Accounting Theory for BP Case -MyAssignmenthelp.com

Question: Discus about theAccounting Theory for BP Case. Answer: Introduction The ignorant behavior of BP leads to a massive leakage of crude oil into the Gulf of Mexico that disturbed the smooth functioning of the entire area. Many other activities came to a grinding halt such as fishing, tourism, etc. The aftermath of the oil spill was disastrous in nature and due to it, many industries shut down its operations so prevent any further losses. The share of the BP underwent a huge change and a sharp decline was observed that can be cited to the oil spill. However, BP took the liability to sustain the overall environment. The activities were composed of clean-up, compensation, research activities, etc. Companies that are associated with the oil spill have to face many torments as they are responsible for damaging the entire situation and needs to clear the spill along with a huge compensation (Fodor Stowe, 2010). Innumerable lawsuits were attracted as the disaster affected to more than 490 miles affecting different states like Florida, Mississippi, etc. Legitimacy Theory Social contract acts as the basis or platform of legitimacy theory by which the companies ensure secure access to the resources due to a positive link with the society. A form of disproportion or variation poses a threat to the legitimacy which is a major issue for the company, striking a breach of the contract. The performance of the organization is a way to build reputation and social value in the society, on which the company relies. The limiting of the resources and breaking of ties with the stakeholders follow legitimate threat which can be a hazard to the survival of the company at any point of time (Stigler, 1972). Legitimacy crisis followed the big environmental accident due to the oil spill, in the case of BP. It actually shook BPs legitimacy. The oil companies need to have a positive pattern of acknowledgment in the annual report, so as to ensure a proper response to the public (Jefferson Bowling, 2011). But no above-mentioned history of such disclosures was found in BPs a nnual report. Clear absence of emergency procedure and actions was found on the part of BP which needs to be followed when there is a spill (Cherry Sneirson, 2010). It was examined that neither preventive measures nor any steps were taken before the incident which in turn highlights that BP flouted the legitimacy theory. Symbolic disclosures were one of the ways tried by BP to regain the legitimacy. An immediate investigation was set up to look into the reason of the spill followed by various methods to assure the prevention of further incidents. The acknowledgment pattern of the BP annual report provides a straight answer about the disclosure it has made for the current scenario. Public Interest Theory Major work done by the institutions and the company in securing the efficiency of the economy is contained in the public interest theory. Tracing of the positive and services that vanished from the ecosystem is a difficult job for the trustees. Depending on the politician's role it is the major function of the agencies to take immediate actions when the situation demands (Mason, 2010). Evaluation of the damages and focusing on the practical scenario was done by the agencies. No topic or any clause highlighted the steps taken by the company for the benefit of the economy or the public, going according to BPs annual report (Broder Krauss, 2011). Public interest theory was never applicable in the case of BP because it never paid any attention towards the growth or benefit of the economy, going by the oil spill disaster. Stakeholder Theory A look into the way in which the stakeholders interact and the type of impact or influence they have on the organization is contained in the stakeholder theory. Organizational activities and the results make the stakeholders eligible for various rights because it is clearly known that the company works with the help of social contracts (Pigou, 1932). Currently, the stakeholder theory goes far beyond the legitimacy theory. Organizations successful in creating positive and strong links with their stakeholder's overlaps and defeat the ones who fail to create a link strong enough. Stakeholder theory highlights that ethics that considers the environment related to both social and physical should be adhered by the organizations (Stigler, 1972). Attention is automatically driven towards such stakeholders that pose a serious to the operations rather than the ones who contribute towards the achievements, as per the stakeholder theory. Along with the entire Gulf Coast, a small village was also affected due to the accident that took place on April 20. An all over economic activity of $40 billion was reported fishing and tourism as the main affected regions. Considering a long run, the habitats of the regions have an indirect control or power over BP rather than a direct control (BP Plc, 2014). Further development followed by restoring whats destroyed should be the plan of BP to ensure a positive relationship with the communities of the Gulf Coast. To resettle social legitimacy it is important for BP to upgrade their relations with the ace stakeholders, as per the stakeholder theory. The U.S. public was outraged and in immense anger after the disastrous incident. A trust of $20 billion was set up by the U.S. federal government who took an active part in the restoring process after considering the situation. Association of Theories with the Accounting Record A company seen as a legitimate by the society should work under some prescribed rules and regulations as a fact of the legitimate theory. It is clearly linked to the social contract theory as the theory throws light on the fact that the companies are required to equalize the expectations that the society feels about them and their, manner of operation. The companies need to establish that that the right way to maintain legitimacy is disclosure (Broder Krauss, 2011). The limitation of the information about the oil spill quantity led to BPs accusation and also a rugged mistrust of the people for BP. Hence, well-informed stakeholders would help BP to stay legitimate. The fragility of the market and the ineffective performance of the company if left to operate alone are the major fundamentals implied by the public interest theory. Huge downfall and the disaster was the cause of lack of resources for enforcement. Also, the lack of adequate resources led to the ineffective work of the agencies. The implication of ethical management is steadily advised by the stakeholder theory and it also states alternate stakeholders. Rear to the oil spill, a wave of dissatisfaction and outrage was faced on the part of BP. But a huge sum of $11.2 billion was allocated by Bp which helped it to move in the correct direction (Jacobson, 2013). Role of Regulators For the smooth functioning of the company and also to maintain a balance in the company, to take the company forward, the role of the regulator is very important. Regulators guarantee that the company is making a positive and favorable image in the eyes of the people as well in the market by accumulating public benefits (Upton, 2011). Establishment of a strong and durable foundation according to the norms requires a vital and strong role of the regulator. Drilling and the deepwater area received the very small amount of attention from BP (Broder, 2012). It is clear from the case of BP that there was a lack of major and important resources for the agencies which were needed for the safeguard of the public. Lack of review scheme and the outdated or old provisions were the main reasons which led to the downfall of OCSLA. Position It is strongly needed by the company to adhere to regulations so that any negative impact can be negated. The public interest theory is important because the public interest theory carries a huge advantage. The company that does not contain a public interest theory needs to bring it under implementation as it needs to be responsible for the acts. The regulations tend to lay a better scope for the economic development and benefit the society at large. Therefore, the imposition of penalties on BP is correct and it needs to take a strong stand regarding the future course of actions. Conclusion Companies like BP that has a strong influence in the market must ensure a strong safety mechanism that will help in eliminating the liability. The disaster of Oil Spill was a major eye opener that disturbed the entire region and led to massive losses for BP. The aftermath affect of the spill ran huge for BP whereby BP sold many assets to compensate for the loss. $30 billion assets were sold for the process of cleanup and legal claims. More than 20% of the assets were sold to compensate for the loss. Going by the overall situation it can be commented that the rules were flouted by BP and that the fines and penalties were correct in nature. It Is the duty of the corporate to look after the society and ensure that the activities should not harm the society. Rather, preventive measures should be taken so that the chances of problematic activities are eliminated. References BP Plc 2014, Annual report and accounts 2014, viewed 23 May 2017, https://www.bp.com/content/dam/bp country/de_de/PDFs/brochures/BP_Annual_Report_and_Form_20F_2014.pdf Broder, J. M Krauss, C 2011, Regulation of Offshore Rigs Is a Work in Progress, The New York Times, viewed 23 May 2017, https://www.nytimes.com/2011/04/17/us/politics/17regulate.html?pagewanted=all_r=0 Broder, J. M 2012, Ruling Favours Owner of Rig in Gulf Spill, The New York Times, viewed 23 May 2017, https://www.nytimes.com/2012/01/27/business/energy-environment/transocean-not-liable-for-some-gulf-spill-claims-judge-rules.html. Cherry, M.A Sneirson, J.F 2010, Beyond Profit: Rethinking Corporate Social Responsibility and Green washing after the BP Oil Disaster, Tulane Law Review, vol. 85, no.4, pp. 983-1038 Fodor, A Stowe, J.D 2010, The BP Oil Disaster: Stock and Option Market Reactions, Working Paper, Ohio University. Jacobson, M 2013, By the Numbers: The Oil Spill and BP's Legal Troubles, PBS News Hour, viewed 25 May 2016, https://www.pbs.org/newshour/rundown/2013/07/gulf-oil-spill-by-the-numbers.html. Jefferson, J Bowling, N 2011, The Economic and Biological Impacts of The BP Oil Spill, NDS 372.01 Environmental Studies Capstone Seminar. Mason, J.R 2010, The Economic Cost of a Moratorium on Offshore Oil and Gas Exploration to the Gulf Region, Working Paper :Louisiana State University. Pigou, A. C 1932, The Economics of Welfare, London: Macmillan and Co. Stigler, G.J. 1972, The Theory of Economic Regulation, Bell Journal of Economics and Management Science vol. 11, pp. 3-21 Upton, H.F 2011, The Deepwater Horizon Oil Spill and the Gulf of Mexico Fishing Industry, A look at Europes Financial Crisis, viewed 23 May 2017, https://hosted.ap.org/specials/interactives/_business/greece_imf/content.swf.