1. Copyright © 2000 McGraw-Hill Book Co. Aust. PPT t/a Financial Accounting Theory by Deegan12.1 Financial Accounting Theory Craig Deegan Chapter 12 Critical perspectives on accounting Slides written by Michaela Rankin

2. Chapter 12: Critical perspectives on accounting Copyright © 2000 McGraw-Hill Book Co. Aust. PPT t/a Financial Accounting Theory by Deegan12.2 Learning Objectives In this chapter you will be introduced toIn 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

3. Chapter 12: Critical perspectives on accounting Copyright © 2000 McGraw-Hill Book Co. Aust. PPT t/a Financial Accounting Theory by Deegan12.3 Learning Objectives –the fact that disclosure (or non-disclosure) of information can be construed to be an important strategy to promote and legitimise particular social orders

4. Chapter 12: Critical perspectives on accounting Copyright © 2000 McGraw-Hill Book Co. Aust. PPT t/a Financial Accounting Theory by Deegan12.4 Critical perspective defined Refers to accounting research that goes beyond questioning whether particular methods of accounting should be employedRefers 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 capitalfocuses 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

5. Chapter 12: Critical perspectives on accounting Copyright © 2000 McGraw-Hill Book Co. Aust. PPT t/a Financial Accounting Theory by Deegan12.5 Critical perspective defined—continued Critical accounting theorists seek to highlight, through critical analysis, the key role of accounting in societyCritical 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 neutralchallenges the view that accounting can be construed as objective or neutral accounting seen as a means of constructing or legitimising particular social structuresaccounting seen as a means of constructing or legitimising particular social structures

6. Chapter 12: Critical perspectives on accounting Copyright © 2000 McGraw-Hill Book Co. Aust. PPT t/a Financial Accounting Theory by Deegan12.6 Criticism of capitalist system Critical theorists tend to oppose aspects of the capitalist system and accountingCritical theorists tend to oppose aspects of the capitalist system and accounting emphasise that systems of accounting are built around the prevailing social orderemphasise that systems of accounting are built around the prevailing social order given the practice of accounting is in the hands of large corporations and accounting in the hands of government, accounting will never do anything but support the current systemgiven the practice of accounting is in the hands of large corporations and accounting in the hands of government, accounting will never do anything but support the current system

7. Chapter 12: Critical perspectives on accounting Copyright © 2000 McGraw-Hill Book Co. Aust. PPT t/a Financial Accounting Theory by Deegan12.7 Origins of critical perspective Grounded in Political Economy TheoryGrounded in Political Economy Theory ‘political economy’ is the social, political and economic framework within which human life takes place (Gray et al 1996)‘political economy’ is the social, political and economic framework within which human life takes place (Gray et al 1996) based on ‘Classical’ branch—challenges the existing nature and structure of societybased on ‘Classical’ branch—challenges the existing nature and structure of society

8. Chapter 12: Critical perspectives on accounting Copyright © 2000 McGraw-Hill Book Co. Aust. PPT t/a Financial Accounting Theory by Deegan12.8 Classical political economy perspective Related to the works of philosophers such as MarxRelated to the works of philosophers such as Marx explicitly considers structural conflict, inequity, and the role of the State at the heart of the analysisexplicitly considers structural conflict, inequity, and the role of the State at the heart of the analysis highlights issues which may not otherwise be addressedhighlights issues which may not otherwise be addressed –social welfare

9. Chapter 12: Critical perspectives on accounting Copyright © 2000 McGraw-Hill Book Co. Aust. PPT t/a Financial Accounting Theory by Deegan12.9 Disclosure of social responsibility information Critical theorists argue that disclosure of social responsibility information is wasted unless accompanied by fundamental changes in how society strucutredCritical 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 informationacts to legitimise, not challenge, those providing the information

10. Chapter 12: Critical perspectives on accounting Copyright © 2000 McGraw-Hill Book Co. Aust. PPT t/a Financial Accounting Theory by Deegan12.10 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 systemAs 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 problemsconsidered wasted effort to use accounting to solve problems one is using the very process that caused the problem to try to solve the problemone is using the very process that caused the problem to try to solve the problem

11. Chapter 12: Critical perspectives on accounting Copyright © 2000 McGraw-Hill Book Co. Aust. PPT t/a Financial Accounting Theory by Deegan12.11 Criticism of critical perspective Critical theorists often marginalised to a greater extent than othersCritical theorists often marginalised to a greater extent than others often do not provide solutions to perceived problemsoften do not provide solutions to perceived problems –inconsistent with normal training of accountants to provide solutions if problems are evident critical of accountantscritical of accountants

12. Chapter 12: Critical perspectives on accounting Copyright © 2000 McGraw-Hill Book Co. Aust. PPT t/a Financial Accounting Theory by Deegan12.12 Role of the State The State is seen as a vehicle of support for holders of capital and for the capitalist system as a wholeThe 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 social systemGovernment will take action to enhance the legitimacy of the social system social disclosures seen as a means of pacifying challenges against the capitalist system where corporations given many rights and powerssocial disclosures seen as a means of pacifying challenges against the capitalist system where corporations given many rights and powers

13. Chapter 12: Critical perspectives on accounting Copyright © 2000 McGraw-Hill Book Co. Aust. PPT t/a Financial Accounting Theory by Deegan12.13 Role of the State—continued Restricting the flow of information, or availability of specific types of information seen as a means of maintaining particular organisations and social structuresRestricting 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’ groupsgovernment does not operate in the public interest, but in the interests of ‘well off’ groups

14. Chapter 12: Critical perspectives on accounting Copyright © 2000 McGraw-Hill Book Co. Aust. PPT t/a Financial Accounting Theory by Deegan12.14 Role of accounting research Accounting researchers are seen as providing research results and perspectives that help to legitimise and maintain certain political ideologiesAccounting researchers are seen as providing research results and perspectives that help to legitimise and maintain certain political ideologies –eg. 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

15. Chapter 12: Critical perspectives on accounting Copyright © 2000 McGraw-Hill Book Co. Aust. PPT t/a Financial Accounting Theory by Deegan12.15 Role of accounting research—continued –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 –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

16. Chapter 12: Critical perspectives on accounting Copyright © 2000 McGraw-Hill Book Co. Aust. PPT t/a Financial Accounting Theory by Deegan12.16 Role of accounting practice Critical theorists see conceptual frameworks as legitimising the accounting profession and of financial reports produced by reporting entitiesCritical 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 what performance characteristics are important or not importantaccountants seen as imposing their own views about what performance characteristics are important or not important

17. Chapter 12: Critical perspectives on accounting Copyright © 2000 McGraw-Hill Book Co. Aust. PPT t/a Financial Accounting Theory by Deegan12.17 Role of accounting practice—continued Attention is directed to particular measures (eg. profits) through accountingAttention is directed to particular measures (eg. profits) through accounting in communicating reality, accountants simultaneously construct realityin communicating reality, accountants simultaneously construct reality political economy perspective emphasises the role of accounting reports in maintaining social arrangementspolitical 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 occurringsee corporate social reporting as harmful as it gives the impression of concern and change without any real change occurring