Accounting Theory Business Revolutions

Question: Discuss about the Accounting Theory for Business Revolutions. Answer: Introduction The biggest of all automotive scandals so far is the scandal of Volkswagen emission testing by defeat device. This device is defined by US EPA (Environmental Protection Agency) as an apparatus that reduces effectiveness of control systems on emission testing under conditions what vehicle experiences actually and reasonably. This software on detection of emission test would reduce nitrogen oxide emissions and torque, which is different when normal condition, prevails. A stakeholder as defined by Freeman and Reed in 1983 is a distinct body that not only can influence accomplishment of organizational objectives but can also be itself influenced by such organizational accomplishments. The stakeholders of Volkswagens can readily indentified by the following figure. Source: Sustainability Report, 2014. Major stakeholders The four major stakeholders of the mighty Volkswagen group essentially include their partners, customers, the capital market, the society. The direct effects of the Volkswagen scandal can be easily witnessed when the shares of the company plunged by nearly one third. It therefore was a major setback for Volkswagen shareholders investors, who put their high hopes, trust, and hard-earned money in the shares of the company .Hence, the investor sentiments, confidence was lost largely. The concerns of the Volkswagen partners i.e. employees, suppliers, business strategic partners etc. essentially revolve round sustainability, customer satisfaction, health, earnings, unbiased opportunities etc. (Barn, 2016).The scandal has fuelled so much insecurity uncertainty regarding the companys future among the partners that they have been found to part with the company. The society as a stakeholder of company generally includes the lawmakers, the municipal authorities, social working groups etc. The concerns of the society and the customers i.e. dealers consumers, of Volkswagens have been found to coincide in terms of safety of the vehicles, climate environmental protection issues. However, the recent emission scandal has put the concerns of the customers the society at stake (Zhang, et al, 2016). Volkswagen case Defeat device applied by Volkswagen on 400000 Volkswagen diesels run on roads of US.EPA imposed $37500 per vehicle for non-compliance of regulations, a fine of maximum about $18bn. Stock of Volkswagen dropped by 20% .CEO resigned, and U.S justice department (Zhou, 2016) has initiated investigation. In September 2015, EPA accused Volkswagen of cheating US emissions tests. Volkswagen has provisioned 6.7bn (4.8bn) to replenish costs required for recalling cars with cheat device in millions (8.5 million in Europe, including 2.4 million in Germany and 1.2 million in the UK, and 500,000 in the US) worldwide. As a direct consequence, the company faced 2.5bn loss in quarter late October15 for the first occasion in 15years. Code of ethics, which US companies required to be implemented regarding regulatory compliance and applicable in working environment, was allegedly violated by Volkswagen (Fracarolli Lee, 2016). Action plans Volkswagen management actions can be explained by different financial accounting theory. In Legitimacy, theory organisation should ensure that they operate following the norms and bounds of societies they belong. There is a notion of social contract. Legitimacy proves organisations value system goes with society and this is established through the process of legitimation. Presently, organisation should operate as per explicit and implicit expectation of the society as well as public expectation (Sustainability reporting, 2012). Organisation has to address human, social, and environmental issues. Companys operation should conform to social legitimacy. Here comes the role of public disclosure by examining social and environmental reporting maintaining legitimacy(Nelson, 2016). There is also stakeholder theory, ethical managerial branch. The company keeping in mind their interest should treat all stakeholders fairly and for their benefits. Ethical branch says that stakeholders have right to the information if there is conflict of interest. When defeat device installed as functioning devise it was totally unethical as well as illegal. The institutional theory of isomorphism and decoupling is required to be cited here. In isomorphism, mainly coercive where institutional practices are changed by the organisation due to pressure of powerful stakeholders. Here decoupling also established where management adopt practices which vary from practices which are publicly pronounced adhering to environmental and social responsibility (Das, 2013). Volkswagens responsibility Volkswagens management should accept accountability because of the scandal for which it is held responsible. It should act and account for those actions considering them as right to information. Reporting is companys responsibility even if not demanded. Managerial branch of stakeholder theory explains how management should attend stakeholders expectations maintaining strategic organisational objectives and by continually following disclosure policy of organisational operations. Here information of financial accounting and information of social performance should be provided to stakeholders (Janssen, 2013). As mentioned above here Legitimacy Theory, Stakeholder Theory and Institutional Theory such as isomorphism and decoupling are applicable in this scandal case of VOLKSWAGEN. Legitimacy theory establishes relationship between disclosures of company and expectation of community. Management should follow both ethical issues and its performance. It is by the virtue of which company gains legitimacy and capabilities to survive (Zhang, 2016). Stakeholder theory comes into play where management plays a major role of meeting demands of stakeholders by continual adaptation of disclosure strategies. Institutional theory of isomorphism and decoupling to be highlighted which relates to both coercive stakeholder pressure and image of organisation with disclosure of policies on its environmental and social responsibility (Nzuve, 2011). Here all the above theories considered jointly for better understanding of this cheating case on emission testing in the perspective of ethical lesson (Klinger, 2016). Theory should accomplish practices otherwise new theories need to be developed. Accounting theory is the principles in the form of guidelines that give references on how accounting practices will be carried out, developed, and evaluated. Good business lies upon trust. People who are driving cars if cannot trust that their vehicles will safely run under all conditions, then company is guilty by its practices and non-compliance is charged with respect to accounting theory of stakeholder (ethical branch) and legitimacy. Volkswagen violated principles of ethics which company itself approved that each of their employees will abide by the rules and regulations, laws, group values, code of conduct applicable to their working environment (Volkswagen, 2015). Violation of the above will attract appropriate consequences as per pr evalent law and it will also result in termination of employer-employee relationship and damages will be claimed (Elson, et al, 2015). Conclusion The present research based study has been a great learning experience in terms of the valuable insight it has provided on various concepts, theories, practices of accounting. The evaluation and analysis of their relevance in the light of the Volkswagen emission scandal has also been rewarding. Further, the study has also served as a revelation as regards investigating a never before scandal of this magnitude that has been effected by the most robust automobile giant of all times. Moreover, it has also been highly instrumental in displaying major environmental issues theirs concerns related to toxic nitrogen oxide carbon emissions. Finally, the present study will also help the readers in gaining knowledge about the various stakeholders, Volkswagen management their practices, Volkswagen accounting practices the company as a whole (Balbir, 2016). References Balbir, S 2016, Do You Own a Volkswagen? Values as Non-Functional Requirements. In Human-Centered and Error-Resilient Systems Development, Springer. Barn, B.S 2016, Do you own a Volkswagen? Values as non-functional requirements. In International Conference on Human-Centred Software Engineering, Springer International Publishing. Das, S 2013, Cultural Due-diligence for Global Operation: Basic Steps, Vilakshan, The XIMB Journal of Management,vol. 10, no. 2, pp. 12-20. Elson, C.M., Ferrere, C.K. Goossen, N.J 2015, The bug at Volkswagen: Lessons in co determination, ownership, and board structure, Journal of Applied Corporate Finance, vo. 27, no. 4, pp.36-43. Fracarolli N,M. 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