Ideas with Impact
UNB Faculty of Management

A New Way to Read Financial Statements: impact on the environment

Author: Ideas with Impact

Posted on Oct 28, 2014

Category: Faculty

By the time they finish their first year of a business degree, most students have learned how to read a company’s financial statements in order to determine how profitable the company is and judge how smart an investment might be. Dr. Glenn Leonard, Dr. Glenn Leonard is researching companies' financial statements to learn what they reveal about an organization's potential impact on the planet.a professor of accounting at the University of New Brunswick, is conducting research that could help people use a company’s financial statements to predict what kind of impact its business practices might have on the environment.

Concern with the environmental degradation of the planet as a result of industry has never been so high, and one result of this is increasing interest across disciplines all over the world in sustainable business practices.  Dr. Leonard’s interest in this project is inspired by his passion for the outdoors: he’s been an avid sailor for years and more recently has been spending a lot of his time hiking, trekking and backpacking. His professional accounting background (he is a CA with over 20 years experience in business) and his academic interest in history (he has a PhD in history) combine in a unique way to inspire him to discover what an organization’s financial documents can reveal about its past and current business practices and the effect they’ve had on the environment and to predict whether the company is likely to affect the environment positively or negatively in the future.

When he started looking at the situation from an accounting perspective, Dr. Leonard recognized that international accounting standards were slow to respond to concerns over the environment. “The main reason for this,” he said, “is the fact that it just takes a long time to measure these things and to understand what amounts to environmental liability.” To date, research in this area has looked at how reporting standards of a company affect decision-making both by internal and external users of financial information. Dr. Leonard would like to go a step further by answering the question, have these reporting techniques, which have evolved over time, had an impact (either positive or negative) on the environmental degradation of the planet, and will they have an impact on future environmental actions?

So far, he has focused on the mining industry and has looked at companies from a financial reporting point of view to systematically assess whether they are more or less likely to add to the environmental degradation of the planet. Dr. Leonard believes he has discovered an objective external measurement tool to determine if companies have added to environmental degradation.

This research has both theoretical and practical value. On one hand, it could inform the academic discipline of accounting and evolution of accounting standards. On the other hand, Dr. Leonard believes it could provide a model to be used by industry and government agencies to assess how a company will impact the environment. “It could be one of the assessment tools used from an environmental perspective that agencies will apply to companies seeking mining licenses,” said Leonard. “Here are the financial reporting characteristics of the company and based on what we know, this company is or isn’t likely to add to environmental problems.” Furthermore, if Dr. Leonard is able to prove the model works, it could be replicated in other industries where it can further the research and policy setting.

Dr. Leonard is collaborating on this project with another member of UNB’s faculty of business administration, Dr. Gopalan Srinivasan, a professor of finance. The work is still in the early stages but the two are planning to publish their results and incorporate them into their coursework. After taking accounting courses with Dr. Leonard, students will have a whole new appreciation for the bottom line when they look at a company’s financial statements.

Dr. Leonard joined UNB’s faculty of business administration in 2006 but has been teaching accounting courses for the faculty since 2000. He teaches courses in all areas of accounting, including financial statement analysis, in addition to courses in finance, strategic management, organization design and history. His research interests include environmental financial reporting and accounting; financial statement analysis in publically funded universities; accounting, business and economic history, particularly as it relates to military matters, contemporary strategic management, contemporary accounting and finance; and military history (First World War), Balkan history, terrorism and democracy.

For more information contact Liz Lemon-Mitchell.