Accounting and Social Theory

An introduction

Lisa Jack

• Publisher: Routledge
• Year: 2016
• ISBN:
  9781317328308
• Edition: 1
• Topic: Negocios y empresa
• Subtopic: Contabilidad

Is society possible without accounting? In speech or in writing, we communicate actions, plans and decisions using numbers, calculations, words and images. Although accounting research is dominated by quantitative analyses, the role of accounting in society is firmly established over thousands of years. In this concise book, Lisa Jack demonstrates the power of social theory in expanding the value of accounting research.

Accounting and Social Theory: An introduction includes advice on research problems as well as guidance on fertile areas for new research. The tools, techniques and developments covered by the author help readers to see social research in accounting as the study of the use, misuse and abuse of accounting communications by people and the effects that this has on social relationships. Stories of accounting in war, agriculture and food, gender, health and other areas illustrate the ways in which the threads of accounting run through society.

Having emerged from the author's wealth of teaching experience, this book provides a student-focused treasure trove that illuminates the field for early-career researchers in accounting and established academics looking to expand the impact of their work.

1

Why use social theory to study accounting?

I am the only child of parents who weighed, counted and measured everything.

(Dickens, Little Dorrit)

Introduction

Is society possible without accounting? Accounting artefacts dating from over 3,000 years ago are thought to show the origins of writing. Valuing, allotting and classifying food stocks and other goods, and distributing them, underpin the organisation of all societies. Those in power use accounting to control and manage other groups, as well as their own affairs. Therefore, as social theory is concerned with systematising knowledge about the structural relationships in society and the place of the individual in society or the role of humans as social beings, then understanding how and why we engage in, and might be affected by, accounting practices can be explored using social theory. As Ritzer (2007) says: every aspect of the social world, from the most exalted to the most mundane, can be the subject of social theory.

Living in Europe in the early twenty-first century, in the midst of financial crises and austerity drives, it is easy to see that accounting, and the language of accounting, permeates society. League tables and performance measures invade public and private lives. Nearly all transactions, even illicit ones, are captured electronically. Forensic accountants can ‘follow the money’ across continents. Information, or the lack of it, forms part of political and media discourse. Taking one UK daily newspaper at random, the front page has a continuing saga of alleged over-claiming of expenses by Members of Parliament, statistics about employment and the costs of unemployment to the economy, the value of a gift by the Pope to the Royal Family, the lack of data on a missing airplane despite sophisticated information technology, and financial corruption in sport. Are we a society that ‘weighs, counts and measures everything’, and if so, why? Even if the newspaper in question is aimed at a particular middle-class segment of a particular Western society, why does this pre-occupation with knowing about monetary transactions exist at all?

The epigraph for each chapter in this book is taken from Charles Dickens’ 1857 novel, Little Dorrit. The novel is a sustained satire about money, how it shapes society and affects relationships, and how people are changed by excess or want of money. It contains an accounting scandal. The writing is shot through with accounting analogies and metaphors, and Dickens has a keen ear for how accounting infiltrates everyday speech. The main character, apart from Little Dorrit herself, is Clennam, the business partner who keeps the books and spends his days with the ledgers and accounts. Within the one story, Dickens manages to bring in characters representing almost every degree of financial security, from poorhouse inmates to the aristocracy, from those for whom jobs have all but dried up to those who are handed a sinecure in government regardless of merit, and from debtors to the obscenely rich. He also manages to bring in virtually every type of financial transaction possible. Money is begged, borrowed, stolen, exchanged for goods, promised in credit, inherited, invested, bequeathed, earned, accounted for, hidden, extorted, speculated, lost, gifted, squandered, paid in usury and owed to people who can send you to a debtors’ prison. As his biographers point out, by 1857, Dickens (who was born in Portsmouth in 1812) had experienced the extremes of poverty and wealth, was a businessman as well as a writer, had seen his family in debtors’ prison (and spent much of his later life keeping them out of it) and was acutely aware of the role of money in his life and in society. One writer observed that Little Dorrit made nineteenth century authority very nervous – particularly the depiction of the civil servants in the ‘Circumlocution Office’ whose task is to make sure that nothing ever gets done by government (‘How not to do it’) – and the book got less accolades than some of his other masterpieces. George Bernard Shaw famously observed that reading Little Dorrit made him a socialist.

Today, we have replaced debtors’ prisons for the social stigma of bankruptcy proceedings, and the aristocracy in Britain may get less attention than wealthy celebrities, but the beginnings of a self-serving worship by both the powerful and the poor of wealth gained through financing and new technology can be seen in Little Dorrit. Novels of the nineteenth century portray people in a Western society not so different from today’s: they are early capitalist societies and ours are more consolidated capitalist societies, on the whole. If anything, accounting practices and the language of accounting are even more tightly bound up in society.

I’m going to begin with three stories that illustrate how accounting in society might be understood using social theory. What I want to show throughout this book is that we can study accounting as the use, misuse and abuse of accounting communications by people in ways that affect relationships in society, and for this, we need social theory.

Three stories

The term ‘accounting’ covers several different activities. Underpinning is the record of monetary or barter transactions and compilation of inventories – bookkeeping. This provides the data but accounting itself is where the data is turned into information, and is communicated to others. Accountants make distinctions between financial reporting – which is about communications with the outside world in the form of ‘annual reports’ and other information published by organisations – and management accounting which is about communications within organisations. Professional accountancy also covers tax advice, audit, quality assurance and forensic accounting. Other areas into which accountants are drawn are social and environmental reporting, corporate governance and performance measurement. Why accounting has its own profession (accountancy) with practitioners (accountants) as well as being an activity that can be carried out by almost anyone is another concern for social theorists and historians. Why so many people in society think daily about costs and benefits, savings and loans, financial success and failure, personal mental and physical performance, and use the metaphors and analogies of accounting in their conversation, is our starting point.

Accounting in ancient times

Very early forms of writing found on clay tablets and stone dating back several thousand years show us that accounting has long social history. One of my favourite stories as an undergraduate classicist was that of the deciphering of Linear B script, which was identified in the 1950s as a very early form of the Greek language. Eager to find narrative accounts of life in Mycenae as told by Homer, what the archaeologists found was a narrative of sorts but not a poetic one. They were inventories of stock: 6 amphorae of wine, 12 cart wheels, etc. Other ancient scripts are records of wages, taxes, harvests, household expenses and debts owed. Budgetary records survive from 3000 bc in China. From earlier still are tally stones and other forms of counting. The Ancient Egyptians even had a Goddess of Writing, Accounting and Mathematics, called Seshat.

Drawing on a lifetime’s work in the study of Egyptian and other ancient records, Ezzamel (2013) explores the surprisingly large number of inscriptions that have survived on walls, tablets and papyri that are effective accounting records. There are records of calculations and payments of taxation, transportation logs and redistribution of foods and land. There are also accounting records for bakeries, temples, building sites and estates. Most fascinating are the records of offerings given, by whom and when, to please the gods. Funerary records contain pictures, numbers and words, and these are very much a part of the rituals of death. One such painting shows the deceased and her offerings in food and animals, enumerated and ordered, along with descriptions of her good deeds in life. From these records, Ezzamel shows how time, space, goods and their value were being captured and written down – accounts are created. The significance of the accounting is that it is not simply a record. The accounts are evidence of actions that people took – an offering made or a wage paid, for example. They are also evidence of communications that led to actions – a calculation of an acceptable offering for a person to make to the gods or of hours worked that led to a payment of foods in return for labour. For this reason, accounting is seen as not just an inscription or communication of a transaction taking place but as a communication that requires or invites people to act in certain ways. The theoretical term for this is performativity: accounting is communication that leads people to perform actions and from there to the construction of ways of behaving or being. Accounting in Ancient Egypt forms or is part of rituals, and is present in all aspects of life from the sacred to the mundane. It does not matter that the inscriptions are the work of a literate few: the actions that result in and from accounting affect everyone. More importantly, the patterns of behaviour associated with accounting create order in society: cities are built and ruled with income from cycles of harvest and taxation. As Ezzamel says (2013, p.125): ‘inscriptions were a manifestation and an effect of power relations in which Pharaohs, senior officials, high priests, and scribes loomed large’. In other words, accounting ‘does something’ in society by making people act in certain ways and there is something in the nature of the communications and the way in which they are made, and by whom, that is part of the creation of the societies in which we live.

Egyptian society appears from the evidence to have been highly ordered and ritualistic, but the accounting also contributed to a level of violence in the sense of exposing those who do not conform to the regime or to certain high ideals. Accounting may have been useful and used because it fulfilled certain functions that made life more organised but there is more than that. Groups of people were able to engage in more than simply subsisting from day-to-day: the effects of counting, valuing and recording go beyond simply being useful.

Accounting and war

War is costly in terms of human life and in money, and rulers need to justify both when engaging in conflict. Many conflicts or raids may have started with the intention of gaining land, wealth or power but also there are wars that have come to an end due to bankruptcy, such as the 30 Years War between Spain and France which ended with Philip of Spain realising he had ruined the country and the Royal finances, or suggestions that the end of the Cold War was hastened because of the bankruptcy of Eastern Europe.

What is the cost of war, and how is it accounted for? More importantly, how is the cost of war communicated to those fighting, and those paying (in every sense) for being at war? Research into more recent wars suggests that accounting is abused in order to present certain messages – mainly, that the war is not costing as much as feared and/or is worth the costs incurred. Joseph Stiglitz and Linda J. Bilmes wrote about the cost of the Iraq war to the US by 2008, five years after it was begun and before US troops were formally withdrawn in 2013. President George W. Bush gained backing from the US Congress to enter the conflict saying that the cost would be US $50–60 billion and Donald Rumsfeld allegedly dismissed claims it could be higher. In 2008, Congress was asked for a budget for Iraq and Afghanistan at US $200 billion, with the total cost to date being estimated at US $600–800 billion. Stiglitz and Bilmes claim the cost for the war at that date including future commitments was nearer US $3 trillion. The difference is in the accounting, and the messages that were wanted at the time.

Stiglitz and Bilmes point to some obvious examples of poor accounting. Estimates for using reservists were too low, as was the estimated cost of fuel. The Defense Department used cash not accrual accounting – future long term obligations for rehabilitation and weapons replacements, and more immediate amounts payable are not included in their calculations. Some of the funds come from other departments, particularly emergency funds to be used in exceptions. This allows for short term cuts on a cash flow basis (they allege not enough cash to provide replacement armoured vehicles better suited to new weapons) whilst diverting income from other social projects. Their view is that:

The procedure used by the administration to fund the Iraq war was chosen deliberately in order to deflect close attention…. The continued use of this emergency procedure – five years after the war began – is budgetary sleight of hand that makes a mockery of a democratic budget process.

(Stiglitz and Bilmes, 2008)

Even poor accounting is performative, in that it leads to actions that may be highly deleterious to people and society. The accounting arguments were not the only ones put forward for the US invasion of Iraq in 2003, but they were part of the way in which the war was communicated and justified, along with spurious arguments that there would be gains from increased global safety and access to oil resources. In an earlier study, Chwastiak (2006) showed that communicating loss of life in the Vietnam War as a cost-benefit, and dehumanising those involved in the war on both sides by labelling them as cost units, was a part of the Government rhetoric that ultimately led to protests and disaffection by American citizens with the war.

Accounting, agriculture and the price of food

One of the seemingly insoluble problems in society is how to ensure a fair price for those who grow food on behalf of a population (about 2% of the UK workforce is engaged in primary production, that is, agriculture and horticulture) whilst keeping prices reasonably low for every consumer. That is, every person who is not self-sufficient in food, meaning effectively everyone. In developed countries, the supermarket system has come to dominate how food is purchased and within that, the market is highly concentrated. In the UK, four supermarkets dominate, whilst in Australia there are just two main supermarkets. In order to keep costs low, category managers drive down the prices offered to primary producers, sometimes to below the cost of producing the food. It is an industry where bottom line profit margins are very tight: around 3.5% of sales for supermarkets after all costs including taxation and interest are accounted for, and around 1% for primary producers and intermediary companies. Accounting in primary producers and intermediaries tends to be done on a marginal costing basis which means that only the variable costs – raw ingredients, labour, fertilisers or feed – are used in calculations of cost of production with overheads being treated as a lump sum. Obviously, there are levels of sophistication in accounting across the industry but marginal costing is important to the discussion here. This is an area which I research and one of my interviewees referred to marginal costing as ‘the cancer of the industry’. Originally promoted in the 1950s and 1960s as a management decision-making tool to help primary producers optimise the mix of crops and animals that they grew, it quickly became a benchmarking device: expected marginal cost per enterprise (crop or animal) was published. The problem, put simply, is this: a marginal profit only occurs when all your overheads are covered. If all the prices you are offered by a supermarket buyer are based on a marginal cost of production, then you are going to lose money as a producer, however efficient you are in farming. Most businesses survive by juggling their cash flow, taking on personal loans and forgoing dividends. These, and other forms of accounting by supermarkets (including the demand for extra payments from suppliers to the supermarket), have been relatively hidden for many years but in 2015 one of the major supermarkets in the UK announced a loss of £259 million due to an ‘accounting error’. Subsequently, they have been found guilty of coercive practices on suppliers. In a public apology, the new CEO of the supermarket announced that they would be moving away from marginal costing as a starting point for negotiations with suppliers (Stones, M., 2015).

Quite complex social effects arise from the accounting used. In pursuit of profits, food manufacturers and processors, retailers and caterers favour high margin items – which include snack foods. This is supported by governments – 29% of the GDP of the UK came from food manufacturing in 2014. However, high consumption of such foods increases poor nutrition, obesity and food-related illnesses, which have multiple effects on society. The reliance of the industry on migrant labour and minimum wage employment is a social issue. The rate of insolvency of small businesses in food and farming is alarming with around 1,400 small–medium sized food companies being cited as being in distress out of some 5,800 nationally in the UK during 2015 (Burgess, 2015) and has implications for the mental health of individuals in rural communities. The use and misuse of accounting in the food industry has surprisingly fundamental effects on people’s well-being and the shape of society. Agriculture and accounting both tend to be ignored by the majority of people but as the US slogan has it, ‘if you eat, then you are in agriculture’ and it follows, you are very affected by decisions made on the basis of accounting calculations and communications.

From these three stories, it should be clear that accounting is more than a series or set of tasks undertaken by certain people. The American Accounting Association has a definition of accounting that calls it: ‘The process of identifying, measuring and communicating information to permit judgement and decision by users of accounts’.

The definition works as a principle behind the tasks undertaken but information and communications are rarely neutral. Judgements and decisions can be biased, mistaken or based on misleading communications. The communication of accounting information has consequences, intended and unintended. The sociologist Robert Merton (1936) effectively claimed that the study of sociology is largely about unanticipated consequences and that leads us into thinking about accounting not as a set of tasks but rat...

Table of contents

• Cover
• Half Title
• Title Page
• Copyright Page
• Dedication
• Table of Contents
• Preface
• 1. Why use social theory to study accounting?
• 2. Locating accounting in the social world
• 3. Structure, agency and accounting
• 4. Power, inequality and resistance
• 5. Space, time and change
• 6. Writing and designing empirical research with social theory
• 7. Future directions
• Index