Financial Accounting Theory

Craig Deegan

Chapter 12
Critical perspectives on accounting
Slides written by Michaela Rankin

Copyright 2000 McGraw-Hill Book Co. Aust.

PPT t/a Financial Accounting Theory by Deegan

12.1

Chapter 12: Critical perspectives on accounting

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 the positions of others

Copyright 2000 McGraw-Hill Book Co. Aust.

PPT t/a Financial Accounting Theory by Deegan

12.2

Chapter 12: Critical perspectives on accounting

Learning Objectives
the fact that disclosure (or non-disclosure) of
information can be construed to be an important
strategy to promote and legitimise particular social
orders

Copyright 2000 McGraw-Hill Book Co. Aust.

PPT t/a Financial Accounting Theory by Deegan

12.3

Chapter 12: Critical perspectives on accounting

Critical perspective defined

Refers to accounting research that goes
beyond questioning whether particular
methods of accounting should be employed
focuses on the role of accounting in
sustaining the privileged positions of those
in control of resources (capital) while
undermining or restraining the voice of
those without capital
Copyright 2000 McGraw-Hill Book Co. Aust.

PPT t/a Financial Accounting Theory by Deegan

12.4

Chapter 12: Critical perspectives on accounting

Critical perspective
definedcontinued
Critical accounting theorists seek to
highlight, through critical analysis, the key
role of accounting in society
challenges the view that accounting can be
construed as objective or neutral
accounting seen as a means of constructing
or legitimising particular social structures
Copyright 2000 McGraw-Hill Book Co. Aust.

PPT t/a Financial Accounting Theory by Deegan

12.5

Chapter 12: Critical perspectives on accounting

Criticism of capitalist system

Critical theorists tend to oppose aspects of the
capitalist system and accounting
emphasise that systems of accounting are built
around the prevailing social order
given the practice of accounting is in the
hands of large corporations and accounting in
the hands of government, accounting will
never do anything but support the current
system
Copyright 2000 McGraw-Hill Book Co. Aust.

PPT t/a Financial Accounting Theory by Deegan

12.6

Chapter 12: Critical perspectives on accounting

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 et al 1996)
based on Classical branchchallenges the
existing nature and structure of society

Copyright 2000 McGraw-Hill Book Co. Aust.

PPT t/a Financial Accounting Theory by Deegan

12.7

Chapter 12: Critical perspectives on accounting

Classical political economy

perspective
Related to the works of philosophers such as
Marx
explicitly considers structural conflict,
inequity, and the role of the State at the heart
of the analysis
highlights issues which may not otherwise be
addressed
social welfare
Copyright 2000 McGraw-Hill Book Co. Aust.

PPT t/a Financial Accounting Theory by Deegan

12.8

Chapter 12: Critical perspectives on accounting

Disclosure of social
responsibility information
Critical theorists argue that disclosure of
social responsibility information is wasted
unless accompanied by fundamental
changes in how society strucutred
acts to legitimise, not challenge, those
providing the information

Copyright 2000 McGraw-Hill Book Co. Aust.

PPT t/a Financial Accounting Theory by Deegan

12.9

Chapter 12: Critical perspectives on accounting

Views on social and

environmental accounting
As accounting deemed to sustain particular
social structures, introduction of new forms
of accounting only help to sustain that social
system
considered wasted effort to use accounting to
solve problems
one is using the very process that caused the
problem to try to solve the problem
Copyright 2000 McGraw-Hill Book Co. Aust.

PPT t/a Financial Accounting Theory by Deegan

12.10

Chapter 12: Critical perspectives on accounting

Criticism of critical perspective

Critical theorists often marginalised to a
greater extent than others
often do not provide solutions to perceived
problems
inconsistent with normal training of accountants
to provide solutions if problems are evident

critical of accountants
Copyright 2000 McGraw-Hill Book Co. Aust.

PPT t/a Financial Accounting Theory by Deegan

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Chapter 12: Critical perspectives on accounting

Role of the State

The State is seen as a vehicle of support for
holders of capital and for the capitalist system
as a whole
Government will take action to enhance the
legitimacy of the social system
social disclosures seen as a means of
pacifying challenges against the capitalist
system where corporations given many rights
and powers
Copyright 2000 McGraw-Hill Book Co. Aust.

PPT t/a Financial Accounting Theory by Deegan

12.12

Chapter 12: Critical perspectives on accounting

Role of the Statecontinued

Restricting the flow of information, or
availability of specific types of information
seen as a means of maintaining particular
organisations and social structures
government does not operate in the public
interest, but in the interests of well off
groups
Copyright 2000 McGraw-Hill Book Co. Aust.

PPT t/a Financial Accounting Theory by Deegan

12.13

Chapter 12: Critical perspectives on accounting

Role of accounting research

Accounting researchers are seen as providing
research results and perspectives that help to
legitimise and maintain certain political
ideologies
eg. 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
Copyright 2000 McGraw-Hill Book Co. Aust.

PPT t/a Financial Accounting Theory by Deegan

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Chapter 12: Critical perspectives on accounting

Role of accounting
researchcontinued
rise of economic consequences research seems
to have been motivated by desire of large
corporations to counter attempts to change
reporting systems and levels of disclosure
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

Copyright 2000 McGraw-Hill Book Co. Aust.

PPT t/a Financial Accounting Theory by Deegan

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Chapter 12: Critical perspectives on accounting

Role of accounting practice

Critical theorists see conceptual frameworks
as legitimising the accounting profession
and of financial reports produced by
reporting entities
accountants seen as imposing their own
views about what performance
characteristics are important or not
important
Copyright 2000 McGraw-Hill Book Co. Aust.

PPT t/a Financial Accounting Theory by Deegan

12.16

Chapter 12: Critical perspectives on accounting

Role of accounting
practicecontinued
Attention is directed to particular measures (eg.
profits) through accounting
in communicating reality, accountants
simultaneously construct reality
political economy perspective emphasises the
role of accounting reports in maintaining social
arrangements
see corporate social reporting as harmful as it
gives the impression of concern and change
without any real change occurring
Copyright 2000 McGraw-Hill Book Co. Aust.

PPT t/a Financial Accounting Theory by Deegan

12.17