Explain the relevance and application of the social contract to Legitimacy Theory in accounting. While the relationship between society and business is explained by the social contract, organizational legitimacy describes the state in which an organization has met the terms of the social contract. corporate social responsibility (CSR) disclosure literature. Patrick Riley presents a comprehensive historical analysis of the meaning of contract theory and a testing of the inherent validity of the ideas of consent and obligation. 2 This decline is well documented in … He uncovers the critical relationship between the act of willing and that of consenting in self-government and shows how "will" relates to political legitimacy. Legitimacy theory depends on the idea of a “social contract” between the organization and the society in which it operates. The political and moral philosophy has mentioned about the social contract theory, which in simple terms means that the state holds some authority over an individual. This study examines the social and environmental disclosures of BHP Ltd (one of the largest Australian companies) from 1983 to 1997 to ascertain the extent and type of annual report social and environmental disclosures over the period, and whether such disclosures can be explained by the concepts of a social contract and legitimacy theory. What might have been demanded of a corporation a decade ago might now be frowned upon. Support your position with convincing arguments from the academic literature. While the stakeholder theory is built on the demand of internal and external stakeholders for companies to behave responsibly, the legitimacy theory emphasizes a social contract between the business and society (Deegan, 2006; Hinson et al. An organisation is deemed to be legitimate to the extent that it complies with the terms of the social contract. This research is also motivated by the … Providing a summary of the case without any discussion of the theory will not fetch marks. A … These theories were explained and discussed from a corporate social responsibility point of view, this was done by identifying the conditions that best suits these theories. Legitimacy theory helps to understand the organization’s behavior in implementing, developing and communicating its social responsibility policies. What does the notion of legitimacy and social contract have to do with corporate disclosure policies? In understanding accounting theories, the theory of legitimacy is another important concept. This form of institutionalism is also evident in the case study ‘Bank to slash extra 1000 jobs’ by Nicola Webber. Questions must me answered from the perspective of the theories discussed in the subject. Legitimacy Theory relies on the belief that a social contract exists between corporations and society. The findings The aim of this study is to explore the possibility of using the legitimacy theory as a plausible explanation for CSR reporting practices by organizations within the context of developing nations. A social contract is not necessarily a written agreement, but is what we understand society expects. Expectations and norms are always changing. If the social contract underscores one or more of the systems theories presented in Modules 7 & 8, then it has implications across a number of areas of accounting theory, not least in the area of environmental and sustainability reporting (Module 8). Without society, any company cannot exist. Legitimacy is defined by Lindblom (1992) as: "...a condition or status which exists when an entity's value system is congruent with the value system of the larger social system of which the social system of which the entity is a part. … Legitimacy Theory relies on the belief that a social contract exists between corporations and society. What is social contract in accounting? … LEGITIMACY THEORY AND SOCIAL DISCLOSURE In many respects, legitimacy theory is based on the concept of the social contract. Downloadable! The main assumption of legitimacy theory is fulfilling the organization’s social contract, which enables the recognition of its objectives. This is a group assignment of maximum 3 students. ASSIGNMENT: FINANCIAL ACCOUNTING THEORY. It was found that underlying philosophies appear to range from critical theory, through the social contract of business and society and organisational legitimacy to the 'business case' at the other end of a possible spectrum. Learn new Accounting Terms. The theory assumes that a corporation does not have any right to operate or access resources, and is only legitimate when the value system of the corporation is congruent with that of society. Furthermore, the application of the legitimacy theory in the organisation’s financial account reporting has also been demonstrated in this study. Social contracts, like society itself, is difficult to pin down. The theory assumes that a corporation does not have any right to operate or access resources, and is only legitimate when the value system of the corporation is congruent with that of society. From a CSR standpoint we review and discuss, in detail, legitimacy theory, stakeholder theory, social contract theory, and signalling theory to identify the situations that suit each of these perspectives. Read "Social responsibilities of MNCs in downsizing operations A Finnish forest sector case analysed from the stakeholder, social contract and legitimacy theory point of view, Accounting, Auditing & Accountability Journal" on DeepDyve, the largest online rental service for scholarly research with thousands of academic publications available at your fingertips. The social contract is a concept used to explain a group of implicit and explicit expectation that society has about how organization should conduct its operations. 3Department of Accounting, Faculty of Commerce, Benha University, Egypt Received 1 November 2014, Revised 19 December 2014, Accepted 20 December 2014, Published 1 January 2015 Abstract: Legitimacy theory is one of the most discussed theories to explain the phenomenon of voluntary social and environmental disclosures in corporate communication. Acc theory Preview text Seminar 7: Solutions to Discussion Questions Chapter 8: Questions 8.2, 8.4, 8.8, 8.9, 8.10, 8.12, 8.17 8.2 According to Lindblom (p.2), legitimacy is: a condition or status which exists when an value system is congruent with the value system of the larger social … Legitimacy theory, one of many social theories which is supported by the concept of the social contract, has been long been recognised as an effective explanatory tool regarding the motive of environmental reporting by business organisations (O’Donovan, 2002; Guthrie and Parker, 1990; Deegan and Gordon, 1996; Deegan and Rankin, 1996; Brown and Deegan, 1998; Islam and Deegan, 2010). Of course, certain assumptions need to be made. To a great extent, legitimacy theory has a basis in the notion of the social contract. “Legitimacy is a generalized perception or assumption that the actions of an entity are desirable, proper, or appropriate within some socially constructed system of norms, values, beliefs, and definitions” (Suchman, 1995, p. 574, emphasis in original) Legitimacy theory has become one of the most cited theories within the social and environmental accounting area. Social Contract Legitimacy Theory implies that there is a social contract representing the norms and expectations of both businesses and society. It is assumed within Legitimacy Theory that society allows the organisation to continue operations to the extent that it generally meets society’s expectations —that is, to the extent that it complies with the social contract. This paper serves as an introduction to this special issue of Accounting, Auditing & Accountability Journal; an issue which embraces themes associated with social and environmental reporting (SAR) and its role in maintaining or creating organisational legitimacy.In an effort to place this research in context the paper begins by making reference to contemporary trends occurring in social … The concept of the social contract is based on legitimacy theory. 3 Created by Dr G. L. Ilott, CQUniversity Australia The assignment must be provided with a cover paper mentioning the name and student numbers of the group members. As explained by Shocker & Sethi (1974, p. 67): Any social institution - and business is no exception operates in society via a social contract, expressed or ' For a detailed discussion of this theory see Preston & Post (1975). In this report, relation between social contract and legitimacy theory regarding financial accounting has been discussed to outline the importance of society expectation in the legitimacy theory. A social contract is important in ensuring that an organization develops good relations with the community. Legitimacy Theorists often rely on the notion of a social contract, which is an implied contract representing the norms and expectations of the community in which an organisation operates. Introduction In recent years, corporations have increasingly used their annual reports to voluntarily report information relating to their social actions, particularly those concerning the … In moral and political philosophy, the social contract is a theory or model that originated during the Age of Enlightenment and usually concerns the legitimacy of the authority of the state over the individual. 2. However, the concept of corporate legitimacy, which has been used by Ramanathan (1976), Schreuder and Ramanathan (1984), and Benston (1982) in arguing either for or against the need for social accounting, may have some relationship to social disclosure. The following theories; namely the Legitimacy theory, Political economy theory, Stakeholder theory and Social contract theory are considered to be a systems- oriented theories. Ethics in Accounting Ethics offers a moral framework that makes it possible for businesses and individuals to make the right business judgments. Legitimacy Theory specifies a social contract between the organisation and society. Building on the literature review from Assessment Item 1, discuss whether or not the TFV represents a social contract between the accounting profession. The social contract is an idea that informs so much of accounting theory, yet it is given such little attention. 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