Accounting theory concepts help to underline various theories with accounting practices so that it can be applied with the working environment of an organization. In the present essay there will critical discussion on why Telstra has planned to removed 2800 jobs by 2020 and stakeholders impacted by this behaviour of organization management. The main stakeholders that have been impacted by this decision of Telstra are employees, shareholders and government agencies of human resource management. Telstra Corporation is largest telecommunication company of Australia that provides telecommunication services to all parts of Australia and few parts in New Zealand. Due to decline in profits and dividends, management at Telstra has planned to have reduction in jobs so that they can meet the target profit through cost reduction policies (Duke, 2018). In this essay various accounting theories will be applied to discuss the impact that each theory will have on decision made by Telstra.
The accounting issue that has taken place in Telstra revolves around the dipping net profit of company due to increase in competition and slashed telecommunication prices in the industry. The impact of this the chief executive of Telstra Andy Penn remarked the cost cutting program through reduction jobs to the certain level so that target of41 billion cost saving can be achieved by 2020 and total of $1.5 billion by 2022. On the execution of this decision, 1366 full time employees have been taken to the retrenchment plan for fiscal year 2017 and another 1400 jobs have been planned to be removed in year current fiscal year (Yoo, 2017).
Possible reason that has forced Telstra to take decision to make reduction in jobs as discussed by the Andrew Penn was policies of National Broadband Network (NBN). The current policies of NBN have forced the Telstra to retransform and classify its broadband services that can suit the price reduction policy and hi-tech broadband services. It has forced the high end competition the broadband services and Telstra is forced to reduce their broadband prices (Talevski, 2018). Telstra also claim that due to increase in competition there is decline in market share of the company that was main reason for reduction in net profit in the current fiscal year. On this perspective Andrew reveals that there has been 5.8 percent downfall in the net profit for the half year that has declined the net profit to $1.7 billion and also the dividend has slashed in the same period. On this note, Mr. Andrew has argued that due to effect of NBN polices there has been major impact on the jobs as it is reducing and disappearing from major part of the business. Mr. Andrew further added that due to NBN, Telstra has been forced to the new technology (5G) and also redefined role in the market. All this will cost around $3 billion a year from 2020 onwards that will force to cut the profits and also other major cost (employee cost) that will help to maintain satisfactory dividend for the shareholders in future period. All these steps will help Telstra to offset and mitigate all the major negative economic impact due to commission of NBN (Powell, 2018).
There are two main broad groups of stakeholders; they are internal and external individuals or groups that are impacted by various decision of the management in organization. It is also true that act of various stakeholders also impacts the decisions of the company. In this case of Telstra their stakeholders that have impacted the decision of company and stakeholders that are being impacted by such decision (Omran, 2012).
The NBN (Government Agency) has influenced the decision of the management at Telstra as they are forced to make decision regarding the cut of 2800 jobs till fiscal year 2020 as the present policies of NBN. As per stakeholders theory it is important for an organization or management to include the different stakeholders in their decision making process. As it a right stakeholders to be part of each and every decision that can impact the well being of an individual or group of people. Stakeholder’s theory aims to motivate and protect the interests of stakeholders for the decisions and activities undertaken by the company and its management (Olfa, 2014).
In the given case the three main stakeholders that has impacted and been impacted by the retrenchment of 2800 jobs are presented below:
The theory of legitimacy has stated that the actions of an organization should be desirable, proper and adequate within a socially constructed system of norms, values and beliefs. As such, the theory has proposed that an organization should act in a manner that maximizes the stakeholder’s value and should have a positive impact on the social growth and development. It has identified the stakeholder’s that are crucial for the growth and survival of an organization and influences the flow of resources (Ope, 2003). The relevant stakeholders as identified by legitimacy theory are the state, the public, the financial community and the media. The stakeholders; have direct influence on the growth of an organization and therefore it should act in a manner that maximizes the value creation for these stakeholder’s (Corina and Nicolaem, 2012).
In the context of legitimacy theory, it can be stated that management of Telstra must seek approval from the identified stakeholder’s groups within a society before execution of critical decisions such as downsizing of employees. This is because it will have a direct impact on the employees’ welfare and growth and thereby negatively influencing the societal development. The action of Telstra cannot be stated as legitimate as it will negatively impact the public welfare by increasing unemployment. This in turn will negatively impact the economic growth and development of the country and thus the company has acted against the general public welfare (Miller and Bahnson, 2010).
The decision of Telstra for retrenchment of employees cannot be regarded as ethical and morally right as per the theory of public interest also. The theory has stated that the policy makers and the decision-makers of an organization should act rationally and the accountants need to adopt the best accounting practices for promoting an organization growth and welfare (Laan, 2008). However, it can be stated that reason for downsizing of employees in Telstra is for the betterment of society that is upgrading the technology for providing better services to the communities at large. The decision though has a negative impact of employee downsizing and it can be stated that is positive for one section of the society and negative for others that is for employees and their families (Laughlin, 2006).
There is strong relationship between the accounting theories and practices of an organization as accounting theories enable management to work for best interest and betterment of various classes of stakeholders. As per stakeholder’s theory managers of company are required to take such decision that benefit the stakeholders. So, it can be said each and every decision impact one or more group of stakeholders like in this case a decision to retrench 2800 employees has critically impacted the employees of Telstra (Haka and Heitger, 2004).
Conclusion
Thus, it can be concluded that the decision of Telstra for employee retrenchment is not just as per the accounting theories of legitimacy and stakeholder. However, as per the public interest theory it can be stated to be correct as it will eventually result in betterment of general public. However, it is recommended to the company for taking such decision in an ethical manner so that its is acceptable by the employees. The company should conduct counselling and mentoring session for the employees to explain them the reason for such decisions so that it does not negatively impact the goodwill of the company. Also, the counselling session should provide help to the retrenched employees to gain future employment options and all the relevant help from the company in this context.
References
Cluskey, Jr., G.R., Craig, E., and Richard, R. 2007. Accounting Theory: Missing in Action?, Management Accounting Quarterly 8 (2), pp.24-31.
Corina, M., and Nicolaem, M.M. 2012. Quality Of Accounting Information To Optimize The Decisional Process. Economic Science Series 21 (2), pp. 694-699.
Duke, J. 2018. Telstra flags job losses as profit, dividend falls. [Online]. Available at: https://www.smh.com.au/business/companies/telstra-flags-job-losses-as-profit-dividend-falls-20180215-p4z0dt.html [Accessed on: 28 August 2018].
Haka, S.F., and Heitger, D.L. 2004. International Managerial Accounting Research: A contracting Framework and Opportunities. The International Journal of Accounting 39 (1), pp. 21-69.
Laughlin, R.C. 2006. Accounting Objectives and the Corporate Report. Journal of Business Finance & Accounting 4 (1), pp. 115-129.
Miller, P.B.W. and Bahnson, P.R. 2010. Continuing the Normative Dialog: Illuminating the Asset/Liability Theory. Accounting Horizons 25 (3), pp. 419-440.
Olfa, B. 2014. Corporate Social Disclosure: Explanatory Theories and Conceptual Framework. International Journal of Academic Research in Management 3(2), pp. 208-225.
Omran, M.2012. Theoretical Perspectives on Corporate Social Responsibility Disclosure: A Critical Review. International Journal of Accounting and Financial Reporting 5 (2), pp. 38-55.
Ope, O.K. 2003. Disclosure Practices, Enforcement of Accounting Standards, and Analysts Forecast Accuracy: An International Study. Journal of Accounting Research 41(2), pp. 235-27.
Powell, D. 2018. Telstra to slash 8,000 jobs and cut cut $1 billion billion in costs while refocusing plans for SME customers. [Online]. Available at: https://www.smartcompany.com.au/industries/telecommunications/telstra-to-slash-8000-jobs-and-cut-1-billion-in-costs-while-refocusing-plans-for-sme-customers/ [Accessed on: 28 August 2018].
Sinha, S.K. 2008. Positive Accounting Theory: A Critique. ICFAI Journal of Accounting Research 7 (4), pp.7-16.
Talevski, J. 2018. Telstra to slash up to 8000 jobs. [Online]. Available at: https://www.arnnet.com.au/article/642684/telstra-slash-up-8000-jobs/ [Accessed on: 28 August 2018].
Yoo, T. 2017. Telstra is cutting 2,800 staff by the end of the year to meet a new cost-cutting goal of $1.5 billion. [Online]. Available at: https://www.businessinsider.com.au/telstra-will-cut-2800-staff-this-year-to-meet-its-new-cost-cutting-goal-of-1-5-billion-2017-8 [Accessed on: 28 August 2018].
Laan, S. 2008. The Role of Theory in Explaining Motivation for Corporate Social Disclosures: Voluntary Disclosures vs ‘Solicited’ Disclosures. Australasian Accounting, Business and Finance Journal.
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