political costs - are costs that groups external to the firm might be able to impose on the firm as a result of political actions
for example if a firm records high profits this might be used as an excuse for trade unions or lobby groups to take action for an increase in a share of that profit ie higher wages. therefore firms may adop income-decreacing accounting methods (watts and zimmerman (1978 p 115).
another example that may incur political costs may be envirnmental - such as polution and "carbon footprints". disclosured made by a firm in relation to there positive or negative impacts on their physical envirnment may also be a technique to reduce any political costs.
political cost theory thefore can also explain why many firms adop voluntary social and environmental discloures in there annual reports.
Craig Deegan, "Australian Financial Accounting" , 2008, 5th edition, McGraw-Hill Australia, NSW.
Watts, R. L & Zimmerman, J.L,"towards a positive theory of the determination of accounting standards" The Accounting Review, January 1978, pp 112-34.
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