Analyzing Facebook's Crisis: An Accounting Theory Application

This essay examines the application of accounting theory, specifically legitimacy theory, to the case of Facebook's data privacy issues arising from the Cambridge Analytica scandal. It highlights how Facebook's actions, particularly regarding user data and content policies in regions like Europe, Myanmar, and Sri Lanka, failed to align with societal norms, values, and moral expectations. The analysis emphasizes the importance of organizations maintaining legitimacy by respecting societal values and adhering to ethical standards in their operations. Ultimately, the essay concludes that Facebook's failure to uphold these principles led to a legitimacy crisis, necessitating the implementation of stricter regulations and a re-evaluation of their data handling practices to ensure future compliance and societal acceptance. Desklib offers a platform for students to access similar solved assignments and past papers for academic support.

Running head: ACCOUNTING THEORY AND APPLICATION
Accounting Theory and Application
Name of the Student
Name of the University
Author’s Note

1ACCOUNTING THEORY AND APPLICATION
Table of Contents
Article..............................................................................................................................................2
Theory..............................................................................................................................................2
Analysis...........................................................................................................................................3
Conclusion.......................................................................................................................................4
References........................................................................................................................................5

2ACCOUNTING THEORY AND APPLICATION
Article
The content of the provided article is about the huge amount of loss faced by Mark
Zuckerberg, the founder of Facebook, due to the Cambridge Analytica scandal. The article shows
the recent failure of Facebook to achieve the desired financial goals and milestones due to major
data privacy issues in regions of Europe, Myanmar, Sri Lanka and others. In order to overcome
this situation, Facebook has been working on the issue like data privacy of the users along with
the inclusion of meaningful content. The main aim of this analysis is to explain this issue of
Facebook in the lights of an appropriate accounting theory to get to an appropriate decision.
Theory
The presence of different kinds of theories can be seen to analyze the organizations issue
and Legitimacy Theory can be considered as one of them. All over the world, most use of
legitimacy theory can be seen in the social as well as environmental accounting areas. According
to the concept of legitimacy theory, legitimacy can be considered as a widespread insight or
assumption on the fact that the actions of the business entities are desirable, appropriate or proper
within some socially developed mechanism of norms, beliefs, values as well as definitions
(Burlea & Popa, 2013, p. 1579). It implies that legitimacy theory is the mean for supporting the
business organizations to implement as well as develop voluntary social and environmental
disclosures with the aim to accomplish the social covenants so that they can ensure their survival
in the agitated and unstable environment (Rogowski, 2015). In addition, this theory states that it
is considered as the failure of an organization when its activities do not comply with the moral
values of the society. Hence, in order to ensure its existence, an organization is needed to provide
the required justification with their social and economical actions so that it does not endanger the

3ACCOUNTING THEORY AND APPLICATION
existence of their society in which it operates (Bitektine & Haack, 2015, p. 49). The next part of
the analysis takes into consideration the analysis of different dimensions of legitimacy theory in
order to make the correct decision.
Analysis
It can be seen from the earlier part of the study that Facebook has been suffering from
issue related to privacy of personal data of the users as a result of Cambridge Analytica scandal;
and this issue can be explained in the lights of legitimacy theory. According to legitimacy theory,
the actions of an organization need to be as per the norms, values and beliefs of the society; and
it indicates towards the responsibility of Facebook to use the personal data of the users in the
most responsible manner in order to maintain the aspect of confidentiality (Fernando &
Lawrence, 2014, p. 149). At the same time, as per the content of legitimacy theory, the business
activities or actions of an organization must respect the moral values of the society in order to
avoid organizational failure. However, in the case of Facebook, all these regulations or principles
of legitimacy theory have not been maintained (Hummel & Schlick, 2016, p. 455). The article
states that Mark Zuckerberg has requested the user not to use Facebook due to the Cambridge
Analytica scandal. Moreover, Facebook had to implement strict new rules in Europe due to the
data privacy issue. It can also be observed that the data content policy in Myanmar and Sri Lanka
led to violence. In the presence of all these issue, the failure of Facebook to operate under a
socially constructed system can be seen. Apart from this, the social media company has also
failed to respect the moral values of the society as a result of data privacy and content issue that
led to the failure of the organization for some time.

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Conclusion
The above discussion indicates towards the importance of legitimacy theory in order to
ensure the survival of the business organizations in the society. However, the analysis of the case
of Facebook shows the fact that the famous social media company has failed to maintain their
legitimacy by involving some major issues like the breach of data privacy of the data of the
users, inappropriate content in the news feed and others. Hence, in order to avoid these issues,
Facebook had to implement some strict regulations in some of their operating areas.

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References
Bitektine, A., & Haack, P. (2015). The “macro” and the “micro” of legitimacy: Toward a
multilevel theory of the legitimacy process. Academy of Management Review, 40(1), 49-
75.
Burlea, A. S., & Popa, I. (2013). Legitimacy theory. In Encyclopedia of corporate social
responsibility (pp. 1579-1584). Springer, Berlin, Heidelberg.
Fernando, S., & Lawrence, S. (2014). A theoretical framework for CSR practices: integrating
legitimacy theory, stakeholder theory and institutional theory. Journal of Theoretical
Accounting Research, 10(1), 149-178.
Hummel, K., & Schlick, C. (2016). The relationship between sustainability performance and
sustainability disclosure–Reconciling voluntary disclosure theory and legitimacy
theory. Journal of Accounting and Public Policy, 35(5), 455-476.
Rogowski, R. (2015). Rational legitimacy: A theory of political support. Princeton University
Press.