REACHING SOCIAL AND ENVIRONMENTAL ACCOUNTABILITY IN MALAYSIA

REACHING SOCIAL AND ENVIRONMENTAL ACCOUNTABILITY IN MALAYSIA Norhayah Zulkifli, Faculty of Business and Accountancy University of Malaya, Malaysia e-mail: norhayah@um.edu.my Brian Telford, Business School University of Glamorgan, Wales btelford@glam.ac.uk Professor Neil Marriott, Business School University of Glamorgan, Wales nmarriot@glam.ac.uk REACHING SOCIAL AND ENVIRONMENTAL ACCOUNTABILITY IN MALAYSIA ABSTRACT In various organisations, social and environmental concerns may have given rise to the advocating of social and environmental accounting (SEA) and reporting practices As a relatively new form of accounting, SEA may provide the basis of knowledge for the increasingly popular approach in companies reporting and management such as corporate social disclosure (CSD) and/or corporate social responsibility (CSR) Malaysia is inevitably experiencing a rise in its social and environmental problems hence adopting these approaches although still in its infancy appear to be justifiable The match or mismatch between the idea of assuming accounting and management approach underlying SEA with the scenario of Malaysians’ understanding and perceptions towards the new accounting area is yet to be explored Qualitative data from fourteen in-depth interviews and responses on the open-ended questionnaire from 222 survey respondents were obtained from among accounting educators and practitioners in Malaysia The study provides a qualitative overview on reaching a state of social and environmental accountability in Malaysia which consists of three aspects – positive direct determinants, indirect external drivers and circumstances or accounting orientation In the Malaysian context, observations on the awareness and understanding of social and environmental accounting (SEA) can be gleaned from reports on social and environmental issues, the development of corporate social responsibility (CSR) and corporate social disclosure (CSD) as practiced by some companies Although relatively small, there has been an increase in CSD (ACCA, 2002, 2003 and 2004) and a commendable increase in participation of companies in corporate social responsibility activities (see for instance Thevaraj, 2002; Baskin, 2005; Prathaban and Abdul Rahim, 2005) Nevertheless, the ongoing reports on the proliferation of social and environmental problems by the media and the implication of companies with these problems indicate that a long-term solution is necessary Apart from promoting adequate reporting of social and environmental activities in companies’ annual reports, conscious embrace of social and environmental responsibility by corporations are deemed to be critical It is foreseen that adopting SEA and reporting activities based on solid understanding and an embrace of the concepts would provide meaningful impacts to the organisations, society and the environment This study aims to provide insights from accounting practitioners and accounting educators on their perceptions of SEA and the prospect of realising the relatively new accounting area in Malaysia, thus paving the way for the nation in reaching a state of social and environmental accountability BACKGROUND AND PURPOSE As a developing country, Malaysia is no stranger to issues of social and environmental problems Of late, business activities have been vehemently blamed for the deterioration of rivers, forest reserves and public places The frequent flash floods in Kuala Lumpur, for example, are a manifestation of the environmental problems that the country is now experiencing Unbridled exploitation of highland areas has been identified as one of the primary causes of this misery, costing money and lives (FWWL, 2001) Similarly, many cases of mismanagement and misappropriation of funds involving billions of dollars have been reported by the media Perwaja Steel, the showcase venture into heavy industry and the icon of Malaysia’s industrialisation drive of the early 1980s, is facing a serious financial crisis and has been under investigation for alleged abuse of funds since 1996 (Suh and Poh, 2001) In the first quarter of 2005, many cases of environmental degradation have hit the headlines of major local dailies, causing concerns on the part of the public and the government Reports on illegal logging, hill cutting1, river pollution, marine pollution, air pollution, improper treatment and disposal of toxic waste, deterioration of water quality, declining coral reefs, coastal erosion, over-fishing and biodiversity loss are fast becoming a norm Much discussion and finger pointing ensue from such reports Besides the lack of coordination and enforcement of the activities of the various agencies responsible for dealing with the environment, it is starkly clear that there is a lack of knowledge and appreciation of the importance of environmental protection and conservation As an example, the Fisheries Department is a fragmented and economicdriven entity that does not prioritise biodiversity conservation Hence it is more concerned with the economic maximisation of fish catch than sustainable fishing activities (Chiew, 2005) In other cases, some lakes and rivers are drying up due to siltation problem The largest freshwater lake, Loagan Bunut in East Malaysia, is fast drying up due to sedimentation from logging and land clearing activities (Balasegaram, 2005) The problem of siltation and water pollution are also affecting the Cameron Highlands In addition, the opening up of more land for agriculture will affect the microclimate, resulting in warmer weather (Begum and Teoh, 2005) A study on hydropower development in the same place shows how the different phases of Please refer to reports made by Sim (2005) and Loong (2005) in this section about the hill cutting activities for housing development taken place at Bukit Cahaya Seri Alam Agriculture Park “Bukit” in the Malay language means hill development had contributed to the problems of erosion and sedimentation in the river basin system (Khairulmaini, 1999) In this regard, mismanagement of river resources has led to increasing frequencies and magnitudes of environmental hazards such as floods, raped slope failures, river bank erosion and slumping, accelerated soil erosion, and problems associated with sedimentation (Khairulmaini, 2003) Corporate culpability in environmental issues is not uncommon It was reported recently in 2005 that part of a 41ha area of permanent forest reserve in one of the states in West Malaysia is in danger of being stripped bare by illegal felling of trees In addition, the 800ha Bukit Cahaya Seri Alam Agriculture Park is turning into an “island” as surrounding areas are being developed for housing (Sim, 2005; Loong, 2005) In the ensuing series of Sessions Court hearings, several companies were implicated for various misdeeds Four companies pursuing development projects in the agriculture park were fined a total of RM132, 000 for various environmental violations (The Star Online News, 2005a) In East Malaysia, several wealthy land and property development companies were found to engage in activities that resulted in wild fires and haze, a recurrent problem plaguing the region (Then, 2005) Improper treatment and disposal of toxic industrial waste is another concern as the country positions itself to be a fully developed nation by the year 2020 In June of 2004, a food producing company pleaded guilty in the Sessions Court to the charge of improper discharging of toxic effluents (The Star Online News, 2005b) Another company, SynEnviro, was investigated by the Department of Environment (DOE) for allegedly accepting scheduled waste from overseas (Maizatul, 2005) Under the Environmental Quality Act, 1974, such offenders can be imposed a maximum fine of RM500, 000 or jailed for five years or both (Teoh, 2005) Since industrialisation will continue to be a significant propeller of the nation’s economic progress, the Natural Resources and Environment Ministry is planning to introduce a rating system to encourage better management of scheduled waste by the industries producing it (The Star Online News, 2005c) The constant exposure of environmental disasters via the media has better informed the public, the government and the affected agencies on social and environmental obligations Consequently, there has been a rise in the number of companies engaging in some rudimentary forms of social and environmental reporting (see Environmental Resources Management Malaysia, 2002; ACCA, 2004) At the same time, there is now a spate of research into the state of such reporting by accounting scholars (refer to Teoh and Thong, 1984; Ho, 1990; Jaffar, 2002; Muhammad et al., 2001; Thompson and Zakaria, 2004) Nevertheless, SEA requires a much broader concept of accounting (Mathews, 1993; Gray et al., 1996), one which embraces the idea of identifying explicitly social costs and social benefits in the decision-making process of companies (Mobley, 1970; Churchman, 1971; Linowes, 1972) SEA transcends the traditional boundaries of accounting (see Gambling, 1974; Estes, 1976, Gambling, 1978; Perks, 1993; Mathews, 1993, 1995; Gray et al., 1996; Gray and Bebbington, 2001) In words more pertinent, Seidler (1975) and, Bloom and Heymann (1986) report that the idea of social and environmental responsibility in accounting is partly due to an increased tendency to question the established order of society as well as a growing concern with the deterioration of the environment Malaysia is a developing country with an impressive economic growth track record during the 1990s, and as indicated by the 9.8% points rise in the Malaysian quality of life index (MQLI), its quality of life has continued to improve from 1990 to 2002 (Economic Planning Unit, Malaysia, 2005) The country is said to experience an exciting economic expansion at least around and within the ASEAN (Association of Southeast Asian Nations) region (Mahmood, 2002) This impressive growth is not without its pitfalls While significant strides have been made in transportation, communication and the working life, for example, two other components of quality of life have deteriorated These are public safety and the environment (Wan Abdul Kadir, 2005) Crime rate per thousand of population has increased from 3.8 per thousand people in 1990 to 6.2 in 20023 The rapid increase in the number of motor vehicles, urbanisation and industrial growth have all contributed to the deterioration in the quality of air and water Clearly, growth has its own attendant social and environmental problems To address these problems, several measures are clearly warranted On the whole appropriate implementation of accounting and reporting practices would determine the credibility of the profession in safeguarding public interests Geddes (1995) stresses that the key to professional status lies in the word “human” in Abbot’s above definition of tasks as “human problems amenable to expert service”; so that the more important the problem is to individual human beings, the higher will be the status of the occupations which offer to solve the problem Taking a cue from Abbot, Geddes implies that the rise of the accountancy profession (at least in Anglo-American countries) is intrinsically linked to the ascent of financial considerations as a human concern, just as physical well being is a human concern that is addressed by the medical profession This is especially true in an increasingly secular society where being poor is no longer considered a virtue In the case of SEA, apart from promoting the elements of subjectivity and humanities, which to some extent reduce the technical concentration of accounting, its concerns for corporate activities towards the environment and the society is a clear indication of its effort to solve human problems In this regard, SEA is seen as a new form of accounting which augments the profession to the potential status of an idealised profession RESEARCH METHODS Burrage et al., (1990) actor-based framework is adapted in the research approach, in that two actors namely, academics and practitioners are used instead of four, as outlined in the actual framework “Although an ‘expectations gap’ between academics and practitioners in accounting is inevitable, the long run health of the profession depends absolutely on the marrying of academic and practitioner perspectives” (Gray et al., 2001, p 111) Burrage et al (1990) consider accounting practitioners as one of the key actors engaged in the struggle of occupations to establish themselves as professions However their framework involves academics (or universities), the clients and the state as factors that determine the form and success of the professionalisation process Hence in the framework, the perceptions and views of the two groups of people recognised as accounting educators and accounting practitioners are identified in understanding and realising the role that accounting can play pertaining to aspects of social and environmental responsibility Their opinions and insights on the subject matter are considered in developing a possible accounting framework on the subject matter Fourteen respondents took part in the in-depth interviews comprising semi-structured and unstructured questions, and 222 questionnaire survey respondents presented their views through ASEAN consists of ten member countries: Indonesia, Malaysia, Philippines, Singapore, Thailand, Brunei Darussalam, Vietnam, Laos, Myanmar and Cambodia The aims of the association are to accelerate the economic growth, social progress and cultural development, and to promote regional peace and stability among countries in the region (Association of Southeast Asian Nations, 2006) The most current information shows that there has been a 15% increase in the crime rate in Malaysia (Ramli and Shuman, 2007) six open-ended questions Both the survey and interviews were conducted in throughout June 2004 to March 2005 The theme of the interview questionnaire as shown in Table revolved around social and environmental responsibility elements in accounting practice and discipline, SEA awareness among the respondents, and the orientation of accounting The objectives of the interviews were similar to those of the questionnaire survey, but with the anticipation that the interviewees would offer further insights into the research matter The interviewed educators and practitioners were determined through convenience sampling based on their availability and willingness The interviewees comprised seven educators and an equal number of practitioners while the questionnaire respondents who provided qualitative data involved 99 educators and 123 practitioners out of a total of 467 respondents of a survey also conducted for this study Hence, apart from the interviews, this paper focuses on the input of the qualitative data provided by the respondents on the six open-ended questions of the survey as shown in Table The responses of practitioners and educators offer a wealth of information and reflections pertaining to their views on the general issues surrounding social and environmental accountability, ethics and the accounting profession It should be noted that for the open-ended questions, responses obtained from the last two questions which are particularly open provided most of the qualitative data In addition apart from making an attempt to seek the respondents’ insights on their perceptions, awareness and understanding towards matters pertaining to social and environmental accountability, the study also relates their responses with the position of accounting education on social and environmental accounting However, this paper does not include the data involving the social and environmental accounting education aspect On the whole it should be emphasised that also some quantitative and descriptive findings may be provided, the research methods and analysis of this paper are qualitative by nature, hence the findings are aimed to provide insights which may lead to an understanding into the subject matter of this paper NViVO, a computer software package specialising in the analysis of qualitative data, processed the written responses in the questionnaire, which range from nine to 229 words, together with the transcribed interviews A number of quotations are presented as examples of the views of the educators and the practitioners on the subjects enquired To ensure the confidentiality of the respondents, their identities are not revealed with the quotations presented in this paper However for the interviewees, their gender, position and years of teaching or practice which refers to the profession of the practitioners, and qualifications are stated in Table Since the number of survey respondents is relatively large, listing their background information in a table would consume too much space, hence their profile is stated at the end of each quotation Unlike the interviewees, the vocational positions of the survey respondents are not provided The following abbreviations are used: EI – educator interviewee; ESR - educator survey respondent; PI – practitioner interviewee; PSR – practitioner survey respondent The number following the abbreviations indicates the individual interviewee or survey respondent as recorded by this researcher Table - Interview questions for the respondents Section 1: Background information Section 2: Views and perceptions A) Awareness What is/are the development/s in accounting that demand changes in Malaysian accounting profession? (You could relate your experience to your own current job) Would you like to tell me your understanding or exposure towards Social and Environmental accounting/corporate social disclosure? What you think of the awareness of the accounting practitioners (any accounting background person who’s doing his/her work which relates to accounting or finance) in Malaysia on SEA/CSD in general? B) Functions of SEA What you think of Malaysian companies’ involvement in social and environmental responsibility? Should accounting professionals play their part in social and environmental aspects of companies/organisations in Malaysia? Why? How? Do we need a mandatory requirement to prepare a corporate social responsibility and environmental report? Why? C) SEA Issues What you think of the relevance of the SEA issues (referring to the list of issues), to the accounting profession in Malaysia? Why? Would you like to relate to me some of the SEA issues that you might have learnt/encounter? (When, where, how?) Are any of the issues being practiced in your organisation? If yes, in what way? If not, would you consider putting them in your practice? Table 2- Extraction of the open-ended questions of the survey questionnaire Please state any other accounting concepts/areas relating to social and environmental accounting that you know Please state any other developments relating to social and environmental accounting and reporting that you know Please state any other topics not listed in the table relating to social and environmental accounting that you have learnt/or intend to put into practice Please specify other possible roles of social and environmental accounting and the education Please state your view/s on the main issues that affect the accounting profession in Malaysia for the past decades This questionnaire may not have provided you with enough opportunity to state your views on social and environmental responsibility and accounting and/or education If you have any further comments or suggestions, please use the space provided to express your views INFORMATION OF INTERVIEWEES Table outlines the background of the interviewees The fourteen interviewees consist of seven accounting educators and seven practitioners The equal number of both groups and the similar distribution between male and female are unintentional Convenience-sampling technique is utilised in determining the participants The gender, years of working experience, professional qualifications and memberships, as well as Malaysian Institute of Accountants (MIA) memberships are presented here MIA is the regulatory accounting body in Malaysia and it provides a data base for its registered members of chartered accountants (CA) Table - Background of interviewees Interviewees Details Male, years teaching, MBA acc Female, years teaching, MBA acc Female, 13 years teaching, PhD Female, years teaching, PhD Male, 19 years teaching, PhD Female, 10 years teaching, M Acc Female, 16 years teaching, M Acc Male, top manager, public accountant, 25 years practice, CPA Female, technical manager, years practice, B Acc 10 Female, account executive, years practice, B Acc 11 Female, manager, 13 years practice, CIMA 12 Female, technical manager, years practice, B Acc, ACCA 13 Male, technical manager, 13 years practice, MICPA 14 Female, assistant manager, years practice, B Acc Abbreviation EI1 EI2 EI3 EI4 EI5 EI6 EI7 PI8 PI9 PI10 PI11 PI12 PI13 PI14 Three of the accounting educators hold a PhD qualification while another three are associate members of MIA None of them has any professional accounting qualification A dean of an accounting school of a public university is among the interviewed educators and another two are heads of accounting departments of two public universities The PhD research topics for two of the educators are on areas relating to SEA All respondents except one are currently involved in research related to SEA as well as CSD The definition of accounting practitioners is, by choice, very liberal to include all persons outside the academia who are practicing accounting, whether in a public practice, industry, commerce or the public sector (Donovan, 2005) All of the practitioners are members of MIA and four of them hold various professional qualifications and memberships in Chartered Institute of Management Accountants (CIMA), Association of Chartered Certified Accountants (ACCA)/ Institute of Chartered Accountants England and Wales (ICAEW), Malaysian Institute of Certified Public Accountants (MICPA) and Chartered Public Accountant (CPA) Australia The other three hold accounting degrees from Malaysian universities and one practitioner, who has a degree from a UK university, is a member of ICAEW and ACCA Four practitioners hold important positions in the MIA ranging from president to managers of departments Three other practitioners are each head of a finance and project services department (who is also a former cost accountant), an assistant manager and an account executive The three of them are affiliates of two public listed companies in Malaysia FINDINGS It appears that for the educators, most of the responses centre mainly on the two broad enquiries: issues affecting the accounting profession in Malaysia and comments on SEA relating to accounting orientation and the profession In contrast to the educators who had research interests in SEA related areas, none of the practitioners is involved in any form of SEA or CSD practices in their respective organisations Even though four of the interviewees are representatives of the MIA, the main objectives of the interviews are not to find out about SEA or CSD practices in the organisations that they are affiliated Rather, the objectives are to elicit their awareness and perceptions on issues related to SEA It can be seen that the themes common to the practitioners partly differ from those of the interviewed educators, reflecting the practitioners’ inclination towards certain issues The themes are specified as follows: awareness of and exposure to SEA; ethics and the accounting profession; functions and traits of the practitioners; issue of SEA valuation and information worthiness, and business, government and society In comparison, the written responses of the practitioners cover issues relating to ethics, transparency and independence of accountants Consequently, five themes are drawn up These are: issue of standardisation; ethics and accounting orientation, and aspects of SEA By combining the written and oral inputs of the practitioners, the qualitative data are analysed in categories similar to the educators but with different areas of emphasis Overall, based on the interview feedback and the responses to the six open-ended questions, the following groupings of themes emerge after the due process of analysis: i) aspects of SEA; ii) accounting orientation and iii) ethical issues Figure and illustrates the emergence of the themes from the nodes created by NViVO for the educators and practitioners respectively This paper does not intend to focus on the comparison between educators’ and practitioners’ insights on the research are However, the study sees that it would be appropriate to separate the data as they are large (1) SEA aspects (2) Accounting orientation (3) Ethical issues Awareness Ethics education Financial/non -financial aspects of reporting Preparer roles Measurement/ valuation issue Accounting change impact Accounting values Islamic perspective Financial reporting issue Unethical business practices Standardisation issue Figure - NViVO qualitative data sets and trees of educators 10 “Accounting profession is only playing a supporting role in safeguarding stakeholders’ interest; there must be “buy-in” from both stakeholders (and public) and the organisation on the need, and then only it is achievable” (PSR209, female, 5-10 years practice, B Acc, CPA Aust) However, there are reflections from some practitioners that their functions on cost control may very well provide an opportunity for them to play a part in influencing management decisions on matters relating to social and environmental responsibility “Accounting professionals should play a role [in social and environmental responsibility cases] because they control company’s costs and expenses” (PI10) To the practitioners, implementing social and environmental reporting would be futile if there is no corresponding system of audit to verify the veracity of the reports SEA and audit are perceived to be intertwined and this fact has to be factored in the curriculum of SEA education “Obviously, there is an auditing and reporting requirement that needs to be verified by auditors If it is the annual type of report audited financial statements, the auditor has to verify the numbers If it is just like voluntary disclosure, maybe they are not so concerned” (PI12) “There is an auditing and reporting requirement that needs to be verified by auditors and they will need to pick up that skill to evaluate and make a correct diagnosis of the accuracy of the reports” (PI13) The audit function envisaged by the practitioners would be relevant if social and environmental reporting is made mandatory Such an audit function would provide the required objective assessment of the measurements used to value social and environmental costs In another instance when a perceived role clashes with SEA is the case of business stewardship in which case a practitioner’s function to safeguard the interest of the business and the shareholders has to be understood and taken into consideration As such, the success of SEA is contingent on a number of factors not the least of which being the acceptance or buy-in of the shareholders of their social and environmental obligations “Actually, who gets the satisfaction of the profit and margin? Not the accountants, but of course we are very happy with our numbers, but at the end of the day, it is the shareholders, isn’t it? Even for an MD [managing director] to make a decision they have their shareholders to answer to and they [shareholders] still impose on the management the need or the priority to make profit” (PI11) 22 “I think in the short term SEA may not be their priority There must always be a pleasure from the shareholders…they may need…a long time The soul of the companies must be the board of the governors…” (PI13) The last role as reflected by the practitioner respondents concerns their involvement in the profit maximisation of the firm “To me, as far as accounting is concerned, we always think about numbers and for the board of directors, your emphasis is on profit, profit maximisation as you can say; then sometimes they just have to let go all these things [social and environmental concerns] It may be better that the companies, since they are managed by people who are best in terms of generating profit, not to pamper with all these things [account for social and environmental matters]” (PI13) “I think small and medium audit firms might go into…profit maximisation maybe they have to [to survive] because they are quite competitive…I think to survive they…have some profits in mind As a socially responsible company, they should not…but sometimes the important thing is actually the profits” (PI12) “That is the main mission of a company [maximising profit] even though… at the expense of other things such as the environment” (PI14) The data clearly shows that some of the practitioners follow this neo-classical trait while others seem to perceive that this orientation is not something ingrained in them They however, not consider their training as a factor in developing the trait Instead, they regard profit maximisation as a natural business motive that one can easily get institutionalised “Even though you are not…educated in such a way…[non-accounting background] when you come to a company, for your own reputation and you want to something for the company, we tend to see how we maximise profit for a company that we are working In a way, we were not taught [to maximise profit]” (PI14) In addition to the above, there are numerous written comments by the practitioners to the effect that the overriding concern of businesses, and by extension the accounting professionals, is the maximisation of profits and the minimisation of costs It appears that these comments are made to underscore the difficulty of companies to make the transition to social and environmental reporting because this would mean additional costs to them “Accounting professionals are concerned with maximising profits/minimising costs at the expense of social environmental costs A lot of talk on social and environmental but they are not put into practice; what matters most for the accounting professionals in Malaysia is to maximise profit and minimise costs Most of the companies are profit driven- maximise profit” (PSR80, male, 1-5 years practice, B Acc) 23 “Most companies tend to maximise their profits without contributing to the environmental and social aspects” (PSR81, male, 1-5 years practice, B Acc) Among the most number of responses obtained from the practitioners are on issues relating to accounting standards These can be categorised into three aspects: legislation, compliance and enforcement, and local standards issue According to the practitioners, financial reporting is merely an act of complying with the statutory requirement and the accounting standards Consequently, if additional reporting as proposed by SEA is to be implemented, this too will need to be governed by guidelines and legal provisions “They [accounting reports] are mainly prepared to convey the statutory requirement as well as the accounting standards” (PSR112, male, exceed 10 years, B Acc) “The financial statement prepared only for the management, shareholders and auditors Companies are not willing to disclose more than what are required by the law and standards” (PSR198, female, 5-10 years practice, B Acc) It also appears that the practitioners are disturbed by the undue emphasis given to standards compliance rather than the adherence to the substance and purpose of standardisation “The main issue is interest of accounting profession, which may drive only to compliance instead of improving the accounting standards” (PSR457, female, 1-5 years practice, B Acc, ACCA) “Accounting profession in Malaysia is more inclined towards compliance of standards and laws It should be geared towards developing standards and policies which we need in facing the more challenging economic environment especially SEA standard These are main issues besides standard setting” (PSR198, male, 5-10 years practice, ACCA) A closer look at the written response on standardisation reveals that the practitioners are concerned with the quality of Malaysia’s own accounting standards and the need for these standards to reflect local conditions “Most or all of the standards are translated from IAS standards Still, other standards should match the environment and condition of Malaysian environment” (PSR146, female, 1-5 years practice, B Acc, ACCA) 24 “The main issue is the development of our own accounting standards, taking into account local requirement and environment (for example Islamic based accounting and agriculture)” (PSR166, female, 1-5 years practice, B Acc) ETHICAL ISSUES Much of the discussion on business responsibility towards the society and the environment is inevitably linked to the issues of ethics in the accounting profession As reflected in the interviews, it is impossible to ignore discussing the linkage between accounting and ethical issues following the heels of the Enron debacle Based on the reflections of the educators, the following themes relating to ethics emerge: financial reporting issues, standardisation issue, CSD and unethical business practices, and Islamic perspectives of SEA The feedback from the practitioners indicates that the functions of the code of conduct, enforcement and professional independence are their main areas of concern At the same time, chances of being implicated in unethical business practices are also reflected From the range of reflections on ethics, the following categories are constructed in addition to those reflected by the educators: issues of integrity and accounting roles, ethics education and, implications of ethics on SEA About financial reporting, the main concern of educators is the true and fair presentation of the financial performance and the state of affairs of the reported entity Others relate to the elements of reliability and transparency of such reports “While some of the corporate managers are alert of this issue [SEA and reporting aspects], a good reporting can still be questionable on its reliability” (ESR 401, female, 1-5 years teaching, M Acc) “The ability of financial reporting to reflect a true and fair view…is among the main issues affecting the accounting profession in Malaysia” (ESR263, female, exceed 10 years teaching, MBA) “I doubt…how far audited accounting report can be valuable evidence on high profile cases” (ESR451, female, 5-10 years teaching, M Acc) The educators mention three elements of standardisation: compliance, enforcement and political influence Compliance, being one of the cornerstones of accounting, is not impervious to violations; enforcement would only be meaningful for mandatory compliances; politics can encroach into the compliance domain “Compliance with standards has become one of the most important things that affect the accounting profession for the past decades” (ESR376, male, exceed 10 years teaching, M Acc) 25 “Accounting profession in Malaysia only ensures enforcement and as long as social and environmental aspects are not made mandatory, they would not be considered as so called ‘commercial values” (ESR333, female, 5-10 years teaching, M Acc, ACCA) “The main issue is political interruption among politicians on the accounting standards (MASB)” (ESR407, male, 1-5 years teaching, B Acc) One other comment from the educators concerns accounting professional misconduct and its link with recent high profile corporate misappropriations “In the past few years, accounting profession had been associated with the collapse of big giant local companies such as MAS, Renong etc This phenomenon creates a bad impact among the public in terms of the credibility, moral standard and responsibility of the accountant, financial controller and creditors The function of auditors as a watchdog can be easily argued” (ESR312, male, 1-5 years teaching, MBA acc) “The main issue is corporate scandals that reflect the unethical behaviour of business organisations and accountants” (ESR371, male, 1-5 years teaching, M Acc) Ethical reporting has apparently deteriorated in Malaysia of late as evidenced by the increase in business malpractices Consequently, the practitioners feel that there is an urgent need for the profession to look closely at the reliability issue of accounting practices and to consider implementing CSD When ethical issues are raised, the interviewees tend to connect frequently the concepts and understanding of SEA with religious values such as Islam “Islam encourages its followers to protect the environment Islam promotes social contribution (good deeds) For instance, Islam wants to make sure that the profits that companies earn are halal (permissible by religion and God)” (EI2) “The way I perceive the values or knowledge content of SEA/CSD is that it links with the Islamic values; it links with the universal good values, responsibility issues It is obvious that Islam prohibits destruction of the earth” (EI7) It appears that some accounting educators tend to use the Islamic perspectives not only in observing some of the elements in SEA but the overall accounting framework “The accounting framework, which is being used currently, ignores the aspect of Islamic social responsibility” (ESR326, female, exceed 10 years teaching, M Acc) 26 “Other concept of SEA includes social responsibility in Islamic accounting” (ESR313, male, exceed 10 years teaching, M Acc) In Malaysia, Islam being the official religion is projected as a religion with universal values The emergence of Islamic banking and finance as one of the products of the Islamic revival in the country indicates the interest of certain parties to adopt a non-conventional approach to accounting and finance This scenario implies that Islamic consciousness among Muslims in Malaysia prompts not only the implementation of Islamic financial institutions but also other Islamic elements that may include SEA It is, therefore, not surprising for the educators to associate SEA with Islam Nevertheless, unlike SEA, Islamic accounting functions according to the syari’ah (Islamic laws) which are embedded in the Islamic teaching and contained in the Qur’an and Sunnah While Islamic accounting can function in its defined parameters, SEA can enhance the values embedded in conventional accounting education to meet the needs of Malaysia’s multi-racial and multi-religious society While SEA includes Islamic elements, especially regarding one’s responsibility towards the society and the environment, written remarks by the practitioners indicate that they prefer Islamic accounting to SEA “Islamic accounting is more applicable than SEA” (PSR17, male, 1-5 years practice, B Acc) “We need to explore vastly on Islamic accounting standards in line with the government’s effort to shift to Dinar4 in the future” (PSR105, male, 1-5 years practice, Dip Acc) According to the practitioners, the issue of integrity is, to a certain extent, dependent on the way accounting roles are being practiced The lack of independence in dispensing one’s duties and the handicap of not having a more assertive role in a particular organisation are examples cited to support their view The responses are categorised into three areas: Independence, Practitioners’ limited role and Shareholders and political influence Before examining specifically what the practitioners have to say concerning the three areas, it is worth looking at what some of them have to say on ethics and integrity “I expect accountants to be able to make ethical decisions if the trained professional is bound by [their] code of conduct Accountants must have all these core values; must spread these core values and perform their vocation using these core values as the guidelines” (PI8) “The fundamental issue facing the profession is that of integrity This element would have been ingrained in an individual during his earlier development For the accounting fraternity to consider ‘reinventing’ the role of the accountant Malaysia promotes the adoption of single currency called ‘Dinar’ for the Muslims countries 27 based on the fundamental issue of integrity may lead to a dilution of the need for the accountant to be competent in his profession, first and foremost” (PSR92, male, exceed 10 years practice, ACCA) “People have a negative perception towards accountants and auditors especially after the Enron case To improve the integrity and accountability, public should be disclosed with more transparent information rather than transaction alone This includes the SEA topics that will enhance the ethics of accounting profession” (PSR105, male, 1-5 years practice, Dip Acc) Accountants and auditors are perceived by the practitioners as not being independent in undertaking some of their decisions For instance, big organisations have a tendency of engaging the same group of auditors to perform a host of services apart from the auditing of the statutory accounts These extra services may include the preparation of tax returns, accounting and consultation Indirectly, this causes a conflict of interests where auditors end up auditing their own work “Accountants in Malaysia are still struggling with ethics They cannot form independent professional decisions because auditors are dictated by clients and management is dictated by directors This undermines the trustworthiness of audited accounts and the profession as a whole” (PSR211, female, 5-10 years practice, B Acc) “Bigger firms are given higher priority in everything, so the bigger firms are providing all the services such as accounting, taxation, consultation and auditing The work done by the firms are audited by themselves There is no independence” (PSR228, male, 5-10 years practice, B Acc) A number of remarks made by the practitioners in the questionnaire indicate their inclinations towards the implementation of SEA However, many of them are sceptical at the same time of the accountants’ ability to instigate change, given the limited roles that they play in organisations This lack of managerial qualities on the part of the accountant is perceived to be due to the orientation of traditional accounting education “Minimal role played by accountants to combat rampant abuse of state’s asset through corruption, swindling of state’s financial resources - although accountants should be at the forefront of safeguarding these state resource/combating fraud” (PSR207, male, 5-10 years practice, ICAEW) “Traditional role of accountants as bean counters, rather than being actively involved in strategic operations, and serve to ‘justify’ financially decisions/actions already committed rather than before commitment being made” (PSR132, male, 5-10 years practice, ACCA) 28 Pressure exerted by shareholders and politics affect accounting performances Again, in the case of the shareholder’s influence, one can make a case of the accountant’s subservient stewardship function as being reflective of the orientation of accounting “Strong competition leads to the shareholders influencing the way the accounts are being reported” (PSR2, male, exceed 10 years practice, B Acc) “We cannot proceed or widen the scope and implementation of accounting concepts due to limitation of power and influence” (PSR145, female, exceed 10 years practice, B Acc) No less than 40 practitioners who provided their responses to the open-ended questionnaire relate their reflections directly or indirectly on ethical matters of accounting and the profession as well as their implications to SEA “Prospect of a company intending to list on the main and second board of KLSE is not reflective of the actual management position on social and environmental matters Public may somehow be misled in a certain way Corporate governance of Malaysian company must be enhanced (transparency on social and environmental issue must also be included)” (PSR177, male, 5-10 years practice, ACCA) “Almost all accountants or people accountable for organisation and accounting are as if “being forced” to record the financial matters― and all the financial matters are meant to induce positive perceptions when reported in financial statement/annual reports A profitable company may not necessary be a good company as it may operate at the cost of societal and environmental destruction” (PSR132, male, exceed 10 years practice, Adv Dip Acc) “We have situations where a big corporation providing financial information had misled the public on its performance The obligations of accountants/auditors to provide true and fair view, at times are being impaired due to internal and external pressure With social and environmental responsibility put upon them, we need to make sure that the accountants/auditors are equipped with necessary knowledge to tackle the issues and the cost of providing such responsibility needs to be quantified so that the benefit outweighs the costs” (PSR53, male, 5-10 years practice, ACCA) Some educators emphasise the lack of ethics education in the current accounting curriculum “Lack of ethical and religious education” (ESR375, female, 1-5 years teaching, MBA acc) “Revamp accounting curriculum worldwide Inculcate ethics courses in the curriculum Integrate Islamic accounting course as part of the curriculum 29 where it is based on Islamic system compared to the current accounting practice that is based on the capital system” (ESR306, female, 5-10 years teaching, MBA) Based on the written remarks, accounting professionals are exposed to unethical practices in reporting and in the application of standards Hence, according to the educators, there is a dire need for ethical accounting graduates who would become future professionals Accounting education would be the potentially favourable avenue to develop competent and responsible students Aside from the codes of conduct and enforcement, education is considered as an important medium to achieve the desirable ethical condition of the professionals “We have to go back to training and education; the root of the matter is education” (PI9) “Try to implement a more holistic education and human development; expertise such as accounting needs something to build a strong foundation There must be enough content, enough moral and ethics education at the IHL both public and private that must be reinforced in professional accounting training” (PI1) “We need ethics education In my professional training, I think it was not really so much of self-centred or self-interest approach, but the whole thing; you are trained to be able to give advice on dollars and cents” (PI13) “Fraudulent transactions that could not be prevented and detected by internal audit department as well as external auditor bring down the image of the accounting profession, hence honesty and integrity should be instiled during accounting teaching in higher learning institution” (PSR29, female, 5-10 years practice, B Acc) Regardless of any specific basis for actions, the remarks imply that there is a dire need for ethics to be emphasised in accounting education and training As a new area of accounting with lots of potentials, there is a good likelihood that SEA skills would be in great demand in the future Efforts by the government in establishing SEA reporting legislation would enhance the need for better SEA skills The increase in the awareness that society plays an important part in ensuring that companies are taking responsibility may motivate businesses to equip their professionals with SEA skills “When society is geared to it and aware [of company’s consciousness of social and environmental matters], and when companies are ready, there will be a demand for students with SEA background People with the foundation of SEA knowledge and training will be preferred than those without it especially when there is enforcement for the setting up of such information, and when legislation on this matter exists In other words, SEA training would help accounting students to be more marketable in the future” (PI11) 30 Both the interviewed educators and those who participated via written responses feel that SEA knowledge is best inculcated at a young age when the students are not yet exposed to the business culture They also feel that it may take a generation before a culture based on social and environmental responsibility can evolve “I believe this is a long-term goal or project It takes at least a ‘generation’ of people to have the awareness/mindset/business culture on social and environmental responsibility (assuming education can only be given to the younger generation of accounting students since they have not been influenced by the current business culture)” (PSR209, female, 5-10 years practice, B Acc, CPA Aust.) IMPLICATIONS FROM THE QUALITATIVE DATA The qualitative data gleaned from the inputs of both the accounting educators and practitioners indicate a number of positive direct determinants and indirect external drivers of SEA implementation These determinants and drivers are subject to the circumstances projecting from business, political, social and cultural factors, including the orientation of accounting As depicted in Figure 3, the positive direct determinants of SEA practices are as follows: • Respondents’ positive perceptions of SEA elements • Ethical implications of SEA • The Islamic elements of SEA • The above determinants can be prompted by another set of factors that may indirectly affect the realisation of SEA practices: • • • • • Government participation in legislating SEA standards Market and future demand of SEA knowledge and skills Public awareness of social and environmental issues which influence business roles and subsequently accounting roles Social and environmental problems Unethical business practices 31 Circumstances/accounting orientation Positive direct determinants Positive perceptions of SEA and SEA education Measurement and valuation issue of SEA Ethical implications of SEA Islamic elements of SEA Business/ Shareholder influence Functions/ traits of practitioners Indirect external drivers Government participation/ SEA standards Market/ future demand of SEA skills Public awareness influence business and accounting role Social and environmental problems Unethical business practices Figure - Qualitative overview on SEA in Malaysia As noted, the above situations are subject to the limitations emanating from accounting orientation, other general business and, political and cultural factors These factors are summarised thus: • • • • • Measurement and valuation issue of SEA Typical functions and traits of practitioners Educational approach SEA expertise issue Business and shareholder influence CONCLUSION Qualitative feedback analysed from the in-depth interviews and survey questionnaires have provided insights and reflections of accounting educators and practitioners on three major themes; aspects of SEA, accounting orientation, and ethical issues Although the major categories developed from the qualitative data for accounting educators are the same as those for the practitioners, the emphasis provided by the two groups differ In the final analysis 32 however, the two sets of data are merged and the implications are made to describe and explain the situations involving SEA in Malaysia In conclusion, the insights and reflections provided by the accounting educators and practitioners show that SEA practices may be supported by a set of positive direct determinants and indirect external drivers However, these two are subject to the circumstances emanating from the accounting orientation as well as the general business and political culture that pose challenges to the realisation of such accounting practices From the 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