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Explain the relevance and application of the social contract to Legitimacy Theory in accounting.

Relevance and application of the social contract to Legitimacy Theory in accounting

This study deals with analysing the relevance and application of social contract to Legitimacy Theory in Accounting (Van Bommel, 2014). The current segment explains that legitimacy theory in the area of accounting is significant in increasing the financial framework of Business Corporation and takes into account execution of social contract in aligning with the legitimacy theory on accounting. Furthermore, the vital information can be generated from secondary sources of information such as previous theories used that are constructed by most of the researchers who are present in and across the globe. The particular segment elucidates the fact where the legitimacy concept divulges with the social agreement as quoted by different accounting professions and depicts the facts where social contract is applicable for implementation in the Legitimacy notion (Tschopp & Nastanski, 2014).

As rightly put forward by Rossi (2014), Legitimacy theory in accounting is one of the comprehensive perception as well as assumption where activities of different entity are proper, correct and accurate within the definite socially constructed structure of standards, features and principles. Furthermore, the theory on legitimacy explains the quoted doctrines within the social context and environmental space (Sarpong & Davies, 2014). Addition to that, the concept on social contract actually explains the fact that ever since the age of revolution of human evolution, there has been diverse social contracts that affect both people that woks along with the government and functions and indulges in close link with each other. In that case, proper Government units should have control over the communities as a whole. There are diverse theorists who speak or keep an opinion where individuals can gain benefit if they stay together and have the need to adhere by the diverse rules and conventions at the same time. It is noted that societies are the result of co-operations as well as negotiations takes place where social agreement mainly delivers the approach that is concerned with the Government that work together. Therefore, there is huge influence from the environment on the current viewpoint of accounting where it is mentioned that accounting is expected to remain engaged in the proper or practical course of environmental matters (Rinaldi, Unerman & Tilt, 2014).

Irrespective of the fact that every business has the main motive to generate revenue in their business, the social contract has moral commitment towards acting in a well-defined way on social basis. It is further noted that social contract is basically a core principle that is guarded on the fact where diverse notions are present in the corporate disclosures. This norm was further discussed that explains the approach at the time of reviewing the various environmental assertions in the diverse business houses (Ridley-Duff & Bull, 2015).

Legitimacy theory is one of the basic theories that explain the social concepts that support the key ideas of social contract in the most appropriate way (Perks et al., 2013). In other words, the notion of the theory actually perceived as an efficacious explanatory devices where it responds to the environmental reporting acts by several business establishments. There are various factors that responses to the business to legitimise own actions through targeting areas for achieving congruence between specific activities of the business entity. It gets along with the purpose that coincides with the values that pertain in the society. In addition, the legitimacy model mainly explains several social concepts that have been applied for demonstrating the thought after taking into account the aspect on environmental assertions as well as social contract at the same time. It is clearly mentions regarding the requirements in the corporate reporting and environment where Business Corporation needs to function well as and when required. It is the business enterprise that has traditional objectives and the related principles that are essential and depends upon the wealth maximization among the different shareholders. In that way, these days business enterprise has to take into account a broader group of shareholders. It is noted that the stakeholders are importantly directing the business concerns for fulfilling their own interest that are presented financially within the business enterprise (Pérez?López, Moreno?Romero & Barkemeyer, 2015).

Social Contract theory

It is clearly mentioned in the social contract that there is need for application especially triple bottom line that delivers information on matters relating to economic, environmental performance and social performance in the business activities that satisfies all the demands (Martínez?Ferrero, Garcia?Sanchez & Cuadrado?Ballesteros, 2015). It need to take into account the environment factors that affect the role of accounting and gets connected for solving the several environmental issues. It is necessary for the business associations to present a complete system that specifies the concept of environmental accounting as well as the cause behind the need to report to the shareholders. It is the investigators who are responsible to look for the companies where they need to behave in an ethical and socially accountable ways for solving the environmental problems. It is important to understand the fact that social contract is mainly carried out from diverse Business Corporation and the society. It is the concept of social contract that acts as a primary objective of business that has the ability to generate more profits where the firms are responsible to act in a socially accountable way (Pérez, 2015).

Social contract can be treated as a notion where it is taken from the ancient times and presented as an effectual instrument (Manetti & Toccafondi, 2014). It is needed to keep a account on all the inconsistencies and mistakes that are noted within the construction of specific accounting declarations when it is removed. Furthermore, in the course of accounting, it can be understood that social agreement is present between the accounting profession as well as overall community of business enterprise. It explains the real sense of consciousness that is present among the regulators and the accounting professionals. Addition to that, the professionals actually use their own knowledge so that they can provide mutual benefits as well as formulates enhanced financial declaration on matters relating to the fact that they will be productive to the related parties. Nevertheless, the Business Incorporation of the social contract aims at delivering significant improvements especially in the fiscal statement. In real means, the account and statement are made on yearly basis that include both profit and loss declarations. For this, different accounts are to be made that will explain the provisions that are mentioned in the accounting standards. It is the corporate disclosures that requires to be grounded on various underlying principles that brings a structure at the time of studying the specific environment reporting as presented by the Business Corporation (Khan,  Muttakin & Siddiqui, 2013).

It is important to consider the fact where social institutions counts on the business function that is presented in the social contract where the subsistence and growth can be attained at the time of delivery in a socially viable environment (Kent & Zunker, 2013). It general, the distribution of economic, social as well as political are treated differently within each groups that relates with power and authority. On the contrary, any violations to the social agreement will have an adverse impact on various Business Corporation. To explain the theory, Legitimacy theory can be termed as one of the theory that links with the social concepts that can be backed by various notions of social agreements at the same time. It clearly explains that corporate disclosures continue with the environmental reporting and able to legitimize or in that case validate in their actions and the existence of Business Corporation. This theory supports the social contract where business firms tries to alter the reporting policies in a bid that reflects upon the functions as they are consistent in nature after aligning the information in community’s society priorities along with expectations (Hall et al., 2015).

Legitimacy Theory

It is the amalgamation of the legitimacy theory and the social contract theory that depicts the fact that towards need of the disclosures that relates substantiation where the business is adhering towards relied expectations of the community for maintaining the level of legitimacy (Fernando & Lawrence, 2014). It is essential for a disclosure that depends upon the expectations of various stakeholders of trade as mentioned in the stakeholder theory. It is required to have acceptance of ethical accountability as mentioned in the accountability model that is essential for the ethical branch of stakeholder theory. As far as institutional theory is concerned, it is the business that needs to carefully adopt various scientific practices that are similar to the other Business Corporations that owes to diverse institutional pressures where there can be coercive and mimetic isomorphism (Frynas & Stephens, 2015).

In the positive accounting theory, there was clear mention on the specific disclosures that depends mainly on the positive wealth implications in the given form. It is was opined by Milton Friedman on matters relating to corporate reporting as it is not about accountabilities but also increasing over the level of profitability. Furthermore, it discards the facts where managers possess with any types of moral as well as ethical obligations in business activities. It mainly reveals the scenario where the primary motive of business concern is to earn profits. To that, it can treat to be the complete alternative to the social contract theory (Deegan, 2014).

There is clear mention of relevant facts in the social contract theory irrespective of the influence over the level profitability where the stakeholders have equal right for gaining knowledge on matters relating to social and environmental implications of the business firm (Czinkota, Kaufmann & Basile, 2014). It is understood that business concerns mainly deals with artificial business entities where the communities can select ways for generating profits and return firms for earning the authority so that they can properly operate in the community. It is the business that is mostly accountable to the accountable and matters on how they function for a given situation. The business need to answer the questions of the entire community on their operations. It is the societal anticipation that can easily extend from the level of profitability. The theory on legitimacy can be termed as one of the significant social theories that can be properly utilized in way to explain the causes behind the environmental reportage as well as notions of social contract. It was clearly mention in the Media agency setting model where the political economy model relates or connected with the stakeholder theory that are identified by the works through use of explanatory instruments (Cohen & Simnett, 2014).

Political economy model explains many theories where business entity revelations models gets related to the a wide range of external factors such as environmental, political and other social influences that need proper attention (Clegg, Kornberger & Pitsis, 2015). Stakeholder theory is one of the theories that can be used for determining the various effects of stakeholders that they have on decisions of management on matters relating to reporting activities of Business Corporation. Therefore, the media agency setting theory can be properly determined by understanding the motives behind the facts on corporate social responsibility revelation. It is needed to understand the outcome of the revelation that is positively associated with the policies that exist between the different level of publicly encountered by trade entity as well as specific level of environmental revelations especially in the annual pronouncements (Cho et al., 2015).

Relevance of social contract to Legitimacy theory in Accounting

There are various issues that take into account understanding the significance of Business Corporation that act in accordance to the legitimacy theory (Cheng et al., 2014). It becomes a vital issue where it needs to gain understanding on the reason on why there is particular Business Corporation that requires social approval in a bid for developing various legitimate actions. It mainly comprehends with the various types of legitimacy that get along with the instability of the legitimacy in given course of action. There are various strategic actions that need to be strictly followed in a institutional environment and accountability necessities. It is important to note the fact where long-term influences over the specific legitimacy on matters relating to economic factors and financial performance. It is the business enterprise that aims at generating various internal conflicts from multi-structural construct of legitimacy whee it greatly influence over the transition from legitimacy to illegitimacy and vice versa. It is the responsibility of the media that can drive the legitimacy of the Business Corporation that can be treated to be significant when accompanied by various stakeholders of the society and regulators of the government. There are many other studies that take into account the role of stakeholders while manipulating the process of perception in the community in aligning with the organizational legitimacy. It is the stakeholders who need to act in a way to look after the loss of legitimacy as well as avoid any of the destruction of the image that prevails in the Business Corporation. The main role of the stakeholder has become important as they can lessen the illegal risks where the business houses have the opportunity to carry out definite actions at each level of legitimacy that is present in the process of evolution and alternations of the values and expectations of the community as a whole. Here, trust becomes major component that shapes the organizational legitimacy and replicates with the overall behaviour of the Business Corporation. As far as strategy of legitimating is concerned, it uses some of the significant tool that increases the awareness of business enterprise by their participants. There are several features that help business organization for achieving, defending as well as maintaining level of validity that can be explored at the time of different empirical investigations (Chelli, Durocher & Richard, 2014).

Legitimacy need to be preserved where it get along with the specific stage that involve business for assuming the operations where activities takes into account continuous performance. This connects with the assurances that suppose to look at the challenges starting from rationality. It is the preservation of legitimacy that needs to be active in principled way (Chan, Watson & Woodliff, 2014). As far as social facets are concerned, it deals with the vital attributes that predicts in respect to the society that had no effect and need no modifications in time that needs to be reaction to the overall surroundings where the business actually operates or functions in the most appropriate way.

There are various stages present that consist of phase of extension that connects with legitimacy. In addition, there are given time allocated where business can get involves in the new market or alter in activities after linking it with the current market condition (Casey & Grenier, 2014). It help towards gaining extension of validity that is applicable to remain strong besides active in a given organization that help in gaining assurance as well as support from the distrustful clients.

For example, there are various difficulty noted that is related to social, environmental and economic that reveals different associations and government that need to follow rules, morals and norms. It mainly discloses with the fact where the theory discloses facts on matters relating to gaining social and environmental information for probing compliance (Bosse & Phillips, 2016). In other words, the legitimacy theory plays major role in several reasonable factors that is used for revelation for getting environmental information. It depends upon the disciplinary background of the legitimacy theory that gain proper insights on the Business Corporation that need to legitimize in actions. There are several theories that guide or assist proper understanding of time factors in situation where specific Business Corporation needs to be significant to be legitimate. In that case, it is needed to conduct detailed analysis of the given theory that helps in understanding on whether legitimacy can be treated as an objective or end up for any of the specific activities (Bonsón & Ratkai, 2013).

It is the theory on organizational legitimacy that explains the fact when a company possible is in four diverse phases and in regard to legitimacy. In other word, this stage takes into account establishment of correctness, specific extension as well as preservation of legitimacy and protecting the varied legitimacy as a whole (Bice, 2014). It is the social facets that get engaged at each of the stages of legitimacy. It is clearly mentioned that in the initial stages of formation of legitimacy, there was a situation where it replicates the primary stages of development. This business will have a tendency to look into the matter of competence and mention the financials at the same time. It is the business that needs to remain conscious of the matters relating to social constructed values of quality that comes with desirability and execute acknowledged values of professionalism.

The abstract nature of the legitimacy theory explains or determines ways for finding out related mechanisms from which specific Business Corporation can voluntarily divulge between social and environmental information and facts (Bailey 2014). It is the Corporation that get related to various graphical representation of the image that aligns with the culture and attain the legitimacy where it is important for augmenting the culture for promoting the same to the external environment. It is even noted that role of legitimacy in corporations plays an important place where diverse institutions adds up to the society survival that is driven by the various negative social and environmental phenomenon that creates high level of inadequate legitimacy. The literature on legitimacy theory explains subsistence of a particular corporation that mainly based upon the process of legitimating in a way where it is continuous in nature and manages with the challenges at the same time. Therefore, the main aim of legitimacy theory is to determine as well as take approval from the stakeholder (Aras, 2016).

In most of the cases, it is noted that legitimacy may be dangerous by a specific events by both internal and external that results in defence activities (Alrazi, de Villiers & van Staden, 2015). There are various activities of legitimacy that have a tendency to remain robust and time receptive and administers ways for save the attack or threat. It was anticipated in Western Capitalist System where that excludes the key incidence where every Business Corporation needs to maintain legitimacy of actions. It is important to consider the fact that at later stage, there is a possibility to focus upon the facts where the investigators take into account the concept on accounting. It is important to consider the fact on delivering chance for evaluating crucial connection between validity as well as available resources. In the core paper, there was clear mention about the diverse social that aligns with the Environmental accounting that gets solved in this stage. It is the legitimacy theory that actually delivers the facts on investigating on public theories and critically judge with the corporate revelations. It is important to gain proper insights on theories where it draws on bringing diverse improvement in the field of accounting. There is the right time when the overall potential of explicit is aligning in accordance with the legitimacy theory for assessing the widespread range of diverse disclosures. It is suggested by most of the theorists that knowledge can be gained or learned by employing ways that notifies stakeholders of the business firm at the time of decision-making process. It is needed to empower the overall community as it gain improved control over as well as above that mainly involves allocation of resources as and when required (Ali & Rizwan, 2013).


At the end of the study, it is concluded that legitimacy concept links with the various social models that can be determined for exemplifying the idea behind the specific environmental assertions as well as concepts of social contract. From the above discussion, it is understood that legitimacy notion actually treated as one of the notions that refers mainly to the societal and environmental space. In addition, the study also helps in acquiring the detailed knowledge on matters relating to legitimacy. These are basically explained in detailed format where hypothesis has been constructed and assert the activities of specific business entity that are needed. This help within the socially built structure of standards, theories as well as definitions and ethics that need proper attention.  In this study, it clearly explains the relevance and application of social contract of legitimacy theory in the field of accounting. The above study aids in acquiring the various concerns that outlines the matters in the legitimacy model where it act as a robust tool that realizes voluntary societal concept that goes along with the environmental revelations that are offered at the business house. It helps in gaining proper insights of the matter that determines ways to participate in a serious debate. It is noted that study determines the various relevant concepts that can be utilized for illustrating the reasoning behind the reporting on specific environmental factors that mainly focus on the theory on legitimacy.


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