Accounting Theory: Research, Regulation and Accounting Practice

Citation

Vosslamber, R. (2008), "Accounting Theory: Research, Regulation and Accounting Practice", Pacific Accounting Review, Vol. 20 No. 3, pp. 284-286. https://doi.org/10.1108/01140580810920263

Accounting theory tends to be one of the less popular undergraduate accounting papers. Most accounting students can prepare and interpret financial data; but many struggle to grasp “abstract” concepts and then discuss and write about them. However, any prospective member of the New Zealand Institute of Chartered Accountants must grapple with theory if they wish to join.

A well‐written text can be a lifeline for students, many of whom will be confronting philosophical concepts for the first time. Anyone writing such a text must balance several conflicting pressures: the text must simplify and clarify without being simplistic or misleading; the author may present his or her own views, but must not ignore or unduly disparage alternatives; and the text must cover the field without swamping the reader. But perhaps above all, the writer must convince the student that theory is important, relevant, and worthy of study. Gaffikin clearly believes that this is so, concluding his preface, “This book draws attention to some of the many different dimensions accounting theorists must recognise if they are to provide a responsible accounting practice” (p. xi).

The ten chapters of the text are divided into five parts. Part 1 is entitled “The need for theory in accounting”. Theory plays a particular role: “Generally speaking, theories provide the reasoned basis for actions – for practice” (p. 4). Gaffikin then provides thumbnail discussions of basic concepts: ontology, epistemology, methodology and methods, before endeavouring to provide a historical sketch of the development of Western knowledge in the space of a dozen or so pages. Having provided this context and certain tools used in theory and theory construction, Gaffikin suggests that “it is possible to make a more rigorous and informed assessment of theories in accounting, which is the aim of any course in accounting” (p. 19).

Part 2, entitled “Developing the boundaries of accounting theory”, moves from theory in general, to accounting theory more specifically. Chapter 2 commences with Pacioli and ends around 1970. The discussion highlights the normative basis of accounting research prior to about 1970, as illustrated by the search by professional bodies and accounting theorists (e.g. Chambers and Mattessich) for accounting principles. This period is characterised by a “scientific”, hypothetico‐deductive approach to theory construction, and by the publication of various statements on accounting theory (e.g. ASOBAT, SATTA).

Chapter 3 continues the story from 1970. In contrast to the normative deductivism that preceded it, this period is characterised as the age of induction, of neo‐empiricism. Gaffikin suggests that Capital Markets Research, and more particularly Positive Accounting Theory, came to dominate accounting theorising. This dominance is attributed to increased availability of computing power, and “the power contained and exercised by a certain group of accounting institutions” (p. 68).

The final three parts might be considered to be applications of accounting theory in three areas. Part 3 considers accounting regulation. Despite having previously suggested that, “In some respects regulation can be viewed as a substitute for theory” (p. xi), Gaffikin now melds regulation with theory – chapter 4 being headed “Regulation as accounting theory”. Chapters 5 and 6 go on to discuss the practice of standard setting (including the conceptual framework project), and accounting in the context of globalisation.

Part 4 extends the boundaries of accounting to include alternative approaches to accounting theory development, the role of ethics, and Corporate Social Responsibility and environmental accounting. Part 5 looks to the future and asks whether accounting is merely a craft at the whim and fancy of its practitioners, or instead a professional practice that will truly serve the interest of the societies in which it operates (p. 220).

Gaffikin's work is a useful attempt to offer a coherent and concise explanation of the basis for theory and its relation to accounting practice that he suggests most accounting theory books fail to provide. Its length is ideal for an upper level undergraduate course. Each chapter could stand alone, or be used as the reading for a particular lecture or session. However, in part because of the succinctness of the work, a number of issues ought to be borne in mind.

First, the book is likely to be useful for a range of readers, but may not be suitable in all circumstances. An undergraduate with little or no practical accounting experience, and (all too often) no knowledge of history and philosophy, may struggle with aspects of this book. The discussion of the key concepts of ontology, epistemology and methodology (pp. 6‐8) may be too scant for such a reader.

Further, the pages are packed with proper nouns and acronyms derived not just from accounting, but from philosophy and history. Numerous specific personages and theories are mentioned with limited explanation. As an example, a table is presented listing 12 varieties of language or linguistic paradigms from Analytical Linguistics to Theory of Signs (Table 10.1) without an explanation of each paradigm or indication of relevance.

Conversely, someone wishing to dig deeper may be similarly frustrated by a lack of depth and the need to locate the sources for certain quotes themselves (for example, direct quotes from the writings of Milton Friedman (p. 41) and Plato (p. 179)).

In short, the text may not be a one‐stop shop; but as a complement to lectures and tutorials, or as a reference, it certainly has a place.

Second, even after nearly 300 pages, it is still not clear that there is such a thing as accounting theory. Theory, yes, and accounting, yes – but is there a discrete body of knowledge that might be labelled accounting theory? How much, if any, of the book would have had to be changed if the work had been entitled Management theory, or, for that matter, Chemical theory?

Further, should we speak of accounting theory? Gaffikin himself suggests that there can be no one theory of accounting (p. 239).

Certainly these concerns could be raised against any accounting theory text. However, it comes to the fore in this work, as unlike other standard texts on accounting theory (e.g. Godfrey, J., Hodgson, A., Holmes, S., and Targa, A. (2006), Accounting Theory, Milton, John Wiley & Son, Queensland), theory is not set side‐by‐side with the practice of accountants specific to their discipline (e.g. the preparation of financial statements). By isolating the discussion of theory from the everyday world of accounting, there is a real danger of driving in further the already sharp wedge between academia and practice.

However, this might be seen as an advantage of this text: in avoiding discussion of specific accounting applications, it may encourage a focus on theory per se – something that is seriously lacking in much accounting pedagogy today.

Third, Gaffikin concludes that: “accountants need to be aware of social, political, legal and linguistic considerations and not just serve the economic interests of a few members of society” (p. 239). However one is tempted to ask, “Why not?” How does one move from accounting theory and practice (the “what is”) to accounting ethics (the “what ought to be”)? The explication of this link is missing in this text.

Michael Gaffikin set himself an ambitious task, and in measure has succeeded. The individual chapters of Accounting theory: Research, Regulation and Accounting Practice provide a useful springboard for discussions of and instruction in accounting theory. Hopefully, as they draw attention to the role and nature of accounting theory, responsible accounting practice will be promoted.