Americanism and financial accounting theory – Part 1: Was America born capitalist?

This paper (Part 1), and two related papers (Part 2: The ‘modern business enterprise’, America's transition to capitalism, and the genesis of management accounting; and Part 3: Adam Smith, the rise and fall of socialism, and Irving Fisher's theory of accounting), explore historical links between American ideology and Irving Fisher's theory of accounting. They explain Fisher's theory as the product of America's exceptional transition to capitalism and the ideological consequences. Part 1 uses Marx's theories of the transition in England, of colonisation, and of ideology, to construct an accounting history model of America's transition to capitalism that identifies the dominant social relations of production and calculative mentalities, and uses them to predict the accounting signatures and political ideologies we should observe if the theories are correct. Parts 1 and 2 test the model. Part 3 explores the ideological consequences of America's transition, for America and financial accounting. Scholars generally assume that America was ‘born capitalist’; historians argue it became capitalist sometime from the late 18th to early 19th centuries. The model, however, identifies early farmers as ‘simple commodity producers’ who, it predicts, kept only single entry accounts of debt, and had a ‘producer’ ideology of ‘equality’ and ‘freedom’. It identifies planters and manufacturers as ‘semi-capitalists’ – part merchant capitalist and part simple commodity producer – who it predicts calculated ‘profit’ as consumable surplus, pursued the ‘simple rate of profit’, controlled only prime costs, and had an ideology of ‘individualism’ that combined the producers’ ideology with the merchants’ ‘laissez-faire’. Part 1 re-examines evidence from accounts to around the mid-19th century, which confirms that farmers were not capitalists and that even the most advanced merchants, manufacturers and planters were semi-capitalists. Part 2 searches for capitalists in the second half of the 19th century. It re-examines evidence from the accounts of the Boston Associates who historians have seen as ‘proto-industrial capitalists’; from the railroads heralded by Chandler as the beginning of ‘managerial capitalism’; and from ‘entrepreneurial capitalists’ like Andrew Carnegie who created the large corporations that conquered America from the 1880s. Their financial accounts and cost management systems reveal the same semi-capitalist mentality found in the early 19th century. Re-examination of the ‘costing renaissance’ in the 1890s and evidence from the DuPont Powder Company and General Motors from 1900 to 1920, suggests that only from around 1900, after escalating conflict between ‘capital and labour’, did the capitalist mentality appear in new management accounting systems focused on ‘return on investment’. Part 3 shows that the accounting evidence closely correlates with the history of American political ideology. It argues that Adam Smith's Wealth of Nations dominated American politics until the late 19th century because it theorised a nation of simple commodity producers and semi-capitalists. It explains the delay in America's transition compared to Britain's, and the decline in the popularity of laissez-faire from the 1880s, as consequences of this exceptional starting point. ‘Big business’ capitalism created an ideological problem for America's ruling elite, particularly the threat of socialism from around 1900 to 1920. Part 3 argues that Fisher's neoclassical theory of ‘capital’ and ‘income’, designed as a critique of Marx, responded to this problem and played an important role in undermining middle class support for socialism. Fisher said he based his theory on accounting practice, particularly double entry bookkeeping, but Part 3 shows he did not use or understand it, which divorced his accounting from reality. American history's legacy to the world, the papers therefore conclude, is a pathological theory of financial accounting.     

In our ivory towers? The research-practice gap in management accounting

This study reports on an investigation of 64 senior management accounting academics from 55 universities in 14 countries about the extent to which academic management accounting research does, and should inform practice. Drawing on the diffusion of innovations theory as a point of departure, and based on evidence obtained from a questionnaire survey and subsequent interviews, our findings reveal the prevalence of two broad schools of thought. One school, represented by the majority of senior academics, holds that there is a significant and widening ‘gap’ between academic research and the practice of management accounting, and that this gap is of considerable concern. In contrast, the other school holds that a divide between academic management accounting research and practice is appropriate, and that efforts to bridge this divide are unnecessary, untenable or irrelevant. From this empirical evidence, we advance a conceptual framework distinguishing between the ‘type’ of academic research undertaken, and the ‘users’ of academic research, and on the basis of this framework, contend that framing the relationship between academic research and practice as a ‘gap’ is potentially an oversimplification, and directs attention away from the broader but fundamental question of the role and societal relevance of academic research in management accounting.     

On theory as a ‘deliverable’ and its relevance in ‘policy’ arenas

This paper comments on Lee Parker's paper on “Qualitative management accounting research: deliverables and relevance”. Using it as a starting point, it highlights the need for more informed modes of theorizing as opposed to ‘more theories’ and the performative effects of theorising. Theories and theorising already matter although what they ‘deliver’ and influence will be contingent on their instantiation in specific action nets. Further, in order that such social practices might continue to generate desirable consequences, stronger forms of research training should be developed.     

The ‘performativity thesis’ and its critics: Towards a relational ontology of management accounting

This paper explores accounting's mediating role in bringing theoretical statements from economics into life. It addresses the so-called performativity thesis that claims that economic theory does not just observe and explain a reality, but rather shapes, formats and performs reality. Accounting mediates in that process by creating cognitive boundaries that embed societal practices in economic theory. However, the performativity thesis is not without criticisms. Its main criticisms concern a lack of proof of the thesis; an overestimation of the power of economics to extend beyond the virtual; and a lack of a critical stance. In order to bring more nuance in the discussion on the performativity thesis the paper reflects on evidence from the field of accounting. The review of accounting studies reveals how accounting, to different degrees, is implicated in strategic and operational activities in markets and organisations and how it is a performative mechanism of economisation. Moreover, in order to accentuate the ‘good’ in society and to challenge the ‘bad’, the paper suggests a further development of (critical) management accounting research into the performativity of both economics and other social theories. A relational ontology of management accounting that is in politics and that is sensitive to ‘unlocalisable’ virtual powers of social-historical formations of management accounting may be developed.     

China's Healthcare Costing in Times of Crisis: Conflicts,Interactions, and Hidden Agendas

This paper presents a longitudinal interpretive case study on the development of healthcare costing in China over the period 2002 to 2015. Adopting a middle-range theory lens, the study explores dynamic interactions in the use of cost information among societal institutions and organizations. It reports the successful internalization of costing systems in public hospitals in Beijing, which supports the effectiveness of a hybrid steering mechanism combining both transactional and relational features; however, such successful internalization does not indicate the success of steering the lifeworld of institutions and organizations towards change. Notably, hospitals' responses to steering alter over time, from passive absorption to active manipulation, revealing how cost information may underpin hospital beliefs in marketization. At an institutional level, the paper provides empirical evidence for relational steering among societal institutions, where a reaction of ‘rebuttal’ is observed. It offers insights on how accounting can be a powerful tool in legitimizing such rebuttal, while keeping political considerations as hidden agendas. The findings suggest the importance of understanding lifeworld complexity at both societal and organizational levels, and cross-institutional collaboration in using accounting as a steering mechanism. The findings have important policy implications for public sector reform, both in China and worldwide.     

Managerial Accounting Early in the British Industrial Revolution: The Carron Company,a Case Study

Traditional accounting histories date the advent of sophisticated cost accounting to the mid-1880s. Research in recent years, however, has provided evidence of purposeful cost management during the British Industrial Revolution. Given the advances in capital accumulation techniques, market structure development, and technology, it might have been expected that British entrepreneurs would have appreciated the advantages that effective costing could provide. This article is a case study of the Carron Company, the huge Scottish ironworks, whose cost accounting methods were notably innovative during the period for which plentiful archival records exist: 1759–1786. Carron's utilisation and practice of cost management is examined in the areas of expenditure control; responsibility and departmental cost management; overhead allocation; cost comparisons and transfers; costs for decision-making; budgets, forecasts, and standards; and inventory control. The positive findings in all these activity areas contribute to the growing rehabilitation of British Industrial Revolution cost accounting as a precursor of ‘the costing renaissance’ a century later.     

The societal relevance of management accounting innovations: economic value added and institutional work in the fields of Chinese and Thai state-owned enterprises

This paper contributes to the ongoing debate about the relevance of management accounting. In doing so, we widen the definition of ‘relevance’ from the largely managerialist focus dominating this debate to examine how management accounting innovations get imbued with a broader range of societal interests and how actors representing vested interests go about entrenching and resisting such innovations. We explore these issues with reference to the institutionalisation of Economic Value Added (EVA?) as a governance mechanism for Chinese and Thai state-owned enterprises. Adopting a comparative, institutional field perspective, we theorise our observations through the conceptual lens of institutional work, or the human agency involved in creating, maintaining and disrupting institutions. We extend extant research on institutional work by exploring how the evolution of such work was conditioned by differences in field cohesiveness, defined in terms of how consistent and tightly coordinated key interests clustered around EVA? are. Our analysis also draws attention to how different types of institutional work support and detract from each other in the process of upholding such cohesiveness. We discuss the implications for future research on the societal relevance of management accounting innovations and institutional work.     

Accruals and ‘accounting numbers management’ in UK executive agencies

Public sector reforms have implemented business techniques, including management by results, cost management and accrual accounting, to make public entities more efficient and accountable. As a consequence, ‘accounting numbers management’ has become a way for managers in the public sector to adapt accounting figures to their interests. This study focuses on ‘earnings management’ (manipulation of earnings) in government agencies. The authors provide evidence of earnings management in which agencies try to keep net operating costs to around zero. The authors' findings question the effectiveness of financial targets associated with accrual-based measures.     

Strategic management accounting in close inter-organisational relationships

This paper provides a conceptual comparison between the ‘mainstream strategic management accounting’ literature, the ‘accounting and strategising’ literature and ‘strategic management accounting (SMA) in close inter-organisational relationships’. It concludes that ‘SMA in close inter-organisational relationships’ shares some important characteristics with the ‘accounting and strategising’ literature. Important differences were found, too, though. These mainly concerned the need to understand individuals working for close partners as preparers of strategic information; the need for disaggregated accounting information about unique connections to close partners and about the role of indirect benefits that follow from close connections and the need for the company to not only collect information but also disperse diverse information within close inter-organisational relationships. Through an intensive case study of a global robot manufacturer, Robotics, this paper also provides novel empirical evidence on ‘SMA in close inter-organisational relationships’. For instance, SMA practices included indirect benefits, something mainly neglected in the existing literature on SMA. These indirect benefits involved a close customer's willingness to invest time and effort in Robotics’ technological development, thereby contributing to Robotics’ ability to attain revenue gains in its interactions with other customers. Our findings also have important implications for the ‘inter-organisational accounting’ literature, for instance, by highlighting the need to link more explicitly strategic decision-making with the current interest in the role of accounting in inter-organisational dynamics.     

The Role of Resource Accounting in the UK Government's Quest for ‘Better Accounting’

The UK government intends to introduce resource accounting to central government departments under the banner of ‘Better Accounting for the Taxpayer's Money’. Under the proposed system of resource accounting, as outlined in a White Paper, an annual depreciation charge is to be incorporated in the cost statement and fixed assets included in a balance sheet at their depreciated replacement cost. This paper locates the proposed changes in accounting method for government departments in the general spread of accruals accounting through the public sector, and explores the relevance of accruals as a basis for measuring the results of activity undertaken by government departments. It goes on to examine the impact of the specific accounting change envisaged in the White Paper from both theoretical and practical aspects. The benefits envisaged in the White Paper are considered along with the extent to which they are likely to be realised, together with any consequences not explicitly foreseen. The conclusion is that, while the revised accounting techniques may be different, the proposition implicit in the White Paper's title that they re better is not proven by the evidence presented.     

USING A PROPORTIONAL ODDS MODEL TO ANALYSE THE FACTORS THAT INFLUENCE ACCOUNTING STANDARD SETTING LOBBYING IN AUSTRALIA

The primary aim of this study was to test the hypothesis that, when making written submissions to the accounting standard setting bodies, lobbyists place the same level of importance, on: 1) the ASRB Release 100 accounting standard evaluative criteria, 2) differential reporting, 3) the ‘relevance’ of the proposed financial reporting disclosures, and 4) the ‘reliability’ of those disclosures to general purpose financial statement users. The secondary aim was to determine if these qualitative factors are afforded different levels of importance by different lobbying groups, viz., public practitioners, corporate accountants, government accountants, and academics/individuals. The responses to a survey of formal lobbyists were examined using a proportional odds model which utilises the ordinal nature of the responses and employs an analysis of deviance between responses. The results showed that the sampled lobbyists, as a whole, considered the four qualitative factors of ‘evaluative criteria’, ‘differential reporting’, ‘relevance’, and ‘reliability’ of financial information, to be of equal importance to their lobbying position. In addition, the ranking in importance was not consistent across the different lobbying groups. That is, company and government accountants rated the ‘reliability’ of the proposed reporting disclosures as the most important factor influencing the nature of their lobbying submissions, while the public practitioner and academic groups perceived the ‘relevance’ of the proposed disclosures as the most important. Testing the effects of the financial reporting issues underlying each of these four factors on the relative importance of those factors, revealed 1) a concern by all lobbyists that the thrust of an Exposure Draft matches the lobbyists' views on the ‘relevance’ of the disclosures proposed, and 2) a desire by all lobbyists that the proposed financial reports faithfully represent the underlying transactions of the entity.     

Americanism and financial accounting theory – Part 3: Adam Smith,the rise and fall of socialism,and Irving Fisher's theory of accounting

A previous paper (Part 1) rejected the conventional wisdom that America was ‘born capitalist’ and the historians’ consensus that it had become capitalist by the early-19th century; another (Part 2) rejected Chandler's thesis that the ‘modern business enterprise’ brought a ‘new form of capitalism’ to America from the 1840s. The accounting evidence suggests that America began to make the transition to capitalism around 1900 in a period of intense conflict between ‘capital and labour’ generated by ‘big business’ from the 1880s, a process not completed until the 1920s. This paper (Part 3) examines the consequences for America's political ideology and financial accounting theory. America's exceptional transition, it argues, explains the history of its political ideology, and this history explains Irving Fisher's theory of accounting. Section A argues that America lagged behind Britain because it started from a society of simple commodity producers and semi-capitalists, which created an exceptional ideological problem for its ruling elite. Big business generated hostility from workers, farmers and small employers – expressed in labour movements, ‘populism’, socialism, and ‘progressivism’ – and created an ideological problem by contradicting the ‘independent producer’ ideology of workers and farmers, and the ‘individual liberalism’ of small manufacturers and merchants, both underwritten by Adam Smith's Wealth of Nations. The paper argues that Smith's theory of price articulates as semi-capitalist accounting, which explains his popularity in America until the appearance of big business in the 1880s. Socialism and progressivism became political forces in America from 1900 to around 1920. Progressivism produced ‘corporate liberalism’, the ideological counter to socialism that corporations could be made ‘socially responsible’ by government regulation and ‘publicity’ to ensure they earned only ‘fair’ returns, but this left two problems. First, socialists argued that no profit was ‘fair’, and second, fear of the ‘labour danger’ made American financial reports secretive and conservative. Section B argues that Irving Fisher responded to these problems with a theory of accounting, which he developed as a refutation of Marx and the American brand of socialism advocated by Eugene Debs, the threateningly successful presidential candidate of the Socialist Party of America. An important but neglected reason for socialism's abrupt collapse around 1920, it argues, was that the socialists lost the intellectual argument with the middle classes, and that Fisher's theory played an important role in this defeat. Fisher was a vigorous self-publicist, strongly influenced the teaching of economics and accounting in the universities and, the paper argues, changed the language of American accounting. Fisher claimed that accounting practice supported his theory of ‘capital’ and ‘income’, but the paper shows he did not understand double-entry bookkeeping or the accountants’ ‘cost theory of value’, and therefore divorced accounting from the reality of business transactions. As his theory underlies the FASB's framework, the paper concludes that Fisher's legacy to the world is a pathological theory of financial accounting.     

EXAMINING THE PRACTICAL RELEVANCE OF PUBLIC SECTOR MANAGEMENT ACCOUNTING RESEARCH

Concerns exist that practical relevance is becoming devalued as accounting scholars respond to signals about what sort of research ‘counts’. We categorize public sector management accounting papers in six leading journals according to two criteria: the practical orientation of the research objective(s), and whether the conclusions communicate issues of practical relevance. The findings reveal that most of the papers are directed towards understanding or critiquing the use of management accounting techniques, while other practically oriented research objectives are largely absent. Although half of the papers identify practical research implications, few suggest guidelines for practice. Reflections are offered on the role of leading journals in shaping how practical relevance is valued in accounting research.     

Industrial Cost Accounting Developments in Britain to 1830: A Review Article

Haydn Jones's Accounting, Costing and Cost Estimation (1985) uses the surviving records of numerous Welsh companies, engaged principally in metal manufacture between 1700 and 1830, to demonstrate the use made by managers of accounting data, as the basis for planning, decision making and control. This article relates the results of Jones's research to existing views regarding the development of industrial cost accounting, particularly because his findings call into question ‘single variable’ explanations for the development of management accounting, such as the level of industrialisation, the relative impact of fixed and variable costs, and the organisational structure of business activity. Jones's findings also require a reappraisal of established ideas concerning the relative sophistication of financial and management accounting procedures in use in earlier times, and our perception of the contributions of accountants and their techniques to business developments.     

Coals from Newcastle: an evaluation of alternative frameworks for interpreting the development of cost and management accounting in Northeast coal mining during the British Industrial Revolution

How have the power and organisational effects of modern accounting systems developed? What is the appropriate theoretical framework for interpreting that development? Researchers in the ‘Neoclassical’ tradition of ‘economic rationalism’ focus on tracing how efficiently developments in accounting techniques, from the British Industrial Revolution (BIR) to the present, have been engineered to match the demands for new forms of rational economic management of emergent big business, while those adopting a ‘Foucauldian’ approach emphasise how it was that the emergence of new practices and knowledge-based discourses for calculating human performance, and for establishing new forms of human accountability, engendered the creation of the modern kind of business organisations through ‘disciplinary power’. To evaluate the relative merits of these two frameworks, we re-examine the primary archival evidence about managerial practices in the Northeast BIR coal mines. We focus on two unique features—the cadre of professional managers/consultants (the ‘viewers’) and the form of direct labour contract—since comparable features have been held to be significant in the rational economic development of sophisticated cost and management accounting techniques in other industries. We find that, while the records include sophisticated valuations of mines and calculations of technological efficiency, surprisingly absent, as compared with ‘modern’ accounting and managerialism, is any detailed measurement of human performance for setting piece rates and controlling production. Although our particular findings here could be explained within both the ‘Neoclassical’ and ‘Foucauldian’ theoretical frameworks, their consistency with the evidence being obtained from other historical sites further questions the adequacy of ‘economic rationalism’ to explain fully the genesis of modern management and the development of accounting's modern power.     

Positive Accounting Theory as a Lakatosian Research Programme

‘Positive accounting theory’ fails to meet Popper's falsificationist criteria for scientific inquiry. This paper argues, however, that Lakatos' ‘methodology of scientific research programmes’ is superior to Popper's falsificationist methodology, and that ‘positive accounting research’ does meet Lakatos' criteria for ‘scientific' status. Within Lakatos’ philosophy of science, however, this claim does not necessarily represent an endorsement of positive accounting theory.     

Pedagogical cases in the strategic development of management accounting systems

Discussion of the ‘lost relevance’ of management accounting and the ‘gap’ between theory and practice has focused the criticism that management accounting education is built round a set of techniques applied in simplified settings. One reason for this may be the scarcity of case studies, discussing management accounting practices, which may be adopted in classroom situations. The recent promotion of ABC, throughput accounting, just-in-time (JIT) methods and performance measures to support modern manufacturing provide additional educational challenges relating to the integration of these into the accounting curriculum. There is a danger that these may also be developed as other techniques to be learned in isolated situations rather than to be applied selectively by organizations in appropriate situations. This paper offers two case studies which support class discussion of accounting requirements within a modern manufacturing and commercial environment. The cases emphasize that any one technique is inappropriate to all situations. They force examination of manufacturing and marketing policy and strategy in the development of appropriate management accounting information. The authors' experiences of using the case studies is evaluated, to determine the strengths and weaknesses of using the non-numerical cases as a basis for class discussion of contextual factors in accounting system design.     

Americanism and financial accounting theory – Part 2: The ‘modern business enterprise’, America's transition to capitalism,and the genesis of management accounting

The paper uses accounting evidence to explore when and how capitalism came to America. It continues the search for capitalists in American history begun in ‘Americanism and financial accounting theory. Part 1: Was America Born Capitalist?’ Part 1 concluded that America was not ‘born capitalist’ in Marx's sense, and that the capitalist mentality had not appeared in farming even by the late 19th century, on southern slave plantations by the Civil War, or in manufacturing enterprises by the 1830s. This paper (Part 2) challenges Alfred Chandler's thesis that the ‘modern business enterprise’ brought ‘a new type of capitalism’ from around the mid-19th century. It re-examines accounting evidence from the Boston textile mills, the railroads, and the iron and steel industry. It concludes that the Boston Associates who historians often see as ‘proto-capitalists’, the ‘managerial capitalists’ Chandler sees on the railroads, and the ‘entrepreneurial capitalists’ he sees in the iron and steel industry and elsewhere, remained semi-capitalists because their capitals and workers were not ‘free’. The paper re-examines the ‘costing renaissance’, the introduction and spread of product costing, standard costing, ROI and flexible budgets, and the evidence in Chandler's and Johnson and Kaplan's studies of the DuPont Powder Company and General Motors. This suggests that capitalism only appeared in America by around 1900, after more than two decades of intense conflict between ‘capital and labour’, and became established by the 1920s. This is the critical turning point in American business history, not the appearance of ‘managerial capitalism’, the paper argues. It concludes that America did not catch up with British capitalism until the late 1920s because its ruling elite faced an ideological problem created by its exceptional transition from a society of simple commodity producers and semi-capitalists, particularly the threat of popular socialism. The final paper, Part 3: ‘Adam Smith, the rise and fall of socialism, and Irving Fisher's theory of accounting’, argues that Fisher made a seminal contribution to solving this problem, but his legacy is a pathological theory of financial accounting.     

The societal relevance of management accounting: An introduction to the special issue

This essay introduces the special issue of Accounting and Business Research exploring the societal relevance of management accounting and locates the individual contributions within this research agenda. In contrast to prevailing, managerialist conceptions of relevance, the discussion is guided by an over-riding ambition to turn management accounting research “inside out” to examine the effects of management accounting practices on a broader range of constituencies and interests in society and the formation of such practices beyond individual organisations. I start by charting the development of extant and emerging debates on the relevance of management accounting research and practice and then outline some pertinent research themes worthy of further exploration. In doing so, I pay particular attention to emerging research illustrating how management accounting becomes implicated in the external regulation and governance of organisations, the shaping of markets and the wider, societal consequences of such processes. I also discuss some theoretical and methodological implications of exploring such topics.     

The Third Policeman: ‘The true and fair view’, language and the habitus of accounting

This paper explores the role and context of the ‘true and fair view’ (‘TFV’) in accounting and auditing. Utilising the work of Bourdieu as a lens, the paper argues that the world of the TFV is a subjective world with which we think we are objectively familiar. Bourdieu's ‘practical theory’ of habitus suggests that the TFV is shaped by the practice of ‘native virtuosos’ who have a ‘feel for the game’. The paper argues that the conceptualisation of the TFV privileges practice and authenticates the accounting habitus. Hence, whilst language maintains and reinforces social structures, it is in turn created by the routines of practice. By dominating the declaration of the TFV, the auditor effectively reinforces the status quo and the constitution of hierarchy and inequity that exists in the accounting field: the TFV, in Bourdieu's terms, ‘becomes what they are’.