Legitimacy Theory is one of the theories used to explain why organisations make certain social responsibility disclosures within their annual reports or within other corporate reports. These theories could also be applied to explain why companies adopt particular financial accounting techniques.

Required:
Describe the companies' use of accounting reports in legitimation strategies.
 

 

Hashim, Salleh and M.Ariff (2013) examined three different motives for directors to manage earnings that are altruistic, speculative, and pressure from affiliated parties. The researchers found that the primary motive for directors to be involved in earnings management activity is derived from altruistic motivation. Altruistic motivation refers to the motive that involves concern about the benefits of company.

Required:
Explain whether earnings management is legal or illegal activities.

Answer rating: 100% (QA)

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