How Might Triple-bottom-line Accounting Improve the Social and Environmental Behavior of Companies?

How might triple-bottom-line accounting improve the social and environmental behavior of companies?

Triple bottom line accounting, when implemented in the organization systems helps companies to undertake their financial obligations as well as the corporate social responsibility. Organizations become accountable and responsive to the need for people, the environment as well as their profits. Many organizations have been concentrating on meeting the profit requirements without taking into consideration the importance of the environment and other stakeholders. Therefore, with the implementation of triple bottom line accounting, firms would be able to recognize their roles and responsibilities for the environment and the society. Through the TBL, unlike the single bottom line, an organization is able to understand that going beyond its financial obligation and moving towards social responsibility is important for its survival and growth. A company is able to know its effectiveness in social and environmental concerns through its operations. This means that through utilization of TBL, companies are able to be accountable and responsible in relation to the environment and the people, as they seek to run profitable business. Triple bottom line accounting can measure the performance of a company relative to its commitment to the environment and the social contract that exists between the organization and the society (Hesselbach and Christoph 34). It therefore helps the management to derive strategies that help in meeting social and environmental sustainability.

By reporting the additional bottom lines, a company creates a measurable convergence claim. As a result, better social performance can be achieved. Better social contracts that are created as a result of implementing the Triple bottom line accounting help in creating social bonds, which is advantageous to the company. The firm is also able to prove that it cares for the society and environment, thus creating a caring aspect in the mind of stakeholders.

6. A local exporter has signed a sales contract that specifies payment of $3 million Saudi riyals in six months. Discuss the hedge options you would advise the exporter to consider.

Hedging aims at reducing and/or eliminating financial risk, and passing the risk to another party. The foreign currency hedging aims at reducing future risks that may be attributed because of the movement of the foreign exchange rate. In case of a raise in the exchange rate, the exporter would opt to execute the call option, thus eliminating the loss associated with the fluctuations in the exchange rates. If the exchange rate declines/fluctuates, it would not be advisable for the exporter to employ the call option alternative. Another hedge option that the exporter could employ would be to consider speculations in the currency to achieve a speculative gain of the paying currency future movements. Speculation would help the exporter to buy the foreign currency at a profit, thus ending up paying lesser than when there was no call option (Kevin 174-8). In the light of the speculative options, the exporter should also speculate the expected future spot rate and other factors that lead to the value of the foreign currency diverging from the forward rate. Should a decline occur, one should also be prepared to bear the risks of devaluation of the local currency versus the increase in the value of the paying currency. In light of the speculative moves above, the three hedging option that the exporter can seek include arranging for a forward foreign exchange contracts, opening a foreign currency account in Saudi, or opening an account overseas.

9. What are the differences between transaction and translation exposure?

The rate at which a company is affected by the exchange rates is defined as exposure. The risk involved occurs because of uncertainty in the exchange rates. Managing the foreign exchange exposures involves the hedging concept, which entails the coordination of transactions in currency to minimize the exchange risk.  

Transaction exposure is the potential for a gain or loss that arises from a contracted cash flow (exchange gains) that have been transacted already and valued in foreign denomination (Wang 345). Transaction exposures represent real gains or losses, and are retrospective and prospective and shorter in occurrence. The exposure may arise as a result of acquiring assets that are mostly dominated in foreign currency, borrowing or lending, and paying with foreign currency. It may also arise as a result of purchasing or selling credit goods that are dominated by foreign currency.

Translation exposure on the other hand entails the extent at which the financial reporting is affected by the movements in the exchange rates (Birts 90). It does not affect the cash flows but could affect the reported earnings, thus impacting the stock price. It differs from the transaction exposure as it expresses loses and gains as a result of differentiated treatment in the accounting books. In general terms, transaction exposure measures the real gains and losses in monetary terms that arises from the changes in the exchange rates while the translation exposures measures the accounting gains and losses that arises as a result of changes in the exchange rates.

Works Cited

Birts, Anthony. Balance Sheet Structures. Cambridge, England: Woodhead Pub, 2001. Internet resource.

Hesselbach, Jürgen, and Christoph Herrmann. Glocalized Solutions for Sustainability in Manufacturing: Proceedings of the 18th Cirp International Conference on Life Cycle Engineering, Technische Universität Braunschweig, Braunschweig, Germany, May 2nd – 4th, 2011. Berlin, Heidelberg: Springer Berlin Heidelberg, 2011. Internet resource.

Kevin, S. Commodity and Financial Derivatives. PHI Learning Pvt. Ltd., 2010.

Wang, Peijie. The Economics of Foreign Exchange and Global Finance. Berlin: Springer-Verlag, 2009. Internet resource.