Accounting Organizations and Society

Question: Dicuss about the Accounting Organizations and Society. Answer: Introduction: The report contains detail understanding and critical evaluation of the theories of Australian Accounting Standards. It will help in building the conceptual framework of the Accounting practice and regulation with sustainability accounting. The report also contains disadvantages and criticism of the Positive Accounting Theory with the reasons for anticipated drawback of the PAT. Sustainable Accounting is known with various names which are as Corporate Social Responsibility Accounting, Social Accounting, Social and Environmental Accounting and Non- Financial Accounting. It was started twenty years ago and it comes as subheading of the "Financial Accounting" which concentrates on revelation of the "non- financial" aspects in relation to the company's performance to outside members for example creditors, stakeholders and other authority (Bebbington and Larrinaga 2014). This concept arises in the accounting with a huge coverage with a huge coverage since forty years and in a compact way since ten years. It is also implied as to those activities which have direct effect on the "society, economic performance and environment." Sustainable Accounting is developing continuously. So it is very important that firm knows the overview of the "reporting frameworks," rules and regulation which will affect the type and matter of the report. There are various firms which pro vide services to organization who wants to change the conventional financial system disclosure for sustainability reporting (Bebbington et al., 2014). Positive Accounting Theory (PAT) PAT attempts to forecast a true activity and interpret them to "accounting transactions." Whereas normalizing theory suggests what should be done. PAT involves the activity of choosing the account policy by the company and reaction to the newly accepted "accounting standards." The overall aim of PAT is to forecast and make understand the selection of "accounting policies" over the different companies. It also identifies the existence of the economic effect. Under this approach for efficient organizing, a company needs to maximize the probability of surviving. A company is seen as the collection of the contract which they have entered into. In relation to PAT, if a company wants to be efficient then should minimize the cost related to the contract. PAT identifies that changing situations will need managers to adopt flexible in selecting Accounting Policies (Setyorini and Ishak 2012). Legitimacy Theory Legitimacy is referred as the right and agreement of the authority. Under this theory, a firm investigates and protect to work under the limits and rules of the respective surrounding. Limits and rules are not constant, so it is necessary for the company to be conscious. Legitimate Theory postulates that the business is surrounded by social contract and under which firm is needed to act on different social activities in return for sanction of the goal and other rewards, and this finally assures the continuing survival. The issue with this theory is, supplying the understanding of accounting disclosure particularly. The legitimate theory is one the noted theory under the area of social and environment accounting. Instead of that it has created a huge doubt between numbers of scholars that it grants true understanding inside the voluntary disclosures of corporations (Fernando and Lawrence 2014). Stakeholder Theory The stakeholder theory is referred to the theory of the companys management and enterprise ethics which views the moralistic and financial worth in controlling the company. This theory also recognizes and divides into the groups which are stakeholders of a corporation, and both explains and advises process through which management can provide an expected view to the attraction of that group. The conventional view of the organization, the shareholder sees, only the proprietor and stakeholders of the organization are valuable, and the organization has a coupling trustee obligation to put their necessities to start with, to build esteem for them. Instead of that, it contends that there are gatherings included, with workers, clients, administrative bodies, political gatherings, exchange affiliations, exchange unions, suppliers, financers, and communities. The stakeholder perspective of system incorporates both asset-based perspective and business sector based view, an d includes "socio-political level (Harrison and Wicks 2013). Institutional Theory Institutional theory is theory on profound and stronger parts of social structure. It takes into consideration the procedure which includes plans, tenets, standards and schedules, to build as legitimated rules for social behavior. Various elements of Institutional theory describes how these components are made, embraced, diffused and adapted over space and time; and how it falls into decay and disuse. There are two most prominent theories under this section, Old Institutionalism, and New Institutionalism. There is generous confirmation that organizations in various sorts of economies respond distinctively to comparable difficulties. Social, financial, and political elements constitute an institutional structure of a specific situation which gives firms with points of interest to participating in particular sorts of exercises there. Organizations have a tendency to perform all the more proficiently on the off chance that they get the institutional backing (Bramme r et al., 2012). Limitations of the Positive Accounting Theory PAT makes an assumption that rules forecast the managers will be diplomatic. It does not provide any instruction and neither a means of improving accounting practice. It creates a fundamental assumption by the many researchers which correctly do not prove any accounting method. In this, all the action are self driven-interest group. There is stagnation no scope of development. The scholars considered the individual accounting choices which were in practice, but the companies had a huge number of choices, in which some of the methods did not match and had opposing effect (Rutherford 2016). The measurement or the intermediaries used in the literature were very simple from the approach. Through a scientific way, Positive Accounting Theory has many defects in it, which results in giving incorrect results. It was lacking in entirety, because it involved in huge-scale practical experiment, it also ignored company specific relationship (Morris et al., 2013). Criticism of the Positive Accounting Theory PAT is seen as Description not Prescription by the Normative theorists, they see PAT as the role of accounting as instructions. There are many scholars and experimenting department which still work for PAT. It fails in providing instructions and developing accounting practice. It further says that only discussing and forecasting is not enough for the accounting practice. There is no specific rule as in what the people will follow. PAT theorists normally justify that they don't want to make their rule as compulsion. They prefer to give information related to forecasting association for specific event and leave the decision upon them. PATs fundamental assumption is that all the activity is done for the purpose of maximizing the wealth only (Giddens 2013). Some of the scholars stated that PAT is promoting the moral insolvency perception of world. The companies who urges close in breaking accounting rules selects the process which will increase the profits. The agents and the owners primary aim to maximize their wealth instead of looking to the overall effect to the company (Deegan 2013). Reasons for Perceived Shortcomings The above-given shortcomings or drawbacks of Positive Accounting Theory is truly agreeable to its all its point; all the above limitation have justifiable statement of proving. For preparing or accepting accounting, there have been certain specified rules and regulations which are not present in Positive Accounting Theory (PAT). PAT has one of the drawbacks that it does not have any specific accounting rule. The Accounting practices vary industry to industry and it methods even to. But in PAT the accounting methods are not static it varies from scholar to scholar. Scholars also keep on experimenting based on the different approaches. An accounting system should be free from flaws and error. PAT always chooses those accounting policies only which help in minimizing the cost of the contract, which is not the proper way as per Australian accounting standard and regulation. PAT also aims in making the managers flexible with their accounting policies as per the requirement, but it is not a proper approach. PAT looks into the contractual view; instead, it should always aim at increasing the value of the firm (Carey et al., 2013). One more way of reporting decreased net earnings was to employ the policies of accounting to overtake the companies. In order to get opportunistic approach Watts and Zimmerman has founded three hypotheses which are as follows: In 1985, Healy founded proof related to the "bonus plan hypothesis." For maximizing the expected bonuses of the managers of the company prepared bonus plan, based on the net income and adoption accrual policies. In 1994, Sweeney analyzed the "debt covenant hypothesis" by changing the control group of the firm; it engaged in income increasing policies. It aimed to reduce the problems with the creditors The Political cost hypothesis was formulated in order to reduce the political heat of the environment. The more the political cost of the form, more the manager will select the accounting policies which will vary the reported earnings from the recent and forecasted interval of the year (Wilkinson and Durden 2015). The above theories forecast the managers in selecting the policies of the account to fulfill the objectives of the company. Incorporation of the fraud and unethical policies and behavior is not to be done. Conclusion All the accounting theories have some limitation and advantages over another. Considering all the dos and donts the policies should be chosen based on ethical and moral concept. There are various research and journals of scholars are publishing day by day in order to spread this accounting policies. Each and every policy have some advantages and limitation with arguing criticism. Reference List Bebbington, J. and Larrinaga, C., 2014. Accounting and sustainable development: An exploration.Accounting, Organizations and Society,39(6), pp.395-413. Bebbington, J., Unerman, J. and O'Dwyer, B., 2014.Sustainability accounting and accountability. Routledge. Brammer, S., Jackson, G. and Matten, D., 2012. Corporate social responsibility and institutional theory: New perspectives on private governance.Socio-Economic Review,10(1), pp.3-28. Carey, P., Knechel, W.R. and Tanewski, G., 2013. Costs and Benefits of Mandatory Auditing of Forà ¢Ã¢â€š ¬Ã‚ profit Private and Notà ¢Ã¢â€š ¬Ã‚ forà ¢Ã¢â€š ¬Ã‚ profit Companies in Australia.Australian Accounting Review,23(1), pp.43-53. 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