(a)

REPORT
To: The Board of Directors
From: Corporate Affairs Manager
Date:
Subject: A Case for Corporate Social Responsibility

Introduction
Following the impasse among members of the board on the nature of Petrostar Ltd.’s philosophy and strategy on corporate social responsibility, this report was commissioned to make a case for corporate social responsibility in order to help the board to formulate an appropriate CSR strategy. Below are the arguments in Favour of CSR.

(i) Customer expectations – There is an increasing expectation from consumers and other stakeholders that businesses will act in a more socially responsible manner. This is a global expectation. For example, from the food they eat, to the coffee they drink and the clothes they wear, consumers are becoming more aware of the origins of the everyday things they buy, and they want to buy products that are responsibly sourced.
Given that one of the key success factors for a business is the ability to offer customers what they want, then offering products and services which are deemed to be socially responsible could help boost sales. In this respect, CSR could provide opportunities to enter new markets or develop new products.

(ii) Brand name – Being seen as socially responsible can help enhance a business’s reputation and therefore its brand. Customers may prefer to deal with a business they feel is socially responsible rather than with one which is not. Therefore, CSR could actually be a source of differentiation for a business.

(iii) Lower environmental costs – If firms improve the efficiency of their energy usage, for example, then as well as making lower emissions they will also have lower cost bases. If firms can achieve a lower cost base through the efficient use of resources, this could help them create or improve their competitive advantage.
More generally, firms could also find it is less costly to regulate their own activities voluntarily than ignoring social responsibility in the short term and then having to comply with statutory regulations (in the form of taxes or fines, for example) which may be imposed on them later.

(iv) Trade opportunities – If firms are perceived as not being socially responsible, they may find it harder to attract trading partners, or support from nations and local communities where they might want to invest.

(v) Access to staff – Similarly, the way firms are perceived to treat their employees may affect their ability to attract staff. For example, firms that are perceived to offer good working conditions are likely to be able to appeal to a higher Caliber of staff than firms which are perceived to offer unfavorable working conditions. In turn, a firm which is able to attract (and retain) high quality staff may be able to generate competitive advantage over a firm which is less able to recruit good quality staff.

(vi) Investment and funding – A firm’s reputation may also affect its ability to attract finance, particularly from ethical investors. For example, obtaining a listing on the FTSE4Good (index of companies that meet globally recognized corporate responsibility standards) is likely to help a firm attract finance from ethical investors.

(vii) Sustainable business – Taken collectively, the arguments in favor of CSR suggest that a socially responsible business is likely to be able to operate for longer in society than a less responsible one. In turn, if the business can expect more years of cash flows in the future, it might be reasonable to expect the value of the company to be higher than that of one whose future is perceived to be less secure.

Signed                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 (b)

(i) Proactive strategy: This is a strategy which a business follows where it is prepared to take full responsibility for its actions. It does so without being forced to do so by regulators and enforcing agencies. A company adopting this strategy would, thus, take steps to recall a product from the market after it discovers a fault in that product. It does this in order to avoid injury or damage to the consuming public.

(ii) Reactive strategy: This strategy involves allowing a situation to continue unresolved until the public, government or consumer groups find out about it. Unlike the proactive strategy, a company employing the reactive strategy will only withdraw a faulty product if it is forced to do so by regulators, the public or strong consumer groups – by which time the consuming public may have suffered some damage already.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               (c)

In the first instance, the ethical issue at stake is integrity. Integrity ensures that professional accountants are straightforward and honest in all professional and business relationships. It also implies that accountants fair dealing and truthfulness. In this regard, presenting wrong or erroneous information that can misinform and mislead management will be a breach of the accountant’s integrity.
While you, as a professional accountant, may have time to include the information in the management accounts, it is unlikely that you will be able to check its accuracy as well since you are constrained with time. Therefore, you risk misinforming the finance director of the month’s sales which will constitute a breach of integrity.

In the second instance, the ethical issues at stake are professional competence and due care. Accountants have a continuing duty to maintain professional knowledge and skill at a level required to ensure that clients or employers receive competent professional service. It is expected of professional accountants to act diligently in accordance with applicable technical and professional standards when providing professional services. With reference to the scenario, unless the employee is a tax expert, it is unlikely that he would have sufficient competence to calculate the tax liabilities. Providing financial advice may be a minefield, and one may need to be qualified under the financial services regulations before one could do so.
Even if the employee did have the required competence, it is probable that he could not offer due care as any advice he gives would be on-the-spot, and thus not have been able to look into the matter in enough detail.