A Social Critique of Corporate Reporting: A Semiotic Analysis of Corporate Financial and Environmental Reporting

A Semiotic Analysis of Corporate Financial and Environmental Reporting

David Crowther

• Publisher: Routledge
• Year: 2018
• Print ISBN:
  9781138736238
• eBook ISBN:
  9781351735919
• Topic: Social Sciences
• Subtopic: Sociology
• Index: Social Sciences

This title was first published in 2002: This text is concerned with the role of corporate reporting in UK public limited companies. It is a common assumption that the most significant part of any corporate report is the accounting information contained within. This book, however, takes a different view. The central argument is that the purpose of corporate reporting has changed from one primarily of stewardship and accountability to shareholders to a more outward- and forward-looking perspective. The author argues that one of the driving forces for this change in orientation is the discourse of environmental accounting, along with other forces. The book is essentially explorative. The author is concerned with looking at different aspects of the changes in corporate reporting and taking different perspectives in the development of the argument.

Chapter 1
The Function of Corporate Reporting

Introduction

This book is concerned with the role of corporate reporting in UK public limited companies.¹ A conventional view of such reporting is that it provides a means for the organisation, or its representatives, to communicate the past actions of the company, the results of those past actions, and the intended future actions of the company. This is undertaken partly to satisfy legal requirements but also in order that any interested party may undertake an evaluation of the effectiveness of the past actions of the company and the expected outcomes of its future activity.² Depending upon the perspective one takes, this communication may be to the owners of the business (ie the shareholders), the investors in the business, prospective future investors in the business, orto any permutation or combination of stakeholders who are associated with the business in any way. Indeed this communication may even be to society at large on the basis that all members of society are either present or potential stakeholders in the business (Crowther 1996b).

It is a common assumption that the most significant part of any corporate report is the accounting information which is contained therein. This book however takes a very different view of corporate reporting. The central argument to is that the purpose of corporate reporting has changed from one primarily of stewardship and accountability to shareholders to a more outward looking and forward looking perspective. It will be argued that one of the driving forces for this change in orientation has been the discourse of environmental accounting but that other forces are also involved.

Throughout, reference is made to the managers of a business. In the context of this work the term manager is used as a shorthand term to identify the non-owning salary-taking elite who form the dominant decision taking coalition at the centre of the organisation.³ Their respective positions may be as directors or as senior managers, and they may have a token ownership in the company.⁴ Additionally they may not comprise all the people in the most senior echelons of an organisation; their identification as a part of this group is dependant upon their centrality to the decision making process in the organisation and to the control of the use of resources within the organisation. As such it is evident that the precise grouping of such managers may not be known to external parties but will be clearly identified within any organisation, particularly by managers whether within the group or excluded, and this group of managers will vary in composition from one company to another.

The argument throughout this book is essentially explorative and is concerned with looking at different aspects of the changes in corporate reporting and taking different perspectives in the development of the argument. As such it seeks to provide evidence to negate some of the commonly held conceptions concerning corporate reporting. The argument has been developed without the need to adopt any particular position but rather to focus upon the evidence and arguments within the discourse. Thus the standpoint taken in the development of the argument is that simplification through the identification of underlying structures (Levi-Strauss 1961) with its consequent simplification and omission of data and analysis at variance with the central structure is insufficient to fully develop an understanding. Instead the argument of Deleuze and Guattari (1994) that it is the exceptions and variances which are significant to an understanding is used. Hence the argument is advanced from a post-structuralist perspective on the basis that the world is complex rather than simple and is subject to different interpretations from different perspectives.⁵ Indeed it is argued that although post-structuralism and postmodernism are presented as different from structuralism and modernism, they are in fact actually situated within the modernism / structuralism discourse. They are therefore different manifestations of the same discourse, focussing upon the complexity pole of one of the principal binarisms of modernity rather than the simplicity pole. Thus the viewpoint adopted in this book might seem conflicting according to many worldviews but the integrated viewpoint adopted is considered to be coherent and makes for a richer understanding of the subject matter considered. Indeed even the dialectics inherent within structuralism (Levi-Strauss 1972) are accepted and used in the arguments of this book. The development of the argument and the reasons for using the different perspectives selected, and exclusion of other perspectives, are explained and developed within the appropriate chapters within the book.

A starting point tor the development ot the argument concerning the changing nature and purpose of corporate reporting must however be commenced with a consideration of the historic development of such reporting, as an archaeology.⁶

The Archaeology of Corporate Reporting

It has been argued (Crowther & Carter 1998) that the world changed at the time of the Enlightenment into one in which the individual assumed dominance. It is into this world that modern accounting was born on the basis that there was a need to record the actions of the individual and its effects as a basis for the planning of future action. This need was brought about by the need for a separation of the public and private actions of an individual and the need to record, and account for, the public actions because of the involvement of others in these public actions. Thus the Medieval methods of bookkeeping, with the indistinguishability of public from private actions, was inappropriate to this Modern world in which Capitalist enterprise was beginning to arise. Capitalism required the ability to precisely measure activities and this was the founding basis of management accounting. Indeed it has been argued (Sombart 1915) that capitalism would not have been possible without the techniques of double entry bookkeeping and its subsequent metamorphosis into management accounting. This accounting provided the mechanism to make visible the activities of all involved in the capitalist enterprise and to both record the effects of past actions and the expected results of future actions.

The modern world therefore saw the genesis of the modern firm as a mechanism which enabled individuals to combine in enterprise, and to combine capital and expertise from different individuals. It also saw the concomitant genesis of modern accounting in providing a representation of the actions of the firm, as distinct from the individuals comprising that firm. Thus the archaeology of corporate reporting can be seen to stem from the development of the firm as an individual entity as a means of reporting the activities of the firm to the owners of that firm. Thus the Joint Stock Companies Act 1844 imposed upon firms the requirement to maintain accounts and to produce a balance sheet for shareholders. It was expected that such accounts would be published but this requirement to publish accounts was however repealed by the Joint Stock Companies Act 1856, with such accounts being required only for the internal purposes of the owners of the company. Nevertheless the development of the limited company as a form of enterprise necessitated the development of corporate reporting as a means of communication between the managers of the company and its owners. This need became increasingly apparent with the increasing size of such enterprises and the concomitant divorcing of ownership from management of such enterprises. This in turn was one of the drivers which led to the development of accounting practice and the development of corporate reporting. Thus by 1890 such enterprises were being accounted for on the basis of their being ‘going concerns’ as one of the main accounting principles (Newman 1979), with accounting practice being based upon a separation of capital from income and profits from trading, both on the basis of a recognition of the divorcing of shareholding from management of the enterprise.

Thus by the start of the twentieth century it had been accepted that firms had a corporate identity which was distinct from that of their owners and that such firms embodied a presumption of immortality (Hein 1978). Alongside this was the acceptance that control of the actions of the firm implied some liability for the effects of those actions and that the divorce of management from ownership necessitated some protection for the owners. This was achieved through the function of the audit of the activities of the firm and the Companies Act 1900 made compulsory the remuneration of such auditors. Although auditors are legally employed by the company it has never been made clear whether they are effectively employed by the shareholders, whose interests they are expected to protect, or by the directors, who have the managing role in the company. It is perhaps for this reason that the question of the impartiality of auditors has remained a constant source of debate into the present.

At the turn of the century it was generally accepted that accounting served the purpose of facilitating the relationship between managers and owners of a business, through its reporting function, but that the general public had no right to such information (Murphy 1979). Thus the Companies Act 1906 stated that there was no requirement for companies to produce financial statements, although the Companies (Consolidations) Act 1908 amended this to require the production of a profit and loss account and balance sheet. This was further amended by the Companies Act 1929 which required the production of these, together with a directors report and an auditors report for the AGM. Subsequent legislation has extended the reporting requirements of companies to the format seen today.⁷

Such corporate reporting has however been extended in addition to the satisfying of legislative requirements. Thus the period up to the Second World War saw an increasing use of accounting information for analysis purposes but with an emphasis upon the income statement. This period also saw the extension of the directors’ report to contain information about the company which was not to be found in the financial statements. This information was however primarily concerning the past actions of the company as the emphasis in this period remained firmly upon the reporting of past actions as part of the relationship between the ownership and management of the firm. It is only in the post-war period that this emphasis changed from backward looking to forward looking and from inward looking to outward looking. Gilmore and Willmott (1992) have argued that this was a reflection of the changing nature of such reporting to a focus upon investment decision-making and the need to attract investment into the company in this period of expansion. The emphasis remained firmly upon the needs of the company however and only the emphasis had changed from informing existing investors to attracting new investors. Thus Jordan (1970: 139) was able to claim that:

The purpose of accounting is to communicate economic messages on the results of business decisions and events, insofar as they can be expressed in terms of quantifiable financial data, in such a way as to achieve maximum understanding by the user and correspondence of the message with economic reality.

The users of such corporate reports, although no longer only the shareholders of the company and its managers, were however still considered to be a restricted set of the population, having specialist knowledge of and interest in such reporting. The identification of such specialists had however been extended to include both the accounting profession and investment professionals. Thus Cyert and Ijiri (1974: 29) were able to claim that:

Financial statements are not just statements reporting on the financial activities and status of a corporation. They are a product of mutual interactions of three parties: corporations, users of financial statements, and the accounting profession.

while Leach (1975: 13) stated that:

In recent years there have been enormous changes in public interest in and understanding of financial statements. The informed user of accounts today is no longer solely the individual shareholder but equally the trained professional acting for institutional investors and the financial news media.

Thus there was at this time a general acceptance that corporate reporting should be provided for the knowledgeable professional rather than the individual (Mauntz & Sharif 1961) and in order to satisfy the needs of these professionals corporate reports became more extensive in content, with greater disclosure of financial and other information. This pressure for greater disclosure was not however new and Mitchell (1906) argued that the accounts produced did not give an adequate basis for shareholder judgement.⁸ All that has changed is the perception of who the reporting should be aimed at with a widening of the perceived intended audience from managers and shareholders to include other professionals. There was however throughout this time little questioning of the assumed knowledge that the financial information is the most important part of the corporate report. The importance of the financial information contained in the reports has changed however and Lee and Tweedie (1977) claimed that the most important financial information contained in the report was details concerning profits, earnings and dividends. They equally claimed that the economic prospects of the firm are the most important information contained in the report (Lee & Tweedie 1975) but were dismissive of the private shareholder in recording (Lee & Tweedie 1977) that the majority read the chairman’s report but nothing else.⁹

Accounting and Corporate Reporting

The archaeology of corporate reporting until the 1970s is simply the archaeology of the financial accounting aspects of reporting, as little else was considered to be of significance and Hein (1978) identifies the steps in such developments as being (in chronological order):

• The balance sheet;
• The profit and loss account;
• Cash reporting and accounting;
• Increasing disclosure of other financial information;
• The development of the notes to accompany the balance sheet and profit and loss account.

The implication of this chronology is that the development took place in a linearly temporal manner; it is of course accepted that this is a simplification but nevertheless it can be accepted as a model of the temporal topography of corporate reporting.¹⁰ No attention was paid to the development of the report itself, although it was recognised that the orientation of the report had changed from past to future and that increasing attention was being paid to the non-financial parts of the report such as the chairman’s statement. Instead attention was given to the form of accounting and the application of accounting principles and standards. This was reflected by the establishment of the Accounting Standards Steering Committee in 1969.¹¹ The primary focus for the accounting of organisations was financial accounting and this accounting was temporally divided, for reporting purposes, into annual periods to provide the subject matter of the annual report. This itself is of course a social construct of the modern era and Clegg, Higgins and Spybey (1990: 61) claim that:

Another arbitrary – if formally rational – aspect of accounting practice is the choice and weighting of time-frames. Profit is struck on an annual basis, and the time-frame and weighting of anticipated returns can vary greatly. The financial institutions’ separation from, and domination of, manufacturers gives yearly accounts a much greater salience than in countries where financial institutions are made much more receptive to manufacturers’ requirements, and this in turn highlights the artificial distinction between operating costs and capital outlays.

This focus upon financial accounting as dominant for corporate reporting purposes ignores, of course, the development of management accounting for internal control purposes. More significantly the focus upon the ...

Table of contents

• Cover
• Half Title
• Title Page
• Copyright Page
• Contents
• List of Figures
• List of Tables
• 1 The Function of Corporate Reporting
• 2 Measuring and Reporting Performance
• 3 Accounting for Social and Environmental Performance
• 4 Semiology and Statistics: A Methodology for Analysis
• 5 The Environmental Discourse: the Quantitative Evidence
• 6 The Environmental Discourse: the Qualitative Evidence
• 7 Relating Financial and Environmental Performance: Interpretation of the Evidence
• 8 The Future Focus of Reporting: Evidence from Semiotic Analysis
• 9 The Semiology of External Reporting: an Evaluation of the Evidence
• 10 The Future of Corporate Reporting
• Bibliography
• Index