ORIGINAL

l\lethodological Preconditions andProblelTIs of A General Theory

of Accounting

THE last fifteen years of accountinghistory seem to be part of a transi-tion period replacing the loo:oe tradi-

tional approach hy mun: rigufous meth-ods .. ·\lthough spanning oyer consideralJletime this transition continues, most likelytransgressing into the eighties, and prom-ises to cause a major break in the evolutionof our discipline. A change of spirit, muchmore than computerized technifjues, is themain force behind this trend. The distinc-tion between '\'hat I call the modern,rigorous or generalized approach, on one-;Ia~<-;~il(lthe loose traditinnal or particlI-larizeda[>proach: on"the ;)-tll;;:;5 st~i:;'1a-

~,[Tzed--by-tilCtonowing five points:c '~1. Formulation and utilization oi well

" <,.,-' defined terms and empirically llleaningfulconcepts versus employment of vaguely

II tkscribeu cxpressions :lnd nUllllpcraLiona[r \ ~oncepts.I '\,1'1'''' 2. Adapt:J.tion of general scien tilic toolsf '1 ",':·d .. ,and methods irom mathematics, philoso-

'JJl4~" "~'.,,1' phy, economics and the behavioral sci-;1 \ ~Jences to accounting theory versus par-

I \ticul.ar~za tion and u tiliza tion o.f a n:l rrowlyspeCialized conceptual framework.

\ 3. Orientation toward specific account-ing and management information models

y for specific objectives versus dogn;alicacceptance of a unique, overall or unde-fined purpose.

.J.. Systematic testillg procedures throughwhich alternative accoullting mouels andhypotheses (for one and the same objec-tin) elll be tested as \0 their relevance,reliability, accuracy, cnicicncy, timelinessor perhaps overall prolitahilityl versusmen: testing of stewardship and fulfillmentof convcntions. ...-- .... -

S. Integration of ,;pecii~l:accounting areasto a coheren t en t ity \TrSUS collectingloosely connected conwntions, dogmas,

The author wishes to npn'" hi, gralittllie to the("allad:t Coullcil as wel! :<s the l.''';\Trsity of l.lritisuColumbia (Killam Swinr :\ward) for supporting- thisproject.

I In the s'''mner or [')(,7 tl ••. ,Luth"r made a publicplea at the Second Internalio",,1 Cunkrence on .\c-cnuntinc: Education (see f>r"cmfig~s, PI'. ·16·53) thato'uch systematic testin!!: pnJCed",,'s and their epistemo-lo~ica! rnund:<tinns be exp!"red (i"<lt"ole:1S or the pres-ent paper), This plea seem,; tu h:<\T r<lllllUresponse in aseries of pertinent artide:;; Thomas If. \Villiams andC. JI. Gril1in, "On the ~ature of Empirical Verificationin :\ccountin;;," .·lbaClts (Decemher 1')69), PI'. 1-13-i8;Robert R. Sterlin.e:, "On Theory Conslruction and Veri-!ic,,-tion," 'I'm: !\CCOUl'T'~G Rnll':w \July 1970), PI'.4·l-l-57; T. II. Williams, W. II. Heaver, D. L. ~rc-non:dd, K. F. Sknuscn an,/ R. ~ierlill~, "Report of thet ~onllnitlt.:e on Accoun lill~ 'rhenry Conslruction andYcriticat;oll," THE .\ccnl'''Tl~G RE\'\EW'-SUPP!Clllentl" Vol. ·1(1,1971, PI'. 50 ·7').

Richard JIattessich is Professor, Facultyof Commerce aud J)llsillCSS .Adlllinistrati01~at The University of nritisil Columbia.

rllks ;1111\ iSl,btt-d jlarticlIbri/,<'<\ Ill'HkL,:!Frum time to time the nl'l'<1 arises to

l<l\,k ;d P;\st rl'sl'arch acti\'it v from the]>ir<1':-;pn:-;pcctive with the ain; of an ov"r-all S\ln'v}', :)u(h is the intt'nt of th\' 1<)1-I,y\\'in~ investig~ltion which tries to lit re-cent rC5'earch efforts into this live-pointpattern, ;ll1d \\'hich examines major melh-o<IIJ]"gi(-:t! and rdated prohkl11s slill 10 besoh'cd lll'lore lhis phase oi transition is('(jl11pktl'd, l'rior to such an investigati(lllit lll;lY lie oppqrtune to av()id some mis-u ndns ta nl Iings.

It is neither my intention to deridetrtlJitiOIl<1l tlcco/llitillg ,\'hich I recognize ast he basis of [u rther encka \'nr5, nor do II'll-ad f"r eliminating va IU!.: judgemclllsf rum our \liscipline. IIowever, till: persis-knl'\~ of value judgements raises tl1e::<:ri-ous question "'hether modern accounting\\'illl)(_, as dogmatic as traditiun;t1 account-ing is .. \ normative approach which npli-C:ltl'S ib value juJgem<:nls alld r<:duc<:sth<:m to more basic levels, which further-more applies systematic testing proceduresto reject inadequate systems, could wellbe regarded as a nondogmatic approach.

It would be extravagant to regard ac-counting as a pure or cognitive science.But neither medicine nor meteorology norepgineering are pure sciences; they are ;l0tconcerned with finding scientific laws outwith serving specific practical purposes ina pragmatic fashion. These disciplines aregenerally recognized as ap pl ied scieuces oe-cause they operate with such scientificconcepts as hypotheses, diagnoses, models,theories and systems, and endeavor: tosubject these hypotheses, diagnoses, mod-els, theories and systems to systematictesting procedures with the serious inten-tion to eliminate those theories which theaccepted criteria indicate as inadeq~atefor their practical objectives? Since pro-gressive accountants and manucrement in-oformation systems experts also operatewith models, theories, systems, and the

lik,- ;11\,[ illl·'- Ih,'." Ifill :I:-,-pin' !o\':;llclnll,r,'rigorou:-,- It-sling pron'dures, tlw g:lp iw-1\\'I'l'1l ;1\ \\J\llltill,~ and otll<:r ;1]ll'lil"d'\ 1-

\'I\I'\:S nl:l:' 1101 Ii\" as great as S(JlIIl: of I,ur~-\d\l.':lgut".-:' ~lI,~~gt·~l.

The ultimate purpOSI: of accoullting i;;

to provi(k managcnalllllormatlOlI syskl1ls~;;Itis[a\'tory or "'Tn optimal [or S{WIilic~Th;;tlTii:; shlluld hi: done Ihn>1lghsyslematic ksting and by means or allinslrunll'lllal theory COIl\\lH:nSllr;t!e 10ueeds as wdl as scientific meallS al Illlrdisposal, hardl)' appears to h<: an unrea-sonable quest.

(;).1. TER~lli':I)\.I)(;IL\L ;\,,(J CO:--:CI':I'TU,\L

~ !)IFFICULTIES

f)t/iJIcd I'aslls Uwlcjilled Terms

Traditional ~\l'coullting, as must uLhnacadl'mi(' disciplines, partly borrows ,'011-

I'l:pls i rlJlll lIei.~hburing (lisciplillcs ;tllIll':lrtly <T(·;tlCS its OWll \'OllClVtn:l! aj'\':I-ratus. Yet, a(:!'ounting thl:ordicians rar<:lymake all drortlo indicale dearly whidl oftheir terms are primitive (hence borrowt.:dfrom outside) and which are derived fromthese primitives by means of nominaldelinitiolls within the accounting theoryproper. This vagueness is one reason whythe boundaries of traditional accountingtheory and its subareas are blurred and

2 A strict distinction between a "specific model" men-tioned under (3) and an "isolated particularized model"mentioned under (5) ou~ht to be made. \Vherea5 theformer is cmbedded in a theoretical framework and thushas common bonds with other specific models, lhe par-ticularizcd model lacks lhis connection and is theoreti·cally isolatcd.

> "As we shall see in some detail, applied research hasthe advanta!;c of bein!; able to formulate criteria of itsown efftciency in terms of the objectives for which theproblem is being investi!;ated. Because of its lack ofspecific objective5, pure research cannot formulate suchcriteria as explicitly," Russell L. Ackkott, SciwtiJicill el/lVd-o/Jtimi=ill~ A ppliai Researc!/ [)ecisions (JohnWiley & Sons, Inc., 1962), p. 24. Also "In scicnce,whether pure or applied, a theory is both the culmina-tion of a research cycle and a !;uide to further research.In applied science theories are, in addition, the basis ofsystems of rules prescribing the course of optimal prac-tical action," Mario Bun!;e, Scientific Research II -Th4Search (or Truth (Springer Verlag Co., 1967), p. 121.

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why accounting itself is usually describedinstead of defined. For example the wellknown "delinition" of accounting ofieredby thc Committee on Terminology of theAmerican Institute of Certified PublicAccountants~ is neither a nominal, nor ananalytical, nor an operational definition;it does not set sharp boundaries to theterm "accounting" nor docs it prescribeoperational niles by means of which onecan test whether something is an account-ing system or not. Indeed, the "definition"would fit other areas of business adminis-tration equally well.

Although the failure to distinguishbetween primitive (undefined) and de-fined terms leads to confusion, it might bea lesser evil than the failure to discertl he-tween interpreted and unintcrprcled con-cepts and calculi.

Illter preted 1'CTSIIS Uni I/ta prdt:d Co 1/((' pts

\Vhen-as a ddinilion is a n·!:lIi"nship.between tt.TlllS or I,d wn:n a krill alld itsconstituents, an intcrpret;tlion is a reb-tiol1ship uclwt:t:n a phenomenon (iact oridea) and the term (symhol) reprcsentingit. General concepts require specitic anti,in many cases, empirical intl'rprclations.In accounting, uniortunately, thc dis[inc-tion bclween inlt:rprcled and llilintn-preted concepts is even more nl.'glecledthan that between detined and urrdciinedterms_ COllccptS like income, ~:'c(/lth, ~'(I!/lelllld -measure Ilre treated as tllO/lr)1 they 7:!ere'well interpreted COl/ecP/s, hut at !lest aninterpretation is merely implied, and inthe case of scholarly controversies the twoopponents often imply different interpre-tations, usually without rcalizing it.

In this regard the example of the proh-ahility concept offers a valid analog frolllwhich accountants can learn much. Forconsiderable time hot controversies werefought over the question whether prob-ability is an objective-empirical, an ob-jective-formal, or a subjective-empirical

concept. This controversy was resolvedafler Kolmogorotf created the general andthus uninterprcted probability conceptstipulated by his axioms of the probabilitycalculus. Then differellt Titles of iJlterpre-tations were' devised in such a way thatunder one set of rules the relative fre-quency concept (an objective-empiricalone) emerges, under another set the degreeof conlirmation (an objective-formal con-cept), and under a third the Bayesianprobability concept (a subjective-empiri~cal one). Later even more interpretationswere devised.s \Vould it not be possible,in a similar fashion, to devise certain con-ditions or common traits for the conceptsof income, wealth, vahll: and other ac-COllllling conn:pls in (lrdn to create lirstgencral uilinterprdni 1"<1Iln:pts and thenrules of interpretations for specilic needs?In this way, much clarity l'Ould he hroughlinto our disciplilll' ;lIHI 111;111)' a futile con"t r(lvlTsy c011ld he ;1v ••id."d.

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Systematic attempts to <Teate a seriesof clearly delined tll1inlcrpn:kt1 conceptsof the major accounting notious and alter-native inkrprctalions (for specilic or stan-dardized nl'eds) of l';lch cOllcept have notLJeen made in our discipline. But in an in-formal, vague and incomplete manner suchinterpretatioJls han; becn customary intraditional accounting for a long time. Onecould wl'l! argue Ih;tt the acquisition costbasis, the market value basis and thepresent value basis are nothing but "inter-pretations" of a general unintcrpreteclvalue concept. Hut the essence of theIlldhodological achiev('llH'nl of distin-guishing hetween uninterprdcd and inter-preted concepts and theories (calculi) lies

, ..f ((ollllting Terminology Bullciill No. 1 (AmericanInstitute of Certified Public Accountants, 1961), p. 9.

6 See Mario Bunge, SciOli/fie Research I-The Searchfor System (SprinF;cr Verla!; Co., 1967), p. 428.

in the spccifietlioll of the conditions rllar-acterizing every unin terpretcd concept.These rules of interpretation are rarely, ifever, spelled out in accounting. Thus thepractice of distinguishing various speciesof one anu the same super-concept as en-countered in our discipline, is merely afirst step in the direction of fulJiliing thisimportant methodological prerequisite.

However, credit has to be given toseveral academic accountants for havingconcerned themselves with this or theclosely related problem of oper;ltionalism.Bedford, recommemls the utilization of alloperational income concept:The fact is that there is a need for one overall gen-eral concept of income in our society. The formu-lation of the set of operations to be used in devel-oping such a general concept of income is by farthe most difficult aspect of such ;t process oftheory formation.6

Yet, he (apart from distinguishing be-tween business income and "income as ageneralized means to gratify a variety ofhuman needs"i which he deems beyondthe concern of accounting) seems to regardthe generalized (business) income conceptas an interpreted instead of uninterpretedconcept, and thus docs not aim towardsfurther interpretations. For him the opera-tional rules are what we called the cOlldi-tions of the general concept, while in mod-ern methodology the operational ruleswould be equivalent to the rules of inter-pretation of the specific concepts.3

Devine, too, recommends in his essay"Principles, Theories, Systems-:\gai n"that "principles be operationally Jc[liledand treated as guidelines."~ Explicit men-tioning of "semantical rules" (i.e., rules ofinterpretation) in the recent accountingliterature is made by Sterling in his paper"On Theory Construction and Veriiica-tion"IO and in the" Report of the Commit-tee on Accounting Theory Constructionand Verification."Il Yet, the actual signifi-cance of the rules of interpretations· for

cn:atillJ: su!lconn'ph and slIhtlworit·s frolllthe general concept or theory respectively,is not emphasized in these writings.

To attain better conceptualization inaccounting and management informationsystems, comprehensive and systematictaxonomic research is indispensable.l~ Suchresearch will have to formU!;lte oath th~conditions of each of the uninterpretedaccounting concepts as well as the rules ofinterpretations of all the specific and stan-dardized subconcepts. Such classi6.cationalrese:trch is tedious ;md hy far not as glam-ourous as model building, allli it mighttake some time before the Linnaeus of ac-counting emerges. Ho'.yever, if biology wasin a position to classify over one-and-a-half million species of plants and animalswithin a complex taxo!\omic system ofkingdoms, phyla, classes (wi t h subclasses),orders (with suborders and sections),families, genera and species, then it shouldnot be impossible for accounting to pro-duce a dassificational structure of a fewdozens or hundreds of concepts and sub-concepts.

~\I)Al'TATION OF SCIEKTIFIC METHODS

JIathcmatical and Ecollomic COlltributions

The greatest progres:; of the transitionperiod, maJ~ thus far, lies in adapling eco-nomic ideas and ma.thematical methods or

'Norton Bedford, Illcome /)ctul1li"atioll Theory(A{ldison-\Vesley, 1965), pp. 8-9.

, Ibid., p. 11.S Bun!;c, Scientific Research i-Tire Scarch jur System,

Pl'. \.)<)-53.\J Cart'r. !)cvinc, HEssays in A{'cu\inling,H VoL lIlt

Tallahassee, 1971, p. I. (i\lil1le"l~ra!,hnL)10 Rohert Ie Stcrlin!;, "On Theory COllotruction and

Veriflc:tlion," 1'111·: Accu1J:sn:<G REVIF:W (July 1970).Pl'. -+44-57.

II Williams et ;tl., pp. 50-19.12 John T. \Vheeler, "Accounting Theory ;tnd Re-

sc;trch in Perspective," Tin: AccilUt>Tl:SG REVIEW(Janu<try 1970), who :tIs<>pleads for "more effectiveclassilicaLion schemes" of accounting (I'. S). See alsoOracc Johnson "Tow;trd an 'Evcnts' Theory or I\C-counlin!::' Tm: ,\("cou:-:n:-;c; j,EVIF:W (Oct"her 1970),who a5scrts lh~t t~a prirnary need frlr a.n accounting-theory is taxonomy ... " (1'. (14), and idem. "OnTaxonomy and Accounting Re:iearch," TIIF; ACCOUNT-I:SG REVIEW (January 1972), Pl'. 6+-H.

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techniques to accouilting. Since the detailsof these achievements are sufficiently wellknown, I can restrict myself to classifyingand sumnnrizing these achievements froma mcthodological point of view. l\ccord-ingly we might distinguish between thefollowing categories: (1) Prcsent value andinvestment calculations, (2) structuralstudies by means of matrices, vectors and

I netw'orks, (3) linearvrogramming, simula-tionand computer,applications, and (4)

i statistical applications and valuation of,inwnnationY (.

(-'jPresent value and investment calcula-Stions.are no novelty in accounting. Their

applications have to be credited to tradi-tional accounting but were ultimately de-rived from economics. It is Irving FisiH;r'smerit to have interpreted capital theoryby means of accounting concepts. The

. fundamen tal significance of this Fisherianinterpretation lies in a new and muchbroader vision of our discipline; in otherwords it was the first and perhaps mostimportant step to\vard a. more ~eneraltheory of accounting. But it was such aradical innovation that some accountantsstill refuse to grasp several of its conse-quences. N everthcless, strides were llla(leby Canning,!·lb.ter by Moonitz and Stach-ling, and in more recent times by :\Ibach,Bierman, Hansen, Honko, Jordan, :Moo-nitz, Sprouse and others to c\abora. te theconsequences of the present value ap-proach within the conlines of accounting.

I The justification to include here this kitHIof development is best supported by twoarticles that appeared almost a uecade

i ago.IS Both Corbin and Philips spoke of a"revolution" in our discipline; indeed theyconcentrated chiefly on the economic valu-ation facet just mentioned, without enlcr-ing into other revolutionary aspects thenvisible on the horizon.

The insight that the matrix notion is ageneral and convenient means for depict-ing the structure of the basic accounting

models had far-reaching consequences forbusiness accounting, as well as beyond it.Above all, a rectangular matrix reveals thedouble c\assificational structure of ac-counting in a more generally understand-able fashion than does the language oftraditional bookkeeping; and second, ma-trix algebra lends itself to the solution ofmany allocation problems and relatedissues of micro- and macro-accounting.I5Some experts regard this matrix mode ancw "paradigm" by means of which ac-countants and economists nowadays vis-ualize the basic structure of economicflows. This claim may be reinforced by the"official" adoption of the matrix mode innational incolllcaccounting. The United0:'ations, for example, hased their recentpublication A System of National Ac-counts17 entirely on the matrix mode ofaccounting .

A further advantage of this mode growsout of its mathematical generality. Due tothe latter the matrix mode can easily becon verted in to the vector mode, or net-work mode, or any other equivalent (yet,occasionally more convenient) way oflooking atan input-output structure. Sincemost accounting and management infor-mation systems possess such an input-output structure this new paradigm may

13 For n. categori.zation of traditional research seeNorton M. Bcdford, "Rcscarch Projects in Account-in~," in Tnpics in tl cr"'lIllill~ and Plill",iH~, Cll. hy R.:\lattessich (Mono:,:raph "'n. 5 of the Faculty of Com-mcrce and Businc~s :\<ll1linisl rali,m, University ofBritish Columuia, 19i I), i'p. 1&-25. .

" J. n. Cannin:.:, The l:collumics of Ii ccO/wtallcy(Ronald Prcss, 1'J2')).

" Donald A. Corhin, "The Revolution in Account-inp;," THr; i\CCOF:'-:TI:-;C REVIEW (October 1962), pp.62&-35; and G. Edward Philips, "The Rcvolution InAccountinl'; Theory," TilE A.CCOUNTll'G REVIEW(Octobcr 19(3), Pl'. 6c)6-iO~.

" R. Mattcssich. "Tm\'anls a Gencral and AxiomaticFoundation of :\c,otmt:U1C\' ·-\\'ith an Introduction tothc Matrix Formulation of Accounting Systcms," Ac-coulltillg Research lOctober 195i), pp. 328-55, offeringa gcneralized scheme applicable to micro- as well asmacro-economics.

t7 Srudies in J[cl!lOds, Series F, No.3 (Oert. of Eco-nomic and Social i\fTairs, SLltistical Ol1icc of the UnitedNations, 1968).

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become an indispensable element in thedesign of a general theory bf accounting,even where no actual double classificationis practiced. . f

Apart from these methodological aspectswhich have been treated extensively clse-where,18 the more algebraic aspects of thisnew paradigm have inspired a series ofexciting accounting contributions on mi-eroeconomic input-output. models, theirtheory and further generaliiation. Startingfrom the interindustry model and the in-sight that Leontief's basic idea of t'llter-dependent commodity transfers betweenproduction areas- need not be restricted to!he macro-economy, several authors madesignificant contributions by applying ma-trix algebra to traditional cost accounting,budgeting and other areas.19

Linear programming, simulation andcomputer applications in several respectsare related to the research area indicatedin footnote 19. They, too, constitute acomprehensive body of mathematical stud-ies that greatly contributed to more rigor-ous analytical thinking in accounting.Both linear programming and the matrixcalculus are part of linear algebra, andalthough the matrix application of ac-counting is strongly oriented toward allo-cation procedures, it too may be geared toplanning and budgeting, like linear pro-gramming and systems simulation.20 Thusa peculiar feature of our "transitionperiod" is the milch stronger orientation ofaccounting tOLI.!ardprojectio ilS of future c(:o-nomic et'ellts. Traditional accounting didnot lack this element (already iifty yearsago did 1\'leKinsey lay the foundations toa systematic and comprehensive businessbudgeting),21 but during these live decadesbudgeting has never been more than a sideissue of minor importance. Even todaysome experts wish to exclude budgetingfrom accounting proper. But it is this neg~leet of budgeting which has deprived tra-ditional account1l1g of its ~nost important

task, namely to answer the question "Howwell could management have performed ifthey would have allocated resources in thebest feasible ''lay?'' Numerous recent de-velopments of linear programming andsystem simulation, however, indicate thatthe control function as well as the explora-tion of alternative factor combinations, bymeans of budgeting and management in-formation systems, is becoming a domi-nant issue of modern accounting.22 Budget-

18 Richard Matlessich, AccOtmti,1g alld AllaIyticalMethods (Richard D. Irwin, Inc., 1964) and Die wis-sellschaftlichen Grmldlagen des RU!l1lWlgswesens (Ber-tclsmann University Press, 1970).

•• Neil Churchill, "Linear Algebra and Cost Alloca-tion: Some Examples," TilE ACCOUNTING REVrEW(Octoher 19M), PI'. 89+-904; Thomas 1L Williams andCharles 11. Cril1in, The !of athematiwl lJimwsion of .tic-CO,,,,tinl: (South· Western l'uhlishin~ Co., 19M} and"Matrix Theory and Cost Allocation," TilE ACCOUNT-ING REVIEW (July 1964), Pl'. 671-i8; Rene P. Manes,"Comment on r.latrix Theory and Cost Allocation,"TIrE ACCOUNTING REVIEW (July 1965), Pl'. ~3;Shawki M. Farag, InfJ1lt·Olltf!ftt Allalysis: Applicationto Business AccOttnting (University of Illinois, 1967)and "A Planning :Model for the Divisionalized Enter-prisc," TilE ACCOUNTING !{r:VIEW (Afril 1968), PI'.312-20; Yuji Ijiri, "An Applicalion 0 Input-OutputAnalysis to Some Problems in Cost Accountin"," .llan-agemmt Accounting (April 1968), Pl'. 49-61; John LeslieI.i\;ngstone, "?\1atrix Algebra and Cost Allocation,"TIlE AccomlTl:SG REVIEW (July 1968), Pl'. 503-508and "Input-Output Analysis for Cost Accounting,Planning and Control," TIlE ACcom,;TING REVIEW(January 1969), PI'. 48-64; Gerald A. Feltham "SomeQuantitative Approaches to Plannin~ for Multiprociuc-tion Systems," TIlE ACCOGNTING I{EVrEW (January19iO), Pl'. 11-26; Trevor E. Gambling, "A Techno-logical Model for Use in Input·Output Analysis andCost Accounting," J[allagement Aceollllti"g (December1968), pp_ 33-38; Trevor E. Gambling and AhmedNour, "A Note on Input-Output Analysis:. Its Uses inMacro-Economics and Micro-Economics," THE Ac-COUNTING REVIEW (January 1(70), Pl'. 98-102; B.Sigloch, "Input-Output Analysis and the Cost Model:A Comment," THE ACCOUNTINGREVIEW (April 1971),pp. 374-79; John Butterworth and Berndt ••.•.Sigler..h,"A Generalized }''1ulti-Stage Input-Output Model andSome Derived Equivalent Systems," THE ACCOUNTL'lGREVIEW (October 1971), Pl'. i~16.

2. On the other hand many linear programming appli-cations in accounting are related to allocation problemsvia the broad issue of transfer pricing. Beyond that,there exists an interesting attempt to apply linear pro-Rramming to overhead allocations: see Rohert S. Kaplanand Gerald L. Thomson, "Overhead Allocation via:Mathematical Programming Models." THE ACCOUNT-ING REVIEW (April 19i1), pp. 352-64.

n James O. McKinsey, Budgetary Control (RonaldPress, 1922).

22 G. G. Mueller, ed., A Nr:w Introduction 10AUOfInI-ing-A Report of the Study Group Sponsored by thePrice Waterhouse Foundation (\971) recommends to

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ing and similar projections into the future,made in the applied sciences, correspondto predictions in the pure scicnces. ThusGreenball and other authors who claimthat "it is incorrect to speak of the predic-tive ability of an accounting method or anaccounting number"23 might well. be cor-rect, but they say only half the story ifthey neglect to point out the project~veability (i.e., the capacity of a fictitiousprediction under more or less unrealisticassumptions) of accounting systems andother systems of the applied sciences.Grcenballmay abo he corn:cl byassertinJ..;that an acclllllltin~ mcthlld is not a "hy-pothesis" as long as he means a cognitivL:hypothesis. But accounting and other ap-plicd sciences are crowueJ with instru-men tal or purpose-orien ted hypot!H'S('S21which arc llO less slllljl'd to SYSklll:llil'll's(in~ pron'dlln's (sl'e Ihe 1;ls( sed iOll ofthis paper).

Statistical applications and valuationof information is the fourth area ~rcallyenhancing I'igur and qu:!lity of accountingresearch. This group spans a broad spec-trum of which several subareas might bedistinguished: First, the application ofstatistical sampling and hypothesis testing(especially in auditing and control chart-ing) ; secOIH1, the econometric study of costbchaviour;z. third, deci~ion and informa-tion theory anti the evaluation of iniorma-tion;2~ and linally, all other statistical ac-counting applications difftcult to classifyotherwiseY

Statistical sampling and con trol chart ingare subareas of m'ost immediate practicalusefulness, while the econometric determi-nation of cost curves and the like seems tobe the most neglected one within account-ing. The third subarea, however, the eval-uation of accounting information touchesthe very core of our discipline and appearsto have the greatest future potential (forfurther details see a later subsection "TheValue of Information").

',llyticaJ)ie uois-s (ller-

:\llllca-~J-:VIE\V.IIlS '''d'I 0,

>-if and'l'Ot;~"T-:-lanes,

!";ltinn:'(,\()-.1.\;,'/'",1;.11,. 1%7)Icntcr-, pp.

, 'utput," Ma1l-III l.t·~l\r,'a lion."';0.1-508!,untin~J1,EVU':\V! "Some,;>roduc-;:ltlU"rr'rechno-"is andt'ccrnher,\hmccllOses in

'Ill-: Ac-l\ll; B.:-Iodcl:

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'lCCCHlnl-1 uy the .,ends to

111easurement Theory

finally, the application of basic conceptsof modern measurement theory ,to ac~counting may contribute substantially toconceptual clarification of several account-ing issues. Accounting describes past andoccasionally future events, and thus is a_special kind of measurement activity, atleast for those who identify measurementwith quantitative description. The con-ceptualization of measurement theory goesback to 1\1. von Hclmholz and NormanCampbell, hut assumes special significancein the social scil'nn:s with the conlrilJutionsof Stevens and other social scientists ormathematicians.~~

reserve considerahle "pace f"r 1he discussion of "TheHlId.l~t·1 as.a ('olnpll-lwIIStn' I'bhllill!: I »a'vin-," pp, S;5:-\. 'rltt' "'{qu)rt oi Illl- ('lllllltliltIT ('11 ;\(,cllllntlU~.~alldIlllollH:tlinn SvstelllS," 'rifF .\I·I·fq::-';"'I~(: {{EVil':\\'

SlIl>l'll·"Il:"tto'Vol. ·Ih. 1'171. "-'l'licitly !,oints lIut wilhre":tru to traditional uccountill::: (in contrast to modernac~ounting) that "the inform:ttion was not d~signed forpl:tnnin::: purposes nor nece<s:lnly for measunn::: perfor-manc~ a~aingt or~ani7.:tlionaJ objcctivC5," p_ 291.

" i\l. N. (;rcenhall"The ('lcdictive-AI,ility Criterion:TIs Relevance in Evalu:Ltin~ .\ccountinl; Data," Abacl/s(June 1'.171),1'_ 6_ . .

14The essence of these ills/rumental IJ)'po/lteses IS ,!ls-cussed in detail in Richard :\l:tttessich, hIS/mlllcl//illRt:IJ,5<Jllil/g alld lJecisillll .')ystel~ls-A_ Jf e/IJodology o/litcAdmil/;strcttive i/lld otlter A pplted SCiences. forthcomml!;.

~5 Joel Dean, J[a'wgcrial 1':coJlomics (Prentice-Hall,Inc., 1'1.11), and J. Johnston, Statistical Cost Analysis(:\lcGraw.llill, Inc., 11)60).

:. See especially G_ A_ Felthanl, "The Value of Infor-malilln "TilE ACCOUNTING REVI};W (Octoher 1963), pp.(>i';'1--96;Baruch Lev, ,I ,'c01I-11/illglIllIllll/orma/ion TheoryAmerican t\cclluntinJ.( '\S50C_, 1')(,1)); G. A. Feltham andJ- S. Demski, "The Use of l\lntle15 in Information Eval-uation," TilE ACCOUNT1:-lG REVIEW (October 1970), pp.68-1--96' N. C. Churchill, G. A. Feltham, T. J. Mock,T. R. Prince, H. M. Sollenherger, F. Kaufman, "Reportof the CnmmiUce on An:Ol!nlin~ and Information Sys-tems," TilE ACC0UNTlIW RE\'IEW-Supplement to Vol.46, 1971, PI'. 289-350, T. J. :'-fock, "Concepts of Infor-mation Value and :\ccountin:-:," TilE i\CCOU:ITING lZE-VIF.W(Octoher 1970, PI'. 765-78.

71 For example, Rooert E. Jensen, "A Cluster A~aly.sis Study of Financial Performance of Selected BusmessI'irms," TilE ACCOUNTING REVIEW Uanuary 1971), pp.36-56, and many others .

•• S. S. Stevens, "On the Theory of Scales of Measure-ment," Scieltce, Uan.-July 19,16) pp- 677-80 and manysuhsc'luent articles; C. H. Coomhs, "Theory andl\letho<ls of Sociall\£easuremcflt," in Research IIfethodsi1l the Behavioral Seiwas, cd. oy L. Festinger and D.Katz (Dryden Press, 1953); C. H. Coombs, H. Raiffaand R. M. Thrall, "Some Views on MathematicalModels and Measurement Theory," in Decision Process,

li"liiiiiil~IW5liiij':'•• iii?i-lilim.iiE7iiMliIiiil1i-iii-ii1-- i1-'IIIiZiilril- ~iiiilliii.tllli!-iiiii'lin.I"- ttirnilll ••• -----~':': •. ::_.::_.;'I:;,••:-:.:;:••·;•• m"lill.~Tl~;:,,;:;~·;i~i:.i~l:·

Stevens' scales were fIrst applied toaccounting in 19S9~9 and further conceptsof modern measurement theory (e.g~,"measurement by fiat") w~re introducedto accounting in subsequent years.30 Someauthors, like nierman,31 recognized thesignificance of these new measurementconcepts at an early stage, but, in contrastto the mathematical developments (men-tioned in the preceding subsections), ac-countants in general only slowly absorbedthese ideas. Among the sixteen papers onaccounting measurement presented at the1965 Seminar on Basic Research in ACCOUlit-ing Measurement32 there was only a singleone33 quoting Stevens' work ane! mention-ing explicitly its accounting applications.Although today this conceptual apparatusis more frequently referred to by account-ants,3! I have the impression that miJrewidespread and profounder familiarity'with it could avoid many misunderstand-ings still occurring in our litcrature.35 Inaddition, it would help synchronize ac-counting literature with management sci-ence and the scientific approach in general.But instead of following this moderntrend36 several accoun tants concerned withmeasurement theory clung more to traeli-tiona I ideas or tried to develop their ownnew measurement concepts for accounting(i.e., retrospective, contemporary and pro-spective measurement) .37Suchexpforations,of course, should not be rejected and mayhave a double justification: On one side itmight be that some measurement conceptspeculiar to accounting arc needed; on theother side these newly developed conceptsmay \VeIl stimulate measurement theoryin general and find broader acceptance,provided they are in tune with the generaltrend.

Bclza~,ioral Research

Accounting, conceived as a normativediscipline, cannot rely on formal proposi-

tions alone. On the contrary, apart fromsome normative statements, the :;ubstanceof accounting ultimately ought to be madeup of empirical (positive) propositions.Since most of the latter are of behavioralnature, it falls to behavioral accounting toformulate specific empirical premises

ed. by Thrall, Coombs and Davis (John \\"iley & Sons,Inc., 1954); \v. S. Torgerson, Tlteory and J(cJ,ltods ofScaling (John \Yiley & Sons, Inc., 1958); C. W. Church-m:tn and P. Ratoo"h, elk, M casurclI!wt Deft/li/iolls alldTheories (John Wiley & Sons, Inc., 19.19); J. Pfanzagl,Theory of ill easllrcmenl (Physica, 1968).

~. H.. Maltcssich, "J\lcssung, Vorausberechnung \lndlluchhaltung," Xci/selIYi!l flier IWIldrls-.cissf1lscltaJlliclteFo,schllll.~ (April 1959), Pl'. 179-94.

30 R. :\1atk'Ssich. "To the Problcm of :\feasuremcnt~n1l1Statisli~al Estinlatinn of Errors of Accountin~,)).\f IlIlagclIlcJlt J /I/cT1l<l/it>J/l/{,VoL 2, '''':0. 2, Pl" Ji-5~, :mdidem., .·lcw/tillillg and .I/lalytical.\leihods, ChI'\. .;, Pl'.52-96.

31 Harold Bierman, ":\fcasu[ement and Accounling,"'I'm: Accou:->T1:-':GREVIEW (July 1963), pp .. 101-07.

" Reprinted in Resr:arc!t in A ccOllllting J[ellsllrrmw/,ed. by R. K. Jaedicke, 'r'. Ijiri and O. Nielson (AmericanAccounting Association, 1966).

JJ Carl Devine, "Some Conceptual Problems in Ac-counting Measuremenls," in Ibid., Pl'. 13-27.

,. For exampic, "2.3 1Ieasurement Theory" in Reportof the Commilll'e on Foundations of Acc()untin~ ?\fca-surcment, TilE ~\CCOUNTINGREVIEW-Supplement toVol. 46, 1971, Pl'. 309-12 and 322-23.

:c.The lenl;thy controversy hetween Professor Cham-bers and myseli in Cost al/d M a"ageme,,/: Ra~'mondChamhers ";\ssct :\fcasurcment and Vahmtion"(}Iarch-April 1971), Pl'. 30-35, and idem., "?\fe:lsure-mcnt and Valuation, Again" IJuly-Aul;ust 1971), Pl'.12-17; R. :\l auessich, "On the Perennial llisunder-st:lndin~ of As,ct l\fcasurement hv ~!eans of 'PresentValucs"" (:\l:trch-,\pri[ 1970), ami idem., "On Furthcr:\Iisundcrstandings About '1\lea~uremenl' anti V:tlua-tion; 1\ Rejoinder to Chamhers' Anicle" (\!:Irch-,\pril!'Ji!), PI'. 36-42 and idem., "Assct ?\fcasurcmcnt andValuation-A tinal Reply to Clumhers" (July-~\ugust1971), pp. 18-23.

3'l The concept of "measurement by fiat" (Torgerson)referring to mC;l!;UfCnlcnt based Oil prag)'w.1ic JrY,bothesesinstl'ad of scienlific laws (as in case of "fundamcntal"and "derived measurement"), is I)f extrcme importancefor accountant" hut rarelv fullv underslood. Further-more lhe concepts of "fon(lamenlal" and "derived mea-surement" long-estahlisheu in measurement theory arcoften misintcrpreted by accountants or confused withprimary (direct) and seconuary (indirect) measurcmen t,respectively. This scems to be the case in the otherwiseexcellent "Report of the Committee on Accounting andInformation Systcms" (1971, pp. 309-10), since ac-countants hardh- evcr deal with eilher derived or funda-menIal mcasure;nent but with 171(OS1lre",e111by fiat.

r. Y. 1jiri, The F01l1ldaliol1s of ..t cCOlw1i1l1( .If easure-me"e Prcntiee-Hall, fnc., 19G7i, and "Report of theCommillee on Foulll]ations of :\ccounting :\fcasure-ment," Tnr: ACCOUNTINGREnEW --SuPl'1cmentto Vol.46, 1971, especially 1'r. 26--32.

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II I aceounlintii'lM'II ~1.:e~::E.•~ ..'..,'··'l,: iS~'tties,:dW~~j'I f books ~U{ L.'L r J' 't " ••.,.:;•.~'i i wn ten, and at

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is subject t<J:::.:I.argument is nolb~h;l\ioral accofaulty or sup.havioral rcsearaccountall ts t

'havioral scienlabout methodethe lack oi sufha vioral re;:c;lItants. Furtherto draw theucounting has Ican be no douinquire in to tvand economicand into thethe users of aeless unanimit,question wheinto the bchacounting 5t:1.t\into the Leha

A further isarises from it:and concerns"The ideal wetions of accOl:of economicsto express thlterms of PSj

:l\Jattessich; ~lethodologicfd I'rccondi t ionsji

:ornnce

which ultimately shoulll fit into a moregeneral framework. '

The emergence of this "behavioral ac-counting" indeed is one 'of the'main fea-tures of our transition period. AlthoughArgyris undertook highly original be-havioral studies in budgeting38 as long astwenty years ago, it prob~bly was Stedry'saward-winning dissertation3D which gavethe signal to the new trend of looking ataccounting from a behavioral point ofview. Especially since the middle of thesixties, dozens of accounting papers andbooks with behavioral implications werewrilten40 and anthologies were compiIcd ..1l

This border area still is in its infancy andis subject to many controversies. The chiefargument is not so much bunched againstbehavioral accounting as such, but againstfaulty or superficial applic;ltion of be·havioral research within this area.4~ Non-accountants trained thoroughly as be-havioral scientists occasionally complainabout methodological deficiency as well asthe lack of sufficient generality of the be-havioral research carried out by accoull-tants. Furthermorc the question of whereto draw the boundaries of behavioral ac-counting has been left unans'wered. Therecan be no doubt that this subarea shouldinquire into the sociological, psychologicaland economic foundations of accounting,and into the related bekwioral traits ofthe users of accounting iriformation.<l3 Butless unanimity exists with regard to thequestion whether it also should inquireinto the behavior of the, producers of ac-counting statements anci! systems or eveninto the behavior of accounting II/corisls .

A further issue of behavioral accountingarises from its interdisciplinary character,and concerns the problem of reduction:"The ideal would be to express the founda-tions of accounting measurement in termsof economics and administrative behavior,to express the foundations of the latter interms of psychology and sociology, the

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foundations of these again in terms ofbiology, then in terms of chemistry, andfinally in terms of physics."-14

But at present, we are far away fromsuch an ideal, and there are dangers inpresent attempts to reduce accounting tomorc "eknwntary" foundations. As de-,sirable as this reduction and integrationwould he, it cannot be donc unless: the'pertinent "laws" of the more basic disci-plines are perfectly understood and as longas the causal connections bctween ac-counting phenomena and the "laws" ofthese basic disciplincs havc been fully dis-closed. As long as this is not the case, ac-countants must do what the chemists didbefore the periodic table could be explainedin terms of subatomic particles; they mustconstruct self-contained theories on thebasis of what is known to them. Thenslowly, step by step (with the progress oftheir own discipline as well as that of themore basic disciplines in which accountingis embedded) they will be able to extendtheir theory by reducing it to explanationsin more basic terms. I do not think that

2. C. Argyris, The Impact of Budgets on People (Con-trollership Foundation, 1952).

2' Andrew C. Stedry, Blld~d COIl/rol and Cost Be-ITorinr (Prentice-Hall, Inc., 1960).

•• We may refer to a comprehensive pertinent bibl·i ography recently arranged by E. H. Caplan, J. C.llirnberg, T. J. Burns, J. J. Cramer, T. R. Dyckman,W. N. Gentry and R. J. Swieringa for the "Report ofthe Committee on Behavioral Science Content of theAccounting Curriculum," TUE ACCOUNTINGREvIEW-Supplement to Vol. 46,1971, especially 1'1'.260-84. Thusfurther detailed citations seem to he superfluous. :

•• William J. Bruns and Don. T. DeCoster, cds., Ac·counting and lis Behavioral Implications (~IcGraw-HillCo., 1969); John W. Buckley, cd., Contemporary Ac-cOlm/ing and Its EllvirolllllCltt (Dickenson PublishingCo., Inc., 19(9), Section 7, "Accounting and BehavioralScience," I'p. 399-445.

<Z Don DeCoster and K. V. Ramanathan, "The In-fluence of Indi\'idual DilTerences, Task Attributes, andControl System Characteristics on Goal Setting andGoal Accomplishment Behavior," Seattle, 1971 (Mim-ellgraphed), also raise this kind of criticism in the firstpart of their paper.

<J See Michael SchilT and A. Y. Lewin, "The Impactof People on Budgets," TilE ACCOUNTING REVIEW(April 1970), Pl'. 259--68. '

•• Report of the Committee on Foundations of Ac-counting Measurement" (1971), p. 48.

this could he done by accountants con-jecturing their own sociological, psycho-logical or economic postubtes on a whole-sale basis. The foundations of the morebasic disciplines must be worked out inearnest search by their own experts. Onlythen may accountants borrow them andtry to add their own modest contributionsto these parental disciplines. "Startingwith grandiose synthetic Yie"'s instead ofworking in a piecemeal analytical way, ischaracteristically nonscicn titie .".15

In concluding this section, I would liketo ~mphasize that the adaptation of scien-tific methods to accounting, so far, pre---lorninantly sterns from "mathematicalaccounting." But "management scientistsand systems analysts during the last dec-"ade have gained two important insight{:,(1) I that epistemological research is indi~llper{sable for probing the fundamentdlproblems of the management sciencd~and (2) that model building, especially tl~econstruction of systems, may impart ne~vvistas to epistemology ... also, accoU11-tants must determine which accountingsystems should be accepted for a specificsituation and which are not applicable.These central questions concerning thetheory and practice of accounting ulti-ma tel)' belong to the science of knowl-edge."4s Thus, in their fascination withmathematical techniques, accountants seemto have neglected important philosophic

.aspects. Yet, there is growing awarenessthat this situation has to he remedied, andrecent A.-\:\-research reports·l~ and articlesindicate that accountants are perceivingthe most critical spots within those episte-mological issues.4S The remaining part ofthis paper shall outline the major problemsto be soh'cd in this area.

f1;) SPECIFICATION OF OBJECTIVES

~e need for different accounting modelscould not remain unperceived in tradi-

tional accounting. The early distinctionbetween financial and cost accounting, andthe later distinction between tax account-ing and accounting satisfying various com-mercial laws, are the first modest steps inthe direction of that kind of specialization'\~~i~~-u}linE!!£:h:_SOUldresult in a huge.taxonomic structure. A further, but mucfl~re 'blurredevlclellce lies in the wearycontroversies auout tile correct accountingmethod as to valuation basis, realizationcriterion, depreciation and allocation meth-ods, classification schemes, and so forth.It is "blurred," because rarely is the ques-tion asked "which instrumental hypoth-eses or rules are appropriate for a narrowlydefined purpose and which for'another one,and so on?" Accountants rather behave asthough there existed only one overall pur-pose of accounting; Thus the inquiry wasdirected toward the one and only correctset of rules;· something bound ·to lead to'numerous futile discussions and misunder-standings. However, the fact that suchcontroversies are still ~ngoing49 may indi-cate that the root of the problem lies muchdeeper than in mere misunderstandings ora onesidedness of this scholar or that. Theheart of the problem might rest in tile dijjj-

<>llulll;e, Sriwlific Research I, (l9()7), 1'. 30 .•• "Report of the Committee on Foundations of Ac-

counting Measurement" (l97l), p. -lO." "Report of the Committee on Accounting Theory

Construction" (1971).•• "Until recently, accollntill~ theory laq:;ely con-

sisted of a set of competing a priori arguments aboutthe relative merits of alternative accountinl; n:ea5ure·ments. Currently there is a growing body of researchthat is attemptin~ to estahlish an empirical tradition inaccounting theory development and verification. A fullunderstanding of such research re'luires that the pur-pose of such research be viewed within the context ofthe history of the scientific method." "Report for theCommittee on Accounting Theory Construction," p. 77.See furthermore \Yilliams and Gril1in. "On the Natureof Empirical Verii,cltion in Accounting," PI'. H3-78;~tallcssich, "Some Thoughts on the Epistcmology ofAccountinl;," I'roacdilll',s, Sccolld f IlltnralioII 'Il COllfcr-t,lCe 0'/ ..!c(nllllliug Fell/calioll (London: 1970), pp. 46-55; and Devine, Essays i" Accoltntirzg, Volume 3(mimeogr., Tallahassee, 1971).

•• R. Mattessich, "The Market Value Method Ac-cording to Sterling," A baclls (Australia), (December1971), pp. 176-93.

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culty to fC1i!t ••)....J;ii:... _:Iiposes, ar:d :" 11lIi~;"lrypolJ:tsrs. ::::

This t3.:'',,: ~experts det:m ilblloy clinging to thc:ipurposc accountinthese pessimists"aiof acadenlic acc6uit,o predominantly\\rho assume a '111

view, bclicvc thatculty of a: problerra challenge thanable number ofseem to :be unc{perhaps not reeeinvolved.) If opbecause account~stuck in the dileltives and deternfor a spe~ific purlenge with. malsystems experts

The most pr<problem still seea limited numb"poses (tax accoistic accountingcontrol, long-ndecision-makingrent operations ifrom which apurposes may Iconcepts and ~quircd for diffpurposes respecpreviously menhensive taxonoconcepts. Henca taxonomy ,voto a Izierurclzy 0

The difliculty I

variety of conceptaware that throuferent method; 01terpn:tatiolts of t

culty to formulate specific ~eell-defi:llf.1L/2.1J.J:.=.~o II specific set ofIt)'20U!f~,L-This task seems so diiTlcult that manyexperts deem it hopeless, and seek refugeby clinging to the ill-defined uni- or multi-purpose accounting system of the pasL Ifthese pessimists arc right, then the futureof academic accounting would l,e restrictedto predominantly legalistic is,;ues. Thost:who assume a more optimistic point ofview, believe that the high degree of rliftl-culty of a problem shoulJ rather constitult:a challenge than a deterren t. (.-\ consider-able number of accountants. however,seem to be uncommitted in this regard,perhaps not recognizing the crucial issueinvolved.) If optimism is justified, it isbecause accountants ;lre not the only om'sstuck in the dilemma of idl'ntifying ohjt;,--tives and determining the optimal modelfor a specilic purpose; they share this chal- Hut the problem of specifying objectiveslenge \vith management scientists and is not only tied to that of a conceptualsystems experts in general. hierarchy, it is no less closely related to the

The most promising approach to this ability of testing whether a purpose hasproblem still seems to be the acceptance of been fulJilled by a specilic (information)a limited number of typical standard pur- system.] n this an:a accountants haveposes (tax accounting, commercial-legal- grea~ly benefited fro~ inform~t.ion eco-I'stl'C accountilllT short run l)l'lnllill T' (I nOllllCS and mad\.: llll:lr own onglllal con-

b' 'b ,111 I 'I . .' .control, long-run planning, inyeslment n )UllOn-a further reason for optimIsm.

decision-making, decision making in cur- (Lj)TESTI~G J\rANAGE:\IE~T hFOR~IATIONrent operations including personnel policy) P SVSTE;\IS

from which a larger number of sul>- [C' 1 ['" ..,I . ,., .-- 11 ,)(,<IT( I of Tlllnj'!n Of I csll/If'purposes may )e derIvnl. :-'Int"e dllkrent 'j 'j,~

concepts alld subconcepts would be re- Systematic testing procedures arc aquired for different purposes and sub- crucial clement in any scientificapproach.ol

purposes respectively, we come back to thepreviously mentioned need for a compre-hensive taxonomic syslt:m of accountingconcepts. 1knce Ihe construction Df sucha taxonomy w0111d ha \'e t D Iw do~-wlv Iit,dto a hierarchy of objccli,'cs.

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The difliculty of such \lndertakin~ lies in thevariety of concepts and siluali'llls. \\""l>llght tll heaware that through the al'plicllion of llIree dif.ferent methods of depreciation three dilTerent in-terpretations of thc incomc and capibl cllncepls

may comc into being. If olle adJ~ to this three dif-fercnt valuation methods, thcn I'.'e attain, pre-cisely spcaking, as much as !line different inter-pretations of income and of capital. But we knowthat thcre exist more than three depreciation andvaluation methoJs, and also that, many morefactors beyonJ depreciation anu valuation meth-ods atTect thc conccpts of income anu capital.The hYI"'I hest's of rt'alizat iOIl, classification,data-input, duratiou and relevance arc just asindi~l",nsahle for a precise interpretation of thcsetwo cuncepts as are ueprcciatioll (i.c., allocation)anu valuation_ From all this might result a hugemaze of subconcepts or interpretations, the useoi \,'hidl Ill;ty lIot illlllll"liiatelyI'e obviuus.

But it has to bc pointcd out that these conceptsdo not come into being throu;;h the suggcstion to],uild a hil'rarchy of concepts_ These conceptshave beclI exislill,~fur consiuerahle time in the ac·counting literature, sincc one actually operatcswith many of those cumbinatiuns. Thus ou, sug-gestion docs not so milch aim toward the creationllr in\Tn t i,In of these cltlll'Olll-q>lshu t towanlmaking them aware and sy,;tematizing thcm.'·o

'" TranslatcJ from:'fattcssich, {)ieu'isscllsclwjtlicllt:nGrulldl"gCll des Rccll1lull~"cr:sms (Ducsscldorf:llertels-mann l-nin'r,itactsvcr!ag, 1970), p. 46_

C,l\\"illialllsalld (;rillin, "(In the :\alnrc of Empirical\·crilic.atioll ill :\c("()lIntitl~," p. 1-13,;ts~("rt that l' ... onlyInil1illlal alh:nliol1 lIa~ becOl1~ivcn to fpH::-;tioll~ of t'r,ifi~(:rltiOll. or fluor'! 'i.'ll/idalio1t .... H But no scriou$ at-tempt has I.n"n-madeto identifythat whichcOllstitutes\-nilieatiulI_1l"wever,the rc;uJcr'saliClItionshouldbedrawn tu the hct thall de\,()(cuthc clltireChapter i of..1,coIITIling ,,,"I ..lTlalyliCilI .!felhods (196-1) to empiricalhYI'"thc,;,-s:llId llwir refutation. The fulllllvinl;quolcSIIIJllllari/.t:"s till' pertinent CtJIlc1u5ilJu: .

... __ehu;c", Ilctwccn :lniun hYI'0thesegwill belIlaJe ill such a way that th03ChY!,othest:s--!towlow

The cogmtlve sciences must test hypoth-eses and theories bv means of verificationand refutation; whereas the applied sci-ences ought to test the efticiency, rele-vance, reliability or other properties of anormative theory, or a system, or a ma-chine by a variety of means. }'Jechanicaldevices, like motor cars, are tested in many,'/aysand with respect of many properties.Some or all of these properties (price, rela-tive gasoline consumption and other eco-npmic aspects, motor strength, accelera-tion speed, sturdiness and further safHvfeatures), or their combinations, are tlle~compared from model to model, and co'm-Pilred with an "ideal pattern" determinedby the intended us·age. Only then a correctc~oic,e for the appropriate purpose cani benlade. Most readers are quite familiar ,,;iththis kind of "testing" from their experience:in buying various gadgets. Although hc-counting models or information systdmsate more than mechanical devices, th'ereelm be little doubt that they too belong tothe realm of applied science, and thus aresubject to similar principles of testing.Obviously, this testing can span a widespectrum of rigor, from the most informalestimation of certain properties to highlysophisticated measures; hut the marc com-plex an information system is, the lesssatisfactory "'ill an informal testing proce-dure be. Thus, under consideration of ex-pensive computerized information svs-tems, considerable thought will have to' begiven to the procedures of testing and,above all, to the principles underlyingthem. In the pure or cognitive sciencesthese "principles" are thoroughly exam-ined in epistemology (the science of knowl-edge) . We too are concerned with a kind ofknowing, namely with the question "IIowdo we know when a system is satisfactoryor optimal?" Therefore, there is no reasonwhy this branch of philosophy cannot aidus in our undertaking. It is true that so farno epistemology of the applied sciences

exists, but systems analysis, managementscience and recently accounting are posingfundamental questions that most appro-priately would fall into the epistemologyof applied sciences (if this expressionsounds too highbrow for accountants, theterm "instrumental reasoning" may wellbe substituted for it). Some of these funda-mental questions are not new at all and canbe encountered with Kant and many otherphilosophers.52

Other of these questions have a morenovd aspect as the following example shalldemonstrate: Information is knowledgeand thus there exist close ties between in-formation theory and the science of knowl-edge. Yet, these ties have hardly been ex-plored. Economists worry little about thecriteria of knowledge creation, and epi-stemologists care even less about the valueand cost of procuring knowledge or infor-mation. The latter issue has recently beentaken up by economists as well as accoun-tants, and if both groups would acquiresome methodological background, then thcperennially 1lcglected eco1lomic aspect of epis-tcmology could become a fascinating inter-disciplinary meeting place.

Thc Faluc of lItformationThe testin~ of an information system has

many prercquistics; among these the most

their de~ree of reliability might he-will be consid-ered acceptable which, in the ('tce of uncertainty andeconomic constraints, are at least slightly moreI,rolllising or lIlore reaslln:d,le than their alternating.~rhus we 11fOIH)SC to Cxplol-llhc proccs:; of rnv:tlida.liona5 a criterion for di:-;tin14l1ishin~ hetween pra~lnatichypotheses (or action hypotheses) and scientilic hy-potheses:"I. A scientific hypothesis is invalidated by instances(acceptable 10 the experts) which testify reliably tothe falsity of this hypothesis."2. A pragm;ttic hypothesis is invalid;tted (rejected)by demonstrating (or believing) that, ill the lo/zg rtmor on the average, the actions hasell on it yield resultsLhat ;trc less satisfactory than the results of actionshased Oil allother, avail:tble or procllral,le hypothe-sis." (1'. 235)•• C. W. Churchman's discussion of Kant's impera-

tives of skill and the asscrtorial imperative, in Predic-tion and Optimal Deci"io,z (Prentice-Hall, Inc., 1961),pp.31-36.

.1 i

I, Ir ji i

1

aufOnn:i~'

tern.1m"the~l!tion~'wheth&t""". ...,.,.~~or wheth¢;~e sam~'inf:'. '''nlll~. H'1i1nmany:;the co~t1 f"'" .'termin! '.W 'il

:flusiv~:~c.i~.:.~.fi.·'.t~.··.' ":lr •.. l~

tion. Recent "st,l'.nomics h~ve~~formulation of ie~lern, tO~l~hin~i'~and .mana eDi,a,.' ;:, ..g ~analys~~.i'fhu~acto be aware ohi

:.'" kind odesearch'tion to put its r;text. Thhm~one sidc,'to relabmore traditionaland on 'tile othersophie roots of

Informationtion as a resourand related feanatural exteasictheory which, anto improve prioradditional infoformer into postian approach).much is thisworth?" alread)theoretical issu

, elaboration. Felan exciting conoperational infoaccounting situ[

, specific model s'plifying assurorsigned for immepractice. N evertthe best exampl

crucial is an awareness of the value of in-formation procured by the pertinent sys-tem. Without some notion of the hCI1l't":t,the cost and the net value of the infUl:ma-tion created, it is,neither possible to testwhether this information is worth creating,nor whether another system could createthe same'information more efTlciently. As'in many other cases of systems'; operation, ,the cost of doing !iO is relatively 'easy to de-,termine-at least compared to the often'elusive benefit of gross value of informa-tion. Recent studi~s in information eco-nomics have contributed toward a rigorollsformulation of several aspects of this prob-lem, touching the very core of iccountillgand management information systemsanalysis. Thus accountants not only haveto be aware of the present stages of thiskind of research, but should be in a posi-tion to put its results into a broader con-text. That means they should be able, 011

one side, to relate these new insights to themore traditional aspects of their discipline,and on the other, to understand,the philo-sophic roots of these insights.

Information economics regards informa-tion as a resource having a value, a costand related features.S3 This branch is anatural extension of statistical decisiontheory which, among other things, attemptsto improve prior probabilities by means ofadditional information, converting theformer into posterior probabilities (Bayes-ian approach). Thus the question "lIowmuch is this (additional) informationworth?" already looms in m:my decisiontheoretical issues, even without furtherelaboration. Feltham and ])emski;'" madean exciting contribution by constructingoperational information models adapted toaccounting situations. Even the applied orspecific model still has to make many sim-plifying assumptions and is harcily dc-signed for immediate application in actualpractice. Nevertheless it constitutes one ofthe best examples of serious accounting re-

search performed in recent years (indeed,the paper received the l\ICPl\-Award forJIJ7() and ought to 1.)(; taken as a prototypefor the kind of research (at least its analyti-cal part) desirable during the "transitionperiod."). It demonstrates that fundamen-tal research in accounting must start fromsimplified situations which then have to berefined slowly step by step; it also showsthat the decisive matter about fundamen-tal accounting research is not an immedi-ate practical application, but conceptualand methodological clarification to attainnew insights into the complex relations ofinformation creation allu evaluation.

But there exists another recent publica-tion (incidentally also an award winningarticle: one of the winners of the AmericanAccounting Association l\Ianuscript Con-tests for 1971) which supplements theabove mentioned research in an importantway. Mock's papers; draws attention tothe fact that the concept of informationvalue used in information economics isonly one among several concepts or inter-pretations, and that it is paramount foraccountants to distinguish clearly betweenthe three types: the economic value of in-formation, the model value of informationand the feedback value of information.J\lock's cbssification of the value of in-formation concept may not be the ultimatesolution, but it seems plausible that thepresent economic information value con-cept alone provides too narrow a basis formanagement information systems; surro-gatc valuation methods might havc to beincorporated.

OJ Henry Theil, Fcollomics al/ll Information Theory(Rand McNally & Co" 1967), and James C. Emery,Orgllllbltivllal Plamlill,~ alld COlltrol Systems (\fac-?-lillan Co., 19(9), PI'. 66-107.

"G. A. Feltham and J. S. Demski, "The Use of~todels in Information Evaluation," THE ACCOUNTINGREVIEW (October 1970), PI'. 623-·10. See also idem.,"Forec:lst Evalu:ltion," THE ACCOUXTIXG REVIEWUuly 1972), PI'. 533 .

•• Theooore J. ~lock. "Concepts of Information Valueand Accountin"," THE ACCOUNTIXGREVIEW (OCtober1971), I'p. 765-78.

Finally one may take into considerationthe fact that information theory and in-formation economics, thus far, have beentreated on a predominantly stochasticbasis.56 Thus the question arises whetheradditional interpretations of the "value ofinformation" also require probabilisticmodels or whether some further a~pectscan be treated deterministically.57 I

Apart from the interpretation issue afurther important problem emerges::Whatother criteria besides the "value o( infor-mation" are required to test an accountingsystem? It seems that there exist. manymore criteria indeed; for example the de-grees of relevance, of efticiency, of ei1ective-ness, of accuracy, of reliability, of time-liness and so on. These could be taken intoconsideration as additional qualitativecharacteristics,5R or, as informatiOlt econ-omists would suggest, one could incorpo-rate them into the value of informationconcept. In other words one would assigna higher value to a system with higher de-grees of relevance, eflicicncy and accuracy.To what extent and in which way thesecriteria can be incorporalcll is still a matterto be explored. One possibility might bethe assignment of multi-dimensional utili-ties to the information model or of (lis-tinguishing a greater number of informa-tion signals than otlwrwisc. \\'ith n~~ard to"response time" (degree of timeliness)""the problem could be solved by construct-ing dynamic information models, i.e.,models taking into consideration the timedimension and thus the interdepcndenciesbetween information and lH.:nclits.loC<l\cdin dilTerent time segnll.:nts."o .

Among other vehicles for testing sys-tems and operations research models, scn-sitivity analysis is mentioned most fre-quently. Indeed, it is a necessary but,often, not a sufficient lool for testing a sys-tem. As far as informa tion systems are con-cerned we may refer to the AAA Report onAccounting and Information Systems:

Observe that sensitivity analysis is asking cssen-tially the same type of questions about informa-tion that were considcred informatiun economics.However, sensitivity analysis is a more ad hocway of asking these questions. The basic rcasonfor the more ad hoc approach is that mathemat-ical models usually assume that the parameterpredictions are deterministic whell, in fact, theyare uncertain. Recognition of this uncertainty in-crcases the complexity of the models and theresultinR increase in the cost of solution may notbew~ted.GI

~ THE GENERAL THEORY[

i\:ccounting research during the lastfifteen ycars not only greatly maturedlJutalso spread into many directions. The cen-trifugal force at work in our discipline dur-ing the transition period is well manifestedin the great variety of modern accountingtopics. This force and the dynamics behinclit mi~ht prove for a.cc()untin~ either hi~hlyheneficia lor destruct ive, depelldin~ on howaccountants are able to harness it. If themany fugitive parts and pieces of our dis-cipline can be held together and integrated,accounting as an academic discipline willsurvive, if not it mi~ht dissolve and beahsorlwd by nl'i~hh()ring fIelds. The pres-ent state of accounting research rcsl:mblcsa jigsaw puzzle where some areas slowlygrow into meaningful configurations but

•• "The information theory approach to the 'luantifi-Cltttlll or infotlnalinn i$ ha~cd upon the prcnli:;l': that, for:tlly plohkul. there arc :t cerlain IHuuber of possil,le;tn,;wers to which plohabitilics may be allachcd. Wheninforlll:ltion ahoutthe problem is receiv<;d, the originalprobabilities un<!erl;o transformation," Baruch Lev,.recoll"till!: alld hzformation Theory (AAA: Studies in'\ccounlin::; Research, 1969), p. 1.

.1 The solution proposed bv Theil as well as Lev, tointroduce "artificially" probabilities by assi~ninp; themto individual asscl items on the arbitrary basis of the\"alu<;ralio of lhe pertinent assel which it has in propor-tiou to lhc balance shecltot:tl, is the attelllpt o[ a com-promise .

•• Emery, pp. 98-107..0 By up dating or procuring information quickly the

value of this information can be greatly enhanced insomc but not in all cases. See "Advances in Fast Re-sponse Systems," [<;f>P-AlIalyzer (Fehruary 1'>67).

•• Gerald A. Fcltham, A Theorclieal Fratn~J.'OTk forEvalllali"g CI"!IIges ill A ee01t1lli"R I llformatioll for J[an-agcrial Decisions. Mimeographed Dissertation (lJerke-ley 1967), especially Chpts. V-VIII.

.1 TIlE ACCOUNTING REVIEW-Supplement to Vol.46 (1971), p. 307.

without yielding the entire picture. Indeed,the individual fragments seem to spreadoutwards and not towards a common cen-ter.

The need for a deliberate elTort of in-tegration in our discipline is by no meansof recent vintage, but it becomes evermuch more urgent ill a time of opulentgrowth and specialization.62 The many cn-deavors to formulate the basic assump-tions of accounting fusing them into apostulational system goes back 1ifty yearsto Paton's first attempt.63 The search foraccounting postulates since the second halfof the tifties hy Aukrust, Chambers, Ijiri,Moonitz and others, gives evidence for theacu te a wan:ness of these neelb.,·t :\s longas we do not possess an O\'erall accountingtheory, a good deal of the advantages ofmental economy and generalized thinkingwill be lost. Where no general theory isavailable, speciJic theories have to lie dL-vised anew, over and over again, Lverytime a specific accounting system is em-ployed in a particular si tuation. I n such asituation generaliz~ttion, the quintessenceof the scientitic approach is ddeall-d, :tndall other endea vurs, like beller COl\ccpt u:d-ization and interpretatioll and rigorousemploymen t of scient itic methodo!pgy,lose a great deal uf their ultimate rtIiSIJll

d'Ctre. I also believe that this concern forintegration should not be restricted to afew specialists. En'!"y an:oullting rl'-searcher should have at least a rough yisionof the overall framework into which hisspecific research \\'ill han~ to fit SOOIH:rorlater.

To some extent not only postulation ofbusiness accounting (or national account-ing in Aukrusl's case), but integration 011 abroader basis has been undertaken in ac-counting over the span of the last lifleenyears, The first proposal to integrate allareas of micro- as well as macro-accountingby means of a postulational system waslaunched in 1957 and further elaborated in

196-! and 1970.";' In most recent times a fullin legra tion of micro- and macro-economicinput-output analysis, with special em-phasis on the accounting aspects, has beenlaunched by Butterworth ane! Sigloch.6&

Even more recently this generalized input-output approach has been fused in a mostinlL:resting way to the theory- of informa-tion economics.6' In such cases of overallintegration the most crucial qUl:stio!1 con-cerns the empirical premises. Can a trulygeneral theory of accounting be success-fully constructed on the comparativelynarrow empirical basis of decision theoryand information economics, or do we needa larger number of factual premises!' Thosea[(lrlllillC!; the first part of lhe questionmight claim that behavioral accountantsha VI: not yet supplied any empirical hy-potllL'SL'Ssuitahle as foundation stones of ageneral accounting tlwory. While those

""\\·hile much research h:<s hecn focused on theanal,·,is of minutc sc"mcnts of knmdedc;c, thcre haslaTH illcrl':lsin~ inlcre~t in ltcn:l()pin.:~ br:,.:<:r franles ofreference for s,·nthesizin~ the results <,f such rcscarch.The allention has heen i"Kusel! morc 'l'1d more on o,·cr-a!l·s,·stems as Ir:<mes of refnellce for :1:1:<',·tical wnrk in\';lri;t\l~ :In·:l~.1' R. :\. jollllSlllt, F. L. K~lSl and J. E.l~t):;('ll:.\\t'i~. "Sy~~Il"fI1S 'I"IH'III.\' :lll,i \l;UI:q:clIlcnt,H'\11111,1~t:m<'ll1Scitllre (January 11)()·I), 1'. 3(,S.

1\:1 \v. A.Patoll) ...lccollHliug Thror}' (l-:'ol1ald Press Co."1922) Ch!>\. 20.

O! John' W. Httcklcy, Panl Kircher "nd Russcll L..\lathcws, ··~lcthoJolo;;y in .:\t:C()Ullttl1~ Thcnry/' 'rllE'\CCOI;:-;TI:-;G REVIEW !.\pril 1')6S), PI'. 2T+-83. Thcseauthors n"t on!v criticize the deficient delinitional, con-cc-ptu:Il, "lid n',elhod"logictl 'Hlrk (,f traditional ac-COlll\tin~ rcsc;lrch. but abll put great cmph:tsi::;; no theIllTd for an over :<!Ithn>lTticd structure. For a furtherplea in fa,·or of thc axiomatic method sce Georgio Pd-licelli, "The Axiomatic ;\Ietho(l in Bu,oiness Economics:A First ,\ppro:lch," Abacus, (December 1969), pp. 119-31.

" R. }'httessich, "Towards a General and AxiomaticFoundation of Accountancy," ..1ccollllting Reserclt (Octo-ber IOS,), pp. 328-55; idem., .·lcrotin/illl; t1Jld AlltllyticalJJ d/wds (I~ichard D. Irwin, Inc., 1%·1); idem., f)i~ wis-sOlsclwftliclim (;It"IIIl<l~m des /{cclinIlJlgso,·esClls (Berte!-SInann liIli\Trsital"tsverl;l1.~, 1<)70).

'" John E. BttUerworth and Berndt A. Sigloch, "AGeneralized }'Iulli-Stagc Input-Output "'lode! andSome Dcrived Equivalent Syslcms," TilE ACCOUl\TI:-;"G

],EVIE\V (October ['Ji!), PI'. 700--16." See John E. Butterworth, "Thc ,\ccounting System

as an Information Function," Working Papcr Ko. 90,Faculty of Commcrcc and Busincss Administration,(Univ. of British Columbia, 1(71), to be published inlOllT/wl of Acrowrti>:g Rescarch (1972).

ventures, which arc lIothing more thansuch experiments, tried to solve this prob-lem of combining uniformity \vith varietyby ofkrin~ a framework consisting of twokinds of prcll1ises: (I) basic assumptionsamI (2) spccilic or auxiliary assumptions(abo called speci lie hypotheses) .6~ Thebasic assumptions manifest the generalcharacteristics of all accounting systemsand provide place-holders for the specificassumptions. The laHer l'nablc adaptationt.o a variety of particular purposes throughthe choice of exchangalJlc alternatives(these specilic hypotheses will be shortlydiscussed in the following subsection).Contrary to some erroneous opinion, mostof the basic assumptions were formulatedas empirical propositions which are, unliketautologies, ,not 'true by virtue oftheii

:logical ;structure. 'Most of these basic as~: sumptions are existential propositions andI possess refutability, the best witness forI empirical content. !

Although the literature of managcmetitinforniatio~ systems persistently points atthe need for specifying the purpose of ,amanagement information system, tradi-tional accounting often failed to do so.Therefore, Die wissenscltaftlichen Grund-lag en introduced a neW basic assumption(only implicitly present in Accounting and11nalytical Methods) which requires thearticulation of the pertinent informationpurpose through an additional specifica.ssumption (to be chosen from the manyalternative ohjectives).

afflfming the second part point out thatthe empirical hypotheses of decision theoryand information economics (mainly theassumption::; lJorrowed from mo,krn util-ity theory) serve only ;1limitctl number ofaccounting needs, and arc irrelcvant oreven contradictory to many situatiunswhich a general theory of accounting issuppos'cd to mect. I consider both answersunsatisfactory because they ,10 nol lea,l to;1unilication but ultimately end in a frag-mentation of accounting theory. A:::.pointc(1out previously, 1 am convinced that input-output economics and information eco-nomics made and will continue to makemost valuable contributions to modernaccounting theory, but 1 believe that ac-counting and' management! informationtheory <in genernl is confron,-ed' with ad-ministrative tasks for which the behavioralbasis of 'economIcs alone is in~dequate. Ob-viously,' the easiest way out of .this dilemma

. I .t I

would: be to develop various accountingtheories for .different purposeS, indepen-dent of each other. This I \~'ould consideran intellectual defeat for our, entire dis-cipline, especially at a time' of progressiveintegration of other areas. Sometimes de-feat is inevitable-perhaps our notion ofaccounting as a single discipline is basicallymisconceived-but a defeat without seri-ously trying to counter it (that is withouttrying to integrate all of accounting),ought to be unacceptable for the aG1demiccommunity of accountants. Thus 1 con-sider the fonowing two questions vital forthe future of our discipline: (1) Is a.unifiedor general theory of accounting possible ornot? and (2) If it is, then to which degreeand in which ways is integration feasible?

A solution to this prohlem would requiremuch experimenting. That means, a seriesof attempts should be made to constructand test alternative, comprehensive, the-oretical structures amenable to manage-ment information systems, accounting sys-tems and subsystems of them. 11y own

I Illerpretation through lllslrumelttal H y-potheses

Whereas the basic assumptions ought toconstitute a common frame of accounting

•• I was especi;tlly pleased to find my approach of dis-tinl;uishing between these two kinds of premises con-firmed, as methodologically sound, in one of the leadingworks on the philosophY of science: Bunge, pp. 402-403.See also "Report of the Committee on Foundation ofAccounting Measurement" (1971), pp. 43-44.

thanprob-:lriety,I two

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sy~tems in general, the; specific assump-tions may serve to give iinterpretation tothe overall theory. In tljs connection wemay refer the reader to !the beginning ofthis paper where the neglect of and needfori'interpretation" in accounting was dis-cussed.69 From the very ()utsd of Illy pro-posal I pointed at illustrations of specifichypotheses and repeatedly stressed their

, exigency by such phrases as:

While the preceding assumptions (containinga priori as wcll as empirical n'otions) arc of trulygeneral nature, a series of secondary, cmpiricalassumptions (in lhc folluwing called hypotheses)are required.'"

But olle of the important tasks of accountingtheory is the formulation of various alternativcsets of hypotheses required for specific purposes.Yet, before this task can be explored (see Chap-ters 7,8 and 9) it was indispensable to acquin.: aclear notion about the foundation on which our<l ~ciplinc resls:(

To disregard these specific empirical hy-potheses means to misunderstand the veryessence of the theory outlined in Account-ing and AnalyticalllfetllOds. Yet Williamsand Griffin seem to limit their glance onlyto its mathematical aspect and say" ...the mathematical formulations of the ac-counting processes by l\lattessich (a foot-note refers to A ccolinting ilnd A /lalytiealA[ etllOds)-are exa mpks of thcorct ica I ex-positions which rely for their validation onthe truth criteria of mathel11atics.";~ Butthe theoretical structure, presented in A c-collnting and AUlllyticall1fctllOds as well asin the revised German version, must beverified or refuted through empirical means,above all by testing the specific hypotheses-something that cannot be cmphasi;oedstrongly enough.

It may be of interest to learn that someauxiliary propositions can be formulatedeither as conclusions (theorems) or asauxiliary assumptions (obviously, only inthe latter case do they belong to the set ofpremises). Whether the one or the otheralternative is chosen might be a matter of

taste, bu t definitely depends on the inclu~sion or exclusion of a basic assumption call-ing for articulation of the information pur-pose as a placeholder. If this assumption isexplicitly stated then some of the auxiliarypropositions might be derivable as conclu-sions; if it is not included in the generalpart then most of the :tUxiliary proposi-tions become premises (from which furtherspecific conclusions will follow). This latterversion was used in Accounting and Analy-tical it!ethods in contrast to Die wissen-scltaftliclten Grl/1uUagen des Rcc1mzmgswe-sellsi3 which uses a general placeholder forspeci1ic goal propositions and thereforecan tains 19 instead of 1S basic assump-tions. But the latter version therefore re-quires a smaller number of auxiliary prem-ises and thus may be deemed more elegant.

Conclusion and Testing of the General Theory

On the basis of the preceding subsec-tions we may now draw some major con-clusions and formulate, what I consider,the chief message of this paper:

1. The testing (verilication'or refuta-tion) of a general theory of accountingmust invariably oe tied to the specific em-pirical propositions governing particularaccounting systcms fflr Use in adual prac-tice. l\ccounting cannot be anything else!Jut an empirical (l1ormative) Hiscipline,and hcnce th~re cannot exist purely ab-stract or nonempirical accounting the-ories; 'what may exist arc uninterpreted

•• The reader ought to lie aware that interpretationof a calculus or unintcrpreted thcory may he achievedfly either a ,e[',nate set of rules of interpretations or byincorporating these rules as premises, In the latter caseCarnap speaks of mcaning pastulat",,; see Rudolf Car-nal', II/troduction to SW/ll/lties (Ilarvard University!'ress. 19-12).

,. Aceount;n!: and Aualyt;Cilt Methods, p.-II." Ibid" p, 45." Thomas II. Williams and C. Ir. Griffin, "On the

NatUle of Empirical Verification in Accuunting,".-l&(/(1/S (I kcemher 1\169), p, 153.

" Chapter 4 of this book demonstrates in which wayspecific or auxiliary propositions can be derived as con-clusions from the basic assumptiolls including the goalassumption.

calculi74 of accounting, but they are mean-ingless unless at least provisions for pos-sible interpretations are made (as pointedout such provisions were mad~ in Account-ing and Analytical M etlzods ani:!more elab-oratelyin Die wissenscJzaftli~lten Grulld-lagen des·Reclwungs7.!.'esens). I'i :

2; A !particular accounting' system istested by trying to determine systematic-ally whether it is the most "~atisfactory"system "under the circumstan~es," i.e., fora well-specified purpose. That this involvesmany conceptual and methodblogical ditli-culties was discussed in the present paper.Rut the statement holds quite'inclependentof these difficulties. In my view it is thistesting of particular accounti;lg and othermanagement information systems whichought to be the central concern of theoreti-cal as well as practical accoulltant~.

3. A general theory of accounting mustbe created in a recursive but noncircularway: starting from the basis of an opera-tional definition of accounting (sec the$ecolHl section of this p:lpcr), fairly sharp!Jut preliminary houndaric~ ()f what con-stitutes an accounting system should I)cdrawn on the basis of past experience andexisting information needs. Then, all sYstemsobeying the conditions of the oper;tionaldefinitions ought to he tested. Tf some ofthose specitic accounting systems do notfulfill the specified purpose to the degreedesired, the "why?" must be determined.If the failure is due to some auxili:try prop-ositions then thesc hypotheses have to heexchanged or amended, thus the structun:of the specific accounting system, hut onlyof that, changes. If, ho\\'cYer. the failure isdue to some basic assumption, the latterhas to be exchanged or amended; thus thestructure of both the general theory andthe specific system will change. In this waythe general theory is verified or rdull:devery time a specitic system is put to test.This testing oj a general accvltllting theoryby u'ay of the empirical -.'eriJic:ationor re!lIta-

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tion oj its interpreted systems, seems to methe only way of conforming to tlze require-ments of an empirical disciplille. Thus fac-tual refutation, even of a general theory,is conceivable and circularity is avoided.isIndeed, refutations and consequent re-visions of the general theory arc expected,perhaps frequently in the experimentalstage, and hopefully less frequently in themature phase.

4. The methodology thus described isindependent of the boundaries of the gen-eral theory. Thus by choosing a narroweror broader set of basic assumptions, ac-countants may agree to concern themselvesonly with double-classificational models or''lith management information systems ofwider scope. Most (but certainly not all) ofIlly \,:lsic assumptions will hold for anyIllallagclncllt information system which re-quires a Ilumerical scale for measuringvalues, scales for measuring quantities andtime intervals, economic objects, subjects,entities, structures amI husiness events,articubtion of a purpose :lnd interpreta-tions of "value" and "incollle," a c1a:;sifica-tion system, a certain (kgree of aggregationand some kind of periodization. These!basic assumptions may not be very exCltlili ir;:;;nl a hehavioral point of ,:ie;:.l..J!.utthey I7i rc"an-;;;-tcTIcntrncanslO-,(-ou ntc ract the!Cl'11 (rIf\ig'iif-tcndencles or modern-7~~nt-f

--c_ .. _,.--,..".",,,,,,-,.,,---,,-.-<;,.,,,,,~.,...~, •.•:_~,~,,,,,,,-.~--~~

jii:r ,lI1(Tr"Cfifca- areas. Furthermore, the'

•• "Without interpretative rulcs, a theory would re-duce to an uninterpretcd calculus which points tonothin~ heyond itscif. It would hc as cmpirically irrei-evant as the gallle of chess!' C. J" \fasscy, "ProfessorSamuelson on Theory and Rcalism: COlllment:' Jlmcri-C,II< Icconomic Raiic:v (Dccember 1'1(5), p. t 159.

•• Circularity for examplc would hc involved in thcfollowing situation: (I) The gcneral theory and analyti-cal defmition stipulate the basic assumptions (condi-tions), (2) the basic assumptions detemline the specificsystem, and (3) the gcneral thcory is vcrified hy testingwhcllH'r Ihc specific syslcms fulfill the condilions stipulated in the analytical defmition. The al.l.cnlivc readwill have noticed that my s\l~geslion for verification fthe general theory is radically different from this ci u-hr one, uccause the formcr depends vn the fulfillm lofu-ell-defined factllal purposes by lite interpreted sy ems,whereas the latter merely hillges 011 the ouserv' ee ofJclinitiOllal condition;.

articulation of these conditions in a general tinent results to a theory that providesway and their subsequent interpretation testable management information systemswere previously not self-eviJcnt at all. For for specific o!Jjectives. Academic historyinstance, several of these conditions like offers ample proof that only through co-specialization of purpose, interpretation of operation and mutual understanding ofvalue, economic subjects, and degree of observers ane! experimentors on one sideaggregation were made only implicitly or and theorists or formalists on the other,quite unsystematically in traditional ac- can knowledge be advanceq. in the longcounting. run. Kepler could not have developed his

5. The formulation of hypotheses for , analytical scheme of the planetary orbitsspecific accounting purposes through be- without the observational results of Tychohavioral research is (together with analyti- Brahe, nor could Einstein have developedcal research and methodological clarifica- his relativity theory without any know I-tion) one of the major tasks faced by future edge of the experiments of Faraday, Galilei,accountants. Williams and Griffin offer a the lvlichelson-Morley team and others.most revealing classified survey of major Although accounting is no pure science butempirical research projects carried out dur- pursues a predominantly instrumentaling the second half of the sixties}6 By task, as an academic discipline it has grownglancing at this surveyor scanning recent complex enough to justify a division of re-accounting literature, the reader will notice search according to inclinations and tal-that most empirical accounting research is ent5. Such a division of lahor is as indis-of peripheral nature from the viewpoint of pensable as is the close cooperation be-designing accounting systems. That is to tween those specialists.say, there exists an insuJlicient number of ~tha--r-t-lc---ta-s~k-' -O-f-uUlempirical research projects that deal wi th / transi tion;e~iod iie~in the slow bu t serious

Isuch important questions as the following: endeavor to convert rules of thumb into

r (a) How purpose-oriented are users of at- wcll-grounded,'7 purpose-oriented or in-counting information, and which kilHi M strul11cntal hypotIH~sl·s. SUlh a process ofinformation would they desire or nlTd f(i.r cOl\vlTsiol\ must not 1)(' I,;\sl'(! Oil the fal-which purpose? (I» What is the eried of Iacious notiol\ that action is the lest of the-difTerent interpretations of value, income ory, hut rather on the insight that actionand realization on users of accounting, ancl\ can be improved, in the long run, by cogni-above all, which interpretation matches' tion of relationships "'ith high degrees ofwhich purpose? (c) What is the effect of reliability.different allocation and classificationschemes, different degrees of aggregation,different periodizations (interim reports)on users of accounting, and above all,which scheme matches which purpose?

Only if behaviorally oriented accou n-tants answer these and many other rele-vant questions to a high degree of reliabil-ity will the analytical accoun tan ts andmethodologists be able to fuse the per-

.. lams and Griffin, "On the ?\ature of EmpiricalVerification in Acr:nuntin~/' pp~157 -7g.

77 "" rule is gr01wdrd if and only if it is based on a setof law formulas capable of accountin::; for its efTective-ness. The rule that commands takin::; ofT the hat whengreeting a laely is groundless in the sense that it is basedon no scientific law hut is conventionally adopted. Onthe other hand, the rule that commands greasing carsperiodically is h:lscd on the law that luhric:ltorsdecreasethe wearing of parts hy friction: this is neither a conven-t ion nor a rule of thumb like thuse of cookin" or politick-ing: it is a well-grounded rule. We shall elucidate lateron the concept of basing a rule on a law." Bunge, Scien-tific Research J[, pp. 132-33.