A Journey into Accounting Thought

Louis Goldberg, Stewart Leech

• Publisher: Routledge
• Year: 2001
• Print ISBN:
  9780415260213
• eBook ISBN:
  9781134510191
• Topic: Business
• Subtopic: Business General
• Index: Business

This book explores the role of accountants in business and society. The final work of Louis Goldberg, Professor Emeritus at the University of Melbourne, it aims to raise awareness of the existence and importance of fundamental issues that are often ignored or by-passed in contemporary discussion of accounting. The sixteen chapters assess exactly wh

Part I

Background

1 Introductory overview

What cannot be understood cannot be managed intelligently.

(Dewey 1928: 3)

Whatever it is that accountants do, and whatever means, procedures, techniques or technology they use to do it, it is a human activity that is concerned with human activity. This is the essential and pervading proposition of this work. It is not a new proposition, but it seems that many writers and practitioners carry out their tasks without adequately appreciating the implications of accepting it. The emphasis placed on it in this work seeks to redress this neglect so far as possible. We believe that, despite the enormous changes in technology in recent years, and its great advances in earlier centuries, the kernel of accounting endeavour is, as it has always been, activities carried out by and for people.

This work is written as an exploration and exposition of ideas. Our objective has been to enquire into and assess what accountants do in carrying out their functions as accountants. The principal methods used are observation, reflection and analysis. This is in some contrast to many treatises on accounting which usually, to a greater or lesser extent, are exercises in revelation and advocacy of a system of ideas which are presented as authoritative propositions with (if such a personification may be metaphorically applied) an ambition to become dogma.

Our purpose has been to raise the awareness of accountants (and, we hope, others) of the existence and importance of fundamental issues which are often ignored or bypassed in much of the earlier and current discussion in the literature of accounting. We believe that all of these issues are significant, and that some, at least, are urgent and warrant immediate attention. We recognize that they may be regarded as controversial and in some respects contrary to the current ‘conventional wisdom’, but we consider that this does not constitute sufficient reason for not raising them now.

However, controversy for the sake of drawing attention has not figured in our objectives. We have aimed at providing at least some constructive suggestions arising from our analysis; we suggest these as pointers of direction of improvement rather than as complete solutions to problems. If they are taken up as such, the ensuing examination, elaboration and adaptation to specific situations will, we believe, improve the performance, status and social credibility of accountants as vocational practitioners. But this is up to them, and depends on their attitude and reliance on their own acumen in formulating and implementing appropriate (and sometimes courageous) decisions in whatever kind of society they find themselves.

We are aware that accountants are looking for solutions to problems which, as time goes on, seem to become more numerous, more complicated and more perplexing almost day by day. We consider, however, that it is important to understand the questions that should be asked before providing solutions to them. If the questions are not understood adequately, they cannot be framed properly; if they are not properly formulated, any answer to them surely cannot have long-term benefit, if it has any at all.

In this exercise in inquiry we may be taken into territory which is unaccustomed for writers on accounting to visit or take their readers to, but our intention has been to go wherever our methods lead us and to see what is there, even if we do not see it all. We are looking for questions which not only accountants may ask of others or others may ask of accountants, but, perhaps most important, which accountants should be asking of themselves.

One of the great difficulties in embarking on a project of this nature is that many of the topics to be discussed are interrelated and could be examined within several categories of classification. Classifying them at all involves some arbitrariness, and is subject to the attitude and purpose of the classifier. We should recognize that classifying in itself does not create anything; it merely brings some things into a perceived relationship with some others. The perception of the relationship is subjective and its acceptance or rejection signifies a subjective or ‘value’ judgement. In many instances, the things so classified have multiple relationships, whence it follows that often more than one basis of classification can be applied to sets of phenomena or occurrences or, even, of concepts.

Similarly and analogously, many of the topics to be discussed in this work are pervasive throughout the field under examination, so that some aspects arise for consideration at several points and there may seem to be repetition and/or discontinuity in places. Perhaps none of them is exhaustively treated even if all the partial discussions were to be brought together. We do not claim to have treated any of these topics exhaustively, but we suggest that we are providing some new and clearly marked signposts of directions in which further exploration may be productive and useful.

The work is set out in four parts, in the first of which we raise what we regard as background considerations, so to speak, for the discussion of basic ideas in accounting, and their implications, which comprise the subject-matter of subsequent parts. In this part, after a brief discussion of the term ‘accounting’ (Chapter 2), in which some of the more obvious ambiguities and difficulties in its use are pointed out, we suggest in Chapter 3 that various approaches are possible in examining the constituents of the subject of enquiry, and briefly indicate a link between two of these approaches which are worthy of emphasis. A few observations are made in Chapter 4 on the function and purpose of classification in an analytical approach, and in Chapter 5 some comments are proffered on accounting regarded as a field of knowledge.

Part II presents our view of the most important perceptions and concepts which govern the main functions of accountants in their vocational work. In Chapter 6 we examine what we regard as the most significant concept in the area of our attention, namely, the unit of experience. This, we believe, turns out to be the individual human being; that is, a living, sentient organism, which is a distinguishable unit with the capacity of being a member of a group of similar organisms with some kind of common objectives or mutual relationships (including, in many instances, interdependence). Whatever interpretation is put upon ‘accounting’ and whatever approach is used in its exploration, it has to do with the activities of beings who (or which) are capable of carrying out these activities. As we see it, while the primary and fundamental unit of experience in and for accounting is the individual human being, individuals can act together in groups; they can be in conflict with others as groups; they can create a concept or set up a banner as a symbol of their communal allegiance and do all sorts of things to make it a symbol of power or influence. But despite all this, we believe that the experiences of people are inescapably those of the individuals as individuals, and that the experience of each individual is, at bottom, privy to that individual alone. Further, the beliefs and attitudes of individuals are developed by experiences throughout their own lives to any given moment. The utmost any of us can currently say about anything is that, in the light of our experience to date (which includes not only our own activities and our perceptions of those of others around us, but our own reading and thinking and any internal experiences of pain or pleasure or ‘spiritual’ uplifting and the like) such a thing is as we see it, here and now. Perhaps this is the most that can ever be irrefutably said, or the strongest view that can or should be proffered with confidence.

Virtually no human being can survive a completely solitary life for long after birth, but, on the contrary, lives as a member of a social group and, in some instances, of several groups with differing common interests. Since much of the accounting process is intended to be communicative, in the next chapter (7) we discuss some of the important aspects of the function and process of communication between such units of experience, with particular attention to the place of language and its often implicit conceptual acceptances. Whatever we may think about the processes of accounting, or the functions of accountants, there can be no doubt that their communicative aspects form a large, inherent and inevitable part. Even if one thinks only of an accounting proposition without recording it in any form, one is engaged in a part of the process of communication; and this is so even if the one person is both formulator and recipient of the unrecorded proposition. In other words, one can communicate with oneself in thought as well as in more permanent ways.

Then follows a discussion of the kinds of activity of our units of experience which are of essential interest in the area of accounting. These are occurrences and ‘ventures’ of various kinds (Chapter 8) and are seen in Chapter 9 to be expressions of relationships which can be distinguished from each other for some degree of analytical exploration. For millennia human progress – or at least what we all have come to regard as progress – has depended upon the interaction of people within groups: families, tribes, communities, nations, professional and international associations. Duties and responsibilities, as well as rights and privileges, attach to each member of a group. Some of the principal relationships between people with which accountants are vocationally concerned are discussed in Chapter 9. Accountants, no less than others, belong to groups.

While accountants are concerned with processes of communication about occurrences impinging upon, and activities carried out by, units of experience (individual or groups of human beings), their functional activities, that is, the accounting procedures, are addressed in each instance to a particular unit of operation which becomes a focus of attention. A unit of operation may comprise the activities and relationships of a specific human being or a group of people, or a conceptual institution or organization recognized as a separate person through a legal or social fiction, for example, a company or a trust, or a hypothetical entity set up by accountants. However, whatever unit of operation may be set up, what accountants are actually dealing with are the activities and relationships, and their results, of real human beings, that is, of units of experience. Some aspects of such a unit of operation are considered in Chapter 10.

In any sphere of human activity people are continually making decisions of various kinds and at various levels. The occurrences which comprise the subject-matter of accounting procedures are the results of and/or the precursors to decisions. While the expression ‘decision-making’ or an equivalent has been widely used in accounting literature in recent decades, it seems desirable to examine from our own viewpoint what is actually involved in arriving at a decision or, for instance, whether ‘making’ a decision necessarily entails its implementation. The function of arriving at a decision is explored in Chapters 11 and 12, since we believe that many of the procedures of accounting are inevitably bound up with these functions of decision-making.

In Part II we critically examine the tripodal cluster of expressions of current orthodox accounting endeavour. These are the so-called fundamental accounting equation, the procedure of double entry, and the balance sheet or any equivalent report. For many years now, the exposition in the study of both the procedural aspects and the theoretical composition of accounting has been traditionally approached through an accounting equation set out in a mathematical form of equating monetary values for assets with either ownership plus liabilities or (what the sum of these two amounts to) ‘equities’ or claims upon the assets. Upon this basis the superstructure of both procedure and theory has been developed. While the components of such an equation have often been scrutinized and discussed at great length by accounting writers, little attention appears to have been given to one particular element in it. This element is examined, together with some of its implications, in Chapters 13, 14 and 15, involving a reassessment not only of the double-entry process of thought about many of the problems that face accountants in their day-to-day activities, but also of the function and usefulness of the major reports.

This leads us to a further discussion in Chapter 16 (Part II) of decisions in the light of this reassessment, and to a consideration of the extent to which advances in recent decades can be applied to the search for answers to the problems that have arisen.

We see the central problem facing both academic and practising accountants as that of being able to see each occurrence as it happens, to examine it and clarify the relationships between human beings which it affects within the particular context of accounting. Accountants may need to exercise some intellectual courage to broaden this context from its present relatively narrow parameters, to include social components which will enable them to develop a structure with the requisite strength and flexibility to face successfully whatever changes will be encountered. Therein lies the accounting challenge.

2 ‘Accounting’ and the activities of accountants

To run a factory properly you need:

(1) An accountant

(2) Another accountant

(Two are necessary because accountants never agree, and it is desirable to see both sides of everything. An accountant left alone soon pines away and dies.)

(Spode 1934: 34)

The term ‘accounting’

It seems appropriate to begin an exploration of accounting by paying a little attention to the term itself, which will lead to a consideration of what accountants do, or purport to do, or are thought to do, in their vocational capacity.

The word ‘accounting’ will be recognized by some as a participle of the verb ‘to account’. It may be and, indeed, often is used in more than one sense. Anybody who purports to say what accounting ‘is’ at all times and places and in all circumstances becomes exposed to a charge of omniscience or omnipotence which are not characteristics of any ordinary human being. The term is a symbol created by human beings in order to convey ideas between human beings, and these ideas are several, changeable and often nebulous rather than specific, universal and limpid in the minds of the people seeking to express them.

‘Accounting’ is the symbol we use to suggest to our audience that we are thinking about a set of practices or activities which are distinguishable in some way from other practices and activities. What are the characteristics by which the distinction can be made and sustained?

The usages to be examined may be approached by posing some questions. If, when the question is asked: ‘What do accountants do?’, the answer is given: ‘They do accounting’, or if ‘What are you studying?’ is followed by ‘I am studying accounting’, or if ‘What is your occupation?’ elicits the reply ‘I practise accounting as my vocation’, the answer suggests the sense to be explored. More than one meaning may well be involved in these usages. Sometimes the context serves to clarify the intention of the user, but often it does not, or not precisely enough to ensure accurate communication, for it is easy for a symbol, such as a word of generalization or abstraction, to be taken – by the reader or hearer who receives it – in a sense different from that intended by the writer or speaker, unless the intention is not only clearly intimated in the first place, but reiterated and emphasized on other occasions as well. ‘Accounting’, when used as a noun, may be intended to suggest a kind of activity, a field of study, that is, an intellectual discipline, or a form of professional practice.

If we are interested in ‘accounting’ as a field of study, we are concerned with understanding both how and why accountants do what they do in the way they do it, and, perhaps, in some aspects of the study, why they ought to be doing something different. This involves seeking a rationale for the activities of accountants, and raises questions of what constitutes a satisfactory explanation of something so that it can be accepted by recipients and, in relevant cases, adopted by them in the furtherance of the field of study.

To say that accounting is ‘what accountants do’ – or even, perhaps, what they should do, which introduces the notion of criteria by which their performance might be judged – is essentially a tautology, and, on the face of it, not very useful as an intellectual instrument. Alternatively, we may wish to suggest to our audience that we are thinking about an area of study which comprises a set of concepts (or ideas or thoughts), techniques (or procedures or systems), rationales (lines of argument) and rules (or guides to or standards of performance) which are normally considered apposite to carrying out the activities which comprise the practice of accounting. This meaning is not merely allied to the previous one, it is dependent upon it. It is this aspect which warrants exploration.

As a form of professional practice, the sense of the term takes on some aspects of both of the two senses already ...

Table of contents

• Front Cover
• A Journey into Accounting Thought
• Routledge studies in accounting
• Title Page
• Copyright
• Contents
• Editor’s foreword
• PART I Background
• PART II Perceptions and concepts
• PART III Constraints
• PART IV Loosening shackles
• Bibliography
• Index