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History

Accounting is considered to be socially constructed when there is a relationship

between the social needs and the changes to the form of accounting to meet those

needs.

Accounting is considered to be socially constructing when the outputs of the

accounting process have an impact on the way society operates. There outputs may be

the various accounting reports and what is measured in those reports.Effcicent market There are three forms of the efficient market hypothesis

The "Weak" form asserts that all past market prices and data are fully reflected in

securities prices. In other words, technical analysis is of no use.

The "Semistrong" form asserts that all publicly available information is fully

reflected in securities prices. In other words, fundamental analysis is of no use. If the

market is semi-strong form efficient, then stock price reacts so fast to all public

information that no investor can earn an above normal return by acting on this type of

information.

The "Strong" form asserts that all information is fully reflected in securities prices.

In other words, even insider information is of no use

A. The Efficient capital market vs. the accounting method

If accounting results are released by an organization, and these results were already

anticipated by the market (e.g. interim announcement), then the expectation is that the

prices of security will not react to the release of the accounting results.

Consistent with traditional finance theory, the price of a security is determined on the

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basis of belief about The Present Value of Future Cash Flows pertaining to that

security and when these belief changes (as a result ot particular information becoming

available) the expectation is that the securitys price will also change.

Because share prices are expected to reflect information from various sources (as theinformation relates to predicting future cashflow), that was a view that Management

cannot manipulate share prices by changing accounting methods in an opportunistic

manner.

B. The choices of manager under the efficient capital market

Because there are many sources of data used by the capital market, if managers make

less than truthful disclosures, which are not corroborated or contradicts other available

information, then, assuming that the market is efficient, the market will question the

integrity of the managers.

Consequently the market will tend to pay less attention to subsequent accounting

disclosures made by such managers.

While supportive of EMH, the literature was unable to explain why particular

accounting methods might have been selected in the first place.

For example, if an entity elected to switch its inventory cost flow assumptions and

this led to an increase in reported income, then the market was assumed to be able to

see through this change, and to the extent that there were no apparent cash flow

implications, there would be no share price reaction. Hence, if the particular

accounting method had no direct taxation implications, there was an inability to

explain why one method of accounting was selected in preference to another.

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Sustainable development defined as

development that meets the needs of the present world without compromising the

ability of future generations to meet their own needs (World Commission on

Environment and Development, 1987)

Legitimacy Theory and social contract

disclosures linked to providing evidence that entity is complying with

the expectations of society

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Stakeholder Theory

disclosure depends on expectations of powerful stakeholders if the

managerial perspective of stakeholder theory is embraced

Accountability Model

an acceptance of a responsibility to report Institutional Theory

organisations will adopt particular practices because of institutional

pressures

Positive Accounting Theory

disclosure depends on positive wealth implications

consider submission of the Business Council of Australia

Consider the views of Milton Friedmanreporting is not about

responsibilities; rather, it is about enhancing business profitability

A broader view of business responsibilities would accept that regardless of the

impacts of profitability, stakeholders have a right to know about the social and

environmental implications of an organisation

Friedman

rejected the view that corporate managers have any moral obligations

responsibility to increase profits as long as stays within the rules

this view often held by the mediaapplauds profitable organisations

Alternative view

organisations earn their right to operate in the community

artificial entities that society chooses to create

organisations do not have an inherent right to resources consequently accountable to society for how it operates

societal expectations may exceed profitability