Understanding Accounting Theory And Stakeholder Engagement In Firms

Significant Terms in Accounting Theory

The significant terms that should be discussed for understanding non-accountant in area of accounting theory are accounting, system-based theories, sustainability reporting, non-regulatory disclosures, integrated reporting and corporate social responsibility.

Accounting- Accounting can be defined as the system for the communication and measurement of feedback information on the process and state of organization. Accounting is regarded as a body of knowledge that is based on concepts of general principles incorporating framework of general principles. Accounting is a comprehensive and systematic process of measuring, recording, classifying, identifying, interpretation, summarizing and communication financial information to their stakeholders (Benson et al. 2015).

System based theories-Nature of accounting can be described using general system theory and the nature of accounting are described within the framework. Basic framework are required by accountant for enabling them to describe and determine coherence and order of their field of knowledge. Such reporting is integrated and holistic representation of performance of organization in terms of their sustainability and finance (Beattie 2014). This particular theory is considered as useful in describing the nature of accounting

Sustainability reporting- Sustainability report is the part of report presented by organization disclosing information about social, economic and environmental impact that is caused by their activities. It is platformthat is used by organization to communicate measure and understand social, environmental, and economic and governance performance for effective management. Stakeholders are provided information about the transparency about opportunities and risk faced by them.

Integrated reporting- An integrated reporting is a concept that is introduced to eloquent range of measures in a better way and contributing to organization’s long-term value. It is a summarizing communication about how the performance, governance, strategy has helped in creation of medium, short-term and long-term value.

Non-regulatory disclosures-Non regulatory disclosures are disclosures that is made by organization in their annual report that are not regulated by accounting standards. It is the provision of information by the management of organization that is not required by General accepted accounting principles. Investors’ places reliance such information, however, reliability of such information is doubtful if they are not regulated by accounting standards.

Corporate social responsibility-It is an approach and concept of management that is used by organization to integrate their environmental and social concerns in the operations of business and interacting with stakeholders. Concept of corporate social responsibility is regarded as the approaches that assist organization in achieving a balance of environmental, social and economic imperative. Expectations of stakeholders and shareholders are addressed using the platform or corporate reporting (Gaffikin 2014). Corporate social responsibility is regarded as one of intrinsic element of integrated reporting. 

Accounting

Stakeholders are the person who are directly or indirectly influence the outcome of any project and is impacted by the project. Stakeholders might include individual in formal and informal representativeness, communities that are locally affected, shareholders, politicians, government authorities, politicians, group with special interest, other business and academic community. A range of activities and interactionis encompassedin the concept of stakeholders’ engagement. There are several building blocks of stakeholders such as stakeholder involvement in monitoring project, disclosure of information, consultation of stakeholders, management of grievance, management functions and reporting to stakeholders (Jiang and Penman 2013). It is not necessary that all the stakeholders in particular group share the same concerns or have unified priorities and opinions.

An organization make use of systematic approach for identifying stakeholders that are directly or indirectly affected by project. Identification and analysis of stakeholders is a challenging exercise and focusing on stakeholders and communities is not sufficient for stakeholders. It is also required to consider such stakeholders that are adversely impacted by stakeholders. Organizations are required to engage in different stakeholder engagement practices and integrating into the system at the stage of management. Strategies of engagement of organization are designed by aligning with the needs of their corresponding projects (Henisz et al. 2014). During challenging times, engagement with stakeholders helps in proactively consulting relationship that would serve as capital.

Stakeholder engagement is defined as the process that is used by organization to influence their process of decision-making by engaging relevant stakeholders. Concept of stakeholder engagement is becoming increasing important that helps in delivering projects successfully. This particular concept is merging in a broader sense as a continuous and inclusive process between a organization and those who are potentially impacted by such activities. Such stakeholder engagement assist organization in building better relationship between with the societies in which they are operating. The ultimate result of such engagement is to improve the process and planning of business (Concannon et al. 2014). There are several approach to stakeholder engagement that comprise of participation, consultation, partnership, pull communication and push communication. All the approached of stakeholder engagement is a valid method.

Organization are required to employ stakeholder engagement model and this involves:

• Reviewing, acting and reporting
• Identification of key and relevant stakeholders issues
• Designing the engagement and process
• Strengthening the capacities of management
• Analysing and planning

An organization has many stakeholders and as per the stakeholder’s theory, it is required by companies to serve those who take stake in firms. As per the stakeholder model, there are various stakeholders of organization that influences the operations of firms. Some of the stakeholders of organization are investors or shareholders, suppliers, government, trade associations, employees, communities, customers and political groups (Barth 2015).

System-based Theories

One of the key stakeholders of organization is government and it is essential to maintain and establish good working relationship with authorities of government at different levels and keeling them informed about the activities of project. One of the fact that is highly recommended to organization is keeping a track of government led consultation with stakeholders. Another key stakeholder is customers; it is not possible for organization to strive in any situation and complex challenges.  Business partners are another important stakeholder along with suppliers and distributors (Bonin 2013). Successful engagement of stakeholders within organization involves active involvement in planning, designing and developing solutions for business. 

There are various accounting theories that would help in the development of stakeholder engagement.

Positive accounting theory- Positive accounting theory is based on the assumption that people intends to adopt the strategies that would help in increasing their wealth as they are opportunistic. Action of individual such as any stakeholder is motivated by core belied that is self interest. Actions of individuals are considered to be predictable and this particular theory helps in proving explanation to the managers. Behaviours of human are also incorporated in this theory and as a result of this; it will help in creating basis for stakeholders to get engaged in organizational activities (Avelé 2014). This particular theory is considered relevant to researcher when they are engaged in answering the questions which they are interested in.

Normative theory of accounting- It is prescribed by normative accounting theory about how particular activities are undertaken and this might lead to shifting or migration from existing practice. In this theory, some standards, norms and objectives generates the results that actual practice intends to achieve. It considers the way of undertaking financial accounting by organization in the event of changing market conditions and changing prices. Stakeholder theory is provided with normative justification using this theory. The ethical branch of stakeholder theory incorporates normative approach. Rights o stakeholders are involved in the responsibility of organization along with right to information for determination of accountability in relation to the stakeholders. The process of useful financial information incorporates involves the enhancement of qualitative and fundamental characteristics (Baker and Burlaud 2015). Faithful representation is one of such characteristics that are required by organization and it should help in facilitating stakeholders engagement. Deductive reasoning forms the basis of such type of stakeholder engagement research and it helps in the development of basis that informs people of what should be done. The theories that are proposed by researchers is based on the values, belief and norms held by them and incorporated deduction process. Accountability of business entities are developed by various normative perspectives and normative accounting theory is based on the fact that observation of researcher is based on what they seek or what they want to occur in any particular circumstances (Craig and Michaela 2014). It makes use of logical arguments for addressing the facts and conducting any types of research.

Sustainability Reporting

Institutional theory- Various reporting decisions in an organization are driven by institutional theory. This particular theory is used for explanation of motivation of managers for making any non financial disclosures that it might be related to providing relevant facts and information of various corporate activities on the environment. This theory assist researcher in the development of system oriented theories that might facilitate engagement of stakeholders in the decision process of organization (Dawkins 2014). It comprise of strategy that helps in influencing the relationship of organization with other parties for interacting such as stakeholders which are regarded as important.  

In this requirement, it is asked to determine the relevance and adequacy of data in any study or while carrying out research. One professor is of the view that secondary data is sufficient for conducting study and other professor believes that both primary and secondary data is required for conducting study. Primary data are obtained from the field of enquiry and secondary data are obtained from already published sources. Primary and secondary data has their own advantages and disadvantages. For supporting given idea in any research process, it is required by researcher to have sources of data. In general academic understanding, secondary data is regarded as secondary references which support the notion of actual research conducted. Secondary data is obtained from secondary sources that are already published research has already been conducted.

The sources of primary data are conducting survey, developing questionnaires, interviews, observations, experiments. All such sources are developed by researcher based on their own knowledge, beliefs, circumstances and facts. On other hand, sources of secondary data involves books, magazines, journals, newspaper, general websites, e journal, government records, unpublished personal records, weblogs and published electronic sources.

When researcher are collecting the data themselves by conducting surveys pr preparing questions for interviews, it helps them in directly observing the facts and understand the actual scenario of the topic of research. Behaviour or practices that are relevant to the interest of researcher would be obtained by collecting primary data. Primary data helps in proving reliable, authentic and valid data that helps in facilitating the process of research. On the other hand, secondary data are not directly collected from the field of enquiry and hence they can be less valid as against primary data. Researcher relies on secondary data when it is difficult for them to source primary data as it is more easy and possible to collect. Furthermore, secondary data can suffice in the event when participants in the primary data are not willing to reveal the actual scenario. Therefore, secondary data are useful when researchers are not able to collect reliable primary data. It is possible for researcher to conduct research using secondary data, however using such data would make research les reliable and sometimes such data involves manipulation by human belongs that would lead to biases generation. It is indispensable for researcher to get primary data for avoiding biased and existence of any misleading information. Therefore, it can be said that using secondary data would not be adequate to conduct any study as there are many shortcomings of such data and this would make research less reliable. Primary data tends to provides authentic, relevant and valid data that facilitates the process of research. Researcher should not limit their study to secondary data and including primary data in their research is considered to be equally important or sometimes more important that secondary data.  Hence, researcher should incorporate both secondary as well as primary data in their research. 

Integrated Reporting

Exploring the nature of stakeholder engagement in an accounting firm by adopting either Professor Shallow Viewpoint or Professor Thoughtful

The research will be conducted to understand the accounting perspectives and research in-depth to get proper insights of information about reality (Smith 2017). In this research proposal, proper emphasis will given on the area that have been introduced to systems based accounting theories. The area that is researched in this research study is Corporate Social Responsibility and keep a note on how far stakeholder are engaged in practicing these CSR activities in the accounting firms (Benson et al. 2015). In this study, there is a need to agree on the viewpoint of any one of the Professor who differs largely on matters relating to stakeholder engagement and Corporate Social Responsibility.  

As rightly put forward by Professor Shallow, he believes that stakeholder engagement is only applicable to powerful stakeholder group (Bonin 2013). He is of the opinion to look at an end to non-regulatory disclosures and minimize the wasteful expenses in firms. According to him, it is important to engage more time on sustainability reporting as well as discussions of integrated reporting. In order to further discuss the matter, Professor Thoughtful has been better when he started talking about system-based theories, sustainability or integrated reporting in any of the area of corporate social reporting (Sierra?García, Zorio?Grima and García?Benau 2015).

According to Scott (2015), the term stakeholder came into existence in the year 1960. It was further argued by the managers that they had to understand the concerns of stakeholders, suppliers as well as lenders and employees for developing objectives that stakeholders can support. Some treated stakeholder approach to be one of the significant strategic management tools where social performance agenda had been highlighted for business (Cascetta et al. 2015). While others treated stakeholder approach as more ethically as well as morally accepted value approach.

By using stakeholder value approach, it was easy to understand the issue that prevails because of stakeholder engagement as well as responsibility and need coverage at the same time. It was pointed out then that the difficulty was noted because of differentiating moral responsibility after calculating responsiveness as it is not mentioned in the literature (Rutherford 2016).

Some of the stakeholder theories even argue for a system of business ethics that can possibly overlay stakeholder management mechanisms as well as stakeholder rights and entitlements. It possibly will go beyond some of the exclusive services of the interests of individual expertise that results in maximizing valuation of stakeholders.

Non-Regulatory Disclosures

It is important to understand the validity of stakeholder theory so that several questions are answered and where ethics co-exist with the strategies used in accounting firms. These strategies are developed for boosting the level of performance in highly competitive environment. On analysis, it is noted that there had been a convergence between the strategy as well as ethics that take into account economic interests of the accounting firms that concerns stakeholder (Rinaldi, Unerman and Tilt 2014).

There had been several conflicting ideas about stakeholder as well as business ethics literature where the relationship is present in major theme (Concannon et al. 2014). Legitimacy of stakeholder relates about fact where an organization directly get linked with corporate social responsiveness as well as corporate responsibility. There had been global meltdown in the financial markets as well as widespread corporate collapse that shows relationship between business and society as it help in designing the Business Corporation in the upcoming financial years (Quagli, Avallone and Ramassa 2016).

This literature review explain the study by identifying key principles of stakeholders that takes place after identifying, analyzing and engaging. It is important to incorporate these principles into a specific management model for embedding the practice of stakeholder engagement in the accounting firms. The theory deals with public relations practice that bridges the gap and put emphasis upon public participation in accounting firms at the time of undertaking strategic decision-making activities (Oseni and Ireghah 2016).

According to Ohlson (2015), integrated approach to stakeholder engagement argues with the fact that provides benefits to the accounting firms by incorporating views of stakeholder in final decision-making process as it help in enhancing level of organizational performance as well as commitment at the same time. There had been noted evidence that are present in the stakeholder as well as communication management literature about ways that enlightens strategies of business enterprise to keep the stakeholder informed about any process of social performance in the accounting firms (Oluwadare and Samy 2015).

The accounting theory that had been used in the research study is stakeholder engagement management framework (Mohammadi 2015). The main purpose of the model is to explain stakeholder engagement in accounting firms. It helps in facilitating timely as well as appropriate engagement by the business with main stakeholders present in a firm. This model explains matters that have strategic significance to the accounting firms. It further helps in supporting key business imperatives as well as effective management of social risks and opportunities (Beattie 2014).

Corporate Social Responsibility

The application of the framework was guided by major principles that get linked with the sustainability principles of business enterprise. The principles are as follows:

• The first principle is to respect the values of all and listen to the viewpoint of stakeholders at the time of planning as well as decision-making process (Leyden et al. 2017)
• The key stakeholders should be given reliable, relevant as well as timely information on matters relating to any issues, be it economical, social and environmental (Barth 2015).
• The stakeholders need to be given sufficient time, resources as well as flexibility at the time when they participate in consultation process (Craig and Michaela 2014)
• There is should be open and honest communication between the firms and stakeholders when they engage in any of the process by maintaining high level of integrity of actions.

The above framework had been developed to take into account stakeholder analysis as well as centralize the stakeholder databases into two broad categories (internal and external stakeholders). There are several supporting policies as well as guidelines that had been developed for communicating the stakeholder engagement that include Executive (Dawkins 2014).

It is the responsibility of the stakeholder manager to assign work to the management and maintain relationship with each of the corporate stakeholder group. To that, the process was eventually performed by regional managers at regional level (Jones and Wells 2015). From the viewpoint of General Manager, they had equal accountability in the stakeholder decisions that takes place in their department. It is important for the managers to appoint stakeholder managers who are equally responsible for maintaining effective relationships as well as internal intelligence reporting (Baker and Burlaud 2015).

The research approach that will be adopted by the researcher in present research study will be qualitative that follows an action research methodology that has dual aim of action. The first action is to bring change in accounting firms and second one is to increase the level of understanding of the concept of stakeholder engagement that had been introduced by Professor Thoughtful (Jiang and Penman 2013).

Here, action research will be used by the researcher as it is flexible approach and can be used effectively for improving workplace practices in accounting firms. There are four phases in an action research that is planning, acting, observing and reflecting upon areas in an iterative cyclical fashion to get access to information (Deegan 2013).

Interview method will be used by the research that comes under qualitative data collection method for getting access to information about stakeholder engagement in accounting firms. The questions will be asked to 5 stakeholder of accounting firm. This stakeholder will be asked 10 questions each. The research participant are the stakeholders because they are the person who are indirectly or directly connected to the accounting firms and their engagement is important to understand in this given research study (Huber 2015). 

1. What is the nature of your involvement on the accounting firms that you are investing your money in?
2. What are the main objectives of the accounting firms for the next 3 years?
3. What has been the general response from the engagement activities that can be either positive or negative? Are we hearing anything significant that may impact the strategy of the accounting firms?
4. Do you need to change the engagement approach in the accounting firms?
5. Are there any opportunities that we are not taking into account?
6. Is there any significant event or announcement that need detailed stakeholder communication plan?
7. What actions could we take to address the concern of the stakeholders?
8. Do you see areas where the stakeholder engagement practices could be improve? If yes, please recommend some of the improvement strategies.
9. Does the accounting firm have a process to keep you informed about research related matters?
10. Do you feel your involvement was successful, positive experience and effective in any decision-making process?

It is important for the researcher to get sign in the ethical form from the research participants before starting the interview session of this present research study (Avelé 2014). The first step will be to assemble the application documents package. The next step will be to get the form signed by concerned Authority (Gaffikin 2014). The third step will be risk assessment and fourth step will be to review the ethical form provided by the researcher. The last step will be to get notification of approval and after that the research can start with their process. The researcher needs to abide by all the terms and conditions that are mentioned in the ethical form. The researcher cannot force any research participants to answer all the questions. It is their interest to answer whichever questions they like and skip that they feel is irrelevant (Gesell et al. 2017). After signing the ethical forms, it is not compulsory for the research participant to carry out the research even if they have no interest. The research participant can anytime leave the interview session without prior notification. The researcher cannot ask any questions that hurt human sentiments anyway. The researcher need to make sure that the researcher participant is comfortable and answering the questions with interest. The researcher should not ask any personal questions (educational credentials) that has no relevance to the research study. The researcher cannot leak any confidential data or information that they have collected during the interview the process. The recorded interview should be destroyed after the research is completed and any misuse or leak of information will lead to punishable under Data Protection Act (Henisz, Dorobantu and Nartey 2014).

Role of Stakeholders in Firms

Conclusion

After this research proposal, it is clearly understood how far stakeholders are engaged in any activities that takes place in accounting firms. In the concluding statement, it was found that Professor Thoughtful was right as he believes that stakeholder engagement links directly with corporate social responsibility and integrated reporting in accounting firms. In the research question, it was needed to support either of the viewpoints of two Professors so that it is clear in understanding with the help of theories as mentioned in the literature section. Professor Shallow had limited understanding of these accounting theories but Professor Thoughtful was an expert in the area of CSR and was able to link properly and made the student understand the concept in clear way on how far stakeholder engagement is linked with CSR practices. 

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