ACC03032- Contemporary issues in

accounting
Topic 7 - Critical
AccountingTheory
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Prepared by Dr. Lynn Barkess

ACC03032 S2, 2016 1

 Session Outline
Assessment 2 Group report
submission
Upcoming changes to online and GC
sessions (See: Contacts section of
MySCU)
Topic 7
Next week: Exam Information
Session

ACC03032 S2, 2016 2

 Assessment Two Group Report
submission

Report submission link is available under your

Group Area where you will see a link to submit
your Group Assignment.
Only one member of your group needs to lodge the
final Group Report; that is one Report per Group.
Report to be submitted prior to group presentation
refer to assessment instructions

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 Online session update
Week Tuesday10.00am Topics
1 12-Jul Welcome&Introduction
2 19-Jul Topic 1
3 26-Jul Topic 2a
4 02-Aug Topic 2b
5 09-Aug Topic 3
6 16-Aug Topic 4
7 23-Aug STUDYWEEK
8 30-Aug Topic 5
9 06-Sep Topic 6
10 13-Sep Topic 7
Group Presentations (Distance education
11 20-Sep students only) ExamInformation+
Revision
Group Presentations (Distance education
12 27-Sep students only) +ExamInformation Student
support session Q & A (not recorded)
13 04-Oct RevisionNosession

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Gold Coast Class update

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 OverallUnitObjective
L.O. 1 Makes a clear distinction between different theories
of accounting
L.O. 2 Critically evaluate contemporary external company
reporting practices

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Topic 6 Learning objectives
Define critical accounting theory;
Assess the neutrality and objectivity of financial reports
from a critical perspective of accounting;
Assess research based on Positive Accounting and
Legitimacy Theories from a critical accounting theory
perspective

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 Why critical?
A critical perspective of accounting refers to an
approach taken by accounting researchers.

An approach that goes beyond the accepted methods of

accounting practice

An approach that focuses on the role of accounting in

maintaining the status quo

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 What is being explored?

While it is acknowledged that a great deal is known about

the technical aspects of accounting, it is argued that little is
understood about either accountings social roots or the
interconnection and interrelationship between the social
and the technical.
(Laughlin, 1987, p. 479)

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 Very broad view

The label critical perspective is a broad umbrella term

which has been used to describe research undertaken by
many researchers that sometimes applies to different
philosophical perspectives

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 Definition: a post-modern
view
In critical world, there is no single established
theory or application and there is little consensus
on how to proceed, aside from an absolute horror of
modernity and neo-classical economics. Reiter (1995.
p.53)

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 Definitions: summing up

ical Theorists see Accounting as a:

ols for constructing, sustaining and legitimising economic an
itical arrangements, institutions and ideological themes
(Guthrie and Parker 1990. p. 166)

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 Traditional view of accounting practice:
realist
Assumes that the financial reality of an enterprise exists
independently of accountants, auditors and accounting
statements.

Only requires the proper objective and verifiable

measurement process to identify and report this reality

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Critical theorists suggest that by
communicating this reality
accountants simultaneously
construct reality

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 Critical theory view of accounting
practice
Critical theorists regard conceptual frameworks as
legitimising the accounting profession and the financial
reports produced by reporting entities
Preparers of Financial Statements are seen as imposing
their own views about which performance characteristics
are important or not important inclusions in corporate
financial statements
If an item is not measured and reported it becomes
unimportant and perhaps invisible

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 Critical theory view of accounting
practice
By ignoring many social and environmental externalities
such as air and water pollution

accountants simultaneously disclose and construct reality

(Hines 1988)

Attention is directed to particular measures (e.g. profits)

through accounting measures and reports

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 Political economy
Theorists emphasise the role of accounting reports in
maintaining social, political and economic arrangements
and preserving benefits for the providers of capital

Accounting reports and disclosures are seen by critical

theorists as a means of favouring those that control
scare resources (capital) and undermining the position of
those without capital

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 What about CSR?
Corporate social reporting (CSR) is regarded by critical
theorists as harmful, giving stakeholders the impression
of corporate concern and change without any real
change occurring

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 Critical view of mainstream accounting
research
Most accounting researchers tend to accept
current social systems as a given and do not
question whether current systems of accounting
systematically favour certain classes in society
at the expense of others.

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Critical view of mainstream accounting
research

Research is directed to such things as:

1. What accounting methods are most appropriate
in certain circumstances,
2. What motivates managers to use one accounting
method in preference to another,
3. How the share market will react to a particular
disclosure,
4. What information best suits particular users
needs, and so on.(PAT)
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Critical view of mainstream accounting
research summed up

Mainstreamaccountingresearchersareseenas
providingresearchresultsandperspectivesthathelp
tolegitimiseandmaintainexistingpolitical
ideologies
e.g.antiregulationstanceandEMHduringthelate1970s
and1980smatchedtheviewsofgovernmentatthetime
riseofPATconsistentwithpoliticalviewsatthetime

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 Critical accounting research
Much of the critical research is informed by the works of
Karl Marx
Marx was highly critical of capitalism- which he saw as a
society run by the wealthy upper and middle class for
their own benefit
Wealth is accumulated by capitalists by exploiting the
worker

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Critical accounting research- Employees

Rather than seeing the agent (worker) as acting as a

wealth maximising, self interested being (PAT)- Marx sees
the the owners of capital (principal) as exploiting the
workers to increase their own wealth

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 Critical accounting research-
Environment

The development of civilization and industry in general

has always shown itself so active in the destruction of
forests that everything that has been done for their
conservation and production is completely insignificant in
comparison. Karl Marx

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Critical accounting research- Enviroment

Many other critical researchers adopt a deep ecologist

philosophy
and question the trade-off between economic
performance and ecological damage

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Critical accounting research- Feminism
Other critical accounting research adopts a radical feminist
perspective
Based on a belief that accounting maintains and
reinforces masculine traits such as ongoing quests for
success, conflict and so forth without any consideration
to cooperation, respect, loyalty, caring and so forth
Karl Marks also states social progress can be measured
by the social position of the female sex.

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 Critical of most things

Critical accounting theorists tend to oppose (be critical

of) most aspects of the (capitalist) system.

Based on beliefs that accounting systems are built

around the prevailing social order and are designed to
support that social order

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 Even Regulation (the watchdogs!)
Critical theorists propose that if you accept that the practice
of accounting is in the hands of large corporations, and
accounting regulation in the hands of regulators,

Accounting information will never do anything but support

the current system

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 Regulators
The government:
is seen as a vehicle of support for holders of capital and
for the capitalist system as a whole

will take action to enhance the legitimacy of the (unjust)

social system

Social disclosures are seen as a means of pacifying

challenges against the capitalist system where corporations
are given (too) many rights and powers

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 Regulators

Regulatorsdonotoperateinthepublicinterest,butinthe
interestsoftheirpowerfulstakeholders.
Corporationstypicallylobbyagainstregulationthatcould
increasetheiraccountabilitytosociety,e.g.Carbonpricing,
miningtax

ObviouslycriticaltheoristsdonotsupportPAT

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 (Some) Criticisms of PAT

- Doesnotchallengeexistingsocialorder
- Themarketisnotanefficientmechanism
- Freemarketapproachunderminestheinterestsof
thosethatneedprotection

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 (Some) Criticisms of PAT

- PATresearcherspayattentiontothemotivationsof
managersandownersignorelesspowerful
stakeholders
- PATresearchersaggregatedataontheassumptionthat
allentitiesarethesameforthepurposesofresearch
- PATnotvalueneutralallresearchinvolvesvalue
judgements

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 Criticisms of CSR disclosures

Critical theorists argue that disclosure of social

responsibility information is wasted unless
accompanied by fundamental changes in how
society structured
CSR disclosures legitimise, not challenge, those
providing the information
The need is for social reform, and not more
accounting
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 Some criticisms of critical accounting
theories

1. Critical theorists are often marginalised to a greater

extent than others
2. Critical theorists rarely provide solutions to
perceived problems
inconsistent with normal training of accountants to provide
solutions if problems are evident
3. Critical of accountants

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 Topic 7 summary
DefinitionsofCriticalAccountingTheory
RoleofAccountingPractice
Traditionalrealistview
Criticalview
RoleofAccountingResearch
Mainstreamviews
Criticalaccountingtheories
CriticalPerspectiveoftheroleoftheregulator
CriticismsofPAT
CriticismsofLegitimacyTheory
CriticismsofCSR
CriticismsofCriticalAccountingTheory

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Any question(s) or something
you would like to share

Well donenow you have completed all topics

Next week will cover Exam Information and

have a Q & A session
Thank you!

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