AFE 3101: Accounting Theory and Practice - Workshop 3 Solution

This assignment solution addresses key concepts in Accounting Theory and Practice, focusing on organizational legitimacy and social contracts within the context of corporate social responsibility. It answers questions related to the definition of organizational legitimacy, its resource value, and its place and time-specific nature. The solution explores how adverse environmental events can erode legitimacy and provides a case study analysis of a company's breach of its social contract through factory closure and job losses. The assignment identifies stakeholders affected by such decisions and discusses potential actions the company could take to mitigate negative impacts and regain legitimacy. The solution uses real-world examples and references relevant academic literature to support its arguments.

Running head: ACCOUNTING THEORY AND PRACTISE
Accounting Theory and Practise
Name of the Student
Name of the University
Author Note

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ACCOUNTING THEORY AND PRACTISE
Table of Contents
Answer to Question 1...................................................................................................................2
Answer to Question 2...................................................................................................................2
Answer to Question 3...................................................................................................................2
Answer to Question 4...................................................................................................................3
Answer to Question 5...................................................................................................................3
References....................................................................................................................................5

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ACCOUNTING THEORY AND PRACTISE
Answer to Question 1
Organisational legitimacy is a situation in which an organisation is considered to be
complying with the expectations placed by the community upon it. With the passage of time, the
community expectations also tend to change. Hence, it is essential for the business to keep track
of these aspects for its survival. Legitimacy theory can be considered as a resource because an
organisation tends to depend on it for its survival. It is wanted by every organisation as it helps it
thrive in the long run. In a similar manner to other factors of production like raw materials, land
and labour, legitimacy is also necessary for a business to thrive.
Answer to Question 2
The main aspect of the existence of the organisational legitimacy is dependent on the
entity meeting the expectations placed upon it by the community. This is also referred to as
fulfilling the social contract. However, as the expectations of the community change over time,
the terms and conditions of the social contract also tend to change with it. A business practice
which was previously acceptable may not be acceptable in the current scenario due to changes
occurring in the place of the business. Hence, the organisational legitimacy is determined on the
basis of the changes occurring in the place and time of business.
Answer to Question 3
The main factor that needs to be considered in this situation is the expectations placed
upon the business by the society. Some of them include maintaining the air quality levels and not
contaminating the water bodies near the business. There is a direct relationship between the
legitimacy of the organisation and its responsibilities towards the society. If the environmental
event impacts a large section of the society, it would result in a long lasting damage to the

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ACCOUNTING THEORY AND PRACTISE
reputation of the company. Hence, the erosion of legitimacy is determined based on the adverse
impact caused on the society.
Answer to Question 4
One of the major issues that the company faces is related to the loss of jobs of the
population due to the closure of the factory. It has a responsibility to provide employment with
the people belonging to that region. Other people adversely impacted by the scenario include the
owner of the factory and people supplying raw materials to the business. This decision is
disadvantageous to these people as they lose their employment and income due to the company’s
decision. The company can pay advance compensation to people and enable them to re-skill to
be able to find a new job. This will result in reducing the negative reaction to the decision.
Answer to Question 5
a) One of the examples of a company that has breached the social contract is Toyota. This
happened in the year 2017 when the company reduced its workforce from 4000 people to
1300 people in its Altona site. A majority of these people faced the prospect of
unemployment due to the decision taken by the entity.
b) The employees were dependent on the business for their livelihood. Some of them were
working in the factory for more than 15 years and were extremely loyal to the company.
However, the priority was given to the business aspects and these people were fired by
the company.
c) The business was a part of the many business oriented decisions taken by Toyota for its
business. The recent behaviour of the company like exploiting the suppliers and
providing lower benefits resulted in the loss of trust in the company in the recent times.

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ACCOUNTING THEORY AND PRACTISE
d) The company allowed the workers the time to re-skill themselves and provided them help
with job related skills like skill development and resume writing. This allowed the
employees to be rehired at a different place even if they lost the jobs. The allowed the
organisation to regain its lost legitimacy.

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ACCOUNTING THEORY AND PRACTISE
Bibliography
ABC News. (2017). Ugh, what a feeling: Toyota workers lose jobs as Australian plant closes.
[online] Available at: https://www.abc.net.au/news/2017-10-03/toyota-car-production-ends-
altona-after-50-years-manufacturing/9007624 [Accessed 19 Mar. 2020].
Bernstein, L., 2015. Beyond relational contracts: Social capital and network governance in
procurement contracts. Journal of Legal Analysis, 7(2), pp.561-621.
Mousa, G. and Hassan, N.T., 2015. Legitimacy theory and environmental practices: Short
notes. International Journal of Business and Statistical Analysis, 2(01).
Omran, M.A. and Ramdhony, D., 2015. Theoretical perspectives on corporate social
responsibility disclosure: a critical review. International Journal of Accounting and Financial
Reporting, 5(2), pp.38-55.