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12-1Copyright 2009 McGraw-Hill Australia Pty LtdPPTs t/a Deegan, Financial Accounting Theory 3e

Financial Accounting TheoryCraig Deegan

Chapter 12

Critical perspectives of accounting

Slides written by Craig Deegan




Learning objectives

• In 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 thepositions of others

– the fact that disclosure (or non-disclosure) of information

can be construed to be an important strategy to promote

and legitimise particular social orders




Critical perspective defined

• Refers to accounting research that goes beyondquestioning whether particular methods ofaccounting should be employed

• Questions prevailing social arrangements and how

accounting practices actually contribute toinequities

• Focuses on the role of accounting in sustaining the

privileged positions of those in control of resources(capital) while undermining or restraining the voiceof those without capital




Critical perspective defined (cont.)

• Critical accounting theorists seek to highlight,

through critical analysis, the key role of accounting

in society

• Challenges the view that accounting can beconstrued as objective or neutral

• Rejects a ‘pluralist view of society’ wherein many

stakeholders have power to influence government,corporations, and so forth

– Rather, power resides in the hands of a ‘small elite’




The critical perspective (cont.)

• Accounting seen as a means of constructing or

legitimising particular social structures for thebenefits of those that currently have wealth

• Critical theorists do not seek to appear objective

• They seek to highlight the role of accounting in

maintaining social structures that they perceive as

unjust




The critical perspective (cont.)

• They believe that development of particulartheories can bring about social changes in socialstructures and practices, that is, the promotion of aparticular theory becomes a social actuality

• View that, if theorists have well developed theorieswhich question the objectivity of financialaccounting, and if they are able to generatesufficient support for the theory then ultimately thiscould create the necessary impetus for changes in

the way financial accounting is practiced and howsociety is organised




Philosophical basis of criticalaccounting research

• Much of the critical research is informed by theworks of Karl Marx

• However, some critical research adopts a ‘deep

ecologist’ philosophy – questions the trade-off between economic performance

and ecological damage




Philosophical basis of criticalaccounting research (cont.)

• Other critical accounting research adopts a radicalfeminist perspective

– believe that accounting maintains and reinforces

masculine traits such as ongoing quests for success,

conflict and so forth without any consideration to

cooperation, respect, loyalty, caring and so forth

• Critical theory is an ‘umbrella term’ for a wide

variety of theoretical approaches perhaps more

united in what they oppose than what they agreeupon (Hopper et al.1995)




Criticism of capitalist system

• Critical theorists tend to oppose aspects of thecapitalist system and accounting

• Emphasise that systems of accounting are built

around the prevailing social order —and supportthe social order

• Given the practice of accounting is in the hands of

large corporations and accounting regulation in thehands of government, accounting information will

never do anything but support the current system




Origins of critical perspective

• Grounded in Political Economy Theory

• ‘Political economy’ is the social, political and

economic framework within which human life takes

place (Gray, Owen & Adams 1996)

• Based on ‘Classical’ branch—challenges the

existing nature and structure of society




Classical political economyperspective

• As already indicated, much critical accountingresearch is related to the works of philosophers

such as Marx

• Explicitly considers structural conflict, inequity andthe role of the State at the heart of the analysis

• Highlights issues which may not otherwise be

addressed – Social welfare




Disclosure of social responsibilityinformation

• Critical theorists argue that disclosure of socialresponsibility information is wasted unless

accompanied by fundamental changes in how

society strucutred

• Acts to legitimise, not challenge, those providing

the information

• Need social reform, and not more ‘accounting’




Views on social and environmentalaccounting

• As accounting deemed to sustain particular socialstructures, introduction of new forms of accounting

only help to sustain that social system

• Considered wasted effort to use accounting tosolve problems

• One is using the very process that caused the

problem to try to solve the problem






Role of the state

• The State is seen as a vehicle of support forholders of capital and for the capitalist system as a

whole

– securities acts throughout the world were designed to

maintain the ideological, social, and economic status quo

while restoring confidence in the existing system and itsinstitutions (Neimark 1982, p.49)

• Government will take action to enhance the

legitimacy of the (unjust) social system

• Social disclosures seen as a means of pacifyingchallenges against the capitalist system where

corporations given many rights and powers




Role of the state (cont.)

• Restricting the flow of information, or availability ofspecific types of information, seen as a means ofmaintaining particular organisations and socialstructures

• Government does not operate in the ‘publicinterest’, but in the interests of ‘well off’ groups – Contrast with ‘public interest theory’ considered in

previous lectures

• Corporations typically lobby against regulation thatcould increase their accountability to society




Role of accounting research

• ‘Mainstream’ accounting researchers are seen asproviding research results and perspectives that

help to legitimise and maintain certain political

ideologies

– e.g. 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

The story of PAT can be told in such terms. Its rise was not

just due to its addressal of academic threats and concerns

at the time of its inception but it was also in tandem with and

connected to the right wing political ideologies dominant inthe 1980s (Hopper et al.1995, p.518)




Role of accounting research (cont.)

– rise of ‘economic consequences’ research seems to have

been motivated by the desire of large corporations to

counter attempts to change reporting systems and levels

of disclosure

– results supported corporations’ call for reduction in

regulation

– 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



12-19Copyright

2009 McGraw-Hill Australia Pty LtdPPTs t/a Deegan, Financial Accounting Theory 3e

Role of accounting practice

• Critical theorists see conceptual frameworks aslegitimising the accounting profession and of

financial reports produced by reporting entities

• Accountants seen as imposing their own viewsabout which performance characteristics are

important or not important

• Attention is directed to particular measures (e.g.profits) through accounting



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