Accounting Theory and Practices: Organisational Legitimacy, Damage Control, Ethical and Managerial Branch, Externality, Integrated Reporting

This article discusses Accounting Theory and Practices covering topics such as Organisational Legitimacy, Damage Control, Ethical and Managerial Branch, Externality, Integrated Reporting. It also includes references from various authors.

ACCOUNTING THEORY AND PRACTICES
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Question 1
In accordance with organisational legitimacy, it is imperative that organisations need to be
perceived as entities which are in compliance with the expectations and norms of the
community. This would imply that these are functioning in accordance with the underlying
social contract. This theoretical concept highlights the need of people perceiving that the
organisation is going the right thing (Dunn, 2010). Thus, it is imperative for the company to
make corporate disclosures so that the community becomes aware of the activities of the
company and thereby reinforces the legitimacy of the company. This view is supported by
Lindblom as highlighted in the chapter (Deegan, 2015).
Question 2
The key damage that happens in case of any major incident or accident is that the legitimacy
of the company is undermined and there is a perception in the community that the social
contract is breached. It is imperative that the firm must act in a manner which is consistent
with the values and norms of the community so as to emphasize and reaffirm the legitimacy.
This requires a communication strategy which highlights the performance of the company to
relevant public in a bid to re-establish legitimacy (Elliot& Elliot, 2017). Also, various actions
and the underlying communication of these, an attempt is made to alter the public perception.
In addition to this engagement with the stakeholders, disclosures in the form of annual report
and sustainability reports can be used to highlight the actions taken by the firm in the
aftermath of the incident (Deegan, 2015). However, the immediate damage is contained by a
prompt communication and PR strategy.
Question 3
The prime concern of the ethical branch is to highlight the manner in which the management
must act in relation to the key stakeholders. This theory aims on emphasizing that the
companies must act in the interest of all stakeholders and fails to acknowledge the power
difference between the various stakeholder groups. Also, it propagates that there are certain
irrefutable rights of stakeholders which cannot be infringed on irrespective of the underlying
power of stakeholders. As a result, the ethical branch would advocate that information be
provided to all stakeholders irrespective of their ability to impact the organisation and
survival and whether they decide to us3e the information or not (Deegan, 2015).

On the other hand, the managerial branch advocates that managers tend to maintain
relationships with managers to ensure that the interest of the company is maximised. As a
result, the effort deployed for relationship management would be proportional to the
importance of the underlying stakeholder. As a result, all groups would not be treated equally
and information disclosure would be done selectively (Dunn, 2010).
Question 4
Externality refers to the unintended influence of a given activity on the society which may be
positive or negative. Of concern is negative externality which causes harm to the society.
Consider, for instance, a production unit which tends to discharge the waste into the nearly
river which contaminates the water and presents a potential health hazard for the people
settled down the river. The failure to capture this negative externality ensures that the profits
are maximised. Recognition of the negative externality would enhance the cost and thereby
lower the profits and the consumption which the producer wants to avoid. Also, in certain
cases, the exact quantum of externality may be difficult to determine as the effect typically
emerges in the long run.
Question 5
International integrated reporting is an alternative to traditional financial reporting which
tends to better represent the value addition in the company coupled with representation of
various assets which the traditional balance sheet is not able to capture. This is because the
integrated reporting is based on six capitals namely financial, social, intellectual, natural,
manufacturing and human (Milville,2011). The focus of the integrated reporting is essentially
value creation is the long term unlike financial reporting which has more focus in the short
term owing to which financial capital is significantly over –emphasised. Integrated reporting
is currently voluntary in most parts unlike financial reporting which is backed by statutory
rules and accounting standards. The accounting standards for integrated reporting are still
evolving which is not the case with traditional financial reporting where standards are
developed and personnel is readily available (Deegan, 2015).

References
Deegan, C. (2015). Financial Accounting Theory, 4th ed. Sydney: McGraw-Hill
Dunn, J. (2010) Financial Reporting and Analysis. 3rd ed. London: John Wiley and Sons.
Elliott, B. & Elliott, J. (2017) Financial Accounting and Reporting, 18th ed., Harlow :
Financial Times Prentice Hall
Melville, A. (2011) International Financial Reporting. 3rd ed. Harlow: Financial Times
Prentice Hall