1. 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

2. 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

3. 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

4. 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

5. 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

6. 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

7. 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

8. 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

9. 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

10. 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

11. 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

12. 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

13. 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

14. 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

15. 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

16. 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

17. 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