“Rip it up and start again” Critical Perspectives

Could it be different? Are we measuring the right things?

Accounting is neutral Reality Accounting

Solomon’s View Accounting should follow journalistic standards and report not make the news Accounting should emulate a well calibrated speedometer clocking the economic road speed With social change in the broadest sense accounting has little to do BUT…

Faithful representation Accounting is neutral Reality Faithful representation & Neutrality Accounting

..but never mind individual accountants What about the standard setter?

Accounting has economic consequences Preparers and users lobby to: promote, obstruct or influence the standard setting process

Capture theory Regulation introduced to protect public but is often subsequently controlled (captured) by the regulated Results in the protection of the regulated (for example, accountants, preparers i.e. big companies) Very difficult for the regulatory body to remain neutral (even if they wanted to!)

Theories of the politics of standard setting Standard setting is a political process – interested parties choose whether to lobby on a cost/benefit basis (draws on positive accounting theory). Sutton (1984) used a cost/benefit model to explain when parties take part in the lobbying process Watts & Zimmerman (1986) developed an economic model where benefits to managers depend upon expected future cash flow Lobbying is a non-pluralistic process dominated by a few powerful groups to the detriment of others who are excluded from the process.

Faithful representation Accounting is neutral Reality Faithful representation & Neutrality Accounting

In communicating reality we construct reality “…accounting practice and accounting research [is seen by some authors] as a constituor, influencer, reifier and legitimiser of social reality” Hines 1991 Accountants need to acknowledge responsibility for actions that rebeverate beyond economic welfare. Tinker 1991

Real examples Of accounting generally Design of regulation British Imperialism – making territories governable Neu 1999 Mobilisation of financial data against the workforce - cost consciousness Puxty 1993 Accounting for defined benefit pension schemes

Tinker’s View Accounting is PARTISAN Be explicit about the subjective perspective from which you view society 3 Critical Perspectives: Marxist View Feminist View Deep Ecological View

Marxist View Accounting is a powerful tool in enhancing the power and wealth of capital and protecting that wealth and power from the structural instability of capitalism

Example of structural instability of capitalism Increased mechanisation Decreased demand for labour EFFICIENCY and PROFITABILITY Less spending No market for goods and LOWER profits

Owners of capital will protect their privilege & wealth Financial Crisis: Structural Instability of capitalism IAS 39 required banks to fair value account for financial assets HUGE write downs – threat to banks’ survival Government, investors, EU lobby for IASB to allow banks to retrospectively reclassify assets – amortised cost

Feminist Standpoint Looking at the world through the lens of feminism!

The Feminist standpoint THE FACTS THE CONSEQUENCES 2 female Managing Partners in top 50 firms 16% female partners but 50% female entrants Women under represented in accountancy Accounting not neutral it’s masculine Challenges the masculinity of powerful social institutions Advocates social change through political action Need a feminist perspective.

The CONSEQUENCES Examples of change: Accounting profession acknowledge wider responsibilities: employees, citizens. Different disclosure: distribution of corporate wealth, gap between lowest and highest paid employees

Deep Ecology

No trade offs Challenges ways of human existence.

What’s the problem Accounting should measure the broader issues – evaluate cost to the environment INSTEAD It ignores these issues. BUT what about SER???

.. But even more traditional scholars argue that …. Social & environmental accounting has been captured Gray 2010 Need new ways of accounting that consider sustainability

In summary You might have started this course thinking accounting was about certainties and facts You should have discovered this year that its political, contested and that it doesn’t always faithfully represent economic reality …and what is “economic reality” anyway? Accounting doesn’t just have economic consequences – it has a real impact on people’s lives.