Both Stakeholder and Legitimacy Theory-Free-Samples for Students

Questions: 1.Write a report to the Corporate Reporting Manager about two of the more prevalent theories used for evaluating social and environmental (sustainability) accounting are organizationallegitimacyandstakeholder theory. 2.Why would companies have preferred to treat the leases as operating leases (if there is an operating lease then the assets and liabilities associated with leased asset are not shown on the statement of financial position) rather than finance leases (if the lease were a finance lease then the liabilities and assets associated with the lease would be shown on the statement of financial position)? 3.Explain why the change in the accounting standard for leasing might cause Organizations to breach covenants included within debt contracts. 4.Which Organizations would be more likely to lobby against the accounting standard? Answers: 1.Both stakeholder and legitimacy theory have been implemented in order to investigate corporate environmental and social disclosure practices in the developed countries. On one hand, the legitimacy theory primarily depends on the ideology of social contract wherein the organizations seek a positive interconnection with the society in order to make sure that resources are readily available to them. It can be regarded as a common assumption that the activities of an organization are proper, desirable, or effective within some socially established system of beliefs, values, definitions, and values. Furthermore, organizational legitimacy cannot be considered a steady state but instead it is a variable one. Besides, such variability is not temporary in nature but also spatial across cultural and stakeholder groups. Thus, relying on the perception of an organization of their level of legitimacy, an organization can adopt legitimation measures (Richardson Eberlein, 2012). Nevertheless, su ch organizational legitimacy can be enhanced by the utilization of symbolic measures communicating a public image that is aligned with the primary objectives of an organization. On the other hand, the stakeholder theory primarily implies that the organizations prime objective is to establish stakeholder value. The enhancement of the stakeholder value is the major concern of the organization. It is primarily engaged in finding the real stakeholders of the organization and the ways by which they interact and coordinate in order to leave an impact upon the organization (Richardson Eberlein, 2012). In short, it can be commented as a method that will drive the organization and seek betterment of the entire organization. Furthermore, organizations operate with the prior assistance of social contracts that make the stakeholders accessible and eligible to several rights and responsibilities. Besides, it must be taken into consideration that the organizations that are capable in designing a n efficient and adequate link with its stakeholders are more likely to succeed in the competitive market than the others must. Both the theories idealize an organization as a part of a wider social system wherein such organization influences, and is in turn affected by other groups prevailing within the society. While on one hand, the legitimacy theory explains about the anticipations of a society in general, the stakeholder theory on the other hand offers a wider resolution by referring to a specific group in a society (stakeholders). Therefore, the reliance is on a specific group and not the community at large that raise question on the validity of the theory. Moreover, the stakeholder theory accepts the ideology that because distinct groups of stakeholders will have varied perspectives about how an organization must conduct its affairs, there must be several social contracts that are negotiated with such varied groups of stakeholders instead of one single contract with the society in general. Besides, like the stakeholder theory, the legitimacy theory also takes into account the widespread and competing s takeholder groups. The only difference in this scenario is that the stakeholders implied within the legitimacy theory do not have direct links with an organization but are a relevant part of the larger society within which such organization operates (Kruger, 2015). Even though both theories are helpful to the society, yet they possess various deficiencies when it comes to social and environmental practices. The results based on legitimacy theory are often difficult to be quantified and be expressed in monetary terms. Hence, expressing the theory results is a tedious task and leads to complexity. In simple words, such theory generally relies upon indirect aspects. As a result, accounting for such affairs seeks to account for enhancement or prevalence of specific symptoms associated with the performance of particular activities undertaken to maximize the legitimacy of an organization. Such accounting also includes social and environment (sustainability) practices. Similarly, stakeholder theory has more of theoretical particularities that have not been utilized in the explanation of social and environmental accounting. In other words, stakeholder theory is simply inter-related, a multifaceted perspective that embodies the presumptions that are ack nowledged from the aspect of a political economy. This means that the foundation of the theory resides on various theoretical impact and not on a practical one leading to complexity. 2.Organizations often opt to lease long-term assets instead of buying them. Therefore, the decision to lease relies upon various factors like efficient financial terms, keeping assets off the balance sheet, etc. Operating lease offers various advantages that make it the first choice of companies. Firstly, the lesser can retain the ownership of property during and after the term of the lease. Secondly, operating lease minimizes administration for the end-user and allows them to hand the asset back at the end, whilst paying off one single monthly installment (Kwok et. al, 2005). Thirdly, since operating leases are treated as an expense, they remain off the balance sheet, thereby giving the right to lesser to terminate the lease even at shorter notice. 3.The revision of accounting standards can easily have an influence on computations of financial covenants in lending arrangements and other economic In debt contracts, operating leases are not considered as debt but during the revision of accounting standards, such operating leases may shift into the definition of debt. As a result, the amount of debt will be increased that will possess a ripple influence throughout the debt contract (Brown, 2011). Therefore, if revision in accounting standards may cause debt to be enhanced by a larger amount, organizations are more likely to breach covenants that are included in the debt contracts (Gordon et. al, 2012). 4.Organizations that have a potential management and can gain considerably from the potential tax reduction from the accounting method are most likely to lobby against the accounting standard. The management of such organization lobby for accounting method as it leads to higher level of income. Further, if the firms security prices are most likely to be influenced from the accounting numbers then they are most likely to lobby (Daske et. al, 2008). The current scenario of big firms clearly indicates that the accounting numbers are majorly responsible for the security prices and hence, management needs to take adequate consideration for the same (Georgiou, 2004). References Brown, P 2011, International Financial Reporting Standards: How real are the benefits? Accounting and Business Research, pp. 269-285. Daske, H, Hail, L. Leuz, C Verdi, R. S 2008, Mandatory IFRS reporting around the world: Early evidence on the economic consequences, Journal of Accounting Research, Vol. 46, No. 5, pp. 1085-1142. Georgiou, G. 2004, Corporate lobbying on accounting standard methods, timing and perceived effectiveness, Abacus, 40 (2), pp. 219237. Gordon, L. A, Loeb, M. P Zhu, W 2012, The impact of IFRS adoption on foreign direct investment, Journal of Accounting and Public Policy, vol.31, no. 4, pp. 374-398. Kwok, W. C. C. and Sharp, D. 2005, Power and international accounting standard setting evidence from segment reporting and intangible asset projects, Accounting, Auditing and Accountability Journal, vol.18, no. 1, pp. 7499. Richardson, A. J. and Eberlein, B. 2011, Legitimating transnational standard-setting: the case of the International Accounting Standards Board, Journal of Business Ethics, vol. 5, no. 3, pp. 217245. Kruger, P 2015, Corporate goodness and shareholder wealth, Journal of Financial economics, pp. 304-329