Accounting Theory

Essays by Carl Thomas Devine

Harvey Hendrickson, Paul Williams

• Publisher: Taylor & Francis
• Year: 2004
• eBook ISBN: 9781134390564
• Edition: 1
• Topic: Business
• Subtopic: Accounting
• Index: Business

One of the outstanding accounting theoreticians of the twentieth century, Carl Thomas Devine exhibited a breadth and depth of knowledge few in the field of accounting have equalled. This book collects together eight previously unpublished essays on accounting theory written by Professor Devine.Professor Devine passed away in 1998, prior to the sign

1 Responsibilities, ethics, and legitimacy

This essay is concerned with the development of professional ethics in service institutions. The discussion deals with the transition from simple acceptance of definite responsibilities in functional relationships to the primal teleological problem of selecting among competing groups with their own semi-independent value systems and conflicting ends in view (objectives). In the process, a profession must establish the legitimacy of its own ethical system along with sufficient authority to command conformance.

It is assumed here that the needs of those using the service are potentially conflicting and cannot be satisfied in full so that valuations and rankings are required. The code of professional ethics then becomes an explicit statement of the value system of a profession with sufficient authority to demand compliance. It is at this point that a service organization moves beyond simple acceptance of responsibilities from a consistent outside source and develops the inner dynamics (forces) necessary to establish a profession.¹

The further contention of this chapter is that the chief functions of ethical codes are indirectly related to the need to fill in the areas not covered by legal and other authoritative pronouncements. This view has dominated traditional discourse and perhaps has overemphasized the need for some device to cover the inevitable loose ends. Certainly, the application of broader and more general codes cannot cover all possible instances and must leave some discretion to lower decision centers. Often these lower-level guidelines are little more than functional statements with simple acceptance of responsibilities and rules for carrying out specific duties. With an accepted authoritative hierarchy, the term ethics is too inclusive and it is recommended that the term be reserved for teleological problems that arise from the need to preserve equity among differing individuals. Codes of ethics then become formalized lists of appropriate behaviors to achieve coordinated objectives.

This adjustment of specific value systems to one another and to higher directives is a necessary condition for social living and is related to legislative edicts and to the exercise of authority generally. Thus any functioning society must meld all sorts of conflicting value systems and objectives into a more or less consistent pattern. Members of a democratic society, for example, must be willing to compromise and adjust some of their immediate aims and values, but they must retain sufficient shared values that are compromised with reluctance in order to remain governable and avoid failure from sheer diversity. While this compromising process of continual grinding and adjusting is of later interest, the greater interest here is with the teleo-logic problem of selecting among competing interests and establishing the legitimacy of the professional value system.

With this framework, ethical problems do not arise unless there are choices that involve different individuals. The necessary bargaining process usually means that professional ethics are the result of compromise with all sorts of benefits and sacrifices for the parties involved, and once the code is accepted the sacrifices fall on parties who are forced to modify their personal objectives to conform. Traditional cost–benefit analysis is of little use in these cases because sacrifices often are imposed on certain groups while benefits run to others. (The reader no doubt is aware that ethical decisions often are biased – especially when outcomes favor the person making the decision.) Clearly some controls or alternative processes for formulating professional codes is essential.

Ethics and simple responsibilities

The relationship of duties and responsibilities to ethical systems always has been ambiguous. In the simplest sense, an ethical code can be viewed as a list of responsibilities that are involved in any problematic situation. For example, with effective socialization and definite status levels the appropriate principles of action for role members may be inferred from the customs and usage of the culture.² It seems therefore that so long as the service nature of the profession is understood – the professional mission known – the appropriate code of ethics is little more than an ordinary tabulation of these constructed responsibilities and their corresponding duties. In this view, ethics reduces to little more than establishing behaviors to accomplish the mission.

There is an important relationship between responsibilities and codes of ethics, but to identify them is to be overly simplistic. In the least complicated case this approach reduces to the task of finding a recognized superior (host) and then deciding without ambiguity to accept and follow the superior’s system of values. The task then reduces to tracing probable consequences of decisions and actions in terms of their ability to satisfy the conditions set by the master. Yet even with an acknowledged and unambiguous superior, problems arise in weighing and evaluating unless all consequences can be satisfied. (Consider the endless controversies among Church Fathers over the relative importance of various transgressions.) Furthermore even with a single commander all possible choices and trade-offs can never be specified. Only with a homogeneous profession with identical values and known probability assessments about consequences can the problem be removed even in the simplest cases.

It is widely understood in all hierarchical societies that guidelines limit subordinates at all levels and that much of the work of subordinates is in the form of responsibility for following accepted guidelines. We already have commented on the serious problems of identifying dominant groups and giving appropriate attention to minority demands. A further difficult question arises with any residual freedom that remains at subordinate (professional) levels. If by definition these actions are not covered by accepted rules from above, what indeed does govern the nature of the responsibilities taken? Consistency? Consistency with what? In what respects? Precisely what is the meaning of consistency in this situation? Who is to decide? Even simple responsibility–duty relationships in uncomplicated hierarchies are far from simple.

While the problems of responsibility and duty are difficult enough and often require serious trade-offs and complicated interpretations, the more difficult problems arise with the selection of multiple hosts and beneficiaries. These decisions go beyond simple agency and bring the resolution of interpersonal conflict directly to the front. Teleology with some independent “discernment of the good” replaces simple unilateral trade-offs.³ Indeed, the problem is not restricted to service organizations because all individuals must make choices among numerous and often pressing responsibilities. In the ordinary course of living an individual must make choices among responsibilities to his/her spouse, children, church, fraternity/sorority, and to humanity itself. Political responsibilities come from townships, counties, states, and from federal citizenship. Clearly, simple responsibilities soon become ethical problems of the first magnitude. Once again the tired old question: What does it mean to be a human being?

Finally the obligation to use abrasive forms of persuasion – even in major political protests – needs exploration. From the usual perspective, the obligation to protest arises from dissatisfaction with value impositions from some superior force and from a powerful need to modify these values for greater consistency with alternative value systems. A prime example is afforded by war trials where broad humanitarian values are in conflict with the values of a political state. The right-to-revolution arguments usually assume that the possible atrocities of revolution are preferred over submission to the values of the dominating group.

Interpersonal – multiple hosts

The intention here is to support and reinforce my belief that the term “ethics” should be restricted to potential and actual interpersonal conflicts.⁴ Essential to the argument is that so long as a service institution has only one outside host, no ethical judgment is needed except in the rudimentary sense of weighing responsibilities and regulating internal relationships. In short, the contention is that professional ethics develop with multiusers so that choices must be made in an interpersonal arena. It is this task of judging and compromising that demands ethical judgment and develops the heralded “dynamics” of service institutions. Thus, a profession needs to develop its own system of values to evaluate and influence the objectives of these diverse users. Clearly, the individual value systems of each legitimate and contending party cannot provide an acceptable standard so that some relatively independent set of value standards is needed to guide the necessary choices. As with all guidelines the ethical codes of all service professions must yield sacrifices (costs) to some users and benefits to others. Clearly, the calculation of these costs and benefits require some relatively independent standard.

The need for ethical codes to preserve equity among differing but deserving groups usually is taken for granted and often is set forth as the generalized objective for all service professions. Nagging questions remain. How do the leaders recognize equity and go about attaining it? Is the term “equity” like the concept of justice too idealized and vague to serve as a practical standard? Can any part of cost–benefit analysis be utilized? It is of course possible to adopt the self-interest ethics of one of the contending parties, but the accepted practice has been to construct a new composite value perspective from the needs of all and to use this perspective to assess individual sacrifices and benefits. This new perspective and its rules for application become the new code of ethics for the semi-independent profession.

The distinction between a list of responsibilities and a code of ethical behavior is similar to the usual distinction between functional and teleological inquiry. It has been emphasized that in the former case, the value system of the host is accepted and the consequences of various behaviors are examined to determine whether they further accepted objectives. Clearly, even in the simple functional case, responsibilities and therefore professional responses may be conflicting and some choices must be made about appropriate duties to discharge acknowledged responsibilities. Furthermore, expected consequences for each alternative may not be clear so that even uni-host decisions may become complicated. In the second case (teleological choice), the situation is more complex and some assessment of the common welfare is needed. This discernment of the common good is essential for creating a master value system and for assembling the specifics that make up codes of ethics.

In this context, Arrington and Puxty are correct in criticizing my previous approach that overemphasized guidelines for satisfying an accepted master rather than the more difficult task of selecting (constructing) a composite leader. The important area for the application of values and ethical discernment is clearly in the process of constructing a host from deserving claimants by weighing, ordering, and melding their worthy objectives.⁵

Some major accounting writers (e.g. Churchman and Mattessich) have insisted that the objectives of a profession are exogenous and determined largely if not entirely by the objectives of outside groups. It certainly is true that any service profession or activity exists to serve the needs of others and is not isolated from its environment. But too often, advocates of this position insist that the accounting profession respond primarily by accepting responsibilities from a single authoritative source. With these conditions, ethics for the profession becomes little more than a listing of duties and regulations for internal relations. Certainly little or no room is left for developing the coercive and authoritative inner dynamics that usually are associated with professional integrity. In practice, the selection of a leader requires value judgments and the construction of a composite. In the process, some potential leadership groups are favored and others disadvantaged with the objectives of all legitimate groups often compromised and blended. In D. R. Scott’s terms, the accounting profession has a force of its own and is “fraught” with problems of fairness, justice, and truth for all contending parties.⁶

In the absence of completely homogeneous influences, some power must reside in the profession. It is no longer correct to think of a profession as a senseless errand boy working for a single special interest group. It is tempting to argue that the older and more established the profession, the stronger its independence and its inner dynamic power. This relationship so far as I know has not been researched, and the hypothesis that professional power varies inversely with the homogeneity of shared values may be more interesting.

It is now fashionable to argue that the contents of professional codes of ethics must be consistent in some sense with the objectives of those with broader or stronger authority. Precisely what does consistency mean in this context? Presumably, it means that the consequences of following professional guidelines must further the objectives of some constructed (composite) authority in some way. It is likely that influential groups make compromises through the usual horse-trading process, and turn over the coordination and enforcement of compromise guidelines to the profession. The profession in turn delegates some freedom to lower groups. Each subordinate group then enjoys some limited areas of freedom and thus is able to exercise some power. The individual and his/her conscience represent a code of ethics at its lowest level.

Individuals are members of all sorts of influencing groups whose objectives and ethical values must be melded into their own systems of personal values. The goals of these organizations may be in conflict and the individuals themselves may integrate them poorly. The result may well be an extension of the old-fashioned concept of anomie with persistent but ambivalent goals and insufficient institutional means to satisfy them. In any case, an individual’s own conscience usually is composed of bizarre mixtures of values from church dogmas, family customs, secret-society rituals, school indoctrination, media hype, and pressures from state and country. Certainly, possibilities for poorly integrated personalities abound in all pluralistic social groups.

Establishing legitimacy and authority

A code of ethics must possess authority to be an effective device for social control, and it must establish credibility to gain effective authority. Credibility in turn depends on persuasion to convince members that the professional code expresses their own interests. Inasmuch as some interests have been compromised and sacrificed, establishing legitimacy becomes a semi-logical process by which the consequences of following ethical guidelines is shown to be consistent with the objectives of a more important entity or need. While the usual doubts about the meaning of consistency and specification of probable consequences are important, our interest here is with the process of convincing affected parties that the suggested code of ethics should be supported despite some undesirable consequences.

The following discussion deals with justifications that appeal to semantic and methodologic devices, divine revelation, natural law (with biological and physical models), human psychology, social environment, legal and political precedents, and even to humanity itself.

Ethical justification takes numerous forms with semantic arguments being among the more popular. No one denies that words and verbal expressions help shape concepts of reality, but semantic referents often are so vague that they should influence only the most unsophisticated scholar. Unfortunately, they often end meaningful discourse and convince many otherwise sophisticated accountants. Terms such as honesty, truth, justice, fairness, equity, and clichés such as “level playing field” often are used with success even though each is ambiguous and depends entirely on perspective.

Arguments based on such symbols may have limited usefulness. They express vague ideals to which a profession might aspire, but in logical terms they tend to beg the question or encourage errors of composition and in pragmatic terms they often are nonoperational. A negative factor is that they may stop both discourse and inquiry before an understanding is reached. Thus, they often are a means for closing discourse or at the very least for limiting relevant discussion. What may seem fair and just from one perspective may seem terribly unfair and unjust from another – even atrocities such as wars may appear to be just in the minds of all combatants.

In summary, idealized semantic terms may or may not direct relevant discourse, but they clearly avoid the specific details that ethical codes are designed to control. Broad semantic arguments become useful to pragmatic professions only when they include operational instructions for adopting an appropriate perspective and some method for evaluating competing values. Unfortunately, excessive concern with specific operations sometimes can lead to a “methodolatry” in which the outcomes of applying methods become substitutes for ethical discrimination.

The most persuasive support for legitimacy may come in the form of a divine revelation that sets guidelines to which all cooperating codes of ethics must conform. Some heavenly power provides a detailed plan for the universe and conveys the specifics to human beings through various forms of revelation that include semantic devices such as the Word to announce and direct spiritual intervention. This master power also monitors the actions of its charges and metes out punishments and rewards so that its desires become authoritative.

Despite serious efforts to make the master ethical system explicit, some differences remain at the human level. To some the master becomes a personality who sometimes intervenes in a direct physical sense. To others the power is exerted through personal feelings, soul stirrings, and unswerving faith. Still others feel that a universal power already has settled on an Eternal Law that accounts for every action in the entire universe in a deterministic manner. The existence of this eternal plan is supported by faith and relevance, and sometimes is transmitted to humans by logical processes. The logically deducted representations are incomplete and imperfect, but together they constitute the Natural Law. With or without logical deduction, the Eternal Law is transmitted by revelations that require hermeneutical interpretation. An individual’s own interpretation then provides his/her conscience and intuitive feeling for right and wrong with which all codes of ethics must conform.⁷

Ethicists with less mystical grounding but in need of secure foundations have created a less spiritual basis for justification. This concept of nature (and the resulting natural man) has its own inexorable laws that are no less coercive. Many consider these natural laws to be more convincing than religious edicts because the consequences of nonconformance are more clearly revealed through direct observation. Common observation, along with interpretation and understanding, do indeed suggest powerful external forces to which human ethics and behavior must conform. While these influences often are aggregated and used to support derived natural laws, they seldom are associated with spiritual leaders and supernatural foundations. Thus, many traditional scientists seem to be unaware that science itself is based on sheer faith and are content to abandon all theistic overtones. Their faith depends p...

Table of contents

• Cover Page
• Title Page
• Copyright Page
• Editor’s preface
• 1: Responsibilities, ethics, and legitimacy
• 2: Leading accountants Ethical backgrounds
• 3: Addendum Different views of natural man
• 4: Hermeneutics and communication theory1
• 5: Deconstruction as methodology
• 6: Comments on academic publications
• 7: Comments on higher education The Florida case1
• 8: Rational models and subjective probability assessments1