Analysis on Accounting Theory and Using Them for Practical Cases

Question: How To Using the Accounting Theory Practical Cases? Answer: Introducation This is on the article Costs blow out for Suncorps natural hazard allowance to $350m, 4th period in row for over-size claims. Suncorp being a financial institution with the main business of Banking and insurance had faced a lot of claims in the near past and also in the period in the current topic. The article describes that fact why the same happened with the company which had over crossed their budget for the consecutive four times. This mainly happened because of two big events that took place which was Wild storms and earthquake in New Zealand which had mainly increased the claims and thus leading to negative cash flows for the company. This is somewhere effected by aggressive approach and some incorrect decisions and planning that the team is making up. Accounting Theory TheAccounting theory selected is Legitimacy Theory. This theory generally implies that what is the generalized assumption to prove that the actions of an entity are desirable, appropriate and in the interest of socially constructed norms, beliefs and definitions. The more an organization is legitimate the higher are the chances of survival in the current market situation. The entity respecting the social values finally tend to benefit from the organization activities at large.(Aldrich, 1994) The social and moral values that tend to help an entity to grow are the ones which are socially accepted and helps the management to take correction steps at the necessary time to stand up in the environment.(Hybels, 1995) Analysis In the given article for Suncorp the issue in question was the increase in the costs of claims which the company is incurring in the times and how the same is being faced by the various stakeholders of the company as well. The article describes the reason of the problem to be highly aggressive and not thinking in a legitimate manner in taking any such important decisions. The company is continuously crossing the budget allowances and still the attitude to plan and covers its liabilities is not taking place. The legitimacy theory clearly points out how the entities should think before framing any such policies and this theory integrates with the problem where the company should focus on the plans by using past trends of data and helping to have a better position in the social and required values of the organization.(RAMALLAH, 2013) The company should neither go too conservative by tucking up too much money for claims nor should they be too much aggressive with the budget that it makes for the disasters as budgets are the picture of actuals and hence the team should focus on the same before proper decisions might be taken by the company as a whole. The company and its planning might not help the investors to reach to their objective to invest in the company and should focus on the correct estimation of the losses that happened in the future along with a better disaster budget which will help to plan the things and profitability in a much better way. Hence the problem statement in the article lies in the estimation error any further values added to the same through legitimacy would add value to the situation and develop more ecofriendly situation for the company on an overall level. These theories focusing on the external environment speaks a lot about the success factors of many organizations and thus helps to take decisions in a better way and develop better market superiority.(Reuters, 2012) Conclusion The overall understanding of the case here is that sustainable thinking is very important for an organization and there are lot of factors that the companies should focus upon before giving the final outcome of a particular solution. These theories help to understand the correct way and regain the market position at difficult times. References Aldrich. (1994). Fools rush in? Academy of Accounting Management Review,, 645-670. Hybels. (1995). A critical review and integrative theoretical model. Academy of Management Journal, Best Conference Proceedings, 241-245. RAMALLAH. (2013). Abbas seeks legitimacy in Palestinian strategy splurge. Chicago Times, 1-1. Reuters. (2012). Communique To Recognise Legitimacy Of Steps Taken. Chicago Tribune, 1-1.