Accounting Theory

L5-PerceptionTruthRealityConstructionandtheScientifcMethod.pptxL3-ExploringtheSignificanceoftheDevelopmentoftheConceptualFramework.pptxL4-WhatisTheory.pptxCourseworkGuidelines1 xL8-TraditionalMainstreamMethodologiesinAccounting.pptxL2-ExploringtheDevelopmentofAccountingTheory.ppt

Perception, Truth, Reality Construction and the Scientific Method

Unit 5

ACC3135:
Accounting Theory

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ACC 3135

Lecture outcomes:
Identify the various sources of Knowledge
Critically evaluate the notion of reality construction
Identify Truth as a problematic concept

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What have we learnt so far?
1.Some philosophical debates and imagery;
2. Mentioned the importance of theories in ‘viewing’ and ‘interpreting’ accounting and its function in society;
3. Accounting is not so ‘concrete’ and ‘objective’ as we thought it to be;

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4. Accounting can be shaped by various views and interests in society and therefore can be considered to be socially constructed;
5. We mentioned the importance of the ‘true and fair view’, and despite its prominence in accounting people including accountants have difficulty in interpreting its meaning.

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Today, we will go back to attempt to explore where this notion of reality construction comes from in order to try and see how it is put together. In other words, we are going to look at how we obtain and gain access to knowledge, because it is knowledge which is used to construct reality.

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True and Fair: An intro, how do we know?
1. Knowledge and epistemology
Epistemology is concerned with the theory of knowledge, but what are the bases of knowledge?
Some background considerations:
How do we establish truth?
Perhaps that the truth corresponds to human nature or likeliness?

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Its real and not pretence?
It corresponds with reality?
Corresponds with fact (but how do you know that something is a fact? –perhaps you could look at statements and are they true statements?
A True statement is one which is factually correct. But a problem here, as true and fact are words which are used interchangeably.

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Sentences and Propositions:
A sentence has meaning (like words do)
But a proposition refers to what the sentence means.
e.g. Jane is bigger than Clare/Clare is smaller than Jane, are two sentences referring to the same underlying meaning-

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– or proposition- about some state of affairs.
It is meaning which is true or false, not the sentence, which is only a vehicle to convey meaning.
Truth is tenseless, in other words the truth doesn’t change, only our knowledge of it.
Statements maybe partly true/false, (can also be meaningless)

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Truth is independent of our knowledge of it.
(need to be clear that there are several ways of distinguishing the word know:)
1. Knowing How (e.g. how to swim)
Skills acquisition, maybe genetically programmed.

Knowledge the big question, ‘How do we know?’

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2. Acquaintance (e.g. seeing something for yourself).
Forming concepts from sensory perception.
3. Knowing that:
(understanding statements)
Criteria:
Statement must be true
You must believe that the statement is true
Good evidence is required

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But good is a matter of degree, how much will suffice?, Is sufficient good enough?
Is more or less justified?
Problem of always being sure – this raises the problem of knowing.
The completeness of evidence /certainty, and the further problem of reliance on sensory perception.

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What about common sense? This is sometimes limited.
For the weak sense of knowing: confirmation: evidence is given in favour.
For the strong sense of knowing: verification: complete evidence.
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(but we will always have to allow for unknown factors), and also here we would be relying on our senses and sensory perception.
One answer here could be probability.
Objections or problems with the standard account of knowing:

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1. Beliefs and perceptions may not be linked.
2. The belief maybe true, but the evidence maybe co-incidentally supportive.
3. Knowledge maybe true without adequate evidence (or may not have been articulated)
4. Being right maybe independent of belief
5. Being right must be trackable to a process of evidence.
6. Each belief depends on prior factors themselves being established.

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Perhaps knowledge can be better viewed as an achievement, in other words a process of enquiry.
BUT WHERE DO WE GET THIS KNOWLEDGE FROM?

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SOURCES OF KNOWLEDGE
1. Perception (through senses or sense data)
2. Introspection (find this within yourself when you search yourself)
Through feelings, interpretation, intention, occurrences, dispositions.
But problems, do we always describe accurately our feelings?

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3. Memory
4. Reason (figuring something out, using reasoning, calculation, understanding etc.)
5. Faith?
6. Intuition (minimal clues, prediction?)
7. Testimony (authority)

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All the above help to provide answers to how we obtain knowledge, but they are all problematic.
What about proof and evidence?
What about science, can science offer any help or way forward for finding out whether something has the status of knowledge?
Approaches to the development of accounting theory

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Science has historically been considered to be the basis of knowledge and furthermore that science only dealt with facts.
The ‘Naïve Scientist’ or ‘Naïve Inductivist’, believes that science starts with observation, which is unprejudiced and then the observation leads to the formulation of a THEORY or LAW.
Scientific Explanation and Purpose

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Observations are singular statements, e.g. Mr Brown passed his ACC3110 coursework.
A universal statement, e.g. students listen carefully in lectures.
In order to derive a theory or law, we must go from the single statements to the universal ones, but how can we do this?

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Well an ‘Inductivist’ Position is that it is legitimate to generalise from a finite list of singular observations to a universal law.
Conditions:
The number of observations statements must be large,
The observations must be repeated under a wide variety of conditions,

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3. No accepted observation statement should conflict with the derived law.
The above is called inductive reasoning:
‘If a large number of As have been observed under a wide variety of conditions, and if all observed As without exception possessed the property B, then all As have the property B’.

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Thus science for the inductivist is a body of knowledge built up systematically on observations, with laws and theories of generality emerging. In particular, the general laws enable EXPLANATION and PREDICTION (this is called deductive reasoning).

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Logic and Deductive Reasoning (for prediction)
Laws, once established have consequences which scientists can use to explain and predict via the reasoning power of deduction.
Facts through observation..induction..laws..and theories..deduction..prediction and explanation.

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Simple logic:
1. All students are clever
2. This person is a student
3. The person is clever
If 1 and 2 are true then 3 is true. I.e the statement are logically valid, but the truth of the conclusion depends on the truth of the premises.

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But with induction there are problems:
Science starts with observation. Therefore observation supplies a secure basis for scientific knowledge, and it is derived from observation statements by induction and this is the major problem.
Is all observation objective?

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Also, inductive arguments are distinct from deductive ones: they are logically valid. An inductive premise maybe true, but the conclusion false.
e.g. All observed ravens are black. Therefore all ravens are black.

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But the premises that ‘a large number of observations over time identified ravens as being black’.
This does not guarantee that the next raven is not blue. If so, then premise (that all ravens are black) falls.
The initial induction was really an inference, not a truth, a series of past observations

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Which logically do not exclude the possibility of a future pink raven. Induction does not lend itself to purely logical argument.
Bertrand Russell’s Inductivist Turkey:
The turkey got fed..observation..variety of conditions..series..observations..justification …christmas eve..???

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True premises, false conclusion
Is any of the above useful for accounting?
Yes, how do we derive theories of stock valuation, making rules, predicting ratios etc,
How do we come up with accounting knowledge? How do we account for depreciation? How do we use the true and fair view?

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Exploring the Significance of the Development of the Conceptual Framework

Unit 3

ACC3135:
Accounting Theory

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ACC 3135

Lecture outcomes:
Exploring the significance of the development of a conceptual framework for accounting.
Evaluate the ‘Corporate Report’ (1975) and the users of accounting information.

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What have we learnt so far?
Accounting is not so concrete and objective.
Various authors have tried to come up with suggestions in the form of theories or imagery as to how accounting SHOULD function in society.

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Today’s lecture will attempt to explore what has been attempted thus far in order to try and solve some of the problems in accounting that we encountered in week 1.

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The idea of a ‘conceptual framework’ is to set out the THEORETICAL IDEAS which underpin accounting.
e.g. Explaining the True and Fair View, Defining conventions and concepts.
A Conceptual framework for accounting?

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This originates in the traditional conventions which were seen as underpinning accounting:
Going concern, accruals, prudence and consistency concepts.
These were originally set out in SSAP2 and then reviewed in FRS18.
SSAP2 (1971) was drawn up long before anyone thought of the term ‘Conceptual Framework’ it was designed to provide guidance on the (next slide):

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‘Disclosure of Accounting Principles’
Accounting has been around at least since C16, but the accounting profession has only been around for 150 years.
It was born at a time when other professions like medical, clerics and teachers were around. All these professions had some kind of theoretical knowledge backing them up, such as science, or theology. This ‘theoretical knowledge base’ was used to aid decision making and reduce uncertainty.

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What did accounting have?
Accountants were trained in the production of accounts and the maintenance of books.
This was ok for the first 100 years but society has changed since then.
How?
Larger population, growth of business, complex organisations with complex transactions, decision-making processes complex and usually linked to financial implications.

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Going back 50 years or so, accounting had no underpinning in any kind of theoretical framework. No science, theology etc.
This meant that there were loop-holes that companies could take advantage of. This lead to major scandals.
The profession needed to be organised, regulated or controlled.
This lead to the emergence of the legal framework and self-regulatory framework.

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The first step forward to providing a knowledge base for accounting was through the introduction of SSAP2.
SSAP2 provided the first opportunity to try and give meaning to practices which had evolved.
This was followed by the introduction of more SSAPs. (rules on depreciation, stock, work in progress etc).

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But there was a problem. Applying these ideas implied you knew what an asset was.
Do we?
Accounting had evolved over time, with a few written rules and was in effect a collection of traditions which were not necessarily understood.
USA had set up the FASB (Financial Accounting Standards Board)…Why? (next slide):

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To attempt to develop a single coherent set of accounting conventions which together would explain accounting practice.
In the UK the Accounting Standard Committee commissioned a report to review the idea of a conceptual framework in the UK in the early 1980’s.

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Professor Macve concluded:
That it was impossible to obtain a conceptual framework but:
That the attempt to do so would help us to organise and understand what we do.
IT WAS SHELVED
What happened next?
The USA moved forward and began developing a conceptual framework.

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The UK rejected the idea originally but eventually more and more countries followed the ideas of the USA including the IASC,
UK also began their own project and eventually in 1991 a STATEMENT of PRINCIPLES was published and rejected.
Eventually a definitive document was published in 1999.

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But why was it so difficult to get going with the Conceptual Framework in the UK?
What does a CF do?
Its very hard to defend what we do as accountants when we are unable to explain why we do it.
One would perhaps expect a framework to express in broad terms:

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Objectives of accounting and of the accounts (to meet the needs of users)
Qualitative characteristics (relevance and reliability)
Definition of elements (assets, liabilities, ownership interest)
What should be included (goodwill, human assets, brands)

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Approach to measurement (historic cost, current value.
An important document ‘The Corporate Report 1975’, suggested that other statements can supplement & extend the basic financial statements.

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The Corporate Report 1975
Started in 1974 by the Accounting Standards Committee (ASC)
Amongst the terms of reference were the intentions to:
‘…re-examine the scope and aims of published financial reports in the light of modern needs and conditions..’
‘…concerned with the public accountability of economic entities of all kinds..’

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‘…identify the persons or groups for whom published financial reports should be prepared, and the information appropriate to their interests..’
The Corporate Report identified a number of user groups:

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Government, public, the Business Contact Group, the analyst-adviser group, the employee group, the loan-creditor group, the equity investor group.
The problem here is that there are different users with different information needs.
Can all information needs of all these users be accommodated through the Statement of Comprehensive Income and Financial Position?

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The Corporate Report suggested that 6 additional statements might be significantly useful to one or more of the user groups:
A statement of value added (showing how the benefits of the efforts of an enterprise are shared between employees)
An employment report (showing size and composition of the workforce)

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A statement of money exchanges with government (showing the financial relationship between the enterprise and the state).
A statement of transactions in foreign currency (showing the cash dealings of the reporting entity between this country and abroad)

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A statement of future prospects (showing likely future profit, employment and investment levels)
A statement of corporate objectives (showing management policy)
Can all this be produced by companies?
Can we expect them to produce this additional Information- cost v benefit?

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An additional concept was mentioned in the Corporate Report – social accounting (discussion later in the module).

Does the above help to improve accounting in anyway? Is the above useful at all to users?

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What is Theory?

Unit 4

ACC3135

:
Accounting Theory

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ACC3135

Lecture outcomes:
Evaluation of theory in accounting

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What have we learnt so far?
Various authors have tried to come up with suggestions in the form of theories or imagery as to how accounting SHOULD function in society.
However, there has been disagreement between authors i.e. Solomons and Tinker as to how these are appropriate and worthwhile for accounting.

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Today’s lecture will attempt to explore what is ‘theory’ and how theories can be used and furthermore what is their role in accounting.

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Oxford English dictionary:
‘A scheme or system of ideas or statements held as an explanation or account of a group of facts or phenomena’

What is a theory?

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On the other hand, Hendriksen 1970, p.1 defines a theory as:
‘A coherent set of hypothetical, conceptual and pragmatic principles forming the general framework of reference for a field of enquiry’.
Can be suggested to be a normative theory of accounting

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Why do we need these in accounting?
According to Deegan & Unerman (2006, page 4):
‘How the various elements of accounting should be measured’
What motivates organisations to provide certain types of accounting information.
What motivates individuals to support and perhaps lobby regulators for some accounting methods in preference to others.

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What are the implications for particular types of organisations and their stakeholders are if one method of accounting is chosen or mandated in preference to other methods?
How and why the capital markets react to particular accounting information?
Whether there is a ‘true measure’ of income.

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We all know now that accounting plays a very important role within society (see Unit 1).
Furthermore, at a broader level according to Unerman & O’Dwyer (2004), the recent rise in high profile accounting failures has raised the level of awareness among non-accountants of some of the significant impacts which accounting has on their lives.

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1920-1960’s development of accounting theory relied on the Process of Induction
(Observations-Laws/theories-Prediction) – (more in Unit 5)
Based upon what accountants did in practice (i.e. stock valuation).
Further careful consideration of what accountants did in practice revealed patterns of ‘consistent’ and ‘prudent’ behaviour (Deegan & Unerman (p.6)
Some history surrounding accounting theories

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However, such an approach is problematic:
If we generate theories based upon what accountants do, then it is assumed that what the majority do is the most appropriate practice.

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Another two approaches became popular in the 1960’s and 1970’s.
Positive theories (normative theories):
Emphasis on prediction and explanation (based upon empirical observation).
Prescriptive (normative) accounting theories:
Based upon what the researchers believe SHOULD occur in particular circumstances.

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According to Deegan & Unerman (p.10) the conceptual framework of accounting is an example of a normative theory of accounting. It relies upon various assumptions about the type or attributes of information useful for decision making. Also provides guidance on how assets etc should be recognised.
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Must be noted that no one theory is the best.
Karl Popper (a falsificationist) suggests that knowledge develops as a result of continual refinement of a theory.
Ex. ‘All Ravens are Black’
If one raven was found to be red then this theory is thrown out.

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New theory: ‘Some ravens are black’.
More precise theories can be proved false through empirical observation.

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The Scientific Method
World of facts -> Recognition of a problem ->
Collection & organisation of data ->
Formulation of propositions & definitions ->
Development of hypotheses ->
Testing hypotheses – > Theory verification,

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Modification or rejection ->
Theory acceptance
In accounting however, practice maybe changed to accommodate theory. The accounting profession, government and policy bodies need to respond and change their practice in the light of new research findings or new discoveries.

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If policy makers and the profession fail to incorporate research findings in the policies they devise it may reduce the potential usefulness of accounting information.

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1. Descriptive
2. Decision usefulness
3. Welfare
1. Theories developed using this approach are usually concerned with what accountants do. Such an approach also enables predictions to be made about behaviour, for example how a particular matter will be treated.
Approaches to the development of accounting theory

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Underlying this approach is the belief that the objective of financial statements is associated with the stewardship concept of the management role (See week 4 Reading List).
Also, the standard setting bodies have been concerned with discussing the varied practices used by accountants and reaching a consensus on the most feasible basis on which to reduce the diversity of these practices.

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2. Derived from the expansion of behavioural research into accounting in the 1970’s.
The American Accounting Association in 1971:
‘The principal purpose of accounting reports is to influence action that is behaviour. Additionally it can be hypothesized that the very process of accumulating information , as well as the behaviour of those who do the accounting, will affect the behaviour of others.
Decision Usefulness Approaches

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In short, by its very nature accounting is a behavioural process’.
3. Welfare approach:
Considers the effects of decision-making on social welfare. Focus on the external social effects of decisions.
i.e. allocation of resources in society, the possession of insider information and its effects on the markets.
3. Welfare approach

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All of these approaches are useful in accounting.
More theories are better than one!

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COURSEWORK ASSIGNMENT

Accounting Theory 2020-2021

This assignment is in the form of a Single or Pair COURSEWORK ESSAY. You must select one essay question from the choice of three below. You must write between 2,500 – 3,000 words. Please adhere to this word limit and indicate at the end of your essay the word count. Any essay which is more than 10% off the word count will not be marked. Therefore the maximum word limit will be 3,300 words. In addition, you will need to reference your work accordingly throughout using the Harvard system. Please also adhere to the University Policy on Plagiarism.

The FINAL coursework essay must be submitted online through TurnItIn.

PLEASE NOTE: Only ONE FINAL submission will be allowed by the system from each candidate or pair (if you are working in pair, please ensure that only one of you submit the work to avoid 100% TurnItIn similarity report).

Please also note: The TurnItIn system can get very busy so please, do not leave submission until the last minute. Plan your time and work accordingly.

Critically evaluate this statement and provide examples to illustrate your answer.

‘The idea that accounting can satisfy different user needs is actually an impossible possibility’.

Requirements from feedback sessions:

You must provide two sides of the point, point for and against.

Make sure the points are critical and in depth, that it follows with examples and evidence provided.

Traditional/Mainstream Methodologies in Accounting

Unit 8

ACC3135:
Accounting Theory

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ACC 3135

Lecture outcomes:
Exploring Traditional/ Mainstream Methodologies in Accounting

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What have we learnt so far?
Some key ideas concerning the knowledge base in accounting.
WHY?

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The point of this is that we want to move onto an exploration concerning how and why we go about generating knowledge in accounting and what is it used for.
(Remember after all, there is the claim that accounting doesn’t have a knowledge base).
In the next couple of lectures of will be exploring the function of accounting

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Research and what purpose does it provide in society.
Starting point for today is knowledge:
We saw that knowledge is a problematic concept that knowledge can be obtained from a variety of sources such as memory, reason, faith, etc.

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The next step was to explore the two main approaches to gathering knowledge (or problem solving). The two together were called Induction. They were made up of the Inductive and Deductive approaches.
The inductive approach relies on observations of the empirical world, these are then used to form explanations and theories about what has been observed.

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The deductive approach can be said to involve the development of a conceptual and theoretical structure prior to its testing through empirical observation and measurement.
(see the Induction diagram)

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Process of Induction
Deductive

Inductive
Source/Reference: Trochim, W.M.K., (2020). Research Methods Knowledge Base. [online], Conjointly, Available at: < https://conjointly.com/kb/deduction-and-induction/#:~:text=In%20inductive%20reasoning%2C%20we%20begin,some%20general%20conclusions%20or%20theories. > [Access 07 September 2020].

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The difference between the two is that:
Facts acquired through observations lead us to theories and hypotheses (induction). Often called hypothesis generating.
With deduction (logical reasoning) we accept or reject hypotheses. We look at the consequences of the theory, and we gather

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facts to confirm or disprove the hypothesis. This acceptance and rejection then helps to explain or predict and is often called ‘hypothesis testing’.
The whole process could well be a cycle. With induction we generate a theory which is consistent with these facts and perhaps can be called the first step in scientific methods (hypothesis generating).

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The deductive method looks at the consequences of these new hypotheses and then confirms or disproves the hypothesis relationship among variables that have been deduced from propositions or earlier theories (hypothesis testing).
Can be considered to be a continual refining process of knowledge.

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There is a huge debate over the relationship between data and theory. The main point here is to understand what you are trying to achieve, as this will ultimately direct the type of research design and methods you should use to acquire knowledge.
There are two main traditions or approaches in research and these are called paradigms.
Philosophy of Research

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What is a paradigm?
‘It is philosophical system whose core assumptions or beliefs about the world are shared by a large number of scientists and which contains a number more or less compatible theories, models or methods’.
These are two paradigms: these are the ‘positivist’ (or traditional /mainstream approaches) and the ‘phenemologist’

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Positivism
Paradigms or approaches (critical /interpretative).
Assumptions:
The world is external and objective
The observer is independent
Science is value free (association with quantitative methods, and numbers, statistics too).
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But is this possible?
Some researchers became unhappy with the above assumptions and began to question whether it is entirely possible to carry out research along the above lines. Thus the second paradigm emerged.

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Phenomenology
Assumptions:
World is socially constructed and subjective, thus only given meaning by humans.
The observer is part of what is being observed.
Science is driven by human interests.

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Qualitative methods are more likely to be used, but can also use a mixture of qualitative with quantitative methods to establish different views of the same phenomena.
So which approach do we use in accounting and accounting theory generation (research)?
Traditionally and historically people who did research in accounting used the ‘positivist’ approach, many still do today, but there is

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Wide acknowledgement that there are some problems with the assumptions behind it. I.e can people be objective etc. therefore, this lead to an increase in research being undertaken utilising the phenomenology approach.
The article by Chua (Check ACC3135 reading list) discusses the problems with the ‘Positivist’ approaches which have been used in accounting to generate knowledge.

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The article by Hines explores the notion of ‘Falsificationism’. This has also been a method put forward by Karl popper which depends upon the point that the falsify of universal statements can be logically deduced from singular statements. If this approach is useful, then science can progress. (This article is related to notions of induction see the diagram – slide 8).

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The main problems with induction is that theory guides observation and experiment.
For example, if you go out collecting observations on something you will need some kind of theory to structure your observations. Due to this problem, another way of thinking came into existence, ‘Falsificationism’ by Karl Popper

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Falsificationism admits that observation is guided by theory, denies the supposed truth basis of observation, admits theories are prior to observation.
Theories therefore are viewed as tentative (mere guesses which are up for experiment) accounts of the universe which are up for testing.
Falsificationism

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Rigorous testing should lead to the abandonment of theories which fail experimental method.
SCIENCE PROGRESSES BY TRIAL AND ERROR.
A THEORY MAY NOT BE TRUE, BUT IT IS THE BEST WE HAVE.

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BUT IT IS POSSIBLE TO ARRIVE AT FALSITY.
‘The falsity of universal statements can be deduced from suitable singular statements’, this is the basis of falsificationsim’.
Science under this idea is seen as a set of tentative hypotheses, which must be falsifiable. i.e. there exists a logically possible observation statement that is inconsistent.

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With a hypothesis.
The statement must be of a form which is falsifiable.
A STRONG theory lays itself open to being falsified; the more precise it is the easier it is to falsify, but if it can not be proved false, then the theory is strengthened.

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A BOLD hypothesis is one which provides many opportunities for being falsified. The precise speed of light is highly falsifiable.
Can you think of any examples from accounting?
If a theory can not be falsified, then progress is allowable. Falsificationsim becomes a way of achievement in knowledge.

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But there are problems with falsificationism, see your articles.
Therefore, what we can see emerging are different approaches for gaining knowledge and for generating theories.

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Exploring the Development of Accounting Theory
Unit 2
ACC3135:
Accounting Theory

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Lecture outcomes:
Evaluate various accounting theories and debates

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What have we learnt from Week 1?
Accounting is not so concrete and objective as we thought it to be, but can be shaped by various views and interests in society, and therefore can be considered to be socially constructed. (See Week 1 Reading List)
Also form Unit 1, the importance of theories in ‘viewing’ and ‘interpreting’ accounting & its function in society.

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Today’s lecture will continue with the idea that accounting is socially constructed by exploring notions of ‘reality’ and how various groups in society have a say in shaping and determining the function of accounting. In particular the notion of reality construction which has its roots in philosophy and philosophical debates.

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We have also mentioned the importance of the ‘True and Fair’ in accounting and despite its prominence in accounting people including accountants have difficulty in interpreting its meaning.
Thus should accounting be bought under public scrutiny? (from Unit 1)

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Different people and indeed different groups of people will have particular views and interests to protect and as such their reality can differ considerably.
(i.e. accountants, users of accounting information and what does the public expect of accountants?)

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Thus reality depends on people and struggle and whose reality can be considered legitimate? And how is this achieved?
Groups with power can legitimate their reality.
This can be achieved through ‘words’ and ‘language’. Words have different meanings according to (historical) context and situations.
Meanings can not be fixed, they are constantly undergoing transformation and are being shaped by various groups such as accountants and pressure groups that want to priorities their reality.

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The media also have a part to play in the shaping of meanings through images and language.
Modern society is made up of ‘different’ individuals who live and work in it.
They are connected to each other through complex relationships each prioritizing their own reality. Due to this, social inequalities and antagonisms exist. (capitalist/worker relationship).

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Once certain issues have been resolved in society other issues are waiting to be resolved.

Accounting practice has to exist within a particular social structure such as capitalist society. The incidence of bankruptcy and liquidation means that capital (finance) is given a chance to move on. It does not remain static.

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Thus in our society, happiness is measured by material objects and as such fraud can happen.
The work of accountants occupies a central place in society, as they are responsible for monitoring the economic health of companies.
Where does the State come into all of this?
The State gives the accountancy profession their status and privileges.

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Why is the State interested in all of this?

The State does not own companies and businesses in society, it needs revenues through tax. The State has a vested interest in Capitalism. If Capitalism does not work then how will it get its revenue?
So what is the relationship between accountancy and the State?

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Historically the accountancy profession was established as a creation of the State. If the State got mixed up in accountancy scandals this meant disaster. Therefore the State was not legitimate.
In cases of fraud and scandals it’s the Jury which in the end tell accountants what is wrong with their practices, then why are lay people involved if accountants are the experts?

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Historically, accountants have had this notion that they are professional.
Professional and ethical?
Suggestions that accountants have a ‘coherent body of knowledge’ follow standards and follow their ‘True and Fair View’.
Is all this really enough?

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Does accounting have a coherent body of knowledge? i.e. What is an asset?
Disagreement exists as to the meaning of fundamental concepts.
Accounting can not be said to be a science –it’s a craft. The user tells the accountant what they want. The accountant is able to manipulate and construct economic reality, according to the reality that is prioritised.

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Accountants even believe in predictions. Consider ratio analysis. Looking at the past in order to make predictions about the future?
If accounting is a science then maybe using ratio analysis for prediction has some justification.
The function of accountants and accounting can not be underestimated in society. They look after the global functions of a business.

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They are able to analyse the various components of a business.
What could be salvaged if the worst happened?
i.e. look at the current situation with regards to the banking industry.
Thus, there could be antagonism between production and finance.

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Accountants construct economic reality. They can be considered to be communicators of reality (economic), but in communicating reality, accountants construct reality (see Hines article week 2’s reading)
In addition, this reality can also be limited and one-sided. Morgan’s article suggests the notion of accounting being objective is largely a myth as accountants and accounting assist in its construction.

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Whose reality are we reporting on and prioritising?
Can reality be challenged and what could happen if it is challenged?
Perhaps the destruction of the myth that accounting is concerned with the construction of objective reality.
The reality that accounting reports on is economic reality.

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So can theories help us to come up with some answers to what accounting is all about?
By using theories we can throw some light on accounting and try to make sense of it.
Are more theories better than one?
With many theories we will have access to different theoretical perspectives. These will give us different and multi ways of seeing.

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We will never be able to find evidence without theory , by using different /multi ways of seeing we can turn commonsense theories upside down.
Commonsense theories?
Some authors have suggested that theories which have been used to explore and make sense of accounting have been shaped by (different) imagery or images over time.

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Solomons suggests that the task of accountants is to provide information which is free from bias. He gives reference to the notion of ‘Neutrality’. Neutrality should be sought, without it, the accountancy profession is under threat.
Solomons puts forward various metaphors in order to illustrate how accounting can seek to promote neutrality (free from bias) ‘Representation Faithfulness’.

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See the metaphor/analogies of Journalism, Cartography, Telephony and Speedometer.
Tinker in his paper takes these points up and suggests that Solomons analogies are problematic on various levels, both on epistemological (ideas and generation of knowledge, issues relating to philosophy) and practical grounds.
Can reality be captured in an unambiguous way?

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Are we not a part of the reality that we are trying to capture?
(see the article of Morgan,1988)
What about the notion that people are different and indeed different groups of people will have particular views and interests to protect and as such their reality can differ considerably.
Thus reality depends on people and struggle,

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Whose reality can be considered legitimate? And how is this achieved?
Groups with power can legitimate their reality.
Can accountants ever be neutral?
Accountants are products of our society, can we and indeed accountants have an empty head?

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How do you make others accept your way of seeing?
Through the way that you act, through morals, ethics and guidelines and adherence to mythical concepts such as ‘True and Fair’.
Also again through words and language.
Accounting information can PERSUADE people to accept particular realities.

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Accountants are powerful, they construct economic reality through their craft.