The Compete or die!
If a business desires to invincibly compete, it must respond to the demands of its battlefield. An expedient way is to be socially accountable. It should adhere to the mandates of corporate social responsibility (CSR) – a minute yet significant crust in the business parlance.
CSR assimilates core areas such as legitimacy, conformity, and accountability. Legitimacy coruscates conformity; conformity and legitimacy shape accountability. Simply, each postulate is a unique taste in the business blend. An attempt to respond to the limitlessness of concerns from various stakeholders deems it indispensable for a business to contemplate and legally respond to laws, restrictions, and norms. Otherwise, it might find itself at the mainstream of scandals and allegations.
Three theories come into the picture in dealing with CSR in light of the accountancy profession. These are legitimacy, stakeholder, and institutional.
On a primary note, a business should uphold legitimacy. In its emersion in the community, it has to abide by the laws and regulations which are mandated by the area of operation. Equally relevant, it must not discount the value of benchmarking within the industry it belongs to. In essence, a business must dance with the tides of the community and the industry, or they pay a great loss.
Taking the above in the vein of accountancy, a business should ensure that reports submitted to regulatory agencies are in the prescribed format. It should follow the minimum disclosure requirements of standard-setting bodies and communities. It has to faithfully represent reports. For instance, in presenting sales and expenses in the income statement, the accountant should comply with matching and accrual principles as prescribed by the accounting standards. Failure to do so would translate into serious consequences.
Intensifying the above argument would bring us back to the records of the Great Fall of Enron. The company has created fictitious transactions to dress its financial reports, thus distorting the provisions of the standards. Also, it departed from cash basis accounting to pay lower taxes. The effect – its legitimacy in the eyes of the stakeholders dramatically likewise collapsed. The main offshoot from this is that departing from set standards is a manifestation of social responsibility corrosion. Since conformity is driven by legitimacy, non-conformity premises illegitimacy.
With businesses viewed as not a sole operating entity, the power of the different stakeholders is put forward. As the concept of stakeholder theory suggests, a business should consider balancing the treatment given to each group of stakeholders. There is however a problem in this leaf as each group holds a different premise, and a different premise calls for different demands and actions. For instance, between creditors and investors as sources of funds, treatment would favor more the group (of stakeholders) who has provided greater funding. Moreover, a business may respond more to the demands of tax regulators and government agencies as consequences of non-compliance are more severe. In this ground, compliance with government regulations may place a more serious concern.
The foregoing scenarios deliver that even if there is the need to look at things equally, as the ethical perspective suggests, there is no denying that the managerial perspective graces a greener avenue. The reality is that whoever gives more benefits or graver punishments receives a higher degree of attention.
The intriguing part is that these theories are real fakes. The concept of decoupling in the institutional theory lingers; there is the separation between what is (on the paper) and what is (in practice). In accounting, this might be supported by saying reports are just lifeless inks. A vivid stem is an accountant inflating the return on investment to buy (potential or existing) shareholders’ favor. It would be hypocritical for companies to claim that shareholders are not a priority. The truth is that maximization of shareholder’s wealth is the real end.
This would again boil down to the concept that a business tends to feed the mouths of those who feed them. Amidst the criticisms above, these theories, if taken strictly, would be practical guidelines of the profession.
The standard-setters in the accountancy profession have crafted the ideals of the practice on disclosure, measurement, and other concerns. If a business’s main goal is to be legitimate in the eyes of its stakeholders, it should conform standards, regardless of whose benefit is sacrificed or endangered. The beginning and the end of the spectrum is that a business should follow standards. Let it not be that reports are just on paper; the truth should be embedded in the footprints of practices.
In a nutshell, there is the needed judicious decision among accounting practitioners on living with the provisions of standards and norms of the accountancy profession whilst maintaining balanced treatment of the benefits of various stakeholders. Only then can the objectives of the above-mentioned theories be realized and be made instrumental in the competition.