A number of scholars and theorists have advocated for subjectivity in accounting. They have used the concept as and against those who are of a different view to this notion, who believe accounting as objective. Morgan argued that accounting/accountants are ‘constructors of reality’, ‘subjective’ (Morgan, 1988, pg. 477) and produce and present financial statements in a variety of subjectivity as well as one-sided approaches. This view or idealism was further endorsed by Ruth Hines, a source for the development of accounting theory. She used the concept of construction of reality to support her position. She believed that in communicating reality, we create reality’ (Hines, 1988, page. 251). Therefore the accounting system is constructed by society and is formulated by individuals who are individuals, or even society at large. These were opinions that positivists David Solomons and Rob Bryer were not in support of. Bryer employed Marx’s theory of the labour process to claim that ‘objective financial accounting is at the heart of capitalism’s control over modern business enterprises’ (Bryer, 2006, Page. 42). Additionally, Solomons had a more radical viewpoint, suggesting that accountants should behave like journalists (Solomons 1991, page. 287). He says accountants should report the news in the moment and not constructing it into a reality or complete picture of an event. However, how can we determine what the truth is? How and when do we determine what the real and fair perception of an event is without knowing the historical context and can we trust upon it?. These kinds of views will also be examined during these review.
The first question is, what is accounting? It is the American Accounting Association defines accounting “as the process of identifying, measuring and communicating economic information to permit informed judgements and decisions by users of the information” (Porter and Norton 2009, page. 11). The development of modern accounting goes back to 1494 when Luca Pacioli published a book about books that had double entries. In the years following that followed, accounting and the accounting profession was not equipped with the ‘theoretical information to back the concepts up'(Kyriacou 2010, lecture 3 slide 8) to eliminate the ambiguity. Due to the financial scandals of the 1920’s which led to the Great Depression during the time, GAAP (Generally Accepted Accounting Principles) was created late 1930’s in order to govern and regulate accounting. A few years after GAAP was established, SSAP2 was formed in 1971 as a guideline for accounting and the profession of accounting by combining a variety of concepts and conventions. These include: Going for accruals, prudence, consistency and objectivity, realisation, materiality, measurement of money, duality and entity. But after an ASB exam, SSAP2 reduced them to four and created C.A.P.G (Going as well as accruals coherence as well as prudence). SSAP2 also introduced additional policies on depreciation, stocks and assets, among others. Despite the efforts of SSAP2 to provide meaning to the accounting practices, accounting was still using the concept of ‘duality’ since accountants were unable to understand why accounting was conducted in the way it was. This is why the idea of a conceptual framework’ was proposed through the FASB (Federal Accounting Standards Board) which was created to amalgamate diverse ideas that emerged after the introduction of SSAP2 in order to give accounting a more comprehensive understanding. Also, a conceptual framework is essentially an accounting encyclopedia that contains concepts, rules, theories and concepts that have been compiled throughout the years to define the accounting profession and give an understanding of accounting as a whole.
These ideas comprise The Corporate Report 1975, honest and truthful view, SSAP2, accounting concepts and the Declarations of Principle etc. (Mathews & Perera, 1996, 23-30). Through the course of history, it is obvious that accounting has been influenced by various concepts, ideas and opinions throughout the years from nations, scholars and general public. Concepts like the “True and Fair” view is an essential element of accounting and all accounting statements and the idea of six additional statements included in the Corporate Report 1975 and also the discussion in the debate between UK and USA regarding whether it’s possible to create a conceptual framework’, or to base theories on events that have been observed, thereby establishing a conceptual frameworks is the idea of the UK by Professor Macvae. These ideas, however, are only a few of the views of accounting practices in general. Yet, it’s evident that accounting is an artifact of society and is subjective in the same way as ‘an artist has to present a partial image of the world he would like to portray ‘(Morgan 1988, page. 477). All of these opinions, debates and ideas were created by people people i.e. accountants to accounting bodies and, consequently, socially constructed. For instance financial statements are created by the financial accountant on the views of an accountant of the company’s financial position, in front of an audience who are not internal. But, the opinions of the accountant may not reflect the complete view of the financial situation. Due to the false representation of accounting statements of the company, their final result is highly subjective and biased in its perception of reality due to accountants’ ability to arbitrarily combine and definethings, and also add and subtract things in a way that is different than the normal way ‘(Hines 1988, page. 254)
Although positivists like Solomons suggest that the concept of neutrality and impartiality should be at the heart of accounting, and that accountants must be impartial and report reality according to their own perceptions but it raises the question what can be proved or proven? In the case of users, should be relying on the accounting profession without knowing why it’s being done this way? This is why questions that are unanswered like those above cause phenomenologists to Tinker, who disagree with the concepts of the positivism accounting approach. They believe that individuals i.e. accountants aren’t entirely free in their beliefs and the way they see reality in general. Furthermore, Hines said that in communicating reality, we build reality (Hines 1988, pg.257) and give the concept of. Therefore, reality to accountants or those in accounting is seen differently from non-accountants. This is similar to the relationship between the farmer and the chicken. The reality for a farmer is killing the chicken in order to celebrate Christmas however for the chicken, reality is growing up on the farm and producing eggs. This illustrates that reality can be interpreted in various ways. However, because accountants have influence in society, just similar to farmers, they create their own reality and make it valid, which is then our responsibility to believe in and integrate into our personal beliefs as they essentially’screamed the most loudly’. But, to my mind I believe that the truth is out there , but since we’re only able to follow the beliefs and perspectives formulated in the field of accounting, we will never be able to discern reality rather than just wait until something terrible is happening in the accounting industry as the financial crisis or failures that occurred in large organizations such as Lehman Brothers (Swedberg, 2010, 71-411) and raises questions about objectiveness in the field of accounting. This leads us back to the illustration of the farmer and the chicken. Because the chicken is used to performing the same tasks that it does – wake up, eat walks through the fields, lay eggs, and rest throughout the year The chicken wouldn’t be able to discern what is real because the chicken has the same lifestyle until Christmas rolls around and the chicken is killed. In the end, it will be asked if the way that the chicken has lived throughout the entire year actually is or if it is killed at Christmas? That’s enough of my “chicken” illustration, and now back to my assessment. Additionally, financial problems within large companies have made accountants less aware of the significance of accounting on their lives, and the role they play in shaping accounting.
In the aftermath, because of challenges within the accounting profession there are theoretical frameworks developed to help solve the problems and discipline within the field. What exactly is the concept of theory? The term theory can be described as an interconnected set of concepts such as definitions, propositions, and concepts that provide a systematic understanding of an phenomena…with the aim of describing and predicting phenomenon’ (Kerlinger, 1964, p.11). Since accounting is a practice-based profession, it is not a science-based one. We could argue that implementing a theories-based systems to accounting can be problematic, and even for those who are not experts. This is because the information necessary to formulate theories is derived from various sources like the ability to reflect, one’s perception memories or faith, intuition, etc. Each of these are subjective sources. To gain knowledge, the method of induction is employed. The process begins with observations, and is an method of induction to create an idea or law. After the law is approved, it will be subjected to the deductive approach where it is examined. However , there has been some debate over how theories are developed. Some scholars have believed that it was by using the inductive method, and others suggest it’s through the deductive method, but since fundamental accounting theories like depreciation and fair value were all developed by the process of inductive reasoning It is possible to conclude that these theories are highly subjective. The reason is that there are many different situations, events or events that are observed are objective, instead they’re biased and provide an inaccurate view of what the observer perceives. This is why Hines’s view remains that when we convey reality, we are creating the reality (Hines 1988, p.g 251).
In the past the obvious the fact that there is uncertainty and ambiguity in accounting theories has been the subject of discussion among accounting researchers. Beyond the notion of the construction of reality and the development of accounting theory These debates have focussed on the backbone of financial statements, the “true and fair” concept. What is the significance of “true” and “fairness”? What is the definition of the fair and true idea of a view within accounting? Webster’s Reference Library (2010) defines the term “true” to be “conforming with fact; correct, accurate; perfectly in tune” (Webster Reference Library, 2010, Page. (349)). Fairness is described in the nitty-gritty Oxford Thesaurus (2002) as “fair-minded, just, impartial, unbiased, unprejudiced, and honest” (Kirkpatrick, 2002, page. (273)). However, the idea of a the truthful and fair view within the field of accounting is to release all relevant materials that are in line with accepted accounting practices. Non-accountants, however, interpret the concept of ‘true’ and fair as 100% true and ‘correct’. Therefore, when statements are approved with the famous phrase”This statement has been prepared with a truthful and fair perspective’, people who read financial statements immediately think that the information they receive reflect 100% of the financial condition of the company that was produced honestly and accurately. However, this isn’t always the case as not all companies present their financial situation honestly and accurately, as is the case for Enron when the company was leveraging some of its it incurred debts continuously, and did not report it on their balance sheets prior to and after it was approved by the auditor of the company, Anderson who was accrediting the company’s accounting principles and rules (Thakur, kalra and karkun 2002, pages. 1-5). This suggests that the real and fair view concept was employed as a safeguard as well as a ‘pepper spray’ to prevent people from seeing the whole picture and was also used as a reason to excuse not complying. That’s why I believe that the ambiguity and the high degree of subjectivity in the fair and true notion of view makes it hard to come up with a clear explanation, especially when the accounting definition is not understood even by the professionals who are sure that they do not discuss the concept.
It is therefore based on one’s perspective/interpretation of what true and fair view is thus making accounting very subjective as suggested by Tinker. Tinker said it’s impossible to accurately represent financial events without any sort of subjective element that is ignoring factual information because financial statements are made according to the accountant’s view or because of influences from diverse elements (Tinker 1991, Page. 297-298) For instance, that of the Lehman Brothers collapse.
In the end, although accounting is thought to be objective in so many accountants consider themselves as positivists it is apparent that the field in general isn’t as objective as we like to believe. Additionally, this analysis uses a variety of concepts to address the subjectivity issue in accounting. The first is that the design of the concept framework has an important role in shaping accounting, either through debates or theories, accounting professionals are provided with the guidelines they need to adhere to. It is also evident that the framework is constructed socially since it was created by people who were not accountants i.e. by accountants for customers who are not accountants.
In addition, the concept of reality construction proves that accounting is subjective since accountants present their realities through the way they interpret it on their own opinions and everybody else must adhere to the same common sense. It’s also clear the importance of gathering knowledge when forming or constructing accounting theories. However, it can be problematic since the sources used to collect information in the inductive reasoning method may be biased or biased and, as phenomenologist’s suggestion suggests it is our part in what’s being observed. In addition, the real and fair perspective concept in accounting is a crucial element to accounting published. But, the inability to give the concept a proper definition in the accounting profession as well as in the law of company is difficult even for professionals. It is therefore very subjective as we consumers are left to determine the meaning of the term according to our own judgment.