Firms are required by law to provide disclosure of their activities mainly via annual reports governed by various accounting standards. These reports should aspire to maintain objectivity, neutrality and representational faithfulness. In addition to these reports, some companies have begun to produce unregulated corporate financial accounting disclosure in areas such as; social, ethical and environmental reporting. This type of disclosure is at an early stage but is increasing in use and popularity. The social value of such reports is a topic for debate.
The perspective taken by those who follow the Political Economy Theory is one which questions the use and value of such disclosures in society. The Political Economy has been defined by Gray Owen and Adams (1996), as " the social, political and economic framework within which human life takes place." Political Economy Theory, therefore, focuses on the idea that social, economic and political issues all have a bearing on the other and one issue cannot be successfully evaluated with the incorporation of its effects on the other two issues.
In effect the three issues are conjoined within this theoretical approach. Political Economy Theory questions the supposed neutrality of corporate reports both regulated and unregulated. According to Cooper and Shearer (1984), Political Economy Theory recognises the existing system of corporate reporting and "subjects to critical scrutiny those issues...that are taken for granted in current accounting research".
Political Economy Theory (PET) is divisable into two broad streams of thinking. One being the Classical Political Economy Theory, the other, Bourgeois Political Economy Theory. For the purpose of this writing the Classical Approach will be the main focus.
Classical Political Economy Theory follows the basic ideas of P.E.T, but goes further in its bid to highlight and scrutinise structural conflicts and inadequacies within society. The followers of the Classical approach are...