Conventional accounting may not be suitable for environment and social applications. When company’s economic benefits are at odds with environmental and social benefits, conventional accounting concentrates only on the enterprises’ benefits and does not pay attention to the natural environment and human society. (Hooper et al., 2008). Conventional accounting merely presents the information about enterprise’s financial position and performance so as to meets the objective of shareholders and investors. Such approach does not satisfy other stakeholders’ interests and information needs (Dana, 2008).
Conventional accounting often treats the environmental impacts from business activities as externalities, such as the pollution of industrial emissions. It will not disclose the information about environmental damages and social costs of pollution, only if the environmental impacts lead to penalties or the cost of cleanup (Stefan and Roger, 2000).
In order to improve enterprise’s profitability, conventional accounting suggests managers to use machinery or technology instead of labor force, which result in some negative impacts on society. High unemployment often causes a decrease in quality of life and a rise of crime rate, and also may bring about interpersonal conflicts in company (John, 2009). Conventional accounting usually ignores these costs of unemployment in the account of company.
However, conventional accounting may be applicable to environmental and social issues, when the costs of business activities are redefined by containing their environmental and social costs. Such as the activities’ costs is to the enterprise instead of environment or society. This reclassification can help enterprises to decrease the costs of environment and society and thus improve enterprises’ environmental and social performance.