1. 1 © 2012 John Wiley & Sons, Ltd, Accounting for Managers, 4th edition, 9781119979678 Chapter 5 Interpretive and Critical Perspectives on Accounting and Decision Making

2. Overview – Chapter 5 Role of research and theory Rational, natural & open perspectives Alternative theories, paradigms & control models – Interpretive paradigm, social construction, culture & accounting – Radical paradigm, critical accounting, power & accounting Ethics & accounting The value of alternative approaches 2 © 2012 John Wiley & Sons, Ltd, Accounting for Managers, 4th edition, 9781119979678

3. Research & theory Theory is an explanation of what is observed in practice An understanding of the underlying assumptions of accounting and the limitations of the tools and techniques of accounting is essential. If we ignore those assumptions and limitations, we are likely to make decisions on the basis of numbers alone that do not adequately reflect the complexity of the business environment and the predictive model which underlies the way organizations carry on business 3 © 2012 John Wiley & Sons, Ltd, Accounting for Managers, 4th edition, 9781119979678

4. Alternative approaches to research Quantitative studies of a large number of business organizations through surveys or analysis of publicly available data that can be analysed statistically in order to produce generalizations about accounting practice. Qualitative studies of a single organization or a small number of organizations through case studies comprising interviews, observation and documentary research that aims to explain accounting practice in the context in which it is situated. 4 © 2012 John Wiley & Sons, Ltd, Accounting for Managers, 4th edition, 9781119979678

5. Alternative approaches to accounting Conventional teaching emphasizing the needs of the professional accounting bodies; The application of economics and management science; History and public-sector accounting; Behavioural and organizational approaches. – Hopper et al. (2001) 5 © 2012 John Wiley & Sons, Ltd, Accounting for Managers, 4th edition, 9781119979678

6. Types of research Normative – what ought to happen Interpretive & critical – what does happen Approaches: – US – UK & Europe – Scandinavia 6 © 2012 John Wiley & Sons, Ltd, Accounting for Managers, 4th edition, 9781119979678

7. Alternative paradigms ‘Garbage can’ – ‘the sequence whereby actions precede goals may well be a more accurate portrayal of organizational functioning than the more traditional goal-action paradigm’ – ‘accounting systems represent an ex post rationalization of actions, rather than an ex ante statement of organizational goals’ Cooper et al.  Non-rational (not irrational) 7 © 2012 John Wiley & Sons, Ltd, Accounting for Managers, 4th edition, 9781119979678

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9. Rational & Natural Rational perspective: the organization as a goal- oriented collective that acts purposefully to achieve those goals through a formal structure governing behaviour and the roles of organizational members Natural perspective: rules and roles do not significantly influence the actions of people in organizations. People are motivated by self-interest and informal relations are more important than the formal organizational structure in understanding organizational behaviour. 9 © 2012 John Wiley & Sons, Ltd, Accounting for Managers, 4th edition, 9781119979678

10. Open & closed systems Both rational and natural perspectives view the organization as a closed system, separate from its environment. The open systems perspective emphasizes the impact of the environment on organizations which are seen as shifting coalitions of participants and a collection of interdependent activities that are tightly or loosely coupled 10 © 2012 John Wiley & Sons, Ltd, Accounting for Managers, 4th edition, 9781119979678

11. Cybernetic systems The rational paradigm relies on an ‘objectively knowable, empirically verifiable reality’ (Boland and Pondy, 1983, p. 223) – Rational perspective relies on cybernetic models Non-cybernetic systems that are dependent on values and rituals are located in interpretive or critical paradigms. – Hofstede (1981) 11 © 2012 John Wiley & Sons, Ltd, Accounting for Managers, 4th edition, 9781119979678

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13. Interpretive paradigm ‘accounts of what happens as opposed to what should happen’ ‘accounts of what happens as opposed to what should happen’ – Chua (1988) ‘accounting in action … ways in which accounting reflects, reinforces or even constrains the strategic postures adopted by particular organizations’ – Hopwood (1983) ‘to produce rich and deep understandings of how managers and employees in organizations understand, think about, interact with, and use management accounting and control systems’ – Macintosh (1994) 13 © 2012 John Wiley & Sons, Ltd, Accounting for Managers, 4th edition, 9781119979678

14. Social construction Individuals act towards things on the basis of the meaning that things have for them Individuals act towards things on the basis of the meaning that things have for them Individuals construct meanings of the situation or event and act in accordance with that meaning Individuals construct meanings of the situation or event and act in accordance with that meaning Meanings are derived through social interaction Meanings are derived through social interaction Meanings are socially constructed, internalised and shared between individuals Meanings are socially constructed, internalised and shared between individuals – Preston (1995) 14 © 2012 John Wiley & Sons, Ltd, Accounting for Managers, 4th edition, 9781119979678

15. Culture & accounting Culture as ‘shared key values and beliefs’ – Smircich (1983) Organizational socialization – Schein (1968) accounting systems as ‘ accounting systems as ‘one of the most important conventions connecting institutionally defined belief systems with technical activities’ – Scott (1998) Control systems must be sensitive to culture – Or there is resistance 15 © 2012 John Wiley & Sons, Ltd, Accounting for Managers, 4th edition, 9781119979678

16. Radical paradigm Broader structural issues such as the role of the State, distribution of the surplus of production and class difference – Hopper et al. (1985) Political economy Labour process Critical theory  Concern with opening up the discourse from a narrow economic-rational application of accounting to question its underlying assumptions and its (often dysfunctional) consequences.  accounting ‘serves to construct a particular field of visibility’ – Miller & O’Leary (1987) 16 © 2012 John Wiley & Sons, Ltd, Accounting for Managers, 4th edition, 9781119979678

17. Critical accounting ‘a critical understanding of the role of accounting processes and practices and the accounting profession in the functioning of society and organizations with an intention to use that understanding to engage (where appropriate) in changing these processes, practices and the profession’ – Laughlin (1999) 17 © 2012 John Wiley & Sons, Ltd, Accounting for Managers, 4th edition, 9781119979678

18. Power & accounting ‘the potential ability to influence behavior, to change the course of events, to overcome resistance, and to get people to do things that they would not otherwise do’ – Pfeffer (1992) Accounting systems ‘impact on sustaining and influencing an organization's culture and language and … in maintaining systems of power and control in organizations’ – Cooper et al. (1981) 18 © 2012 John Wiley & Sons, Ltd, Accounting for Managers, 4th edition, 9781119979678

19. The value of alternative approaches Although management control is ‘managerialist in focus... this should not preclude a critical stance and thus a broader choice of theoretical approaches’ – Otley et al. Paradigmatic pluralism as ‘alternative ways of understanding the multiple roles played by management accounting in organizations and society’ – Covaleski et al. (see Reading in Text) 19 © 2012 John Wiley & Sons, Ltd, Accounting for Managers, 4th edition, 9781119979678

20. Ethics and accounting Accounting choices are moral choices – ‘Creative accounting’ to ‘earnings management’ Code of Ethics for Professional Accountants – Principles: Integrity, Objectivity, Professional competence & due care, Confidentiality, Professional behaviour – Threats:: Self-interest, Self-review, Advocacy, Familiarity, Intimidation 20 © 2012 John Wiley & Sons, Ltd, Accounting for Managers, 4th edition, 9781119979678

21. Key points Appreciating the role of research and theory Different perspectives: rational, natural & open systems perspectives Alternative paradigms for accounting and control – Interpretive paradigm, social construction, culture & accounting – Radical paradigm, critical accounting, power & accounting – The value of alternative approaches Ethics & accounting 21 © 2012 John Wiley & Sons, Ltd, Accounting for Managers, 4th edition, 9781119979678