Discuss about the Accounting Research Engaging with Business.
Volkswagen, the eminent car manufacturer from Germany had faced a debacle when the 78 year old company had faced the biggest threats of its existence during 2014 by the law breaking activity by them which had substantially damaged their culture of confident, cutthroat and insular behaviors. The signs of abnormalities are fist found in 2014 in the diesel driven cars of Volkswagen by a nonprofit organization, International Council on Clean Transportation, but the same were pre-existing since decades, but the same had not been highlighted by the employees to defuse the issues on emission tests which had failed miserably to meet the US clean-air standards as per legal parameter. Although the same had taken to the notice of the company officials as defeat device but it was not clear who were aware of that issue. It was on record that the memo on the same issue had been given to Mr. Winterkorn , the then CEO of Volkswagen, about the irregularities of the emission of the cars in 2014, but the company was reluctant to continue with the installation of those defeat devices up to till last year. On 20th June, 2014 the German prosecutors had briefed that Mr. Winterkorn was under vigilance through the process of investigation for the issue of malpractices made for manipulating the market as he had not taken timely steps to state that the company was about to face an inquiry related to the scandal of emission. A civil complaint had been raised by the New York attorney general who had connected Matthius Muller, the present CEO related this scandal and thus the steps of investigation had reached the top level of Volkswagen management (GUILBERT GATES, 2016).
The literature of Parker, Guthrie & Linacre, 2011 on accounting impacts of corporate activities whether positive or negative had found that changes of transformation can make impact from tiny changes in attitude and practices related to the respective changes in policy fixation. These changes may occur in the fields of corporate social responsibility of the organization or in the level of behavioral or attitudinal aspects in the professional outlook for the purpose of safeguarding the interests of the stakeholders in the perspective of equality or diversity (Parker, 2011).
The said incident of defeat device of Volkswagen can make impact in the accounting issues of the company in respect of the damages to be replenished, the evaluation of goodwill of the company, expenses towards repair and maintenance of the cars which are affected with the feature of emission scandal, buy back and cash payment to replenish the damage with the amount of US $ 14.7 billion to different parties like Environmental Protection Agency, etc (EWING, 2013).
The role of stakeholders play major role for running a business irrespective of its size. The objective of any organization is to safeguard the interest of different stakeholders, in-house and external. The specialty of Volkswagen stakeholders’ management is to handle large and diversified stakeholder organization with its products and services by meeting the expectation of them to value the broader spectrum of relationship between the company and their stakeholders. The communities of stakeholders of Volkswagen include analysts, investors, employees, talents, customers, neighbors, suppliers, business partners, legislators, public authorities, academia and non-governmental organizations (Volkswagen, 2013).
To illustrate how the stakeholders are affected, we have to understand the role of different stakeholders and their expectation from the company to conclude how they are getting affected by this scandal. Basically stakeholders are of tow types- internal and external. The internal stakeholders include employees while the external stakeholders include others mentioned above.
Employees got affected with this scandal as they earn their livelihood from the employment of this organization. When the image of the company gets affected by some occurrence, the moral strength of the employees gets down and they start loose the confidence upon the employer.
The external stakeholders get the wrong signal with this type of activities and they also start to lose their confidence upon the company. This impact makes serious implication on the reputation of the company although their best efforts to subside the fact makes futile. The loosing of confidence makes the situation which can force the external stakeholders to be away from this company and that makes negative impact on the future of the company.
The management, although aware of the incident of this scandal long back, had not taken corrective measures as they were under enormous pressure to sale the diesel cars in USA with the backing of major marketing thrusts put by the company to ensure more revenue and [profit from the effort (Hotten, 2015).
In the event of Volkswagen Scandal related to non-compliance of emission, accounting had not played a direct role as this is altogether a production management decision. But the accountants can’t deny their role of informing the stakeholders about the proceedings with financial implication of those enabling them to decide about their future course of action.
The accounting theories named as IFRS. Rookies had developed International Accounting Standard IAS 37 which is mainly active in the field making provisions, contingent liabilities and contingent assets. This accounting theory is helpful to describe the Volkswagen Scandal referring the upcoming losses with the subsequent provisions to be made for them in the financial accounting of Volkswagen (IFRS, 2016).
As per IFRS Rookies and the new platform for accounting standard evolved by them as IAS 37, the prescribed actions for Volkswagen management should highlight the areas the accounting theory of IAS 37 discussed. They are:
Identification of the economic event (in this case Scandal) with subsequent action of notifying the same to the stakeholders.
Exploration of that economic event with objective of understanding the same with the specification of the type of information required by the stakeholders.
Anticipation of the effect of that incident with relevant information which may be required by the user.
Identification of the concepts which are the contents in the Conceptual Framework for Financial which has the role to support the presentation of the information.
Identification of the related standards of accounting for the said economic occurrence with the quest of understanding how the application of principles in that standard is based upon the concepts from the framework.
Discussion of the development of rules of the standard on the specified basics.
Demonstration of the non alignment of the concepts and principles with the rules by the outcome of the consideration of practical and cost/benefit factors.
Derivation of minimum disclosure needs which are set up by the process against the information of users which also requires established from the outcome of the process of application (IFRS, 2016).
The accounting theories are mainly framed with tow methods- deductive and inductive method. While deductive method starts its journey from accounting principle and derives the logical outcome of the theory, inductive method starts from reverse with observation and measurement to conclude with generalized outcome.
In my opinion to conclude the occurrence of Volkswagen Scandal, the accounting theory based on inductive method should be adopted for the simple reason that it provides the data through observation and measurement to analyses the loss of the company due to the fiasco and subsequently conclude generally for the stakeholders through information which may be of help for them to decide their future course of action (scribd, 2015).
To test a theory so far its accurateness is concerned, there are three basis- Dogmatic, Self Evidence and scientific. By analyzing a theory through these, we can easily conclude which basis should be most suitable to justify the application of the accounting theory. In this case the scientific basis proved the authenticity of IAS 37 developed by IFRS Rookies is most applicable because it is with the framework of scientific basis and thus to be considered as most applicable theory (scribd, 2015).
Conclusion
The incident of Volkswagen Scandal drives the company through different humiliation which is occurred due to their insistence. The application of accounting theory with practice to safeguard the interest of stakeholders is through the proper information system from the management through accounting principle and subsequent practice which should be powered by ethics and thus the said article would be successful with analyses in respective domain of accounting.
References:
EWING, H.T.a.J., 2013. Volkswagen to Pay $14.7 Billion to Settle Diesel Claims in U.S. The New York Times.
GUILBERT GATES, J.E.K.R.a.D.W., 2016. Explaining Volkswagen’s Emissions Scandal. The New York Times.
Hotten, R., 2015. Volkswagen: The scandal explained. [Online] [Accessed 15 September 2016].
IFRS, 2016. OUR TEACHING PHILOSOPHY. [Online] Available at: https://www.ifrsrookies.com/teaching-philosophy.html [Accessed 15 September 2016].
Parker, G.&.L., 2011. Accounting for Impact?: Accounting research engaging with business, practice and the profession. CPAC, p.7.
scribd, 2015. Introduction to Accounting Theory. [Online] Available at: https://www.scribd.com/doc/19010247/Accounting-theories-and-practices [Accessed 15 September 2016].
Volkswagen, 2013. sustainabilityreport2013. [Online] Available at: https://sustainabilityreport2013.volkswagenag.com/strategy/stakeholder-management [Accessed 15 September 2016].
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