Financial Accounting Theory Craig Deegan Chapter 12 Critical perspectives of accounting Slides written by Craig Deegan and Michaela Rankin Copyright  2006 McGraw-Hill Australia Pty Ltd PPTs t/a Financial Accounting Theory 2e by Deegan

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  2006 McGraw-Hill Australia Pty Ltd PPTs t/a Financial Accounting Theory 2e by Deegan

Critical perspective defined Refers to accounting research that goes beyond questioning whether particular methods of accounting should be employed 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  2006 McGraw-Hill Australia Pty Ltd PPTs t/a Financial Accounting Theory 2e by Deegan

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 Accounting seen as a means of constructing or legitimising particular social structures for the benefits of those that currently have wealth Copyright  2006 McGraw-Hill Australia Pty Ltd PPTs t/a Financial Accounting Theory 2e by Deegan

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 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 Copyright  2006 McGraw-Hill Australia Pty Ltd PPTs t/a Financial Accounting Theory 2e by Deegan

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  2006 McGraw-Hill Australia Pty Ltd PPTs t/a Financial Accounting Theory 2e by Deegan

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  2006 McGraw-Hill Australia Pty Ltd PPTs t/a Financial Accounting Theory 2e by Deegan

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  2006 McGraw-Hill Australia Pty Ltd PPTs t/a Financial Accounting Theory 2e by Deegan

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  2006 McGraw-Hill Australia Pty Ltd PPTs t/a Financial Accounting Theory 2e by Deegan

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  2006 McGraw-Hill Australia Pty Ltd PPTs t/a Financial Accounting Theory 2e by Deegan

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 to provide solutions if problems are evident Critical of accountants Copyright  2006 McGraw-Hill Australia Pty Ltd PPTs t/a Financial Accounting Theory 2e by Deegan

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 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  2006 McGraw-Hill Australia Pty Ltd PPTs t/a Financial Accounting Theory 2e by Deegan

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 Corporations typically lobby against regulation that could increase their accountability to society Copyright  2006 McGraw-Hill Australia Pty Ltd PPTs t/a Financial Accounting Theory 2e by Deegan

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 Copyright  2006 McGraw-Hill Australia Pty Ltd PPTs t/a Financial Accounting Theory 2e by Deegan

Role of accounting research (cont.) rise of ‘economic consequences’ research seems to have been motivated by 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  2006 McGraw-Hill Australia Pty Ltd PPTs t/a Financial Accounting Theory 2e by Deegan

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 Copyright  2006 McGraw-Hill Australia Pty Ltd PPTs t/a Financial Accounting Theory 2e by Deegan

Role of accounting practice (cont.) Attention is directed to particular measures (e.g. profits) through accounting In communicating reality, accountants simultaneously construct reality Political economy perspective emphasises the role of accounting reports in maintaining social arrangements See corporate social reporting as harmful as it gives the impression of concern and change without any real change occurring Copyright  2006 McGraw-Hill Australia Pty Ltd PPTs t/a Financial Accounting Theory 2e by Deegan