Accounting Theory and Practice Essay Example
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1. Introduction
Recent years have saw that listed firms, especially the large organisations, voluntarily disclose their Social and Environmental issues in their annual reports. As a result, a question was come up with by researchers: why managers would choose to undertake the voluntary activities?
Although there is no consensus being reached about what perspective theories should be used to explain the Social and Environmental Accounting, and moreover critique voices are from the works of Marx or by the deep-green or feminist literatures (Deegan, 2002), to some extent, systems-oriented theory and Positive Accounting Theory can list some hints.
This essay will seek to explain the reasons why firms voluntary disclosure information by referring to Legitimacy theory, Stakeholder theory, institutional theory, and lastly Political Costs hypothesis respectively.
2. Legitimacy theory
As asserted by legitimacy theory, organisations are pursuing for activities that are within “the norms and bounds of their respective societies” (Deegan & Unerman, 2006, P. 217). However, these norms and bounds are changing all the time and this requires firms keep pace with the moral environment in which they operate. Some researches indicated that the public disclosure of social and environmental information, such as through annual reports, is for legitimising purpose.
2.1 Legitimacy, Public Expectation and the Social Contract
Legitimacy theory relies on the notion that there is a “social contract” between organisation and the society in which it operates. (Deegan & Unerman, 2006, P. 217) The social contract is not easy to define but it implies some expectations that the public has on the organisations. Traditionally, profit maximising is considered to be the optimal measure of corporation performance, however, in recent decades, the public expectation has gone through significant changes.
1. Introduction
Recent years have saw that listed firms, especially the large organisations, voluntarily disclose their Social and Environmental issues in their annual reports. As a result, a question was come up with by researchers: why managers would choose to undertake the voluntary activities?
Although there is no consensus being reached about what perspective theories should be used to explain the Social and Environmental Accounting, and moreover critique voices are from the works of Marx or by the deep-green or feminist literatures (Deegan, 2002), to some extent, systems-oriented theory and Positive Accounting Theory can list some hints.
This essay will seek to explain the reasons why firms voluntary disclosure information by referring to Legitimacy theory, Stakeholder theory, institutional theory, and lastly Political Costs hypothesis respectively.
2. Legitimacy theory
As asserted by legitimacy theory, organisations are pursuing for activities that are within “the norms and bounds of their respective societies” (Deegan & Unerman, 2006, P. 217). However, these norms and bounds are changing all the time and this requires firms keep pace with the moral environment in which they operate. Some researches indicated that the public disclosure of social and environmental information, such as through annual reports, is for legitimising purpose.
2.1 Legitimacy, Public Expectation and the Social Contract
Legitimacy theory relies on the notion that there is a “social contract” between organisation and the society in which it operates. (Deegan & Unerman, 2006, P. 217) The social contract is not easy to define but it implies some expectations that the public has on the organisations. Traditionally, profit maximising is considered to be the optimal measure of corporation performance, however, in recent decades, the public expectation has gone through significant changes.