Week 9

Week 9

1. Critical Perspective

   • Considers how the practice of accounting tends to support particular economic and social structures, and reinforces unequal distribution of power and wealth across society. This rejects that view that accounting provides objective and unbiased accounts of particular transactions and events.  The view promoted by researchers operating from a critical perspective is that accounting, far from being a practice that provides a neutral or unbiased representation of underlying economic facts, actually provides the means of maintaining the powerful positions of some sectors of the community (those currently in power and with wealth) while holding back the position and interest of those without wealth.
   • Critical accounting theorists seek to highlight, through critical analysis, the key role of accounting in society. The perspective they provide challenges the view that accounting can be interpreted as being objective or neutral. They argue that accounting does not produce an objective representation of economic 'reality', and seen as a means of constructing or legitimising particular social structures for the benefits of those that currently have wealth.
   • The critical perspective defined
     • Simply interpreting or understanding what we chose to study is not enough. The purpose of the exercise is to turn this learning to the advantage of society, i.e. the promotion of a better society.
     • Social Praxis
       • Praxis within critical accounting theory research envisages a broad understanding of both 'theory' and 'practice' and is generally understood to refer to the assumption that there is a two-way relationship between theories and practices, whereby theory influences social practices (theoretical views and assumptions we have about practice actually impacts practice) while social practices also influence theory.  Theory informs (or provide a foundation for) existing practice and also existing practice informs theory.
       • If social conditions change, theories based on the conditions also change.  Development if different theoretical perspectives can bring about (needed) changes in social practices and structures (such as the distribution of power and wealth).
       • Marxist-inspired approach
         • Marxist-inspired approach in understanding the use of the term praxis  is defined a 'whose central concern is to study and influence the role of free creative activity in changing and shaping ethical, social, political, and economic life along humanistic socialist lines' (De George, 1995). Therefore, the role of theory in changing social practices is more important than the role of changed social practices in altering theories.

2. A Marxist critique of accounting

   • Marxist-informed critique of capitalism: Owners of capital are regarded as having (unfairly) accumulated their wealth by the historical exploiting and acquiring the value created by workers (or labour).  Workers are seen as feeling alienated both from society and from the products thy produce, as their lives are largely controlled by external and impersonal markets rather than by their own free choices.
   • How capitalism is flawed
     • The interest if capitalism is to increase profits (or economic returns to capital). They do this by increasing the level of mechanisation in a factory or office process thereby, replacing the productive capacity of some workers.  The cost of usage for the machinery (depreciation, repairs etc.) is considerably lower than the cost of capital and the machinery could also work for long periods with minimal stoppage (rest) periods.  There is a fundamental flaw in the capitalist system that drive all owners to maximise profits and minimise costs through mechanisation is that: - If some business owners replace labour with machines it would not affect the market for their goods, and therefore makes economic sense; however - If all business owners replaces labour with machinery, the total amount paid to labour overall would decline and the total buying capacity in the consumer markets overall would also decline.  Overall, this would threaten the prosperity of capital.
     • Treating the instability of the capitalist system (symptoms)
       • Marxist believed that capitalism was riddled with inherent structural contradictions therefore, it was fundamentally unstable. Governments and businesses that address the negative symptoms (outcomes) of the instability of capitalism is only treating the symptoms instead of addressing the common cause of all these symptoms - the structural instability of the capitalist system itself.
       • Successfully treating the current negative symptom of the inherent instability of capitalism will not prevent the inevitability of new symptoms (who's nature is unforeseen and largely unforeseeable) arising in future periods. Basically must get rid of the system entirely.
     • Critical accounting therorist
       • The privileges, power and wealth of capital are regarded by Marxist as being unstable, and owners of capital will take action to defend their privileges, power and wealth. Critical accounting theorists regard accounting as a powerful too in both enhancing the power and wealth of capital and helping to protect this power and wealth from threats arising from structural instability of capitalism. Critical accounting researchers want to expose the role of accounting in supporting unequal distributions of power and wealth across society. They believe that accounting information will never act to do anything but support our current social system, complete with all its perceived problems and inequities.

3. Critical accounting research VS environmental accounting research

   • 'Critical accounting research' is grounded in 'Classical Political Economy': social, political and economical framework within which human life takes place. The political economy perspective perceives accounting reports as social, political and economic documents. They serve as a tool for constructing, sustaining and ligitimising economic and political arrangements, institutions and ideological themes which contribute to the organization's private interest.
   • Accountants who attempt to resolve technical issues (such as how to account for environmental externalities) without consideration of inequities in the existing social and political environment may result in an imperfect and incomplete resolution, owing to the acceptance of current institutions and practices - which are seen to be part of the problem itself.
   • Radical feminist perspective
     • Because corporate social reporting (CSR) will be controlled by the reporting corporations and a State which has a vested interest in keeping things more or less as they are, CSR has little radical content. Furthermore, CSR may do more harm than good because it gives the impression of concern and change but, in fact, will do no more than allow the system to 'capture' the radical elements of, for example, socialism, environmentalism or feminism and thus emasculate them.
     • Critical theorists argue that any such emasculation (undermining or weakening) of these movements, which seek to protect and advance the interests of groups or entities often regarded as negatively affected by capitalism, will have the effect of protecting the capitalist system from 'threats' these movements pose to the power and wealth of capital.' Thus, while calls for greater disclosure of social responsibility information would seem to be a move in the light direction, some critical theorists argue that such efforts are wasted unless they are accompanied by fundamental changes in how society is structured.
     • The 'radical feminists', on the other hand, believe that accounting maintains and reinforces masculine traits such as the need for success and competition, and that accounting acts to reduce the relevance of issues such as cooperation, respect, compassion and so forth. Masculinity stands for a preference in society for achievement, heroism, assertiveness, and material success. Its opposite, Femininity, stands for a preference for relationships, modesty, caring for the weak, and the quality of life.
     • Accounting theory developed by Reiter (1995)
       • Economic theories tend to value the characteristics associated with masculine stereotypes such as abstraction, mind, efficiency, equilibrium, rationality, pursuit of self-interest, and autonomy. The opposite characteristics of concretism, body, randomness, humanity, mutuality and connectedness, which are associated with feminine stereotypes, are missing from economic theory. Reiter believes that the incorporation of feminist values in economic theory could potentially lead to a more promising theory.

4. Criticism of critical theorists

   • critical theorists provide arguments that are often driven by a desire to create a climate for change in social structures. By arguing for a change in the status quo it has been argued that 'critical researchers' are often marginalized (powerless) to a greater extent than researchers adopting other theoretical or ideological perspectives. This is because critical theorists often do not provide solutions to what the)' see as perceived problems. That is, they are often 'critical' without providing direct guidance on how the perceived problems can be solved.

5. The role of the state in supporting existing social structures

   • Researchers working within the critical perspective typically see the state (government) as being a vehicle of support for the holders of capital (for example, shareholders), as well as for the capitalist system as a whole. Under this perspective the government will undertake various actions from time to time to enhance the legitimacy of the social system, and thereby protect and advance the power and wealth of those who own capital, even though it might appear (to less critical eyes) that the government was acting in the interests of particular disadvantaged groups. For example: a government might impose mandatory disclosure requirements for corporations in terms of the disclosure of information about how the corporations attend to the needs of certain minorities or the disabled.
   • Information is power
     • It is generally accepted that to make informed decisions an individual or groups of individuals must have access to information. Restricting the flow of information, or the availability of specific types of information, can restrict the ability of other parties to make informed choices. Hence restricting available information is one strategy that can be employed to assist in the maintenance of particular organisations and social structures.
     • Puxty's view
       • Pu..xty (1986, p. 87) promotes this view by arguing that: ... financial information is legislated by the governing body of society (the state) which is closely linked to the interests of the dominant power group in society (Miliband, 1969, 1983, Offe and Range, 1978) and regulated either by agencies of that state or by institutions such as exist within societies like the United Kingdom, United States, and Australia that are linked to the needs of the dominant power group in partnership with the state apparatus (albeit a partnership that is potentially fraught with conflict). Hence we are left with a view that government does not operate in the public interest but in the interests of those groups that are already well off and powerful. 

6. Role of accounting research

   • Numerous critical theorists see many accounting researchers as providing research results and perspectives that help to legitimize and maintain particular political ideologies.
   • Accounting research and support for deregulation of accounting
     • ‘Mainstream’ accounting researchers are seen as providing research results & perspectives that help to legitimise & maintain certain political ideologies. The rise of Positive Accounting Theory (PAT) was made possible because it was consistent with the political vie\vs of those in power.
     • Accounting researchers argued that the implementation of new accounting regulations focused on shareholders and managers rather than society as a whole, which resulted in unwanted economic implications. Basically, they are motivated by the desire of large corporations to change the existing systems and levels of disclosure (changes in required accounting practices solely in terms of the behaviors and interest of the shareholders and/or corporate manager class). The effects of accounting reports directly on other users e.g. governments and unions, and indirectly on 'non-users', e.g. consumers, employees, and taxpayers, have been ignored.
   • Critical accounting interpretation
     • During George W. Bush era (2004), deregulation of accounting practices, since 1990a, was stopped due to public revelations about the large-scale accounting failures (or abuse). These failures led to a considerable reduction in the trust of many investors and workers in both accounting practices, and the reliability of capital markets as a medium for investment. The government tried to rebuild trust in the reliability of accounting information and in the capital markets by increasing accounting regulations and corporate governance. However, the increase in regulations was regarded as serving the needs for large corporations (rather than protecting investors), as it was aimed at sustaining trust in the capital markets on which large corporations rely.
     • Could be regarded by critical accounting scholars as just another symptom of the inherent instability of the capitalist system (as discussed earlier). These researchers would tend to argue that any actions taken to prevent a reoccurrence of this latest symptom of the structural conflicts inherent in capitalism (accounting failures) misses the point that it is the capitalist system itself which is flawed, and the only way to prevent other (different) failures emerging in the future is to replace the capitalist system with a different system in which the weak (employees, the environment, many sections of society) are not exploited by the powerful (large corporations and the governments they support).

7. Accounting practice supporting social structures

   • Conceptual Frameworks (CFs) presume, legitimise and reproduce the assumptions of an objective world and as such they playa part in constituting the social world ... CFs provide social legitimacy to the accounting profession. Since the objectivity assumption is the central premise of our society ... a fundamental form of social power accrues to those who are able to trade on the objectivity assumption. Legitimacy is achieved by tapping into this central proposition because accounts generated around this proposition are perceived as 'normal'. It is perhaps not surprising or anomalous then that CF projects continue to be undertaken which rely on information qualities such as 'representationai faithfulness', 'neutrality', 'reliability', etc., which presume a concrete, objective world, even though past CFs have not succeeded in generating Accounting Standards which achieve these qualities. The very talk, predicated on the assumption of an objective world to which accountants have privileged access via their 'measurement expertise', serves to construct a perceived legitimacy for the profession's power and autonomy.
   • Accountants create a selective reality
     • Accountants impose their own views about which performance characteristics are important and thereby require emphasis (for example, 'profits'). Accountants also decide which attributes of organisation performance are not important, and therefore are not worthy of measurement or disclosure. Despite the fact that 'profits', as determined by the accountant, will ignore many social and environmental externalities caused by the business. For example: If the organisation emits pollution but there are no costs or fines attached to the emissions, no costs will be recognised despite the damage to the environment and society that is potentially being caused by the emissions. Therefore, communicating reality accountants simultaneously construct reality.     
     • Literary theory
       • The common sense view of accounting assumes that the financial reality of an enterprise is 'out·there' prior to its capture in accounting reports. The proper way of ascertaining this reality is thought to be with objective and verifiable measurement processes. This realist correspondence view of the accounting assumes the financial reality of a corporation exists independently of accountants, auditors, and accounting reports. Yet accounting runs up against the same problem that undermined expressive realism [in literary theory]. Different equally qualified professional accountants come up with different financial statements for identical transactions and events.
       • Subjective view
         • Accounting report will tend to present selective and biased information in a manner designed to lead to the construction of a single view of the underlying reality, with this view being the one that most favours management and providers of capital. These academics then argue, based on post structuralist literary theory, for accounting reports to change so they contain a sufficient variety of information to enable different users of accounts to see a variety of sometimes contradictory views of the reality underlying the business, rather than accounting information being selectively presented in an objectified manner to 'force' a single partisan view of the business.
   • False image of neutrality
     • The accounting profession is portrayed (through such vehicles as conceptual frameworks) as being objective and neutral-that is, free from any form of bias. Such characteristics (if true) are apparently beyond reproach. In fact, accountants are perceived as so objective and neutral that they have a reputation for being very dull. But if we are to believe the critical theorists, this 'dullness' is a facade that perhaps hides a great deal of social power. Theses provides an image that accountants merely record and don't partake in social conflicts however, can and do take sides in social conflicts which determines what is expressed in the accounting reports. 
     • Critical accounting perspective
       • Critical accounting researchers believe that accounting practices 'silently' and 'stealthily' reinforce capitalist power among the other theoretical perspectives. Organisations often use documents such as annual reports to legitimise the ongoing existence of the entity. While these disclosures can be explained in terms of a desire by the corporations to appear to be acting in terms of the 'social contract' (which mayor may not be the case), some critical theorists see the legitimation motive as potentially quite harmful, particularly if it Iegitimises activites that are not in the interest of particular classes within society.  
       • Legitimizing disclosures
         • Legitimizing disclosures doesn't just mean that the public has the right to know, if concerns that have arisen in relations to their operations are not aroused (managers ignore, do not perceive the existence of such concerns) then disclosures could be quite minimal. Legitimizing disclosures are linked to corporate survival. Management must provide information when they are coerced (persuaded/forced under threat) into doing so. Therefore, where there is limited concern, there will be limited disclosures.
       • Legitimizing the capital system
         • Classical political economy perspective views one of the key roles of accounting reports as being to legitimize the capitalist system as a whole, and to protect this system from threats arising as a result of the outcomes of the structural conflict inherent in the capitalist system. This is part of the reason why many critical accounting scholars are opposed to much research into corporate social reporting practices.