**1. Introduction**

Today, the close link between the economy and the environment is recognized. Indeed, the economy must draw its raw materials from the environment to develop goods and services, but it also dumps garbage back in. Hence, there is a growing interest from the international community on sustainable socioeconomic development that respects the environment. Two world events reflect this concern [1]. The Earth Summit in Rio de Janeiro in 1992 marked a turning point in adopting Agenda 21 for Sustainable Development, which introduced the concept of environmental accounting as an instrument for implementing coherent policies in

© 2016 The Author(s). Licensee InTech. This chapter is distributed under the terms of the Creative Commons Attribution License (http://creativecommons.org/licenses/by/3.0), which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited. © 2018 The Author(s). Licensee IntechOpen. This chapter is distributed under the terms of the Creative Commons Attribution License (http://creativecommons.org/licenses/by/3.0), which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited.

this area. Then, in 2002, the United Nations Conference in Johannesburg stressed the importance of adopting adequate environmental controls and information systems at different levels in countries that can be used as a basis for political decisions, mainly through the Global Reporting Initiative (GRI) and the Global Compact.

a stable trend in income growth and do not want to show the volatility of profits, the rise in some periods, and decline in others. To achieve this balance, companies try to maintain

Sustainability Reporting and Income Smoothing: Evidence from Saudi-Listed Companies

http://dx.doi.org/10.5772/intechopen.79219

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Management is based on the relative performance of the company now and in the future. When current profits are low and expected future profits are strong, the manager borrows profits from the future period for use in the current period. When current profits are good,

Several studies have dealt with the concept of preparing income for study and analysis. Fudenberg and Tirole [3] referred to the concept of income as all the methods and processes are used by management in business organizations to reduce income to reduce the degree of risk in the company's investments. Ashari et al. [4] referred to the introduction of income as a set of mechanisms whereby profits are reduced in periods of a significant increase in income

A growing number of organizations are making sustainable development a major focus of communication. If sustainable development is designated as the ideal new structure or "skeleton" of a society going through a global crisis, communication is the blood that feeds it. I know the magnitude of the operational challenges that companies face when trying to understand and use this new approach. However, developing an integrated approach to sustainability based communication is an equally difficult challenge. There are perceptions of issues of concern: understanding stakeholder expectations varies, and traditional structures

Indeed, accounting allows the aggregation of all the financial information of the firm and communicating it to stakeholders with interest in the financial management of the company. Accounting can also be used to measure other types of financial information about the company's environmental and social performance, helping managers to make strategic decisions [5]. Several concepts have appeared in parallel with this concern for sustainability, for example,

Eco-accounting is a reworking of the traditional accounting system, integrating the internal and external environmental and social and economic costs inherent in the total life cycle of the product. This practice allows managers to review the profitability of their products by considering the environmental and social impacts. For example, an executive could recognize the cost of managing and disposing of waste by property or by department and thus review its profitability. The attribution of a specific cost to an environmental or social effect makes it possible to measure the inefficiency of current methods and to identify new sources of potential savings [6]. However, some costs are difficult to quantify. In this case, the company

A majority of the sustainability literature relies on institutional theory, which states that firms establish actions for external legitimacy. Conferring to the legitimacy theory, firms attempt

eco-accounting, the "green economy," the carbon footprint among others.

**2.2. Relation between sustainability reporting and income smoothing: hypothesis** 

management tends to save them for potential use in the future.

and they increase in periods where income falls significantly.

income stability.

**development**

are firmly established.

may allocate an approximate cost to them.

The World Bank is not far behind; it has published recommendations and offers courses to raise corporate social responsibility (CSR) awareness among companies. The Organization for Economic Co-operation and Development (OECD) has made simple recommendations but is a forerunner with papers dating back to 1976. Environmental accounting provides more information and promotes transparency and accountability for political action for the environment by bringing the economy and the environment closer together.

On another hand, green or universal accounting is slowly entering the world of finance. Global warming, biodiversity, pollution, water consumption, noise pollution, employability, and the fight against discrimination are beginning to be integrated into accounting plans. The objective, in addition to financial performance, is the company's ability to live in harmony with its physical and social environment. An important change in the economic model was evident, and the subject is taken very seriously by a handful of auditors, experts, and researchers.
