Download PowerPoints Chapter 12

Financial Accounting Theory
Craig Deegan
Chapter 12
Critical perspectives of accounting
Slides written by Craig Deegan
Copyright  2009 McGraw-Hill Australia Pty Ltd
PPTs t/a Deegan, Financial Accounting Theory 3e
12-1
Learning objectives
• In this chapter you will be introduced to :
– particular perspectives that challenge conventional
opinions about the role of accounting within society
– the basic arguments that suggest that financial
accounting tends to support the positions of individuals
who hold wealth and social status, while undermining the
positions of others
– the fact that disclosure (or non-disclosure) of information
can be construed to be an important strategy to promote
and legitimise particular social orders
Copyright  2009 McGraw-Hill Australia Pty Ltd
PPTs t/a Deegan, Financial Accounting Theory 3e
12-2
Critical perspective defined
• Refers to accounting research that goes beyond
questioning whether particular methods of
accounting should be employed
• 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
Copyright  2009 McGraw-Hill Australia Pty Ltd
PPTs t/a Deegan, Financial Accounting Theory 3e
12-3
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
• 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’
Copyright  2009 McGraw-Hill Australia Pty Ltd
PPTs t/a Deegan, Financial Accounting Theory 3e
12-4
The critical perspective (cont.)
• Accounting seen as a means of constructing or
legitimising particular social structures for the
benefits of those that currently have wealth
• Critical theorists do not seek to appear objective
• They seek to highlight the role of accounting in
maintaining social structures that they perceive as
unjust
Copyright  2009 McGraw-Hill Australia Pty Ltd
PPTs t/a Deegan, Financial Accounting Theory 3e
12-5
The critical perspective (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
Copyright  2009 McGraw-Hill Australia Pty Ltd
PPTs t/a Deegan, Financial Accounting Theory 3e
12-6
Philosophical basis of critical
accounting research
• Much of the critical research is informed by the
works of Karl Marx
• However, some critical research adopts a ‘deep
ecologist’ philosophy
– questions the trade-off between economic performance
and ecological damage
Copyright  2009 McGraw-Hill Australia Pty Ltd
PPTs t/a Deegan, Financial Accounting Theory 3e
12-7
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
• 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)
Copyright  2009 McGraw-Hill Australia Pty Ltd
PPTs t/a Deegan, Financial Accounting Theory 3e
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Criticism of capitalist system
• 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
Copyright  2009 McGraw-Hill Australia Pty Ltd
PPTs t/a Deegan, Financial Accounting Theory 3e
12-9
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
Copyright  2009 McGraw-Hill Australia Pty Ltd
PPTs t/a Deegan, Financial Accounting Theory 3e
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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
Copyright  2009 McGraw-Hill Australia Pty Ltd
PPTs t/a Deegan, Financial Accounting Theory 3e
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Disclosure of social responsibility
information
• Critical theorists argue that disclosure of social
responsibility information is wasted unless
accompanied by fundamental changes in how
society strucutred
• Acts to legitimise, not challenge, those providing
the information
• Need social reform, and not more ‘accounting’
Copyright  2009 McGraw-Hill Australia Pty Ltd
PPTs t/a Deegan, Financial Accounting Theory 3e
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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 accounting to
solve problems
• One is using the very process that caused the
problem to try to solve the problem
Copyright  2009 McGraw-Hill Australia Pty Ltd
PPTs t/a Deegan, Financial Accounting Theory 3e
12-13
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
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PPTs t/a Deegan, Financial Accounting Theory 3e
12-14
Role of the state
• 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
Copyright  2009 McGraw-Hill Australia Pty Ltd
PPTs t/a Deegan, Financial Accounting Theory 3e
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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
Copyright  2009 McGraw-Hill Australia Pty Ltd
PPTs t/a Deegan, Financial Accounting Theory 3e
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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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PPTs t/a Deegan, Financial Accounting Theory 3e
12-17
Role of accounting research (cont.)
– rise of ‘economic consequences’ research 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
– 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 rate of
inflation
Copyright  2009 McGraw-Hill Australia Pty Ltd
PPTs t/a Deegan, Financial Accounting Theory 3e
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Role of accounting practice
• Critical theorists see conceptual frameworks as
legitimising the accounting profession and of
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
Copyright  2009 McGraw-Hill Australia Pty Ltd
PPTs t/a Deegan, Financial Accounting Theory 3e
12-19
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
Copyright  2009 McGraw-Hill Australia Pty Ltd
PPTs t/a Deegan, Financial Accounting Theory 3e
12-20