Accounting Theory

Topics: Scientific method, Sociology, Social sciences Pages: 8 (1573 words) Published: November 23, 2014

In his 1989 article Mouck cites Morgan (1988) who observed that:

“The idea that accountants represent reality ‘as is ‘ through the means of numbers that are objective and value free, has clouded the much more important insight that accountants are always engaged in interpreting a complex reality, partially, and in a way that is heavily weighted in favor of what the accountant is able to measure and chooses to measure…” (p. 480).

Required:

Discuss the extent to which the “scientific” world-view of mainstream accounting researchers, is grounded on a belief that “reality” exists independently of thee human subject and the possible implications this has for accounting theory development.

Introduction

Accounting is a subject that is guided with principles and regulations. Thus, it is often regarded as a rigid, rigorous, and highly analytical discipline with very precise interpretations. However, this is far from the truth. For instance, two organizations that are otherwise homogeneous can apply different valuation methods giving entirely distinct but equally correct answers. One may argue that a choice between accounting schemes is merely an “accounting construct” the sorts of “games” accountants play that are exclusively of relevance to them but have no pertinent in the “real world.” Once again this is entirely false. For example, valuation of inventory using either LIFO (Last-in-last-out) or FIFO (First-in-first-out) has an impact on income tax, especially in the US. Therefore an accounting construct possesses an essential “social reality” i.e. the amount of income tax that is paid. Income tax payments are not the only social reality that accounting numbers affect. Income numbers also influence dividend payments, price of a firm’s stock, the cost of capital as well as salaries and bonuses since it can be used as an instrument in evaluating the performance of management. Considering that accounting statistics can have significant social ramifications, the question raised becomes; why do we lack the ability to quantify ‘economic reality’ accurately? This is simply justified by the fact that there are varied opinions of economic reality. The selection between the various types of values, together with the associated affairs, falls within the realm of accounting theory. The term ‘Accounting Theory’ is truly very enigmatic. Hence, there are numerous definitions throughout the accounting literature of this rather abstract ‘terminology’. Nonetheless, it can generally be viewed as a set of assumptions, methodologies and frameworks used in the study and application of financial accounting principles that underlie the development of rules by a legislative body. Accounting theory is therefore a ‘metaphorical’ enterprise, with a history of broadening ‘metaphorical’ development; advances in the accounting methodology are contrasted with agreeing developments in philosophical science. This paper examines the methodology dominantly pertained in accounting research, namely mainstream accounting research methodology. In the past, there has been and there will continue to be widespread dialogues and disagreements as to what these fundamental assumptions, definitions, ideologies, and perceptions should be. Hence, accounting theory is never a finished and complete artifact. Conversations always resume, especially as new affairs and problems emerge.

Accounting as a social science
According to Tom Mouck, during the 1960s “accounting research was methodologically unsophisticated”. At the time, researchers within the field provided descriptive sequences of existing applications as an attempt to uncover rules for improving accounting practices. This method is referred to as inductive reasoning and is often labeled ‘scientific’ as, like many theories in science it is based on observation. Accounting research as suggested in mainstream accounting journals has been inclined to concentrate on the functionalist paradigm (Wahyudi,...

References: Gaffikin, M. (2006). A critique of accounting theory. University of Wollongong: Faculty of Business - Accounting & Finance Working Papers, pp.1-18.
Morgan, G. (1988). Accounting as reality construction: towards a new epistemology for accounting practice. Accounting, Organizations and Society, 13(5), pp.477--485.
Mouck, T. (1989). The irony of" The Golden Age" of accounting methodology. The Accounting Historians Journal, pp.85--106.
Wahyudi, I. (1999). Mainstream Accounting and Its Paradigm: A Critical Analysis. International Journal of Business, 1(2), pp.99--112.
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