API

Volume Nine
2009

The Ontology and Epistemology

of Social Reality in Accounting
According to Mattessich
Thomas A. Lee

ABSTRACT: Mattessich (2009) is a response to a previous discussion on the ontology

and epistemology of social reality in accounting by Lee (2006a, 2006b), Macintosh
(2006), and Williams (2006). The original discussion was motivated by the Financial
Accounting Standards Board’s (FASB) (2002a) commitment to introduce principles-
based accounting standards (PBAS) based on its conceptual framework (CF). Lee (2006a,
2006b) argues that PBAS requires the FASB to recognize social reality in its CF. While
agreeing with this argument generally, Mattessich (2009) states that, compared to the
social reality construction model (SRCM) of Searle (1995) adopted by Lee (2006a),
the onion model of reality (OMR) is more relevant to standard setters such as the FASB
when they consider social reality in accounting. The purpose of this response to
Mattessich (2009) is to contrast the SRCM and the OMR in the context of accounting for
social reality, the FASB’s ongoing revision of its CF, and recent accounting events in the
global financial crisis. The overall conclusions are that the SRCM and the OMR are ca-
pable of introducing social reality to accounting thought; the SRCM has features that are
particularly useful in emphasizing the subjective nature of the subject matter of accounting
practice; the FASB continues to ignore social reality in its CF; and recent account-
ing events support arguments such as Lee (2006a, 2006b) and Mattessich (2009) that the
FASB and other standard setters address social reality in their CF and PBAS. However,
for social reality to be successfully incorporated into accounting thought, the ontology
and epistemology of reality generally need to be part of the accounting curriculum.

INTRODUCTION
Accounting for social reality is the subject of a collection of recent essays (Lee 2006a, 2006b;
Macintosh 2006; Williams 2006). Motivation for the discussion was the FASB commitment in
2002 to introduce PBAS based on its CF and within the context of a further commitment to
globally harmonize accounting standards (FASB 2002a, 2002b). Lee (2006a, 2006b) argues that
PBAS implies the FASB recognizes its accounting standards need to be consistent with CF
reporting qualities such as decision relevance and informational reliability—i.e., PBAS concern
the faithful accounting representation of relevant economic reality. Lee (2006a) further argues
that, contrary to this implication, the FASB aim for PBAS is to support conventional historical

Thomas A. Lee is a Professor Emeritus at The University of Alabama and an Honorary Professor at the University of St.
Andrews, U.K.

The author is grateful to the editor and Richard Mattessich for the opportunity to further consider the notion of
accounting for social reality.
Lee 66

cost accounting by improving its consistency and comparability. FASB’s use of its CF in this
manner therefore suggests that its existence has more to do with image-making and demon-
strating the professionalism of accountants—by suggesting FASB accounting standards have
theoretical foundations—than with basing accounting practice on theoretical concepts such as
decision relevance and reporting reliability (Hines 1989, 1991). With this in mind, and because
economic reality is a subset of a broader social reality, Lee (2006a) concludes that it is imperative
for accounting standard setters to commit to a body of knowledge that formally recognizes
the ontology and epistemology of social reality associated with the practice of accounting
representation.
Lee (2006a) adopts Searle (1995) to demonstrate how the FASB could make this commit-
ment in practice. Searle (1995) examines social reality from the disciplinary perspective of phi-
losophy and the methodological perspective of linguistics. His social reality construction model
(SRCM) describes reality from two perspectives. The ontological perspective examines the ex-
istence of subject matter broadly as either intrinsically objective physical reality independent of
humans, or inherently subjective social reality dependent on human thought and communication.
In contrast, the epistemological perspective concerns the truthfulness of statements made about
the meaning and function of physical or social reality. Thus, Searle (1995) argues from an on-
tological perspective that social reality is the subjective creation of humans because its existence
depends on their observations and general consensus regarding meaning and function. Searle
(1995) further argues that, epistemologically, social reality is either objective or subjective de-
pending on the relative truthfulness of statements made about it.
According to Lee (2006a, 2006b) and other accounting researchers (e.g., Alexander and
Archer 2003; Mouck 2004), the SRCM of Searle (1995) is particularly relevant to accounting
practice in that it has the potential to accommodate social reality such as profit or capital, and
representations of social reality such as periodic earnings or end-of-period equity. Macintosh
(2006) does not dispute Lee’s use of the SRCM in the general context of accounting thought,
but disputes the validity of separately identifying the ontological and epistemological perspec-
tives on social reality in accounting. Instead, Macintosh believes all reality is socially constructed
and, in the context of social reality such as profit or capital, and accounting numbers such as
earnings or equity, he argues they are indistinguishable because they have become hyper-
realities where ontology determines epistemology and vice versa (Macintosh et al. 2000). Williams
(2006) also appears to accept the use of the SRCM in accounting thought, but is concerned
about the undemocratic imposition of the CF and PBAS on society by accounting standard
setters. In contrast, whereas Mattessich (2009) accepts that accounting standard setters should
address the issue of social reality in accounting, he argues against the ontological distinction of
objectivity and subjectivity made in the SRCM. He offers the OMR as an alternative approach
to assisting standard setters with thinking about social reality in accounting, specifically ques-
tions the ontological characterization of social reality as subjective, and believes the distinction
between objectivity and subjectivity is an epistemological issue only.
Mattessich (2009) addresses various aspects of Lee (2006a, 2006b), Macintosh (2006), and
Williams (2006). However, each of these essays has a different focus on accounting for social
reality. For this reason, the remainder of this essay discusses Mattessich (2009) in relation to
Lee (2006a, 2006b) only. First, there is a summary of the arguments made by Mattessich with
regard to the SRCM. Second, the case for the OMR is considered. Third, the significance of the
SRCM and the OMR are related to the FASB’s ongoing project to revise its CF and accounting-
related events of the global financial crisis.

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Lee 67

MATTESSICH ON SEARLE
Mattessich (2009) appears to be in agreement with Lee (2006a, 2006b) about the need for
the FASB to incorporate social reality into its conceptual and practical prescriptions. This con-
clusion is reached not only from Mattessich (2009) but also from earlier papers (Mattessich 1991,
2003). It is therefore reasonable to suggest that Mattessich supports the proposition that stan-
dard setters such as the FASB should recognize the subject matter of accounting as social reality
and its standards as the methodology by which social reality is represented. Where Mattessich
departs from Lee is with respect to Searle’s (1995) SRCM proposition that social reality is on-
tologically subjective because its construction depends on human thought and communication.
In short, Mattessich does not accept the SRCM recognition of ontological subjectivity. Instead,
he regards the issue of social reality as ontologically objective or subjective as redundant be-
cause he perceives all reality—whether physical or social—as part of a stratified, emerging, and
evolutionary process that is real and factual. According to Mattessich (1991, 2003) and the OMR,
reality is layered and time-related, starting with a physical core and evolving through linked and
embedded chemical, biological, mental, and social layers. Connections between layers in the
OMR are associated with emergent properties (e.g., sodium and chloride combining molecularly
as salt, or sun and ocean combining as climate). Mattessich regards this systemic and evolu-
tionary construction of reality as ontologically objective—ultimately, evolution constructs social
reality. He advances the OMR as a practical means to explain the objectivity of the ontology
of reality. In this respect, his philosophical idealism is diametrically opposite to that of Mackintosh
(2006), who believes all reality is socially constructed and therefore subjective. It is only from an
epistemic perspective of truthfulness that Mattessich argues social reality can be judged as
objective or subjective.
In contrast to Mattessich, Searle (1995) regards social reality as the mental creation of hu-
mans and therefore dependent on them. His SRCM expresses a philosophical argument that
social reality is created or constructed when it is perceived and given linguistic meaning and
function within society—first by individuals and then, over time, by groupings or communities
more generally when there is consensus about meaning and function. Searle (1995) argues that
this process involves subjective judgments even though, over time, these judgments may come
to exist as social or institutional facts seemingly indistinguishable from physical facts indepen-
dent of human judgment or construction. Mattessich appears to agree with this part of Searle’s
(1995) argument when he states humans treat social facts in much the same ontological way as
physical facts.
Searle illustrates his argument with the example of money as a social reality associated with
a physical reality—i.e., humans agree collectively about the meaning and function of money in
economic exchange and it also exists physically as paper, metal, or plastic. Mattessich presum-
ably regards a paper dollar bill as an emergent property connecting the physical reality of paper
to the social reality of money. Consequently, as he believes all reality is real and factual to
humans, it is further presumed that Mattessich believes the promise of a bank to repay its debt
of a dollar to the bearer of a bill is ontologically as objective as the paper on which the promise
is written. Mattessich’s argument that humans reconstruct or conceptually represent rather than
create social reality causes him to recognize objectivity and subjectivity in social reality as an
epistemological issue only—i.e., affecting the truthfulness of statements made about its meaning
and function. In this respect, his ontological argument is similar to Sterling’s (1977) view that the
current conventions and practices of accounting are not contemporary attempts to provide

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Lee 68

meaningful information, but instead are the end result of an intergenerational process of custom
and habit.
Mattessich (2009) provides reasons why he believes the OMR is preferable to the SRCM in
the context of improving accounting thought and practice. He argues that the OMR does not
designate any particular layer in the sphere of reality as more objective or subjective than other
layers. This means that Mattessich believes social reality affecting accounting (e.g., profit, capital,
and debt) is as real to accountants as mountains and oceans are to geographers or ele-
ments and compounds to chemists. Mattessich further argues that compared to the SRCM, the
OMR provides a comprehensible argument about social reality that should not confuse account-
ants unused to philosophical reasoning. He therefore does not claim the OMR is conceptually
superior to the SRCM—rather that, compared to the SRCM, it is more likely to be accepted by
accountants because it is comprehensible to them.

ASSESSING THE OMR

Mattessich’s (2009) case for the OMR is based on an argument that although ontologically
each layer of reality in the onion differs from its predecessor because of unique emergent prop-
erties, the existence of social reality is just as objective and factual to humans as physical reality.
Physical and social reality evolve in combination. However, social reality is the product of an
evolutionary process over which individual humans have little control or management. In this
respect, the argument is similar to that of Lee (1990) that the evolving world of accounting could
be a self-managing, supra-human autopoietic system. Mattessich’s argument for the OMR ap-
pears to be motivated by the practical desire to ensure the notion of accounting for social reality
is not rejected by accounting standard setters as a primary component of the CF and PBAS.
The OMR is therefore a prescription for standard setters to accept the social reality associated
with accounting as ontologically objective and to focus instead on epistemological issues con-
cerning the objectivity and subjectivity of accounting representations of it.
Setting aside the ontological issue with social reality, this is a considerable objective for the
OMR, for there are few signs that accounting standard setters are aware of, let alone conversant
with, the ontology and epistemology of social reality and its association to accounting represen-
tation. For example, in its most recent exposure draft to revise the CF, the FASB (2008) makes
no mention of social reality in suggested prescriptions of reporting objectives and qualities. The
approach of the revision is to achieve general-purpose reporting for a variety of decisions (Sec-
tion i). Reporting qualities are characterized as either fundamental (e.g., relevance and faithful
representation), enhancing (e.g., comparability), or constraining (e.g., materiality) (Sections i and
ii). The main motivation for the FASB is the need for reporting consistency (Section vi). There is,
however, an oblique reference to social reality in the FASB draft. Faithful representation is defined
as the accounting depiction of the substance of economic phenomena completely, neutrally, and
without material error (Section x). The phrase ‘‘substance of economic phenomena,’’ however, is
not defined or discussed. It is as if the FASB expects accountants to understand the meaning
of substance and economic phenomena without further explanation. Explicit recognition that
these matters have philosophical and linguistic roots is therefore absent in the draft, and this
has the effect of reinforcing arguments by Lee (2006a, 2006b) and Mattessich (2009) of the need
for standard setters to demonstrate their awareness and understanding of the significance of
social reality in accounting thought and practice.
With this unsatisfactory state of conceptual matters in current accounting as background,
it is clear that any assessment of the OMR should be wider than the specific issue of whether

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Lee 69

accountants are capable of understanding the language that describes the ontology and epis-
temology of social reality in accounting. Instead, the primary question is whether models such
as the SRCM and the OMR are suitable theoretical conduits to enable accountants to understand
the significance of social reality in the representational process of accounting. In this respect,
Mattessich (2009) raises several concerns that deserve further attention.
1. Mattessich’s (2009) argument for the OMR is based on a definition of objective in relation
to reality as that which has the nature or status of a tangible or visible object. In contrast,
Searle’s (1995) argument for the SRCM is based on a definition of objective as being
independent of the consciousness of the human mind. Such a definitional distinction
makes any comparison of Mattessich (2009) and Searle (1995) difficult and likely to create
misunderstanding. The following comments therefore accept Searle’s (1995) view that
social reality can never be ontologically independent of human thinking while recognizing
the implication of Mattessich’s (2009) argument that humans treat social reality as if it
were a tangible and visible object. The comments challenge the notion that social reality
is objective because it is an evolutionary creation.
2. Mattessich (2009) is welcome as an extension of a previous discussion of accounting
for social reality. It adds support for the argument that because the subject matter of
accounting is social reality, accounting standard setters need to incorporate the topic
into their conceptual and practice statements. However, the paper has echoes of debates
in the so-called golden age of normative theorizing in accounting in the 1960s and 1970s
(Lee 2009). This was a period in which theorists prosecuted their argument for a particular
theory by first attacking what they perceived to be the weaknesses of the competing
theories. This led to an academic Tower of Babel in which normative accounting theory
was proscribed by positive accounting theorists as unscientific and a market for excuses
(Sterling 1990). The result was decades of a sterile anthropological empiricism to test
capital market reactions to conventional accounting numbers. Given the consequent lack
of challenge to the paucity and misleading nature of these numbers in recent decades,
it is in the public interest that accounting theorists are willing to recognize the possibility
that matters such as the ontology and epistemology of social reality can be approached
from at least two different perspectives such as the SRCM and the OMR. Thus, the
assertion by Mattessich (2009) that, in contrast to the SRCM, the OMR is easier for
accounting standard setters to understand and relate to accounting is an empirical issue
that requires testing.
3. Following on from No. 2, although there have been numerous theoretical contributions
to accounting thought, including those of Mattessich (1964), none have been sufficiently
persuasive for accounting standard setters to adopt. Instead, standard setters have been
content to integrate certain reporting objectives and concepts derived from individual
theories into their CF to demonstrate the professionalism of accountants (Hines 1989,
1991). For this reason, models such as the SRCM and the OMR should be seen not as
contributions to competing theories, but as alternative foundations to provide standards
capable of producing reliable accounting numbers to represent relevant social reality
such as profit or capital.
4. An advantage of Searle’s (1995) view of social reality in the SRCM is that the latter
appears particularly relevant to accounting in which the principal subject matter is social

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reality far removed from physical reality. As Mackintosh (2006) argues, much of account-
ing is about numerically representing social reality that is tautologically defined by nu-
merical representations of it. This can be illustrated by definitions of the FASB (1985) in
its conceptual statement on elements of financial statements. For example, an entity’s
assets are probable future economic benefits, liabilities are claims against these assets
or probable future economic benefits, and equity is what remains after deducting liabil-
ities from assets (FASB 1985, 22). Comprehensive income is the periodic change in
equity, excluding owner transactions (FASB 1985, 28). The International Accounting Stan-
dards Board (IASB) (2004, 2190 and 2168, respectively) has similar tautologies—e.g.,
profit is the difference between revenues and expenses, and equity is the difference
between assets and liabilities. The SRCM provides a theoretical foundation for accoun-
tants to discover that social reality such as profit or capital is ontologically and episte-
mologically subjective. As Macintosh (2006) argues, ontology and epistemology in ac-
counting have merged. Bodies such as the FASB and the IASB need to recognize these
matters, and there is a danger that a theoretical approach based on the OMR may regard
the ontology of profit or capital as objective when its existence depends on a method-
ology in which accounting numbers are derived from a process of arithmetical calculation
based on conventions and arbitrary allocations that are claimed to be generally accepted
because they are prescribed by the FASB and the IASB.
5. Mattessich (2009) rejects the idea that the ontology of social reality is dependent on
human minds, believing instead that humans inherit and reconstruct it in an evolutionary
process. He consequently prefers the OMR to the SRCM, as the latter does not recognize
ontological objectivity with regard to social reality. The SRCM, however, has been con-
vincing to accounting researchers such as Alexander and Archer (2002), Mouck (2004),
and Lee (2006a, 2006b). In particular, the SRCM emphasizes the subjective process of
achieving societal consensus on the assignment of function, collective intentionality, and
constitutive rules associated with social reality. This process, as with the OMR, is evo-
lutionary and time-dependent, and the societal consensus on meaning and function is
specific to each generation of humans. In other words, it can be argued there is contin-
uous reassessment of the ontology of social reality through time as humans reconstruct
its function, collective intentionality, and constitutive rules. This appears inevitable in
accounting where the ontology and epistemology of social reality such as profit or capital
are intertwined as hyperreality.
6. Should accounting standard setters accept the argument of Mattessich (2009) and rec-
ognize the ontology of social reality such as profit or capital as objective, there is a
danger that the intergenerational reconstruction process will take place solely in the world
of accounting. The survival of the existing system of accounting based on conventions
such as historical cost, conservatism, and realization is testament to intergenerational
reconstruction by custom and habit, and the unwillingness by accountants to consider
new thinking and practice (Sterling 1977). The ontology of social reality in accounting is
a matter for the attention of all vested interests in order to achieve new consensuses
regarding the assignment of function, collective intentionality, and constitutive rules. In
turn, such continuous reassessment of the ontology of social reality in accounting leads
to continuous reassessment of its epistemology in order to provide appropriate meth-
odologies of representation. The SRCM appears to be suited to this ontological and
epistemological reassessment.

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Lee 71

CURRENT SITUATION
As mentioned previously, the current CF revisions by the FASB appear to be a repackaging
of previous efforts. Objectives and qualities of reporting are framed under labels such as general-
purpose use and fundamental and enhancing characteristics. However, the ontological meaning
and function of social reality such as profit or capital and epistemological representations such
as earnings or equity are not discussed. In a similar vein, the recent actions of accounting
standard setters with respect to accounting issues arising from the global financial crisis do not
reflect either recognition or understanding of social reality in accounting. The recent permission
by the FASB and the IASB to reclassify the ontology of social reality such as financial assets
and liabilities as long-term rather than short-term in order to avoid the epistemological issue of
representing these subject matters in terms of fair values is evidence of a lack of understanding
of the meaning and function of social reality in accounting. The permission may be politically
astute, but in the long term it does nothing to improve the quality of the accounting numbers
representing social reality such as profit or capital.
Lee 2006a and 2006b are attempts to persuade accounting standard setters that the body
of knowledge supporting accounting practice should not be a set of loosely connected reporting
objectives and characteristics that can be briefly presented and defined in a CF and superficially
referenced to PBAS or ignored in a financial crisis. Accounting currently is a practice of arith-
metical calculation devoid of sound theoretical foundations. It has an ad hoc body of knowledge
drawn from a variety of disciplines including philosophy, measurement, communication, eco-
nomics, and law. For this reason, studies such as Searle (1995) appear to be educationally more
relevant to students of accounting than either the CF or PBAS.
It is therefore worth reiterating that accounting for social reality needs to be introduced to
the accounting curriculum and classroom, preferably in a way that permits consideration of the
relative merits of the SRCM and the OMR. To attempt to change the habits of a lifetime of
accounting standard setters is overly optimistic given what psychologists term trained incapacity.
Standard setters and practitioners have been trained in the conventional system of accounting
and it is unlikely they are capable of recognizing the need to study the ontology and epistemology
of social reality. The responsibility for introducing social reality to accounting therefore seems to
lie with educators and researchers. Both the SRCM and the OMR have much to offer in improving
the quality of the accounting thought that supports accounting standards and practices. For this
reason, the addition of Mattessich (2009) to the accounting literature is welcome.

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