Critical accounting theory

unfavourable bill suppositionIntroduction in that location argon some(prenominal) reasons thither is no superstar univers all in ally reliable possible action of accounting. The reasons are of two sorts. The primary is philosophical. The second is practical. This essay discusses each of these. It because renders examples from accounting supposition. Philosophical reasonsThe statement There is no universally evaluate accounting opening is true by definition. Scientific understanding of the experimental condition theory denies that either(prenominal) theory can be universally accepted. gibe to Popper (e.g., 2002a, 2002b), theories are conjectures that are put to the test. If they are refuted by the test, they are every rejected or refined. If they are non refuted, they remain theories (not facts). They are so put to further tests, and are further refined. In order for this to proceed, at that place must exist rival theories. In this vogue, theories compete in a p rocess of Darwinian selection. The theories never get to the truth, that they get progressively closer.This is the first reason at that place is no universally accepted theory of accounting. If thither were a universally accepted theory of accounting, it wouldnt be a theory. It would be approximately occasion else. Notice that, conformationing to Popper, no theory ever arrives at certain knowledge. The best any theory can do is break off ignorance. Moreover, if scientists were to discover a true theory, there would be no steering they could know it was true, so there would still be competing theories.This last academic degree needs elaboration. Gdels incompleteness theorems (see, e.g., Hofstadter, 1979) demonstrate that, in any ashes of logic rich enough to contain formal arithmetic there exists an infinite number of statements that are true but that are impossible, in principle, for the system to know to be true. This means, in practical terms, that in any complex system-f or example, an economic system-there exist solutions to problems that are known by the system, but are not known by any individual within it. This is appreciated by leading economists (e.g., Hayek, 1979). Further, given that there exist ordinarily infinitely more wrong solutions to problems than correct solutions to problems, any attempt to work out such problems by diktat is infinitely more likely to lead to chastening than to success. As regards economics, this led Hayek (1944) to his espousal of the free merchandiseplace. As regards theory in scholarship, it means that any attempt to reduce a single theory on anything is likely to lead to a seriously wrong theory. This is some other reason for believing there can be no universally accepted theory of accounting. Any universally accepted theory could unaccompanied be universally accepted if it were imposed by diktat, and, if it were imposed by diktat, it would of necessity most likely be wrong. Therefore it would give fu ll to a rival theory.Related to this, Feyerabend (1996) argues that there is no such thing as a single scientific method, and that any attempt to impose one is counter-productive. Feyerabends philosophy of science is summa elevatord as anything goes. This, depicts some other reason for there being no single theory of accounting. If there can be no universally accepted method, there can be no universally accepted theory.There are two popular views of science that are in conflict with Poppers perspective positivism and postmodernism. Positivism is the philosophy, associated with Ayer (1946) that says that the solely meaningful statements are those that are true by logic and those that whitethorn be verified by observation. This is the stay principle. The first problem with the verification principle is that it is neither a truth of logic nor an empirically objective fact, therefore by its own terms it is meaningless. The second problem is that in implies science proceeds inductive ly. But inductive logic (drawing general conclusions from unique(predicate) instances) is flawed a million observations of white swans, for example, does not demonstrate that all swans are white (indeed, they arent some swans are black).Postmodernism is the philosophy that reality is socially constructed. So what is real to one person whitethorn be nugatory to another. At a trivial level, this is true, for different people see the aforementioned(prenominal) things in different ways. It is also true that, historically, science progressed in some instances by changes in world view, or paradigm (Kuhn, 1996). However, this is a marvel more of the sociology of science, not of ontology. And taken literally postmodernism is absurd. It leads to the conclusion that there is no such thing as reality.The prevalence of competing philosophies of science-Popperism, positivism, and postmodernism-provides another reason for there being no universally accepted theory of accounting. There is no universally accepted view of what constitutes reality. therefore one should expect there to be different theories of accounting, each with its cadre of supporters.Practical reasonsThere are trinity purposes for any theory of accounting, and each makes different demands on the theory.The first is that accounting should provide the best information about a companys position. such a theory is prescriptive, in that it suggests how best controllers should ply their trade. Such a view phase is said to be normative. A normative theory is one that states what is best practice.A theory of accounting may also explore to describe what accountants do. Any science must include accurate descriptions. It is logically possible for a researcher to adhere to a descriptive theory yet bemoan the fact that accountants dont embody what the researcher considers the correct (i.e., normative) practice.There is another aspect to descriptive theories. Until the advent of cheap computers, there was no w ay that researchers could dissect vast collections of data. Moreover, very often the data were unavailable (Gaffikin), 2008). Computers select changed this. This is another reason for believing there is no universally accepted theory of accounting. A descriptive theory is completely as good as the data fed into it. But it is impossible to analyse all the data, only different blocks of data. Different blocks may give rise to different descriptions.In describing how accountants behave, researchers must collaborate evidence. But what evidence? And how should researchers gather it? Positivists go to use quantitative data. These are data that are, supposedly objective, and may be expressed numerically and manipulated statistically. Company sales figures are an example. Postmodernists tend to use soft data. These are data that make no select to objectivity and are difficult to express numerically. The findings of un coordinated interviews-emotions, impressions, and so on-are exampl es of qualitative data. Because of this, even when presented with the same evidence, different researchers may reach different conclusions. This is another reason there is no universally accepted theory of accounting.A theory of accounting can seek to explain. Such theories are scientific in the Popperian sense, for they may be refuted. It is logically possible for a researcher to believe that surmisal 1 is the best explanatory theory, Theory 2 is the best descriptive theory, and Theory 3 is the best normative theory. Thus again there are many theories of accounting. Any researcher may subscribe to three different theories, and do so without being inconsistent.In practice, the distinction between normative, descriptive, and explanatory theories is blurred. Any theory of one caseful may have features of the others. Example theoriesThis section considers discusses two example theories. Theory 1 Positive accounting theoryThere are several problems with normative theory. One concerns what to enter. Consider assets. An accountant does not know how often a companys assets are worth. So the accountant uses one of several indicators (historical cost, for instance). The accountant must also estimate how much assets depreciate. Accountants use algorithms to calculate depreciation-typically, satisfying line depreciation such that assets become worthless after three years. Such algorithms are only broadly accurate.Such considerations led Watts and Zimmerman (1978) to gear up despotic accountancy theory. The theory is in part descriptive, in that it states what real-world accountants do, and in part explanatory, in that it purports to explain why accountants behave in the way they do. The theory says, in effect, that company accounts do not accord with reality. Instead, they accord with what powerful interests (stakeholders, shareholders, managers) want others to see as reality.The theory makes two assumptions military personnel economicus. This states three things. First, people are entirely rational. Second, people act only out of self-interest. Third, people act only to maximise their wealth.The efficient market hypothesis (EMH). This states that, left to its own devices (i.e., if unregulated), the market delivers an optimum price for any good or service. The EMH states that prices accord with all available information.The reason positive accounting theory makes these assumptions is that, without them, it is difficult to make quantifiable predictions, but with them it is comparatively easy. Thus, for example, with them one can predict companies in one particular purlieu will prefer a different form of accounting from companies in another type of environment. Thus, for example, Watts and Zimmerman (1978) predict that firms whose earnings are increased by general price level adjusted accounting (GPLA) will argue GPLA, but firms whose earnings are decreased by GPLA will save it.But the notion of H. economicus is problematic-some people are u nintelligent, some are altruistic, and so on (Lunn, cited in Clark, 2008), The EMH is also contentious. Some economists accept it, others dont. The EMH is also vague. If the market is efficient, the EMH doesnt say how long it takes to reach a decision Also, if the EMH were true, arbitrage would be impossible. The best one can say about the assumptions is that they provide an approximation of reality. How good an approximation it is, nobody knows. This is another reason there is no universally accepted theory of accounting. Some people think the assumptions provide a good approximation some people think they provide a bad one. Fama and French (2004) state that markets can be ineffectual and investors can be ill-informed and irrational,Just as owners, governments, and workers have vested interests, so have Watts and Zimmerman. In their case, they are interested in promoting positive accounting theory. So, in this regard, the theory has a normative aspect. It concerns how accountancy researchers should practice their trade. If all researchers follow Watts and Zimmermans diktats, Watts and Zimmerman will become rich. Naturally, all accountancy researchers want to be in Watts and Zimmermans position, but the only way for them to do so is to develop a rival theory. This is another reason there is no universally accepted accountancy theory.Theory 2. Critical accounting theoryCritical accounting theory isnt really a theory. Its more a style of criticism. It aims, not only to alter accounting practice, but to change society (Gaffikin, 2008). It is political. Thus, for example, Laughlin (cited in Davis, 2008) statesA critical understanding of the role of accounting processes and practices and the accounting work in the functioning of society and organisations with an intention to use that understanding to suck (where appropriate) in changing these processes, practices and the profession.In this, critical accounting theory is postmodern.Postmodernists bakshis to th e numerous flaws in positive accountancy theory. They highlight the weaknesses in the concepts of H. economicus and the EMH. They point out that Watts and Zimmerman use rhetorical devices to put the views across. They argue that the methodology and beat instruments of positivist theories are crude, and so on. Occasionally, they make (or repeat) good points (e.g., the EMH is incorrect) (e.g., Mouck, 1992).As indicated, postmodernists pass over the existence of objective reality. In doing so, they deny the possibility of determining the truth, or worth, of any statement. Thus they deny the truth, or worth, of postmodernism.This is the problem with postmodernism. If reality is socially constructed, then there cannot be a universally accepted theory, for socially constructed reality differs according to who is doing the constructing. A true theory to one postmodernist is a false theory to all others. That is why there is no universally accepted theory of accounting.ReferencesAyer, A.J . (1946). Language, truth and logic. (2nd ed.). London Gollancz.Clark, T. (2008, November 1). Market madness. The Guardian.Davis, D. (2008). Critical accounting theory. Lecture 9. Lecture notes. Bangor Business School.Feyerabend, P. (1996). Against method Outline of an anarchistic theory of knowledge. San Francisco, CA Analytical Psychology Club of San Francisco,Fama, E.F. and French, A.R. (2004). The CAPM Theory and Evidence. On line http//www.econ.sdu.edu.cn/jrtzx/uploadfile/pdf/Assetpricing/04.pdfGaffikin, M. (2008). Accounting theory Research, regulation and accounting practice. French Forest, Australia Pearson Education.Hayek, F. A. (1979). Unemployment and monetary policy. San Francisco Cato Institute.Hayek, F. A. (1944). The road to serfdom. London George RoutledgeHofstadter, D. (1979). G?del, Esther, Bach An eternal golden braid. Harmondsworth Penguin.Kuhn, T. (1996). The structure of scientific revolutions. Chicago University of Chicago Press.Mouck, T. (1992). The rhetoric of science and the rhetoric of ascent in the story of positive accounting theory. 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