Understanding what the Retail Price Index is - Free Essay Example

Sample details Pages: 5 Words: 1392 Downloads: 8 Date added: 2017/06/26 Category Finance Essay Type Analytical essay Did you like this example? The Governments general index of Retail Price, which has been existence since 1914, measures the change in the price of the goods and services brought by the average family from one month to the next. The actual method of calculation of the Retail Price Index is closely related the base weighted system. The information of the prices each month is generated by investigators through out the country, who covers a wide range of types of retail outlet from supermarket to small grocery suppliers. Don’t waste time! Our writers will create an original "Understanding what the Retail Price Index is" essay for you Create order Some items can not be collected over the country but they can be collected centrally. This includes such things as Postage and Telephone charges. When all the information has been gathered the index can be calculated, but as you can imagine this is quite a substantial task. By the time all the collection and computation has been done, the index is about four and half weeks out of date when it is announced. The standing advisory panel guides the Government that what item should go into the index, what base year should be used, when it should be changed and so on is an important part of producing the index. Retail Price Index is some kind of overall figure highlighting rapid change in the market prices pertaining to the cost of living. It would not be fair to leave the topic of the Retail Price Index without mentioning some of the criticisms. The monthly announcement of the latest change in the Retail Price Index attained an almost mystical significance during period of high infl ation. Some items which have a very significant effect on peoples standard of living are excluded from its calculation. In recognition of some of those deficiencies in the RPI, several alternatives have been proposed. There are TPI and CPI which is an internationally agreed measure. The difference between these measures are largely in terms of which items are and are not included though the methods of calculation remains similar to that we have discussed above. Different measures leads to different values of the current level of inflation. Number of Words for Part a : 378 Introduction of part -b Produce an application, based on your experience from the organization that you work for or one that you are familiar with, to show how RPI aids the accuracy of forecasting Retail Price Index is based on the principle that if there is an increase in the general level of prices which is reflected through Retail Price Index by say an X% over a period of Y period then also it would not affect the invested capital amount at the time one had invested since one is likely to gain a minimum return of the same % on the savings made. Whenever the situation of inflation arises we could make use of the Retail Price Index to compare the financial crisis in terms of income profit being paid at various period of time. Example: I have prepared an example, where an engineers rate per hour is 18 pounds in the year 2003. To keep pace with the inflation his rate in the next year 2004 would be as follows: YEAR RETAIL PRICE INDEX EARNED AMOUNT (POUNDS) 2003 181.3 18 2004 186.6 ? Here we are increasing the value of an amount of money in line with increasing price and this method is inflation. Earned amount of 2004 = Earned amount of 2003 x Retail Price Index of 2004 - Retail Price Index of 2003 = 18 x 186.6 / 181.3 = 18.53 Earned amount of 2004 = 18.53 2. Comet Electronics is a switch producer organization and the respective year data is available. Here the annual average Retail Price Index values are taken in to consideration for a successful period of five years all based upon January 1987 data and the base year for the calculation is 2001. This has been represented in the form of a table as under: ANNUAL SALES YEAR RPI (MILLIONS OF POUNDS) (Average) 11.0 2001 173.3 13.0 2002 176.2 14.5 2003 181.3 16.1 2004 186.6 18.5 2005 192.0 Here 2001 year data remains unchanged. For the year 2002 173.3 / 176.2 x 13 = 12.79 For the year 2003 173.3 / 181.3 x 14.5 = 13.86 For the year 2004 173.3 / 186.6 x 16.1 = 14.95 For the year 2005 173.3 / 192.0 x 18.5 = 16.87 Here in this case the percentage changes in the annual sales of the organization from year to year increases from 11 to 12 % per year but at the same time there is an increase in the value of RPI by about 1.25% per year. Thus one can conclude that the firms value of money in terms of sales from the past period is increasing which is clearly seen when it is compared to the original date values. Thus, increase in the firms sale is accountable by an increase in the prices and inflation. A graph for the above example has been represented by plotting year vs annual sales which is shown as under. . SR.NO YEAR MONTH ANNUAL SALES R.P.I  (MILLION OF POUNDS) 1 2001 JAN    171.1   MARCH 11.0 172.2 2 2002 JAN    173.3   MARCH 13.0 174.5 3 2003 JAN    178.4   MARCH 14.5 179.9 4 2004 JAN    183.1   MARCH 16.1 184.6 5 2005 JAN    188.9   MARCH 18.5 190.5 6 2006 JAN    193.4  MARCH  ? For the example no:2 the complete data of the annual sales the Retail Price Index corresponding with respect to the year 2001 to 2006 has been given above: Assume a linear relation between the year the annual sales without considering the Retail Price Index for month of march 2006 the sale forecast would be as follows: From the straight line equation, y=a+bx where b= nÃÆ' ¢Ãƒâ€¹Ã¢â‚¬  Ãƒ ¢Ã¢â€š ¬Ã‹Å"xy- ÃÆ' ¢Ãƒâ€¹Ã¢â‚¬  Ãƒ ¢Ã¢â€š ¬Ã‹Å"xÃÆ' ¢Ãƒâ€¹Ã¢â‚¬  Ãƒ ¢Ã¢â€š ¬Ã‹Å"y / nÃÆ' ¢Ãƒâ€¹Ã¢â‚¬  Ãƒ ¢Ã¢â€š ¬Ã‹Å"x2 -(ÃÆ' ¢Ãƒâ€¹Ã¢â‚¬  Ãƒ ¢Ã¢â€š ¬Ã‹Å"x)2 Here y is the total sales, x is the year, a is the constant cost, b is the gradient, n is the number of years. The turnover has to be evaluated so it would be the y-variable the year is the x variable. SR. NO ANNUAL SALES (MILLION OF POUNDS) YEAR ÃÆ' ¢Ãƒâ€¹Ã¢â‚¬  Ãƒ ¢Ã¢â€š ¬Ã‹Å"x2 ÃÆ' ¢Ãƒâ€¹Ã¢â‚¬  Ãƒ ¢Ã¢â€š ¬Ã‹Å"xy (y) (x) 1 11.0 1 1 11.0 2 13.0 2 4 26.0 3 14.5 3 9 43.5 4 16.1 4 16 64.4 5 18.5 5 25 92.5 ÃÆ' ¢Ãƒâ€¹Ã¢â‚¬  Ãƒ ¢Ã¢â€š ¬Ã‹Å"y = 73.1 ÃÆ' ¢Ãƒâ€¹Ã¢â‚¬  Ãƒ ¢Ã¢â€š ¬Ã‹Å"x=15 55 237.4 From y=a+bx a=y-bx, y=ÃÆ' ¢Ãƒâ€¹Ã¢â‚¬  Ãƒ ¢Ã¢â€š ¬Ã‹Å"y / n = 73.1 / 5 = 14.62. x= ÃÆ' ¢Ãƒâ€¹Ã¢â‚¬  Ãƒ ¢Ã¢â€š ¬Ã‹Å"x / n = 15 / 5 = 3 b = 5 x 237..4 (15) (73.1) / 5 x 55 (15) (15) = 90.50 / 50 = 1.81 a= 14.62 1.81 x 3 = 9.19 : y = 9.19 + 1.81 x 6 ( x = 6, the sixth year whose turnover to be calculated ) y = 20.05 millions of pounds. The forecasted sale for the year 2006 without using the RPI is 20.05 millions of Pound. 3. If we plot the data of example no.2 the growth of the sales is not far from a straight line pattern. We will therefore fit regression line to get a forecast of the Retail Price Index for the sixth year i.e. 2006 which become the variable and the year is x-variable from straight line equation. y = a + bx y = Total Cost a = Constant Cost b = Gradient x = Units Total Cost = Constant Cost + Gradient = Constant Cost + Cost / Unit x No. of Units Assuming linear relation between the Retail Price Index and the number of years the best of the line fit is, y = a + bx y = mean of y x = mean of x a = y bx From the equation b = nÃÆ' ¢Ãƒâ€¹Ã¢â‚¬  Ãƒ ¢Ã¢â€š ¬Ã‹Å"xy- ÃÆ' ¢Ãƒâ€¹Ã¢â‚¬  Ãƒ ¢Ã¢â€š ¬Ã‹Å"xÃÆ' ¢Ãƒâ€¹Ã¢â‚¬  Ãƒ ¢Ã¢â€š ¬Ã‹Å"y / nÃÆ' ¢Ãƒâ€¹Ã¢â‚¬  Ãƒ ¢Ã¢â€š ¬Ã‹Å"x2 -(ÃÆ' ¢Ãƒâ€¹Ã¢â‚¬  Ãƒ ¢Ã¢â€š ¬Ã‹Å"x)2 S. NO YEAR R.P.I ÃÆ' ¢Ãƒâ€¹Ã¢â‚¬  Ãƒ ¢Ã¢â€š ¬Ã‹Å"x2 ÃÆ' ¢Ãƒâ€¹Ã¢â‚¬  Ãƒ ¢Ã¢â€š ¬Ã‹Å"xy (x) (y) 1 1 172.2 1 172.2 2 2 174.5 4 349 3 3 179.9 9 539.7 4 4 184.6 16 738.4 5 5 190.5 25 952.5 ÃÆ' ¢Ãƒâ€¹Ã¢â‚¬  Ãƒ ¢Ã¢â€š ¬Ã‹Å"x=15 ÃÆ' ¢Ãƒâ€¹Ã¢â‚¬  Ãƒ ¢Ã¢â€š ¬Ã‹Å"y=901.7 55 2751.8 n = 5 5 x 2751.8 (15) x 901.70 b = 5 x 55 (15) b = 4.67 a = y bx y = ÃÆ' ¢Ãƒâ€¹Ã¢â‚¬  Ãƒ ¢Ã¢â€š ¬Ã‹Å"y / n = 901.70 / 5 y = 180.34 x = ÃÆ' ¢Ãƒâ€¹Ã¢â‚¬  Ãƒ ¢Ã¢â€š ¬Ã‹Å"x / n = 15 / 5 x = 3 a = 180.34 4.67 x 3 a = 166.33 y = a + bx = 166.33 +4.67 x 6 y = 194.35 Therefore the RPI for the 6th year is 194.35 In this chart we can clearly see the increase in the RPI by year to year. Using the RPI value to calculate the % change in the index between the years is as under. % change = Later date RPI x Earlier date RPI 100 Earlier date RPI For the year 2000 2001 = 172.2 x 171.1 / 168.40 100 = 74.96 % For the year 2001 2002 = 174.5 x 173.3 / 172.2 100 = 75.61 % For the year 2002 2003 = 179.9 x 178.4 / 174.5 100 = 83.92 % For the year 2003 2004 = 184.6 x 183.1 / 179.9 100 = 87.88 % For the year 2004 2005 = 190.50 x 188.90 / 184.60 100 = 94.93 % For the year 2005 2006 = 193.40 x 194.35 / 190.50 100 = 97.30 % Now taking the average of the % we get 74.96 + 75.61 + 83.92 + 87.88 + 94.93 + 97.30 = 85.76 % 6 With the help of above chart we can clearly see that it is not in a straight line as we shown in the first chart. Forecasting the turnover for the year 2006 by taking the base year data of RPI. The increase in the % we get = 11 x 85.76% + 12 = 21.43 millions of pounds. By using the RPI we can forecast that the annual sale for the year 2006 is 21.43 millions of pound. Conclusion: As above shown in both example number 2 and 3 we can clearly see that the forecast of the year 2006 with the help of RPI is more than that of other. Using the RPI would be better to plan a proper growth of the sales. But, the only problem is that, it is based on assumption. Reference: Clare Morris, Year 2008 7th edition, Quantitative approaches in business studies, England (Essex) UK Retail Price Index from internet. Total number of words: 1743

Personal Statements For A Professional Advisers - 1634 Words

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Oil Dependancy, Oil Shortfall Impact and Economic Development Planning Free Essays

Question 1: Dependence on Oil A ; Oil deficit Impact Question 2: Economic Development Planning Question 1 We come across a batch of docudramas on about day-to-day footing, yet some of them are serious plenty to pull our attending towards the upseting province of the Earth. Most significantly, all of these sorts of docudramas are besides supported by comprehensive research and surveies conveying the same massages bespeaking that we worlds are in great problem and we are traveling to see a much different life than of all time before. The docudrama, â€Å"The Crude Awakening- ( The Oil Crash 2007 ) signifies one of the most alarming state of affairss that even powerful economic systems are confronting today, i. We will write a custom essay sample on Oil Dependancy, Oil Shortfall Impact and Economic Development Planning or any similar topic only for you Order Now e. , how dependance on oil is impacting non merely the oil monetary values but besides the nutrient supply. This essay aims to foreground what’s traveling to go on in transit, nutrient and energy sectors of different metropoliss of the United States when the economic system runs short of inexpensive oil. Oil is a au naturel necessity of the universe and besides for the burning engines ; it’s like a life line. Harmonizing to energy information disposal 2009 estimations, about 84 to 85 million barrels of oil was pumped and consumed every bit good, worldwide. With tantamount ingestion and production rate of oil, is it possible that we keep pumping the fossil fuels without the depletion of resources? Obviously, you can’t carry through the oil demands of the full universe with a individual well. Though there are limitless figure of oil well, some of them are still productive while some are dried out, yet each of them follow a peculiar production bell curve, dwelling of productiveness maximization, stabilising and so consuming to nil with certain figure of old ages. This curve is called Hubbert Curve and presented by Shell geologist named King Hubbert, in 1965 ( Jimenez, 2009 ) . This curve is besides applied to oil production all over the universe, Normally, oil companies concentrate more on large and easy to happen oil Fieldss ab initio and so come to deeper and smaller 1s when the big 1s start consuming. They besides take the aid of newer engineerings in this respect. In a nut shell, harmonizing to a bell curve, the production is supposed to increase, make at extremum and diminution eventually. It is to be noted that point called peak oil is arise before depletion. Take an illustration of decanter filled with java, to understand the construct. Pour cup after cup without any attempt until you see a watercourse of Java. Obviously, you would certainly necessitate to badly lean the decanter to run out the dredges. Your last streamlined cup before the concluding autumn is the peak point. Demand for oil will maintain lifting nevertheless ; oil militias of the planet will consume ( Avent, 2008 ) . What is the scenario after the peak point is raised? Indeed, an oil clang. Harmonizing to U.S. section of the interior geological study the anticipations sing the impacts of worst oil clang involve higher gas monetary values, endangered globalisation, increasing lawlessness and irreparable development of secured boring points. The solution of the job might trust in diminishing our dependance on fossil fuels. Alternate resources of bio fuels and energy seem of import in this scenario. Many critics have labeled oil deficits as something political benefit, in position of universe political relations. Everything is rather clear. Supply is less than the demand as of all time, obliging us to research alternate energy resources and alter energy use patterns. Even if we are able to use the last bead of the oil through latest engineering, increasing spread between supply and demand and higher monetary values would name a demand for a alteration. Current Tendencies of Oil ingestion in United States United States consumer really small part of petroleum oil as most of the oil is refined to be used in crude oil merchandise fabrication like Diesel fuel, jet fuel, gasolene etc. Natural gas processing generates liquid that is besides used the same manner. Renewable resources like biodiesel are used as an option for refined crude oil points. EIA besides takes into history biofuels in ingestion studies. Harmonizing to U.S. agency of economic analysis of current concern 6.89 billion barrels of crude oil merchandises were consumed in United States in 2013, connoting 18.89 million barrels per twenty-four hours, in which biofuels account for 0.32 billion. The Deficits in U.S Petroleum Harmonizing to U.S. agency of economic analysis of current concern Deficits in U.S. crude oil trade have been equal to a big fraction of the instability between U.S. imports and exports. Between 2000 and 2012, the cumulative sum of U.S. trade shortages in rough oil and refined crude oil merchandises amounted to $ 2.87 trillion, 40.5 per centum of the cumulative shortages in all goods and services over the period. And oil ‘s function has increased in importance over the clip: in 2012, for illustration, the trade shortage in oil was equal to 55 per centum of the overall trade shortage in goods and services. Deficit of Oil in United States- The Impact on Transportation Over the last 40 old ages, one of the most hard transit policy inquiries has been the issue of the monetary value of oil and its associated impact on transit systems1. Since the 1950’s the North American economic system and its transit system have become progressively dependent on oil both in footings of its production of goods and services, and their distribution from production centres to market ingestion centres ( Gordon A ; Robert, 1975 ) . The monetary values of nutrient, consumer goods ( e.g. , electronics, furniture, and apparels ) , and capital goods points like autos and houses are all likely to endure from go oning oil monetary value dazes. Fuel monetary value addition may ensue in a broad scope of impacts depending on merely how much of the addition can be passed on to consumers. In the planetary economic system and both the internal and external transit systems of the United States, significantly higher monetary values will act upon factors like †¢ The planetary economic system care and growing †¢ Marine and inland transportation cost †¢ Modal portion Deficit of Oil in United States- The Impact on nutrient production Harmonizing to Federal Reserve Bank of San Francisco nutrient monetary values have gone so high since last few old ages. In U.S. , the nutrient monetary values increased by 5 per centum in 2012, while in 2011, the rising prices rate recorded was the highest in last 36 old ages. Though USDA estimated nutrient monetary values increase in between 2.5 to 3.5 per centum, yet rising prices is traveling to be even higher. The higher monetary values are dismaying as economic system is dead with 0 involvement rates. The major ground could be the short autumn of oil supply. Since gas and oil are besides extremely demanded in agricultural sector, a diminution in oil supply will finally raise monetary values of nutrient in approaching old ages. Harmonizing to Geologist Dale Allen Pfeiffer, population is lifting, hence, there is a demand to cut population growing rate by at least one 3rd in United provinces and two 3rd in the full universe ( Trehan A ; Bharat, 1997 ) . Deficit of Oil in United States- The Impact on energy production The macroeconomic deductions of a supply shock-induced energy crisis are big, because energy is the resource used to work all other resources. When energy markets fail, an energy deficit develops. Electricity consumers may see deliberately engineered peal blackouts during periods of deficient supply or unexpected power outages, irrespective of the cause. Industrialized states such as United States are dependent on oil, and attempts to curtail the supply of oil would hold an inauspicious consequence on the economic systems of oil manufacturers ( Trehan A ; Bharat, 1997 ) . Consumers will hold to bear increased monetary values of fuel and those who use electricity for cookery, H2O supply and warming, affects would besides be felt. The current scenarios hence indicated uninterrupted energy crisis and are besides a human-centered crises. Mentions Jimenez, R. ( 2009 ) . The Industrial Impact of Oil Price Shocks: Evidence from the Industries of Six OECD Countries.Documentos de Trabajo,No. 0731. 2007 ; N. Velazquez. â€Å"Impact of Rising Energy Costss on Small Business.† Congress of the United States. House of Representatives. Avent, R. ( 2008 ) . A World Less Flat.Guardian, UK. p. 35 Energy Information Administration ( EIA ) Survey, p. 133-145, 2012. U.S. Department of the Interior. U.S. Geological Survey, p. 205-239, 2008. U.S. Bureau of Economic Analysis of Current Business, April 2013. Gordon, B. , Robert, J. ( 1975 ) . Alternate Responses of Policy to External Supply Shocks.Brookings Documents on Economic Activity, ( No. 1:1975 ) , pp. 183—206. Reserve Bank of San Francisco. ( 2012 ) . Oil Prices, Exchange Rates and the U.S. Economy: An Empirical Probe.Economic Review autumn 2012, pp. 25-33 Trehan T. , A ; Bharat, V. ( 1997 ) . Oil Supply Shocks and The U.S. Economy.Federal Reserve Bank of San Francisco,Weekly Letter. P.198-209. Documentary: The Crude Awakening- ( The Oil Crash 2007 ) . ( 2007 ) . Retrieved from YouTube.com Question 3 Baltimore’s Harbor Point Project This undertaking is considered as one of the controversial undertakings due to match of grounds. One of the grounds is the environmental effects that are disturbed by the building stuff used in edifices and walls. The component that is involved in the building and set uping the environment is Chromium. This component is extremely unsafe for the living existences as it is one of the causes of malignant neoplastic disease disease. Most of the civil applied scientists recommend utilizing Cr as a building stuff but it is besides a cause of diseases for the human existences. There could be precautional steps adopted by the people to avoid the infection of these chemicals. Apart from the Cr consequence, the other contentions that revolve around the Baltimore’s seaport point undertaking are the location of the country. It is believed that the geographical place of this undertaking is non outstanding because there is an extreme are air force per unit area striking the project’s location that could possible weaken the building. The civil applied scientists have taken the constructive steps for the safety of the Baltimore’s seaport point undertaking. The pros and cons have to be considered so that in the hereafter clip, all possible factors could be handled with great attention and concentration. Tax Increment Financing ( TIF ) is one of the fiscal footings used for roll uping the revenue enhancements from the companies, organisations and on-going undertakings. There was an estimation of the paying of revenue enhancements around one hundred and seven US dollars to the authorities which itself is a immense sum. It is besides said that TIF are traveling to increase their rate of revenue enhancements so that maximal gross could be generated from such undertakings and events ( Dorsey A ; James, 1981 ) . There are some of the points on which the Tax Increment Financing and seaport point undertaking can non hold or can non be on the same page. On these points, they ever struggles and contradicts and this arise to many confederacies. When it comes to answerability of the revenue enhancements being asked from the profitable undertakings like seaport point undertaking from the authorities side, they ever fail to turn out the exact sum been required. There has to be complete transparence of the fiscal statements and revenue enhancements being received from such undertakings. The crystal clear fiscal statement and hard currency books have to be recorded sing the revenue enhancements being collected by the Tax Increment Financing section. It is truly compulsory for such establishments to do the record of revenue enhancement aggregation for the Harbor Point Project as they are invariably turning and expects a great feedback from all ( Dixon, 1992 ) . Harbor point undertaking will demo that it is traveling to make more chances for the people or it would saturate the sum of occupations. It is fact that more earning grounds have to be tipped out as there is traveling to be building all around the topographic points. The rewards and the wages have to be equal for all labours irrespective of their background and vicinity. There has to biasness in every facet so that the society could impact a perfect gesture to others. It is a common fact that occupation are given to those who belong to the same vicinity of company, this unbalance occupation chance has to be eradicated. All people have to be given occupations on the footing of virtue and endowment and the tendency of unfairness has to be removed ( Dietrich A ; Skinner, 1979 ) . There are certain entities that are involved in the Baltimore Harbor’s undertaking, for case the investors, employees, authorities employees, man of affairs, the people shacking in the specific country and the elective people. All these people are a portion of the Baltimore’s undertaking and all the safety steps have to be taken into consideration from each and every facet. Proposed solution One of the major jobs is the direction and deliverable of activities sing the Baltimore building. The jobs could be resolved if there is a better direction and perfect determination. All the issues would be possible resolved in the most professional manner. There has to be presence of unfastened broad infinites so that structural makeover could be built in much specific manner. This job is supposed to be corrected on clip so that there could be flawlessness at the terminal of the twenty-four hours. There have to be engaging of professional civil applied scientists who know their duty and acquire the issues solved ( Chesterman, 1978 ) . Mentions Chesterman, C. W. ( 1978 ) . The Field Guide to North American Rocks and Minerals: The Audubon Society, New York, Alfred Knopf, Inc. , p.850. Dietrich, R.V. , A ; Skinner, B. J. ( 1979 ) . Rocks and Rock Minerals: New York, John Wiley A ; Sons, p.319. Dixon, D. ( 1992 ) . The Practical Geologist: New York, Simon and Schuster, p.160. Dorsey, J. , A ; Dilts, J. D. ( 1981 ) . A Guide to Baltimore Architecture: Centreville, Md. , Tidewater Publishers, p. 327. How to cite Oil Dependancy, Oil Shortfall Impact and Economic Development Planning, Essay examples

Society and Environment Consideration Functioning and Operations

Question: How to society and environment consideration functioning and operations? Answer: Introduction Legitimacy theory is focused on the society and environment consideration while functioning and operations. It is comprised of a social contract where society and organizations are bound by an intangible agreement (Omran and Ramdhony, 2015). Organizations employ various natural and community resources which are not entitled to it from inheritance in exchange of utilizing these resources; society needs them to operate with some expectations, norms, policies and beliefs. In the past years, it has been found that organizations are focused on revenue generation and improving the performance of the resources. However, in the recent years, legitimacy theory is being used in a wide number of organizations around the world. Moreover, the legitimacy theory is being researched by many scholars and researchers on its validity and importance to the economy (Omran and Ramdhony, 2015). It is being criticized and accepted by various intellectuals in their different perceptions about the legitimacy and positive theory. The most explored area in the legitimacy is importance of the theory in the financial accounting system of the organization which is being hampered. Simultaneously, the role of legitimacy also forces the organization to manipulate the accounting data which results in huge financial losses. This research paper is aimed to explore the legitimacy theory integration of social contract in the accounting of organizations. The purpose of this study is to facilitate a brief on the interconnection between the society expectation and legitimacy theory. Legitimacy theory is often being used by the organization as a sustainability strategy plus to increase the competitiveness in the society due to intense competition. Nevertheless, it has also been implemented as it improves the reputation of the organization that indirectly gives financial benefits to the organization (Omran and Ramdhony, 2015). The study explains legitimacy theory and social contract meaning in the reality of organizations accounting. Furthermore, the relevance and significance of social agreement within the legitimacy theory of accounting is being discussed in this study. In addition to this, the application of legitimacy theory is being projected by referencing to scholars and researchers providing strategies and different methods integrating to the accounting of organizations. Importance and role of Social Contract contained by Legitimacy Theory in Accounting This section will elucidate the connection between the social contract and legitimacy theory. This research is a significant for revealing the positive accounting theory and its relevance and its application in the society associated with the legitimacy theory. This literature review has been critically examined to view the unbiased information about the importance and role of the legitimacy theory in the financial accounting. Therefore, in the below section advantages, disadvantages, features and strategies to implement and cope-up the legitimacy theory in an organizations financial accounting has been outlined. Omran and El-Galfy, (2014) demonstrates that Legitimacy theory is defined as operation of an organization according to the social expectations, perception, values, norms and beliefs. The organizations functions are being constructed in such a way that it fulfills the desire of the society and environment concerns in it (Omran and El-Galfy, 2014). It is one of the most criticized and studied theory in the positive accounting theory. It is the insight of the development in the management of accounting which is based on the ethical literature. It has been found that legitimacy is a bridge between the social and environmental disclosures which drives the powerful mechanism by the organizations which involves public participation in the operations for the betterment of the society and other community issues (Omran and El-Galfy, 2014). Social contract is the agreement with the social of organizations which is determined as a favor or consideration to the society in exchange of utilization of natural and community resources that are not inherited by the company. As per the legitimacy theory, the natural and community resources belong to the society and environment and when organization uses these resources they automatically bind with the obligation to serve the society and environment with the same proportion (Mansell, 2013). The natural resources includes land, machinery, metals and everything, whereas community resources are the labors and workers which has been hired by the company to make their ultimate products and services. The legitimacy theory is pivotal for existence of any business entity. The social acceptance helps an organization in carry on its business smoothly and facilitates the competitive advantage to the organization (Omran and El-Galfy, 2014). In addition to this, Tilling, (2004) reports that social contract is a powerful element that helps an organization to fulfill the social expectation. The social contract is divided into two parts that is explicit and implicit. When an organization fulfills all the legal and authorized practices to start a business with legitimacy is called as explicit social contract. Rest of all the considerations and practices are included in the implicit social contract (Tilling, 2004). Apart from this, legitimacy theory is influenced by society and environmental elements to a very large extent. The growth of an organization is depended on many factors that are government policies, demands from stakeholders, market situations and condition worldwide. Likewise, markets and growth of society is also influenced with the development of industries in terms of innovation, technology, methods and traditions. Legitimacy theory facilitates various opportunities to the organizations in market to develop and expand their business in new locations and cover wide area geographically (Samkin and Schneider, 2010). It also helps in integrating innovation, creativity and new ideas in the organizational culture which promotes the employees to involve in the operations. The involvement ad engagement of the employee results in the employees loyalty and increases the productivity as well as performance of the employee. At the same time, it ensures the profitability and financial support to the organizations. Precisely, it ensures a leading market position to the organization (Tilling, 2004). Moreover, Mousa1 and Hassan, (2015) illustrates that there are two main classification of legitimacy theory in the financial accounting which needs to be addressed. First is macro-theory of legitimacy which is also known as legitimacy theory comprising of values, beliefs, perception which has been adopted and integrated by the organization in the operations and functions as a whole to be accepted by the society and to fulfill the social expectations. In this particular class, there are some layers of institutions which are associated with the functions of the organizations (Mousa1 and Hassan, 2015). The institutional level that has an impact on the organizations operations are government, society, religion and capitalism. Furthermore, one layer down which is the second classification is called as organizational level or strategic legitimacy theory involves the organization which has a share based structure and company limited has four interrelated functions that have an influence in the institutions that is establishment, maintenance, extension and defense. In this regard, the organizations always needs to congruent with each of the level that is institutional and organizations (Mullerat, 2010). It will be considered as a social value, beliefs and behavior which facilitate the social acceptance to the organizations. The congruency of these two value system helps in finding the degree of legitimacy in an organization (Mousa1 and Hassan, 2015). Low degree of legitimacy is less pursue of social expectation in the organizational operations and vise-a-versa. Unerman, et al., (2010) describes that social contract within the legitimacy theory is a significant way to gain the votes and favors of society which will benefit an organization in the long run. It has been identified in the researches that integration of legitimacy in the organization in the accounting facilitates a clear and transparent financial reporting. It helps the stakeholders to believe in the organizational operations and invest more money in the organization. In addition to this, it is an essential part of the organizations operation for the substantial and sustainable growth and development of an organization (Unerman, et al., 2010). Not only it helps in attaining the organization a competitive edge in the intense competitive market but also it helps in improving the image or reputation of the company in the society. With the improvement in the reputation of the company, it becomes easy for any company to raise the fund for the expansion and growth of the company in the market. Legitimacy theory helps in making a strong market position in the industry that helps the company in increasing the investment in the market and raising the capital funds from investors, financers and potential shareholders. Moreover, the government also helps the company in promoting its business if the legitimacy is being implemented in the organization (Unerman, et al., 2010). The legitimacy theory facilitates the legal compliance in the accounting and functions of the organization as well as it provide benefits in various legal aspects too with no extra expenses in the legal battles and no serious social issues. Along with this, legitimacy theory helps in achieving a positive environment in the surrounding of the organization that helps in opportunist cultural environment with affirmative attitude in the employees behavior (Unerman, et al., 2010). Thus, it overall helps the company in moving forward and adds several external as well as internal benefits which are crucia l for any organization. On the other hand, Gherardi, et al., (2014) expresses that insufficiency or failure of comply in the social contract by the organization may result in a very serious consequences. The existence of the organization may come into jeopardy and many external or legal hurdles may come into the way of success. The failure of the social contract can be a consequence of many reasons. Nevertheless, it may seriously damage the reputation of the company admittedly as well as certainly responsible for failure of the business (Gherardi, et al., 2014). The survival of the business may hamper, if it does not follow the legitimacy theory effectively. In addition to this, the failure in effective incorporation of social contract may decrease the demand of the products and services in the market. The public will ignore or less purchase products and services from that organization. It will also affect the community resources and decreases the benefits from them. The employees will start walking out of the organization and leave their jobs. Furthermore, the new hiring or job search may face difficulties. The organizational culture will be not healthy and clear due to lack of legitimacy and no transparency in the accounts will create uncertainty and hesitation in stakeholders (Gherardi, et al., 2014). The investors, loan providers and financers will not consent for long-term or short term financial support to the organization. It may also cause the extra expenses, if the proper measures or rules of societal norms are not complied by the organization. The ineffectual expenses will be used for the cases, suits and other legal obligation to settle the social and environmental issues caused by the company (Samkin and Schneider, 2010). Apart from this, the organization will not be able to take the advantage of competitive edge and can face huge competition in the market which can decrease the sale of the products and services offered by the organization. Therefore, it can be identified that the effective implementation of social expectations, belief, norms and bounds is very important without which the existence of the business entity is not possible (Mullerat, 2010). The performance and productivity of overall financial position of the organization will start declining. In the view of Lightstone and Driscoll, (2008) the legitimacy theory is being covered in three stages of legitimacy that is gaining, maintaining and regaining legitimacy. Gaining legitimacy is foremost and beginning of the organizations operations that implement the legitimacy theory. Innovation, newness and creative ideas and lack of traditional beliefs and values is being implemented to develop a new structure or processes in the organization (Lightstone and Driscoll, 2008). This stage provides the significant time and parameters to set the legitimacy in the organization and acts proactively if an issue occurs. In case of maintaining legitimacy, it is an easier task than gaining and repairing legitimacy. The future changes and social expectation is being synchronized and aligned with the current operations and behavior of the organization to minimize the legitimacy gap. The past values, norms and practices are being protected by supporting the legitimacy already practiced by the or ganization. The forecast of trends, behavior, fashion and perception are being forecasted regarding the maintaining legitimacy and updating the current expectation of the society (Lightstone and Driscoll, 2008). In the end, repairing or regaining legitimacy is the method to react on the unforeseen and future crisis that challenges the growth and development of the organization. There are strategies like strategic restructuring and normalizing the accounts that helps the organization in achieving the legitimacy. accordingly, these stages are very important to be identified by the organization before implementing the legitimacy theory in the operations. These stages will give the perfect solution to the organization faced by the organization (Samkin and Schneider, 2010). As per the opinion of Idowu and Filho (2009), it has been found in many studies that social expectations are not static in nature they are ever changing and flexible which are trended over time. The social expectations are based on preferences, beliefs, trends, norms and practices in the society which can be influenced by many factors like technology, situations, government policies and market conditions. Thus, these ever changing needs and desires should be closely watched by the organizations to fulfill these social expectations. In addition to this, the social contract and integration of legitimacy in the accounting may cost high at times which cannot be affordable by the medium or small sized organization (Idowu and Filho, 2009). The legitimacy theory also need some research on how to implement it effectively plus how it is being integrated by the fellow organizations. In case of small sized and private organizations, it can be difficult for the management to arrange the sufficie nt amount to integrate legitimacy theory at a certain time. In multinational and big companies, sometimes the changes are wide and fast plus cannot be notices with light research (Omran and Ramdhony, 2015). These changes with time and actual implementation of the legitimacy have some differences which are known as legitimacy gap. The legitimacy gape occurs due to variable and capricious nature of social expectation and organizations are unable to cope-up with these changes. Thus, the difference between the actions and behavior of the organization is not synchronized with the ever changing and dynamic nature of the social expectation which is not been adjusted within the time frame results in legitimacy gap (Idowu and Filho, 2009). It pressurizes the organizations and business entities to operate and accounting with manipulations. Besides this, Wangombe, (2013) explains that communication is the most vital element in legitimacy of financial reporting and accounting in an organization. The organizations use manipulative and effective communication skills with the help of professional s and expert to cover up the issues and highlight the beneficial facts about the organization. This procedure is not illegal and acts in accordance with law and order but the intention is to hide the actual information and provide the partial information to manipulate the investors (Wangombe, 2013). Thus, organizations start to manipulate and influence stakeholders with the falseness and pretend the financial reports according to societal expectation and environmental prospective to be accepted by the society. The legitimacy gap becomes substantial problem when in the adverse times or randomly media reveals the past records of the organization which suddenly destroys the business entity in sometime and make its survival very diffic ult (Dushi and Brdufi, 2015). In addition to this, this situation withdraws the support of public in the organization and scarcity of financial and management resources s being faced by the organization. According to Hayek, (2013), in order to cope-up the situation of legitimacy gap and implementation of effective legitimacy theory, some of the researchers have provided various techniques and strategies that can help an organization in application of social contract within the legitimacy theory. It has been explored by the researchers that the legitimacy concept is related with the favor and majority of any belief, value, norms and behavior which is being accept by the public (Hayek, 2013). In order to apply it effectively, the most important element which should be noted is to communicate with slight alteration, modification to manipulate the stakeholders opinion and sense of decision making. Dowling and Pfeffer (1975) declared three way strategies through which a business entity can implement the legitimacy in its operations. The organization should identify and articulate the goals, methods, results, values and mission compliance with the social expectation, values and beliefs (Ha yek, 2013). Next, the organization can change the methods and strategies of social acceptance to attempt the legitimacy in the operation which is accepted by the majority of the public. The organizational current practices will be articulated as an ideal example of legitimacy and social contract conformity. Lastly, the attempt of legitimacy is done with the help of symbols, institutions and values in the communication practices that provides the strong validation to the organization (Hayek, 2013). Similarly, Dushi and Brdufi, (2015) explored that Lindblom (1994) suggested that there are another four strategies which helps the company in escaping the pressure of social acceptance and legitimacy can be achieved by these ways (Dushi and Brdufi, 2015). Along with this, the researcher is not concerned with the falseness and pretending the facts, the accounting and financial reports must be articulated to ensure the acceptance of the society as follows: Relevant public will be informed and educated regarding the organizational practices which are aligned with the societal values and norms and fulfills the social expectations. The disclosure of accounting and financial reports will be presented in such a way that changes the perception of the relevant public about the organizations effort to attain the societal acceptance but not necessarily changes the actual and real behavior, practices and performance of the organization (Ali and Rizwan, 2013). The articulation of facts will be done in such a way that the issues/problems will be covered and ignored in front of public and other irrelevant issues are addressed to divert the decision making and manipulate their opinion. Lastly, by demonstrating the relevant public about the unreasonable demands and expectations which cannot be fulfilled practically and that changes the external aspects of social expectation (Dushi and Brdufi, 2015). The relevant public in the above text is referred to the stakeholders of the company and majority of people who are already in the favor of the company. Relevant public is the most influential people that can be easily manipulated by the company and influences the growth and development of the company very highly. Apart from this, Ali and Rizwan, (2013) states that Deegan and Unerman (2006) also reacted on the legitimacy theory and its application by focusing on the reputation risk management which can be done with the help of active management and reaction of the organization according to the expectation of the society (Ali and Rizwan, 2013). Thus, it can be inferred that the strategies and methods help an organization in incorporating the legitimacy theory plays a vital role in social acceptance. Not only it provides the degree of legitimacy in an organization but also it enables the temporary solutions to the organization to solve the urgent compliance of social contract to minimi ze the damage. The effective legitimacy theory provides the good relation between the stakeholders and management which automatically responsible for fast services and responses to the clients in the market. It ensures the production and performance of the organization with good potential and in positive environment (Ali and Rizwan, 2013). Conclusion From the above discussion it can be implicated that the legitimacy theory and social contract is interrelated and layered aspect of each other. Social contract is the agreement between the society and the organization that provides a beneficial relationship to each other. Society provides the right to the organization to use the natural and community resources to the organization, whereas the organization is obliged in the exchange of using the resources and concerned with the environmental and social challenges. Along with this, every organization has a responsibility to operate complying with society value, norms, behavior and perceptions for a sustainable growth. There are various benefits of integrating the legitimacy in the organization such as competitive advantage, profitability, good relationship establishment between the stakeholders and the organization. On the other hand, the failure in integration of legitimacy theory because of legitimacy gap which is due to time adjustment and changing needs and desires of the society. Furthermore, the legitimacy theory has three stages that are gaining, maintaining and repairing for the application of legitimacy theory. These stages are very helpful in determining the strategies which should be applied by the organization for the effective integration of social contract and expectation. It has also been found that social expectation is an ever changing process and therefore firms need to watch and forecast values, tastes, trends and behavior one step ahead of the society and adjust the strategies with it. The failure of the adjustment can suffer the company from financial losses as well as hamper the existence of the organization. In addition to this, some of the strategies and methods are being given by the researchers to protect from the failure of the society expectations. These strategies ar e not concerned with the falseness and pretending the accounting to manipulate the decision of the stakeholders. References Ali, W., and Rizwan, M. 2013. Factors influencing corporate social and environmental Disclosure (csed) Practices in the Developing Countries: An Institutional Theoretical Perspective. International Journal of Asian Social Science, 3(3), pp. 590-609. Dushi, D., and Brdufi, N. 2015. Social Contract and the Governments Legitimacy. 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