Financial Accounting theory and issues - Essay Example

Besides from this, there are other methods that can be adapted by the company to meet the expectations of the external environment and one of them is to increase external accountability. The idea behind the concept of increasing external accountability is that organizations can enjoy a continued or higher degree of confidence (i.e. becomes more legitimate) from its external environment when it is more open to the scrutiny of the concerned external agents such as stakeholders and the government (Meyer 1979).

To achieve this, they institute reforms in the organization’s accounting practices. The logic between legitimacy and reforms in accounting practices that we have just discussed has been analyzed by scholars and some of them have expressed rather pressing and legitimate concerns. Di Maggio and Powell (1983) argue that the need to project a positive image to achieve legitimacy give rise to inefficient reforms because the external environment may require conformity to symbolic elements that entails sacrifices in addressing technical requirements.

The adoption and use of accounting practices perceived to enhance the organization’s appearance of rationality and efficiency may even be symbolic, mythical or ceremonial. (Tolbert and Zucker, 1983: Covaleski, Dirsmith and Samuel, 1996). In the words of Meyer and Rowan (1977, p. 341), the accounting structure trying to satiate the external environment would “dramatically reflect the myths of their institutional environment instead of the demands of their work activities". Empirical evidence of this resulting inefficiency abound especially those in the public sector.

The study of Carpenter and Feroz (1992) suggests that the modification of accounting practices of government regulators who were keen to achieve legitimacy had improving actuarial accounting performance as a minor concern. This claim