Time for Suncorp to Shine - Essay Example

Accounting Theory Table of Contents Table of Contents 1 Group - A 2 After Disasters, It's Time for Suncorp to Shine 2 Article Summary 2 Relevant Theory: 2 Application of the Theory of the Article: 3 Conclusion: 4 Group - B 5 The News of the World news just gets worse and worse for News 5 Article Summary 5 Relevant Theory: 7 Application of the Theory of the Article: 7 Conclusion: 8 Group – C 9 Oil Spill Firm May Lose Licences 9 Article Summary: 9 Relevant Theory: 10 Application of the Theory of the Article: 10 Conclusion: 11 References 13 Group - A After Disasters, It's Time for Suncorp to Shine Article Summary The shares of Suncorp reached a four-week high after the company promised to return capital to its shareholders. The promise was made even after there was a dip of 42% in its profit which was because of the natural disasters that affected the earnings of the company. Although these costs hemorrhaged the company’s insurance business and decreased its annual profit, Suncorp still then managed to amplify its profit margin fundamental to the insurance claims. It was also declared that the excess capital in regard to the operational requirements of the company would be given back to its shareholders. Relevant Theory: The accounting theory that would be relevant in relation to this article would be the implementation of accounting application that the company might use so as to revive from the crisis. In other words, it can be said that the positive accounting theory would relate well to this article. Another issue in reference to accounting theory that would also be relevant is the stakeholder theory. Both these theories would assist in focusing on the problem of the company and facilitate to develop measures that would help the company recover from the current crisis. Application of the Theory of the Article: According to Freeman & Et. Al. (2010), stakeholders tend to manipulate the disclosure of a company’s financial information to a significant extent. It was also claimed that the theory of stakeholders influenced the moment with regard to the declarations pertaining to the earnings. Evidence was found regarding the matter that managers try and manipulate the insights of their particular shareholders pertaining to the performance of the firm. Thus, it can be said that a company should implement and alter this theory in a way which would help the company to determine a decision regarding “creative accounting” without being manipulated (Freeman & Et. Al., 2010). In this case, the Suncorp Company underwent a dip in its annual profits but it still maintained to hit a high of four-week in its share prices. It was fundamental because the company maintained a fair practice regarding its management operations and in disclosing its financial information. However, it was studied that reporting was not the sole phenomenon in accounting related to stakeholder manipulation. Stakeholder groups even strongly manipulated the standards that were to be laid down in respect to international accounting. It was also said that though the groups did not enjoy complete authority in ascertaining the standards few stakeholders yet displayed a higher degree of manipulating capability (Freeman & Et. Al., 2010). In case of the positive theory of accounting, justification is given regarding the operations of the business with no recommendations as to how the operations need to be (Schroeder & Et. Al., 2010). Positive accounting theory establishes the opportunistic way in which a business operates so as to increase the wealth of the individuals concerned with the business. This theory assists in adopting the accounting procedures. Positive accounting theory is known to forecast that organizations require look for methods that would help to support the owners’ interest with the managers’ interest of a specific organization. This would require the preparation of proper financial statements as well as monitor and audit them. Thus, positive accounting theory would facilitate in identifying the proper accounting methods that needs to be taken on by the company in order to overcome the crisis (Whittington, 2007). Conclusion: Adopting new effective accounting practices would prove beneficial for Suncorp Company as well as for its shareholders. This would help the company recover from the present problem and also infuse confidence among the shareholders regarding the potential and the security of the company. Group - B The News of the World news just gets worse and worse for News Article Summary The unethical behavior conducted by Rupert Murdoch, the CEO of ‘News of the World’ altered the prices of the company’s shares. News of the World has been blamed of phone hacking along with text messages of quite a lot of sports identities, celebrities, and politicians. Among them, few went ahead with legal actions against the company while the rest were content to strike a monetary settlement with the company. As a result, few big companies were planning to pull out their ads from the tabloid. Another broadband provider was heavily penalized monetarily by the court for its deceptive advertisements. Relevant Theory: The accounting problem summarised in this particular article is the ethical practice and legitimacy of the behaviour of the organisation taking into consideration the societal rules. The theories that would be relevant in this regard are the Legitimacy theory, Institutional theory and the Stakeholder theory. These theories would assist in understanding the alterations in the share prices of the company. Unethical behaviour does not share a direct relation with the change in share prices but with the help of the mentioned theories, this phenomenon can be explained. Application of the Theory of the Article: According to the theory of legitimacy, it has been stated that one party can demand concessions from the other involved party who is believed of not acting in a proper and ethical way. Legitimacy theory deals with the issue of carrying out activities that are beneficial for the society and in accordance with the law as well as societal norms (Salter & Sharp, 2006). The theory is essential in accounting as this is being used to give details regarding the systematic alterations in the annual report of a corporate (Hoque, 2006). This theory hypothesizes that businesses need to be carried out in agreement with the social contract. The theory is believed to be a strong mechanism to understand the concept of voluntary environmental as well as social revelations that are being made by particular corporations. It should also be noted that the theory of legitimacy and institutional are quite synonymous (Tilling, 2004). All the three theories are to some extent related to the requirements of authority as well as information of specific stakeholders can manipulate the revelation rules of a corporate. The institutional theory explains the reason behind organization’s adoption to a particular form or characteristics. It also states that organizations adopt a particular form so as to bring in legitimacy in the organization. This helps in the prolonged existence of the organization. Stakeholder theory states that a particular organization should be controlled by the management so that the stakeholders are benefitted. This theory gives an understanding of the ways in which an organization should act (Hoque, 2006). Conclusion: In this article, it can be observed that organizations need to adopt a particular form and specific characteristics so that it can function in a legitimate way. It should be in such way that is in accordance with the norms of the society and is also mutually beneficial for both. Acting in a legitimate way would also prove to be advantageous for the stakeholders. All these would ensure the sound practice of management and accounting policies which would reflect in the prices of the shares. In this case, the company i.e. The News of the World did not act in a legitimate way and as a result of which the share prices got affected. This shook the assurance given to the investors who planned to pull out their shares from the company. In case of the broadband company, it was observed that an unethical practice made them pay financially which was quite heavy and it even affected the image of the brand. Group – C Oil Spill Firm May Lose Licences Article Summary: PTTEP which is a ‘Thai-owned oil and gas company’ was held responsible for one of the most horrible oil spills in Australia. The Resources Minister of Australia Martin Ferguson ordered an investigation regarding this subject. This investigation could result in the cancellation of the licenses for offshore drilling if the safety standards were found to be insufficient. A review regarding this was also ordered by the Resources Minister. Based on the review report it would be decided that whether the company will be served with a “show cause” notice which could result in annulment of the company’s petroleum titles. Relevant Theory: The accounting problem summarised in this article relates to the Public Interest theory, Stakeholders Theory and Positive Accounting theory. The article describes a grave situation where due to lack of proper business practices and competence a company is on the verge of losing its license. As the company mentioned in this article deals in offshore drilling, it should be vigilant enough not to cause any damage to the environment. But, the unfortunate oil spill that happened was mainly due to the lack of competence of the company and shortage in skilled personnel. Application of the Theory of the Article: The positive accounting theory is known to analyze or assume a situation first and then with the help of logical inferences make predictions. It focuses on the fact of how things are and the reasons following them in relation to an organization (Watts & Zimmerman, 1990). In this particular article, the theory appropriately relates as with the application of positive accounting theory the current crisis through which the company is going will be analyzed. After the analysis predictions would be made as to why the crisis has cropped up with the assistance of logical inferences. Once the predictions are made it would be easy for the company to understand the root cause of the problem. The public interest theory states that the business operations should be performed keeping in view the interest of the people. This means that the business should be carried in a way where no harm is caused to the people or the environment where the business operation is taking place. In this case, the company was not vigilant enough to take into concern this aspect and the oil spill occurred which injured the environment to a strong extent (Davenport, 2011). The positive accounting theory would help the company find a way out of the crisis, while, following the public interest theory would have helped the company from getting into the crisis. The stakeholder's theory is also related to this situation as the interest of the stakeholders would get affected if the licenses of the company get canceled. The oil spill has not only incurred the financial loss for the company but even damaged the reputation of the company in Australia. The stakeholders would surely get affected by these issues as, after such an accident the operations of the company is bound to get affected in that country. The stakeholders might also have incurred heavy losses owing to this (Friedman & Miles, 2006). Conclusion: In the case mentioned in this article, it can be stated that PTTEP should have been more careful regarding its system of operations and should have appointed appropriate personnel according to the requirement of the jobs. Lack of these things led the company towards such a big accident due to which it might even end up in the annulment of its licenses. The company should have taken into concern the interest of the public while carrying out the operations. The absence of which can pose uncertainty to the stakeholders too. References Davenport, L., (2011). Understanding the Public Interest in Accounting. University of Ballarat. Retrieved Online on September 24, 2011 from http://www.google.co.in/url?sa=t&source=web&cd=1&ved=0CB4QFjAA&url=http%3A%2F%2Fprofessions.com.au%2FFiles%2FUnderstanding_The_Public_Interest_In_Accounting_.doc&ei=tqR9TqumPMjMrQeios3zDw&usg=AFQjCNFMAFAXdAowZpcP5-panRIbe7Pm1A&sig2=RcVYFEU23TTzFDU4NVDl5Q Freeman, R.E. & Et. Al., (2010). Stakeholder Theory: The State of the Art. Cambridge University Press. Friedman, A.L. & Miles, S., (2006). Stakeholders: theory and practice. Oxford University Press. Hoque, Z., (2006). Methodological issues in accounting research: theories, methods and issues. Spiramus Press Ltd. Salter, S.B. & Sharp, D.J., (2006). Advances in International Accounting. Elsevier. Schroeder, R.G. & Et. Al., (2010). Financial Accounting Theory and Analysis: Text and Cases. John Wiley and Sons. Tilling, M.V., 2004. Refinements to Legitimacy Theory in Social and Environmental Accounting. Flinders University, South Auatralia. Retrieved Online on September 24, 2011 from http://www.google.co.in/url?sa=t&source=web&cd=2&ved=0CCkQFjAB&url=http%3A%2F%2Fwww.flinders.edu.au%2Fsabs%2Fbusiness-files%2Fresearch%2Fpapers%2F2004%2F04-6.pdf&ei=hKV9TuDTGZCurAf7zdTMDw&usg=AFQjCNHVwfjX9LGUEwhCRoDFmvbxWusE-g&sig2=0cgvFWOnrBkj-SRvfGR55w Watts, R.L. & Zimmerman, J.L., 1990. Positive Accounting Theory: A Ten Year Perspective. The Accounting Review. Retrieved Online on September 24, 2011 from http://www.uam.es/personal_pdi/economicas/lcanibano/2007/Tema%208%20T%20Positiva/Watts_Zimmerman_1990.pdf Whittington, G., (2007). Profitability, accounting theory and methodology: the selected essays of Geoffrey Whittington. Routledge. Read More