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Accounting Theory

By sjsandysandra Nov 23, 2014 1573 Words

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).


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.


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, 1999). Hence, previous dialogue regarded accounting as a social science. Essentially, social science is the study of aspects of human society and over the last 200 years, it has been heavily dominated by a positivist view, with the principal notion that the study of societies can be undertaken scientifically. Ontologically, mainstream accounting is subjugated by the perception of ‘physical realism’. This is associated with the long-standing philosophical issue, the ‘subject-object problem’. The object is presumed to be independent of the subject and knowledge is achieved when a subject correctly reflects and determines this objective reality. Hence, the reality exists ‘concretely and independently of the social actors and social practices’ (Tinker et al. 1982 cited in Journals of business). Past discussion have revealed that these perspectives have suffered from severe shortcomings, obstructing the development of accounting practices and accounting research itself. Accounting is considered to be among those disciplines concerned with aspects of human society. It is a ‘system of thought’ designed to assist human decision-making and simultaneously influence human behavior. Orthodoxly, belief has developed that accounting is grounded in a pursuit for objectivity and accountants are therefore seen as objective appraisers of reality, representing reality “as is” (Morgan, 1988). However, this is an impractical ideal, as accountants inherently are subjective ‘constructors of reality’ in limited one-sided ways. By considering and understanding this aspect of the accounting process, accountants have the potential of developing a new epistemology of accounting that stresses the analytical as opposed to the allegedly “objective” facet of the discipline. Perhaps, this may assist in enhancing and expanding the accountant’s’ contribution to economic and social life. Alternately, instead of striving to reconstruct the practices of the natural sciences, it is more suitable that accounting focuses on the approaches that recognize the human aspects of the discipline rather than assert an intellectual status likeness to the natural sciences (Gaffikin, 2006). Regrettably both accounting theorists and researcher were sluggish to address this controversy. This is evident through the apparent fixation in the neo-empirical research programs over the past 50 years. Development in accounting theories and Implications

Numerous distinctive approaches to developing accounting theories have been examined in the preceding researches. They have integrated the works of several theorists such as Devine, Morgan, Chambers, Sterling, and many others. Their work was transpired from the need to engage in meticulous research procedures, and logical analysis to stated hypothesis and diplomacy as to the purpose of accounting, particularly the production of general-purpose financial statements. In generating theories of accounting constructed on the basis of what accountants actually do (inductive reasoning), it is presumed that what is done by most of the accountants is the most appropriate practice. In implementing such a viewpoint there is, in a sense a perception of accounting Darwinism, which is a view that accounting practice has evolved, and the “fittest”, or perhaps “best” practices have survived. While some researcher continued to adopt an inductive approach, a different approach became popular in the 1960 and 1970s. This approach sought to prescribe rather that describe particular accounting procedures, and as such was not driven by existing practices.

The 1960s was known as the ‘Golden age’ whereby many of the major works of these theorists were published. It was a period of watershed in accounting methodology since dramatic changes took place within the discipline. Various professional bodies attempted to develop a theoretical basis for accounting through the introduction of general accepted accounting principles, accounting standards and a conceptual framework. Commissions to individual theorists or a group of theorist represented these formalities, which later developed into committees. This was followed by the official designation of research divisions in order to develop guidelines for theory development, which later progressed to become independent organizations explicitly charged to improve these “theoretical statements”. As these endeavors continued and evolved over time it stimulated change in the function of the published pronouncements, implying a change in their authoritative scope. They became part of the regulatory system transitioning them from being merely recommended or optional to a more ‘mandatory’ status. Therefore, regulation has substituted theory, becoming a ‘required theory’ underlying accounting practice. Implications and Conclusion

In the late 1960s there were several aspects of the accounting discipline that fused in order alter the basis of accounting research and theorizing. From this point neo-empirical research in accounting, as well as positive accounting theory, were initiated and became the leading form of research publications in the accounting literature. Positive accounting is the subdivision of theoretical accounting research that pursues to explain and predict actual accounting practices. These differ from normative accounting practices, which seek to derive and prescribe “optimal” accounting standards. Simultaneously, there were significant shift of attitudes towards research in the social sciences. There was an increasing acceptance of the views that positivistic scientific epistemology was unsuitable for the social and human sciences. This is due to the fact that these disciplines involve human and social aspects, therefore the belief in the prospect of objective, value neutral research methodologies was deemed to be illogical. Accordingly, there was a dismissal of the deep-rooted modernist belief that methods portrayed as those applied in the natural sciences, and held to be the highest standards of academic diligence, could be universally prescribed to all disciplines. Unorthodox methods were pursued which had essential ontological and epistemological positions unrelated to the positivist program that had ruled Western thinking for so long. There was a greater consciousness that grasping the progressions of knowledge necessitated, the mastery of language and cultural and societal aspects that had formerly been omitted in the process of theory development.


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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