Week 1

(A)

As per the Conceptual framework, the financial information must have below provided characteristics to be useful for primary users.

a) Relevance

b) Faithful Representation

As per Auditing Standard AUS “Management Representations”, an auditor is required to obtain a written representation from the management as an audit evidence. This management may be relevant financial information; however, there are chances that management does not present it faithfully to deceive others (Shad, et al. 2019).

(B)

Sunk cost or committed costs are those cost which has already been incurred and shall not be a part of consideration now or in future. This type of cost may be faithfully represented but may not be relevant for the primary users or management (Dam, & Hotwani, 2018).

(C)

An auditor shall take external confirmations of balances as per the relevant Standard on Auditing. The confirmed balances of creditors and debtors are both relevant and faithfully represented in the financial reports of the company.

Week 2

(A)

Social Contract

A social contract may be referred to as an agreement between the society and the business. In simple words, it is the way by which business interacts with the society. Society has certain expectations from the business for their survival and growth in future and business has responsibility to take care of such expectations. A social contract is a medium by which business caters the expectations of the society. The expectations of society may be implicit or explicit. A social contract need not to be a written document (Shari, & Mahat, 2019).

Organisational Legitimacy

Organisational Legitimacy is a state or condition that arises when organisation has taken well care and met the terms and conditions of social contract. In other words, organisational legitimacy provides details about the process through which the organisation has achieved or maintained the social contract’s term.

Existence of difference or disparity between 2 value systems is a threat for organisational legitimacy. Hence, business shall have a proper understanding of its responsibility towards society. A social contract is directly related to the organisational legitimacy as it defines the implicit or explicit expectations of the society to the business. As the expectations of society are not fixed or permanent and keeps on changing over the period of time, the terms or conditions of social contract also changes over the period of time (Hellmann, Ang, & Sood, 2020).

To maintain a balance between society’s expectations and operations of business, a concept has been introduced that is known as Corporate Social responsibility (CSR). CSR tells business about its responsibility towards society. As per requirements of the CSR, the business has to make several disclosures in its financial reports (Xinshu, 2019).

(B)

Corporate Disclosure Policy

Corporate disclosure policy of the organisations may be used to maintain or regain organisational legitimacy by following ways:

a) Corporate disclosure policy aims to provide information and education regarding the changes taking or taken place in the activities or operations of the organisation.

b) Perceptions of the society may be changes with the corporate disclosure policies. However, it cannot change the behaviour of the society.

c) Corporate disclosure policy may also change the expectations of the society regarding the performance of the organisation.

d) It may also help organisation to bring attention of society towards its strength rather than highlighting its issues of concern (Shad, & Lai, 2015).