Study of Accounting Theories for Legitimacy- myassignmenthelp

Question: Discuss about theStudy of Accounting Theories for Legitimacy. Answer: Accounting theories lead to a clear conceptual idea as to how an accounting thought is developed into an accounting practice and then it is in turn further developed into an accounting principle. Accounting theories assess the global and ethical standards of accounting, their relevance linked to the political conditions of the location and the current government policies. The two of the more prevalent theories used for evaluating social and environmental accounting are legitimacy and stakeholder theory (as mentioned in the question). The word Legitimacy generally in accounting sense means a common or general perspective concerned with the work done by a particular entity as to whether the work done is according to the laid down norms and definitions and is done with proper tools of accounting (Lanis and Richardson 2012). Legitimacy theory essentially refers to the mechanism that helps organizations in establishing and developing environmental and social initiatives on the part of the firm so that their social contract is fulfilled and in turn the goals and objectives of the organization are ultimately met. The organization in order to support its existence needs legitimacy accounting so that the social and environmental actions done by the entity do not hamper the environment or society. In legitimacy theory the idea of social contract is treated with utmost importance. Here in this theory society is treated as a real entity having real force and real desires or interests commonly termed as the public interest. L egitimacy theory is that accounting theory which inspires corporations to be socially and environmentally responsible (Fernando and Lawrence 2014). Its basic idea is that each and every organization has some duty towards the environment and the society in which it operates and draws its revenue from. Thus it gives stress on corporate social responsibility. The problem or one of the drawbacks for legitimacy theory in contributing to the general understanding of legitimacy accounting disclosure is that with time corporations have used this concept more often without understanding its purpose, therefore loosening the grip of the process (Rogowski 2015). Now to discuss the stakeholder theory, a stakeholder could be any person who is involved in the business that is he or she is a component of the process or flow of business. A stakeholder is a person by whom business is affected and in turn who affects business. The ethical of the stakeholder theory presents the perspective that organizations or firms should take into account the interest of all the stakeholders involved in business when deciding about important factors. One of the advantages of the stakeholder theory is that organizations are only able to maximize the wellbeing of the stakeholders. Stakeholders or shareholders with less power or no power do not get any kind of claims on the firm and the stakeholders who operate from a distance have no power to have any effect on the sales or supplies of the firm (Bitektine and Haack 2015). They are not able to affect any decision making process of the firm. Stakeholder theory is one of the very few theories in which the claims are b oth ethical and positive together. This accounting theory actually needs a leap of faith rather than a well thought analysis or a rational analysis. The stakeholders strategic view mixes both a resource-oriented view along with a market-oriented view. A general version of the stakeholder accounting theory intends to define the particular group of stakeholders of a company and after that take exact measures to assess and check the situation as to how the stakeholders especially the small scale stakeholders are treated in the firm. Legitimacy theory is based on the notion that each and every corporation or firm has a sincere responsibility towards the society or environment where it thrives and prospers. It does not involve any legal claim on the organization but justifies the existence of the firm by maintaining its public image. Stakeholder theory on the other hand is completely an accounting theory that is depends upon the stakeholders or shareholders to be particular. It is mainly concerned with the treatment of the small scale stakeholders who do not have a say in the decision making area of the firm. It essentially safeguards the interests of the stakeholders. Under this accounting theory stakeholders do have a legal claim on the firm (Bebbington, Unerman and O'Dwyer 2014). There are in total two methods of accounting for leases. In case of an operating lease, the owner of the property only transfers the right of the property to the person acquiring the property. When the time period for leasing the property is over, the person who had taken the property on lease gives back the property to the owner. As the lessee do not have to accept the ownership risk, the expense related to lease property is shown as operating expense in the income statement and will have no effect on the balance sheet. In a financial lease, the lessee takes on a part of the ownership risks and receives certain perks and is also shown in the balance sheet of the firm as the property is recognizable as an asset or liability. Therefore companies prefer operating lease more than finance lease ( Altamuro et al. 2014). The change in the accounting standard for leasing might cause organizations to breach covenants included within debt contracts because after the change the firms will compulsorily have to show the expenses as their liability that is the total net profit of the firm as such will decrease by a wholesome amount. This will be the primary effect of the change in accounting standards (Barone, Birt and Moya 2014). The organizations more likely to lobby against the accounting standard would be financial institutions as these institutions are involved in leasing out properties and would be affected the most due to the changed accounting standards (Graham and King 2013). References Altamuro, J., Johnston, R., Pandit, S.S. and Zhang, H.H., 2014. Operating leases and credit assessments. Contemporary Accounting Research, 31(2), pp.551-580. Barone, E., Birt, J. and Moya, S., 2014. Lease accounting: a review of recent literature. Accounting in Europe, 11(1), pp.35-54. Bebbington, J., Unerman, J. and O'Dwyer, B. eds., 2014. Sustainability accounting and accountability. Routledge. Bitektine, A. and Haack, P., 2015. The macro and the micro of legitimacy: Toward a multilevel theory of the legitimacy process. Academy of Management Review, 40(1), pp.49-75. Fernando, S. and Lawrence, S., 2014. A THEORETICAL FRAMEWORK FOR CSR PRACTICES: INTEGRATING LEGITIMACY THEORY, STAKEHOLDER THEORY AND INSTITUTIONAL THEORY. Journal of Theoretical Accounting Research, 10(1). Graham, R.C. and King, R.D., 2013. Decision usefulness of whole-asset operating lease capitalizations. Advances in Accounting, 29(1), pp.60-73. Lanis, R. and Richardson, G., 2012. Corporate social responsibility and tax aggressiveness: a test of legitimacy theory. Accounting, Auditing Accountability Journal, 26(1), pp.75-100. Rogowski, R., 2015. Rational legitimacy: A theory of political support. Princeton University Press.