Deegan fat4e ppt_ch12

2-1Copyright © 2014 McGraw-Hill Education (Australia) Pty Ltd PPTs to accompany Deegan, Financial Accounting Theory 4e

FINANCIAL ACCOUNTING THEORYCraig Deegan

Slides written by Craig Deegan

Critical perspectives of accounting

CHAPTER 12


Learning objectives12.1 Gain an insight into particular perspectives that challenge

conventional opinions about the role of accounting within society.

12.2 Have a broad understanding of what ‘critical theory’ and ‘critical analysis’ means.

12.3 Understand the basis of arguments that suggest that financial accounting and social and environmental accounting tend to support the positions of individuals who hold power, wealth and social status, while undermining the positions of others.

12.4 Understand that the disclosure (or non-disclosure) of information can be construed to be an important strategy to promote and legitimise particular social orders, and maintain the power and wealth of certain ‘elites’.

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Learning objectives (cont.)

12.5 Understand the reasons behind why some researchers embrace a view that governments frequently act to support powerful stakeholders (such as shareholders) rather than the interests of less powerful stakeholders (such as workers).

12.6 Understand arguments that suggest that accounting research will not only be influenced by current practice and dominant ideologies, but also has the potential to influence dominant ideologies and practice.

12.7 Be able to question whether critical accounting researchers are actually embracing strategies that could realistically encourage social and structural change, or whether many ‘critical’ researchers are simply partaking in various intellectual debates with little real attempt to create positive change.


Critical perspective defined

• Refers to accounting research that goes beyond questioning whether particular methods of accounting should be employed

• Instead, it questions prevailing social arrangements and how accounting practices actually contribute to inequities

• Focuses on the role of accounting in sustaining the privileged positions of those in control of resources (capital) while undermining or restraining the voice of those without capital

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Critical perspective defined (cont.)

• Critical accounting theorists seek to highlight, through critical analysis, the key role of accounting in society

• Challenges the view that accounting can be construed as objective or neutral (as conceptual frameworks of accounting claim)

• Rejects a ‘pluralist view of society’ wherein many stakeholders have power to influence government, corporations, and so forth

– rather, power resides in the hands of a ‘small elite’continued


Critical perspective defined (cont.)• Accounting seen as a means of constructing or

legitimising particular social structures for the benefits of those who currently have wealth

• Critical theorists do not seek to appear objective, rather, they embrace a highly partisan perspective

• They seek to highlight the role of accounting in maintaining social structures that they perceive as unjust

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Critical perspective defined (cont.)

• They believe that development of particular theories can bring about social changes in social structures and practices, that is, the promotion of a particular theory becomes a social actuality

• View that, if theorists have well developed theories which question the objectivity of financial accounting, and if they are able to generate sufficient support for the theory then ultimately this could create the necessary impetus for changes in the way financial accounting is practiced and how society is organised


Critical research as part of an ‘emancipatory’ process• The ‘emancipatory role’ of critical accounting research is

something that is often referred to by critical theorists

• An emancipatory process is a process that, somewhat obviously, promotes ‘emancipation’

• Emancipation relates to efforts aimed at removing oppression of some groups or procuring political rights or equality for particular disenfranchised groups. As Roslender (2006, p. 252) states:

– A critical social science approach seeks to provide the knowledge required for the democratic communication and interaction required to promote emancipation and the construction of a new set of social arrangements that will serve the interests of the majority of people.


Contrasting critical accounting researchers with other accounting researchers• Critical theorists explore how accounting potentially contributes

to elements of society which are not equitable for some stakeholders, such as employees or particular communities, and ideally, such researchers also provide possible solutions to such concerns

• This can be contrasted with most accounting researchers who, whilst often testing for particular relationships between chosen variables, frequently do not question any inequities associated with the processes or systems that they are investigating. As Gaffikin (2010, p. 35) states:

– Generally speaking, accountants have avoided meaningful self reflection. By far the majority of accounting researchers proceed without questioning the very essential features and assumptions of their discipline.


Philosophical basis of critical accounting research• Much of the critical research is informed by the

works of Karl Marx

– Capitalism is regarded as being fundamentally structurally flawed and is unstable

• However, some critical research adopts a ‘deep ecologist’ philosophy

– questions the trade-off between economic performance and ecological damage

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Philosophical basis of critical accounting research (cont.)• Other critical accounting research adopts a radical feminist

perspective

– believe that accounting maintains and reinforces masculine traits such as ongoing quests for success, conflict and so forth without any consideration to cooperation, respect, loyalty, caring and so forth

– According to Reiter (1995, p. 40):

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.

• Some researchers, such as Molisa (2011) have also suggested that issues of ‘spirituality’ should be used to inform the practice of accounting, and accounting research. Spirituality would incorporate notions of love, care, and respect and it is argued that ‘corporate accountability’ should incorporate such notions


Critical theory is a very broad term

• Critical theory is an ‘umbrella term’ for a wide variety of theoretical approaches perhaps more united in what they oppose than what they agree upon (Hopper et al.1995)


Criticism of capitalist system • As already emphasised. critical theorists tend to

oppose aspects of the capitalist system and accounting

• Emphasise that systems of accounting are built around the prevailing social order—and support the social order

• Given the practice of accounting is in the hands of large corporations and accounting regulation in the hands of government, accounting information will never do anything but support the current system


Origins of critical perspective

• Grounded in Political Economy Theory

• ‘Political economy’ is the social, political and economic framework within which human life takes place (Gray, Owen & Adams 1996)

• Based on ‘Classical’ branch—challenges the existing nature and structure of society


Classical political economy perspective

• As already indicated, much critical accounting research is related to the works of philosophers such as Marx

• Explicitly considers structural conflict, inequity and the role of the State at the heart of the analysis

• Highlights issues which may not otherwise be addressed

– social welfare


Disclosure of social responsibility information

• Critical theorists argue that disclosure of social responsibility information is wasted unless accompanied by fundamental changes in how society is structured

• Corporate social accounting simply acts to legitimise, not challenge, those providing the information

• Need social reform, and not more ‘accounting’


Views on social and environmental accounting• As accounting deemed to sustain particular social

structures, introduction of new forms of accounting only help to sustain that social system

• Considered wasted effort to use more accounting to solve ongoing social and environmental problems

• One is using the very process that caused the problem to try to solve the problem


Role of the State (government)

• The State is seen as a vehicle of support for holders of capital and for the capitalist system as a whole

– securities acts throughout the world were designed to maintain the ideological, social, and economic status quo while restoring confidence in the existing system and its institutions (Neimark 1982, p.49)

• Government will take action to enhance the legitimacy of the (unjust) social system

• Social disclosures seen as a means of pacifying challenges against the capitalist system where corporations given many rights and powers

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Role of the State (cont.)

• Restricting the flow of information, or availability of specific types of information, seen as a means of maintaining particular organisations and social structures

• Government does not operate in the ‘public interest’, but in the interests of ‘well off’ groups

– contrast with ‘public interest theory’ considered in previous lectures

• Corporations typically lobby against regulation that could increase their accountability to society – and government often support such lobbying efforts


Role of accounting research

• ‘Mainstream’ accounting researchers are seen as providing research results and perspectives that help to legitimise and maintain certain political ideologies

– e.g. anti-regulation stance and EMH during the late 1970s and 1980s matched the views of government at the time

– rise of PAT consistent with political views at the time

The story of PAT can be told in such terms. Its rise was not just due to its addressal of academic threats and concerns at the time of its inception but it was also in tandem with and connected to the right wing political ideologies dominant in the 1980s (Hopper et al.1995, p.518)

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Role of accounting research (cont.)

– rise of ‘economic consequences’ research (which is discussed in Chapter 7) seems to have been motivated by the desire of large corporations to counter attempts to change reporting systems and levels of disclosure

– results supported corporations’ call for reduction in regulation – regulation introduces inefficiencies and it is better for markets to be able to operate freely

but critical theorists would argue that markets only work in the interests of those parties with wealth

– research efforts into inflation accounting were seen as being motivated by a desire to alleviate shifts in real wealth from owners to higher wages, not by higher rates of inflation per se


Role of accounting practice• Critical theorists see conceptual frameworks of

accounting as legitimising the accounting profession and the financial reports produced by reporting entities

• Accountants seen as imposing their own views about which performance characteristics are important or not important

• Attention is directed to particular measures (e.g. profits) through accounting

continued


Role of accounting practice (cont.)• In communicating reality, accountants

simultaneously construct reality

• Political economy perspective emphasises the role of accounting reports in maintaining social arrangements

– any 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

• See corporate social reporting as harmful as it gives the impression of concern and change without any real change occurring


Criticism of critical perspective

• Critical theorists often marginalised to a greater extent than others

• Often do not provide solutions to perceived problems

– inconsistent with normal training of accountants which is to provide solutions if problems are evident

• Critical of accountants in general – so tend to be marginalised


A critical reflection on the role of critical accounting researchers in creating change • But are critical accounting researchers actually creating the

positive social change they argue is necessary?

• The accepted role of critical analysis is to identify problems inherent within existing structures and processes (such as accounting) with the ultimate aim of providing a fairer society which does not undermine the interests of particular groups, such as employees.

• To create change would seem to require constructive engagement with a broad cross section of people to not only highlight problems, but to suggest pathways for change and improvement. As Roslender (2006, p. 264) states:

– Simply interpreting and understanding what we choose to study is not enough. The purpose of the exercise is to turn this learning to the promotion of society, that is, the promotion of a better society.


The contribution of critical accounting scholars to actual social change (cont.)

• However concerns have been raised by some critical theorists that their colleagues are failing to engage the broader community

• For example, the leading critical theorist, Christine Cooper has in the past been particularly critical of the (convoluted) language used by many critical theorists, and by the apparent neglect of efforts to usefully engage with practice

academics, even those who think of themselves as political radicals, write for each other using an idiom which renders their work unintelligible to those outside

academics write theoretical pieces, which hardly anyone reads, mainly for each other using impenetrable language

• Of course such criticism can be made of much research, not just critical accounting research – but other researchers are not aiming at necessarily creating an environment of change

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• It does seem somewhat odd that critical theorists who argue passionately against the exclusion of certain members from society will write in a manner that is very difficult to understand and which therefore is also potentially open to the criticism of being exclusionary in nature – other than for those well versed in reading the specific literature

• Cooper emphasises the need for critical theorists to leave the confines of comfortable offices and to take their concerns and insights to the broader community – something that evidence suggests is not happening

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• Partaking in debates at various international conferences, and amongst a group of like minded academics, does not appear sufficient to create social change

It becomes difficult to think of many examples of how critical accounting research has been directly successful in changing policy or practices.

• Critical theorists often claim that the purpose of their work is to expose the structural and social problems with existing social systems

• They rightly express concern about the welfare of different groups and how different groups are excluded from having a ‘voice’, often because the ‘system’ does not allow them to have a ‘voice’ continued



• Therefore, to be consistent, such researchers should not write in a manner which is unintelligible other than to those who are privileged enough to have education in, or knowledge of, particular philosophies. It would also seem that, to be consistent with their discipline, they should engage with the community – with practice

• Hence, it is an interesting exercise to critically evaluate the actions of critical accounting researchers and to consider whether they are meaningfully addressing the problems that are at the core of their research – a failure to actually engage with society could be construed as hypocritical


A need for ‘self-reflection’• Reflecting on the role and contribution of research,

and researchers, can raise many issues and opinions – many of which might not be popular to some individuals or groups

• But hopefully such criticism can be the catalyst for self-reflection

• Indeed, for researchers (who are often publicly funded to undertake research) it perhaps is important to reflect on the central role that they are assuming and whether they are indeed fulfilling the role that might be expected of researchers within their particular discipline