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The Effect of legitimacy theory in achieving profitability and sustainability in a corporation - Essay Example

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The Effect of legitimacy theory in achieving profitability and sustainability in a corporation
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The Effect of legitimacy theory in achieving profitability and sustainability in a corporation

Social and environment accounting involves communicating the social and environmental effects of the company’s economic actions related to a particular interest group in a society or to the society at large. But what role does the social environment accounting play in determining the performance of a company both in the short and long run. The theory behind the inception of contemporary issues in the accounting field will also be reviewed with focus given to the legitimacy theory (Suchman, 1995). Theories are a scheme or systems of ideas which account for a group of facts or ideas, accounting theories provide a systematic framework for understanding, investigating and developing various accounting practices. Theories are used for evaluating applicability of the current accounting practices. Legitimacy theory assumes that an entity is affected by and influenced the society in which it operates, among other system oriented theories, the institutional and stakeholders theory, an entity has the primary role of ensuring that it discloses information in the relationship among, groups, organisation, the state and individuals for the coon good of the public. According to Drever and McGowan, (2007), the systematic oriented theories were derived from the political Economy theory. “Political economy is the social, political and economic framework within which human life takes place” (Gray, Owen & Adams, 1996 p.47). It is obvious that entities exist within a society and economic issues affecting such an entity can not be excluded from the political, institutional and social framework within the society. Legitimacy theory ensures that organisations and entities carry out their activities within the legal bounds and norms of their respective societies. Any given society would not condone an entity within it to carry out illegitimate activities because of the repercussion that such activities may bring upon the society. However, bounds and norms are not static as they keep changing with time, thus it is also necessary that an organisation responses to the changing culture and norms within the society in order to continue operating in it smoothly (O’Donovan, 2002). Latest Research ACCA UK Awards for Sustainability Reporting in 2008 recommended that companies should start accounting for their sustainability impacts from both a financial and non financial perspective. The article point out that accounting for social and environment sustainability is a challenge because most of the components of the social environment aspect are abstract in nature. The Centre for Urban and Regional Studies, in New Castle Australia have designed practical guide fro small community organisations and enterprises due to the growing interest in social accounting . The three main steps that authors relate to social accounting are planning, accounting and reporting and auditing. Milne has recently carried out a critical look at positive accounting theory, political costs and social disclosure analysis. The aim of the research was to illustrate empirical evidence in support of the challenges that meet positive accounting theory of social disclosures. Literature Review Mathews (1995), made an inquiry whether social environment accounting is a practical demonstration of ethical concern. He points out that the accounting profession was among the first professions to uphold integrity in its practices. Recently there have been attempts by educational programmes to move the accounting pr ... Read More
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