1.

LEGITIMACY THEORY

“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.”

In our conception, legitimacy theory has the role of explaining the behavior of organizations in
implementing and developing voluntary social and environmental disclosure of information in order
to fulfill their social contract that enables the recognition of their objectives and the survival in a
jumpy and turbulent environment.

Social perceptions of the organization’s activities are reported in accordance with the expectations
of society. In the situation when the organization’s activities do not respect social and moral values,
the organization is severely sanctioned by society.

Legitimacy Theory asserts that organizations continually seek to ensure that they operate within the
bounds and norms of their respective societies, that is, they attempt to ensure that their activities
are perceived by outside parties as being “legitimate”. These bounds and norms are not considered
to be fixed, but rather, change over time, thereby requiring the organization to be responsive to the
environment in which they operate. Lindblom (1994) distinguishes between legitimacy which is
considered to be a status or condition, and legitimation which she considers to be the process that
leads to an organization being adjudged legitimate.

Legitimacy Theory relies upon the notion that there is a ‘social contract’ between the organization
in question and the society in which in operates.

The ‘Social contract’ is the concept used to represent the multitude of implicit and explicit
expectation that society has about how the organization should conduct its operations.

Any social institution – and business is no exception – operates in society via a social contract,
expressed or implied, whereby its survival and growth are based on:

(1) the delivery of some socially desirable ends to society in general, and

(2) the distribution of economic, social, or political benefits to groups from which it derives is
power.

Failure to comply with societal expectations may lead to sanctions being imposed by society. For
example, in the forms of legal restrictions imposed on its operation, and reduced demand for its
products.

Action an steps taken by Organization to cope with Legitimacy

Downling and Pfeffer stats that organizations will take various actions to ensure that their
operations are perceived to be legitimate. That is, they will attempt to establish congruence
between ‘the social values associated with or implied by their activities and the norms of acceptable
behavior in the larger social system of which they are a part.

Dowling and Pfeffer also outline the means by which an organization may legitimate its activities: -

- Adapting its output and goals to conform to prevailing definitions of legitimacy.

- Attempt through communications, to alter the definition of social legitimacy so that it conforms
to the organization’s present practices, output and values.
- Attempt through communications, to become identified with symbols, values or institutions
that have a strong sense of legitimacy.

Lindblom identifies four courses of action that an organization can take to obtain or maintain
legitimacy as follows:

1. Seek to educate and inform its ‘relevant publics’ about changes in the organ’s performance and
activities;

2. Seek to change the perception of the “relevant publics”;

3. Seek to manipulate perception by deflecting attention from the issue of concern to other
related issues through an appeal to emotive symbols or;

4. Seek to change external expectation of its performance.

According to Lindblo and Downling and Pfeffer, the public disclosure of information in such places as
annual reports can be used by an organization to implement each of the above strategies.

2. Stakeholder definition according to Freeman and Reed (1983): Any identifiable group or
individual who can affect the achievement of an organization’s objectives, or it is affected by
the achievement of an organization’s objectives. .

The stakeholder theory is a theory of organizational management and business ethics that

addresses morals and values in managing an organization. It was originally detailed by R. Edward
Freeman in the book Strategic Management: A Stakeholder Approach identifies and models the
groups which are stakeholders of a corporation, and both describes and recommends methods by
which management can give due regard to the interests of those groups. In short, it attempts to
address the "principle of who or what really counts". [1]

In the traditional view of a company, the shareholder view, only the owners or shareholders (=

stockholders) of the company are important, and the company has a binding fiduciary duty to put
their needs first, to increase value for them. Stakeholder theory instead argues that there are other
parties involved, including employees, customers, suppliers, financiers, communities, governmental
bodies,political groups, trade associations, and trade unions. Even competitors are sometimes
counted as stakeholders – their status being derived from their capacity to affect the firm and its
stakeholders. The nature of what is a stakeholder is highly contested (Miles, 2012), [2]with hundreds
of definitions existing in the academic literature (Miles, 2011). [3]

The stakeholder view of strategy integrates both a resource-based view and a market-based view,
and adds a socio-political level. One common version of stakeholder theory seeks to define the
specific stakeholders of a company (the normative theory of stakeholderidentification) and then
examine the conditions under which managers treat these parties as stakeholders (the descriptive
theory of stakeholder salience).[4]

There are two branches of stakeholder theory, namely:

I. The ethical branch of Stakeholder Theory argues that all stakeholders have the right to be treated
fairly by an organization, and that issues of stakeholder power are not directly relevant.

II. The Managerial Branch of Stakeholder Theory perspectives attempt to explain when corporate
management will be likely to attend to the expectations of particular (powerful) stakeholders.
 3. CSR : CSR(Corporate social responsibility) refers to companies taking
responsibility for their impact on society. As evidence suggests, CSR is
increasingly important to the competitiveness of enterprises. CSR aims to
embrace responsibility for corporate actions and to encourage a positive impact
on the environment and stakeholders including consumers, employees, investors,
communities, and others. It can bring benefits in terms of risk management, cost
savings, access to capital, customer relationships, human resource management,
and innovation capacity. CSR is titled to aid an organization's mission as well as
a guide to what the company stands for to its consumers. Business ethics is the
part of applied ethics that examines ethical principles and moral or ethical
problems that can arise in a business environment. ISO 26000 is the recognized
international standard for CSR. Public sector organizations (the United Nations
for example) adhere to the triple bottom line (TBL). It is widely accepted that CSR
adheres to similar principles, but with no formal act of legislation.
Companies need to answer to two aspects of their operations. 1. The quality of their
management - both in terms of people and processes (the inner circle). 2. The nature of,
and quantity of their impact on society in the various areas.
Outside stakeholders are taking an increasing interest in the activity of the company.
Most look to the outer circle - what the company has actually done, good or bad, in terms
of its products and services, in terms of its impact on the environment and on local
communities, or in how it treats and develops its workforce. Out of the various
stakeholders, it is financial analysts who are predominantly focused - as well as past
financial performance - on quality of management as an indicator of likely future
performance.
Corporate Social Responsibility is the continuing commitment by business to behave
ethically and contribute to economic development while improving the quality of life of
the workforce and their families as well as of the local community and society at large
The effect of CSR reporting on CSR performance:
- CSR reporting
- Stakeholder empowerment Stakeholder
- Pressure Corporation responds by improving
- CSR performance
The Commission’s CSR agenda for action is:
- Enhancing the visibility of CSR and disseminating good practices
- Improving and tracking levels of trust in business

- Improving self- and co-regulation processes

- Enhancing market reward for CSR
- Improving company disclosure of social and environmental information
- Further integrating CSR into education, training and research.
- Emphasizing the importance of national and sub-national CSR policies
 - Better aligning European and global approaches to CSR.

4. ETHICS : Ethics is two things. First, ethics refers to well-founded standards of

right and wrong that prescribe what humans ought to do, usually in terms of
rights, obligations, and benefits to society, fairness, or specific virtues. Ethics, for
example, refers to those standards that impose the reasonable obligations to
refrain from rape, stealing, murder, assault, slander, and fraud. Ethical standards
also include those that enjoin virtues of honesty, compassion, and loyalty. And,
ethical standards include standards relating to rights, such as the right to life, the
right to freedom from injury, and the right to privacy. Such standards are
adequate standards of ethics because they are supported by consistent and well-
founded reasons.
Secondly, ethics refers to the study and development of one's ethical standards. As
mentioned above, feelings, laws, and social norms can deviate from what is ethical. So it
is necessary to constantly examine one's standards to ensure that they are reasonable
and well-founded. Ethics also means, then, the continuous effort of studying our own
moral beliefs and our moral conduct, and striving to ensure that we, and the institutions
we help to shape, live up to standards that are reasonable and solidly-based.
Code of ethics or a code of conduct? (corporate or business ethics)
A code of ethics will start by setting out the values that underpin the code and will
describe a company's obligation to its stakeholders. The code is publicly available and
addressed to anyone with an interest in the company's activities and the way it does
business. It will include details of how the company plans to implement its values and
vision, as well as guidance to staff on ethical standards and how to achieve them.
However, a code of conduct is generally addressed to and intended for employees
alone. It usually sets out restrictions on behavior, and will be far more compliance or
rules focused than value or principle focused. Also this code is good for the Non
Governmental Organization.
Code of practice (professional ethics) A code of practice is adopted by a profession or by
a governmental or non-governmental organization to regulate that profession. A code of
practice may be styled as a code of professional responsibility, which will discuss difficult
issues, difficult decisions that will often need to be made, and provide a clear account of
what behaviour is considered "ethical" or "correct" or "right" in the circumstances. In a
membership context, failure to comply with a code of practice can result in expulsion
from the professional organization. "Principles, values, standards, or rules of behaviour
that guide the decisions, procedures and systems of an organization in a way that (a)
contributes to the welfare of its key stakeholders, and (b) respects the rights of all
constituents affected by its operations." (International Good Practice Guidance, 2007)
Make sure my ethical decision:
- Integrity – to be straightforward and honest in all professional and business
relationships.
-  Objectivity – to not allow bias, conflict of interest or undue influence of others to
override professional or business judgments.
- Professional competence and due care – to maintain professional knowledge and
skill at the level required to ensure that a client or employer receives competent
Professional Services based on current developments in practice, legislation and
techniques and act diligently and in accordance with applicable technical and
professional standards.
5. Confidentiality – to respect the confidentiality of information acquired as a result
of professional and business relationships and, therefore, not disclose any such
information to third parties.
- without proper and specific authority, unless there is a legal or
professional right or duty to disclose, nor use the information for the
personal advantage of the Member or third parties.
- Professional behaviour – to comply with relevant laws and regulations
and avoid any action that discredits the profession.
Ethical Theories
Ethical theories are based on the previously explained ethical principles.
They emphasize different aspects of an ethical dilemma and lead to the
most ethically correct resolution according to the guidliness with in the
ethical theory itself. People based on their individual choice of ethical
theory upon their life experiences.
Dentology
states that people adhere to their obligations and duties. It always keeps
it promises and follow its law which help to produce consistent decision.
It provides a basis for special duties and obligations to specific people,
such as those within one’s family. Dentology contains of many positive
attributes: fair number of flaws, a person’s duty conflicts, and that
dentology is not concerned with the welfare of others.
Deontological (duty-based) ethics are concerned with what people do,
not with the consequences of their actions.
- Do the right thing.
- Do it because it's the right thing to do.
- Don't do wrong things.
- Avoid them because they are wrong.
- Duty-based ethics are usually what people are talking about when they
refer to 'the principle of the thing'.
Duty-based ethics teaches that some acts are right or wrong because of
the sorts of things they are, and people have a duty to act accordingly,
regardless of the good or bad consequences that may be produced.
Conflicting obligation does not lead us to clear ethically correct
resolution nor does it protect the welfare of others from the
deontologist’s decision.
Deontologists live in a universe of moral rules, such as:
- It is wrong to kill innocent people
- It is wrong to steal
- It is wrong to tell lies
- It is right to keep promises
It is not based on the context of each situation; it doesn’t provide any
guidance when one enters a complex situation in which there are
conflicting obligations.
Deontologists appear to do it the other way around; they first consider
what actions are 'right' and proceed from there. (Actually this is what
they do in practice, but it isn't really the starting point of deontological
thinking.)
So a person is doing something good if they are doing a morally right
action.
Rights
The concept of rights based ethics is that there are some rights, both
positive and negative, that all humans have based only on the fact that
they are human. These rights can be natural or conventional. That is,
natural rights are those that are moral while conventional are those
created by humans and reflect society's values.
In the rights ethical theory the rights set forth by a society are protected
and given the highest priority. Rights are considered to be ethically
correct and valid since a large or rulling population endorses them.
Individuals may also bestow rights upon if they have the ability and
resources to do so. For example, a person may say that her friend may
borrow the car for the afternoon. The friend who was given the ability to
borrow the car now has a right to the car in the afternoon.
A major complication of this theory on a larger scale, however, is that
one must decipher what the characteristics of a right are in a society.
 The society has to determine what is a right it wants to uphold and give
to its citizens. In order for a society to determine what rights it wants to
enact, it must decide what the society’s goals and ethical priorities are.
Therefore, in order for the rights theory to be useful, it must be used in
conjunction with another ethical theory that will consistently explain the
goals of the society.
Casuist The casuist ethical theory is one that compares a current ethical
dilemma with examples of similar ethical dilemmas and their outcomes.
This allows one to determine the severity of the situation and to create
the best possible solution according to other’s experiences. Usually one
will find paradigms that represent the extremes of the situation so that a
compromise can be reached that will hopefully include the wisdom
gained.
One drawback from the ethical theory is that there may not be a set of
similar examples for a given ethical dilemma. Perhaps that which is
controversial and ethically questionable is new and unexpected. Along
the same line of thinking, a casuistical theory also assumes that the
results of the current ethical dilemma will be similar to results in the
examples. This may not be necessarily true and greatly hinder the
effectiveness of applying this ethical theory.
Virtue Resonates with my experience of life in which the nature of our
character is of fundamental importance. It judges a person by his
character rather than by an action that may deviate from his normal
behaviour. Ethical principles that tell us what action to take do not take
into account the nature of the moral agent. Although we must make
moral decision with much care and consideration
It takes person’s morals, reputation and motivation into account when
rating an unusual and irregular behaviour that is concerned unethical.
One weakness of this ethical theory is that it doesnot take into
consideration a person’s change in moral character.
Utilitarianism Is founded on the ability to predict the consequences of an action. To
a utilitarian, the choice that yields the greatest benefits to the most people is the
choice that is ethically correct. One benefits of this ethical theory is that the utilitarian
can compare similar predicted solution and use a point system to determine which
choice is more beneficial for more people. This point system provides a logical and
rationale argument for each decision and allows a person to use it on a case-by-case
context.
There’re two types of utilitarianism: act utilitarianism and rule utilitarianism. Act
utilitarianism exactly as utilitarianism definition as described above, a person
 performs the acts that benefits the most people, regardless of personal feelings or
the societal constraints such as laws. Rule utilitarianism, however, takes into account
the law and is concerned with fairness. A rule utilitarian seeks to benefits the most
people but through the fairest and most just means available. Therefore, added
benefits of rule utilitarianism are that it values justice and includes beneficence at the
same time.
However both act and rule utilitarianism contain numerous flaws. Inherent in both are
the flaws associated with predicting the future. Although people can use their life
experience to attempt to predict outcomes, no human being can be certain that his
predictions will be true. This uncertainty can lead to unexpected results making the
utilitarian look unethical as time passes because his choice did not benefit the most
people as he predicted.
A Format for Ethical Decision Making
1. State problem (e.g. “Could this problem cause avoidable harm to people? or even
“This makes me uncomfortable.”)
2. Check facts (some problems disappear upon closer examination of situation;
others change, sometimes radically; sometimes problems multiply). 3. Identify
relevant factors—people involved or affected, laws, professional code, and other
practical constraints (e.g. under $200, within a half-hour).
4. Develop list of at least five options (be imaginative, try to avoid “dilemma”—not
“go” or “no go” but who to go to, what to say).
5. Test options, using such tests as the following:
• Harm test—does this option do less harm than any alternative?
• Publicity test—would I want my choice of this option published in the newspaper?
• Defensibility test—could I defend my choice of this option before a Congressional
committee, a
committee of my peers, or my parents?
• Reversibility test—would I still think the choice of this option good if I were one of those
affected
(adversely) by it?
• Virtue test—what would I become if I choose this option often?
• Professional test—what might my profession's ethics committee say about this option?
• Colleague test—what do my colleagues say when I describe my problem and suggest
this option as
my solution?
• Organization test—what does the organization's ethics officer or legal counsel say
about this?
1. 6. Make a tentative choice based on steps 1-5.
2. 7. Review steps 1-6 and ACT: What could make it less likely you would have to
make such a decision
again?
• What precautions can you take as individual (announce policy on question, change job,
etc.)?
• What can you do to have more support next time (e.g., seek future allies on this issue)?
• What can you do to change organization (e.g., suggest policy change at next dept.
meeting)?
GRI
The Global Reporting Initiative (GRI) promotes the use of sustainability reporting as a
way for organizations to become more sustainable and contribute to sustainable
development. GRI’s mission is to make sustainability reporting standard practice. To
enable all companies and organizations to report their economic, environmental, social
and governance performance, GRI produces free Sustainability Reporting Guidelines.
GRI is an international not-for-profit, network- based organization. Its activity involves
thou- sands of professionals and organization
GRI Sustainability Reporting
The GRI Sustainability Reporting Guidelines – the most widely used sustainability
reporting framework in the world - enable all companies and organizations to report on
their economic, environmental, social and govern- acne performance. The fourth
generation of the GRI Guidelines, G4, was launched in May 2013 and has been revised
and enhanced to reflect important current and future trends in sustainability reporting.
The GRI Guidelines are developed through a global multi-stakeholder process involving
representatives from business, labour, civil society, and financial markets, as well as
auditors and experts in various fields; and in close dialogue with regulators and govern-
mental agencies in several countries. The GRI Guidelines are developed in alignment
with internationally recognized reporting related documents, which are referenced
throughout.
The emphasis on what is material encourages organizations to provide only information
that is critical to their business and stakeholders. This means organizations and report
users can concentrate on the sustainability impacts that matter, resulting in reports that
are more strategic, more focused, more credible, and easier for stakeholders to
navigate.
Main Features of the G4 Guidelines
The G4 Guidelines have increased user-friendliness and accessibility. The emphasis on
what is material encourages organizations to provide only information that is critical to
their business and stakeholders. This means organizations and report users can
concentrate on the sustainability impacts that matter, resulting in reports that are more
strategic, more focused, more credible, and easier for stakeholders to navigate.
Among many other features, key enhancements in G4 include:
▪ Up-to-date disclosures on governance, ethics and integrity, supply chain, anti-
corruption and GHG emissions
▪ Generic format for Disclosures on Management Approach
▪ Two ‘in accordance’ criteria options, both focused on material Aspects
▪ GRI Content Index offering a transparent format to communicate external assurance
▪ Technically-reviewed content and clear disclosure requirements
▪ Detailed guidance on how to select material topics, and explain the boundaries of
where material impacts occur
▪ Flexibility for preparers to choose the report focus
▪ Flexibility to combine with local and regional reporting requirements and frameworks
▪ Up-to-date harmonization and reference to all available and internationally-accepted
reporting documents
▪ Overview tables, summaries and quick links to specific Guidelines’ components
Complete Glossary, reference lists, and visual guidance
ISO 26OOO
provides guidance on how businesses can operate in socially responsible way. This
includes operating in an ethical and responsible way that contributes to the welfare and
health of the society. Unlike other ISO standards, it only provides guidance and it is
possible to certify to it. A disclosure by an organisation that complies with this ISO will
benefit it in building a good reputation; attaining a competitive advantage; attract
customers, clients or users; and building a good relationship with companies, the media,
governments, suppliers and the overall community.
Sustainability
can be idea, a property of living systems, manufacturing method or a way of life. It may
include:
- Living within the limits of what the environment can provide
- Understanding the many interconnections between economy, society and the
environment
- The equal distribution of resources and opportunity.
Sustainability connections
1. Economic (Economic Development, Local Industry Participation, Jobs created,
Corporate Governance, Public Reporting)
2. Environmental (Resource use e.g. water, Waste Generation, Material Sourcing,
Atmospheric Pollution, Toxic Material Disposal)
3. Social (Human and worker rights, paying appropriate wages, working conditions,
freedom of association, workforce diversity)
Sustainability development aims to meet human needs in the present while preserving
the environmental so that these needs can also be met in the indefinite future.
Sustainability purchasing can save money as well as the environmental. Reduced
consumption means reduced purchasing costs – saving resources such as water,
energy and raw materials and reducing greenhouse gas emissions.
Conceptual Framework
for Financial Reporting sets forth the concepts that underlie financial accounting and
reporting. The framework is a coherent system of interrelated objectives and
fundamentals that prescribes the nature, function, and limitations of financial reporting.
The conceptual framework is neither an International Financial Reporting Standard
issued by the IASB nor a Statement of Financial Accounting Standards issued by the
FASB. The framework does not define standards for particular accounting issues, nor
does it override any standards currently in effect.
What Is the Conceptual Framework and Why Is It Needed?
The conceptual framework is a coherent system of interrelated objectives and
fundamentals that prescribes the nature, function, and limitations of financial reporting.
The objectives identify the goals and purposes of financial reporting, and the
fundamentals are the underlying concepts of financial accounting and reporting. Those
concepts provide guidance on identifying the boundaries of financial reporting, selecting
the transactions, other events, and circumstances to be accounted for, how they should
be recognized and measured, and how they should be summarized and reported.
Both the FASB and the IASB concluded early in their lives that they needed a framework
to provide direction and structure to financial accounting and reporting. (Many other
national standard setters, each of which developed a conceptual framework to help
guide its decisions on financial reporting issues shared that conclusion.) Standard
setters cannot fulfil their missions without a sound and unified conceptual underpinning
that helps in deciding whether one solution to financial reporting issue is better than
other potential solutions.
Without the guidance provided by an agreed-upon framework, standard setting ends up
being based on the personal conceptual frameworks developed by each member of the
stand-setting body. Standard setting that is based on such personal frameworks can
produce agreement on specific standard-setting issues only if enough of those
frameworks happen to intersect on those issues. Even those agreements may prove
transitory because, as the membership of the standard-setting body changes over time,
the mix of personal conceptual frameworks changes as well. As a result, a standard-
setting body may reach significantly different conclusions about similar (or even
identical) issues than it did previously, with standards not being consistent with one
another and past decisions not being indicative of future ones. That concern is not
merely hypothetical— significant difficulties in reaching agreement in its first standards
projects was a major reason that the original FASB members decided to devote
substantial effort to develop a conceptual framework.

The objective of general purpose financial reporting forms the foundation of the
Conceptual Framework, with other aspects of the Framework flowing from it.
The objective of general purpose financial reporting is to provide financial information
about the reporting entity that is useful to existing and potential investors, lenders and
other creditors in making decisions about providing resources to the entity. Moreover, it
is directed at users who provide resources to a reporting entity, but lack the ability to
compel the entity to provide them with the information they need to make decisions
about their investments.
The revised Framework limits the range of addressees of general purpose financial
reporting. It lists as primary users of financial statements, existing or potential investors,
lenders and other creditors. The existing Framework, in contrast, identified in addition to
the addressees listed above, employees, suppliers, customers, governments and the
general public. An assumption was included in the existing Framework that the
information needs of investors were not explicitly included. The Boards noted that the
objectives laid out in the revised Framework are not inconsistent with financial stability
as relevant and faithfully represented financial information improves user’s confidence,
hence, financial stability.
In its attempt to create a conceptual framework based on fundamental economic
concepts, the revised Framework changes terminology. It no longer refers to the
presentation of an entity’s financial position, performance and changes in financial
position to assessing the entity’s ability to generate cash flows. It rather introduces a
broader reference to financial information, i.e., reporting of an entity’s economic
resources, claims and changes therein meet the information needs of the other
stakeholders to the maximum extent.
The revised Framework continues to acknowledge limitations of general purpose
financial statements, as those may not provide information that serves all users’ needs.
Furthermore, financial reporting is not intended to provide information about the value of
a reporting entity.
Regulators have been omitted from the list of primary users as they have the power to
demand information they need. Also, financial stability as an objective of general
purpose financial reporting.
ISO14000
Organisations can also opt to follow ISO14000 to manage its environmental aspects.
This ISO comprises of such standards that help organisations to take a proactive
approach to manage environmental issues. Standards for greenhouse gas accounting,
verification and emissions trading, and measurements of the carbon footprints of
products help organisations keep their environmental impact in check. It also has
developed some 570 International Standards for the monitoring of such aspects as the
quality of air, water and the soil, as well as noise, radiation, and for controlling the
transport of dangerous goods.
ISO50001
One of the major contemporary issues is that of conversation of energy. Economical use
of energy is also critical for corporate organisation as the cost of doing business gets
decreased. Further, irresponsible consumption of energy can impose societal and
environmental costs by depleting resources and contributing to problems like that of
climate change. For that purpose, ISO50001 provides guidance as to how energy
consumption should be managed. Compliance with this ISO would requires a disclosure
by the companies as to what they have done to comply with the requirements. It can
either be implemented individually or integrated with other management system
standards.
Normative Theory
Expresses a judgment about whether a situation is desirable or undesirable, and is
based upon some moray or standard. The world would be a better place if the moon
were made of green cheese, is a normative statement because it expresses a judgment
about what ought to be. Normative statements make claims about how things should or
ought to be, how to value them, which things are good or bad, and which actions are
right or wrong. Normative claims are usually contrasted with positive (i.e. descriptive,
explanatory, or constative) claims when describing types of theories, beliefs, or
proposition. Notice that there is no way of disproving this statement. If you disagree with
it, you have no sure way of convincing anyone, who believes the statement, that it is
incorrect.
Positive Theory
Expresses an opinion on a condition, assuming what is, and that contains no indication
of approval or disapproval and is not based on any standard. Notice that a positive
statement can be incorrect. The moon is made of green cheese, is incorrect, but it is a
positive statement because it is a statement about what exists.
Positive Accounting
Positive economic theory and accounting practices are objective and based on fact.
Positive accounting focuses on analyzing the economic statistics and data at hand, and
deriving conclusions based on those figures. For example, if corporate growth allows a
company to increase shareholder dividends over previous dividend payments, positive
accounting theory would conclude that corporate growth causes a rise in stockholder
dividends. Most bookkeeping and data collection involved with accounting relates to
positive economic theory.
Normative Accounting
Normative economic theory is subjective and aims to describe what the economic future
should be for a company or investor. As a result, normative accounting practice is a form
of value judgment that can introduce subjective morality into accounting. For example, if
a company that increased dividend payments could use some of those funds to improve
corporate sustainability measures, a normative accounting statement would indicate how
much money should be invested in those measures to sustain corporate growth.
Normative accounting also deals with future events rather than past data, which is the
domain of positive accounting practices.
When to Use
Positive accounting practices are best used to explain past financial events, as well as
the causes of a business's or individual's current financial standing. Determining why a
company is operating at a net
loss requires the positive accounting practices of comparing actual revenue to actual
expenses over the course of a year. These accounting practices are typically used to
construct financial documents, such as balance sheets or cash flow statements.
Normative accounting practices are best used when trying to set future economic policy
based on theory. A company's mission statement or the market strategies included in
business plans can be viewed as normative statements -- they reflect the business
ideals that a company wants to accomplish.
Working Together Proper financial planning for any business or individual requires the
use of both positive and normative accounting practices. On a large scale, economists
indicate financial policies through normative accounting statements, but these normative
statements must be based on the financial realities found through positive accounting
practices. The factual-based practices of positive accounting provide a foundation for
companies to engage in normative accounting, and a more idealistic view of how the
company can operate while still earning a profit.
Accounting Theory
There is always a reason behind each and every action of a human being. A man does
not anything without any sound reason.
  Regarding Finance, or financial matters, a man is always extra cautious and so, he
never makes any financial transaction without any reason. As accounting deals with
financial transactions, so every accounting work is also based on reasoning. Accounting
Theories always try to explain with reason, the logic underlying a particular practice.
Generally Accepted Accounting Principles cannot be changed completely as they are
widely and universally accepted but they can be reformed and remoduled to suit the
needs of any changed Society or Economy. Accounting Theories point out to the
scientific ways of thinking for the solution of any real world accounting problem.
Objectives of Accounting Theory
The broad objects of Accounting may be briefly stated follows:
1.To maintain the cash accounts through the Cash Book and to find out the Cash
balance on any particular day.
2.To maintain various other Journals for recording day-to –day non –cash transactions.
3.To maintain various Ledger Accounts to find out the exact amounts of incomes and
expenses or gain and losses or receivables and payables.
4.To furnish information regarding Purchases and Sales, both Cash and Credit.
5.To find out the net profit or net loss or surplus or deficit for any particular period.
6.To find out the total capital on a particular date.
7.To find out the positions of assets on a particular date.
8.To find out the position of liabilities on a particular date.
9.To detect any defalcations and to check the frauds and misappropriations of money.
10.To detect the various errors and to rectify those through entries in the journal proper.
11.To confirm about the arithmetical accuracy of the books of accounts.
12.To help the management by supplying accounting ratios, reports and relevant data.
13.To calculate the cost of productions.
14.To help the management formulate policies for controlling cost, preparation of
quotation for competitive supply etc.
From the above definition, we can say that accounting helps us to have some
information regarding the following:
1.The nature and amount of incomes.
2.The nature and amounts of expenses.
3.The nature and amounts of possible losses.
4.The nature and amounts of actual losses.
5.The size and volume of capital employed.
6.The increase or decrease in the volume of capital employed.
7.The nature and values of assets owned.
8.The nature and values of liabilities outstanding.
9.The specific amounts due to the business and their nature.
10.The specific amounts due to the business and their nature.
11.The specific amounts due to be paid to the government and their nature.
12.The reports regarding the interpretations of the financial results.
Working Together
Proper financial planning for any business or individual requires the use of both positive
and normative accounting practices. On a large scale, economists indicate financial
policies through normative accounting statements, but these normative statements must
be based on the financial realities found through positive accounting practices. The
factual-based practices of positive accounting provide a foundation for companies to
engage in normative accounting, and a more idealistic view of how the company can
operate while still earning a profit.
>>The Statements of Accounting Standards (SASs) seem to be incomplete because
there are many accounting issues not yet covered in these standards, which had been
addressed by the International Financial Reporting Standards (IFRSs). Over the years,
extensive revisions have been conducted on the IFRSs, which have not been reflected in
the SASs; large sections and paragraphs in IFRSs, which are newly included, cannot be
found in the SASs. According to Impey, the SAS disclosure requirements have remained
unchanged and they are partly based on old IASs that had been withdrawn by IASB. The
SASs does not cover all the aspects of financial reporting and are not sufficient to form a
basis for preparing a high quality financial statement, in accordance with the IFRS.

Corporate goverance

The system of rules, practices and processes by which a company is directed and
controlled. Corporate governance essentially involves balancing the interests of the
many stakeholders in a company - these include its shareholders, management,
customers, suppliers, financiers, government and the community. Since corporate
governance also provides the framework for attaining a company's objectives, it
encompasses practically every sphere of management, from action plans and internal
controls to performance measurement and corporate disclosure. The phrase “corporate
governance” describes “the framework of rules, relationships, systems and processes
within and by which authority is exercised and controlled within corporations. It
encompasses the mechanisms by which companies, and those in control, are held to
account.” Good corporate governance promotes investor confidence, which is crucial to
the ability of entities listed on the ASX to compete for capital.
These Principles and Recommendations set out recommended corporate governance
practices for entities listed on the ASX that, in the Council’s view, are likely to achieve
good governance outcomes and meet the reasonable expectations of most investors in
most situations.
The Council recognises, however, that different entities may legitimately adopt different
governance practices, based on a range of factors, including their size, complexity,
history and corporate culture. For that reason, the Principles and Recommendations are
not mandatory and do not seek to prescribe the corporate governance practices that a
listed entity must adopt.
The principles and Recommendations apply to all ASX listed entities, regardless of the
legal form they take, whether they are established in Australia or elsewhere, and
whether they are internally or externally managed.
Some recommendations require modification when applied to externally managed listed
entities. There is a separate section immediately after the recommendation below
explaining how externally managed listed entities should apply and make disclosures
against the recommendations. The Principles and Recommendations are specifically
directed at, and only intended to apply to, ASX listed entities. However, as they reflect a
contemporary view of appropriate corporate governance standards, other bodies may
find them helpful in formulating their governance rules or practices.
The principles and Recommendations are structured around, and seek to promote, eight
central principles:
1. Lay solid foundations for management and oversight: A listed entity should establish
and disclose the respective roles and responsibilities of its board and management and
how their performance is monitored and evaluated.
2. Structure the board to add value: A listed entity should have a board of an appropriate
size, composition, skills and commitment to enable it to discharge its duties effectively.
3. Act ethically and responsibly: A listed entity should act ethically and responsibly.
4. Safeguard integrity in corporate reporting: A listed entity should have formal and
rigorous processes that independently verify and safeguard the integrity of its corporate
reporting.
5. Make timely and balanced disclosure: A listed entity should make timely and balanced
disclosure of all matters concerning it thata reasonable person would expect to have a
material effect on the price or value of its securities.
6.Respect the rights of security holders: A listed entity should respect the rights ofits
security holders by providing them with appropriate information and facilities to allow
them to exercise those rights effectively.
7. Recognise and manage risk: A listed entity should establish a sound risk management
framework and periodically review the effectiveness of that framework. 8. Remunerate
fairly and responsibly: A listed entity should pay director remuneration sufficient to attract
and retain high quality directors and design its executive remuneration to attract, retain
and motivate high quality senior executives and to align their interests with the creation
of value for security holders.
There are 29 specific recommendations intended to give effect to these general
principles, as well as explanatory commentary in relation to both the principles and the
recommendations. There is also a glossary at the end which explains the meaning of a
number of the key terms used throughout
this document, including “executive director”, “non-executive director”, “senior executive”
and “substantial security holder”.
Work place Values and ethics are important in the workplace to help keep order,
ensuring that a company runs smoothly and remains profitable. Each individual company
makes its values and ethics known almost immediately after hiring an employee, or
many times, during the interview process. And in many businesses, no matter how well
an employee performs, if he doesn’t follow workplace values and ethics, it can result in
termination.
How hard an employee works, or how much effort she puts forth, can go a long way.
Obviously, companies want results, but most employers prefer a worker who gives an
honest effort to one who might be considered a “natural” at the job, but is otherwise
disruptive. Either way, when an employee signs on with a business, she is agreeing to
perform her best to help the company flourish. An important aspect of workplace values
and ethics is integrity, or displaying honest behaviour at all times.
Employees in all industries are expected to act accountable for their actions. That means
showing up when they are scheduled and on time, and not taking advantage of time
allotted for breaks. It also means accepting responsibility for when things go wrong,
gathering yourself and willingly working toward a resolution. And sometimes it might
mean working longer than planned to see a project through to completion.
In almost every industry, workplace values and ethics consist of teamwork. That’s
because most companies believe that when morale is high and everyone is working
together, success will follow. So it is important for employees to be team players--
whether assisting co-workers on a project, teaching new hires new tasks, or following the
instructions of a supervisor.
Employee conduct is an integral aspect of workplace values and ethics.
Employees must not only treat others with respect, but also exhibit appropriate
behavior in all facets of the job. That includes wearing proper attire, using
language that’s considered suitable around the office and conducting themselves
with professionalism. Every company enforces its own specific rules on conduct,
and typically makes them extremely clear in employee handbooks and training
manuals.