Accounting, Organizations and Society 34 (2009) 770–786
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Accounting, Organizations and Society
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Making imaginary worlds real: The case of expensing employee stock options
Sue Ravenscroft a,*, Paul F. Williams b,1
Department of Accounting, Iowa State University, 2330 Gerdin Building, Ames, IA 50011-1350, United States Department of Accounting, North Carolina State University, Box 8113, Raleigh, NC 27695-8113, United States
a b s t r a c t
West [West, B. (2003). Professionalism and accounting rules. London: Routledge] and Chambers [Chambers, R. J. (1966). Accounting evaluation and economic behavior. Houston: Scholars Book Company] have provocatively argued that ﬁnancial reporting has reached a state of near-total incoherence. In this paper, we argue that a source of this incoherence is the transformation of the US accounting academy into a sub-discipline of ﬁnancial economics, a transformation in which accounting became a servant of the imaginary world of neoclassical economics. After noting the unusually prominent role of rules within the accounting profession, we describe the displacement of accounting’s centuries-old root metaphor of accountability by the metaphor of information usefulness, and situate that displacement within neoliberalism, a broader political movement that arose after World War II. Finally, we use SFAS 123R, the recently issued stock option standard, as a case study of the incoherence that West and Chambers assert. Through various issues – such as reﬂexivity, theory paradox, and unexplained questions of responsibility – we demonstrate the logical inconsistencies involved in SFAS 123F. The incoherence of stock option reporting rules raises serious questions about the information metaphor as a foundation for either individual rules or the standard setting process. The Financial Accounting Standards Board’s (FASB) attempts to make the imaginary world of neoclassical economics real have resulted in rules which are not defensible.
Ó 2008 Elsevier Ltd. All rights reserved.
‘‘We may start with a simple observation: so far as
modern scientists know no one, not even the most adapt
(sic) fakirs and clairvoyants, have ever learned anything
from the future (all emphases in original)” Carl Thomas
Devine (1962, p. 13).
In his critique of current accounting theory, West observed that accounting failures and public relations crises tend to precipitate ‘‘calls for formally stated accounting rules,” (2003, p. 106). A highly salient and contentious
example of the accounting profession’s rule-making re-
* Corresponding author. Tel.: +1 515 294 3574; fax: +1 515 294 3525. E-mail addresses: email@example.com (S. Ravenscroft), firstname.lastname@example.org (P.F. Williams). 1
Tel.: +1 919 515 4436; fax: +1 919 515 4446.
0361-3682/$ - see front matter Ó 2008 Elsevier Ltd. All rights reserved. doi:10.1016/j.aos.2008.12.001
sponse is the recent well-publicized battle over accounting
for stock options in the US. The history of stock option
accounting is the history of an accounting problem never
solved. In the US the use of stock options was blamed as a
key feature of the irrational exuberance driving the stock
bubble of the late 1990s (Berenson, 2003; Walters & Young,
2008); when that bubble burst, the stock market declined
dramatically. As a way to restore the public’s conﬁdence in capital markets, legislators and public accounting rulemakers seized upon changing the required accounting for stock options, exhibiting a conventional faith that disclosing the magnitude of such compensation to market participants would lead to market solutions to the problem. Instead of asking whether stock option abuses could be addressed more effectively by taxation or other regulations, the accounting profession created yet another complicated
rule to provide greater ‘‘transparency.” If legislators and
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