, 24, 26, 27, 63, 133, 134, 136–147, 149, 154, 156, 159, 162–167

T Temporary flexibility strategy, 108 Training of the accounting staff, 9 Training of the internal auditing staff, 9 Transactions, 13–15, 39–41, 46, 48, 69, 81, 82, 84–91, 93–95, 97, 98, 104, 120, 193, 195, 196, 199–201, 203, 205–207, 215

V Valuation of balance sheet items, 189, 217, 218 Value creation, 104

W Wage flexibility strategy, 109