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Environmental disclosures in annual reports and 10Ks: An examination

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.  ; Sarasota Vol. 9, Iss. 3,  (Sep 1995): 34.

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INTRODUCTION

In 1990, a U.S. opinion poll reported that most people feel that the environment is so important that requirements and standards cannot be too high, and continuing environmental improvements must be made regardless of cost (Bragdon and Donovan 1990). The results of the opinion poll suggest that stakeholders(1) are concerned with the way in which corporate entities are responding to environmental concerns. There are a number of ways in which an entity can communicate to stakeholders its response(s) to environmental concerns. The mode of communication could be in the form of advertisements in newspapers and business publications, television and/or radio, and annual reports (ARs) and 10Ks.

The major objective of this paper is to determine if the present information disclosed in ARs and 10Ks is sufficient to satisfy the needs of stakeholders. This is important because if information disclosed does not satisfy stakeholders, then perhaps the FASB and the SEC should take another look at environmental disclosure requirements.

The remainder of this paper is organized as follows. The next section presents an overview of environmental reporting requirements followed by a review of prior research on environmental disclosures. Our data and method are described next, followed by a discussion of findings. The final section of the paper summarizes our results and describes limitations.

OVERVIEW OF ENVIRONMENTAL REPORTING REQUIREMENTS

To date, the FASB has provided little direction for corporate disclosure of environmental matters. The only rules addressing environmental disclosure focus on issues of capitalization or expensing of environmental outlays and contingent liabilities. On the environmental outlays issue, the FASB's Emerging Issues Task Force (EITF) has released three Issue Statements on the treatment of costs incurred for environmental purposes. Issue No. 90-8, Capitalization of Costs to Treat Environmental Contamination primarily recommends expensing the cost of contamination treatment. However, capitalization is permitted if...