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Chapter 31
Case study
Diggitup
(This is an abbreviated answer)
Problems are
To address some of these the company could
xGo for ISO 14000 accreditation or possible EMAS accreditation
xImprove CSR by publicising work done, improving transparency,
increased reporting of environmental and socially aware policies
xDevelop and report on EMS
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They would have to consider the clients procedures for acknowledging and
documenting the various formats of compliance and licensing they have to
deal with
Material environmental matters can present major risks to some clients and
can lead to possible misstatements in the financial statements. Auditors
should incorporate consideration of these risks specifically in their planning
processes. Clients particularly at risk include mining and extraction
companies, chemical companies, airlines, waste management companies,
water companies and utilities and construction companies, etc.
The auditors need to be aware of the possible impact that the
The main possibilities for misstatement in financial statements include:
The introduction of environmental laws and regulations which
may involve impairment of asset values due to obsolescence.
Environmental legislation may have the effect of impairing
asset values. Auditors need to be aware of the provisions of
IAS 36 ‘Impairment of Assets’. Non-current assets must be
written down to their recoverable amount, which is the lower
of net realisable value and the value in use. If the
Products may have to be redesigned or may no longer be
capable of being sold.
Constructive obligations may occur from publicly stated
environmental policies. These may not be legal obligations
but may be just as binding.
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As part of their procedures auditors should
Examination question
Chemicon
(a) Reasons for voluntary disclosure of information
Accountability
The directors need to show that the company they are running has
Information asymmetry
The directors and other employees in Chemicon have information
about the company’s operations which is not available to third parties.
Attracts investment
Institutional investors are attracted by increased disclosure and
transparency. The provision of more information about Chemicon,
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Alignment of objectives
Part of agency cost is directors’ remuneration. Where that
Assurance
Disclosure of key information about the company gives the user
assurance that the management are active and competent in terms of
managing the operations of the organisation. While maintaining
Stakeholders
Greater voluntary disclosure assists in showing how the directors have
(b) CSR and measurement of objectives
The pressure group Business for Social Responsibility defines corporate
and social responsibility (CSR) as ‘it generally refers to business
decision making linked to ethical values, compliance with legal
requirements and respect for people, communities and the
environment.’
CO2 emissions
Information on CO2 emissions would show how well Chemicon is
attempting to limit its impact on the environment. As a ‘greenhouse
gas’ there has been a lot of focus in the press and internationally
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Research on new drugs
Due to the sensitive nature of this information (loss of competitive
advantage), Chemicon do not want to provide too much information on
this area. There is also the query on how much information on R&D is
expected within a CSR report anyway. The report could simply state
that R&D is being undertaken, but not state the areas.
Free drug distribution
The distribution of free drugs by Chemicon is a philanthropic activity
(as defined by Carroll’s stages of corporate social responsibility).
Sustainability
The plant components for the airalam drug appear to be obtained from
sustainable sources – that is the plants and vegetables are grown with
minimal harm to the environment and can be grown in this way into
the future. Part of the CSR normally relates to the use of sustainable
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What ethical issues are involved?
Examination question
Current issues
(This is an abbreviated answer)
(a) Briefly explain how the auditing profession is currently regulated.
xThe profession is largely self regulating.