2018 Gaétan Breton - A Postmodern Accounting Theory - An Institutional Approach-Emerald Publishing

A POSTMODERN ACCOUNTING
THEORY
This page intentionally left blank
A POSTMODERN
ACCOUNTING THEORY:
AN INSTITUTIONAL
APPROACH
BY
GAÉTAN BRETON
Université du Québec à Montréal, Canada
United Kingdom – North America – Japan – India – Malaysia – China

Emerald Publishing Limited
Howard House, Wagon Lane, Bingley BD16 1WA, UK
First edition 2019
Copyright © 2019 Emerald Publishing Limited
Reprints and permissions service

Contact: permissions@emeraldinsight.com
No part of this book may be reproduced, stored in a retrieval system, transmitted in

any form or by any means electronic, mechanical, photocopying, recording or
otherwise without either the prior written permission of the publisher or a licence
permitting restricted copying issued in the UK by The Copyright Licensing Agency
and in the USA by The Copyright Clearance Center. Any opinions expressed in the
chapters are those of the authors. Whilst Emerald makes every effort to ensure the
quality and accuracy of its content, Emerald makes no representation implied or
otherwise, as to the chapters’ suitability and application and disclaims any warranties,
express or implied, to their use.
British Library Cataloguing in Publication Data

A catalogue record for this book is available from the British Library
ISBN: 978-1-78769-794-2 (Print)

ISBN: 978-1-78769-793-5 (Online)
ISBN: 978-1-78769-795-9 (Epub)
Table of Contents
Foreword xiii
Chapter 1 Introduction 1
SECTION 1: THEORIES AND ACCOUNTING 5
Chapter 2 Theories and Schools of Thought 7
Chapter 3 The Traditional Vision of Accounting Theory 21
Chapter 4 Accounting in the Scientific Institution 43
Chapter 5 For a Definition of Accounting 65
Chapter 6 Accounting: the State and the Firm 97
SECTION 2: THEORIES OF ACCOUNTING 113
Chapter 7 Sociology of Accounting 115
Chapter 8 The Psychological Aspects of Accounting 133
Chapter 9 How Decisions are Made 153
Chapter 10 A Theory of Accounting 169

vi Table of Contents
SECTION 3: “TESTING” THE THEORY 179
Chapter 11 Analyzing the Documents Accompanying Decisions 181
Chapter 12 Manipulating and Lying 201
Conclusion 215
References 219
Index 235
List of Figures
Chapter 3
Figure 3.1. Schematization of Accounting Elements . . . . . . . 37
Chapter 5
Figure 5.1. Presenting Accounting Information Through Faces 69
Figure 5.2. The Linguistic Sign . . . . . . . . . . . . . . . . . . . . . . 70
Figure 5.3. Characteristics of the Types of Languages . . . . . . 72
Figure 5.4. Communication Scheme. . . . . . . . . . . . . . . . . . . 77
Figure 5.5. Firm’s Networks . . . . . . . . . . . . . . . . . . . . . . . . 88
Figure 5.6. The Network of Power Corporation of Canada
Board’s Members . . . . . . . . . . . . . . . . . . . . . . . 89
Chapter 7
Figure 7.1. Types of Legitimacy Related with the Sector . . . . 121
Figure 7.2. Types of Legitimacy/Illegitimacy Related with the
Public Sector . . . . . . . . . . . . . . . . . . . . . . . . . . 122
Chapter 8
Figure 8.1. Simple Vision of the Conditioning Process . . . . . . 134
Chapter 10
Figure 10.1. Organization of the Society . . . . . . . . . . . . . . . . 174
Chapter 11
Figure 11.1. Communication Scheme. . . . . . . . . . . . . . . . . . . 185
Figure 11.2. Actantial Model . . . . . . . . . . . . . . . . . . . . . . . . 188
Figure 11.3. Bremond’s Elementary Sequences . . . . . . . . . . . . 191
Figure 11.4. Merck 2006, Cover of the Annual Report . . . . . . 194
Figure 11.5. Image of a Satisfied Doctor After Having Changed
the Life of One Patient . . . . . . . . . . . . . . . . . . . 198
viii List of Figures
Chapter 12
Figure 12.1. Principles of Accounts Manipulation. . . . . . . . . . 202
Figure 12.2. A Proposed Framework for Understanding the
Practice of Accounts Manipulation . . . . . . . . . . . 203
List of Tables
Chapter 3
Table 3.1. Profits Distributed in Dividends Previously to the
Big Loss of 2008 . . . . . . . . . . . . . . . . . . . . . . . . 38
Chapter 5
Table 5.1. Linguistics of Accounting. . . . . . . . . . . . . . . . . . 73
Table 5.2. Grouping and Classification of the 296
Organizations Which Whom the Board Members
Are Connected . . . . . . . . . . . . . . . . . . . . . . . . . 90
Table 5.3. The Nine Categories Grouped in Three Main
Categories with a Comparison Between the Boards
of 2007 and 2013 . . . . . . . . . . . . . . . . . . . . . . . 90
Table 5.4. Potential Resources Necessitated by Firms. . . . . . 91
Chapter 6
Table 6.1. Statement of the Québec’s Debt Since 1970
(millions $) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 107
Table 6.2. Assets of the Québec Government at March 31,
1997 by Competencies . . . . . . . . . . . . . . . . . . . . 108
Table 6.3. The Assets That Were Accounted for in 2005 . . . 109
Table 6.4. Accounting for the Deficits and the Debt Since the
Accounting Reformation of 1997–1998 . . . . . . . . 110
Chapter 8
Table 8.1. Key Differences Between Small and Large Power
Distance Societies. I: General Norm, Family,
School, and Workplace . . . . . . . . . . . . . . . . . . . 45
Table 8.2. Key Differences Between Small and Large Power
Distance Societies. II. Politics and Ideas . . . . . . . 146
x List of Tables
Table 8.3. Power Distance Index (PDI) Values for 50

Countries and 3 Regions . . . . . . . . . . . . . . . . . . 147
Chapter 11
Table 11.1. Arguments Found in an Annual Report . . . . . . . 187
Table 11.2. Initial State, Final State, and the Position at the
End of the Year . . . . . . . . . . . . . . . . . . . . . . . . 192
Table 11.3. Application of the Semiotic Tools to the Story of
Jamilla Colbert . . . . . . . . . . . . . . . . . . . . . . . . . 195
Table 11.4. Functions of Text Illustrations . . . . . . . . . . . . . . 197
Table 11.5. Application of the Semiotic Tools to the Story of
Doctor Hess . . . . . . . . . . . . . . . . . . . . . . . . . . . 199
About the Author
Gaétan Breton is author or co-author of over a dozen books, mostly essays, and
over 30 academic articles. He graduated from the City University of London and
is currently a Professor of Accounting at Université du Québec à Montréal. In the
last 15 years he has concentrated his teaching at the graduate level and supervised
many Masters and PhD students. He is also deeply invested in the life of his
community, having served as treasurer and councilor for many not-for-profit
organizations.
Foreword
This book aims to break with tradition in many ways. Firstly, we want to submit
the accounting activity to the standards established in the human sciences.
Consequently, the standardization process will not be presented as a form of
theorization and the books of standards will not be presented as accounting
theories. Our attitude constitutes a major rupture with the traditional vision.
This traditional vision based on an intense confusion leads to strange ways of
presenting the research done since the 1960s. We want to discuss these research as
products of the institution of accounting and as representing different aspects of
the accounting theory. The body of research has some specific tendencies; for
instance, the massive use of mathematics for two reasons: firstly, to establish a
rupture with the traditional “research,” which was more practitioners’ discussions
than “scientific” investigation, and secondly, to topple accounting research on the
side of the “pure” sciences following the research in finance and economics.
Economics occupies a particular place in the general picture of the academic
disciplines. It is not really included among the human sciences and surely not
among the natural sciences. Some people consider that it can be no science at all.
Considering the crucial influence of economics on the development of accounting,
we argue that the students in accounting have the right to be exposed to the
discussion in its most actual state.
To do so we adopt a postmodern position, which is in fact an attitude. The
most important leitmotif we keep from this position is to doubt every dogma
included in the traditional accounting theory handbooks. This doubt will lead to
discussing the situations and the concepts leaving the students with the possibility
of making their own choices. We want to enlighten their choices instead of
indoctrinating it.
Here comes the second position from our postmodern approach, which is to
consider that there is no unique good answer to one question but many possible
answers that are socially discriminated by whoever holds the power in the
institutions.
This book is addressed to accounting students at undergraduate and graduate
levels. We refuse to imprison undergraduate students in a compulsive vision of
learning, transforming them into machines only able to repeat infinite lists of
details. Graham Stacey, head of research at Price Waterhouse London, told us
once about the graduates in accounting: they are not educated, they are trained. At
the end of their program they will be specialists of a profession in society but, in
the actual state of the academic system, they may have never thought about their
xiv Foreword
role in this society except for claiming their protected field of intervention;
although for others they are furiously advocating the “free market.”
In this spirit, the questions at the end of the chapters may be viewed more as
discussion topics than questions with a specific answer. Obviously, they are
related to the content of the chapters, but they may sometimes necessitate other
readings to be answered properly, which means with an open state of mind.
Although everyone studying accounting may be confronted with such questions
or topics, graduate students may be more prone or able to provide more complete
answers.
Finally, as the students-readers will understand later, we take a constructivist
point of view contrary to the implicit positivist one behind the classical
accounting theory handbooks. We also start with the concept that any institution
is a discursive object. Being discursive doesn’t imply that it does not exist for real,
it is only another form of existence. These are the bases on which we build our
accounting theory which is not made of standards and any pretentions about
some supposed “laws” driving the markets.
Acknowledgments
We would like to thank particularly:

Professor Richard J. Taffler, our thesis supervisor, who will recognize in this
book many topics we have discussed.
Wafa Ben Yedder, doctoral candidate, who helped format some versions of
this text.
Chapter 1
Introduction
Postmodernism is firstly forced to apply its principles to itself. Then, as the

theory of relativity cannot be absolutely relative, the main principle of post-
modernism to relativize and doubt every statement can hardly produce a defi-
nition of itself that would be “definitive.” Therefore, this “school of thought” will
have problems to express its identity which would be to form no school of
thought. Seen like that, postmodernism seems to have caught the quintessence of
the academic spirit.
Deconstruction is the most important attitude in this current period, even
without the task of reconstructing after:
The postmodern condition of fragmentation and simulation makes

coherence problematic. (Boje, 2001b, p. 5)
Obviously, the idea and even the project of doubting everything are known at
least since Descartes and Plato (Major, 2012). These authors had also a project of
reconstructing the world after deconstruction. However, postmodernism can leave
pieces on the floor of history as Picasso was leaving pieces of bodies disseminated
in his paintings. The deconstructed text appears like the organization in the
agency theory: a nexus of relations escaping to ordinary hierarchies and even to
the basic rules of language; it is everywhere and nowhere at the same time and
cannot anymore be physically localized and assigned to a specific source of power.
This accounting theory handbook recognizes the discursive nature of accounting
and therefore its ethereal character.
This book aims to distinguish clearly the scientific and the standard-setting
processes and apply the principles recognized in other social sciences as a basis to
establish an accounting theory. In consequence we have to remember that the
social activity comes before the theory and not the contrary.
Then, we will discuss the possible basic constituents of the theory of
accounting. Such constituents must be derived through considering accounting as
an object of knowledge and then studying it in interaction with other objects. We
will consider accounting as an institution, implying the presence of participants
and objects. Some of these are accountants, shareholders, users of accounting
numbers, passive receivers of accounting reports, governments, governmental
agencies, and also reports, books (both textbooks and registers kept in
A Postmodern Accounting Theory, 1–4

Copyright © 2019 by Emerald Publishing Limited
All rights of reproduction in any form reserved
doi:10.1108/978-1-78769-793-520181001
2 A Postmodern Accounting Theory
organizations), annual reports, etc. These peoples and objects are evolving within
the boundaries established by the surrounding society. Therefore, as any social
object, accounting must firstly be studied from a sociological point of view.
When accounting reports are requested, people in the organization may be
tempted to use it as an instrument to produce some impressions. Therefore, there
is a psychological effect of accounting reports on those preparing and receiving
them. Moreover, these reports are said to be input in the decision-making process.
But, there is never any explanation on how decisions are made and on the kind of
accounting information able to support this process. In this book, we will
consider both aspects. How accounting reports can modify the behavior of those
preparing it or part of it, and the effects of the reports on those receiving it. This
latter part includes a study of the state of the knowledge about the decision-
making process.
Then, we will study the communicational aspect of accounting reports. We will
compare the methods available to study written productions and see what we can
say of accounting reports as communication devices. In most accounting theory
books, the usefulness of an accounting report is taken for granted and the
informational quality of the reports is presented as a function of its length. That
was also often the case in accounting research. The disclosure had been measured
from the space occupied in the annual report, noticeably for social and envi-
ronmental disclosure. The communicational aspect of accounting is a part of its
psychological aspect considering how the financial statements are constructed to
produce specific effects on the receivers.
Traditional accounting theory handbooks have problems with the treatment
of research. The reason is dual. Firstly, the obsession of trying to include the
standard-setting activity in the accounting theory places them in an awkward
situation toward research. The most recent books on accounting theory do not
correct this problem; they add the researches along the standard-setting as if
it was two aspects of the same process. As in any other discipline, the research
is supposed to build a constantly evolving theory; which is greatly incompat-
ible with including the standardization process and keeping the traditional
financial statements as the canvas on which the accounting information is
always conceived. Even Scott (2003) ignores what to do with accounting
research.
A book about accounting theory must inevitably draw on accounting

research, much of which is contained in academic journals. There are
two complementary ways that we can view the role of research. The
first is to consider its effects on accounting practice. (…) The
essence of this approach is that investors should be supplied with
information to help them make good investment decisions (…).
Yet, this increase in disclosure did not “just happen.” It (…) is

based on fundamental research into the theory of investor decision-
making and the theory of capital markets, which have guided the
accountant in what information is useful (…).
Introduction 3
Independently of whether it affects current practice, however, there

is a second important view of the role of research. This is to improve
our understanding of the accounting environment (…). (Scott, 2003,
pp. 6–7)
Scott talks about the role of research, although placing research in a corner.
The role of research in accounting theory is the same as in sociology or psy-
chology – to elaborate theories explaining and predicting “reality.” Scott’s posi-
tion constitutes an acceptation of all that had been called accounting theory in the
past. Then he uses as an example the research on capital markets that had been
derived from the basic conceptions of economics. Finally, he invokes researches
about “conflicts” and proposes the discussions around the agency model to
illustrate that. These are the two focal lines in Scott’s book, the adverse selection,
which might be an effect of a poor provision of information and the moral hazard,
which is reputed to come from an asymmetry of information. This vision gives
accounting a crucial and traditional role as both the major problems identified are
informational in nature.
Accounting has remained surprisingly stable across times. A reading of the
book by Pacioli (1494) shows that little has changed for centuries. The com-
plexification of business financing and structuring had increased the length of
the notes but had little fundamental effects on the structure of the financial
statements. For instance, the fundamental assets of the new economy are still
ignored in large part by the accounting reports in the name of the difficulty to
measure it.
In consequence, our book will be totally different from its predecessors
although we are far from considering it as definitive. We will start by discussing
the concepts of theory and school of thought. Previous books, symptomatically,
take one of two options: they may take these notions for granted or propose many
explanations while proposing no real conclusion. Here, we will clearly take some
positions and go forward based on it. After having clarified these concepts we will
analyze, although quite rapidly, the preceding accounting theory handbooks,
mainly to determine the limits of their conception of a theory. In a postmodern
spirit, we will also clarify and criticize their epistemological position.
Then, after having established what is a theory and looking at the definitions
provided by our predecessor, we will define the second term of our main title:
accounting. Accounting is strangely seldom defined in accounting theory books.
We will provide a definition that will allow us to go further in associating both
terms: theory and accounting.
Then, we will look at the main environment of accounting – the firm – and this
will lead us to the real principal environment of the accounting activity and of the
firm itself, the State and the Society.
From that, we may be able to propose a first aspect of the accounting theory.
This aspect will be sociological. Then, we will explore the psychological aspect
including all the decisional aspects related to the use of accounting reports or
accounting information. At this point, we may try to put together the pieces of
what will be an accounting theory.
The following section inventories the methods to be used in analyzing

accounting documents including an analysis of the manipulations and the dis-
tortions, voluntary or not, affecting the quality of the information. The behavior
of the producers of this “information” and the attitudes of the “users” are part of
the theory.
SECTION 1: THEORIES AND
ACCOUNTING
Chapter 2
Theories and Schools of Thought
The accounting literature do not define clearly the concept of theory. For a long
time accountants have considered that the book of standards constituted the
theory of accounting. Then they have made distinctions between the standard
itself and some principles that are reputed to be behind the choices of the
standard-settlers: relevance, reliability, verifiability, etc.
A theory is a systematic statement of the rules or principles which

underlie or govern a set of phenomena. A theory may be viewed as a
framework permitting the organization of ideas, the explanation of
phenomena, and the prediction of future behaviour.
Accounting theory is that branch of accounting which consists of the
systematic statement of principles and methodology, as distinct from
practice. Thus, the rule of conservatism belongs to the subject of
accounting theory; the practice of providing for future losses from
current doubtful receivables, being a question of practice, does not.
(Most, 1982, p. 55)
The first section is widely accepted outside the accounting domain. A theory
explains and predicts is a sentence we can find in many books, for instance Gay
and Diebl (1992). The next section does not flow from the first part. Conservatism
is a choice, not a rule explaining or predicting. However, conservatism is an
interesting phenomenon to be studied as an object by an accounting science.
In the US, there had been a lot of discussion around the conceptual framework,
which can be considered a good thing as long as we understand that it is not
theoretical or even conceptual. In fact, the framework would be better called
political. The Trueblood Committee made plenty of consultations about the
objectives of the financial statements (Belkaoui, 1992). We can notice that the
process of creating a Committee and sending it on the road to consult different
groups or persons is more like a political approach than a scientific one.
Their report concluded that:
The basic objective of financial statements is to provide information

on which to base economic decisions. (Belkaoui, 1992, p. 183)

doi:10.1108/978-1-78769-793-520181002
But, this is done without any real investigation or integration of any research on
the decision-making process. They must also provide a list of the users. We have
the habitual list ending by the government and the society. Nobody ever asked
what might be the information needs of those groups. If we read the introduction
of the International Financial Reporting Standards (IFRS), we will see that they
settle the question saying that the economic aspect being the most important also
for the society what satisfies the investors’ needs will be enough for the other users.
Although all the needs for information of these users cannot be

satisfied by financial statements, there are needs that are common
to all users. As the investors are suppliers of risky capital to the
entity, the provision of financial statements responding to their needs
will satisfy equally to most needs of other users susceptible to be
satisfied by financial statements. (IASB, 2006, p. 37) (Our
translation)
Therefore the decision has been taken. The information needs of other groups
have to align with those of the investors as they are providing the risky capital and
that is clearly the most important element. Nobody asked what the other groups
were bringing. A reading of Hill and Jones (1992) may have changed their vision.
There is not only money invested in a firm and, among money, there is not only
direct money. The society has invested education, health of people (workers), and
many public infrastructures (Sen, 2003) constituting indirect investment. The need
of the government for information to assess the extent to which the firm has
fulfilled its mandate cannot be subsidiaried to the information given to the
shareholders. We see already that it will be a long fight between public versus
private interests. The standards being done mostly by some private institution,
although on the behalf of the public authority over professions, incorporate
uniquely private investments in money and private needs of information.
Governments have the power to require this information.
Any social institution - and business is no exception - operates in

society via a social contract, expressed or implied, whereby its
survival and growth are based on:
(1) the delivery of some socially desirable ends to society in general,
and
(2) the distribution of economic, social, political benefits to groups
from which it derives its power. (Shocker & Sethi, 1973, p. 97)
The firm is a social institution. This important role must be controlled, which
is, a primordial function of accounting. If the institution is not fulfilling its
mandate, it may be revoked.
In a dynamic society, neither the sources of institutional power nor

the needs for its services are permanent. Therefore an institution
Theories and Schools of Thought 9
must constantly meet the twin tests of legitimacy and relevance by

demonstrating that society requires its services and that the groups
benefiting from its rewards have society’s approval. (Shocker &
Sethi, 1973, p. 97)
Thus, accounting standard-setters can hardly consider as accessory the needs

of groups of stakeholders. Their main reason may be that social choices are driven
by the economic world dominated by the firms and the “businessmen” who are
financing the electoral process and therefore controlling the politicians.
Are accounting standards nothing more than political compromises

in a complex arena of organized capital and labor, the government
and the accounting profession? (Chua, 1986, p. 624)
Science and Politics

We have to make a first distinction between a scientific and a political process.
A theory, even when issuing “laws” resulting from systematic observations,
tries to explain and predict from the developed knowledge of the object, what
will be its behavior. A standard is a choice made by people, therefore a
political choice in its most fundamental meaning, trying to prescribe the
behavior not to predict it. Obviously, when distorting the meanings of the
concepts, one can pretend to predict a given behavior as it is prescribed, as we
can predict that somebody will stop at the red light (maybe), not from an
observation of the natural behavior of the subjects, but from the knowledge of
the convention. In accounting, the confusion between those two processes is
constant.
The question is why transform standards into theoretical statements? The

social popularity of sciences (hard) and the will to present the accounting system
as producing neutral value-free reports explain these attempts to classify
accounting, through its use of numbers, among the scientific activities.
Accounting information is particularly useful for legitimization

activities because they appear to possess a neutral technical
rationality. Numbers are often perceived as being more precise
and “scientific” than qualitative evidence. (Chua, 1986, p. 617)
Another direction to understand the phenomenon comes from an institutional

analysis of accounting. Briefly, before the 1960s, accounting was a technical topic.
It had not yet entered into the university. If we look at it 50 years after, we see that
the accounting departments are often behind the rest of the business schools in
terms of the diploma of the professors, for instance, and in term of the control
exerted by the professional bodies. To completely enter into the university,
accounting professors may increase their level of diploma to the university

standards and increase their research financing, but they may also find a way to
pretend that what they are teaching is a science and not a “mere” technic, as well
as any other department around. University professors occupy a median position
in the social system as owners of a capital, but only some of them are included in
the dominating class, always as consultants. The professors of accounting are also
in a median position in the academic world as they are not teaching hard sciences
but are viewed as teaching something “more serious” than arts.
In term of “capacities”, which position in the social space depend

principally on the possession of cultural capital, a dominated specie
of capital, university professors are situated mostly on the dominated
side of the power field and are directly opposed on this to the
directors of industry and commerce. But, as owners of an
institutionalized form of cultural capital, providing them with a
bureaucratic career and regular revenues, they are opposed to
writers and artists, occupying a position temporally dominant in
the field of cultural production, they are distinguishing themselves
at different degrees following the faculties, from the tenants of the
least institutionalized and the most heretics of this field (…).
(Bourdieu, 1984, p. 55) (Our translation)
Bourdieu concludes that university professors rank below businessmen of all

kinds as they don’t have the prestige of money and the power going alongside.
Normally, university professors would not have been businessmen if they had not
taken the professorship. But, professors of accounting feel they have renounced a
“successful” career in the world of business and finance. This success would be
obviously measured in money. Therefore they feel devaluated. Moreover, because
they do not have the same level of diploma than the rest of the institution, they
feel despised (often they are) in the university even if they have sacrificed a
wonderful, glorious, and lucrative career to be there. The transformation of their
books of recipes into theory handbooks is a way to increase their statute in this
ungrateful institution that is the university. However, as underlined by Bourdieu,
there are in the university people that are more devaluated because of their
discipline if not of their diplomas.
In our societies, the distinction between political and scientific creates a
problem: the sciences having reached such a level of recognition while the political
process is totally despised. Therefore, everyone wants to identify himself with
science rather than politics. But, by itself, a society cannot exist without a political
process, which is a system for making collective choices and decisions. However,
the political process is seen as one prone to be turned at the benefit of private
interests, which is easily exemplified, but does not eliminate the necessity of a
political structure whatever its form.
As in other human sciences, the perceived weakness of accounting knowledge
is compensated by some attempts to present it as a pure science. The first of
these attempts is the most natural connection for accounting, i.e., economics.
Accounting will then assume the contradictions of the economic world theorizing
together the existence of markets as well as their absence.
2.1 “Economics” as a Science

This primacy given to the decision of the investors constitutes a new under-
standing of the traditional theory.
If the market constitutes and unconscious principle of organization,

decentralized and automatically regulated, the firm is, to the contrary,
a voluntarist organization centralized and planned in an authoritative
manner. (Gabrié & Jacquier, 1994, p. 35) (Our translation)
and
In other words, to the limit, the firm as a social organization has no

reason to exist in the neo-classical theory where it is reduced to an
invisible entity that can be assimilated to an individual in its
productive function. All is happening as if no elementary unit
would be allowed to contain more than one individual, as if the
prices constitute an efficient system of transmission of information
and all transactions must be done on a market. This is the necessary
condition for the realization of a general optimum. (Gabrié &
Jacquier, 1994, p. 35) (Our translation)
In such a system, there can be no distinction between the owner and the
workers, and as the information is total and the working contracts renegotiated
all the time, there is no provision of information organized. The prices, under no
control, are the only information useful for everybody in the system.
Strangely, most accountants believe that this pure market organization is the
one prevailing in our societies. In such an environment, the accounting theory
would state that accounting is totally unnecessary and must disappear as nobody
would spend a cent for it, understanding that the production comes from a
constantly renewed contract between parties that are cooperating to increase the
output (Alchian & Demsetz, 1972).
The production system, in the classical theory, has no mention of authority
and hierarchy as everything is made by contract; this notion will enter slowly in
the system with the apparition of the firm to replace the continual contracting
system (that has never existed in practice). Starting with the role of organizing the
work for creating a “plus-value” that would be his remuneration, the entrepreneur
becomes the master from his property rights. From a system where “the work can
be said to hire the capital as well as the contrary” we fell into a system where all
the power is conferred to the entrepreneur because he possesses the financial
capital. The agency theory is a good illustration of this new understanding of the
question based on the idea that the appointed managers have different interests
than the owners (Hill & Jones, 1992) and that these interests are illegitimate by
virtue of the private property “theory.” In this system of relationships, accounting

becomes a guard dog servicing the owners. Despite that, we live on the fiction of a
fair distribution of the power (Hunt & Hogler, 1990) in our societies through the
democratic system.
When the absolute right of the capital on the firm is admitted, there is no
obstacle to the separation of the “entrepreneur” and of the control, which is the
managerial firm. In such a firm the accounting function becomes very important
for many reasons. Firstly, many owners are not in the firm and need the infor-
mation that is provided by the financial accounting system. Secondly, even those
being near the firm are not necessarily provided the frequent reports produced by
the management accounting system. Therefore they also need some version of the
financial accounting reports.
Accounting is, like the firm, a market failure; a replacement of the market
system that is said not to function efficiently. If Williamson (1964) explained the
raise of the firm structure by the transaction costs with the automatization of most
production plants and the apparition of communication systems able to connect
directly the provider of services with the customers, the negotiation of every
commercial act is made more possible than ever in the history. In such an envi-
ronment, accounting has to also pretend to be highly technological. Therefore, as
a university discipline, accounting will try to be associated with the disciplines
generally recognized as scientific in the society. In this case, after economics, it
will be the mathematics.
2.2 Some Considerations About Mathematics and Sciences

Mathematics is a strong help in associating accounting and science. Popper (1991)
pretends that the goal of the science is the truth. Mathematics is presented as the
truth. The example we find very often is two and two are four. One of the most
common jokes about accountants is the client asking how much two and two are
while the accountant answering what do you want it to be? The science is the truth
(what is a strong belief in our societies) and accounting can soften this truth. “The
days when a company’s accounts were simply a record of its trading performance
are long dead” (Griffiths, 1986, p. 2). Over the implicit reference to an “âge d’or”
where things were what they are supposed to be, this statement consecrates a
departure of the accounting from the world of precision and rigor, associated with
sciences, to fall into the world of “propaganda” (Griffiths, 1986, p. 2). Conse-
quently, we may think firstly a little about the “nature” of the science and the
mathematics.
This idea that numbers tell the truth is related with two aspects of the question.
The first is about the religious vision we have of mathematics and science. We
believe that science says the truth; but the “truth” is not a scientific category, it is a
religious one. The truth is revealed forever and keeps its form through time. We
can consider that if any science would have reached the truth, there would have
been nothing to search for anymore in this field and it would have terminated
there. If, despite their great progress, the sciences are still in movement, it is
because the possibilities to find better solutions remain open.
Popper (1991) even uses the term “truth” very often, revealing that his phil-
osophical origins replaces it by the concept of verisimilitude. Therefore, he
describes his assessment of theories in terms of “assessment of the state of the
critical discussion concerning them.” Then, the science leaves the field of the truth
and sterile dichotomies to become an always unfinished process tending toward
the “truth,” looking more acceptable to us. Later in the same book, he produces
another definition:
I propose to say that the goal of science is to discover satisfactory

explanations for all what is surprising us and seems to necessitate an
explanation. (Popper, 1991, p. 297) (Our translation)
But, “natural” sciences, in the societies, have gained such an aura and
mathematics has gained so much prestige because, as a closed system, it pro-
duces always one and only one answer to a specific operation. Mathematics is
not a science in the sense that there are no numbers in nature, although we can
apply numbers to objects in nature. Mathematics constitute a kind of system of
language elaborated by humans to help understanding the world. As long as we
stay inside the system, everything works well. If we try to confront the system
with the external world, the nice construction starts to collapse. Such confron-
tation is called statistics. One apple plus one apple are two apples. But try to give
them to two children and you soon will be confronted with the limits of the
mathematics because one is half the size of the other or one doesn’t have the
same bright red color. As long as you work with virtual apples, mathematics
functions perfectly well. We have then entered in a new aspect that is covered by
ethnostatistics.
Statistics, (…), are a scheme of rationality, a scheme that orders

elements of reality. The goal of statistics is to classify elements into
categories of similarity. Through statistics, researchers thus seek to
uncover, or perhaps create, order from disorder. (…). Its goal is to
minimize the risk in decision making by reforming or eliminating
those elements that cannot be safely and easily categorized into
similarities. (Carlon, Downs, & Wert-Gray, 2006, p. 477)
This statistical representation system can become, under its exacerbated

form, detached from its referent and then floating in hyperreality (Baudrillard,
1981) or falling into fetishism (Carlon et al., 2006). This primacy of statistical
procedures over what it is trying to count appears noticeably when we are
considering the measures of conformity used by the statistics, elimination of
extreme values, etc. Therefore, if one considers the people behind the numbers,
those who do not enter the mold are eliminated as they disturb the counting
process. However, we may ask, after that, which society is described by those
statistics: a society made conformed by profiling and eliminating the disturbing
elements?
Hyperreality
Hyperreality is defined by Baudrillard (1981) as a detachment of the sign from
the referent. For example, we may use the market value of a firm. We have
often seen such value move up and down while no changes appearing in
the actual life of the firm. But, every evening the news anchor will report the
movements of the stock markets for the day. Therefore the representation, the
stock price, has replaced the reality of the firm and become a substituted reality.
In the same way, when the money is traded by itself, its relationship with the
strength of the economy is obliterated and its value becomes independent.
The social vision of the science is reflected in the words we use to build clas-
sifications. For instance, we distinguish the pure sciences: this label implies that
the others are impure. We also term these as natural. In fact, “natural” here is
opposed to “human.” The human has transformed himself and is no more pure or
natural. This opposition is to be read on the same lines than natural versus cul-
tural. These distinctions are made along a spectrum expressing the level of pre-
cision which is often attributed to the use of mathematics. But, this distinction is
also made along this constantly moving frontier between nature and culture. Our
understanding of animal behavior changes. A century ago, the animal was pure
instinct and the human owned the reason. But now, we know that animals have
cultural habits and the distinction is becoming less clear. The human was on the
bright side of the frontier and philosophy was at the top of the ranking. Now, it is
the contrary. Natural sciences are “natural” because their object has not yet been
“denatured” by human touch. In brief, humankind cannot see itself as a living
form among living forms in a series of intricate ecosystems. Humankind still sees
itself as the center of the universe and to express its position it calls the rest:
environment.
Consequently, the “impure,” “unnatural,” “soft” thus human sciences will be
tempted to include mathematics to look like some “real,” “serious,” “apt to
produce social recognition” sciences. The semiotics follows a similar path when
transferring the notion from the linguistic to discourse analysis. The linguistic,
since Saussure 1909 (Saussure, 1995), had been the leader of “human sciences” in
terms of recognition and appearance of scientificity.
For instance, biology is considered as a natural science. For one, the education
system classifies it on this side of the dichotomy. Then, like other disciplines,
biology has developed in many directions. Researchers are now studying the
behavior of animals. The knowledge that had been developed on these questions
is classified among the natural sciences, i.e., hard and serious knowledge. During
this time, the study of human behavior is classified as a human science and
considered less strong, less serious, and less scientific in the social representations.
Why then classify differently psychology applied to human or animal? Animal is a
very large category and scientifically, humans are animals. Therefore it is the
strength of the old vision of the world where the human is the center that has
influenced even the scientists when making their classifications. This vision is also
present in the word environment. When we use the word environment, we place
the human being at the center and the rest around him, to be used by him. Would
it not be better to classify the human being as an element of some subecosystems
that are part of a “total” ecosystem of which the frontiers are not known yet?
This concept of social representation is the object of a series of studies forming
a scientific field with its paradigms and theories.
2.3 The Social Representations

Researchers in social representations have a tendency to oppose a systemic con-
struction in the mind (van Bavel & Licata, 2002) to the world of experience
(Habermas, 1973), corresponding to a dichotomy between science and common
sense (Bangerter, 1995; van Bavel & Licata, 2002). This line of fracture will also
be encountered in the debate between academics and practitioners.
The sciences, considered inferior a century ago, are now at the top of the
productions of the mind. The old opposition between the spiritual and the tem-
poral is at work here. When the dominant people in the society were proud of not
working and would never have been seen doing something useful, the “spirit” was
ranked far over the industry. Religion sustained the same discourse. This prece-
dence given to the spirit (religion) over the physical world has structured our ways
of thinking for centuries. To give the precedence to the natural sciences means
that we privilege the observation over the spiritual production per se.
This discussion is at the very center of the Critique de la raison pure by Kant
(1980). He sustains positions that would classify him among the socio-
constructivists of his time.
Effectively, experience itself is a mode of knowledge necessitating a

comprehension which I must presupposed the rule in myself before
the object are proposed to me, consequently a priori; and this rule is
expressed in a priori, on which all the objects of the experience must
necessarily be ruled and with which they must coordinate.
Concerning the objects in their conception completely coming from
the mind, and that in a necessary fashion, but without being able to
be given in the experience (at least how the reason think it), the
attempts to think it (as they must be thought) will exemplified
excellently what we admit as a change of method in the way of
thinking: it is that we know a priori of the things only what we put in
it ourselves. (Kant, 1980, pp. 46–47) (Our translation)
This statement is not far from what has been written by the Groupe m (1992).
If our perception can isolate some redundant elements in the mass of

sensorial information, it is obviously in function of practical
objectives: these invariants are a guide for the action of the
subject. The properties of the object thus become factors of decision.
In summary, we can repeat the phrase of Maurice Reuchlin, for who

“the perceived object is a construction, an ensemble of information
selected and structured in function of the previous experience, the
needs, the intentions or the organism actively implied in a specific
situation”. (Groupe m, 1992, p. 80) (Our translation)
Today, making money is everything and “thinking for thinking” is quite sec-
ondary. Therefore we live in a period of economic obsession, not of philosophical
reflection. Our image of a genius is like in Good Will Hunting or the Figures of the
Shadow; people able to fill boards with successions of mathematical formulae
having absolutely no meaning for us, but able to change the lives of the people.
However, Kant can be used quite more dangerously. He brought the distinc-
tion “analytic–synthetic” posing that analytic statements are true or false “simply
in virtue of their meaning” (Godfrey-Smith, 2003, p. 25), i.e., a priori.
Here is one crucial piece of work the logical positivists saw for it:
they claimed that all of mathematics and logic is analytic. (Godfrey-
Smith, 2003, p. 26)
For the researchers in the social representations field, economics is charac-

terized by a specific relationship between the corpus of “scientific” knowledge and
the casual experience.
In the natural sciences, the knowledge about reality is in harmony

with the experience of the reality, fulfilling that way the Hegelian
criteria of validity (Markova, 1982). This is not necessary the case
in economy, where the knowledge of economy does not necessarily
correspond to the experience of the economy. The expert economic
knowledge seems more anchored in a mathematic representation of
the economy, that can be validated or not by the economic
experience. (Ormerod, 1994) (van Bavel & Licata, 2002, p. 83)
(Our translation)
Moreover, the introduction of a metaphorical discourse (McCloskey, 1985)

increases the distance between the “economic science” and the experience.
The economists continue to discuss their metaphors as if they were

discussing reality, without being conscious of the fact that they are
referring to representations of the reality instead of the reality itself.
Their mathematical representation, behind their economic
knowledge, shows how much the economic language is saturated
by the metaphors. (McCloskey, 1985) (van Bavel & Licata, 2002,
p. 84) (Our translation)
This mathematical-oriented vision leads to a conception of the economy

assimilated to a system. That is another example of the effect of the structuralism
and the prestige of the mathematical system. This systemic conception implies the
“capacity to act by itself” producing a “dynamic and mobile system having its
own life.”
As opposed to the “all for the reason,” we have now the “all for the obser-
vation.” However, common sense cannot be anymore the criteria of validation as
van Bavel and Licata (2002) were proposing, as science has developed new means
of investigation that our senses cannot duplicate. That would be the position of
the Groupe m. Those days, empiricism was everywhere and “researchers” pro-
duced ideological texts believing it to be scientific. In this context, science must be
understood as the direct expression, unbiased by the observer, of what exists in the
“real” world. This unobtrusive observation seems unfortunately to be more and
more guaranteed by the use of statistics, extracting the essential (recurrent) and
eliminating the accidental. This way of thinking would allow to pick the essential
rules of functioning, the “laws,” even in human sciences. Unfortunately, this is
impossible. As Kant was saying, what we see is what we firstly put in.
Commentators refer all the time to the “market laws.” One of these immutable
laws is the offer and demand. This law contains an equilibrium price. In certainty
it may be a correct description of the functioning of the system. But certainty
doesn’t exist. Consequently, what economists continue to call the “law” of offer
and demand is broken. The use of the word “laws” is not benign in the measure
where the natural sciences apply it to basic and recurrent functioning observed in
nature. A law, in natural sciences, is absolute and will always be exact. Using the
expression “market laws” makes the market appear as natural, functioning out of
human influence.
This system opposes the “rationality” of nature with its immutable laws of
functioning to the disorganization characteristic of human societies. This ratio-
nality, in the sense of Weber (1995), is a normal transformation of the social
structures and also an instrument of domination (Marcuse, 1964).
2.4 The Businessman as the New Leading Social Figure

The best aristocrat was ignorant (often illiterate) and unoccupied. With the
coming of the bourgeoisie at the top of the social structure, working has become
very important, and people who were not working were poor, despised precisely
for that, or filthy rich and above any social conventions. Even the aristocrats
started to become managers of their wealth, to increase it and stop the spoiling as
the new conception of the society implied. The businessman became the hero of
the new society based on the liberty for all and this liberty being based on the
property rights as was the right to vote.
The entrepreneur succeeds because he developed and proved some

qualities in exerting the entrepreneurial power. In other words,
the proof of the ability to manage is justified by the existence of
the enterprise, by its performances. From a liberal point of view, the
entrepreneurial force allows a selection of the best as those exerting
the power are forcibly those being more successful which they have
proved through their results. Conversely, those who are governed are
assured that the one that is governing them manifests some
capacities and talents that they does not possess themselves and
that the entrepreneur has given definitive proof by creating an
enterprise and providing with some work or products. In that way,
the justification of the power of directing of the entrepreneur is not
contradictory with the modern liberty. It allows the introduction of a
common order in the potential disorder from the indifference of the
individual all free and equal. For the liberal man, the entrepreneur is
then the reasonably acceptable master, and even, reasonably
desirable. (Gomez & Korine, 2009, pp. 38–39) (Our translation)
This importance given to the entrepreneur and the businessman is to be

observed in practice in the pressures made over the governments to conduct the
common affairs from the examples given by the business world. Now the state-
owned enterprises must do profits even if it has no meaning in their situation.
Moreover, a candidate will be elected because, as a businessman, he knows how
to conduct businesses and, by association, public affairs.
2.5 Summary
At this point, we have a social understanding characterized by a belief that
natural sciences are finding the truth while human sciences produce more or
less mere opinions. It is also believed that the mathematics are totally truthful
and brings scientificity where appearing, although a lot of people entertain a
strong lack of confidence for statistics which are reputed to say anything they
wanted.
Accounting, for a casual observer, is made of numbers, so it is to be classified
as mathematics. If accounting is mathematics because it uses numbers, sociology
is literature because it uses words. But, this misunderstood usage of numbers
provides a statute to accounting and can be transformed into an asset.
There is a constant fight in the society to be well positioned in the popular
imagery. These representations are evolving through time and can even be
completely reversed over a certain period. Accounting is competing in this arena
and uses its advantages at the best for the accounting institution, producing the
components of its social statute which exists completely in the vision of the
people.
In this chapter, we made necessary distinctions about some main concepts used
in epistemology of sciences. This establishing of the basis leads to an institutional
analysis. We describe the positions of different groups in the scientific institutional
system. This prominence is related with the precision and the supposed “truthi-
ness” of the knowledge produced by the different categories of disciplines.
Mathematics, only a convenient code, plays a crucial role in the acceptation of
disciplines into the dominant group of the exact sciences. As a discipline,
accounting fights to appear among the dominant group. Then we discussed the
characteristics of the social representations leading to the actual dominant
classification of the knowledge. Doing that, we find that the businessman is

actually a dominant figure in the collective imaginary. As accounting is done
mainly in enterprises and is made of numbers like mathematics, this association
may be a royal way for social recognition.
Questions
1. Provide a definition of a theory.
2. Distinguish between a theory and a standard.
3. Is the definition of a theory, provided by Most, appropriate?
Propose some arguments to support your answer.
4. Why the conceptual framework cannot be a theory?
5. How would you describe the presence of the political aspect in the
accounting standard-setting process?
6. What is a social institution?
7. Which elements constitute the accounting institution?
8. Gabrié and Jacquier argue about some fundamental contradictions between
the market and the firm. Comment.
9. Comment the statement proposing that information able to satisfy the
investors will automatically satisfy most other needs expressed by other
stakeholders
a. What is a stakeholder?
b. Why the investor-shareholder would be considered the most important of
them?
c. Who is the principal of the entrepreneur considered in his role of agent?
10. Is the use of numbers enough to classify accounting as a mathematical
discipline?
11. Are sciences telling the truth?
12. Kant proposed a distinction between analytical and synthetic statements.
What did he mean?
13. Is mathematics a science as physics or chemistry?
14. Is economics a science?
15. What is an analysis following the institutional theory and why is it relevant in
the case of “accounting”?
Themes to Be Developed Further

How would you describe the position of accounting among all the other disci-
plines taught at the university today and consequently the position occupied by
accounting professors?
Chapter 3
The Traditional Vision of Accounting Theory
In this chapter we will exemplify the definitions of the theory provided by the
traditional accounting theory handbooks and confront them with the definitions
given in the preceding chapter. Then, we will consider the usage of the concept of
normative theory in accounting as it is the spearhead for the inclusion of
standard-setting as a theory.
3.1 Wolk, Francis, and Tearney

Wolk, Francis, and Tearney (1992), conscious of the meaning emanating from
accounting research, propose a somewhat “between two chairs” definition.
But, even though the phrase accounting theory has been used for
many years, it has no standard definition. The term is used in this
text in a very broad sense. It includes concepts, such as realisation
and objectivity that have evolved in response to practical needs;
models for valuation methods and other types of accounting
alternatives, such as purchase and pooling; and hypothesis and
theories based on a more formalized method of investigation and
analysis of subject matter used in other academic disciplines such as
philosophy, mathematics and statistics. (Wolk et al., 1992, p. 6)
Firstly, we have the old notion of accounting theory full of ideas, needs,
political decisions, etc. Secondly, the new way of seeing accounting theory
emanating from the research is referred to. We have to remember here that the
research revolution in accounting dated from the 1960s, with Beaver (1966),
Brown and Ball (1967), Foster (1986), etc. This had been continued in the 1970s
with Jensen and Meckling (1996) and Watts and Zimmerman (1986). Conse-
quently, in 1992, the discussion is well advanced and had reached other levels.
Wolk et al. accept, from the tip of the lips, to consider the new way of defining
a theory if they can bring their old stock in it. In the 1990s, their vision is totally
outdated. Moreover, they dare to say that accounting theory has no standard
definition. It is to admit that they have no clear conception of their topic. Doing
that, they are pretending that accounting theory is totally particular and can

doi:10.1108/978-1-78769-793-520181003
escape to the specification of theories in general. This confusion is maintained

through their citation of Larson (1969).
First, there is a conceptual category of problems involving the

isolation and precise definition of the properties that will be
measured. Second, there is a separate category of methodological
problems involving the determination of appropriate measurement
procedures to be employed in assigning numbers to represent these
properties.
Evaluating the explanatory significance of the numbers which ensue

for any measurement process depends on having resolved the
problems of both categories… if the two types of problems are
confused with each other and treated as being essentially one; it is
likely that one or the other of the problem area will go generally
unresolved. (Larson, 1969, in Wolk et al., 1992, p. 9)
That would probably be relevant in a case of research. But there is no research

in their vision of accounting, so the question of the measurement cannot be posed
that way. Larson is talking about an observable phenomenon that is to be
measured. However, profit is not an observable phenomenon outside of the
measure. In this case the measure creates the object.
Although putatively a measurement of wealth and profit, accounting

practice is in fact a calculational activity and the results of those
calculations have no empirical referents. (…) The most serious
problem is that accounting practice numerals are meaningless in
the logical positivist sense of not being either analytical or
verifiable, in the pragmatist sense of not being decision-useful, and
in the operationalist sense of not being operationally defined. (Lee,
2006, p. 444).
Objectively nobody can say which object is measured, as the object, and the
measures are perfectly confounded.
Profit is the measure as well as the object measured.
The rest of their discussion of the measurement is pure wandering. For

instance, objectivity is presented as the first quality of the measurement
defined as:
(…) the degree of consensus among measurers in situations where a

given group of measurers having similar instruments and constraints
measure the same attribute of a given object. (Wolk et al., 1992, p. 11)
The Traditional Vision of Accounting Theory 23
So, if you take people having studied in the same books, having received the
same diploma, the same training, and the same conception of the world, and you
ask them to measure the same “thing” with the same tape, they may arrive at the
same result. However, this is not objectivity, this is conditioning.
Then, a syllogism is not a theory; it is a way of reasoning logically. The
premises of a syllogism are obtained through observation. The example they
provide: a horse has four legs, is the result of observation; as well as for
the second premise, John has two legs. A premise in this sense is not an
assumption although it can be debatable. However, what is certain is that the
categories: debit and credit, are neither premises nor assumptions; they are
part of the jargon developed around the activity. Moreover, it would be better
not to confound the hypotheses posed before the theory and those coming
after to be tested in the deductive process. This latter group of hypotheses, in
the best of case derived from the theories, forms the essence of accounting
research. In summary, they try again to introduce their traditional categories
into the scientific process and it does not work.
Their chapter is devoted to show that the so-called “research” is not that clean
of value judgment and finally that “normative” theories have nothing to envy to
the “positive” ones. Their chosen example is the following so-called research
question:
Why has the accounting profession been cursed with a strong

authoritative bias – resulting in the establishment of professional
bodies such as FASB to rule on “generally accepted accounting
techniques”? (Wolk et al., 1992, p. 33)
He took this “example” in Christensen. We have never seen, and less accepted
from a graduate student, a research question having this form. That is probably
why they are forced to borrow their example instead of taking one they have
encountered themselves. Taking a far-fetched, even made-up example to discredit
the other side is a well-known argumentative technic. They add, to close the point,
another argumentative technic, which is the authoritative reference (Ben Yedder
& Breton, 2017).
Sterling (1990) is also very forceful about the point that you cannot
study discipline by studying the behaviour of those who practice the
discipline. Hence, Sterling sees positive research being concerned
with the sociology of accounting rather than with the mainstream
focus on income determination and wealth measurement. (Wolk
et al., 1992, p. 33)
Therefore, we must not study society through the behavior of people in that
society and psychology through the behavior of people individually. Doing that,
these disciplines may pass away from the essential, which is, in accounting,
income determination and wealth measurement [sic].
A Detour Through Positivism

The first thing that must be clearly stated in science is the relationship the
researcher (the subject of the research) pretends to have with the studied
object. This relationship can have three main aspects: (1) the subject can know
the object without interference, the essential part of the research in accounting
follows that principle, knowingly or not; (2) the subject is investing himself
in the knowledge process, so the results are a point of view on the object;
(3) “reality” is a construction.
Obviously, this question has no three mere answers but a multitude of
degrees on a spectrum where the three propositions occupy both ends and let’s
say the center.
These questions are treated by the philosophy of sciences. This is the
position claimed by Comte (1998) presenting firstly positivism as a philosophy.
This philosophy then is transformed into a political system. That is where
Comte cannot escape from the temptation of the “normative” side resented by
anyone having studied a question extensively. However, Comte (1798–1857)
arrives in the period between the French Revolution and the real industrial
revolution (he wrote his main texts between 1830 and 1842). He was very much
influenced by the new science that will produce the machines so important in
the industrial revolution. Therefore, he wanted to escape the theological
discourse and find the “laws” governing the evolution of the societies. By
naming these tendencies “laws,” he referred to the natural sciences and
established a pretention to “bring” human sciences to the level of “objectivity”
and precision of these sciences.
Objectivity is highly supported in modern researches by the extensive use

of statistics. We don’t know if Comte was the first to propose the standards
of natural sciences for human sciences; however, before his times, natural
sciences did not have the aura they would possess from this period. This
aura emerged from the technical ameliorations the society was experiencing
at the time. Before his period, all knowledge was religious, including phi-
losophy. He assisted at the separation of sociology (whom he is often called
the father), psychology, and a modern conception of literature as a fictive
expression of the collective unconscious. Emanating from philosophy, these
new fields, partitioned from the old ones, needed a rigor that he found in the
discourse of the new natural sciences. He arrives at a moment in history
where the societies were ready to change their focus from a totally idealistic
system where people believe that everything was generated in the mind, what
Kant called “pure reason,” to a system where things were there, waiting to
be understood through empirical observations that was called “phenome-
nology.” Therefore, what is now known as the “scientific method” was ready
to take the lead.
Berger and Luckmann (2005) are not at the extreme of the spectrum saying:
As the society exists at the same time as an objective and a subjective

reality, any theoretical understanding of its nature must implies both
aspects. As we said before, these aspects are both recognized in their own
way, if we understand the society in term of continuous dialectic process
made of three phases: the exteriorisation, the objectivation and the
interiorisation. (Berger & Luckmann, 2005, p. 177) (Our translation)
A researcher must state clearly which position he is taking and, to do so, he has
to know the available positions. Unfortunately, in accounting at least, few people
take the trouble to even know in which position they are as they profess a naı̈ve
first-degree positivism. However, there are researches in accounting escaping to
this pattern.
We must remember here that almost each category of knowledge is discursive
in essence, as the science is made of a raw material that is language. But, basically,
any theory must start with a continuous observation of a section of the “real”
world even if no researcher can escape the basic categories he has integrated as
prime education, except if, in the rationalist tradition, he believes that everything
starts in the mind and must be derived from it.
But, what is the quality of this observation? It would be possible to make a
history of sciences around the continuous perfecting of our means of observation.
Scientists have invented instruments to help our limited senses to perceive the
world outside. The telescope and the microscope are two well-known examples.
However, acarians and faraway galaxies existed before we were able to see them.
Also, we now understand that a dog can perceive ultrasounds, which we cannot
do. It is not because we cannot perceive it that it does not exist. We can
compensate our perceptive deficiencies by inventing instruments.
We will end this section with a quote from the disturbing book of the Groupe m.
We know that a person born blind, operated later, although

perceiving the circle or the triangle, will not be able to distinguish
between these two types of figure before some training. Then, there is
a form only after a figure is declared alike other perceived forms.
(Groupe m, 1992, p. 68) (Our translation)
In summary, even if we postulate the objective existence of a world outside us,

are we really equipped to know what it is like?
The Historical Cost

In our view, the use of the historical cost reflects a highly condescending
attitude from the accountants toward the users of accounting numbers. For
a long period, nobody really challenged the historical cost. The argument
was the objectivity and the verifiability, and almost everyone was happy
with that. One of the most convincing arguments was the practical aspect of
conservatism, consisting in the immediate recognition of all costs (potential
losses), realized or reasonably expected alongside the recognition of the
revenues or increase in values only when realized, i.e., cashed (Watts, 2003).
This was done with the goal of not distributing money unearned, dimin-
ishing the capacity of production of the firm. Therefore, this argument says
that investors are frivolous and that they will take back the money even if
the firm needs it. The accountant is then saying that the investor is irre-
sponsible and that he has to compensate by using conservatism. Doing that,
the accountant is deciding on behalf of the investors what is to be done
with the investor’s money. Moreover, everyone in the accounting world
seems to find this condescending attitude completely normal having
elevated it at the rank of principle, the going concern.
Opposing normative and positive theory (Ryan, Scapens, & Theobald, 1992)
is opposing two elements that are not on the same level. When talking of
normative theory, they refer to the “goal” of the theory which would be to frame
the practice and tell people what they have to do. When talking of positive
theory, they refer to the possibility of knowing an object for what it is without
any interference from the observer. Both cannot compete as they are not in the
same field.
Wolk et al. presents the investors as totally mechanistic. They have a rate
preestablished for the dividend and seem to stick to it against all odds:
Assume that three accountants (…). Assume that users of

accounting data believe that dividends of a year are equal to 75
percent of income determined by M1 for the previous year. Users
also believe that dividends of a year are equal to 60 percent of
income determined by M2 for the previous year. (Wolk et al.,
1992, p. 25)
Investors are presented as being quite rigid. Authors implicitly propose to

manipulate the revenue to diminish the dividend.
And then, came the 1970s with their high rates of inflation. The historical cost
continues to prevail but started to obviously look misleading. The annual dif-
ference between historical cost and current cost is more or less equal to the
inflation rate. When the inflation is negligible, the annual difference remains
acceptable. When the rates of inflation neighbor 20%, the difference can be
problematic. Many proposals came to replace it by several versions of the current
cost accounting.
After that, the levels of inflation came down and the question disappeared
from the radar for awhile. It was back when the IFRS were proposed containing
some provisions allowing the firms to choose to present the long-term assets at the
current value. A new debate started. The arguments proposed were quite sur-
prising. For instance, we had arguments of the type: the historical cost limits the
fluctuations. The investors will be misled by the fluctuations on the market.
Moreover, most people sustaining these arguments were tenants of the efficient
market hypothesis pretending that the investors have all the information almost
instantaneously. So, if investors have instantaneously all the information, how
can accounting documents issued months later protect them against their alleged
immaturity?
Consequently, there is no logical argument for the historical cost and for
dividing the profit into realized and unrealized parts as we never did that with the
losses.
3.2 Kam
Kam (1990) tries to integrate new accounting research with old standards setting
conception of the theory.
For the sake of simplicity, accounting theory can be divided into

“low level” and “high level”. The former consist mainly of the very
basic concepts, such as those found in Intermediate Accounting, and
the pronouncements of authoritative bodies. The CPA exam usually
focuses on low-level theory. High-level theory usually concerns
procedures that are currently not used in practice, or a deeper
analysis of present concepts and standards, or empirical research
on certain relationships. I believe that both are important and I have
attempted to synthesize the critical elements of the two levels of
theory in this book. (Kam, 1990, p. vii)
This view presents many important elements of the accountants’ understanding

of the world.
3.2.1 The Spatial Representation of Accounting

The first tendency that we see is a representation of the accounting domain as a
vertical structure where standards occupy the center. The practitioners are on the
ground (read the reality), and the ideas (concepts) are at the top, in the clouds.
When you make standards from the practice, you have a bottom-up process.
When you make standards from a conceptual framework, you have a top-down
process.
The generally accepted accounting principles (GAAP) standards were sup-
posed to be inspired directly by practitioners’ usages. The expression is clear:
GAAP means that the standard-setters observe the practice and propose as
standards what is most commonly done. These proposals are then sent back as
an exposure draft to these practitioners agreeing or disagreeing that the pro-
posed standard is reflecting their best practice. Therefore, two comparable
transactions can be treated totally differently because this system is making

standards one case at a time. That was one of the strongest criticisms against the
GAAP system followed by the multiplication of standards resulting from this
approach.
The conceptual framework approach to produce standards is supposed to be
derived firstly from the general objectives of accounting (helping decision-
makers), specified with subobjectives and so on, to arrive at the standards level.
This approach would eliminate exposure drafts. Exposure drafts were created to
check with practitioners if the proposed standard were reflecting their best
practice well. If standards are derived from a “conceptual” framework, there is no
need to check with the practitioners.
The spatial model of accounting also contains tacit aspects. The top section is
seen as representing ideas, and as any accountant knows, ideas are in the clouds
while practice is strongly grounded in the “reality” where the money is done.
Therefore research is perceived as a top cloudy, “high-level” activity while dis-
cussing standards is perceived as incarnated in the “reality.” That is another social
representation that is widely shared by the accountants.
The distinction between GAAP and “framework” standards remains arti-
ficial. For instance, a set of financial statements had been derived with the
GAAP system and despite the alleged changes, the same set of financial
statements remains official after supposedly turning to the conceptual frame-
work. Moreover, after these standards are supposedly defined through an
ensemble of objectives and subobjectives, the standard-setters continue to
prepare exposure drafts to ask practitioners if the proposed standards are
reflecting the best practice well, and, the most infamous of all, the “conceptual
framework” of the new international standards ends saying that no provision
included in the framework has precedence on any standard enunciated
thereafter.
The present framework is not an international accounting standard,

and in consequence it contains no normative provision on any
question of evaluation or information to be provided. Nothing in
the present framework is supplanting a specific international
accounting standard.
The IASC Council recognizes that, in a limited number of cases,

there can be a conflict between this framework and an international
accounting standard. In this case where there is a conflict the
provisions of the international accounting standard prevail over
those of the framework. (IASB, 2006, p. 35 CADRE) (Our
translation)
Therefore, we may believe that the set of financial statements is agreed by

everyone on a basis of having nothing to do with a project of some sort but with
some unspecified needs or ritual practice. Also, while practitioners complained
that accounting research was “in the clouds,” not understandable and not useful,
they were wrong because a lot of research had concluded that financial statements
carried no information to the market because they arrive long after the infor-
mation they are supposed to carry had been spread all over the marketplace, one
way or another. The conclusion would be that accountants must stop to prepare
financial statements and do something else. Obviously they prefer to say they did
not understand.
Auditing firms had developed models in the 1970s to scientifically sample
transactions in the firms. When they realized that to have a valid sample able to
produce a statistically valid inference leading to an opinion on the system would
cost them a lot of money because of the sizes of these samples, they just came back
to their good old methods. Today nobody talk about statistical sampling in
auditing. But what is the value of the opinions so produced with a maximum of 36
tests, regardless of the number of transactions? Everybody is looking at the other
side, simulating ignorance.
However, this spatial conception of accounting is very well spread. The
difference is that most research in accounting is not done by accountants and
is done in such a way that it does not explain the accounting phenomenon.
The problem is not that accounting research produces results that are not
understandable, but that it produces results that are not serious, based on
assumptions that are totally unbelievable like market efficiency. Then, both
“worlds” ignore the other and all is going on. The books of accounting theory
try to conciliate what is not reconcilable, avoiding providing definitions of
what they are talking about and therefore presenting the accounting practice
as evidence.
3.2.2 Accounting as Evidence

Another common feature from the books of accounting theory, after their absence
of some serious definition of a theory, is the absence of a real definition of what is
accounting. For instance, Kam does not define accounting before page 33. This
definition is quite short although interesting:
Accounting is an art of recording, classifying, and summarizing in a

significant manner and in terms of money, transactions and events
which are, in part at least, of a financial character, and interpreting
the results thereof. (Kam, 1990, p. 33)
This definition was taken from the Accounting Terminology Bulletin No. 1,
published in 1953 by the American Institute of Certified Public Accountants
(AICPA). It is a good definition showing the technical and linguistic characters of
accounting. However, we may have some reservations about the interpretative
part of it. But, if accounting is an art, how can we make the theory an art?
Kam does not go in depth in the definition, replacing it by an historical
development about double-entry accounting. For instance, counting is an activity
coming from immemorial times. However, can we say that counting and
accounting are the same things?
We can propose that before double-entry accounting, we had mere lists, with
numbers associated sometimes with no attempts to add the value of these counted
things (Breton, 2016). However, we must remember that double-entry accounting,
although really bright, is only a technical device even if it had transformed our
vision of accounting over a long period.
Kam illustrates this, confounding the theory with the conceptual framework
consisting firstly, in the objectives of the financial information.
Since the objective of accounting is to provide useful information for

decision making, this implies a decision-theoretical approach to
accounting. Such an approach is helpful as a design for testing the
overall theory to ascertain whether it achieves its purposes.
Primarily, the theory is to serve as a standard by which to judge
accounting practices. In other words, it should be the “blueprint” for
the construction of the many individual systems in practice. If the
individual systems provide useful information, then the theory on
which the systems are based can be considered effective or valid.
(Kam, 1990, p. 49)
Obviously, if we can agree with the first sentence that a theory of accounting
must be, in part, a theory of the decision process, the rest is totally out of line,
making science not an explanation and an understanding of the world, but a
program to do things better. Also, he does nothing to establish this theory of the
decision and never refers to one. We retrieve here the social representation of the
natural sciences. The science is what makes the world better, inventing new things
which are continuously increasing our comfort. This view is still very much
popular today. In human sciences, there is no dramatic discovery producing a
commotion in public. In fact, our vision of constant development is based on the
idea that natural sciences will compensate the overuse of resources implied in this
process by discovering, for instance, new sources of energy replacing those that
have been spoiled, etc. If we were certain that science will not do this, we will stop
the development at once. But, even if it was proven that this development goes
faster than the compensating measures, many of us don’t want to see the “facts”
and continue to stay in denial. Consequently, if accounting is supposed to help
individuals and groups to take good decisions, the results are not very encour-
aging. Then, why accounting has remained structurally about the same than 50
years ago if the results are so disastrous. One answer may be that, considered in its
social dimension, accounting is a failure and the accounting numbers provided to
citizens are totally beside the point.
The absence of definition is driven by the practical “nature” of accountants.
This practical tendency was expressed in the vertical structure of the profession we
described earlier. At the bottom of the structure was the practitioner, near the
ground where the money is done, as we know that only practical people make
money. Because he is practical, the accountant does not care too much about
ideas existing in the clouds. Therefore the practitioner is fundamentally a naı̈ve
positivist ignoring that he is because he cannot imagine another approach to the
world. Kam will delay defining the “theory” to Chapter 16, keeping the essential
for the end.
3.2.3 A “Natural” Positivist

Kam starts by saluting natural sciences providing answers. So, for him, science is
basically a way of solving problems.
The simplest form of theory is a general or universal statement of a

belief. A statement, such as “All lions eat meat”, qualifies as a
theory. For simple theories, other terms are often used, such as
hypothesis or proposition. The most elegant form of a theory is a
deductive system of statements of decreasing generality. (Kam,
1992, pp. 485–486)
The social use of the terms is confounded with their scientific meaning. A
belief is not the first term of a syllogism and the syllogism is not the starting
point of the theory except in the case of extreme rationalism pretending the
world must be known a priori. Now, logic intervenes to develop theories after
they have been elaborated through observation. Effectively, these logical
manipulations will conduct to testable hypotheses. However, we need the theory
before to test it. Chalmers (1987) says that “deduction only allows to derive
enounces from other enounces.” The most distressing vision is expressed as
follows:
You will notice in the following figure that theory begins in the
“unreal” world of abstraction, that is, in the human mind: but for it
to be useful, theory must eventually relate to the “real” world, the
world of experience. (Kam, 1992, p. 486)
We are taken a few centuries back. The theories start in the mind is a
totally rationalist position that nobody sustain anymore. Kant (1980), who
was by many sides a rationalist himself, criticized the “pure reason” and
introduces the importance of confronting the theories in elaboration with the
experimental world. If some believe that the experiment necessitates a form of
previous understanding of the phenomenon, others will radically go on the
other side and propose a descriptive philosophy or phenomenology (Romano,
2010).
Rationalism has a long history in the western conception of the world. This
belief is very well described by Einstein (2009):
The elementary belief of the philosophy in its genesis gives to the

pure thinking the possibility to discover necessary knowledge. It was
an illusion; everyone can easily understand that, if he forgets
momentarily the ulterior advances of the philosophy and of the
physical science. Why being surprised, when Platon gives to the
“Idea” a reality superior to those of the objects empirically

experienced? Spinoza and Hegel are inspired by the same feeling
and reason along fundamentally the same lines. We may almost ask
ourselves the question: without this illusion, is it possible in the
philosophical thinking to invent something big? (…).
Facing this illusion, quite aristocratic, of the unlimited perceptive

power of the mind, exists another illusion quite populist, the
simplistic realism, following which the objects are the pure
verisimilitude of our senses. This illusion occupies the quotidian
activity of the human and the animals. Originally, sciences develop
along this line, mostly the physical sciences. (Einstein, 2009, p. 57)
(Our translation)
In our view, the a priori knowledge, described by Hume or Kant, is expressing

their need for a kind of truth subliming the eras and cultures, truth that is so
fundamental that it is superior to any human construction and is the same for all
people in all countries and for all times. This is an essentialist position that is quite
comforting, as opposed to an existentialist position that would carry more
insecurity.
Accountants are “natural” positivists, “simplistic,” following the classification
of Einstein. They believe to have a direct access to “reality,” believing, to start
with, that this reality exists without their intervention. Therefore they have an
instinctive lack of confidence for all ideas as they are perceived as things
happening in the head, consequently unreal.
All the inductive sides of the theory are evicted to make equivalence between
ideas and theories. Then, a theory emerges from the mind and must be later fitted
to the “real” world. Kam opposes what would be a theory of the accounting
measure to the positivist theory that he also called behaviorist. Doing that, he
takes the side for a normative theory against a positive situating the accounting
theory outside the world of epistemology and research.
Then, Kam starts to propose a series of “theories” to explain the form of the
accounts: the proprietary theory, the entity theory, the fund theory, the com-
mander theory, the investor theory, and the enterprise theory. All these “theories”
come from the social definition of the term which is a hypothesis to explain
something observed, in our case the form of the accounts. He borrowed the idea
(at least the proprietary theory and the entity theory) from Hendriksen (1970).
The definition of theory sinks into confusion.
A first configuration of the conception by accountants of a theory as truth
emerges keeping them outside of the university spirit if not of its walls. These
conceptions cannot be taken seriously by the rest of the academic community.
That is probably why, around the world, accounting faculties or departments
are generally considered as something different by the rest of the universities.
Mike Gibbins was asking why accounting research is not quoted in other
neighboring disciplines while their researches would be quoted in accounting. I
would propose two reasons: firstly because accounting research is often
conducted in such a way that it cannot be taken seriously, producing ideology

more than research results. Secondly, the way accounting researchers quote
researches from other disciplines is most of the times accompanied by a
distortion of the meaning of these researches in their originating domain.
Accounting researchers are often looking for a “little model” to apply imme-
diately. They very rarely go to the originating discipline to see the characteristics
of this model and how to manipulate it during the transportation. For instance,
the “model” of Hofstede, which is a scientific catastrophe, had been taken at
face value by researchers in management and accounting because it was con-
taining numbers (rankings) that were easily entered into a statistical model. But,
the basic value of these numbers are totally ignored and as accounting research
functions as a jurisprudential system, if somebody else has published a research
using this “model,” it is considered validated.
Scientifically speaking, it was already sufficiently incriminating to use Hof-
stede’s model. But, by an intellectual summersault, Gray “transposed” the
model to the accounting domain. He argued that the society is a system and that
any social activity is a subsystem including accounting. Therefore, as all sub-
systems are said to be structured in the same manner than the enclosing system,
accounting has the same categories as the main system. The model of Kohlberg,
based on one heavy tendency from the philosophy believing that there is an
intrinsic moral subliming every culture, every tradition, and every condition of
living, also produced totally ideological results. But the model is associated with
a scale and has a test that can be administered, despite the fundamental inap-
propriateness of the cases proposed to the subjects. Another problem arises from
the simplistic point of view of the researchers. As an example, when Ponemon
(1992) uses Rest’s test of the Kohlberg theory on auditors, he is not making
research in auditing, but in psychology. But he ignores it. Others have applied
the test on different categories of subjects and Ponemon is also applying the
same test on another particular category. Therefore, his conclusions must be on
the model of Kholberg and not on the auditors. Moreover, the “ethical prob-
lem” Ponemon pretends to investigate has been declared a problem only by
himself.
In substance, traditional “accounting theory” believes that there is a world
outside existing by itself and that this world can be known through opening our
senses and turning our mind off as ideas are opposed to “reality.” Traditional
accounting theorists believe that a theory is a recipe to do something useful. They
called that a normative theory and believe that accounting theory is included in
standards books and that standards setting bodies are doing accounting research
producing accounting theory. We may deplore that their vision is keeping
accounting isolated in the university even among what is abusively called
“management sciences.”
If we would apply some tips of scientific observation to the traditional
accounting theory books, we would observe a very strong tendency to assimilate
accounting theory to a plea for convincing people of the utility of accounting.
Therefore it may take its roots in a profound insecurity among accountants. This
feeling was probably aggravated by the entry of accounting curricular in the
universities where it is considered as mere technic, and the new research, although
denied by the profession, saying that accounting numbers have little effect on the
investors they are supposed to inform.
3.3 Repeated as a Mantra

Most (1982) gives a good example of people repeating things they do not
understand at all. This is obvious when a sentence becomes a negation of the
preceding affirmation.
A theory is a systematic statement of the rules or principles which

underlie or govern a set of phenomena.
A theory may be viewed as a framework permitting the organization

of ideas, the explanation of phenomena, and the prediction of future
behaviour.
Accounting theory is that branch of accounting which consists of the

systematic statement of principles and methodology, as distinct from
practice. Thus the role of conservatism belongs to the subject of
accounting theory. (Most, 1982, p. 55)
If we can agree with the first sentence of the quotation and accept as a well
spread way of thinking that a theory explains and predict; the second sentence,
placing conservatism in the theory, is clearly a negation of what he said in the two
previous sections. Moreover, if accounting theory is a branch of accounting, what
is the trunk? Normally, the source of the knowledge, the theory is the root as it is
treated by the part of the philosophy called epistemology. Again, conservatism is
not an explanation of a phenomenon or a prediction of behavior, it is a political
choice.
Most also proposes a disputable conception of what an assumption or a
hypothesis is. He gives as an example: “Investors use information in arriving at
their investment decisions” (Most, 1982, p. 59). That is quite vague principally in
the absence of a definition of what is information. But the hypothesis following
the assumption is highly symptomatic of how hypotheses are derived in
accounting research: “If a corporation which is expected to report a profit reports
a loss instead, some holders of the corporation’s shares who would otherwise have
continue to hold will sell” (Most, 1982, p. 59). This hypothesis comes from no
quoted theory. It is the concretization of beliefs that may or may not have any
foundation. Testing a theory supposes the presence of a theory. A theory is not
something we believe or not, it is an ensemble of knowledge coming from the
application of techniques of observation, the formulation of conclusions from
these observations, and the logical transformation of these conclusions into
testable hypotheses.
“Research methodology can also be viewed narrowly as a set of strategies,
domains and techniques employed in hypothesis testing” (Most, 1982, p. 60). But
methodology covers also the construction of the theory not only the testing of
hypotheses derived from it.
We define a methodology as the ensemble of means or methods; thus as the

strategy and tactics used to answer a question.
In fact, this is a way of telescoping the research work. In the natural sciences,
where they “solve problems,” it is not that direct. There are “pure” sciences,
“discovering” the principles and then “applied” sciences, solving particular
problems from these principles.
There exist a series of inductive methods that are used for observing and
making theories to be tested later. But in accounting research, it is current to
confound methodology with statistics. Many methodology courses in graduate
accounting curricula are mere courses of statistics, which is quite reductionist.
Methodology is a strategy, statistics are tactics.
To synthetize the point, we can quote the definition of the accounting theory
provided by Underdown and Taylor (1985). To their credit, they provide the
definition at the very beginning of their book.
Accounting theory has been defined as “a cohesive set of

hypothetical conceptual and pragmatic principles forming a
general frame of reference for a field of study” (American
Accounting Association, 1966). Within this definition accounting
theory may serve one or both of the two ends which all theories serve,
namely to explain and to predict. Theories which explain may set out
principles of what ought to be, in which case they are normative.
Alternatively, theories may explain observed phenomena, and are
term descriptive. Theories of both types may be found under the
heading of accounting theory. (Underdown & Taylor, 1985, p. 2)
This would stand as an excellent summary of the content of accounting theory

handbooks. The only one having a different approach is Scott (2003).
3.4 Recent Developments

The accounting theory books we just discussed have often been reedited. The last
edition of Scott is the seventh one. Other books have also been published. They all
discuss the standards abundantly although often including information about the
academic research alongside. There is also a plethora of definitions of accounting
theory on the web all turning around the conceptual framework.
Accounting theory is a set of assumptions and methodologies used in

the study and application of financial reporting principles. The study
of accounting theory involves a review of both the historical

foundations of accounting practices, as well as the way in which
accounting practices are changed and added to the regulatory
framework that governs financial statements and financial reporting.
(https://www.investopedia.com/terms/a/accountingtheory.asp#ixzz
5AxNXJnHt, accessed on March 28, 2018)
Any relationship with a real theory is totally avoided and this entry is
only a synthesis of what they found on other sites like the FASB. This is a
standard attitude toward theory, just ignoring it. However, we can find quite
better.
There is always a reason behind each and every action of a human

being. A man does not anything without any sound reason.
Regarding Finance, or financial matters, a man is always extra
cautious and so, he never makes any financial transaction without
any reason. As accounting deals with financial transactions, so every
accounting work is also based on reasoning. Accounting Theories
always try to explain with reason, the logic underlying a particular
practice. Generally Accepted Accounting Principles cannot be
changed completely as they are widely and universally accepted
but they can be reformed and remodeled to suit the needs of any
changed Society or Economy. Accounting Theories point out to the
scientific ways of thinking for the solution of any real world
accounting problem. (https://accountingtheory.weebly.com,
accessed on March 28, 2018)
Firstly, the way the author defines the behavior of people dealing in financial
matters is already so tendentious, based on the primacy of a certain conception of
the rationality. But the limits of his vision appear clearly when he declares the
GAAP are universally accepted and so are not changeable at will. They can be
modified slowly to suit the needs of the society. Although the ideas of explicate
and predict are there, we see that the normative and prescriptive functions are the
most important by far.
3.5 Assumptions, Principles, and the Like

Briefly, they all use the right terms although not applied to the right objects and
often not applied at all. We will review some of these elements to see how they
function (Fig. 3.1).
3.5.1 Business Entity

The idea of separating the business from the owner may look usual now, but it is
relatively new in the history. The main problem is the absence of responsibility of
Fig. 3.1. Schematization of Accounting Elements. Source: Unegbu

(2014, p. 6).
the owners. A good example of that is provided by the 2008 crisis. For instance,
the big losses of 2008 for both most involved US banks were turning around three
billion dollars (Table 3.1).
Therefore, what is the responsibility of these people having cashed the divi-
dends? If you cash the profit and are not responsible for the losses, how will you
justify this profit; in other words, where is the risk? For example, with the
consolidation, accounting is in advance on the income tax laws still considering
every legal entity separately allowing to swing the profits in subsidiaries posi-
tioned in countries with low rates of tax.
Table 3.1. Profits Distributed in Dividends

Previously to the Big Loss of 2008.
(in billions $)
Freddie Mac Fanny Mae
Year Net Profit Net Profit
2007 (2.5) (2.6)
2006 3.1 3.5
2005 1.9 5.8
2004 2.4 4.8
2003 4.6 –
12.0 14.1
3.5.2 Going Concern

Normally, the accounting profession pretends to present a true and fair view of
the financial situation of the organization. This would be done without any
consideration for the consequences which are for the investors to evaluate. If we
introduce an “assumption” (which is the word used by Unegbu but not exactly
fitting the definition of an assumption) saying that the entity must continue in
priority, we may have to bias the information to reach this goal. Moreover, we are
taking the decision instead of the investors on the basis that our judgment is better
because we have another hidden assumption (one fitting the definition this time)
stating that investors are judging uniquely on the basis of the dividend or the
return they receive at a given time. This “hijacking” of the decision process goes
against all the discourses the profession is carrying on providing information for
others to take decisions, not taking the decisions in their behalf. Our economic
systems are based on the principle that if an organization is not efficient it must. If
accountants place the going concern principle over the true and fair view, they are
helping keeping potentially inefficient organizations in function, biasing all the
economic equilibrium.
3.5.3 Stable Monetary Unit

It must be practical to use a stable monetary unit. However, it is false. In years
where the inflation is low, the error is not very important, depending on the kind
of commerce we are talking about. In a food market, the error will be minimal, as
there are few things kept for a long period. However, there is still an error
consciously made in the name of a principle or of the easiness to apply.
Every time we change the “values” of the assets to suit some assumptions or
principles, we potentially bias the decision-making process and jeopardize this
process by displacing the locus of decision.
3.5.4 Accounting Periods and Matching

This is not really a problem because we have to stop the process at some time. In
that we follow the laws having fixed the fiscal year of the entities creating the
necessity of having accounting reports at those dates. We have elaborated the
matching principle which is quite logical. This matching principle is useful as long
as the circuit of the good or the service enters within a year. When it does not
enter within a year we have to develop standards to allow the recognition of
uncashed profits, which is in contradiction with our principle of prudence claimed
so loudly by the profession.
3.5.5 Historical Cost

The historical cost may be practical for an accountant, but it is plainly ridiculous
as a principle. The discrepancies, which may be small for one year, cumulate from
year to year to arrive at numbers having no meaning at all. However, with those
biased numbers, the accounting profession is again diverting some decision power
over supposedly higher principles like the going concern. Therefore, we calculate
returns on assets that are totally detached from the reality.
3.5.6 Money Measurement

We have examples of statements that were not measured in monetary is but
through other economic indicators. That was the case of the social balance sheet
introduced in France in the 1970s.
In accounting we have the tendency to believe that every data that are not
monetarily measured fall into the qualitative category made of feelings and
impressions. However, to say that 1 person in 10 on the board is a woman is far
more precise and quantitative than the impressionist notion of profit produced by
the accounting profession.
3.5.7 Objectivity
The accountant is supposed to be constantly in search for some specific qualities
or characteristics of the information he is preparing and issuing. One of these
qualities is objectivity. Basically, it would mean that the report produced reflects
exactly the object without any intervention of the preparer. In our views, this is
clearly impossible mainly if we consider what we have just said about the pre-
suppositions, assumptions, and other principle accountants have to consider and
apply in their preparation of accounting reports. As defined in the traditional
accounting theory handbook, objectivity is a kind of conditioning, as we discussed
earlier. But objectivity can also, in the CICA Handbook, take the form of
neutrality. Then, the objectivity is no more toward the objects but toward the
groups involved in the process. We remember that the “international conceptual
framework” says that what will satisfy the investor, provider of capital, is prone to
satisfy all the other categories of stakeholders. It looks like neutrality having been
cheaply reached.
Finally, what we learn from this short analysis is that accounting principles,
assumptions, qualities, and standards are often in contradiction. Moreover,
these principles, when applied, deprive the investor of a part of his decision
power to transfer it to the accountant. This is an “agency effect” that had not
been studied.
3.6 Summary
Scott discusses the “core” aspects of “accounting research.” For instance, he
presents a chapter on market efficiency. Market efficiency is an informational
hypothesis even if nobody ever bothers to propose a description of how the
information is circulating among the agents in the “market.” They say that they
know all or part of the information and that is supposed to be sufficient.
Moreover, they add that every agent interprets correctly the information so that
there is no possibility of making excess returns. We all know that it is not exact,
so this hypothesis might be rejected. This inexactitude is at the basis of the
explanation of why financial analysts exist. If there are people doing technical or
fundamental analysis and selling it, it is because those people, who are the best
informed on the market place, believe that this market is not efficient as their
clients do too. Accounting researchers themselves do not believe in EMH as if it
would apply, there would be no need to frame accounting practice and then the
accounting profession will disappear. Therefore, as accounting research is a part
of the accounting world, a researcher must ask the question: why such frivolous
hypotheses can take such place in a self-pretending “science”?
Excess Returns
If someone would be able to predict the future market price of a stock, he will
be able to make excess returns. Technical analysts pretend they can predict the
future value of a security by studying the historical evolution of prices. Doing
that, they strongly reject the EMH. Fundamental analysts pretend that they
can predict the future movements in the price of a security with all the
information publicly available. Doing that, they reject the EMH.
However, Scott declares that “the most important concept of financial

accounting theory” is information asymmetry. This asymmetry was historically
proposed by the tenant of the agency “theory” based on the EMH, which looks a
little contradictory and leads to two effects that are at the basis of Scott’s book:
moral hazard and adverse selection.
Adverse selection is a type of information asymmetry whereby one or

more parties to a business transaction, or potential transaction, have
an information advantage over other parties (…).
Moral hazard is a type of information asymmetry whereby one or

more parties to a business transaction, or potential transaction, can
observe their actions in fulfillment of the transaction but other
parties cannot. (Scott, 2003, p. 8)
However, this vision of information asymmetry appears to be contradictory

with the definition of the functioning of the market on which all these theories are
based.
Modern financial theory rests on two assumptions:

1. Securities markets are very competitive and efficient (that is,
relevant information about the companies is quickly and
universally distributed and absorbed);
2. These markets are dominated by rational, risk-averse inves-
tors, who seek to maximize satisfaction from returns on their
investments. (Mullins, 1982, p. 115)
Mullins considers that the breaches existing in the EMH are not having a
material impact on the efficient market functioning, while Scott pretends that the
asymmetry of information is the rule, making those markets inefficient per se. But
Scott settles the matters by proposing more accounting information to decrease
the inefficiency. Therefore he remains in an efficient market framework although
he based his book on the inefficiency of this market, as for him, the inefficiency is
not a refutation but only a minor dysfunctioning.
An important assumption of the theory is that a market works well

once explicit consideration is given to contracting and other costs of
using the market. Thus, the theory fully subscribes to the efficient
market hypothesis (…) and also to the validity of the capital asset
pricing model. (Bromwich, 1992, p. 323)
But, there are optimality and optimality. Most authors discussed a kind of
absolute optimality in part because they are influenced by the economic modeling
considering one period, one good, one piece of information, and the rest in perfect
certainty. Jensen and Meckling tempered their definition of optimality following
the circumstances. These relevant circumstances are related with the separation of
the ownership and the management of the firms described quite long ago by Berle
and Means (1933).
Therefore, there is little science to be taken in traditional accounting theory
handbooks. Science exists in an institutional environment. If accounting has to be
a science it will have to conform first to the desiderata of the institution, mainly
the university.
Moreover, the descriptions of the sources of the accounting activity are a pack
of contradictory measures prone to usurp the decision power of the investors and
other stakeholders, when they are considered at all, and transfer it to the
accounting profession, increasing its power of interpreting financial numbers in

our societies.
Questions
1. What is positivism? Is it a method?
2. By which process do researchers believe that statistics generate
objectivity?
3. How would you define objectivity?
4. “The firm is a planned economy under an authoritative control.”
Comment.
(When the firms reach sizes that are larger than many countries [calcu-
lated from the GIP vs the sales], the “free” enterprise is then organized
into a totally authoritarian structure.)
5. The market for accounting
a. Why the firm and the accounting statements can be said to be market
failures?
b. What to say about the existence of those markets followed so closely
in the news?
6. What is hyperreality? How can it be applied to accounting? Provide an
example that is not in the book.
7. What do you think of the statement: “accounting theory has no standard
definition”?
8. What would it be to have a standard definition?
9. Do you agree with the idea that “you cannot study disciplines by
studying the behaviors of those who practice the discipline”?
10. What are the possible epistemological positions in the philosophy of
knowledge?
11. Following Einstein, what is a “simplistic” positivist?
12. What is the “raw material” of sciences?
Chapter 4
Accounting in the Scientific Institution
Accounting, as expressed in the handbooks, has a long way to go to become

a science. We may continue to discuss the question by reviewing some
elements or understandings that seem to block the way toward an “accounting
science.”
4.1 The Concept of Normative Theory

The concept of normative theory is not reserved to the accounting domain. It
exists in media analysis, ethics, and many other areas.
A Normative Theory expresses a judgment about whether a situation

is desirable or undesirable, and is based upon some moray or
standard. The world would be a better place if the moon were made
of green cheese, is a normative statement. (www.answers.com)
or,
Normative theory: any theory which seeks to establish the VALUES

or norms which best fit the overall needs or requirements of society
either societies in general or particular societies, and which would be
morally justified. For those who see the aim of modern social science
as descriptive and explanatory and not “prescriptive,” such a goal
for social science or sociology is not acceptable. Hence in these
circumstances, the term “normative theory” can be a pejorative
term. (Collins Dictionary of Sociology)
We definitely stand in the first group. We have nothing against appraising

values; we are against calling it a theory or pretending that it is done on the basis
of a theory. Assessing values is done through beliefs and faith and cannot be
called scientific. It is a religious or a political–ethical matter. But everyone is
trying to appear among the scientists those days. There is even a church calling
itself by a name that includes the word “science.”

doi:10.1108/978-1-78769-793-520181004
And today? Who still believes, those days, – except some growth child
that we can encounter among the specialists – that the knowledge in
astronomy, biology, physics or chemistry can teach us something on
the meaning of the world or even help us to find any traces of this
meaning, if it ever existed? If it exist some knowledge able to eradicate
to the roots the belief in the existence of something looking like a
“meaning” of the world, it is precisely those sciences. In definitive, how
come the science would be able to “lead us to God”? Is it not the
un-religious power? (Weber, 1963, pp. 95–96) (Our translation)
Asking the science to decide for us is to mix science and religion in its most
general meaning as well as science and politics, which is only prone to create
confusion. The confusion also increases in accounting by the import of the
concept of normative theory.
As described, after the securities acts the accounting literature became

normative in the sense that it sought to prescribe the contents of
accounting reports. For example, Chambers (1966) advocates
current costs as the basis for the valuation of assets. Financial
accounting texts also tend to adopt normative (i.e., prescriptive
positions). By itself, theory, as we describe it, yields no prescriptions
for accounting practice. It is concerned with explaining accounting
practice. It is designed to explain and predict which firms will and
which firms will not use a particular method of valuing assets, but it
says nothing about which method a firm should use. (Watts &
Zimmerman, 1986, p. 7)
However, it was the only way to be able to call theory what had been written
roughly before 1965. The idea comes from economics and entered the accounting
domain through Watts and Zimmerman (1986). “Normative economics” comes
from the School of Rochester (Milton Friedman) where also Watts and Zim-
merman are. Friedman pretends that a theory must be judged not by the verisi-
militude of its assumptions, but by its capacity to predict.
The theory producing the best predictions should be prized,

regardless of the lack of realism inherent in the underlying
assumption. (Wallace, 1991, p. 39)
But how can a theory based on frivolous assumptions produce the best pre-
dictions of reality? The answer is quite easy: by refusing to look at what is not
conformed to the “theory.” This question becomes more important when we
remember that the economists normally present their predictions as the “real
reality.” Other economists have raised the same objections:
But the economists hang to it (the notion of scientific progress) as to

a floating tree, engendering one of the most curious conceptions anti-
scientific conceivable: the one of Friedman. Friedman refuses any
Accounting in the Scientific Institution 45
debate on the realism of the hypotheses. Whatever the hypotheses, he

said, as long as they are functioning more or less (…). We are
appalled in front of such a praise of the anti-scientific spirit (…).
(Maris, 2003, p. 44) (Our translation)
Beyond their strange scientific aspect, the propositions of the positive theory,
as understood in Rochester, seems not to produce the high-quality predictions
that were expected.
In summary, the empirical tests have demonstrated that the three

hypotheses generated by the accounting positive theory have a low
predicting power as well as a low explicative power. Then, on which
basis Watts and Zimmerman continue to pretend that their story is
credible? They continue to pretend that their story is credible based
on the fact that the alternative model to explain accounting choices
assume that the firms use the accounting methods prevalent in
their industry. “Many accounting professors” assert that Watts
and Zimmerman, “would be uncomfortable with the explanation
wanting that managers choose their accounting procedures by
imitating what the others are doing” (p. 140). They would then
suggest that “the real question is the lack of alternative model having
a better explicative power and not the weak explicative power of
their theory.” (p. 140). (Mouck, 1992, p. 41)
The three explanations proposed by Watts and Zimmerman for the choice of
accounting procedures are the CEO motivations, the debt specifications, and the
political costs. These hypotheses come from no theory. They proceed from gen-
eral beliefs and vague interpretations of general economic propositions.
Are normative theories producing predictions or prescriptions? A prescription
can have beneficial or malefic effects, but as it changes the state of the world it
cannot be a test of any model, i.e., a prediction.
The accounting discipline, following economics, escapes to the logic that
prevails in the rest of the world. So we can find that kind of assertion: “normative
theories have a long history in accounting research” (Ryan, Scapens, & Theobald,
1992, p. 53). They give an example of “normative research in management
accounting.”
Nevertheless, the neoclassical economic framework with its

profit maximizing objective forms an essential underpinning of
management accounting’s conventional wisdom. (Ryan et al.,
1992, p. 45)
Firstly, the neoclassical economic theory never included the maximization of

profit as a fundamental element. To the contrary, if the assumptions of the the-
ories were to be realized, the markets would function in a perfectly competitive
environment and the profit would be minimized not maximized.
In fact, neoclassical economic theory holds that profits are zero in

perfectly competitive markets, a condition which that same theory
sacralises. (Frederick, 1995, p. 52)
The confusion arises when people start to believe that the profit is the remu-
neration of the entrepreneur, which is not the case in the classical or even neo-
classical theory. It is the remuneration of the capital owners who are no more
entrepreneurs, which is a deviation as already described by Berle and Means
(1933). The classical entrepreneur obtains this quality not by putting some money
in a business but by organizing the work. If the investors do not even know where
is and what is being done by the company he is putting his money in, he is not an
entrepreneur and then we have a problem with the definition of profit.
The salaries of the management are difficult to justify rationally in

such a model of the firm as the owner-manager of the firm bring no
productive contribution. (…). The introduction of the imperfect
information has the effect of giving a creative role to the owner
and the manager. Each of them can pretend to bring different types
of knowledge that the ordinary employees do not bring. (Demsetz,
1998, pp. 44–45) (Our translation)
What is brought by an investor who does not even know where the firm is
situated and what exactly it is producing? However, it is not our purpose to
discuss more deeply this question here; after having acknowledged the reversal of
meaning leading to these contradictory beliefs, the system “sacralizes” the pure
and perfect competition implying the absence of a profit which, on the other hand,
becomes the main motor of the system.
Whatever the content of the concept of normative theory in Friedman’s
discourse, it had rapidly assimilated to the standards in the accounting domain.
In the early stages of its development, accounting theory arose out of

accounting practice. It was only later that accounting researchers began
to develop theories which contained prescriptions for practitioners.
(Ryan et al., 1992, p. 68)
Those having brought the greater credit for this idea of normative theory did it
through a negative process. When W&Z wanted to propose a positive theory,
which was scientific, in the meaning this term can have in human sciences, they
positioned it in opposition to what was done in the domain before, labeling it
normative theory. Normative, no doubt; theory, that is more debatable. There is a
social usage of the word theory. Every organized opinion on something is said to
be a theory. Consequently, when we are discussing science, we have to be prudent
about the different acceptions that we will encounter. The words have many
meanings that we have to deal with when trying to provide definitions or separate
acceptions. Weber (1963) makes a distinction between the “facts” and the opin-
ions in a classroom. The question of what “ought to be” must, for him, stay
outside of the classroom. He establishes a distinction between the knowledgeable

and the political, defining the domain of the latter as the domain of opinion and
prescription by opposition to the domain of reflection and description. But, to
refrain imposing their personal convictions (Weber, 1963), we have to recognize
them for what they are. Most of the times that is where the problem stands. A
normative theory is a complete mix of both personal opinions and inductive
approach (however, with an insufficient quantity of observations) that is usurping
the prestige of the science by calling itself a theory.
There are controversies among accounting academics regarding what

an accounting theory is. Watts and Zimmerman (1986: 2) posit that
accounting theory seeks to explain and predict accounting practice.
Positivists like Watts and Zimmerman (hereinafter W&Z only) cite
economics and natural science disciplines such as physics, chemistry,
etc. in the defense of their method and call their method “the scientific
method” (W&Z, 1986: 2), thus probably implying that there is only
one method in science. This is highly disputed by accounting
academics pursuing other strands of research (Christensen, 1983;
Chua, 1986). Science is not a unified structure. There is not a
unique scientific method. Science knows many methods
(Feyerabend, 1993). Hence, even if one wishes to study accounting
as a scientific discipline, there is more than the method advocated by
W&Z (1986: 3). One major criticism of W&Z’s view of accounting
theory is that it unnecessarily narrows the area of accounting research
(Chua, 1986; Whittington, 1987). For our purpose, we adopt the
following definition of accounting theory: “— the business of
accounting theory is to examine beliefs and customs critically, to
clarify and extend the best from experience and to direct attention
to the genesis and outcome of accounting work” (Littleton, 1953:
132). This definition accommodates different strands of accounting
research such as research in normative accounting and empirical
accounting as well as research in interpretative accounting. (Kabir,
2017, pp. 1–2)
This author provides a good example of the reigning confusion. Obviously,

W&Z had little knowledge of the work of Comte, for instance, and used the
expression “positive theory” in the habitual opposition to “normative theory.”
However, positivism is not a method, it is a philosophical position the scientific
has on the relationship he can entertain with the studied object. Obviously, spe-
cific methods will follow this basic position, but the position itself is not a method.
Calling Feyerabend to its rescue is a cheap argumentative move. Feyerabend may
easily agree to the existence of many methods in science; however, we would be
surprised to hear him accepting the normative “approach” as a method. As a
normative theory cannot be validated or falsified, we can suppose easily that for
Feyerabend it would rapidly reach the cemetery of false sciences. The definition
retained by Kabir is a repetition of all the confused ones reported in this book.
Anyway, trying to settle the matter of defining what is theory or science and what
is not, within the limits of accounting literature, is totally vain. The accounting
science, if it ever exists, may follow the same rules as other sciences and not be
conceived of conveniently picked elements while the rest is pushed in the shadow.
Therefore, accounting theorists must start by stating what a theory is before
applying it to the accounting domain; however, symptomatically, they very often
use the syntagma “accounting theory” as if this theory was particular and unique
in its conception.
Why tenants of the normative standard-setting-based approach want so much
to be scientific? Sciences have the prestige and that prestige in the academic
institution is the privileged key for reaching essential resources (theory of
resources dependency). Instead of changing their approach of accounting
research, they try to change the perception the world has of their approach. That
is typical of a legitimating process, completely based on discursive manipulations
(Ben Yedder & Breton, 2017; Hasbani & Breton, 2013).
Even the texts discussing methodologies reproduce the same discourse. Ryan
et al. provide some support to this way of thinking by saying that at the beginning
the theory emerged from the practice and that later the theories started to elab-
orate prescriptions for the practitioners. Others have proposed that accounting is
an instrument to produce information for decision-making. In fact, this was
included in the CICA Handbook (Canadian Institute of Chartered Accountants)
introduction and many other texts oriented toward the practice. The idea is that in
an economy the best decisions, most efficient, must be taken to avoid wasting
resources that are in limited supply. Money is a very important and scarce
resource. The accounting profession believe that increasing the quantity of
information available will help to increase the quality of investment decisions and
therefore of resources allocation.
4.1.1 The Confusion in the Terms

Accounting standards, like any other standards, are political statements in the
basic sense that they are decided by authorized people, forming a committee or
any other assembly, from knowledge, experience, needs, or any other motivations.
But, every time, these standards are the results of some decisions. A theory is the
fruit of observations or supposedly comes from reason and cannot be made
through decision. A standard changes the world in imposing a way of doing
things. A theory describes the world through discovering how it is working. A
standard comes before the action and a theory comes after we have an under-
standing of this action. A standard cannot be proposed as a theory, however, and
that is a cause of part of the confusion in the domain. A “pure” theory can be
“applied” and used to create a technology becoming a standardized way to do
things. This is probably why some people see the theory as preceding the action.
But these theories have been developed through observation firstly and then
through a series of transformations made from logical reasoning, and then tested.
Such a vision is greatly spread by TV shows and movies where the science is
presented like a magic solution to be applied to save the day. However, in most
cases, the scientist who is “saving the day” has been rejected from the “normal-
ized” scientific community and will be called from despair, after the institution-
alized science failed. Such images are interfering with the social representations of
accounting as a science and with the importance and place of the standards as
they are forming the conception people have of the science and all the intellectual
disciplines.
The importance given to standards can be traced in the early conception of
“accounting theory” which was also characterized by discussions, for instance,
about what have to be capitalized or passed into expenses taking into account
criterion like if it is replacing something already existing or if it is bringing a new
technology in the organization, etc. Then, we entered in a new era with Hen-
driksen (1970). He avoids defining what theory is by describing instead the ways
for building theories: induction, deduction, sociology, etc., not realizing that a
series (a paradigm) must be formed of mutually exclusive elements.
Belkaoui (1992), described a theory as follows:
The primary objective of accounting theory is to provide a basis for

the prediction and explanation of accounting behavior and events.
We assume, as an article of faith, that an accounting theory is
possible. A theory is defined as “a set of interrelated constructs
(concepts), definitions and propositions that present a systematic
view of phenomena by specifying relations among variables with the
purpose of explaining and predicting the phenomena.” (Belkaoui,
1992, p. 56)
This definition looks very promising and is prone to suscitate the approbation
of researchers in many domains. He took it partly through Kerlinger to which he
adds the definition from Webster’s Dictionary:
(…) The coherent set of hypothetical conceptual and pragmatic

principles forming the general frame of reference for a field of
inquiry (Webster dictionary, quoted in Belkaoui, 1992, p. 56)
Both definitions are acceptable from a positivist point of view. However,

Hendriksen adds that the “frame of reference” may be used to evaluate and guide
the development of new practices. Belkaoui, making little use of the definitions he
had advanced, follows in this line and starts talking about evaluating and
developing. And then, probably to add to the confusion, in a paragraph, he
describes accounting as a language but with no distinction and no definition
of a language. The promising definitions taken from Kerlinger and Webster’s
Dictionary, applied to a research field in the goal of explaining and predicting
what is happening in a section of “reality,” are then forgotten.
Belkaoui is saying here that knowledge implies explaining and predicting
processes. However, immediately after, he passes directly to the definitions
from Hendriksen abusively pretending they are derived directly from what
precedes.
The same problems appear in Mathews and Perera (1991). In a chapter, they
present a very well-documented epistemological discussion, including the concepts
of inductivism, positivism, and even falsificationism. They describe the scientific
process in a quite clear manner although their inductive process comes after the
observation, their deductive process comes before the explanation and prediction,
and that they are looking for universal laws. However, if reformatted, they pro-
pose a scheme that is a good start for discussion. Their description would be most
generally acceptable and had already been proposed in accounting. However, the
terms have to be described more deeply to be useful. For instance, what is
observation? How can we make it—positively or subjectively—and how theories
can be accepted through verification or rejected through falsification?
The theories of knowledge are not infinite in quantity. One may believe that
the object is revealing its nature without the intervention of the subject (the
observer). This one is a positivist. The one who believes that the so-called
“reality” is a construction of the mind is a constructivist. Any hybrid position
in the middle had been sustained.
However, Mathews and Perera, in the following chapter, when the time comes
to apply those principles to the accounting activity, forget completely what they
just established.
There is a definite link between accounting theory and accounting

practice, in the sense that accounting theory construction stems from
the need to provide a rationale for what accountants do or expect to
be doing. In other words, changes in the principles occur mainly as a
result of the various attempts to provide solutions to emerging
accounting problems and to formulate a theoretical framework for
the discipline. (Belkaoui, quoted by Mathews & Perera, 1996, p. 52)
Accounting theory becomes a normative system having a goal to guide the

practice and give some sense to it. For us, it is obvious that there is a relationship
between the theory and the practice. The theory is the result of a form of
observation of the practice, but to understand the practice a posteriori, not to
orientate it or give it a meaning. Therefore an accounting theory will have a
section to describe why particular standards have been chosen, which were the
forces behind those decisions, etc.
A related major problem is its distortional reading of the Kuhnian notion of
paradigm. The notion of paradigm had been used with the meaning of way of
thinking. In some of the management literature it is a mere difference of opinion.
But, a little bit of etymology and following the traces to the scientific discourse
(Kuhn, 1983) show that this vision is too simplistic.
4.1.2 The Notion of Paradigm

The word paradigm comes from the Greek para deigma meaning: for example.
An example is something you can substitute to the object under consideration to
help understand it. Therefore it is a vertical structure by opposition to a
syntagma, which is a horizontal structure or a description of how things are

combined. To say it otherwise, every element in the syntagma can be replaced by
another element having the same function and therefore forming a paradigmatic
structure. The black book can be the blue, the green, the yellow, etc. So we will
have the paradigm of colors describing the ensemble of the possible elements
that can be placed in the syntagma at this specific spot. A paradigm can be used
to designate a scientific theory because this theory replaces the reality in doing
the same function for the purpose of describing and understanding one
phenomenon.
This concept had been very lightly treated in the accounting literature. There
is a scientific conception of the paradigm that can be derived from Kuhn (1983),
and a social use of the word that have invaded the business world among others,
and that can be described as a way of thinking or an opinion. Scientifically
speaking, a paradigm is far from being an opinion, an expression of intersub-
jectivity. In brief, there is a “scientific” conception and a social representation of
the paradigm.
However, in Kuhn, the notion of paradigm describes a theory, but also all the
scientific community and researches evolving around this theory (Bourdieu,
2001). The theory becomes a limitation as well as an explanation and a special
effort has to be made to escape the “tyranny” of the established theory. Basically,
the paradigm is the theory itself, not all of the institutional system established
around it which is included by Kuhn.
In accounting we must acknowledge that Belkaoui had done a very good effort
to spread the confusion around the notion of paradigm. He presents six of his
paradigms as competing in the accounting science:
1. Anthropological / inductive
2. True income / deductive
3. Decision usefulness / decision model
4. Decision usefulness / aggregated market behavior
5. Decision usefulness / decision-maker / individual user
6. Information / economics (Belkaoui, 1992, p. 499)
Firstly, a paradigm is a model, not the way to produce it. If a model can be
produced from an anthropological analysis, which we assume means through
observation, it is not inductive in itself, but the result of the application of a
form of inductive process. It is exactly the same with the deduction which is
the process of testing the theories, not these theories themselves. A theory is
not inductive or deductive, it is the result of a constant interaction between
these two types of connections between the theoretical world and the “real”
world.
Secondly, if accounting consists of an ensemble of information destined to be
used as input in a decisional process, accounting theory must be, among other
sources, a theory of the decision. This decisional process was studied at the level
of the market in general (all the studies on the effects on the market of the pro-
duction of information) and at the individual level (that is often called behavioral
accounting). However, there again, it is not the behavior of the market that is a
paradigm, but the theory describing the behavior of the agents in the market.
Belkaoui pretends to borrow his definition of a paradigm from Ritzer. It
includes the following components:
1. an example, defined as a piece of work presented as the model of what is done

in the paradigm;
2. an image of the object;
3. theories, methods, and instruments.
If we admit, following some readers of Kuhn that the term paradigm can be
extended to cover the academico-scientific institutional environment (Bourdieu,
2001), we would be able to admit the proposed definition. But we don’t, as the
institutional context, although very important, remains quite different from
the theory itself. Therefore, such a definition is highly fitted in the domain of the
natural sciences, having a common conception of their domain, some subsidiary
theories, and some common methodology. Belkaoui tries to apply this definition
to the paradigms he had identified in the accounting domain. That is where the
problem appears clearly. He describes the elements of the anthropological/
inductive paradigm as follows:
The first type of theory deals with all attempts to explain and justify
existing accounting practices – the historical-cost approach to asset
valuation, conventional cost-allocation techniques, bookkeeping
techniques, and so on. The second kind of theory deals with attempts
to explain management’s role in the determining of techniques and
include the income-smoothing hypothesis and the beginning of a
positive theory of accounting. (Belkaoui, 1992, p. 501)
A positive theory proceeds from the position the subject (researcher) thinks he
can sustain in regard to the object under study; it has little to do with the content
of a particular object. Also, the justification of the practices cannot be a function
of the theory. Moreover, the supposed theory of earnings smoothing, that had not
been yet enunciated (Breton & Chenail, 1997), cannot be presented on the same
level that the positive accounting theory which, although thin and open to criti-
cism, really exists.
The inscription of the scientific process into a social context by Kuhn (1983)
precised by Bourdieu (1984, 2001) focuses on the discursive aspects of the process.
This vision led some epistemologist to pretend that sciences (even the natural
ones) are mere discourses.
But, it is a question of rhetoric, textual strategy, writing, staging,

semiotic, but of a new form connected at the same time on the nature
of things and on the social context without reducing it to one or the
other. (Latour, 1991, p. 12) (Our translation)
Thus, we may find statements of that kind:
To close a technological “controversy” one need not solve the

problems in the common sense of that word. The key point is
whether the relevant social groups see the problem as being solved.
(Pinch & Bijker, 2012, p. 37)
In this spirit, even in pure science, the discursive strategies take the pole
position in front of the “real” findings. This tendency has some correspondence in
the management world. When Boje (1995, 2001a) describes the firm as a
discursive object, he is underlining that everything around is as much a discursive
effect (Groupe m) than an objective reality. We cannot ignore, however, that even
Latour is forced to refer to the “nature of things” as opposed to social interactions
so to the simultaneous presence, in the mind, of positivism and constructivism.
Plainly stated, the object is there, independently of the humans; but what we know
about it remains entirely discursive.
Mathews and Perera (1996) adopt a naı̈ve Kuhnian version of the paradigm,
without returning to any basic definition. We mean that any theory can be
described as a paradigm, but not every paradigm is a theory. Their figure pre-
senting the “Kuhnian progression” (p. 43) is also very simplistic. In the real sci-
entific world, we do not pass from a dominant theory to another one as cleanly as
what their figure implies. In natural sciences it is not that clear, but in human
sciences, which is the case of any science of accounting, competing theories can
“compete” for a long period. We believe that Bourdieu (1984, 2001) presents a
better image of the tensions present in the academic institution.
When Mathews and Perera (1996) take the work of Wells (1976) they totally
denature the text of Kuhn. Kuhn (1983) was talking about scientific theories,
whereas Wells is trying to force the traditional vision of the “accounting theory”
into the mold from Kuhn. It is impossible to have a scientific revolution in the
accounting theory world of Wells because there is no science at all in any attempt
to normalize accounting. Wells take the phases proposed by Kuhn, which are an
interesting description of how a “scientific” school is formed, and tries to apply
that to accounting.
The symbolic generalisations include accepted notions such as double

entry, concepts of income, ratios and classifications. Shared
commitments include the realisation and matching principles, going
concern and the basis of asset valuation. Shared values include
conservatism, consistency, materiality and other similar positions.
Exemplars include textbooks and expositions in current use.
(Mathews & Perera, 1996, p. 45)
This citation shows well the confusion reigning in this domain. All the elements
they enter into the categories of Kuhn have no scientific dimension, therefore they
do not belong to the scientific world. These exercises in metaphorization can be
extremely dangerous.
The problem stands in their reading of Kuhn (1983). In Kuhn, the paradigm is
the theory, but this theory is the center of an institutional movement that had
been described noticeably by Bourdieu. A theory is an object of language and the
institutions are equally so (Philips, Lawrence, & Hardy, 2004). This institution, or
school of thought, includes people, academic journals, grants and research
funding bodies, and research procedures and positions. However, the institutional
grouping around a theory is not the paradigm per se. It is the reflection of the
material conditions into which the paradigm is competing for supremacy in its
domain. Authors like Wells are displacing the meaning of a paradigm by
spreading it to the academic school of thought and its instrument to gain and
conserve hegemony over its specific field.
A paradigm is an object of language being the “other” of an object in the “real
world” but also being an object in the “real world” itself, as discourses are real
and do really exist. Then, in their scientific acceptions, paradigms are not con-
current advices on the world, they are concurrent models. These models have not
been established through intersubjectivity, but have to satisfy basic criteria to be
considered so.
Science is an institution, having many different stratifications depending on
the domain and places where people encounter other poeple: universities, lab-
oratories, congresses, conferences, journals, etc. What Bourdieu, in a way, and
Kuhn are describing is the organization that, in our society, takes the respon-
sibility to separate what is knowledge conformed to the procedures accepted and
what is not. Some observers will find this institutionalization hegemonic and
prone to kill any imagination appearing outside the official school’s precepts.
Feyerabend (1979) raised such questions about the system of recognition of the
knowledge.
4.1.3 Other Sources of “Normative” Theories

There is a belief that “the choice of accounting method has distributional con-
sequences” (Mozes, 1992). This statement may look surprising. How can the
way to tell the story have tangible effects? For instance, let us consider the
concept of profit. The accounting profit belongs to shareholders when everybody
else had been compensated. Therefore, it carries the idea that anybody else had
received a fair compensation, which is based on the idea of free contracting
which, in turn, depends on the circulation of complete information and the
existence of other fair price mechanisms. Consequently, those implicit condi-
tions never exist, and the distributional consequences are not conformed to the
societal model supposedly sustaining economic activity. In many European
countries they had an income statement (value-added oriented) that was far
more informative and “neutral” than the model proposed by the IFRS. Stan-
dards are research objects, in the sense that they are social products that can be
investigated on the basis of the influence presiding at their choices and the
consequences they have on the distribution of the wealth in the society. Prac-
titioners mostly ignore the world of research and the distributional consequences
of their decisions.
4.2 Research Versus Practice

There is a recurring topic in accounting theory or accounting “reflexive” docu-
ments: the nonusefulness of the accounting research for practitioners.
The objective of the research appears to be one of conforming rigidly

to apparently scientific standards of design, methodology, and
presentation rather than satisfying the criterion of practical
usefulness. (Lee, 2006, p. 439)
Where is this “criterion of practical usefulness” coming from? Lee is influenced

by the old idea that accounting research must be driven by the practice which is a
very bad way to make it enter into the university. A late arrived discipline must
construct its legitimacy in the institution to have equal rights to recognition and
therefore to resources. Accounting had been despised long enough in the uni-
versities for accounting academic to know that.
This vision also comes from the confusion between accounting theory and
standard-settings and also between pure and applied research. Another root of the
question lies in the fact that governments and official bodies created to finance
research in human sciences are not very generous with researchers in accounting.
Therefore, accounting academics look at the professional institutions, like big
accounting firms, to finance the research. In Canada, two of the three official
accounting bodies (before they were united) historically had a representative on
the board of the Canadian Academic Accounting Association. As the leaders of
the accounting firms have little formation in accounting research, they will ask for
the benefit for them of financing research. The question is legitimate although
beside the point. There are, at last, some delicate elements in the discussion. If we
look at the research over 50 years, there are many indications at the effect that the
financial statements and the annual report are not read and if so, are not
understood by the users, ordinary or institutional (Lee & Tweedie, 1977, 1981).
Therefore, instead of playing ostrich, the profession may have to work on an
alternative presentation format and, maybe, some alternative calculation system.
The only thing they produced over this time was the self-designated conceptual
framework that had no precedence on the standards and therefore that brought
no significant changes in a set of financial statements remaining exactly the basic
same even if thicker.
Surely the way the research is reported can look esoteric for practitioners
(Richardson, 1996). But the research reports are written to fit in academic jour-
nals having a goal to position themselves within the ensemble of all academic
journals, for the authors to be recognized in the academic institution before the
professional one. The two widely commented criteria for academic recognition
are the research grants and the publications in recognized journals. So, to come
back to Latour, they have to write research reports showing the signs of a certain
conception of the scientificity to be accepted in these journals and have new or
renewed research grants. We recently heard a researcher in medicine complaining
about the negative effect of publishing in large quantities over the quality of the
reported results that were not sufficiently tested. So, it seems to be a tendency in
the academic institution at large. But, the lambda doctor in medicine may not
understand every research protocol reported in The New England Journal of
Medicine or The Lancet but he won’t say those researches are useless to him. The
attitude of the profession refusing to touch the very basis of the financial reporting
is also playing a big role in that misunderstanding. However, historically, the
academics took the blame bluntly because they needed the money from the
practitioners.
A relevant question would be why the practitioners and the society in general
would be interested in accounting research. The answer we propose is in two
parts, the first one is the resources expended in the information process, and the
second is about the difference between “pure” and “applied” research.
4.2.1 Saving Scarce Resources

We know a certain amount of things about the usefulness of accounting reports.
On the one hand we hear that accounting is providing information for decision-
making and that these decisions are about investing or not. Then, we open a book
about “investment theory” and there is no mention of accounting information
(Haugen, 1986). Moreover, the products to be exchanged have greatly evolved
through time: securities, government bonds, corporate fixed income securities,
corporate stocks, options and warrants, forward and future contracts, the shares
of investment companies and mutual funds, etc. (Haugen, 1986). The situation
has not become simpler since this list was done. If we look at the work trying to
find a correlation between earnings per share and the market price of the stock of
a firm, we see that the results are not very conclusive (Gordon, 1994). The study of
Gordon was reproduced in 1994 but originated in 1959. After that, we had a series
of study looking at the effect of accounting information on the stock market. In
this series, the results pointed in the direction of no effect at the moment of the
official publication of the financial statements, but to some effect at the pre-
liminary announcements date. However, it is difficult to establish which infor-
mation is really impacting at this date as a preliminary announcement is quite a
simple document containing little information outside of the profit figure and
some references to important contracts implying that a two page set of financial
statements may be sufficient (or a face; Smith & Taffler, 1992).
Another line of research had taken the question from another angle. They
look at what was important in the financial analyst reports leading them to
one of the standardized recommendations: buy, hold, and sell. They concluded
that information on the management was the most important (Breton &
Taffler, 2001; Rogers & Grant, 1997). Therefore, accounting numbers ranked
behind management discussion and analysis, footnotes, and the president’s
letter (Rogers & Grant, 1997). These results may be triangulated with the
results of Lee and Tweedie (1977, 1981) finding that the president’s letter was
perceived by the users as the easiest part to understand in the annual report
and was consequently the most thoroughly read. Therefore, to reach their
audience, analysts may use arguments found in this part of the report. At this
point, there is little information on the relationship between the content of the
report and the recommendation. Breton and Taffler (2001), related systemat-
ically both aspects and they also found that other information was more
important than the profit or the accounting numbers in general to reach a
recommendation.
Despite these research results, we continue to spend a lot of money to put
together financial statements and other accounting reports as if they would be
used for decision-making. Somebody might be in denial somewhere. Moreover,
we spend a lot of money to have this information audited and, still more, to have
standards along which the reports must be aligned while researches conclude that
the audited report has no effect.
4.2.2 The Difference Between Pure and Applied Research

We often see, in practice, a distinction made between pure and applied research.
Normally, pure research looks for the general principles (in natural sciences it will
be called “laws”) that explain a related series of phenomenon. So, there is pure
physics and even pure chemistry, etc.
Applied science then takes the results developed in “pure” science and applies
it to developing concrete instruments that will help in our day-to-day life. For
instance, the NASA makes a lot of research that can be qualified “pure” research
although doing both. Often, things we have in our houses today had been
developed from researches conducted at NASA.
Like for any other discipline, research in accounting is of both categories.
There had been a lot of researches on the importance of accounting numbers in
general in the decision process. The methods used might have been inappropriate,
the research questions often coming from nowhere, and the use of assumptions so
unrealistic that the results meant nothing. But this was “pure” research. When we
have research looking at the use of a specific item of information to reach a
specific decision, we have applied research.
After nearly 60 years of “scientific” research in accounting, the practitioners
continue to say that there is no research interesting their practice. But, accounting
research cannot really discuss the accounting standards mostly if it is to back the
status quo (Lee, 2006), as the members of the standards-setting committees have
done for decades. Researchers can discuss accounting standards as social objects.
They may ask why a strange concept as the historical cost is in use, who is fighting
to keep it, and who tries to eliminate it, etc.
Therefore, this question of opposing research to practice is generally posed
with the already made idea that the gap is the fault of the researchers. However,
the bad faith from the world of practitioners and mainly their associations are, in
our view, the main problem if there is any.
4.3 Arguments for Constructivism

We believe that it is now impossible to pretend to know the object by itself.
Firstly, the history of sciences shows the development of instruments that have
changed our vision of the world. Let us take the microscope; it shows us a series of
life forms we were ignoring the existence before. In the same way, the telescope
has shown us parts of the universe whose existence we never would have guessed
before.
We know that our optical nerve is attached in our eyes in a place where we see
nothing. So, strictly speaking, we have two black points in front of us. Our brain
is reconstructing the image, filling the black spots with something coherent with
the rest taken from our visual experience which is largely made of what has been
told to us. An image is intelligible because there is a certain form of order
allowing detecting the similitudes and differences:
The order is a property of the culture, not the nature. (…) The
imposition of the order happens with the perception, and results from
the specificities of the brain being unable to assimilate such diversity
without simplifying it. The order is then a discretization of the
disorder, establishing thresholds dealing synchronically with tons
of differences in doing like if everything was uniform between the
thresholds. (…). (…) An image can be ordered for a viewer (in
possession of a model) and not for another (not having the model).
It is the reader that makes the reading. (Groupe m, 1992, p. 41)
(Our translation)
There too, our capacities to treat information impose choices in the data to be
treated.
The first particularity of the visual medium, which will not go without
effect on the communication by this channel, is its puissance: it allows
carrying 107 bits/second, 7 times more than the ear. This enormous
quantity must be considerably simplified and reduced before
reaching what we called the conscience, which admits only
between 8 and 25 bits / seconds. (Francke, 1977) (Groupe m,
1992, p. 61) (Our translation)
We must admit that there are many things outside that we cannot perceive, like
the ultrasounds, and other things that we perceive wrongly. The best example is
the movies. All the images in a movie are still. But because they pass at a pre-
determined speed in function of a physical phenomenon called the retinal
persistence, we perceive moving images. If only one image is inserted in the series,
our conscience has no perception of it, but it has some effect on us because our
eyes see it although the information is not processed in the same way as the rest of
the film. This is the phenomenon of the subliminal images suggesting things to our
subconscious. With all the new instruments and knowledge that are developed, it
is becoming more and more difficult to be a complete positivist for a serious
epistemologist.
If the positivism consists in believing that what we see is what is really there, the
constructivism is a little bit more complicated. In substance, it says that our
knowledge is a construction and then they are not that different. However, we have
to be careful with the concept of socio-constructivism. If we accept that our reality
is mainly a consensus, it cannot be separated into pieces. It will be impossible to
isolate a socially constructed object and others that are not. For instance:
They conclude that the language the CEO uses in the CEO letter is
often multi-coloured, seductive, appeasing, and socially constructed.
(Jonäll & Rimmel, 2010, p. 310).
This sentence has no meaning and a CEO letter is not more socially con-
structed than another text. That is the problem with people manipulating
comprehensive concepts such as small tools, an unfortunate practice widely
spread in accounting. The socially constructed world is all socially constructed
and this since its beginning if such thing exists. Therefore, there is no “objective
facts” as would say Mouck (2004) in a desperate attempt to reach some never
existing “solid” ground. Even Baudrillard seems to have fallen in this trap when
he said: “… signs are exchanged against each other rather than against the real”
(Carlon, Downs, & Wert-Gray, 2006, p. 478). Saying that, he is supposing a
previous objective existence for the reality: an “age d’or” of the “real” reality. We
have to add that he is using the categories of Saussure in his categorization of the
sign and the reality represented. But, if Saussure was able to develop his theory of
the sign without having to precise the statute of this reality, Baudrillard cannot as
he is proposing that the detachment of the sign is a characteristic of our historical
period. Therefore, for him, there must have been a period where the sign was
related to the referent.
In brief, we live in a social world, mainly made of words and existing through a
series of consensus.
A social world is an ephemeral attribute of a flow of symbolic

interaction among active people competent in the conventions of
certain cultural milieu. The major mode of symbolic interaction
for modern people is discursive. (Harré, 2002, p. 23)
In our view (and we are starting to doubt it), the world “outside” is and is not
tangible, sometimes perceived as it is and often reconstructed for we can only
perceive it through our deficient senses. Our perceptions are physically limited,
culturally constructed, and influenced by a series of psychological factors. With
these deficiencies we try to apply our perceptions to make decisions, in the best of
situations.
4.4 Decision-Making
Accounting is reputed to be done as a basis for decision-making.
The primary objective of accounting is to provide information that

helps decision-makers make better decisions. (Bouwman, 1985, p. 61)
Old accounting theory books discuss the question of decision-making. More-

over, they may admit that accounting would be determined by the ways through
which information is treated to reach these decisions.
A key element in understanding accounting is to understand the

process whereby data is converted into information by the user.
(Most, 1982, p. 63)
That is a far more general question than what is done with accounting reports.
Trying to determine, by the movements on the market, if a piece of information,
artificially isolated, has an effect on the choices of investors lying on assumptions
that cannot be sustained seriously, like the EMH,1 cannot lead to useful results.
The question remains open to determine on which information creditors and
investors ground their choices when assessing firms for they are the two categories
described by the FASB as primary user groups (Most, 1982, p. 195). That is where
the paved road ends and the speculations start.
On the one hand, we have a dividend model, illustrated by Gordon, saying that
the value for stockholders is based on the expected future dividends that may be a
function of future earnings. It cannot be a scientific theory, as nobody knows
future dividends, it remains purely speculative. If so, accounting finds its utility in
deriving earnings (Most, 1982). But the future remains of the domain of crystal
globe readers more than accountants that are fixed on the past except if we believe
that the future is an exact projection of the past, in its inferential meaning. For
instance, the relationship between earnings and dividends can be discussed
harshly as many firms, believing in the model, are ready to do a lot to keep their
dividend level even during years of losses. On the other hand, we have the
Modigliani–Miller model saying that the dividend policy is irrelevant (Most,
1982). The value of the firm becomes the actual value of future net cash flows,
which constitutes a return to the crystal globe. Sauvy, a lucid economist, would
say, from memory, prediction is difficult, mostly when it is about the future. When
we look at Foster (1986), we see that the predictive ability of analysts (who are the
most performing and sophisticated users) declines very sharply and rapidly
through time.
Despite what we have just said, all the models we have in accounting and
finance about the future behavior of firms on the market are based on stability
(the best estimate of future earnings is actual earnings, i.e., a random walk
(Malkiel, 1985), therefore any change in the accruals can be considered as a
manipulation or a slow and steady progression (the best estimate of future
earnings is based on the actual earnings plus a steady rate of growth). DeAngelo
(1986) measures discretionary accruals as total accruals. While the first constitutes
an acceptation of the impossibility of predicting the future while doing it still, the
second one presents a future that would be conformed to a maximal reduction of
the risk that can also be called uncertainty. Jones (1991) accepts an evolution of
1
Efficient Market Hypothesis.
normal accruals following the evolution of assets. Both systems of inferences do

not reflect what we know about the world outside.
Finally, by quoting what he calls a series of approaches to making accounting
theories, Most gives credit to all these “approaches” as prone to produce some
kind of theory. Therefore, it is a salad from which no real conclusions emerge.
But, when seeing that the next chapter is entitled: “The search for generally
accepted accounting principles” (Most, 1982, p. 83) one understands that no step
forward had been done.
Some accounting theory handbooks present a decision approach. In this spirit,
Scott (2003) based his books on two elements: the adverse selection and the moral
hazard. Despite all the reservations we may have toward the agency theory and
the concept of moral hazard, we may admit that the central question is providing
information for the principal to make decisions. Scott reframes all the old vision
of accounting theory by almost eliminating all this discourse about norms and
standards and treating it at the end, through a discussion about the “theories of
regulation” that are not presented clearly as they have a tendency to become
“regulation as a theory.”
Scott also affirms the central question of decision usefulness. However, he says
that accounting “is information” (p. 6), which is debatable in a book posing a
distinction between information and data. If accounting is really a jargon, it is a
way to carry information, similarly as English or French, but it is not the
information itself. But even Scott cannot escape from the rule:
It turns out that the most useful measure of net income to inform
investors, that is, to control adverse selection, need not be the same
as the best measure to motivate manager performance, that is, to
control moral hazard. (Scott, 2003, p. 8)
We already know that the profit had no tangible existence, but it is the first
time we see an admission that it can depend on the goal you have, outside of the
texts on earnings management. In a way, we are back to the starting point. But
theory wants to understand and then predict from this understanding. However,
this presentation is in direct line with the conception of the society wanting that
the economy is supposed to generate the most efficient use of resources, which will
be reached in eliminating adverse selection, and to protect the property rights,
which is the goal of eliminating what they called the “moral hazard.”2 But, doing
that, accounting will not qualify to be called neutral or objective.
If accounting is carrying information, it has to deliver it with the smallest
possible bias, which is the problem of all historical costs. Surprisingly, many
supporters of the efficient market hypothesis, so believing that the information is
2
In fact, talking about moral hazard to describe the managers pursuing their own interest is
saying that the property rights give the owner the moral right to do anything he wants to
increase the market value of his property and that those owning no properties have to work
for this owner forgetting their own interests, reaching this conclusion based on the idea that
following one’s own interest is an intrinsic part of human nature [sic].
spread far before the accounting reports are published, support the historical cost
to impede shareholders asking for more dividends on money that is not yet
cashed. But, they are supposed to already know all these numbers that historical
cost accounting tries to hide.
Accountants have adopted a decision usefulness approach to financial

reporting as a reaction to the impossibility of preparing theoretically
correct financial statements. However, the decision usefulness
approach leads to the problem of identifying the users of financial
statements and selecting the information they need to make good
decisions. Accountants have decided that investors are a major
constituency of users and have turned to various theories in economic
and finance – in particular to theories of decision and investment – to
understand statement information investors need. (Scott, 2003, p. 53)
We see that Scott, finally, is not that far from his predecessors. What is he
meaning by “theoretically correct”? If the decision usefulness is a consolation
price, what is his book about? A science of accounting, a theory, will try to
understand what the structure of the controlling group is having made the focus to
fall on decision-making. However, if we look more closely, this tendency is not
that new. Then, he is brought to discuss rationality, which is already included in
his adverse selection argument. This is coming directly from the definition of
rationality borrowed from the classical economic theory passing through the
finance “theory” that is always in the background of this kind of argument.
However, scientifically speaking, it is very difficult to find any foundation for the
concept of rationality as used in economics and finance.
Finally, he finishes with the portfolio theory. This “theory” is also a negation
of the classical liberal economic theory. It is quite a huge market failure. The
theory had difficulties to explain the existence of the firm, when the compensation
of the entrepreneur was the marginal wealth created by his organization of the
work. But when, in surplus, people are compensated without having any action in
the firm, the model is totally distorted as, at the basis, bringing money is equiv-
alent to bringing labor force. With the portfolio theory, all the rights are given to
the one bringing the money. Scott, as many others, is developing contradictory
arguments without mentioning their incompatibility. We believe that this
confusion is easily developed in the absence of a definition of accounting. Because
we cannot be happy with the old “accounting is an art and a science.”
4.5 Summary
All this discussion shows the terminological and conceptual confusions reigning in
the institutional space occupied by the accounting theory. The conclusion of this
chapter then will be institutional. Accounting exists mainly in the business world,
which has specific practices and exigencies. This subworld also has its rituals. So,
accountants have to present a certain image of competency and knowledge to be
included in this social sphere. These “professionals” have won some points in this
quest. In some countries the accounting profession is recognized among the liberal
professions (medicine, law). This is quite surprising considering that the recog-
nized “accounting profession” is not really such by preparing the accounting
report but by auditing these reports (therefore it must be termed the auditing
profession).
In the academic institution, accounting is a newcomer. Closely monitored by
the professional bodies, the accounting departments have been filled by practi-
tioners. These departments have not yet fully reached academic standards in
terms of the qualification of the professors and, consequently, the research
fundings and publications. Then, professors of accounting have, as a group, a low
statute in these organizations.
Questions
1. What is the relationship between accounting theory and accounting practice?
2. What is a normative theory? Can it exist?
3. What is a paradigm?
4. What is the difference between prediction and prescription and what are their
statutes in a theoretical context?
5. Is the maximization of profit a basic element of the liberal economic theory?
6. Science is mainly a discourse. Comment.
7. Which differences do you make between a positive and a normative theory?
8. What do we know about the effects of accounting numbers on investors’
decision-making process?
9. What are the goals of the sciences?
10. Contrast the naı̈ve positivism and the socio-constructivism.
11. Is the maximization of profit a goal of the entrepreneur in the liberal eco-
nomic theory?
a. What is supposed to be the compensation of the entrepreneur in this
theory?
b. Can we measure the profit?
12. A paradigm is a model and a theory is also a model. Explain.
Themes to Be Developed Further

1. A society (state) must be governed differently than an enterprise. Comment.
2. What would be the consequences of your positioning as a positivist or a
constructivist on your researches in the accounting field?
3. Practitioners refuse to take stock of the results produced by the accounting
research. Comment.
Chapter 5
For a Definition of Accounting
Any object we may know does not deserve a particular theory. There is no theory
for a table, or there are so many theories amalgamated together to arrive at this
applied result that there is no one appearing as THE theory of this object. Most
objects are the application of theories elaborated long before they appear or even
after. For instance, an electronic device cannot be constructed without the exis-
tence of many theories behind while a table can be done without most of it. What
kind of an object is accounting? At first we may say intuitively that it is not a
physical object although some of its manifestations are tangible. Accounting is
intangible but the books containing the numbers of a particular entity are
tangible.
The first move will be to look at what the literature proposes as definitions for
accounting.
5.1 The Definitions From the Literature

Belkaoui (1992) starts by quoting the AICPA (American Institute of Certified
Public Accountants):
Accounting is the art of recording, classifying and summarising in a

significant manner and in term of money, transactions and events
which are in part at least, of a financial character, and interpreting
the results thereof. (AICPA, 1953, quoted by Belkaoui, 1992, p. 22)
The first tasks of accounting are recording, classifying, and summarizing. This
means to keep the register of an entity and produce accounting reports covering
specific periods. We can probably all agree that it is the basis of the accounting
activity. But, a bookkeeper can do that, except maybe for the summarizing. But,
is it an art? If the manner we do anything defines an art, then it is an art, but
everything is, and it says nothing particular to differentiate accounting except
classifying it among the activities rather than physical objects. Any activity
necessitating creativity is an art. So, writing the consequences of a series of
research findings is also an art.
Then it says that the accounting discourse implies basically some calculation
and consequently must be constructed around numbers representing monetary

doi:10.1108/978-1-78769-793-520181005
quantities. Up to this point the definition is very descriptive and widely accept-
able. But the question of the interpretation is more complicated and debatable.
Firstly, is this interpretation coming before the summarized numbers or after? For
instance, when we valorize the tangible assets at their historical costs, we interpret
the numbers before producing them, meaning that the user, who is the decision-
maker, will never have the alternative number in front of him to make his deci-
sion. This is most disturbing when we realize that financial accounting is primarily
done for people outside the firm having no other access to information. Then
accounting is usurping the power to decide instead of informing the decision.
In the 1960s, the AICPA proposed a revised definition:
The process of identifying, measuring and communicating economic

information to permit informed judgments and decisions by users of
the information. (AICPA, 1966, quoted by Belkaoui, 1992, p. 22)
Firstly we see that the accent on the bookkeeping aspect of the “profession” is
replaced by more “professional” responsibilities. Firstly, the accountant must
identify, implying that it is not immediately given. Secondly he must measure,
implying a series of choices. Finally, he must communicate the information to the
users. So, we have passed from a world where accounting was mostly clearly
defined and was a straightforward transcription of the “reality” to arrive in a world
where things are not always so easy to access and that some expert translators are
needed to format the “reality” into usable information. The sociology of the
profession would say that such a change provides a huge power to the accountant
by placing his activity under the veil of the specialization and that the new aspects
of choosing and interpreting place him among the professionals. Added to the use
of numbers, it becomes useless to try to understand it for a profane. That is the
basis of a profession (Breton, 2016; Breton & Caron, 2008). At this point,
accounting is sufficiently complex to enter into universities and develop exams to
prove that it is a difficult profession to enter and that the professional bodies place
great importance in the qualification of the new accepted professionals.
Then Belkaoui reproduces the old question of whether accounting is an art or a
science. He settles the matter rapidly by quoting Mautz, stating that accounting is
a science.
Accounting deal with enterprises, which are certainly social groups;

it is concerned with transactions and other economic events which
have social consequences and influence social relationships; it
produces knowledge that is useful and meaningful to human beings
engaged in activities having social implications; it is primarily
mental in nature. On the basis of the guidelines available,
accounting is a social science. (Mautz, 1963, quoted by Belkaoui,
1992, p. 23)
It is interesting to see the social aspect of accounting described that way in

1963. However, the problem with this definition is that accounting produces no
For a Definition of Accounting 67
knowledge following the definition any science has of it. The information pro-
duced by accounting numbers may be useful (although widely contested) for
decision-making but it has not the scientific qualities described by epistemologists.
Therefore, accounting is not a science. But it is a social activity that can be the
OBJECT of one or many sciences.
Most accounting theory books do not define accounting at all. Kam does it in
the same way as Belkaoui, by quoting the AICPA. He also adds the definition
brought by the APB (Accounting Principle Board), which adds some dimensions
to those we already reproduced here:
Accounting is a service activity. Its function is to provide quantitative

information, primarily financial in nature, about economic entities
that is intended to be useful in making economic decisions… (APB,
1970, quoted by Kam, 1990, p. 34)
First, the APB does not enter in the discussion about the art and the science.
Accounting is defined by its purpose, which is to provide information for decisions.
Since this statement (Statement no.4), most writers agree with this definition. The
following question would be which information is to be provided? In this line of
reasoning Kam adds that “the boundaries are fuzzy” and moreover “the inex-
actness of our definition of accounting, however, is an indication of the primitive
state of accounting theoretical development today.” Many authors, notably Scott
(2003), instead of providing a definition, will start with some historical consider-
ations on the development of accounting. At this point, it seems evident that
accounting is a form of language. However, there are many forms of language and
we have to precise the limits of the definition when applied to accounting. From
here, the following statement stands as our definition of accounting. It is a lan-
guage. The interpretative aspect that is now very fashionable is dependent on the
institutional dimension of the profession, not on the activity per se.
Accounting produces summaries of events (purchases, sells, etc.) happening in

an organization (enterprise, not-for-profit organization, governments) in a
coded form allowing the people who know the code to be informed and use
this information.
5.2 Accounting as a Language

Barthes (1964) makes a distinction between langue and langage. The language
includes both aspects of langue and parole as used in linguistics since Saussure.
The langue is the institutional aspect, the code, which an individual cannot alone
create or modify. The parole, which we may translate by the discourse, is the way
individuals use the langue, thereafter the code. We can characterize an individual
by his peculiar usage of the code. This articulation between the code and the
discourse is at the basis of linguistics since Saussure. The code is unique and
remains abstract; it is actualized in a multitude of discourses. Each discourse is

part of an idiolect, which is the particular usage one individual does of the code.
The activity known as accounting is a language. At the time where it was seen
as a sin to work, for very rich persons, they hired stewards (managers) to take care
of their sources of revenues. Other mandates exist that will necessitate reports
made in another fashion with other instruments. Many mandates are composites
and will imply many categories of reports. The money entrusted to fiduciaries is
supposed to serve some specific purposes, and the report must mainly convey the
state of the activities and the objectives it was expected to fulfill.
However, these precisions remained contextual. Some other forms, as we will
see, might have been developed. The sociology or the history of accounting may
include the social influence having led to its elaboration. This will be a part of the
theory, but not related with the content of accounting, only to the existence of this
particular activity in a given society at a precise period.
The activity exists because there is a need to distance the relationship between
the owner and the manager (Breton, 2016). But, the content of the activity cannot
be derived from this information.
5.2.1 Carrying Knowledge

Accounting is not knowledge in the same way history, physics, or anthropology
are. It is carrying knowledge as history or physics are carried through French or
English or any other language. As a language, accounting can carry information
and knowledge about a lot of things, but it is not knowledge by itself. Any natural
language is used by different disciplines to carry knowledge, mostly since
knowledge is made of words and sentences; it is a form of the science, not its
content.
The role of accounting is to narrate “events” having happened, under a con-
ventional form allowing those participating to this convention, speaker of the
language, to be informed of these “events.” Accounting is relating, not explaining
or describing by itself. If accounting produces a description, it is resulting from a
specific use of the language like in a natural language. Accounting does not give
any knowledge of the world. It merely carries the knowledge like any other
language. Accounting tells “events” like purchases, sales, etc., but provides no
knowledge of the reasons, the circumstances, or the consequences of these events.
Therefore accounting, in its technical aspect, cannot be a science.
It would be possible, without this technic, to produce financial reports into a
narrative form. It would probably be less synthetic but more widely intelligible by
people speaking only natural languages. There have been experiences in adding
both aspects with the “cartoons graphics” (Moriarity, 1979). This technic allows
expressing, in one only visage, grossly drawn, the financial situation of the entity
considered. As esoteric as it may look, it seems to work (Smith & Taffler, 1984).
Therefore accounting may not be the only instrument prone to “account” for
transactions but the only one possible choice among others.
The model of Moriarity is based on the same principles than the model of
Altman to detect risky firms. They calculate a limited number of ratios that are
reputed to contain the essential information necessary for decision-making. The

form and the size of the visage are determined by this series of ratios: the mouth
by the ratios related with the profit, the eyes by the debt, the nose by the
liquidities, and the ears by the financial leverage (ICCA, 1992). Software have
been develop to draw the visages from the ratios.
Smith and Taffler (1984) proposed some sets of financial statements, ratios,
and faces to different categories of subjects to compare their effects on the deci-
sion. Their results suggest that faces allow taking decisions at least as good as the
next best method and this, in a quite shorter period of time. Thus, why would we
not finally take accounting information at “face value”? (Fig. 5.1)
Numbers presented in a set of financial statements appear to be one possible
choice (among others) to present this information.
Raos Sector 19x6 19x5 19x4 19x3 19x2 19x1

Sales/net worth 6,84 15,93 5,75 4,14 4,25 4,17 4,18
Sales/stocks 5,4 4,3 4,1 3,4 4,6 4,8 5,5
Sales/working capital 8,57 10,07 4,49 3,97 3,87 1,63 4,64
Short term assets/short term debt 1,80 1,23 1,60 1,55 1,75 1,57 1,71
Net profit/sales 1,86 (0,07) 0,01 2,29 2,55 3,14 3,44
Net profit/net worth 13,37 (1,06) 2,61 11,35 10,86 13,10 14,38
Net profit/working capital 17,26 (0,67) 2,04 10,89 9,90 15,19 15,98
Total debt/Net worth 145,2 876,0 288,2 233,2 187,9 167,4 143,1
Short term debt/net worth 98,8 678,4 214,1 190,2 146,7 152,0 126,2
Stocks/working capital 166,0 232,9 109,2 115,2 84,0 100,0 84,9
Short term debt/stocks 77,0 184,1 153,1 158,5 159,2 176,2 165,1
Long term debt/working capital 35,7 123,7 53,4 36,5 36,1 12,4 13,5
Fixed assets/net worth 26,1 92,2 31,3 27,5 23,8 20,3 19,0
CICA, 1992, p.228.
Fig. 5.1: Presenting Accounting Information Through Faces.

Source: CICA (1992, p. 228).
DOMAINS REPRESENTATION
Sign
Signiϐied Signiϐier
Concepts
Reality
Referent
Fig. 5.2: The Linguistic Sign.
Studying how to speak a foreign language is not a science, but the linguistics of
this language is a science. This linguistics will cover many aspects. Studying
accounting as a social activity is as scientific as studying any other social activity
and therefore is as scientific as any other human science.
Therefore we can think about doing the linguistics of the accounting language.
For instance, it is generally accepted that the categories – assets, liabilities, debit
or credit – were perfectly arbitrary and that there is no motivated relationship
between the sign and the object that is referred to. It is known, since Saussure
(1995), as one of the main characteristics of a language, called in French,
l’arbitraire du signe (Fig. 5.2).
If we separate arbitrarily the level of concepts from the level called “reality,”
where the referents are, the linguistic sign is entirely situated on the conceptual
side and the represented objects on the reality side. Obviously these “objectives”
referents3 may also be feelings or even ideas to be expressed through being rep-
resented by signs.
The sign itself is made of two faces, the signifier and the signified. The signifier
is the physical support, a series of sounds or letters or even movements being the
physical aspect of the sign. The signified is the mental image of what we want to
represent. It is not the object in its specificity, only a kind of generic mental
representation of it. This signified is relatively independent of the referent. To
support this statement, we may consider the independence of the words relatively
to the object. The words designating an object can be multiple and changed
through time. Currently, we see the signified changing referent by a series of
sliding of meaning.
5.2.2 Natural and Accounting Languages

Belkaoui (1989) presented accounting as a language. However, he fell immedi-
ately in the metaphor (It is like a language).
A referent is any part of the “world” that is represented by a sign

3
It is customary to call accounting a language or, more precisely, the

language of business, as it is an important means of communicating
information about a business concern. (Belkaoui, 1989, p. 262)
This sentence is metaphoric. Accounting can be described as a language. If it

can be described that way not metaphorically, maybe it is because there are many
kinds of languages and that the observer does not have to twist the facts to make
it fit the definition. Therefore, if accounting is, in full right, a language, it
expresses far more than some business concern.
This language is not really one in the sense of a natural language. We learn from
the sociology of professions that professionals have developed specific languages
called jargons, which are parasites of natural languages in the measure where they
use the signs taken from natural languages assigning them more restricted defini-
tions. Ignoring Saussure as well as Dubar and Tripier (1998) and interpreting
wrongly the works of Chomsky (1969, 1971), Belkaoui uses metaphorical references
to force the insertion of accounting into the category of language:
a) The symbols of lexical characteristics of a language are the

“meaningful” units or words identifiable in any language. These
symbols are linguistic objects used to identify particular con-
cepts. These symbolic representations do exist in accounting.
Numbers and words, debits and credits, may be viewed as
symbols generally accepted and unique to the accounting
discipline (McDonald, 1972).
b) The grammatical rules of a language refer to the syntactical
arrangements existing in any given language. Such rules also
exist in accounting. They constitute the general set of proced-
ures used for the creation and dissemination of accounting data.
They formalize the structure of accounting in the same way as
grammar formalizes the inherent structure of natural language
(Jain, 1973).
Given the existence of both symbols and rules as major components,

accounting may be defined a priori as a language and researched as
the basis of the theories and methods used in the study of language.
(Belkaoui, 1989, p. 282) (Our emphasis)
The problem is that debit and credit exists already in natural languages. In the
natural languages, these words have a larger meaning. Belkaoui found the quotes,
that have no particular linguistic authority in fact, and then, based on it, he decides
that the linguistics findings can be applied directly to the accounting discourse
which “may be viewed as” a language. Then, to discuss the basis, he did not refer to
Saussure but to the Sapir–Whorf hypothesis. From this incursion in anthropology,
he concludes that the sociolinguistics is relevant here. But the Sapir–Whorf
hypothesis is not about the sociolinguistics as developed by Labov (1976),
describing the use of language in relation with the social position and the social
ambitions of the speaker. Sapir–Whorf were discussing the formation of the lan-
guage and its embedding in the culture and the society from which it emerges as all
the thinking is framed and organized by the language (Schaff, 1969). Starting from
an acceptable definition, Belkaoui derives in trying to characterize the belonging to
different accounting associations by the hypothetical use of different levels of
language. There is nothing in the theory allowing such a statement.
Belkaoui (1980) will even pursue his own experiment in order to try the
methods presented by Haried a few years before. Haried used a method derived
from Osgood, Suci, and Tannenbaum (1957) to ask his subjects to evaluate the
degree of similarity of a series of accounting-related concepts: entity assumption,
going concern assumption, stable monetary unit assumption, etc. The answers to
that were expected to differ from subjects coming from three totally different
groups: accounting professors, accounting students, and chartered accountants.
This is not a research in sociolinguistics; this is no research at all.
Over the fact that the accounting language must not be confounded with a
natural language, nobody having accounting as a mother tongue (hopefully),
accounting is a second-degree language parasite of a natural one. Computer
languages are third-level languages. We can make a typology of the languages in
the following sections (Fig. 5.3).
The meaning is constituted by the denotations plus the connotations. The
denotation is the nexus of the meaning. It can be exemplified by the main defi-
nitions of a word found in a dictionary. The sign TABLE denotes a plane surface
elevated over the floor; it also means a list like in the multiplication tables or the
tables of the law. The connotations, for their part, are potentially infinite in
quantity. They represent the personal experience of the subject regarding an
object. When we remember what Proust made from a small cake (a madeleine) we
can understand that the connotations are potentially infinite.
These connotations are the richness of the language, if we like, but they also
bring imprecision. Therefore, a semi-technical language, which the sociology of
TYPES CHARACTERISTICS EXAMPLES
Languages Connotations Examples

• Natural • Numerous • English
• Semi-technical • Limited • French
• Technical • None • Accounting
• Psychology
• Cobol
• Modula
Fig. 5.3: Characteristics of the Types of Languages.

the professions often called a jargon (Dubar & Tripier, 1998), will try to eliminate
these connotations. The words used by the speakers of a semi-technical language
will take a common meaning, eliminating partially the connotations. In accounting
the word PROFIT will design many things, but it can’t design the fact of growing
for a person or take advantage of the credulity of someone, meaning that it can
take in natural languages.
In a technical language, no real denotation and moreover no connotation are
tolerated and no approximation can be accepted. When the computer was writing
C: ., if you did not write the right word, it was finished. No approximation was
able to replace the proper word. The signs having no real meaning are totally
empty of any affect, i.e., any connotation. Accounting is to be classified among
the semi-technical languages or the professional jargons. Parasite of a natural
language (or of many in fact), this language limits the quantity of connotations
without eliminating it completely. Consequently, it will remain a nontechnical
usage of this language that may be qualified of social as for the language of
psychology, while it is impossible to conceive a social usage of Modula or
COBOL or any such languages.
5.2.3 The Linguistic of the Accounting Language

If accounting is a language, it is potentially the object of a linguistic. Linguistics is
taking the language as an object and considering it under an ensemble point of
view. A science of accounting will be a linguistic made from different points of
view such as sociolinguistics, psycholinguistics, etc. (Table 5.1).
Among the linguistic studies, we can make a first distinction between internal
and external ones. By internal, we mean the study of the language as a system,
Table 5.1: Linguistics of Accounting.

Aspects Content
Technical The structures of the language will be studied, i.e., how the
elements appear and disappear. Briefly, the focus would be on
the standards as expression of the structures of the language at
a given time.
Psychology Accounting has an effect on behavior. The process of making
budgets is a good example. We will analyze, for instance, the
effect of accounting on behaviors (behavioral) and on the
decision-making process (cognitive).
Sociology Accounting is developed in particular social contexts. It is a
social stake that different groups try to appropriate.
Politics It is an extension of the preceding. We would analyze the way
political leaders use accounting, what we have termed the
ideological usage (Breton, 2016).
and by external we mean the application of the method of other human sciences
and even natural sciences to the language as an object.
The technical (internal) level will include the phonology, studying the pro-
duction of sounds; the morphology, studying the structuration of the words; the
syntax, studying the grammatical construction of the sentence; and the semantic,
studying the meaning of the words and sentences (Dortier, 2001). Then external
discipline intervenes through history, sociology, psychology, and even neurology
(Dortier, 2001). Accounting speaks of natural languages with more restrictions.
Adapted to the category of language (semi-technical), all the categories of internal
studies can apply maybe except phonology because it will not differ from those of
the natural languages parasite. The external discipline will also apply, except
maybe the neurolinguistics.
But what do we mean by linguistics?
F. de Saussure wants to make a science out of linguistics. For that,

he tries to give to it the attributes of a science, i.e., an object, a
method, and theoretical and analytical concepts. The object of the
linguistic, argues Saussure, is the language (code), defined in
opposition to the parole (speech). The language is “at the same
time a social product of the faculty of language and an ensemble of
necessary conventions”. It is then a social institution, a shared code,
a system of signs common to the ensemble of the members of a
community. The parole is the use of this system by the speaking
subjects, the individual realisation of the code. It is “an individual act
of will and intelligence.” (Krieg, 2001 p. 22) (Our translation)
As a semi-technical language accounting will not have any specific phonology

or even syntax. Based on a restriction of the connotations, for the concepts to be
clear among the professional, the distinction will be mainly at the semantic level.
If we take the word profit, we can compare the definitions in specialized and
general dictionaries. In a specialized dictionary we find:
Profit noun (a) money gained from a sale which is more than the
money spent; clear profit 5 profit after all expenses have been paid:
we made $6,000 clear profit on the deal; excess profit 5 profit which
is higher than what is thought to be normal; excess profits tax 5 tax
on excess profits; gross profit or gross trading profit 5 profit
calculated as sales income less the cost of the goods sold
(i.e., without deducting any other expenses); healthy profit 5
quite a large profit; manufacturing profit 5 difference between the
cost of buying a product from another supplier and the cost to the
company of manufacturing it itself; net profit or net trading profit 5
results where income from sales is larger than all expenditures; net
profit before tax 5 profit of a company after expenses have been
deducted but before tax has been calculated; operating profit 5
result where sales from normal business activity are higher than
the costs; paper profit 5 profit on an asset which has increased in

price but has not been sold; he is showing a paper profit of £25,000
on his investment; trading profit 5 result where the company’s
receipts are higher than its expenditure; profit margin 5
percentage difference between sales income and cost of sales;
pretax profit margin 5 the pretax profit shown as percentage
of turnover in a profit and loss account (…). (Collin & Joliffe,
1992, p. 169)
In an old Webster dictionary, the definition is far more general:
Prof-it (…) n. often attrib (ME. Fr. MF. Fr. L profectus advance,
profit, fr profectus, pp. of proficere) 1: a valuable return: gain 2: the
excess of returns over expenditure in a transaction or series of
transactions; specif: the excess of the selling price of goods over
their cost 3: net income usu. For a given period of time 4: the ratio of
profit for a given year to the amount of capital invested or to the
value of sales 5: the compensation accruing to entrepreneurs for the
assumption of risk in business enterprise as distinguished from wages
or rent – (…).
Profit vi 1: to be of service or advantage: avail 2: to derive benefit:
gain ; vt: to be of service to: benefit. (Webster, 1965, p. 680)
We have reproduced only half the entry for the word profit in the specialized
dictionary while we have the complete entry for the general dictionary. The first
definition is quite complete. One can go from the top of the income statement to
the bottom, passing by all the intermediary managing subtotals with the instruc-
tions to calculate it. The different terms for the same numbers are all explained,
i.e., gross profits and operating profit or operating margin, etc. It is interesting to
see that the basic meaning of profit can be assimilated to progress (Dauzat, 1938).
Therefore, the profit is the change in the wealth of some entity over a period. The
accounting jargon has kept the meaning.
In the general dictionary, the definition is far more synthetic. There is a
reference to the economic theory (compensation for risk) that is not in the
accounting dictionary, keeping itself within the boundaries of the different profit
calculations under the numbers or ratio forms. Then, the general dictionary
makes another entry for profit, meaning something that is advantageous. This
definition is again excessively general.
We see that the specialized dictionary is producing a definition that is far more
limited to one basic meaning with all the variations. The general dictionary tries
to generally cover all the possible areas where the word can be used. This is
exactly the inverse process. We can do the same thing with assets or any other
accounting lexical form and the results will be comparable. Therefore we can say
that we found the semantic particularities we were looking for. The accounting
language, as any professional jargon, reduces the number of connotations
associated with words and precises the remaining definition to increase the
consensus between members of the profession and consequently the cohesion in
the group. Incidentally, this last effect would be in accordance with the Sapir–
Whorf hypothesis.
There are some syntactic aspects to be considered. We have already said
that the annual report is a genre (Breton, 2009). Inside the annual report,
participating to create specific features making this form recognizable at first
sight, we have the financial statements. The elements in the financial statements
have a specific order. Firstly, we must say that with the proliferation of the
notes to the financial statements, most of the statements themselves are
constituted of narratives therefore responding to the syntactic rules of the
natural language.
However, a balance sheet contains the assets on the left and their owners on
the right. This is the result of an arbitrary choice responding to no fundamental
necessity. Things may have been presented in a different order without altering
the informational content. One of the specificities of accounting documents is
their strong internal coherence. An income statement is based on a calculation
system going from top to bottom. This system includes intermediary subtotals
that are supposed to be important in the decision process. Therefore, the numbers
are not presented in random order but have to follow rules that are syntactic, not
only by analogy.
Finally, as we have said, the accounting jargon has a specific semantic that is
more restrictive than the semantic of the natural language from which it is
borrowing its symbols. Thus accounting is a form of language having all the
necessary characteristics to be considered so regarding its category. It is an
organized discourse over the limits of the sentence retained by Saussure.
Accounting appears as a social object. This language reflects the distinction
between the code and discourse that was proposed by Saussure (1995). It makes a
fundamental distinction between the language as a code and the infinite numbers
of discourses that can be produced with a limited code. Saussure would say that
the linguistic limits its study to the sentence. After this, for him, there are only
other sentences responding to the same set of rules. However, following Barthes
(1966), we can say that there are other sets of rules for the discourse and that we
may build another linguistic of a higher level to account for the discursive
structural elements. This is also true for the accounting language. This new lin-
guistic will take the form of a semiotic.
In a natural language, the “rules” are not standards fixed by an academy, but
consensus of the users having been formed through time, and in constant evo-
lution, to reach the goal of any language: communication. So one can reject
totally the rules, but he will not be understood at all.
Communication is the goal of any language; other possible uses are totally
marginal. In linguistics, this communication dimension is often taken for granted.
But we may ask the question: how far can one speaker go from the rules and
continue to be considered to speak the language, i.e., understood? On a similar
line we can ask how much a person can differ from the society in which she is
living without being completely rejected.
Accounting is supposed to exist to communicate information about the

financial situation of organizations. Therefore, normally, the design of the
accounts would be a function of the needs of the decision-makers. This is true for
every professional jargon whose function is to facilitate the communication
between the members of the group while, to a degree, keeping outsiders away.
Natural languages can support far more receivers and destinations than only the
mere communication of the content of a message. These uses are described by
Jacobson (1963) following the fundamental scheme of Shannon and Weaver
(1949) augmented (Fig. 5.4):
• Emotive: (Source oriented) When the source expresses its feelings toward an
object (for example, a comment on a movie).
• Conative: (Receivers oriented) When the communication is devoted to teach
something to the receiver or to have a direct effect on him (for example, an
order).
• Referential: (Context oriented) When the communication is totally devoted to
the transmission of information (for example, a scientific paper).
• Poetic: (Message oriented) When the form is more important than the content
(for example, some form of poetry).
• Phatic: (Contact oriented) It is the part of the communication destined to
maintain the contact (for example, the “hum” in the telephone, to indicate that
you are still there).
• Metalinguistic: (Code oriented) When providing precisions about the commu-
nication (for example, explaining the meaning of a technical term).
In natural languages the communication process can support a series of goals.

In a semi-technical context, the jargon cannot be as diversified. In principle, the
goal is to deliver a message, intended by the source to the receiver to help him
making decisions (in such a case doing nothing is a decision, in the recommen-
dations proposed by sell-side analysts, hold has, by far, the highest frequency).
Therefore, when the communication is specifically oriented, its characteristics
must come from its goal, i.e., support the decision-making.
However, we have to admit that no description of the process of decision-
making had ever been proposed as a basis for making standards in accounting.
Code
Source Message Receiver
Contact
Context
Fig. 5.4: Communication Scheme.

Even the famous conceptual framework, although starting not far from it, does
not consider the decision-making process seriously. For instance, the first user
recognized by the framework is the investor. This investor is said to need infor-
mation about the future and not the past. Therefore, going down in the model, the
quality that will have precedence over the precision will be the relevance. How-
ever, the country having generated this “framework,” the US, has never departed
from historical cost, showing that this framework had never been used to make
standards in practice. Thus, it will be possible to conclude that financial
accounting is not really used for decision-making but continues to exist and to
absorb resources for other unspecified reasons.
When talking of financial accounting, we are implying a decision to be taken
on an investment “market.” The presence or absence of the conditions for a
market to exist is never discussed. These markets are posed as facts and become
practical excuses to explain social decisions as following the “laws” of the market.
These days, the profit is the most socially known and used accounting concept
(Breton, 2016; Breton & Caron, 2008). Everyone refers to profit to judge activities
that have nothing to do with making profit. Few people understand how the profit
is calculated and fewer understand its role in the general economy. In fact,
accounting is placing the focal point on specific elements rending the ones left in
the shadow looking unimportant.
What is accounted for can shape organizational participants’ views of

what is important, with the categories of dominant economic
discourse and organizational functioning that are implicit within
the accounting framework helping to create a particular conception
of organizational reality. (Burchell, Chubb, Hopwood, Hughes, &
Nahapiet, 1980, p. 5)
Profit is now at the basis of the conception of the organization in general, being
applied far over the boundaries of the private enterprise.
Other accounting concepts, although taking a lesser social importance, at
least statistically, continue to function without any real knowledge of what they
are. There are two aspects to this question: the first is related with the profes-
sionalization of the accounting activity, and the second is the key role played by
accounting concepts in our societies. In consequence we will determine the part
of the markets and of the professionalization in the definition of what is
accounting.
5.3 The Mirage of the Market

To discuss the notion of profit, we have to refer to the context, i.e., the market. So,
before discussing the notion of profit, let’s discuss the notion of market.
If competitive equilibrium is defined as a situation in which prices are

such that all arbitrage profits are eliminated, is it possible that a
competitive economy always be in equilibrium? Clearly not, for then
those who arbitrage make no (private) return from their (privately)

costly activity. Hence the assumptions that all markets, including that
for information, are always in equilibrium and always perfectly
arbitraged are inconsistent when arbitrage is costly. (Grossman &
Stiglitz, 1980, p. 393)
and more:
Thus, we could argue as soon as the assumptions of the conventional

perfect capital markets model are modified to allow even a slight
amount of information imperfection and a slight cost of information,
the traditional theory becomes untenable. (Grossman & Stiglitz,
1980, p. 404)
When we are talking about a market, we refer automatically to Adam Smith

and the invisible hand. This approach proceeds from a magic vision of a market.
There are conditions for a market to be a market and for an exchange to be done
at “market” value. But all that is forgotten, and the word market is used all over
the place without any knowledge of its implication. Moreover, nonmarket
transactions are justified by referring to the “laws” of the market. The expression
itself fits in the configuration described earlier as it refers to unavoidable scientific
laws being the results of recurring observations of natural phenomenon. But there
is no such thing in human sciences as natural laws. Others believe that such
markets, if it had ever existed, would have been a danger for the society:
Our thesis is that the idea of a self-adjusting market was pure utopia.
Such an institution cannot exist on a long-term basis without
annihilating the human and natural substance of the society,
without destroying the Human being and transforming its
environment into a desert. (Polanyi, 1983, p. 22) (Our translation)
Then people will consider the price paid for a day of working to somebody
starving, as conformed to the “laws” of the market and therefore legitimate. We have
even heard, in our countries, that it was difficult to stop companies like Nike
employing children because the revenue of these children was often sustaining the
whole family. But if the child sustains the whole family, it is because nobody else
works, so why not hire this somebody else in the family instead of the child? Probably
because they will have to pay an adult more than a child. They call that market. This is
not conformed to the theory. If one party at the transaction has no choice, it cannot be
qualified as contract made in a competitive market. And if “markets” are not
competitive, they don’t exist anymore in their classical economic definition.
And they (economists) have taken plenty of time to recognize that it

was easy for the firms having reached a certain size to impede the
markets to be really competitive. (Akerlof & Schiller, 2016, p. 29)
(Our translation)
In the liberal market, neither individual buyers nor sellers have control over the
prices. This kind of market is called purely competitive (Due, 1956). That is the
desired kind of market as it is the form proposed and protected by our govern-
ments. Western societies generally have laws to protect the economy against
monopoly and cartels, providing control over prices. The governments also have
agencies to discuss the demands of companies for mergers and acquisitions in
sectors where the competition is not assured. The government will also fix prices
in sectors where the competition will cost more than its absence or take the
activity in charge. However, we assist at a concentration in many sectors of the
economy. The number of large companies decreases in almost every industry
while the existing ones increase their size. Therefore, many authors such as
Akerlof and Schiller or journalists like Palast (2006) have found fundamental
flaws in the supposed market system. These flaws are not only small and passing
incoherencies, they are long-lasting and much expanded deficiencies.
This absence of control over price implies:
It is essential that the various sellers and buyers act independently of

one another if the market is to be purely competitive. If firms agree
upon policies, the effect on competition is the same as that of
numbers of sellers or buyers. (Due, 1956, p. 51)
And, to complete the picture, the profit is also an indication that the firms can
have power over the prices. Therefore, Watts and Zimmerman (1986) propose the
size hypothesis:
Ceteris paribus, the larger the firm, the more likely the manager is to
choose accounting procedures that defer reported earnings from
current to future periods. (Watts & Zimmerman, 1986, p. 235)
However now, the world of firms has succeeded in spreading the belief that the
more profit there is in the society, the better the economy is going (Breton &
Caron, 2008). But, seen like that, this is no more a market economy despite the
number of repetitions we can have every day.
5.4 Profit Against Market

Firstly, the profit is a market failure. Those days, the social representation of the
profit is that it constitutes the remuneration of the entrepreneur justified by the
risk he is taking.
Mythically, in a perfect market as described by Adam Smith, one

cannot make profit as the competition forces the sellers to sell always
at lower prices. (Wallenstein, 2000, in Breton & Caron, 2008, p. 76)
In a real market as we have just described above, there is no profit because the
competition is perfect. So, contrary to what our politicians are saying lately, profit
is not an indication of the well-being of the economy but an indication of the

absence of market, which can be disturbing in a supposed market economy
(Frederick, 1995).
The social representations are totally inversed from what Frederick and
Wallenstein are saying. This reversal of meaning tends to favour the absence of
real market and consequently the making of profits. Watts and Zimmerman
(1986) based their third hypothesis on the fact that the profit is a signal for an
absence of competition, and this becomes a signal for the government to intervene
in the sector on the basis of the absence of market and the possibility that prices
can be controlled. Then, they supposed that the firm would try to delay the
recognition of some profit, not to awake the authorities. However, what we see in
“reality” is that firms (together) instead of hiding profits change their social
representation. All of that system had been destroyed (Polanyi, 1983) if it ever
existed as described.
These idealistic interpretations of the texts of Smith, Rousseau, and many
others create an historical vision that can be quite biased.
We cannot today follow in this direction. The habit of seeing, in the

last ten thousand years as in the organization of the first societies a
simple prelude of the real history of our civilization, which would
start in 1776, with the issuing of The Wealth of Nations, is obsolete,
not to say more. (Polanyi, 1983, p. 73) (Our translation)
However, this biased vision is very useful to create the impression that we live
in a market economy and that we can’t do anything to change it because the
“laws” of the market as those in the natural sciences are given and immutable.
Pretending to be in accordance with these “laws,” the firm system can affirm
notions that are totally contrary to the basic principles of their very existence.
The emergence of a relatively small number of large financial

institutions… does not necessarily imply that they are able to
maintain uncompetitive prices and thus realize higher profits. One
explanation is the “efficient structure hypothesis.” This theory
argues that high levels of concentration arise naturally over time,
because the firm with the most efficient structure will dominate the
market… Thus, in the case of financial services consumers would
benefit from an industry dominated by a few large institutions,
because they would actually provide the lowest cost product and
services. (Canadian Bankers Association, 1997, in Breton & Côté,
2006, p. 229)
This statement is clearly against all the theoretical systems on which our eco-
nomic life is believed to be built. Moreover, the Canadian banks have maintained
themselves at the top of the profitable enterprises for decades now showing the
faultlessness of this assertion. There are constantly five banks among the six most
profitable enterprises in Canada, the sixth being an oil and gas company.
Focussing on the profit as socially highly desirable, instead of an indication of

the failure of the system, produces a distortion of this system although it is
rending the third hypothesis of Watts and Zimmerman completely obsolete
without having to manipulate profits to keep it low. For instance, we will sell a
state-owned enterprise (SOE) because it is not making profit. But, immediately
after it is sold, the tariffs would increase sharply creating a profit. There is no
reason why citizens will sell for a cheap price a public asset that is profitable for
them through the tariffs, to a private firm making profit by doubling those tariffs
while diminishing drastically the maintenance of the infrastructures, and firing
employees who will fall on the public assistance so increasing again the expenses
of the citizens. As impossible as it may seem, that is exactly what happened with
the water system in the UK. Moreover, the quality of the water has decreased and
lawsuits for poisoning had been filled against many of the firms so created. But,
now they make profits.
The profit is purely a technical result totally dependent on the way we calculate
the rest of the numbers. However, it has acquired a statute by itself as the result of
a phenomenon called “psychological set” and the accounting world functionally,
the profit has no tangible reality.
In the same way, the accounting institution has transformed the social
understanding of the concept of capital. Moreover, new definitions had
emerged needing to be accounted for although the accounting system is very
slow in incorporating new concepts. This reluctance to go at the pace of reality
had been observed in the case of the Californian new economy practices as
opposed to the traditional Eastern manufacturing ones. In fact, the schizo-
phrenic relationship between the reality of the business and the account pro-
vided by the accounting profession implies that accounting remains unchanged
while the practices are evolving in the shadow. At this point, we have just
rapidly been able to catch a glimpse of the real business world under the
accounting façade.
The notion of profit, which would, socially speaking, find its roots in a
maximization of the social welfare, is contaminated by the property rights:
When these consensual goals of “utility-maximization” are examined,

they invariably are the goals of the providers of capital. Although
accountants and auditors sometimes suggest that they act in the
‘public interest’, it is generally accepted that both managerial and
external financial reports are intended to protect the rights of
investors and creditors (The Corporate Report, 1075; AICPA,
1973). In addition, internal control and contracting procedures have
as their expressed aim the prevention of managerial and workers
“excesses” and the safeguarding of the rights of “residual
claimants” (Fama and Jensen, 1982). Influenced by traditional
micro-economics, mainstream accounting thought is based on the
notion of the prior claims of the “owners” and further implies that
the satisfaction of these claims provides the means to satisfy all other
claims. (Chua, 1986, p. 611)
This is exactly the structure of our financial statements and also of what
proposes the “conceptual framework” of the IFRS pretending that the needs of
the investors are the most important, and if these information needs would be
satisfied, everybody else would have enough information for its limited interests.
5.5 Capital and Capitals

Obviously, in accounting it is traditional to consider the capital as an accumu-
lation of money. Smith (1991) applies the term capital to the part of what an
individual possesses that is not destined to be consumed in the day-to-day life, but
destined to produce revenues. For Smith, the capital, money invested, is trans-
formed into assets. The fixed capital is transformed into fixed assets like machines
and shops, while the circulating capital is transformed into stocks destined to be
sold as fast as possible.
5.5.1 The Intangibles

At the time of Smith, there was a symbiosis between the entrepreneur and his
enterprise. Now, some distinctions had been introduced between both as the firm
is reputed to be independent of the “entrepreneur.” The accounts normally reflect
the property of the assets on the right side of the balance sheet. This property is
classified following the risk assumed by the provider of the funds. Therefore we
have the short-term debts that are normally fully guaranteed, then the long-term
debt in order of the guarantees, and then the section called capital presenting the
investment of the shareholders opening a right to receive a part in the distribution
of the residual when all the debtholders have been satisfied. This old classification
had been greatly shaken by some new financial products created at the frontier
between what were two clearly distinguished categories: the unguaranteed debt
and the privileged shares. Many other more complicated and difficult-to-
understand financial products underline the resistance of the accounting model
to follow the business practices. In substance, claims expressed on the liability side
of the balance sheet are property rights.
Why distinguish debt from capital, mostly considering that shareholders, for a
large majority, are no longer involved in the functioning of the firm? They are
buyers of a specific category of financing products.
In our understanding of the accounts, there is a correspondence between the

recognition of an asset and the recognition of its financing. This financing implies,
for every category, a remuneration that is fixed. However, some observers have
started to pretend that these financial statements were not representative and that
the firm was using other assets not included in the balance sheet. This discussion
had been termed the “relevance lost”; as the quantity of these “forgotten assets” is
reputed to diminish the relevance of the financial statements.
These forgotten assets are mostly intangibles (Lev, 2001). For Lev, there are
three main areas where intangibles can be developed: discovery, organizational
practices, and the human resources. Lev uses the terms intangibles, knowledge
assets, and intellectual capital interchangeably (Lev, 2001, p. 5). In the world of
accounting, as we just described it, calling asset and capital the same thing can be
a problem and, moreover, it is bringing us back to the time of Smith. Amir, Lev,
and Sougiannis (2003) made a test to see if the information about intangibles
reached the investors by other ways, as would advocate the tenants of the EMH.
They found the trace of some new information but not a systematic replacement.
Consequently, we have a problem of communication inside and outside
accounting reports.
During this discussion based on the concept of intangible assets, abusively
called capital, others were discussing different versions of the capital.
5.5.2 The Social Capital

Leana and Van Buren (1999) defined the social capital as follows:
Social capital is broadly defined as an asset that inheres in social

relations and networks. (Leana & Van Buren, 1999, p. 538)
This definition will have to be completed if it has to become the basis of the
entry of a new asset in the financial statement. We propose two ways of doing it.
Firstly, we look at a general description of the phenomenon with no relationship
with accounting. Secondly, we consider the question of the networks.
5.5.2.1 Bourdieu and the social capital

Bourdieu (1979) has very little to do with accounting. He is referring to a simple
definition of capital which can be synthesized by what is producing benefits. These
benefits can be grouped into a label that will be the recognition. Recognition can
happen because the subject is “distinguished” as being different from the mass.
This distinction can operate because the subject knows how to act in the groups
having the power in the society, mostly because it is his “habitus.” This knowl-
edge and the networks going alongside are called the social capital.
This social capital is more difficult to obtain than by reading the one hundred
books one have to have read if you believe the Selection of the Reader’s Digest.
These recipes to look like a member of some select groups are not efficient. Birth
is the main factor for a person knowing those things for immemorial times, and it
is impossible to trace the source of this knowledge. It comes with the person as
second nature. Molière said “Les gens de qualité savent tout, sans avoir jamais
rien appris.” People of quality (aristocrats) know everything, without having learnt
anything.
In turn, the social capital can be subdivided into more discrete forms. These
forms will include that cultural capital, describing a way of being, a way of feeling
welcomed, and at your place in situations where other people will hesitate to go:
at the concert or at the opera or on a select golf course, for instance. We have to
say that this is in constant evolution, and if these cenacles are now more open to
the commons, other cenacles have developed or some more exclusive versions of
the already existing ones. There is also a symbolic capital. Language is made of
symbols. While the use of the system is spread over all the population, its
mastering is becoming less and less common. Therefore, the capacity to master
the language, many languages, and other symbolic codes is an asset. Bourdieu will
add other forms of capital. Finally, he is saying that every “sphere” of life is made
not only of the substance of the content but of an institutional system that is
specifying the place of everyone and what you have to do and to know to occupy
one situation or another.
Basically, all these competencies can really be considered as capital in the
measure where they are producing revenue. This revenue is brought by better
jobs, more clients for your professional practice, more connections, etc.
The fact of having lived all your life in a certain social group can really be an
asset. Bourdieu and Passeron (1970) discuss the reproduction of the social
structure through the education system. They bring evidence that the upper class
is reproducing its structure by through the scholar system. Very few are able to
escape to the determination of their scholar cursus by their original social group.
This reproduction is made naturally as the scholar system is not neutral but
reproduces the culture of the dominant group in the society. Children coming
from this group feel naturally at home in this cultural environment, while those
coming from other groups have to make a cultural adjustment that can be diffi-
cult, sometimes impossible. If you have been raised among books, you won’t be
disturbed by a system teaching with books. But if you have been raised learning
manual competencies and apprehending the world through physical contacts, you
may firstly have a huge reconversion to make, and secondly you may feel that
your approach of the world is devaluated. Then, you start school with a huge
retard, which will continue and most of the times increase as you will go further in
the process.
The inheritors receive from them a “cultural capital”, ensemble of

knowledge and information that has become quasi natural for them
and that are handicapping in their studies those who don’t have these
because they were born in disadvantaged groups. (Cibois, 1992,
The consequence is that those having the power conserve it and those having
the money (mainly the same) keep it. In terms of transcript into an institutional
form, those having the right to use collective resources to fulfill the mandate
received through the social contract seem to be able to transmit it, not by a divine
filiation, but through the scholar system that is reputed to distinguish on the basis
of the quality and to recognize the best at the end of the process.
In our societies, economic capital, cultural capital and symbolic capital

can be grouped under the same concept of capital in the measure where,
in the one hand, they are created through investments and from
profitability, and moreover, on the other hand, in some cases they can
be exchanged and compensated. A large intellectual capital is
transformable into money financially in the sense that a diploma can
allow reaching the high revenues and conversely a large economic
capital can be a source of prestige. (Cibois, 1992, pp. 788–789)
(Our translation)
In our society, the system sustains all forms of capital. By fiscal advantages, the
revenue from financial capital is less taxed than the working revenue. The revenue
from the social capital takes often the form of revenue from financial capital, so,
here again, some fiscal advantages apply.
The social capital is fundamentally symbolic:
The symbolic capital is an ensemble of distinctive properties existing

in and by the perception of agents provided with the adequate
perceptive categories, categories that are acquired noticeably
through the experience of the structure of the distribution of this
capital inside the social space or a particular social microcosm as the
scientific one. (Bourdieu, 2001, p. 110) (Our translation)
Then the scientific capital is defined as:
The scientific capital is an ensemble of properties that are the

product of acts of knowledge and of recognition accomplished by
the agents engaged in the scientific field and doted, consequently, of
the specific perceptive categories allowing them to make relevant
differences (…). (Bourdieu, 2001, p. 110) (Our translation)
Bourdieu adds the political capital that is not exactly what the politicians or
the journalists mean when using this term but rather a form of legitimacy:
The political capital is also a symbolic capital of knowledge and of

recognition or of reputation, but it is obtained from everyone in the
logic of the plebiscite. (Bourdieu, 2001, p. 113) (Our translation)
These capitals can be transferred from one generation to the other, like the
money. The Prime Minister of Canada is the heir of a fortune, surely, but also of a
family tradition that help him to reach this level. The scientific and social capitals
follow the same line. Irene Joliot Curie received a Nobel Prize with her husband.
We all know that her father had one and her mother had two. There was a
tradition functioning at two levels. Firstly, she believed it was possible. Secondly,
others, including the Nobel Prize Committee, were not surprised to see her name
there. Moreover, she had been raised in a scientific community and she married
one member of it. These considerations have no effect on the merit of these
people, but acknowledge the possibility that other researchers of equally scientific
merit had fewer chances to receive the Nobel Prize.
This vision of the social, political, or scientific capital can be described as the
recognition of the belonging of a person to a group. Said otherwise, it is the
belonging to a network.
5.5.3 The Networks

The networking for a board of directors is necessary to obtain the resources
needed by the organization (Pfeffer & Salancik, 2003). But, there is more than
that. The relative permanence of these links creates an asset that might be
accounted for in the balance sheet. There are four main advantages provided from
this networking (Hillman, Cannella, & Paetzold, 2000):
a) provision of specific resources, such as expertise and advice from

individuals with experience in a variety of strategic areas;
b) channels for communicating information between external
organizations and the firm;
c) aids in obtaining commitments and support from important
elements outside the firm; and
d) legitimacy. (Hillman et al., 2000, p. 239).
The linkage with the environment will also increase the proportion of outsiders
on the board. These outsiders, over their own network, will also bring their
personal experience to the organization. They can be classified into four cate-
gories in function of what they bring: insiders, business experts, support special-
ists, and community influencers.
This enumeration describes what they do within the firm. But this is possible
because of their position in some networks. Therefore there is a way of living
including activities and places where these people meet insuring the “cohesion
among corporate elites” (Burris, 2005).
This way of networking is almost natural. “Is social capital anything else than
an ensemble of networks of relationships” (Caillé. 2006). This kind of network is
organized in a firm to have access to the resources needed to fulfill its mandate.
According to the resource dependence theory, the board of directors is a way for
companies to connect with their environment and acquire the resources needed.
Some authors argue that this acquisition of resources depends, for a large part, on
the directors’ social networks (Breton & Pesqueux, 2006; Dicko & Breton, 2013a,
2013b).
Far from being some remains of the paleo-industrial era, these dense
networks, both interpersonal and inter-organizational, constitute the
very basis of modern industries like the high technology of the
Silicon Valley or the fashion industry with Benetton. (Putnam,
A firm is always embedded in a series of networks as shown in the Fig. 5.5.

Fig. 5.5: Firm’s Networks.
All these groups, within the firm, and the firm by itself, have developed
different networks that can be mobilized to provide help and resources to the
organization (Granovetter, 2008). The connections can be made for many reasons
that are all useful to the firm at the center of this network. Being at the center is
obviously only a matter of point of view. In such a network there is no “natural”
or obvious center.
• Being a director in a firm (Fracassi, 2009; Maman, 2000).

• High responsibility in public administration (Maman, 2000), or sharing
directorships in one or many firms.
• High responsibility in a political organization (Fracassi, 2009; Maman, 2000).
• Number of board memberships, with leadership positions or not (Lester &
Cannella, 2006; Nicholson, Alexander, & Kiel, 2004).
• Schools and universities attended (Fracassi, 2009; Hwang & Kim, 2009; Kim,
2005).
• Affiliations with social clubs and associations (Fracassi, 2009).
• Participation in political committees or commissions (Fracassi & Tate,
2010).
• Participation in economic lobbies (Dicko & Breton, 2013b).
These subcategories can be grouped into three main types: economic connec-
tions, people within or closely connected with firms; political connections, people
within the government, agencies, or in any public administration at any level; and
social connections, people from the same school, same social clubs, sport clubs or
professional association, or on the board of the same charities.
The next figure shows the network of the members of the board of the largest
Canadian company. The board in question has 13 members.
This figure shows how the networks of a firm can be complex. The different
colors represent different categories of connections. The largest category is
constituted by the business ties more deeply described in panel B. The speciali-
zation of each member of the board, except the founding family, with a specific
group of connections exemplifies the concept that board members bring specific
resources to the firm. Moreover, a deeper analysis will show that certain members
of the board have in particular a certain category of connections. One is well
connected with the political world in the US, at the highest level. Another is well
connected with the academic and the institutional world in Canada (Fig. 5.6;
Table 5.2).
Fig. 5.6: The Network of Power Corporation of Canada Board’s

Members. Source: Breton and Dicko (2015).
Table 5.2: Grouping and Classification of the

Organizations Which Whom the Board Members
Are Connected.
Sectors Numbers
Industrials 24
Investment, assets management, 42
trading
Energy 7
Banking 20
Others 47
Total 140
Source: Breton and Dicko (2015).
It is possible to relate these business connection categories to the different areas

of implication of the firm showing the reasons for the nominations of these spe-
cific directors instead of others having different profiles.
The categories can be grouped into the three broad classes determined earlier.
It is interesting to note that although the raw numbers changed between 2007 and
2013, the proportions remain about the same. We can deduct that PCC, having
kept the same structure, needs the same mix of resources from its environment
(Table 5.3).
Breton and Dicko (2015) summarize the different resources a firm can seek.
Such classification can also be simplified with three categories: economic, social,
and political as the table from PCC is showing.
The firm is imbricated in a series of strong networks. These networks,
following the theory of resource dependency, open access to resources that are
absolutely necessary for the firm to pursue its mandate. Therefore these net-
works are producing revenues, which is the definition of an asset. If they are
assets for the firm, they must be accounted for in the balance sheet as they must
be subject to economic decisions. The question of why they are not considered
Table 5.3: The Nine Categories Grouped in Three Main Categories With a
Comparison Between the Boards of 2007 and 2013.
Categories of Connections 2007 (%) 2013 (%)

Economic 92 54 175 59
Social 43 25 69 23
Political 35 21 51 18
170 100 296 100
Source: Breton and Dicko (2015).
Table 5.4: Potential Resources Necessitated by Firms.
Resources Description Potential Sources

Financial All kinds of financial support Financial institutions, capital
or financial cooperation market, other firms
Human Employees, expertise, Professional corporations,
counselling universities
Commercial Clients, suppliers, partners Markets, other firms
Political Block the unwelcome ruling Deputies, representatives,
and promote those that are parties members, ex-ministers,
protecting the firm civil servants, lobbies
Technical Information about new Markets, other firms,
technologies universities
Social Common resources, Public opinion, media,
legitimacy communities
Source: Adapted from Dicko and Breton (2013b, p. 48).
would be studied by the sociology of accounting while the eternally invoked

reason of the difficulty to put a value number on it looks no more convincing
(Table 5.4).
Such study is part of the sociology of accounting and is really only the
beginning. One reason for that would be the development of the instrument. The
models of Borgatti, Everett, and Johnson (2013) and of De Nooy, Mrvar, and
Batajelj (2011) are not perfectly fitted for that kind of analysis yet. Nevertheless,
the results show strong support for the resource dependency theory and illustrate
well the networks of the member of the board from which we can deduce the
reasons of their appointment.
Other researchers have studied different aspects of this question. For instance,
the effect for a firm of having political connections had been scrutinized (Gold-
man, Rocholl, & So, 2009). They propose interesting findings:
The first main result of the article is that a portfolio of S&P 500
companies classified as having a Republican board significantly
outperforms a portfolio of S&P 500 companies classified as having
a Democratic board in the post-election period. (…).
The second main result is that a company experiences a positive and
statistically significant abnormal stock return following the
announcement of a board nomination of a politically connected
individual. (…). In addition, the positive announcement effect
holds true for both Republican and Democratic connected
directors. (Goldman et al., 2009, p. 2333)
However, these research are still at their beginning. But, these connections
are not all working that simply. The daughter of a former Prime Minister of
Canada was married to the son of the founder and chairman of the largest and
most influential company in Canada (PCC). In the logic of these papers that
would have been an asset for the company. However, we cannot be certain if the
asset was for the prime minister to account for. In fact, authors like Meyer and
Rowan (1977) have a tendency to present the organization as living in perfect
efficiency on another planet and being forced to conform to social norms, to
abandon some of these efficient procedures, and also accept to be a “victim” of
intrusive governments. But the networks show a different situation where it can
be the contrary with a ruling group (small world) influencing the governments
(Knoke, 1993).
“Researchers” like Shleifer and Vishny (1994) take their assumptions from the
newspapers.
(…) public enterprises are highly inefficient, and their inefficiency is

the result of political pressures from the politicians who control
them. Examples abound. Most public enterprises are encouraged
by politicians seeking votes to employ too many people. (Shleifer &
Vishny, 1994, p. 995)
Research trying to honestly find evidence of this comparative inefficiency are

not really conclusive. It is easy to say that European airlines, taken altogether,
have more employees than American ones. However, these measures need
contextual information before to be taken at face value. For instance, in Canada
we had two big train enterprises, one public and one private. The private one was
reputed to be more efficient, which may be true because the Canadian Pacific
Railway (CPR) had only to look at its profitability. The Canadian National
Railway (CNR) had to fulfill the public mandate of connecting the remote areas.
Therefore this company was keeping stations in remote areas providing service to
small amounts of people, but being necessary to sustain the occupancy of the
territory. This is not an electoral manoeuver, but a political necessity in a large
country where 90% of the population is agglomerated along the southern border.
After the government privatized the CNR, they had to compensate the private
company to continue to do this work, but they lose the revenue from the paying
lines to finance it. So, for the citizen, it was a net loss and a gain for the sub-
scribers as the value of the stock gained more than 25% in the first 4 hours of
trading. The introduction shares had been attributed to privilege clients months
before the openings.
Leaving the ideology for a minute and looking at how the electoral system is
working, we see that this pretention that politicians force the SOE to hire
unneeded people to gain their votes is inefficient and not really operating. In the
province of Quebec, the civil servants were a very poor and unorganized group
before 1960. When the State took a modern turn, the civil servants groups were
reorganized, correctly paid, and attracted capable candidates. Since then, after
1980, like in many countries, the governments started to use the private sector for
the most interesting tasks, and some of the best civil servants left the boat of the
State. Now, following a study by the Bureau de la Statistique, (a governmental
service) every category of public workers is paid less than their private counter-
parts. So, if we leave the ideological discourses, we see that in the province of
Québec at least (but it is the same in Canada as a whole), the period where the
remuneration of the employees of the public sector was better than those from the
private sector had been very limited and made necessary by the catching up and
the modernization of those states. However, “researchers” like Shleifer and
Vishny implicitly pretend that an organization must not be judged by the pro-
portion of its specific objectives that had been reached, but only and uniquely by
the profit made inside this organization without considering the costs it may
engender around. Moreover, they pretend that this measure may be the basis for
public decisions. Today, it is quite more efficient for a politician to find a sub-
scriber for his campaign having a production plant and wage negotiations. Then
the government will intervene and giving some money to this subscriber will save
apparently hundreds if not thousands of jobs. That is efficient and keeps the
wealth in the “family.”
Covaleski, Dirsmith, and Samuel (2003) studied the case of electricity in
California.
Organizations actively participate in constructing meaning around

such strategic transactions as selling and acquiring electricity
generating facilities, and this construction process itself generates
ideology of rationality, which legitimate and reinforce particular
organizing and structures for governing economic activities.
(Covaleski et al., 2003, p. 438)
Some near the ground accounts of this Californian catastrophe are more
eloquent.
In 1999, my parents send me their bill from San Diego. In spite of

the 20% drop promised by the law, the first year of complete
deregulation, the bill had increased by 379% from the preceding
year. (…).
In what will stand as the highest price to buy an election, Southern
California Edison, Pacific Gas and Electric (PG&E) and their allied
spend 53 million dollars to organized the failure of professor Coyle
proposal of pacing the deregulation. (…).
Politicians were publicly surprised when they discovered in 2002 a
memo from Enron describing the technics used to manipulate the
market – they wear Hollywood like names as: Get Shorty, The
Death Star, or Rebound. Nevertheless, each one of these tricks
that the electricity gang used in California had been rehearse in
UK before. (…).
There had been, (…), discussions to block the deregulation, but the
political impulse was on move, despite the fact that we know that it
was leading to disaster. (Palast, 2006, pp. 76–78).
We can see that we are no more, in this domain, at giving a job to the brother-
in-law in a small municipality. Now, the real image of the relationship between
governments, politicians, and enterprises is made of very large transactions at an
international level. The Panama or Paradise Papers provide good examples of the
international dimension of the appropriation of public money by elected people
and big enterprises conjunctly. So the connections for the politicians are now
international and built with very rich and powerful people.
The question of the optimal proportion of outsiders on a board has also been
studied. Like for the other aspect, studying the presence of external members
presents some methodological problems, the main being to make the difference.
Many companies have started to identify the directors as insiders and outsiders.
To go further with our example, PCC presented the founder as an external after
he mostly retired and transferred his shares to his sons. In our view, this is an
abusive classification. To date, these research, although deductive, are based on
very little theory.
This discussion is relevant for accounting theory in more than one way. Firstly,
we may have to some day account for these systems of networking as the firms, in
function of their activities, depend on it. Therefore it asks the question raised since
long now of the relevance lost. These networks are precious although intangible
and used to earn revenues. Every element used to earn revenues is an asset.
Therefore, to date, the accounting world was opposed to the taking into account
of these kinds of assets, alleging the difficulty to place a number beside it.
However, if we go along the balance sheet, both sides, we see that the items being
assessed with a number that is not an estimate are reduced all the time. These
things exist, and they have an importance in the sociology of accounting and also
on the decision-making and the information provided to this end.
Accounting communication is questioned by the changing of vision of the
formation of the board of directors and by a new understanding of the necessity
for a firm to communicate. This communication opens the access to resources
belonging or controlled by other firms in the system but also to the collective
resources necessary to allow the firm to fulfill its mandate as a social institution
(Breton, 2016).
There may be a third channel of influence. From what precedes, it flows that
the composition of the board has an effect on the performance of the firm
(O’Connell & Cramer, 2010). This performance is casually measured through the
profit, which is an accounting construct. We also have some evidence about the
board composition and the confidence investors can have toward the issued
accounting numbers (Anderson & Frankle, 1980; Chaney, Faccio, & Parsley,
2011) because, noticeably, of the monitoring of the financial information pub-
lished by the firm (Vafeas, 2000). Then, once again, the discussion about the
board, in the spirit of the resource dependence theory, is relevant to accounting
theory.
5.6 The Knowledge

In the new economy, where objects will be sent through the computer and
generated through a three-dimensional “printer,” the knowledge becomes very
important. This knowledge can take two basic forms. It can be written in books
containing the procedures and recipes to do on a continuous basis what others
have elaborated or it can be in the mind of some employees (Grant, 1996) of the
firm.
At this point, if the knowledge is in the mind of the people, it must be difficult
to determine a value to account for it. This arrival of people in the balance sheet
may also raise some questions about the distribution of the revenues generated by
these assets. Modern firms may have little tangible assets. At this point the return
on assets ratio, or asset turnover, may be totally useless until what is really
generating the revenue for these firms is taken into account in the financial
statements. But this resource is “subject to uniquely complex problems of
appropriability” (Grant, 1996, p. 111).
In our view, it is obvious that accounting will have to seriously consider the
changing form of the assets in firms and take it into consideration. Equally
obvious is the fact that the assignment of values to these assets will be difficult.
However, in a system believing that the market price of the shares is a correct
assessment of the value, we have both ends of the problem, the actual accounting
value and the market price. Between both values we would normally find the
entangled value of all the assets that are not actually taken into consideration in
the financial statements. All that is remaining to do will be to assign these values
to particular assets. We may add that these financial statements will have to be at
current value (Egginton, 1990).
5.7 Summary
Accounting is evolving slowly while the enterprises are going quite faster. Some
accounting students are still learning in books, pretending that accounting is an
art and a science.
Accounting is a language of a specific category called a jargon. These lan-
guages are parasites of natural languages and are created by professional or
scientific communities to limit the quantity of correlations existing in natural
languages and therefore increase the level of precision of their communication.
Confusion can still exist like with the terms capital and assets. Now, based on the
idea of the loss of relevance of the financial statements, some observers propose to
account for what they have termed social and intellectual capital. Although in line
with the original denominations, for the accounting world, these elements would
be assets, as they serve to generate revenues. The question of the capital connected
with these newly considered assets has not been discussed yet. But, as this capital
entry will name the owners of the assets in question, it will have to determine the
level of compensation for investing it specifically in a firm.
Other examples of these new assets are other intangibles, the networks, the
knowledge, etc. Their recognition opens a field for rethinking our practices. But,
we have to remember that, in the 1960s and 1970s, there had been a series of
discussions and proposals around the notion of social balance sheet and that these
proposals had been wiped out by two new conceptions of the social responsibility
of the firm: for a short period it had been the use of energy and since then it is the
environmental action of the organization that is taking all the place.
Questions
1. Accounting is an art and a science. Comment.
2. Do you know alternative ways to the financial statements for presenting
accounting information?
3. Through some standards for presenting financial information accountants
are usurping the power in organizations. Comment.
4. Accounting is a language. Comment.
5. What is meant by the expression “l’arbitraire du signe”?
6. What are the components of a sign? Explain.
7. In which aspect the signified is different from the referent?
8. What are the different categories of languages and where can we situate the
accounting language?
9. What are the functions of a jargon in a professional community?
10. Contrast denotation and connotation.
11. List the different aspects that can take the linguistic of accounting, with their
field of application.
12. What is generally meant by professionalization?
13. Which are the conditions that must be realized to have a market?
14. What is the third hypothesis of Watts and Zimmerman?
15. Are we really living in a market economy?
16. Is there a distinction between capital and asset?
17. Which are the theories explaining the networking of a firm’s board members?
Provide some key elements of the context for each theory.
Topics for Further Reflections

1. Imagine some CEO asks you to account for a new asset that is a highly
recognized competency of a hockey player. How would you do it?
a. How will you valuate (assign a number) the asset?
b. What will be the counterpart on the right side of the balance sheet?
2. The reality of the profit.
Discuss the effect of the “reality” of the profit on an accounting system that
has made tremendous efforts not to produce any other relevant numbers,
i.e., “intermediary managing subtotals.”
3. The SOEs are inefficient; they generate losses all the time. One problem is they
are overstaffed for political reasons. Comment.
Chapter 6
Accounting: The State and the Firm
In the business and administrative literature there is a tendency to consider that

the individual precede the society. Also, this piece of common wisdom is not even
convincing when we start to ask where this individual was coming from. How-
ever, in this current period, people will assume that the private property precedes
the collective (social) one, which appears to be quite the contrary, when referring
to the anthropologists. Therefore they believe that social responsibility comes
after private responsibility. For an individual it may be a correct way of seeing
things, but from a social point of view it is not necessarily so.
In a society, one of the most important questions would be how to distribute
property rights to generate the highest level of production with the lowest level of
consumption of resources.
Is public or private ownership more likely to promote social welfare?

This ancient and central question in economics has generated a fair
amount of conventional wisdom on the benefits and costs of public
production of goods and services. (Laffont & Tirole, 1993, p. 637)
The problem is to find the best incentive to reach the best level of production
while limiting the spoiling of resources. It is casually taken for granted that pri-
vate property will constitute the best incentive for limiting spoiling.
If we consider that the society is at the basis of every distribution of rights and
of the systems protecting those rights belonging to the society but lend to the
individual, we have to find a system to measure the advantages and costs of this
system not once and for all, but continuously, and not for the individual, but for
the society.
If we take the question along the lines of the agency point of view, we have the
principals and the agents. The principals are those investing money in the firm,
which does not exactly conform to the liberal economic theory. These investors
have received the right to use the resources mobilized for their enterprise among
the resources belonging to the society. Therefore, they become agents in turn and
like the managers, they would have to produce reports to the principal.
It is normally considered that they are discharged of this obligation with
providing the reports asked by the different governmental institutions or agencies.
However, although they produce an income tax statement, there is no report

doi:10.1108/978-1-78769-793-520181006
showing which value they have produced and which resources they have
consumed to do so. That is the report the society would need to assess the per-
formance of the particular way chosen for the distribution of the property rights.
Moreover, the income tax statements often start with the accounting profit before
making some modifications. So, they accept that the value created is the portion
going to the shareholders. Therefore, the amount of income tax to be paid is
dependent on the financial structure of the firm. The cause of this situation is
found in the fact that the income tax, originally, was based on the individual
revenue including all sources. Maybe this approach had been efficient at some
time, but as the structures of the firms become progressively more complicated, it
would be a good idea for the governments to modify the principles behind their
tax systems.
6.1 The Real Social Responsibility

At the very basis of the system lays the belief that the value of the production will
be distributed in such a way that everyone will receive his righteous part. How-
ever, the facts have demonstrated quite a different reality and the need for gov-
ernments to intervene. This intervention covers, among other areas, the
organization of markets that are not arising spontaneously in the real world.
The creed recognizes that management serves at the discretion of

society and derives its legitimacy from being a useful social function
(…). (Buchholz, 1992, p. 20)
Given the fact that the society cannot be governed by the invisible hand, it is
casually accepted that governments are needed to do that. Thus, governments are
there to compensate for the deficiencies of the market system. It means that it is
counterproductive to ask the firms to have direct social implications when the
liberal state is supposed to be the coordinator of these activities. For instance, in
the Province of Québec, we have a Ministry of Cultural Affairs. This Ministry
employs specialists able to coordinate the support to different groups from
different backgrounds. However, in Québec we also have SOEs4 such as Hydro-
Québec, the largest in the area; the Société des alcools du Québec, a national
liquor board; and Loto-Quebéc, the big national lottery. These three SOEs
finance probably more than half the cultural activities in the Province. Therefore,
the government leaves to nonspecialists, the board of directors of these SOEs, the
job to decide what will be privileged as cultural expression while keeping spe-
cialists in its ministry. If we ask the private firms to participate directly, we will
have a spoiling of resources, and some aspect of each activity, the cultural life or
the support to sick children, will be forgotten because there will be no coordi-
nation, which is the job of the state. To compensate, the organizations are now
having financing activities around an official well-known spokesperson. This
4
State-Owned Enterprise.
Accounting: The State and the Firm 99
person, having little idea of what the organization is really doing, is charged to
speak for it because s(he) is well known in the society. For instance, Celine Dion
has a niece having an incurable sickness. People will be aware of the financing
activity of the organization related with the research of a cure for this sickness.
The organization will receive millions in free publicity because all the media do
not care for the sickness but they follow Celine Dion’s every move. Therefore this
organization, for a while, will receive a lot of money while other organizations
around will die for lack of funding. By making the government do its job of
coordination, we will increase, in theory, the efficiency of the system. If each firm
has to develop a program to fulfill its social responsibility, the structuring costs
will be huge at the aggregated level of the society.
There had been a lot of fuzz around the statement of Milton Friedman that we
take here from Klonosky (1992):
The most well-known proponent of claims that corporation has few if

any explicitly social responsibilities is the economist Milton
Friedman. Friedman’s position is captured in his pronouncement
that “there is one and only one social responsibility of business –
to use its resources and engage in activities designed to increase its
profits so long as it stays within the rules of the game, which is to
say, engages in open and free competition without deception or
fraud.” (Friedman, 1983) (Klonosky, 1992)
Firstly, we may underline the fact that the quotation is complete, normally
they stop at profit. We may agree with Friedman’s complete statement. The
problem is that there are less and less competitive markets. Therefore the rule
cannot apply. If the markets would be what they are supposed to be, we agree that
the social mandate of the firm would be to fight to make profit, which will be
rendered impossible by the pure competitiveness of the markets. Then, for the
rest, the government will be there to equilibrate what the invisible hand has
missed. However, the economic model organizing our societies has no referent in
“reality.”
6.1.1 Disclosure or Action

A lot of research under the headline of social and environmental responsibility has
been conducted about what had been termed “social disclosure.”
Social disclosure involves the communication and reporting of

information concerning a firm’s community involvement, human
resources, environmental impact, and product/service contributions.
(Anderson & Frankle, 1980, p. 467)
The problem is that the “social” is implicitly defined as what the “winners,”
those who are creating value in the economic “sphere,” have to do for the losers,
waiting for their “charity.” This comes from the deviant conception of the
economy as being autonomous out of the society. The problem is not the “social,”
but the malfunction of the market which most economists refuse to face, mainly
the monetarists. The quote coming from 1980 shows well the basis of the
confusion. Anderson and Frankle’s paper was about the effect of the “social
disclosure” on the markets. Therefore, they were building their vision on an
efficient market on the one hand, as this market integrates rapidly new infor-
mation, but on an inefficient market on the other hand as important information
were not provided yet. The papers in accounting journals about social and
environmental disclosure settle a “problem” of dysfunction of the market in a
setting of efficient market without saying anything about that. In Bowman and
Haire (1976), the firm is presented as opposed to the society and as being clearly
made of the shareholders and investors. The impact on the society is conceptu-
alized through the concept of externalities, which although keeping the “market”
at the center of the discussion evacuates very important aspects of the question.
This being said, we have to balance the score by referring to Tipgos (1977) or
Ramanathan (1976), presenting far better theoretical descriptions of the social
responsibility of the firm.
Moreover, disclosure can be a misleading concept as there is no guarantee that
the quantity of disclosure indicates a better assumption of social responsibility,
mostly in the absence of a correct definition of social responsibility.
Some researchers have considered both aspects, performance and disclosure,
separately (Rockness, 1995). However, Rockness remained in the limit of the
disclosure to assess some perceptions of the performance. In summary, we would
need some other source of information about the social performance of the firm to
triangulate with its discourse. For the time being, we do not have systematically
such independent and well-informed sources.
6.1.2 The Problem of the Externalities

In the classical economic theory, externalities are defined as an activity or a good
for which there is no market. There is another form of externality. Normally the
products are sold at a price that is supposed to reflect their full cost. Such “fair”
prices allow distinguishing between efficient and inefficient enterprises and high-
value and low-value products. But, with our system, many firms are able to
externalize costs. For instance, the mines in Canada had been authorized to place
their waste in specific areas. The accumulation of such waste has, after a while,
contaminated many underground water reserves. In most cases, the mines are
close and their owners live outside the country and are not reachable. So, the
government is forced to undertake the task of repairing the damages with the
citizens’ money. Therefore, somewhere, the consumable products that have been
made from these metals did not include the cost of cleaning the spoiled envi-
ronment and therefore have been sold at an unfair price which do not represent
their real cost. Some products, which were not belonging to the optimal mix of
product a society can generate have probably been made and sold because they
were not fully priced. That is an externalization of the cost that unbalances the
functioning of the economic system. If we look around, we see many occasions
where the government is taking the costs on behalf of the corporations. For
instance, if the lack of security and health protection generate industrial diseases,
the government assumes generally most if not all the cost for the consequences.
We believe that the market objectives are far from being reached with govern-
ments subsiding firms on the one side and assuming their rightful expenses on the
other side.
Without a fair pricing system the economic construction collapses. The idea
that a production system can produce as much goods as possible with as less
spoiling of resources as possible is based on the full pricing allowing the elimi-
nation of very expensive objects that are not really essential. However, this
condition is not enough. The usefulness of a production in an economy is not
measured by the needs but by the desire that is termed the demand and that must
be solvent to have an effect (Meda, 1999). But the pricing system had been biased
since long, if it had ever been fair. In consequence of this, our economies will
satisfy solvent desires while others have nothing to eat but no money to orientate
the production in this direction. For instance, more and more agricultural pro-
ductions are replaced by corn because it enters into the production of ethanol
where its value is far higher. This switch entails an increase of the prices of foods
and more stress for those having problems to buy the minimum. But, as the
success of the economy is measured by the production only through exchanges,
we are collectively reputed to be richer if we make ethanol rather than food for
people having little means to buy it. It is a pure Ricardian calculation.
The utilitarian proposes a kind of measure of the “Gross National Happiness.”
Obviously, Mill (2010) writes in a context very much tinted by religion func-
tioning along the lines described by Weber as the spirit of Protestantism. Mill
argues that the only goal in life is happiness. Therefore the measure of behavior is
the measure of total happiness. This is, in a way, what the neoliberal economy is
pretending to do. However, it assumes no differences in the capacity to pay.
Therefore, provided that the prices are correctly settled, the solvent demand can
regulate what will be the offer and everyone will be happy. However, it is another
case of if:
If all agents were equal and if markets were information efficient and
if this led to allocative efficiency and if this led, in turn, to economic
growth and if this ensured maximum welfare and if maximum
welfare is the aim of the society then accounting is morally,
economically and socially justifiable and may lay claim to an
intellectual framework. (Gray, Owen, & Adams, 1996, p. 17)
If all those assumptions on our economic system are false, we can wonder what
accounting is measuring.
6.2 Ethics and Goodwill

In our view, the social contract on which accounting is supposed to provide
information relevant for social decisions is clear enough. Obviously, under the
pressures, the states are not doing their controlling job on behalf of the societies.
The citizens are bombed every day with accusations from the business world
saying that firms are not given the liberty to fulfill their part of the contract,
except when a crisis arrives and they declare that the government may have
exercised stronger control over the economy.
When supporters of CSR (Corporate Social Reporting) go on the ethical side,
they change the line of the delegation of power and ask corporate citizens to be good
and caring toward their contemporaries and, now, toward the future generations.
To whom is the corporation responsible? I submit that we haven’t

answered this question because it is not the right question to ask.
Instead we should be asking “How can and do corporations
contribute to constructing ’the good society.’ (Wood, 1991, p. 66)
If we don’t ask the question of to whom the corporation is responsible, we

change totally the line of analysis. We pass from a legal system of accountability,
where the state has the legal power to change the way goods are produced, to a
system based on the good faith of entrepreneurs, their sense of ethics, and their
charitable spirit. For our part, we feel safer in the first system. It is not a question
of good or bad social behavior; it is a question of respecting their contract. In
accordance with the old liberal system, the remuneration of the entrepreneur is the
marginal value produced by his organizing of the production in the firm. At this
point, if the entrepreneur needed money, he would borrow it himself and use it in
the business. Since these businesses had become moral persons, with more rights
than the physical ones, “investors” put their money directly in the firm following
the portfolio “theory,” which is totally contradictory to the idea of the entre-
preneur creating an activity and risking his money.
Therefore, the original system had been modified without any consultation and
the markets, discussed by Smith, are no more important. The only market we
discuss anymore is the capital market, which did not exist in a world where the
entrepreneur is involved in the production process and responsible for the money
he uses. In this system, the entrepreneur was supporting a certain level of risk as
for the workers who had the risk of losing their job and having to find a new one,
which was not always an easy task. With the portfolio system, investors put their
money in production they do not know and make their money move at the first
sign of decline in the profit, which is no more the marginal value generated from
the organizing of the production. In such conditions the basic contract had been
broken since a long time.
In France, before the adoption of the US system through the international
standards, there was, in the accounting reports, important traces of the social
contract through the concept of value added. Such statements made it theoreti-
cally possible to discuss which value was created and who received it.
In the British-inspired accounting system, all rely on the profit figure. This
profit figure says nothing about the capability of the firm to produce value; it says
which portion of this value belongs to the shareholders. However, this part is
primarily dependent on the financing structure, which has little to do with the
production of value. In fact, two enterprises doing exactly the same thing with
equivalent assets and equal efficiency may show a totally different profit in
function of their financing structure. Therefore, focusing on the profit figure rends
totally unusable the financial statements for social purposes and even, to an
extent, for private purposes.
The profit figure reflects more the financing structure of a firm than its capacity
to produce and distribute wealth, which is the first clause of its social contract.
For a while, it was casual to mention that, to follow the actual standards, the
environmental eventualities had to be disclosed. Now, we don’t hear about that
anymore. It has probably collapsed in the “impossible to assess” file that is always
open to receive embarrassing items. Have you ever seen a set of financial state-
ments with an eventual debt created by a “creative” understanding of some tax
law provisions?
Accountants have no business discussing the compliances to law; however,
they have business assessing the financial effect of a breach in the compliance.
But this is standards and professional matters. In theoretical terms, there is
nothing to say except to observe how accounting is used in a context of taking a
new market and putting a professional hegemony in place. The profession that
will be the only one to receive the authorization by the state to sign an envi-
ronmental report will control the field for a long time. The stakes are high,
mostly at a time where the conventional audit is discussed fiercely and may
have a problem to sustain the hegemony of some accounting professional
associations.
6.3 Public Decisions

Accounting influences public decisions through some key concepts and the
calculation of the related values (Breton, 2016).
The economic calculations provided by enterprise level accounting

systems have come to be used not only as a basis for government
taxation but also as a means for enabling the more general economic
management policies of the state to grow in significance and
impact (…). Accounting data are now used in the derivation and
implementation of policies for economic stabilization, price and wage
control, the regulation of particular industrial and commercial sectors
and the planning of national economic resources in condition of war
and peace and prosperity and depression. (Burchell, Chubb, &
Hopwood, Hughes, & Nahapiet, 1980, pp. 5–6)
Burchell et al. refer to decisions taken by governments on behalf of the citizens

without really having them interfering in the process. Sometimes the decisions are
taken almost directly in the public space. One of the most obvious citizens’ deci-
sions, discussed during the last decades, had been privatization. The accounting
concepts invoked in the discussion will be inserted in an ideological discourse.
The literature on privatization has identified many motives

for privatization. Among these are (1) improving the financial
performance of the SOE, (2) raising finances for government
spending, (3) widening ownership through capital markets, (4)
promoting competition, (5) improving service delivery, (6) reducing
the influence of public sector unions, (7) responding to pressures by
external agencies such as the International Bank of Reconstruction and
Development and the World Bank, and (8) replacing central planning
with a market economy. (De Castro, 1996, p. 373)
The presence of an ideological discourse appears clearly in the fact that

most large privatizations have failed to produce the alleged effects although
the same reasons continue to be presented as sufficient justification for
privatization.
The Homo economicus rejects as irrelevant any experience that is not con-
forming to his discourse (Maris, 2003). The realized privatizations, when studied
in detail, do not show such a great deal of improvement (Bozec, Breton, & Côté,
2002; Martin & Parker, 1995).
On the basis of the two performance indicators and for the eleven
firms examined in this study, it is difficult to sustain unequivocally
the hypothesis that private ownership is preferable to nationalization
on efficiency grounds. (Martin & Parker, 1995, p. 235)
Martin and Parker use accounting measures to assess the increase in efficiency.
These measures are mostly irrelevant and using better measures will only increase
their results. A better measure will be to compare what it costs for the citizen
receiving the service before the privatization and what it costs after privatization.
Our understanding of situations is altered by already made ideas (Stone, 1989).
Stone was discussing what is now known as storytelling, an important activity in
the organization and extensively in the society in general allowing displacing the
focus of a social discussion.
In previous work, I defined storytelling organization as “collective

storytelling system in which the performance of stories is a key part of
members “sense-making” and a means to allow them to supplement
individual memories with institutional memory” (Boje, 1991a,
p. 106). Gephart, in a study of leader succession, conceptualized
the storytelling organization as “constructed in the above succession
stories as a tool or program for making sense of events” (1991,
p. 37). In sum, the storytelling organization as seen in Tamara is a
wandering linguistic framework in which stories are the medium of
interpretative exchange. Storytelling organizations exist to tell their

collective stories, to live out their collective stories, to be in constant
struggle over getting the stories of insiders and outsiders straight.
(Jones, 1991; Wilkins & Thompson, 1991) (Boje, 1995, p. 998)
This construction is multileveled. At the top, we have an englobing ideology

(Boudon, 1986) or the “grand narrative,” being basically the general story from
which all the specific ones are derived which everyone believes and everyone else
knows. It may look like a private enterprise is the best system to produce wealth in
the society. The accounting world has its own derived stories. For instance, we see
a movement toward believing that the concept of profit is the ultimate measure of
the social relevance of an organization. The concept of profit has eliminated its
competitors which were, at first sight, more prone to produce a better feedback of
the value created in the society which is the very center of the social contract
presiding at the creation of the private firm as a social institution.
If in the 1960s and 1970s the societies have discussed the possibility of mixed
economy allowing the state to control a certain quantity of sectors and enter-
prises, in the 1980s, this tendency has disappeared. The given proof for this
disappearance had been the fall of the Berlin Wall presented as the failure of the
communist system presented as the model of all attempts for collectivization. The
firm has started to ask the state to render accounts of what they were doing with
money that was presented as diverted from the private sector.
The profit has become almost the only acceptable goal a firm can have,
indifferent of the fact that it is a SOE or a private enterprise. All other goals are
dismissed as inefficient. After that, the table is set to produce two series of stories:
the first focusing on the bad performance of public firms and the second on the
efficiency of private firms, and this in total hyperreality.
It will be a waste of time to discuss accounting as a replication of the financial
situation of the firm, even a true and fair view. Firstly, there is no place to find the
financial situation of the firm, it is a matter of assessment and interpretation and
these things differ from one individual to another. Then, the way accounting has
chosen to calculate its numbers implies too many disputable choices to be a
faithful representation of anything. Therefore, accounting is floating in hyper-
reality like many systems of representation existing in our societies except that
there were never any referents in the reality for the accounting concepts.
Consequently we have to accept the idea expressed by Boje that “accounting is
storytelling” (Boje, 2001a, p. 1).
6.4 Public Measures and Citizen’s Decisions

We can observe the basic bias in governmental accounting. If accounting is a
matter of right, national accounts will have to express what the agent, the gov-
ernment, has done with the assets placed in his hands by the principal, citizens,
altogether. In practice, this is not at all what we receive. The government produces
statements about how much it costs to manage the assets, but nothing to what
happened to these assets. The first example of that is in the calculation of the GDP.
6.4.1 Calculating the GDP

For some time now, questions have been raised about the value of the GDP as
a measure of wealth (Meda, 1999) while we realize that the absence of a
balance sheet in the government’s accounts is producing distortions in the
interpretation we can make of the public accounts (Stiglitz, 2014). The GDP
adds the destruction over the construction instead of deducting it. For
instance,
Today, the tropical forests covers only about 2% of the surface of the
planet, but contain 70% of all animal and vegetal species. In forty
years (1950-1990), the global surface covered by virgin forests has
diminished by 350 million of hectares: 18% of the African forest,
30% of the Oceanian and Asian forests, 18% of the Latin-American
and Caribbean forests had been destroyed. (Ziegler, 2002, p. 143)
(Our translation)
This destruction of the Amazonian forest, for instance, put at risk the capacity
of the whole planet to regenerate air. This is quite an eventuality. Where are the
many species that have disappeared since 50 years accounted for? What is
accounted for is the cement they put on the beaches to build huge hotels. Imagine
that, for a certain year, we deduce the forest lost from the building made of wood,
etc. For some years the GNP would be negative because the destruction will pass
the construction. Governments might find a way to account for that. This is the
central point in their fiduciary role.
Considering that the GNP is an aggregated measure made of all the economic
activity for the period, a correct calculation of the wealth produced by the nation
must deduct all the consumption done to reach this point. It would be something
like an aggregated statement of the value added and deducted.
The mandate given to the firm is to produce as much wealth as possible at the
least possible cost in resource based on the idea that the demand, driven by the
financial resources available, is infinite. With its actual system of accounting, the
government has no means to control that, despite it being the central element of
the social contract.
6.4.2 Calculating the Government’s Accounts Correctly

Albeit their being totally beside the point, the states’ accounts are often manip-
ulated. Those days, for instance, they were reorganized to make the debt appear
more dangerous and terrifying for the uninformed citizen.
6.4.2.1 Understanding the tradition

One of the main objections professional accountants have opposed to every level
of government accounting practices was the question of the depreciation of assets.
Many of them have tied the bad state in which public assets were kept with the
absence of depreciation.
Normally, contrary to what we hear every day, a public administration is

not organized and managed like a family budget. The citizen benefitting and
paying for the use of some assets at a time has no interest in subsiding the
following group who will use the same set of infrastructures. In fact, if the
parents are happy to accumulate value for their children, there is no logic for a
public administration to accumulate the money before building an infrastruc-
ture. This will make the paying citizens not be the users of the infrastructure
built from their taxes. Therefore, public administration will generally borrow
the money to build any long-term asset. This borrowing was historically syn-
chronized with the useful life of the asset. For instance, a municipal admin-
istration wanting to build a sports center having a useful life of 60 years will
borrow the money for 60 years. If the capital of the debt is accounted through
the current expenses, it is working exactly like a straight line depreciation
going over 60 years, which was the expected life of the assets. Therefore there
was depreciation although under a specific form that was not used in the
enterprises.
If the public assets have deteriorated lately, it is not because they are not
depreciated in the books; it is a society phenomenon that is to be analyzed in
parallel with the decrease of the size of the state and the continual pressures on the
state’s budget. Moreover, how can we have depreciation in governments’
accounts when these governments do not have a balance sheet and a serious
following on the assets they control?
6.4.2.2 Governmental manipulation of accounts

If we take the case of the Province of Québec as an example of manipulated
accounts (Table 6.1):
Table 6.1: Statement of Québec’s Debt Since 1970 (millions $).

Year Direct Debt Future Retirement Benefit Total % of PIB
1974–1975 4,030 67 4,097 11.2
1975–1976 4,955 179 5,134 12.4
1976–1977 6,035 354 6,389 13.2
1977–1978 7,111 620 7,731 14.6
1978–1979 8,328 915 9,240 15.7
1989–1990 27,699 14,320 42,019 28.3
1990–1991 29,637 16,227 45,864 29.9
1991–1992 33,106 18,143 51,249 33.0
1992–1993 39,231 19,668 58,899 37.2
1993–1994 45,160 20,483 65,643 40.4
1994–1995 52,468 21,997 74,465 43.7
Table 6.1: (Continued)

Year Direct Debt Future Retirement Benefit Total % of PIB
1995–1996 52,886 23,624 78,510 43.1
1996–1997 52,625 25,461 78,086 43.3
1997–1998 57,294 40,438 97,732 51.9
1998–1999 60,685 40,428 101,113 51.5
1999–2000 61,209 39,337 100,546 47.8
2000–2001 63,630 39,111 102,741 45.8
2001–2002 67,112 38,060 105,172 45.8
2002–2003 70,176 38,426 108,602 44.7
2003–2004 77,933 38,281 116,214 45.3
2004–2005 83,479 36,286 119,765 43.7
Source: Adapted from Finances Québec (2006, Section 3, p. 30).
Trying to follow the evolution of the debt, we see that numbers are jumping in
specific years. These jumps are due to the reorganization of the data. For instance,
in 1998, the provision made for future retirement benefits increased by about 70%.
These pensions are those of the employees of the state, civil servants of all kinds.
These corrections have become the rule, and numbers are played with to produce
the most dramatic effect (Table 6.2).
Table 6.2: Assets of the Québec Government at March 31, 1997 by

Competencies.
Field of Intervention (000 $)
Administration 94,072
Education and culture 21,930
Industry, commerce, agriculture, and forest 189,850
Communication infrastructures 14,540,315
Touristic infrastructures, sports, and leisure 238,873
Justice 343
Health and social services 262
Others 71,558
Tangible assets 216,118
Computer system development 118,981
Total 15,492,302
Source: Adapted from Ministry of Finances (1997, pp. 3–5).
Stiglitz noted that states had no balance sheet. However, there is a calculation
of the value of the tangible assets that is done to make an assessment of the net
debt by the negative (Always be defiant toward the negative systems of
calculation).
Table 6.3: The Assets That Were

Accounted for in 2005.
(000 $CDN)
Lands 417,000
Buildings 2,396,000
Ameliorations 95,000
Complex networks 889,000
Computer development 896,000
Total 11,818,000
Source: Adapted from Finance Québec (2005).
Therefore, in 2005, the government pretended to have 11,818 million

in tangible assets (Table 6.3). But, in 1997, before the accounting changed, the
government declared 15,492 million in assets. In the reform made in 1998, they
butchered 9,472 million in assets to reach a total of 6,016 million (15,492,302–
9,476,30256,016,000). This is quite an adjustment mostly when we consider, for
instance, that the House of Parliament is accounted at 52,465,000 $, which is a
fraction of what it will cost to rebuild it. But, we can suppose that it is the
historical cost. The assets, related to education or health, indicate clearly that
the schools and the hospitals, belonging to the state, were not included in these
calculations.
The official discourse wants the net debt to be made of the accumulation of
deficits from current expenses. So they say that they spend more than they earn in
terms of public services. However, there are some problems with this assertion.
For instance, the net debt has increased by 4,643 million dollars (87,224–82,581)
during the period covered by Table 6.4 while the cumulated results (revenues
(2,15711261711,377) of less expenses (928172813581664)) show a surplus of
989 million dollars. So the debt had increased quite drastically while the revenues
were over the expenses. Thus, the net debt cannot be said to be attributable to the
excess of current expenses only, and the difference is huge as the operating surplus
must be added to the borrowings (98914,64355,672) to reflect the available cash
flow. If one would add all the deficits made by the Government of Québec since
the beginning, he will fall short of the net debt by quite a huge amount. In the
logic of these accounts, the tangible assets are subtracted from the total debt to
reach the net debt. Therefore, the less that is subtracted, the larger and more
frightening the net debt will appear.
The next quote reports on other factors than operations having an effect on the
cumulated deficits. The government consolidates the results made by the SOE.
Table 6.4: Accounting for the Deficits and the Debt Since the Accounting
Reformation of 1997–1998.
Year Revenues Expenses (Deficit) Total Net Tangible Cumulated

or Surplus Debt Debt Assets Deficits
04–05 57,297 57,961 (664) 119,765 99,042 11,818 87,224
03–04 54,950 55,308 (358) 116,214 97,025 10,735 86,290
02–03 52,676 53,404 (728) 114,578 95,601 9,716 85,885
01–02 50,503 51,431 (928) 107,486 92,772 8,234 84,538
00–01 51,214 49,837 1,377 104,860 88,208 7,166 81,042
99–00 47,577 47,570 7 101,281 89,162 6,693 82,469
98–99 46,889 43,763 126 102,106 88,810 6,233 82,577
97–98 42,307 44,464 2,157 98,535 88,597 6,016 82,581
Source: Adapted from Finances Québec (2005, p. 38).
Some of these enterprises have declared changes in their depreciation methods to

pass to the straight line supposedly for harmonizing with the International
Financial Reporting Standards (IFRS). Firstly, a government does not have to
conform to any exterior pronouncement. Secondly, the principle enounced clearly
in the International Financial Reporting Standard Handbook for depreciation is
based on the principle that depreciation must follow as close as possible the usage
of the asset. This was exactly the principle our standards had before. And the
IFRS gives the example of the straight line depreciation only as an illustration.
Government enterprises: ($3758 M) for adopting the straight-line

method for tangible fixed assets to replace a method not recognized
by International Financial Reporting Standards (IFRS); $9 M for
various items.
Departments and bodies: ($1234 M) for harmonizing the
accounting policies of organizations in the health and social
services and education networks with those of the Government to
make it easier to incorporate these organizations into the
Government’s consolidated financial statements using the line-by-
line consolidation method; $431 M for adopting a component-based
approach for capitalizing and amortizing the cost of road
infrastructure fixed assets; ($683 M) for contaminated land
remediation obligations recorded as environmental liabilities; ($1
129 M) for changing the valuation basis for calculating interest
on the pension plans; and $165 M for changing the method used
to record personal income tax collected by the federal
government on behalf of Québec. (Finances et Économie
Québec, 2013, p. 63)
During 2009–2010, they added to the deficit 6,651 million dollars for adopting
the straight line depreciation method in the SOEs (3,749) and the ministries
(2,450) plus small adjustments.
The amortization method used must reflect the rhythm with which
the entity expects to consummate the economic advantages related
to the asset. Different amortization methods can be used to divide in
a systematic way the amortizable amount of an asset over its useful
life. These methods include the strait line, the reducing balance at a
constant rate method and the method based on the units produced.
The straight line method produces a constant expense on the useful
life of the asset if the residual value of the asset remains unchanged.
The reducing balance method leads to a decreasing expense over the
useful life of the asset. The method based on the produced units gives
an expense that is related on the actual use or the budgeted
production. The entity chooses the method that reflects, the most
closely, the usage of the future economic advantages expected from
this asset. (IASB, 2006, p. 965)
The text seems clear for us: an entity chooses the method that is the most
appropriate to reflect its situation. Therefore, the straight line depreciation is
only one method among others. So when they pretend that the straight line
method is the most appropriate, these companies say that they have wrongly
applied other methods for years as their method was not the closest to the usage
of the asset. Any other method than the straight line has a chance of producing
higher expenses at the beginning and lower amortization expenses toward the
end of the useful life of the asset. So, if you change for the straight line method
in the middle of the process, you increase your amortization expense for the
following years. For an SOE that has to make its tariffs approved in function of
its expenses, such a move can be a useful tool to obtain the permission to
increase its tariffs.
6.5 Summary
Nobody discusses public accounts in the public space. They discuss the budget
and what the government intended to do, but never the results. Over 6 years, we
have more than 10 billion dollars for accounting adjustments that had a negative
effect on the cumulated deficits based mostly on an opportunistic interpretation of
the IFRS. To close this, we must add that the auditor declared that the financial
statements were presenting a true and fair view of the financial situation of the
state, which is as believable as the accounts of Enron.
Governments are manipulating their accounts as well as private firms, and this
in the goal of having their principal, the citizens, continue to vote for them, as well
as mask some expenses that would not have the approbation of the population if
their very nature would be disclosed like the “special projects” of all these secret
agencies flourishing around our governments.
Questions
1. What is the function of the private property system?
2. What is the function of the income tax system in a society and to what extend
is it constituting a market failure? Comment.
3. What do you think of the well-known statement made by Milton Friedman
and quoted in the chapter?
4. Taxing profit, do you think it is the best basis for taxation?
5. Discuss the role of governments in regard to charitable, cultural, and sportive
activities relative to taxation.
6. Can you identify different forms of externalities? Provide some examples.
7. Can you comment the positions of Weber, Mill, or Ricardo about the topics
we are discussing here?
8. Investors require 15% returns on their investment! Comment this statement
with the content of this chapter and the classical neoliberal economic theory.
9. What are you learning through the profit figure? Which information the
profit is providing to you: one, as an investor; two, as a citizen?
10. This 15% of question 8: Is it correct to account for it after the net profit?
11. Do you believe that privatizations are good social decisions? Provide
examples where the alleged goals of privatization programs had been
realized.
12. Do you believe that accounting is telling stories, and why?
13. Do you believe that the profit is an adequate measure for the performance of
an SOE?
14. Can you know how the national assets had been managed through the actual
accounts produced by states?
15. What have you learned during your studies about a state’s accounts?
16. Do you believe to be able to provide advices on a state’s accounts? If not,
who will do that?
Topics for Further Reflections

Our economic system is based on the idea that a private enterprise is better than
an SOE because of the incentives coming from the private property system. How
is accounting, through the concept of profit, reinforcing this idea rather than
demonstrating it?
SECTION 2: THEORIES OF ACCOUNTING
Chapter 7
Sociology of Accounting
A theory of accounting can be elaborated from many points of view. In this

section, we will draw the general scheme of different approaches for a theory of
accounting. Therefore, as accounting is a sociological phenomenon, we will look
at the parameters of the sociology of accounting. We also have discussed briefly
the effect accounting can have on the behavior of people. Consequently, we will
look at the possibilities of the psychology of accounting. As accounting is also a
means of communicating, we will analyze the communicational role of
accounting and consider the goal of this communication that is said to be an
individual decision-making process. Consequently, we will look at the theories of
the decision and the concept of rationality that goes alongside.
From a scientific point of view, we not only can but also have to elaborate the
sociology of accounting. We have many examples of particular sociologies: of
the organization (Bernoux, 1985; Lafaye, 2005), of the enterprise (Bernoux,
1999; Sainsaulieu, 1997), of the professions (Champy, 2012; Dubar and Tripier,
1998), and of economic sociology (Granovetter, 2008). The sociology of
accounting is to be placed among the sociologies of technics, a part of the
general sociology.
This technic is not associated with a science, although it can become the
object of a science. The language is itself a technic for communicating; and
although the most popular by far, language is one among other communication
devices.
7.1 Accounting for the Social Contract

Since Hobbes (2000) and up to a degree as his position on the origins of power in
a state remain ambiguous, and Rousseau (1964), for who the origins of power are
clearly situated within the citizens as a group, it is current to believe that the
cement maintaining our societies together takes the form of a social contract. For
Hobbes, publishing his Leviathan in 1651, a century before Rousseau, the state is
an artificial animal created by the human being. This notion of “moral person”
applied to an organization is quite original for the time and may announce the
vision of the enterprises we have today. But, he is not totally convinced by the
effect of democracy and saw the republic as a Leviathan. Moreover, he writes

doi:10.1108/978-1-78769-793-520181007
during a period of religious and civil turmoil in England. The Presbyterians were
fighting the Episcopalians and England was the first modern European country to
have executed its king in 1649, more than 100 years before France. This monster
of a republic was frightening many who believed that without the central power of
the monarchy, everything will be disembodied by private interests (Baillargeon,
2017). The answer proposed a century after, by Rousseau, is the social contract.
The economic solution, proposed by Smith also a century after Hobbes, is the
laissez faire, where everything will fall in place by itself: a catastrophic idea whose
effects we are still enduring today.
Any social institution – and business is no exception – operates in

society via a social contract, expressed or implicit, whereby its
survival and growth are based on: 1- the delivery of some socially
desirable ends to society in general and, 2- the distribution of
economic, social, or political benefits to groups from which it
derives its power.
The notion of the social contract provides a sound basis for widening
the field of accounting. (Shocker & Sethi, 1973)
The clauses of the contract are not established in what would have been the
initial moment, the signature time. Its clauses are disseminated through the texts
of the laws but also the unwritten habits that are delimiting what the society finds
acceptable or not.
Thus the agreement at the very basis of the society operates similarly to the
language or the culture. It is impossible to retrieve the initial moment of the
language, the moment where the great attributions of the signs to the referents
were crystallized. Every one of us takes the language on the road and we leave it
on the road again, without having really modified it in a sensible manner. In the
same manner, the society is constituted by an ensemble of habits and practices
that we take as such when we arrive and that we leave having influenced it very
marginally if at all (Breton, 1982).
The social contract is managed by the state. It evolves following the beliefs and
the interests of those who can impose beliefs. It contains not only principles and
procedures but also a kind of program coming from those beliefs. This program
implies some level of education for the people, of social security, and of all a series
of actions tracing the limits of state intervention. This program also implies the
existence of institutions like schools, universities, courts, and so on, which are
charged to conduct, in the field, the great missions of the state. The power of the
state necessitates keeping a form of legitimacy at the basis of the exercise of a kind
of domination allowing finding obedience from groups of individuals and citizens
(Weber, 1995).
Legitimacy takes many forms and is in constant evolution. At the time of the
monarchy of divine right, the power of God was a sufficient justification for the
prince to be the prince. Obviously, this divine right power have known many
changes. Let’s quote, for instance, the quite drastic limitation of the power of the
Sociology of Accounting 117
monarch who was forced to sign the Great Charter. Consequently, legitimacy was
a somewhat floating concept, taking many forms following the periods. Weber
has already proposed some forms of legitimacy describing the recognition of the
ones exerting the power. But, we can also consider that the citizen accepted in a
society is considered legitimate. This legitimacy can be seen by the social recog-
nition it produces (Rosanvallon, 2008); the discussion about the arrival of
immigrants is an example of this aspect of the legitimacy. The social recognition is
the result of conformity to norms and standards (Rosanvallon, 2008). However,
the increase of the populations in the urban environment and the multiplication of
the communication means creating a certain social uniformity, allowing the
fragmentation in subgroups, generated some kind of explosion of the old vision of
the legitimacy.
A legitimate democratic state is the one to whom we recognize the right to give
orders following the method that had been elaborated to do so. However, a great
lack of confidence is appearing more clearly every day; at each opinion pool, the
politicians are at the bottom of the ladder of confidence, and the plethora of
scandals that follow one after the other do nothing to restore this confidence. The
population believes, in our democratic regimes, that “we are not democratically
governed” and “(…) the citizen, after the electoral moment has passed, is not very
much sovereign.” (Rosanvallon, 2015, p. 9) (Our translation).
The state is sliding from a position theoretically on the side of the citizen
toward a situation of accentuated distrust and a democracy that is quietly elim-
inating its instruments: political parties, programs, active implication of the citi-
zens, to arrive at a politic-spectacle being gradually transferred in the medias,
where the citizen has become a spectator and a consumer of politicians, packaged
like products by big firms of public relations (Breton, 2000).
The institutions created or annexed by the state to fill its mandates also become
distrusted. The absolute doubt being installed toward these institutions and under
the pressure of different groups, they are asked to make profits. Among these
institutions, the firm still resists quite well mostly because nobody sees the firm as
a public institution, at least the private one.
7.1.1 The Firm as a Social Institution

The responsibility to organize the survival system for the population is devoted to
the state, who has to put into place the means of production and the means to
reproduce the means of production. This subensemble of social relationships is
called the economy. However, this vision is not well spread in the governmental
and accounting discourses. The habitual conception is that the social starts where
the economic stops (Wood, 1991).
It is well-accepted that major development decisions impact on both

the economy and the social and natural environment, yet, in practice,
the pursuit of economic development and growth often sees social
and environmental impacts of economic processes ignored and
discounted. (Boyce, 2000, p. 27)
In some official documents, we have seen this figure made of three circles with
a small overlapping: the social, the economy, and the environment. In the
intersection is the “social economy.” They govern with such a vision although
they are totally unable to explain which part of the economy is not in the society
and which parts of the society and the economy are not in the environment. Such
simplistic schemes explain nothing. The economy is entirely social, and all that is
completely included in the environment. So there is no part of the economic world
that is outside of the social sphere, mostly if we consider that the economy is
basically a question of exchange. But, the economy had been appropriated by the
private sphere, changing the locus of control.
One of the most important principles of production and of overall produc-
tivity is the division of labor (Durkheim, 2007). The division of labor has for
consequence to force the members of a society to constantly exchange in
organized structures like markets. The necessity to organize these exchanges did
not really appear at the time of the monarchy where the productivity of the 95%
of the population was always sufficient to allow the eccentricities of the 5%
relying on it. The 95% was merely surviving or was dying without the governing
group taking much attention to it. Then appears the people. It is understand-
able, considering the state of education at the time, to wonder if it was possible
to organize the survival with the people as the ultimate source of power. We said
that the division of labor previously described by Smith (1991) is one of the main
principles organizing this system. The second principle is the autoregulated
market. While they feared that the disorder inherent to the “popular classes”
impede the survival, Smith came to say that if each one works for himself in his
specialty and interest, the ensemble will function all alone at the end. The
invisible hand will do the job to coordinate the efforts and avoid the spoiling of
resources. To reach this point, the property rights must be attributed in a
society. In our societies, the system of private property has been judged the most
prone to produce the maximal level of motivation while spoiling the least
resources.
These fundamental “decisions” are more or less included in our constitutions
that can be considered as the basic documents forming our social contracts
(Laffont & Tirole, 1993).
In our model the cost of public ownership is a suboptimal investment

by the firm’s managers in those assets that can be redeployed to serve
social goals pursued by the public owners. (…) The cost of private
ownership in our model is that the firm’s managers must respond to
two masters, the regulators and the shareholders. (Laffont & Tirole,
1993, p. 637)
We may complete our precedent statement and say that most of our
developed societies choose some form of hybrid systems admitting the
participation of the state, mostly in the sectors where the investments were too
huge or where installing competition would cost more than its absence. But,
we are then into systems where the ensemble of the markets is still, in
principle, controlled by the invisible hand. Pure competition implies the

autonomy of the agents that are contracting all the time. Obviously, such a
functioning is highly impossible in the “real world.” Thus, the firm appeared
to deal with this impossibility (Coase, 1937), put in a very abridged way. This
providential firm, coming to reduce the transaction costs and consequently the
frictions in the market system, is a paper creature, a virtual being, a moral
person.
Following the reasoning, the system was supposed to be autoregulated through
the multiples and uncoordinated actions of the self-interest-oriented agents. This
system is far too heavy and based on the existence of a level of circulation of
information that cannot exist in practice. Then appeared somewhat spontane-
ously a new institution: the enterprise. Created to manage the transaction costs,
the efficiency of the cooperation, the firm is a fiction, meaning that there is
nothing we can point and say: this is General Motors (GM), for instance. GM
owned manufacturing plants, offices, selling facilities, and thousands of other
assets, but none of it can be said to be GM. In the classical theory, the firm is
treated like an agent in the market, but nothing is said on the internal functioning
of this “black box” (Hart, 1995), which can be very huge.
The firm as a form of organization is filling the essential of the economic space,
making it an institution used to fulfill, at the level of the society, some of the
essential mandates of the state. As any other social institution, it receives, by a
sort of spatial and fundamental metonymy, the particularities of the state. These
attributes are necessary to function. Among those attributes, the firm will receive
access to the collective resources to fulfill its mandate, which implies a part of the
legitimacy belonging firstly to the state.
7.1.2 The Legitimacy of the Firm

For Pfeffer and Salancik (2003) the situation of interdependence, fundamental in
the life of enterprises, necessitates the transfer of some degree of legitimacy. In
those days, every firm needed to operate a certain degree of recognition by the
state. In its simpler expression, this recognition will take the form of a permit that
can be delivered at the lowest degrees of the hierarchy. But, as soon as we talk
about companies, we imply the existence of a birth certificate that was called a
charter. It constitutes an official recognition of the existence of the firm, a birth
certificate. For instance, an organization proposing as an intervention field the
subcontracting of assassination would not receive a charter. It is then an initial
granting of legitimacy to an organization that the public is still ignoring and may
continue to ignore. A firm manufacturing screws and nuts will be recognized
straightaway of public interest (Suchman, 1995) and nobody will question its
activity. The governmental institutions charged with the surveillance of the firm
will suffice, by default. However, even a firm of this sort can have legitimacy
problems. Imagine the citizens learning that this firm is manufacturing their
screws and nuts in India, with young children working on the production line.
Then, there may be a problem of legitimacy, not related to the activity, but to the
way to do it.
We will encounter three kinds of legitimacy problems. The first one will be
related to the basic activity. This one will be settled by the state accepting or not
to give a charter and to accept the activity. Then, this accepted activity can
become socially contested, as it is still the case for the tobacco industry. This kind
of contestation can last for decades. It is not Pall Mall or Imperial Tobacco that is
contested, but making tobacco products. Therefore, when the activity is con-
tested, the problem is related to all the firms and it is a sectorial problem. While
this problem is socially debated, a firm can lose its reputation because hiring
children in a foreign country or the sector can have a problem of process legiti-
macy because the entire sector is adding addictive substances to the product to
keep their consumers. It is important to discriminate between reputation and
legitimacy.
Legitimacy appears then as a conversation between an industry and the
society (Hasbani & Breton, 2013). To this conversation are sometimes invited the
governments and their regulating bodies, depending on the urgency of the situ-
ation. In the case of the Deepwater Horizon, many groups intervened, on both
sides, to impute responsibilities and to reject them. The general public followed
the debate through the media (Deegan, Rankin, & Tobin, 2002; Hasbani &
Breton, 2013). The media played the role of transmitters essential for the con-
versation to continue. Often, for long periods, we hear nothing about any
problem because nothing noticeable is happening. When the media are multi-
plying the references to a particular industry, then something is happening. The
media become thus the barometers of the degree of legitimacy that the industries
have at a given time (Deegan et al., 2002). With the Deepwater Horizon the
situation becomes a problem of legitimacy because there was already a general
belief that the oil and gas companies were ready to do anything to make money.
No serious contestation of their activity was argued. However some defiance
toward the process they follow to make money had been expressed. BP had not
really lost its reputation as, two years after, and after the “legal sanctions,” the
profit was back to normal.
A firm manufacturing a simple product sold to other firms to enter into the
fabrication of another more complex product may stay mostly ignored for the rest
of its life. But, it is possible that something happened to change this state.
Therefore, when the state is issuing official documents giving an official birth to
this “moral person” that is a company there is a form of fundamental legitimacy
that is conferred on behalf of the citizens but in absence of their knowledge. That
is the beginning of the conversation that can start by a long silence which can last
to the end of the firm; the initial legitimacy already there suffices for confirming
the entering of the new firm in a group already legitimate.
The definition we start with was proposed by Suchman (1995) stating that it is
the activity that is recognized of public interest. Any industrial or commercial
activity is not defining a firm but always an entire sector. Therefore, a legitimacy
crisis touches entire industries, not specific companies. When specific companies
are touched, normally it is their reputation they are losing. The so-called “general
public” provides more than legitimacy to firms; it also provides their reputation,
their “image de marque,” etc. (Fig. 7.1).
Legitimacy from the citizens
Fundamental recognition that a irm enter in a sector socially acceptable
Given by the State (on behalf of the society)

Original at the beginning of the organization under the
form of charters, licenses or permits, etc.
Components of the social dialogue between sectors and society
Recognition by the member of the society that the

activity of a sector is of general interest. (Pfeffer
Activity and Salancik, 2003; Suchman, 1995, Parsons,
1960)

Process way a sector conducts its activity is acceptable.
Moral legitimacy for Suchman (1995).
The liberal theory had been included in the laws.

We now have laws against monopolies or cartels.
Legal (systemic) Even if people are not aware of the details of the
laws, they may perceive huge proits as a result of
taking some liberties with the system (Watts and
Zimmerman, 1986).
Agency aspect of the legitimacy
The agent must conserve its legitimacy in front of

the shareholders if he wants to continue to
Agency
exercise the delegated power. (Fourth form of
moral legitimacy for Suchman, 1995)
Fig. 7.1: Types of Legitimacy Related with the Sector.

Source: Adapted from Hasbani and Breton (2013).
It is possible to produce an equivalent figure for the public sector (Fig. 7.2).
The SOEs also need to be legitimated, although this is the object of a
continuous fight between the private and the public sectors. The ideology at the
basis of this continuous fight is generally incorporated by the citizens as the
private sectors possess most of the state ideological apparel, which is not anymore
the education system, but the medias.
In the private sector, the tobacco industry is the most publicly contested
activity. The fight lasted for more than half a century now and is not yet settled.
Legitimacy from the citizens
Fundamental recognition that a irm is in an ineficient and costly sector
By creating an SOE, the State confers some

legitimacy. However, the society is not following
Original illegitimacy in this direction. In our liberal economic system a
SOE is a breach.
Components of the social dialogue between sectors and society

activity of a sector is of general interest. (Pfeffer
Activity legitimacy and Salancik, 2003; Suchman, 1995). Except for
marginal goals.
Recognition by the member of the society that

Process legitimacy the way a sector conducts its activity is ineficient
and costly by deinition. Moral illegitimacy
derived from Suchman (1995).
The liberal theory says that private property is

the best motivation of our system. Public
Legal legitimacy property, by cutting this source of motivation, is
an incentive for pickings of any kind.
Agency aspect of the legitimacy
The agent (managers of the SOE) are seen as

looser refusing the competition and hiding from
Agency legitimacy
the market in SOE’s. (Fourth form of moral
illegitimacy from Suchman, 1995)
Fig. 7.2: Types of Legitimacy/Illegitimacy Related with the Public

Sector.
Many other activities are also contested on the basis of their environmental effect.
Conversely, an activity can become legitimate while it was not in its past: the
example of growing marijuana plants illustrates this idea.
But a sector can also be attacked over other questions. The pharmaceutical
sector has been challenged not on his activity but on its greed. The rates of profit
realized at the cost of sick persons and their lawsuit against the Government of
South Africa, for instance, made people believe that the entire industry was ready
to do anything to increase profits while the largest of them were already figuring
among the most profitable firms in the world. It is their way of conducting their
activity that would be contested here. If only one firm of the sector does some-
thing, it will be imputed to its reputation. But if all the firms of the sector are
considered as using the same antisocial process, then it is a matter of legitimacy.
In the case of BP, it had been a small legitimacy crisis because there was a con-
stant underlying doubt about the discourse on the prices sustained by the sector
suspected of doing anything to increase profits. A legitimacy crisis can develop
from a problem of reputation originating in only one firm.
The liberal economic principles had been incorporated into laws in many
countries in the world. We have laws against cartels or monopolies. When some
evidence of collusion is brought over the public place, people understand they
have paid too much and start to increase their level of defiance toward this sector.
For us, the stakeholders are not conferring legitimacy. Legitimacy comes from
the “general public,” not as the general public but as citizens, from some sets of
information that have nothing to do with the discourse of a deceived customer.
This customer will say: I will never again buy this kind of car; he will not say we
must stop making cars. But some people are starting to attack the legitimacy of
making cars using fuel. This relatively new social conversation is now pushing
many institutions to install electric devices for reloading electric cars. We may
foresee that within 10 years most public buildings will have that kind of facility in
their parking. Reputation can be dependent of the stakeholders because one
organization may present many faces: one for the customers, one for the
employees, one for the investors, etc. The so-called “stakeholder theory”
(Donaldson, 1999) is replacing citizens as an ensemble by a series of different
pressure groups possibly made of the same persons but with each time a
different goal.
Legitimacy is about how a sector respects its social contract; reputation is
about how a specific organization respects a series of contracts with a series of
groups or persons often called stakeholders. While reputation is an “attitude
construct” (Schwaiger, 2004) although containing some varied cognitive pro-
portion, it doesn’t have the political dimension legitimacy possesses.
Finally, we have the legitimacy of the managers, mainly the CEO, for the
shareholders. Obviously it is not all the shareholders, but those having a sort of
control. The members of the board are also part of this process. So, a manager
has to control the legitimacy of the firm for the general public and also his
legitimacy in front of the shareholders and the board as any form of power has to
be legitimated.
Legitimacy is fluctuating like stock prices. It would probably be possible to
follow it on a market if it would be possible to openly sell it. When the level of
legitimacy becomes too low, firms take action to restore it. There are firms
specialized in managing crises and a certain amount of literature about that
(Coombs, 1999).
Industries having the greatest political exposure will be more often scruti-
nized (Watts & Zimmerman, 1986). In the classical liberal economic theory, the
profit is not supposed to exist as we are in a situation of perfectly competitive
markets, with no barriers at the entry. Then, a high profit is a signal that the
system is not functioning and will normally be followed by a drop of the
legitimacy of this industry. For the profit, we may observe that the business
world has succeeded in changing its meaning and that the signal of malfunction
of the economic institutions had been transformed into a signal of health
(Breton & Caron, 2008).
The conversation becomes a diatribe in critical moments. The industry must
then take the means to calm the tone, even to silence those who enflamed the
discourse against the sector. The means to do that have been very rarely studied in
the field. The theoretical proposals leave little space to tangible actions but prefer
discourses. A typical proposed set of tactics would be, in this order: Gray, Owen,
and Adams (1996).
• educate and inform its relevant publics;

• seek to change the perceptions of the relevant publics;
• seek to manipulate the perceptions;
• seek to change external expectations of its performance.
There is no proposal implying to change something tangible in the firm. It is all

about the perceptions.
7.1.3 The Discursive Defenses

The conversational, then purely discursive character of the legitimacy places us in
the necessity to enter into discourse analysis. Industries are unable to do without
legitimacy as it is the key to open the coffers of the state and still better, its
granaries. So, we have to analyze interventions to follow the patch of legitimacy
decreases and identify the methods used by the industry to repair the holes made
to it.
The bad perception of the pharmaceuticals, underlined above, is accompanied
by a fear that will not allow, in a foreseeable future, to question the activity of
making medicines. Pharmaceutical companies, as a sectorial line of discursive
defense, will say that they need profits to continue to do research.
Many industries know similar experiences. They receive criticisms on their
ways of conducting business without questioning their basic activity. Gas
exploration is one of these sectors. The activities of these sectors are perceived
as being essential, therefore they can take some liberties in the pursuit of
profit, for instance, without being really in danger. That is where accounting
intervenes.
Legitimacy appears as an intangible asset; this is an accounting problem
because it is one of these assets that are reputed to decrease, by their absence,
the relevance of the financial statements. If we would account for the legiti-
macy, we will have to give a value to it and then to account for its fluctua-
tions, and normally not just the diminution in the value. Maybe the time has
come to change our set of financial statements and to have some statements
that are not measured in monetary units or not entirely. At this point, it may
be interesting to consider the Bilan social (social balance sheet) that has been
legalized in France in the 1970s. This “balance sheet” was providing useful
information on the firm through economic indicators instead of monetary
valued items.
7.1.4 Accounting, Measurement, and Social Decisions

Privatization has taken an important political space since about 30 years now.
Privatization attempts to reduce the size or role of government by

transferring production and delivery of public goods and services into
private hands. (Fernandez & Fabricant, 2000, p. 133)
Privatization was supposed to bring efficiency in the privatized organizations,

which had not been the case in most circumstances (Cuervo & Villalonga, 2000).
Accounting has imposed itself as a measure of the social performance of the firm.
Key concepts from accounting are used to evaluate the measure in which the firm
has reached its specific objectives and mandates, therefore its part of the social
contract.
To the industries with a noncontested activity, it will be the unrestrained
pursuit of the profit that will be more frequently reproached while the SOE will be
accused of not doing profits.
That is the framework of our sociological study of accounting. Accounting is a
technic used in our societies to tell the financial story of an entity. Then, its owners
will pretend to use it to measure performance. For the state, the story in question
would be supposed to tell the government if the firm has reached its goal and
fulfill its mandate. Outside the Anglo-Saxon world, a state can have other man-
dates than increasing the wealth of some shareholders. These mandates are often
fulfilled in part through SOEs. The expenses made by the SOEs for a state’s
mandates are totally legitimate, but must be accounted for in the correct column if
we want to judge the main activity of the organization.
Accounting concepts cannot be used everywhere in the society. The privati-
zation movement that had been observed in the 1980s and 1990s had, in its
background, the transformation of the SOEs on the model of the private firm
even if their goals are not the same. The first step was to declare the goals of the
SOE illegitimate and substitute the profit as the only possible goal of an enter-
prise. The tenants of the privatization used accounting in a series of biased
measurements arriving every time at the expected result. Boardman and Vining
(1989) tried to prove, based on a nonexisting theory and using the profit as a
measure, that private firms were performing better than public ones. They
concluded that it was true although their results were inconclusive. This
inconclusiveness has been observed by others (Bozec, Breton, & Côté, 2002;
Dharwadkar, George, & Brandes, 2000; Frydman, Gray, Hessel, & Rapaczyn-
ski, 1997) but has not stopped Boycko, Shleifer, and Vishny (1994) from building
on nonexistent results showing that if the results are not in line with the ideology,
the latter must prevail.
Bozec and Laurin (2000) compare a SOE in its privatization process and a
private firm. The ideology is clearly leading their paper:
To remedy to the economic performances of the public sector

enterprises judged insufficient, the governments frequently proceed
to the privatization of these firms. Effectively, since about 20 years,
we see, around the world, some huge privatizations. Canada had not
escaped this tendency. Therefore, large state-owned enterprises, as
Petro-Canada, Air Canada or more recently the Canadian National
appear among this group.
In the economic literature, the theory of property rights argues that

the public sector enterprises are systematically less efficient and less
profitable than their counterpart of the private sector. The argument
relay essentially on the presence of the capital market, more
particularly the stock exchange market as mechanisms to ensure a
rigorous control allowing the firms of the private sector to optimizing
the efficiency and the profitability of their operations. (Bozec &
Laurin, 2000, p. 266) (Our translation)
Firstly, they propose a medicine for a sickness they declared themselves backed
by some supposedly general movement of privatization around the planet.
However, if we look at this movement, we see that outside the Anglo-Saxon
countries, the privatizations had been driven by the IMF (International Monetary
Fund) and the World Bank, so forced by the Anglo-Saxon countries in the name
of private companies following and taking charge of the new privatized activities.
Secondly, the economic literature, outside of the agency theory that is taking
almost the entire place in accounting research but that is far from having this
importance in economics or strategy for instance, is far from concluding what the
paper is reporting. Anyway, the main argument of the property rights is not the
market, but the incentives.
Moreover, the argument of the markets is interesting. There were two railways
in Canada. Therefore, in privatizing the CN, the Canadian government created a
duopoly, not a competitive market. That will be the situation for most of the
SOEs. In the UK, they had 10 public authorities to manage the provision of
drinkable water and the disposal of used waters by geographical area. When they
privatized, they created 10 regional monopolies; so much for the control by the
market. In such a situation, the prices of water increased tremendously, and
the profit of the companies followed. However, contrary to the supposed theories,
the quality of the water was questioned in many places. The number of lawsuits
rocketed during the post privatization period, some of these going as far as
accusing the companies of poisoning people (Lobina & Hall, 2001).
There are important reasons why the governments decide to take the property
of a firm. The northern part of Canada is mostly empty. This situation can have
negative effects on the Canadian sovereignty on the northern parts of the country.
Therefore, the Canadian government elaborates politics to keep the northern
areas alive and to provide some services to the population living there (Bozec &
Breton, 2003). The public railway firm will have to provide services in the
northern areas, keeping stations to manipulate low quantities of merchandises
and low traffic of passengers. Therefore, the productivity will be lower than in the
private firm. However, you cannot stop this service without considering the
occupancy of the territory and the cost to displace the people living there.
Another reason will be the expected failure of a large firm and the expected
unemployment of a large quantity of people. In the Province of Québec, the
government took control of a ski resort to save the enterprise from bankruptcy,
i.e., saving jobs. The government also added in the books of the new SOE a
certain amount of adjacent pieces of land. Some years later, the tenants of the
privatization started to publicly argue that the government has no business in ski
resorts, which can be found defendable. They privatized the resort for a low
price including the land added to it. Finally, Canadian governments own firms
in sectors where the investment was too large to be undertaken by private firms
or in sectors which were natural monopolies and the difficulties of ruling were
enormous; this is the example of the electricity sector in Québec.
All these events show that the use of accounting concepts may be misleading.
In the case of SOEs, owned by the citizens although managed by the governments,
the tariff is a more relevant measure of the performance than the profit.
The provision of water is a natural monopoly, and to make it on a “market”
under the control of the state, which is an oxymoron, has few chances of pro-
ducing any good. For instance, in London, after the privatization, the health
authority expressed some concern about the return of infectious sickness having
disappeared for decades.
These examples are showing clearly that accounting concepts and reports have
some very important effects on the society.
7.2 The Sociology of Accounting

The society will designate, for the time being, the ensemble of the citizens living in
a defined geographical area.
A society is a cluster, or system, of institutionalized modes of

conduct. To speak of ‘institutionalized’ forms of social conduct is
to refer to modes of belief and behaviour that occur and recur – or,
as the terminology of modern social theory would have it, are
socially reproduced – across long spans of time and space.
(Giddens, 1982, p. 8)
The institution representing this society is principally the state and its specific
components (government, parliament, etc.). Among other tasks, the state must
organize the protection of the citizens (Rosanvallon, 1992). Later, the state will
take the responsibility of the “Providence State” (Rosanvallon, 1992). The
ensemble of means mobilized to these ends is generally the object of the economy.
The economy is an abstracted notion incarnated, in our societies, by the firm as an
institution. These firms, in turn, possess a series of attributes among which we find
accounting as a communication technic.
Accounting exists under many appearances. Normally, financial accounting is
separated from management accounting, and accounting in the organizations is
separated from the national accounting. Management accounting is mostly used
to take decisions internal to the organization. Consequently, this form of
accounting is not framed by any law or official ruling. Financial accounting is
supposed to inform in priority the investors that are farthest from the firm and less
prone to obtain other information. To encourage this world of investors, which is
the goal of the market system and is perfectly in line with the discourse of Smith
(1991), financial accounting is described by laws and rulings. However, the
establishment of the standards is often subcontracted to professional bodies,
which automatically places the large firms in a position to control the standard-
setting process. That was also the conclusions of Watts and Zimmerman (1986)
when they were promoting studies on the interventions of some categories of firms
in regard to specific standards. Conducted following rules, such studies belong to
the sociology of accounting.
The sociology of accounting will have many entries. Firstly, we will consider
accounting as a social phenomenon. As such we have to be aware of the inherent
constructivism that accompanies social facts.
We cannot approach society, or ‘social facts’, as we do objects or

events in the natural world, because societies only exist in so far as
they are created and re-created in our own actions as human beings.
In social theory, we cannot threat human activities as though they
were determined by causes in the same way as natural events are.
We have to grasp what I would call the double involvement of
individuals and institutions: we create society at the same time as
we are created by it. (Giddens, 1982, p. 11)
This vision of a social phenomenon is reinforced by the control of the state.

Such an approach would ask questions about the apparition of accounting, about
who controls it, and how the fundamental orientations with the ways to organize
and structure this activity are decided. As accounting, through the announce-
ments of profits and losses, influences the decisions of the citizens, we may study
the channels through which the accounting images are formed in the society and
such sociology may ask how come in many countries this mere technic has been
elevated to the rank of profession.
We have an example of this in the study of Christensen (2004). He examined
how the management of an Australian university uses accounting concepts, in
absence of numbers, to justify their decision to terminate a service they were
offering. We assist to that kind of usage of accounting concepts and numbers
every day. It is like if the public system including the government would have to
make profit. Therefore, all the sustaining of people in need is limited, and the
poorest and more needy people are sent to the charities that are funded to ful-
filling this unavoidable function. Then, the governments can sustain the economy
and the firms that are supposedly making it. Thus, instead of compensating for
the deficiencies of the “market” economy, which is the function of the liberal
state, our governments are giving billions to firms to do what they are supposed to
do without the financial support of the state: create wealth. Doing that, the state is
increasing the market imperfections. In Québec, it was said, a few years ago, that
something like 400 million dollars would replace the higher education on its rails.
It was far too expensive for our governments that gave a couple of billions to one
company just after that. Nobody seriously asked what the financial performance
of this “investment” was. Looking at the pace with which occidental governments
“invest” money in the economy, sustaining the large firms, it is clear that the
system of private firms is no more able to create wealth. Therefore, what are they
doing?
We cannot say anything in biology, in physics, in mycology, on the

raising of silk worms or the painting of the quattrocento. We can say
everything in economic. (Maris, 1999, p. 47) (Our translation)
Accounting is, like always, at the end of the peloton. It continues to account
historical values and forget a series of externalized expenses. It continues to help
anyone having the means to pay, to cheat income tax, and to pump as much
resources as possible from the governments to sustain an economic development
that brings more wealth into fewer hands.
While we may wish to believe that accounting is no more than a

(complex) set of (socially neutral) techniques and skills and that
economics is a “science” abstracted from ethics, values, human
emotions, exploitation, quality of life and the state of the physical
environment, such beliefs are untenable at best and destructive,
dishonest and immoral at worst. (Gray et al., 1996, p. 15)
Accounting is far from being this socially neutral, observing discipline.

Accounts, those of the states or of the private organizations, are biased and
oriented toward specific ends.
Throughout conventional accounting theory, teaching and practice

there appears to be a widespread acceptance that (for example) the
purpose of financial accounting is to inform the self-interested
decision maker in order that they maximise their personal wealth
and (explicitly or implicitly) thereby ensure the efficiency of the
capital markets. (AAA, 1977; Beaver, 1981; Benston, 1982a, 1984;
Dyckman et al., 1975; McMonnies, 1988; Solomons, 1989).
Why such a highly talented and privileged group of accountants

should exert so much effort in order to ensure that the richest and
apparently most powerful group in society become still richer and
more powerful is rarely explored. (Gray et al., 1996, p. 17)
Therefore, we may wonder what would be the “real” theory of accounting; the
one that can explain accounting behaviors looking so unreasonable but sustained
by the academics and the practitioners. Over the calculation of profit, organiza-
tions live on unsaid elements that are obliterated in the financial statements. In
fact, there are two parallel discourses. The first is the official one and the second
comes from different activist groups that have been on the field and seen the
consequences of the actions of these enterprises. The government, for one, is
clearly focusing on the first discourse.
7.3 Summary
Accounting is the method used to measure the extent of the fulfillment of the
social contract by the firm.
Accounting is clearly technical, but it is much more than that since

how and what we account for affects everyone in society: there is a
“public” interest’ at stake. (Cooper & Morgan, 2013, p. 418)
As such, the concept of profit is widespread in the social discourse and in the
activity consisting in assessing the results of the SOEs and the governments. The
profit is then the measure of the legitimacy of the social institutions although
wrongly conceived and used.
This diversion of the concept is possible because accounting is a social tech-
nique used by many groups and individuals in the society and an object of
appropriation by factions or groups for their personal uses. Such usages include
support to privatization projects, eliminating SOEs, closing social programs, etc.
Consequently, the accounting concepts and activity will take different signifi-
cations following the periods in history. It is the job of the accounting history and
of the sociology of accounting to follow these changes in a diachronic perspective
for the history and to describe the situation at a given time, in a synchronic
perspective for the sociology.
Questions
1. What do you think of the attribution of the statute of “moral person” to a
company?
2. a. What is a social contract?
b. Who are the parties of this contract?
c. Who manages the contract?
3. What is the relationship between legitimacy and power?
4. Enumerate the different forms of legitimacy of an organization and describe
it shortly.
5. What relationship do you see between accounting and the social contract?
Discuss.
6. Describe the social meanings of the concept of profit?
7. What would be the best way for measuring social performance?

8. What are the objectives of the privatization programs?
9. Privatization is the best solution for SOEs that are making low or no profit.
Comment.
10. Compare the tariff with the profit as a measure of performance in the public
sector.
11. Is it in line with the liberal economic system’s specifications for a state to
subsidy the companies? What would be the role of the state in such a system?
12. Answer the question (in green) asked by Gray et al. (p. 183)
13. How can you describe the role of the accounting history?
14. What is the difference between history and sociology?
Chapter 8
The Psychological Aspects of Accounting
There had been a series of studies implying the psychological aspect of

accounting. These studies have been more assimilated to the management aspect
of accounting research.
8.1 Psychology and Control

The conception of the market, prevailing in financial accounting, presents agents
in the market as superhumans having no psychological problems or even biases.
They are considered perfectly rational.
But, inside the firm, it is admitted that people can have psychological moti-
vations to do certain things. There are a few psychological concepts which
reached the financial accounting domain despite all the “ifs” of the efficient
market hypothesis (EMH) and the difficulties CAPM (Capital Asset Pricing
Model) had to convince everyone. The CAPM contained also a great amount of
assumptions lacking convincing power.
• Investors are risk-averse individuals trying to maximize their wealth.

• Investors have homogeneous expectations about the returns of comparable
stocks.
• There exists a risk-free asset implying that investors can loan or borrow at this
risk-free rate.
• The quantity of assets is fixed; every asset has a market and is divisible at
infinite.
• There is no imperfection in the market as taxes or ruling or restrictions on some
types of transactions.
• Markets are without frictions, and information is free and accessible for
everyone all the time.
Obviously, if you make enough unrealistic assumptions you may be able to

reach any wanted conclusions, as noted Herbert Simon:

doi:10.1108/978-1-78769-793-520181008
I know no science (except the economy) having the pretention to

talk of phenomenon from the real world, and make discourses so
flagrantly in contradiction with the facts. (Simon, quoted by Gabrié
& Jacquier, 1994, p. 13) (Our translation)
But over this scotomization, financial accounting has encountered some other
notion inspired by the psychology. The most important is an alternate explana-
tion for the behavior of the agents in the market. If it is not efficiency, it may be
the functional fixation (Foster, 1986). The functional fixation is a lack of
understanding of the information that is circulating in the system. In psychology it
had been labeled: psychological set. It can be defined as follows:
Practice in solving problems one way tends to “set” us to solve a new

problem in the same way, provided the new problem situation
contains stimuli similar to those in the practiced problems.
(Morgan, 1961, p. 273)
Then, in accounting, the definition has been imported.
(…) a preparatory readiness to make a particular response to a

given stimulus.
Thus, based on this (…) and on accounting studies cited earlier, it

appears reasonable to assume that some form of persistence of a set in
the reaction of decision makers to data will occur in those instances
when the decision makers are aware that there has been a change in
the process generating the data. (Chang & Birnberg, 1977)
Briefly, in the absence of the perfect knowledge implied by the EMH, agents in
the market have a tendency, well known in psychology, to take something that
was present the last time they succeeded and apply it even if the circumstances are
not exactly the same. This attitude is near a conditioning, where the stimulus
provokes always and automatically the same answer (Fig. 8.1).
This Pavlovian vision is quite simplistic although a lot of research in
accounting is based on it. For instance, what is called behavioral accounting is
often as simplistic: if you find the stimuli, you will have the answer automatically.
CONDITIONING
STIMULUS RESPONSE
Accounting information Investment decision
Fig. 8.1: Simple Vision of the Conditioning Process.

The Psychological Aspects of Accounting 135
At least, we may suppose that there is a cognitive process intervening between

both ends and that a given stimulus does not always provoke the same straight
answer, or it will be too easy to make people buy anything. But, maybe it is. Or
maybe other considerations are entering into account.
To the contrary to what is teaching every rational economic theory,

our decisions are not the result of a compensated means of the
quantitative benefits multiplied by quantitative probabilities.
(Keynes, quoted by Akerlof & Shiller, 2013, p. 13)
Nevertheless, that is the way things are often presented.
8.1.1 In Management Accounting

Management accounting produces reports, like budgets, prepared by people at
many different levels in the organization. Each activity, department, or service
will prepare a budget for the year to come to be aggregated at a higher level.
People doing that have interests, but they also have their opinion about how the
superior level proceeds to the aggregation. Then, if the lower level believes the
upper management is indifferent to their problems and is always cutting without
analyzing, they will take sufficient buffers (budgetary slacks) to conserve their
margin of maneuver despite the cuts in the budget. Knowing that, the upper
management may double the cuts.
Therefore the demand for and the preparation of reports is prone to create or
encourage some deviant behaviors. But, the top management may know that they
can produce or reinforce desirable behaviors and prevent undesirable ones (Nit-
terhouse, 1989).
8.1.2 The Control of People

When we talk of control, we realize that it goes far beyond the simple control of
costs we discuss casually. In fact, control is a fascination that has increased with
the industrial revolution and the development of means. However, it is not new
for the colleges or the armies to exercise a strong control over activities.
It is interesting to visit a museum of automatons. They are examples of the
obsession of reproducing mechanically the movements and then having a
machinelike human doing only the desired movement.
The human body enters into a machine of power that is scrutinizing,

disembodying and recomposing it. A “political anatomy”, which is
as well a “mechanic of power”, is in the process of emerging; it is
defining how one can have some power over others’ bodies, not only
for having them doing what is desired, but for them to operate
following the guidelines, with the techniques, the rapidity and the
effectiveness that are determined. (Foucault, 1975, p. 162) (Our
translation)
This power has to be absolute to better control every movement and transform
it into something productive.
The gesture is decomposed in its elements; the position of the body,

the members, the articulations are defined; to each move are
assigned a direction, amplitude, a length; their order of succession
is prescribed. The time is penetrating the body, and with it all the
meticulous control of the power. (Foucault, 1975, p. 178) (Our
translation)
This increasing possibility of controlling the movements will produce Tay-

lorism and Fordism. The human being is then used, between two machines, to do
a task that the machine cannot do at that time. As the speed of the machine is
constant, the human in between must also be constant and deprived of any per-
sonal will and preferably feelings. The potential negative effect of such a working
organization had been illustrated by Charlie Chaplin in The Modern Times.
The cinema is not the only art to have represented different forms of control in
the business world. Zola, in Au Bonheur des Dames, has shown how the disor-
ganized system of old small commerce had been replaced by the large department
stores, like Le Bon Marché or later the Galeries Lafayette, in Paris. The employees
are controlled in every aspect of their lives, including the personal one, and the
information is circulating all the time very efficiently. Finally, he describes how, in
the retailing commerce, desire has replaced need.
Other sources have also discussed this question. Hoskin and Macve (1988)
discussed the organization of the armories in the US. They propose that this
organization had been imported from the military schools, pretention they backed
by the presence of the same person at the direction of both organizations.
Controlling the cost had been made necessary by the opening of the con-
sumption to masses, which is totally in line with the ideas developed by Zola.
Before that, there were a few buyers able and willing to spend a lot of money.
Therefore the products were few and quite fancy. To increase the production and
diminish the prices, the manufacturers had been forced to simplify the products
and tighten the costs. By chance (or not) at this moment in the history the means
to pass from individual artisanal production to serial mass production was
developing quite faster than in the preceding centuries.
A compensation system proportional to the units produced depends on an
accurate accounting of the moves of everyone. Therefore, management accounting
is everywhere in the life of the workers as a main determinant of their revenues.
8.2 Accounting as Communication

Among the psychological aspects of accounting, we have the communication
function. We communicate to produce an effect. Therefore, communications can
be studied in function of the effect they are meant to produce compared with the
effect they effectively produce. One phenomenon has taken importance in
communication: storytelling.
8.2.1 Storytelling
Now “human interest” has replaced the enunciation of “pure facts”:
Storytelling is used in unexpected sectors, wrote in 2006 the American

sociologist Francesca Polletta, (…): managers are expected to tell
stories to motivate the workers and the doctors are formed at listening
at the stories of their patients. Reporters have switched to the narrative
journalism and the psychologists to the narrative therapy. Each year,
thousands of people adhere to the National Storytelling Network or
participate to the about two hundreds festivals of storytelling organised
in United-States. (Salmon, 2007, p. 8) (Our translation)
Storytelling has invaded every aspect of our life. Politics has become storytelling
when they present images of the personal life of the candidates. Obviously all that
has nothing to do with the reasons of their presence on the television. Even in
publicity, storytelling has become very important. Often, the stories of the people
using the product takes so much space that at the end of the message you are not
sure which product they were talking about. It would be useless to spend lines to
discuss the invasion of storytelling in the scenarized reality shows. In a world of
storytelling where they say all the time that “you have to have a dream if you want
to have a dream come true,” the conception of “reality” softens seriously.
(…) our quotidian idea, conventional, of the reality is an illusion

that we spend an important part of our life to back up, even at
the considerable risk to bias the facts toward our own definition
of the reality instead of adopting the reverse process. Of all illusions,
the most perilous consist in thinking that there is existing only one
reality. In fact what exist are only different versions of it, which can
be sometimes contradictory and that are all effects of the
communication, and not reflecting objective and eternal truths.
(Watzlawick, 1976, p. 7) (Our translation)
Such lack of confidence in the objective existence of “reality,” expressed by

many specialists in human sciences, is backed by the research about our
perceptive abilities.
8.2.2 The “Quality” of Information

There had been a number of discussions lately about the quality of information.
The information is manipulated. However, many tenants of the efficiency of the
market pretend that accounting information may lack quality. Therefore, at the
moment where the IFRS (International Financial Reporting Standard) is to be
enforced in most countries, some researchers would like to find if those new
standards leave less room to manipulation.
In a paper published in 2008, Barth, Landsman, and Lang ask whether firms
using IAS produce accounting information of higher quality. Firstly, we have to
acknowledge that there is no theory behind such a hypothesis coming from any-
where. Secondly, the problem is how to measure these differences in the quality.
We all remember that the works of Jones (1991) and Dechow, Sloan, and Sweeney
(1995) although applying the best models to companies that had already been
prosecuted by the SEC were able to detect only around 30% of these manipulating
firms. We have no indication of the accuracy of the method proposed by
Burgstaler and Dichev (1997). Barth et al. (2008) use a measure of the variance in
net income compared with the variance in cash flows, etc. This measurement can
be classified in the same category as the measurement tested by Dechow et al.
(1995) and have poor detecting results (Dechow & Skinner, 2000) although being
difficult to determine as we don’t know who is manipulating or not.
To this measure they add:
We also interpret earnings that reflect losses on a more timely basis

as being of higher quality. Our metric for timely loss recognition is
the frequency of large negative net income. We interpret a higher
frequency as evidence of more timely loss recognition. Finally, we
interpret accounting amounts that are more value relevant as being
of higher quality. Our metric for value relevance are the explanatory
powers of net income and equity book value for prices, and stock
return for earnings. (Barth et al., 2008, p. 469)
The problem is the logic of this study. It is quite impossible to measure the
quality of the standards as we would need to have at least a sample of clearly
cheating firms to see if we can detect the manipulation as did, even imperfectly,
Dechow et al. (1995). Barth et al. (2008) decided that the market value is the
correct value and therefore the benchmark needed to assess the quality of
accounting numbers. But if the markets are efficient and reach the “real” price
before the accounting numbers are produced, the consequence is that there is no
need for accounting numbers and so their quality or absence of quality are totally
irrelevant.
For the question of the quality of accounting numbers to be relevant we have
to, at least, consider the market as a constantly adjusting system tending toward
the “real” price but never really reaching it. Then, it’s goodbye benchmark and
welcome relativism.
However, a discourse on the quality of the information is developing, although
this quality is difficult to assess. A real assessment would imply the existence of a
real situation that we would be able to know outside of the financial statements.
But, the financial statements are creating the world as well as expressing it
(Watzlawick, 1976). Consequently, there is no place outside where the “real
thing” can be observed. This discourse on the quality remains totally abstract and
is probably there only to boost the sales of IFRS.
Baudrillard (1981), when proposing the concept of hyperreality, in pretending
that the representations, linguistic or of other nature, have been detached from the
referents and are floating freely in the mental universe representing only them-
selves, is backing this idea that the “world of signs” has become the central element
of our universe. If we take the example of the stock prices, they are supposed to be
the expression of the future cash flows generated by the firms. This relation is
fundamental in our system and is backed in the imaginative world by the EMH.
The EMH is informational and therefore entirely based on discourses. We have
the speculative bubbles phenomenon participating from this hyperreality. But we
have also the fact that the news, every day, present the evolution of the market
prices as the direct expression of the reality of the world of firms whatever its
degree of separation. Consequently, the firm has no tangible existence in the day-
to-day life, but is replaced by the supremacy of the representations that are now
auto-referencing, evacuating by this process the “reality” itself. Those days, our
economic humor was conditioned by a discourse on the stock market that we had
transformed into a living entity with its “états d’ame” (frightened, unconfident,
etc.). The observations made in our quotidian life have no chance of interfering
with this discourse. We live in at least two parallel universes; the first one is made
of our quotidian life, the second is made of the discourse on our life having taken
such an importance that its detachment from the reality of our quotidian life places
this latter under suspicion. Consequently, the enterprise is twice discursive. Its
reality is entirely made of a discursive consensus, even if this consensus is written,
i.e., transformed into a fixed discourse. This applies to every institution as they are
made of discursive consensus.
We argue that language is fundamental to institutionalization:

institutionalization occurs as actors interact and come to accept
shared definitions of reality, and it is through linguistic processes
that definitions of reality are constituted. (Philips, Lawrence, &
Hardy, 2004, p. 635)
A consensus can be described as a shared definition of something. The United

Nations may possess buildings and committees, but it may sell all its assets and it
will continue to exist as long as people agree on this existence. This is not the same
case for Elvis. We may all agree that he is living; he is dead and will remain as
such. So Elvis is not an institution or an organization, the firm is one.
A social institution is (among other things) an apparatus of verbal

interaction, or an ‘order of discourse’. (…) In this perspective, we
may regard an institution as a sort of ‘speech community’, with its
own particular repertoire of speech events, describable in terms of
the sorts of ‘components’ which ethnographic work on speaking has
differentiated (…). Each institution has its own set of speech events,
its own differentiated settings and scenes, its cast of participants, and
its own norms for their combination – (…). It is, I suggest,
necessary to see the institution as simultaneously facilitating and
constraining the social action (here, specifically verbal interaction)
of its members: it provides them with a frame for action, without
which they could not act, but it thereby constrains them to act within
the frame. (Fairclough, 2010, pp. 40–41)
The motivations behind our actions are in a large proportion discursive. Some
may be considered not being such. But, accumulating money can be considered
tangible even if it is only a symbol, i.e., taking its value from a discursive consensus.
(…) by looking at organizations as phenomena in and of language.

Rather than consider organizations as some “thing” that exists
independent of language and that is only described and reported
on in language, the contributors to this issue start from the point of
view that organizations can be understood as collaborative and
contending discourses. (Boje, Oswick, & Ford, 2004, p. 571)
After a while, these institutions are taken for granted and gain the form of
legitimacy that is based on habits (Weber, 1995). In such a discursive environ-
ment, the current wisdom makes us expect manipulations. Even without it, is the
discourse immediately accessible? Does it contain a double or a triple meaning?
Maybe it’s “real” meaning is to be found in an intertextuality that most partici-
pants may not master to a sufficient degree? The discourse is suspect and with the
importance given to the discourse comes the defiance and the interest for the
methods to separate the true from the false. We have a good example with the
television series Lie to me. This series was based on the work of Ekman and
benefited from the assistance of the researcher himself. This method (Ekman,
2010) constitutes an approach similar to the lie detector, pretending to proceed to
a triangulation between the discourse and the physical reactions of the subject
read by a machine or observed by the specialist.
But in the case of written material, is the triangulation difficult? Some
researchers have tried to find some method for it. Hubbell, Chory-Assad, and
Melved (2005) studied the deception in the organizations. They refer to the infor-
mation manipulation theory (IMT). This theory from McCornack (1992) uses the
four maxims applied to the conversation by Grice (1989). This theory is only one
example of the kind of analysis that can be done on financial discourses. The best
results will probably appear at the confluent of the many different approaches.
8.2.2.1 From Grice to McCornack

One aspect of the originality of the theory of McCornack is that it applies on
written discourse. However, he takes his sources in the work of Grice which is
about conversation. The borrowed categories are as follows:
Echoing Kant, I call these categories Quantity, Quality, Relation

and Manner. The category Quantity relates to the quantity of
information to be provided, and under it fall the following maxims:
1. Make your contribution as informative as is required (for the

current purpose of the exchange).
2. Do not make your contribution more informative than is
required. (Grice, 1989, p. 26)
Here, quantity, quality, relation, and manner are broad categories illustrated
by counsels about how to put it in practice. The first category refers finally to the
concision not to hide key elements but to avoid losing the essential among the
irrelevant details.
The second category is the quality:
Under the category of quality fall a supermaxim – “try to make your

contribution one that is true” and two more specific maxims:
1. Do not say what you believe to be false.

2. Do not say that for which you lack adequate evidence.
(Grice, 1989, p. 27)
It is obvious that the assessment of the sufficiency of the proof can vary greatly
from one person to another. Obviously the goal of Grice is to make the con-
versation a kind of presentation that may stick to the plain truth as much as
possible. This is quite far from the art of the conversation and will produce quite
dull dinners.
The relation category refers to the relevance of the intervention and the
manner is about delivery.
Under the category of relation I place a single maxim, “be relevant”.

(…). Finally, under the category of manner, which I understand as
relating not (like the previous categories) to what is said but, rather
to how what is said is to be said, I include the supermaxim – “Be
perspicuous” – and various maxims as:
1. Avoid obscurity of expression,

2. Avoid ambiguity,
3. Be brief (avoid unnecessary prolixity),
4. Be orderly. (Grice, 1989, p. 27)
Grice considers a conversation as an activity based on cooperation. For him,

everyone must participate in rending the conversation efficient and agreeable.
However, for him, it is clearly efficiency that is most important.
Grice pretends to having borrowed his categories from Kant. However, in
Kant (1970), it is not some categories of the conversation, but fundamental logical
characteristics of knowledge. We must acknowledge that Kant also proposes
esthetical qualities.
A piece of knowledge is perfect 1) following the quantity, if it is

universal, 2) following the quality, if it is distinct; 3) following the
relation, if it is true and finally 4) following the modality, if it is
ascertain.
Thus considered at these point of view, a piece of knowledge will be

logically perfect following the quantity if it possess the objective
universality (universality of the concept or the rule) – following the
quality, if it possess the objective distinction (distinction in the
concept) – following the relation, if it is an objective truth – and,
finally, following the modality, if it has the objective certainty.
(Kant, 1970, p. 41) (Our translation)
We easily see that the categories of Grice are not an exact superposition of the
categories from Kant. The goal of a conversation is rarely entirely confounded
with the distinction between what knowledge is and is not, at least in the logical,
philosophical sense used by Kant. If we reread the phrase from Grice, he said he
had taken the names of the categories from Kant, not their content. However, this
is prone to create confusion.
Therefore, we have a distortion of the concepts between Kant and Grice,
passing from the categories of knowledge to the categories of conversation, and
then, another distortion between Grice and McCornack passing from an oral
conversation to a written exchange. When borrowing concepts of other disci-
plines, something we cannot exclude mostly in accounting, we have to follow the
travel of these concepts from their origins to the accounting domain.
We have some famous examples of problems created by the pleasure of finding
a ready-to-search little model to be imported in accounting research. A first
example would be the works of Haried.
He found the works of Osgood, Suci, and Tannenbaum (1957) from psy-
chology. Osgood was trying to describe the basic axes of the human mind while it
is interacting with the world. Osgood used a series of concepts (father, mother,
home, etc.) and asked the subjects to rate them on a Likert scale. Then, he sta-
tistically analyzed his results and found three fundamental axes along which the
thinking was working. In our views, his findings are so general that they have little
interest, but that is not the point.
Haried (1972, 1973) decided that what was true for the mind was also true for a
part of it. So the process applied to thinking in general was possibly applicable to
accounting thinking. Consequently, Haried assumes the existence of an
“accounting thinking” in the mind that is a subsection of the “general thinking,”
which is totally abusive. From this, he replicates the study of Osgood using
accounting concepts (debit, credit, etc.). He found two fundamental axes from a
sophisticated statistical model and never really commented his results. If there are
three fundamental basic axes in thinking, there cannot be only two in the so-called
accounting thinking, mostly if you based the existence of this accounting thinking
on a subsystemic belonging. Is Haried saying that accountants are lacking one
fundamental axis? Is it possible? Haried never asked the question; he was pub-
lished because most research in accounting focused on the mathematical model
used and do not care to discuss if their questions, hypotheses, or results have any
possibility to enter into knowledge as defined by the logic of Kant or anyone else.
Another example would be in management research regarding the work
of Hofstede. Hofstede never studied culture, declared Baskerville (2003). This
statement would not have been contested by Hofstede himself. The little story of
the Hofstede model is that he never conducted a study. They asked him to analyze
a ready-made inquiry made by IBM in a specific department of their offices in 50
countries (Baskerville, 2003).
Hofstede pretended to have borrowed his categories from Levinson and Ink-
eles. These categories are the relation to authority, the conception of the self, and
the manner to face the conflicts. He pretends to have extracted the categories from
responses and that these categories fit the model of Levinson and Inkeles. But,
Hofstede did not establish the question and the format of the answers.
Twenty years later I was given the opportunity of studying a large

body of survey data about the values of people in over 50 countries
around the world. These people worked in the local subsidiaries of
one large multinational corporation – IBM. (Hofstede, 1994, p. 13)
and
These empirical results covered amazingly well the areas predicted

by Inkeles and Levinson 20 years before. (Hofstede, 1994, p. 14)
If we wonder how it is possible to extract some scientific results from a study

that was not designed scientifically, the answer is one of these intellectual som-
ersaults we are familiar with in accounting research:
Problems which are basic to all human societies should turn up in

different studies regardless of the approaches followed. (Hofstede,
1994, p. 14)
Then the answer to our question is: the method has no importance; the results
will always emerge independently of the method used from the assumption that it is
about the same everywhere, probably based on another level of assumptions on the
alleged uniformity of human nature. Then, he is reversing the methodological
objections a little further. He pretends that as the respondents are all coming from
the sales department in all the countries investigated by IBM, and that the firm is
the same everywhere, the differences come from national culture. That is quite a
strong assumption based on no previous work by all those having studied orga-
nizational culture in the past. Then, as he had defined culture as the “collective
programming of the mind,” he defined the “organizational culture” as the collective
programming of the mind distinguishing the members of an organization from
another (Hofstede, 1994). This is a dangerous step. If we observe around us, we see
that, over the specific firm’s culture, there is a cultural model of the enterprise
around the world. Up to recently, no representative of a firm will have discussed a
contract with any other top manager in the world without wearing a suit and a tie.
Therefore, if you look at pictures, this is the standard way of appearing in public for
a top manager except in the cases where they are visiting some production sites.
Therefore, over the national cultures, there is a business culture everywhere in the
world as there is an academic culture. If we consider a large enough foreign

enterprise in another country, the production line will be filled by locals. Therefore
at this level the cultural practices would be in line with the cultural practices of the
country. As we go up in the hierarchy, we will find more people from the origi-
nating country of the firm or having worked in the head office in the originating
country and the organizational “culture” will have then a kind of mixed appear-
ance. So, again, pretending to characterize a culture by studying only one
department of a huge multinational corporation is totally abusive. However, many
researchers seem to have believed it (Adler, 2002; Sainsaulieu, 1997).
Hofstede’s first category was the distance to power. He established this concept
and the measure of it from three questions.
1. How frequently, in your experience, does the following

problem occur: employees being afraid to express
disagreement with their managers?
2. Subordinates’ perception of their boss’s actual decision-
making style.
3. Subordinates’ preference for their boss’s decision-making
style (Hofstede, 1994, p. 25)
These three very general questions will not describe the boss of the department,
for instance; it is said to describe the way people in the country are distant to
power. No other factors like the economic situation or the family situation of the
people will intervene (Table 8.1).
From these three little highly auto-correlated questions, he derived the com-
plete series of statements allowing him to classify countries on this variable. This
is a good example of making the data speak if not speaking instead of the data.
Then, these questions lead us to a series of statements that will describe both poles
of the continuum on which the country will be classified (Table 8.2).
Is it possible to have somebody exert power without any form of legitimacy?
From our understanding of Weber, we would answer no. We will not really
discuss this in more length. Let us simply say that these statements lead to the
scores and these scores are presented in Table 8.3. The reader may try to fit these
scores with any theoretical text or with his own experience. Just imagine the kind
of money that is necessary for becoming the president of the United States of
America. Is it creating a distance to power? Not that much for Hofstede. Thus,
the US follows the left side of the table with the descriptive statement. Therefore,
the “use of power should be legitimate and is subject to criteria of good and evil.”
This can be the object of endless discussions. The point here is to say that such
classification would necessitate quite more distinctions and arguments and that
Hofstede’s work seems too broad to be serious.
If we take the example of South Africa, can we say that the distance to power is
the same if you are black or white? Therefore, South Africa looks as much
democratic as the US. Maybe it is true, after all; or maybe the sales department of
IBM in South Africa contains only white people. Hofstede himself probably had
no answer for this question. It is the same for all these classifications.
Table 8.1: Key Differences Between Small and Large Power Distance Societies. I: General Norm, Family, School, and
Workplace.
Small Power Distance Large Power Distance
Inequalities among people should be minimized Inequalities among people are both expected and desired
There should be, and there is to some extent, Less powerful people should be dependent on the more
interdependence between less and more powerful people powerful; in practice, less powerful people are polarized
between dependence and counterdependence
Parents treat children as equals Parents teach children obedience
Children treat parents as equals Children treat parents with respect
The Psychological Aspects of Accounting

Teachers expect initiatives from students in class Teachers are expected to take all initiatives in class
Teachers are experts who transfer impersonal truths Teachers are gurus who transfer personal wisdom
Students treat teachers as equals Students treat teachers with respect
More educated persons hold less authoritarian values Both more and less educated persons show almost equal
than less educated persons authoritarian values
Hierarchy in organizations means an inequality of roles, Hierarchy in organizations reflects the existential
established for convenience inequality between higher-ups and lower-downs
Decentralization is popular Centralization is popular
Narrow salary range between top and bottom of the Wide salary range between top and bottom of the
organization organization
Subordinates expect to be consulted Subordinates expect to be told what to do
The ideal boss is a resourceful democrat The ideal boss is a benevolent autocrat or good father
Privileges and status symbols are frowned upon Privileges and status symbols for managers are both
expected and popular
145
Source: Hofstede (1994, p. 37).
Table 8.2: Key Differences Between Small and Large Power Distance Societies. II. Politics and Ideas.
146
Small Power Distance Large Power Distance
A Postmodern Accounting Theory

The use of power should be legitimate and is subject to Might prevails over right: whoever holds the power is right
criteria of good and evil and good
Skills, wealth, power, and status need not go together Skills, wealth, power, and status should go together
The middle class is large The middle class is small
All should have equal rights The powerful have privileges
Powerful people try to look less powerful than they are Powerful people try to look as impressive as possible
Power is based on formal position, expertise, and ability to Power is based on family or friends, charisma, and ability
give rewards to use force
The way to change a political system is by changing the The way to change a political system is by changing the
rules (evolution) people at the top (revolution)
The use of violence in domestic politics is rare Domestic political conflicts frequently lead to violence
Pluralist governments based on outcome of majority votes Autocratic or oligarchic governments based on cooptation
Political spectrum shows strong center and weak right and Political spectrum, if allowed to be manifested, shows weak
left wings center and strong wings
Small income differentials in society, further reduced by the Large income differentials in society, further increased by
tax system the tax system
Prevailing religions and philosophical systems stress Prevailing religions and philosophical systems stress
equality hierarchy and stratification
Prevailing political ideologies stress and practice power- Prevailing political ideologies stress and practice power
sharing struggle
Native management theories focus on the role of Native management theories focus on the role of managers
employees
Table 8.3: Power Distance Index (PDI) Values for 50 Countries and
3 Regions.
Score Country or PDI Score Country or PDI

Rank Region Score Rank Region Score
1 Malaysia 104 27/28 South Korea 60
2/3 Guatemala 95 29/30 Iran 58
2/3 Panama 95 29/30 Taiwan 58
4 Philippines 94 31 Spain 57
5/6 Mexico 81 32 Pakistan 55
5/6 Venezuela 81 33 Japan 54
7 Arab countries 80 34 Italy 50
8/9 Ecuador 78 35/36 Argentina 49
8/9 Indonesia 78 35/36 South Africa 49
10/11 India 77 37 Jamaica 45
10/11 West Africa 77 38 USA 40
12 Yugoslavia 76 39 Canada 39
13 Singapore 74 40 Netherlands 38
14 Brazil 69 41 Australia 36
15/16 France 68 42/44 Costa Rica 35
15/16 Hong Kong 68 42/44 Germany FR 35
17 Colombia 67 42/44 Great Britain 35
18/19 Salvador 66 45 Switzerland 34
18/19 Turkey 66 46 Finland 33
20 Belgium 65 47/48 Norway 31
21/23 East Africa 64 47/48 Sweden 31
21/23 Peru 64 49 Ireland 28
(Republic of)
21/23 Thailand 64 50 New Zealand 22
24/25 Chile 63 51 Denmark 18
24/25 Portugal 63 52 Israel 13
26 Uruguay 61 53 Austria 11
27/28 Greece 60
From this very questionable “model” Gray decided to make an adaptation for
accounting. His basic idea, exactly like for Haried and Osgood, is that society is a
system. This system is made up of subsystems that are structured on the same
model, i.e., having the same values. Therefore it would be possible to find in the
accounting subsystem the same values as in the global society.
Consequently the categories of Hofstede are transferred in the Gray model.

However, as his subsystem is not much the same, he has to modify it a little. The
categories are as follows.
• Individualism vs state control

– “(…) a preference for the exercise of professional judgment and the main-
tenance of professional self-regulation as opposed to compliance with pre-
scriptive legal requirements and statutory control.”
• Uniformity vs flexibility
– “(…) a preference for the enforcement of uniform accounting practices
between companies and the consistent use of such practices over time as
opposed to flexibility in accordance with the perceived circumstances of indi-
vidual companies.”
• Conservatism vs optimism
– “(…) a preference for a cautious approach to measurement so as to cope with
the uncertainty of future events as opposed to a more optimistic, laissez-faire,
risk-taking approach.”
• Secret vs transparency
– “(…) a preference for confidentiality and the restriction of disclosure of
information about the business only to those who are closely involved with its
management and financing as opposed to a more transparent, open, and
publicly accountable approach.”
Obviously, the relationship with the original categories is quite thin. Moreover,
the observer can ask himself what is included in the accounting subsystem. It is
clear that it is the Anglo-Saxon accounting system and conceptions that are
described by Gray. Therefore, the accounting values of the rest of the world do
not deserve any consideration. This is so ethno-centrist; and they try to say it
might be knowledge. The lightness with which some accounting researchers take
the relationship between the theory and the hypotheses being tested is sometimes
amazing.
Enterprise environmental performance has become of concern in

securities market. Given this, the present paper investigates two
complementary hypotheses: (1) Valuation of the firm is affected by
its pollution record, thus implying existence of latent environmental
liabilities (H1) and (2) A valuation premium is attached to firms
with a satisfactory pollution record due to the effect of “ethical”
investment decisions (H2). (Cormier & Magnan, 1996, p. 25)
They have decided, true or false that is not important for them, that environ-
mental performance, supposing it can be defined clearly and measured, has an
effect on the market value of the firms. Some studies, also using hypothesis testing
methods although those hypotheses were coming from no theory, have done that
kind of “study” before, so they feel free to do it. Their hypotheses are derived from
this perception of the market that is far from being consensual in the literature. For
instance, papers on the effect of environmental catastrophe are not pointing in this
direction, and a casual observation of the financial statements of BP after the
Deepwater Horizon catastrophe don’t point in this direction either. Labelle and
Thibault (1998) report that companies have a tendency to decrease their profits
after an environmental catastrophe in order to minimize the sanctions.
Another example of the weakness of the underlying theory is provided by
Morck, Shleifer, and Vishny (1988). They say:
Theoretical arguments alone cannot unambiguously predict the

relationship between management ownership and market valuation
of the firm’s assets. (…). Since theory provides relatively little
guidance as to what this relationship should be, our paper is as
much descriptive data analysis as formal hypothesis testing.
(Morck et al., 1988, p. 294)
Descriptive data come from the same family as explanatory work. In our view,
if there is no theory and someone wants to study the area, he must use methods to
build such a theory, rather than testing hypotheses coming from nowhere.
8.3 Why Produce Information?

Over the rendition of accounts, that is supposed to be the first goal of a financial
statement, we can ask what are the goals pursued by their preparation? The firm is
characterized by a strategic approach. This approach is the first reason to develop
a global strategy in the firm. This strategy will be declined in each function of the
firm, like the budget. In fact, the budget is the numbered version of the strategy.
Among those sub-strategies, we will find a financing strategy having the goal to
obtain as much financing as needed at the lowest possible cost of “capital.” To
reach this goal, the stocks of the company will have to look as performing as
possible with the lowest possible level of risk attached to it. In fact, they have to
realize the impossible, which is to detangle the notion of risk from the notion of
returns and to make them go in a different direction. Therefore, it would be very
naı̈ve to believe that the adequacy with “facts” is the priority of the preparers of
financial statements. There is no reason why it would be otherwise, except if the
activity is closely framed and that punishments are high when the rules are not
followed. That is why all those rules have been established through time. How-
ever, the punishments remain quite low.
And much more important is the bias involved in administration of

criminal justice under laws which apply exclusively to business and the
professions and which therefore involve only the upper socioeconomic
class. Persons who violate laws regarding restraint of trade, advertising,
pure food and drugs, and similar business practices are not arrested by
uniformed policemen, are not tried in criminal courts, and are not
committed to prisons (…). (Sutherland, 1983, p. 6)
Such bias brings no moderation to the kind of crime that is so leniently

considered. Mostly, the fact that they are not really fought has a negative effect on
the conception of the crime in the society that we may have.
Is it, in regard to every human science, possible to sustain that accounting
reports cannot lie? However, we still have papers, rejected in some journals on the
basis of that kind of arguments even if they accept papers on earnings manage-
ment as long as you not call them account manipulations; as management is noble
while manipulation is bad. Lying is not acceptable while managing the facts is.
Then, in front of such evidence, if we take a user perspective, the question is:
can we detect lying in the financial reports? There have been many attempts to
detect lies in the spoken and even in the written discourse: lie detector, neuro-
linguistic programming, and Ekman’s system are examples of such attempts on
the spoken discourse. Hobson, Mayew, and Venkatachalam (2012) look at the
“nonverbal vocal cues” to detect deceptive statements in speech. For the spoken
language, the lie detector infers the truthfulness of statements through physical
reactions registered by a machine. Ekman (2010) used a similar approach, asso-
ciating observable reactions with telling the truth. Social psychology uses
emotional markers to identify deceptive messages (Hobson et al., 2012).
In a written context, it is more complicated, mostly since the written material is
no more handwritten. Grice (1989) proposed a new characterization of the
communication process, based on cooperation. However, this principle of coop-
eration does not exclude deception and misleading statements (Klinkenberg,
1996). Transposing Grice’s “maxims,” McCornack (1992) proposes a method to
discriminate between truthful and false written statements.
These manipulations can be classified as impression management. Following
Solomon, Solomon, Joseph, and Norton (2013) inspired by Goffman, we will
define impression management as choosing to show your best profile to avoid
embarrassment (Scheff, 2006). Therefore it can be considered a lie by omission.
Researchers focusing on the forms of lies consider purposeful omission as a kind
of lie (Ekman, 2010; McCornack, 1992; Sutherland, 1983). There is another
method used by the police on written statements. They will use a series of cues like
the pronoun (if somebody says I or we), the tense of the verbs (past or present),
the connectors used, etc. (McClish, 2001).
8.4 Summary
To conclude this chapter, we may say that every discourse is open to conscious or
unconscious manipulation. If we refer to Goffman (1973), we see that everyone is
generally attempting to present their best side in social intercourse. Almost every
woman uses cosmetics before going out. This can be viewed as a form of lying.
However, it can also be seen as a way to embellish the environment. Over the
moral considerations, we may admit that there is always a form of staging behind
what we see and what we hear. This normal way of doing things can be used to
mislead people purposely. In a “business” defining itself as having the goal to
provide information for decision-making, we cannot ignore the knowledge
already developed in human sciences on the manipulation of information.
Questions
1. Why did the psychological effects of accounting reports appear more clearly
in the context of management accounting?
2. The persons working in the firm carry the image of the firm. Comment this
enouncement taking into consideration the limits of the controlling function
in and around the firm.
3. Do you think that the “reality” is real? How do you reach your conclusion?
4. What is behavioral psychology? Contrast it with other kinds of psychological
approaches: psychoanalysis, conditioning, cognitivism, etc.
5. If accounting is developed for communicating purposes, it may be studied with
the tools developed by the communication researchers. Comment.
6. What are the three forms of the EMH?
7. If the markets are not efficient, can you propose from the literature some
alternative explanations for the behavior of the agents in the market?
8. What is storytelling? Provide some examples from your day-to-day life.
9. The quality of financial information is supposed to be related to the stan-
dards used to produce it. Is it logical with all we know in sociology and
psychology?
10. What is the importance of language in our conception of the world?
11. Do you believe that accounting reports say the truth? Also, where can be
found the true financial situation of the firm?
Chapter 9
How Decisions Are Made
Basically, a decision is simply a choice:
A decision is a judgment. It is a choice between alternatives. It is

rarely a choice between right and wrong. It is often a choice between
two courses of action, neither of which is probably more nearly right
than other. (Drucker, quoted in Haas Edersheim, 2007, p. 209)
Historically, there had been four approaches to the process of decision-making

and Drucker presents the fourth one. However, there can be alternative
classifications.
The first approach is from the economic theory and assumes that individuals,
who are perfectly rational and have perfect knowledge of all the possibilities
offered, are always taking the most efficient decision in function of their utility
curve where the ultimate goal is to reach an equilibrium which is attained when no
more consumption of one desirable good can be obtained without removing a unit
of another desirable good. Samuelson (1972) proposes a definition of economics
based on the notion of decision:
Economics researches how men and the society decide (…) to affect
rare productive resources to the production, through time, of varied
goods and services (…). (Samuelson, 1972, p. 22) (Our translation)
Such a definition can look strange when confronted with the sacrosanct “laws
of the market” applied by the invisible hand and unescapable. Economics is based
on the idea that resources are rare, therefore their allocation is crucial and is the
object of a decision. However, this decision is never taken forever because the
demand is infinite and the offer is finite. Both meet automatically where the price
curve of the offer meets the one of the demand. At this level, there is no decision
taken by the agents. So, when all is going as it is supposed to go, we are all in the
invisible “hand of the market.” Therefore, the domain of the political economy
covers the situation where the hand is not working well.
McConnell, Pope, and Julien (1983) say that economics is constituted by a first
phase of observation followed by the application of the consequences to derive
principles which will be used as input in the political decision-making process.

doi:10.1108/978-1-78769-793-520181009
However, we do not find this vision in the discourse of Milton Friedman when
saying that a theory is to be assessed by the quality of its results over its adequacy
to reality.
In substance, decisions are the basis of the study of economics, therefore it is
normal that a certain model of how to make decisions has emerged from this
discipline, even if we cannot say that it encompasses accurately the facts observed
in the “world” around.
Smith, for instance, started to write An Inquiry into the Nature and Causes of
the Wealth of Nations in 1767. He had met with Voltaire, d’Alembert, and many
others. His vision of the homo oeconomicus places the people at the summit of the
social pyramid while creating a “natural” regulating system taking away all the
power of the people. Smith is then proposing a vision reconciling the new prin-
ciples of the people’s sovereignty with the eviction of the resulting frightening
Leviathan qualifying the state representing this untamed and unpredictable people
(Hobbes, 2000). Consequently, the program of the homo oeconomicus can only be
encompassing all other projects as it can predict from a basic duality (demand and
offer) all the possible issues (Pesqueux, 2002).
The second approach comes directly from the mathematics (Bayes) and pre-
tends that the best decision is “rational” when it proceeds from a correct
assessment of the probability of all the possible issues of the situation. For Cadet
and Chasseigne (2009) there are only two conceptions of the decision-making
process: the first, coming from economy, contains all approaches based on
mathematics and probabilities. The second proceeds from psychology and ana-
lyses cognitive bias. This second approach, from psychology, is in opposition to
the preceding one. However, it is also based on an imprecise definition of the
rationality as, for instance, it uses the expression “heuristic biases”; and to detect
a bias one must know the unbiased situation.
Then, we can find, in some texts on the leadership and scientific management,
another version of the decision coming from another point of view. This approach
includes historical, psychological, and sociological influences over the decisions
that are taken.
These approaches are mainly related through the concept of rationality.
However, the concept remains vague and highly ideological.
9.1 What Is Rationality?

Rationality, in economics, can be described by the consumption of one more unit
of goods. Because the utility curve cannot take into consideration other objectives
than the consumption of units, the economic definition of rationality remains
limited. Agency “theory,” deriving directly from economic beliefs, cannot explain
the behavior of Mother Theresa, for instance. Therefore, from a falsificationist
point of view, the so-called agency theory must be rejected or, at least, seriously
amended.
If somebody is very religious and wants to go to heaven after his death, he may
do things not following the economic logic based on the property rights theory
and the maximization of the utility curve principle. The economic rationality is
How Decisions Are Made 155
based on a very selfish vision of the human being. If some desires like “being a
better person to enter in heaven instead of inferno” can theoretically be included
in the calculation of the utility curve, following the economic logic, it may be
impossible to find the substitution value. However, a restricted version of the
curve is still impossible to calculate, what then to think of an open and extensive
one? Pesqueux (2002) summarizes this impossibility:
In his speech behind the Nobel Academy, Herbert A. Simon

repeated the characteristics of the “classical” decision making
model: exhaustive knowledge of the options, of their consequences,
preferences present and future, possibility to compare all these. With
such characteristics, the result of the decision is predictable but the
exigencies of this “classical” model are too strong. (Pesqueux, 2002,
In substance, it is not difficult to be rational in certainty. But, we still see

people do “irrational” things although they may know the probable adverse
consequences. In the same spirit, it may look irrational to play everything you
have and more at the casino or to use all the money one can find to buy alcohol or
drugs. However, when an addiction replaces every other thing, in regard of the
strength of these addictions, the behavior described becomes totally rational.
Therefore there are as many definitions of a rational behavior as there are people.
We can say that any predictable behavior may be rational. The behaviors we have
described are totally predictable in function of the goal of the subject. Are these
goals rational per se? That is another question depending on ideological factors.
Religious beliefs are considered irrational by some people, while others will
believe they are perfectly rational. Therefore, the concept of rationality is too
ideological to be useful in this context. The behaviors cannot be “judged” from
such criteria. Incidentally, we do not want to judge any behavior, reason, or
justification. The concept of rationality is highly judgmental in economics, but
also in psychology.
In the Bayesian theory, the correct behavior is not derived from a precon-
ception of what is right or wrong, but is described from a conception of a gain or a
loss totally disconnected from the situation of the people, therefore normative.
One problem we encounter is well known; it is the total ignorance of the human
sciences by the writers in accounting, and the hegemony of the economic theory in
finance. For instance, in a book titled Psychologie de la decision (Psychology of
decision-making), Lainey (2015) says The economists are the first to be interested
by the rational decision-making in the organisations (p. 29, our translation). It is a
rapid somersault over the basis of the economic theory. An organization is a
market failure, and all the theories of the firm (transaction costs, organization of
the work, agency, etc.) are trying to justify this long-term contracting system
over the market system where the contracting is permanent, therefore always
made for the short term. Thus, theoretically, in a straight economic point of view,
the firm is not rational. But, as any observer from the street, Lainey probably
believes that the firm is the first and normal form of economic life.
The second example of the casual beliefs taking step over the theory is the
definition of the utility curve. Lainey presents utility as the pleasure or the satis-
faction (p. 29) somebody can take in the consequences of his choices. He adds, as
utility is quantifiable, it can be optimized (p. 29). This is the essence of the problem.
The traditional dilemmas between butter and cannons can be easy to quantify
although we can estimate that the way the problem is framed cannot lead to a
solution applicable to the real world. But how can we measure the desire to cheat
on the conjunct and the desire to go to heaven after death? We would probably
have to multiply the desire to go to heaven by the probability the subject
perceived of the existence of heaven and the force of the desire to cheat on his
(her) partner in life while keeping the family going. In fact, the utility curve has
never entered into these areas where we are struggling every day of our lives.
Moreover, when the maximum of the curve is reached, any combination is a
Pareto optimum. Therefore we can have only cannon or only butter and it will
still be Pareto optimal (Maris, 1999) although difficult to swallow.
What is an optimal result? This univocal way of seeing human behavior is so
trivial that it can’t be used. Normally, a human being is entangled in the middle of
a series of cognitive dissonances coming from the passions, the education, the
long-term versus short-term perspectives that are difficult to resolve in a simple
unidirectional answer.
If a way of taking rational decisions exists, it must be described by the psy-
chology, starting by providing a “rational” definition of rationality. Lainey
concludes in saying that, rational decision making lies on postulates enunciated by
the economists … (p. 30). By saying that, he is proposing that the delirious defi-
nition of the rationality provided by the economists is the basis of how to consider
rationality in the decision process per se. The connection between the theoretical
perfect rationality and the day-to-day life is better described by the concept of
bounded rationality.
The hypothesis of market efficiency pretends that information is spread auto-
matically, but never considers the channels used to do that. In the efficient market
hypothesis (EMH) it is magic. Information circulates everywhere at once because
it is included in the price and someone does not have to know the information to
act accordingly, which is considered equivalent to having the information.
Economic sociology considers the channels through which the information is
disseminated. Then we leave the world of magic to enter into our day-to-day
world. Let us say that the existence of marketing is a strong signal that the
managers do not believe in EMH; moreover, the money expensed for televised
publicity during the Super Bowl shows eloquently the strength of their rejection of
the EMH. The channels recognized in the literature are the personal networks; the
labels; the cicerones who are the critics and commentators; the classifications and
rankings made by institutions, associations, magazines, etc.; and the confluences
that are supposed to adjust the products and the customers. Obviously, these
communications are not the information following the definition given by infor-
mation economics.
The INFORMATION, one and unique, is replaced by a series of partial and
oriented data destined to make the consumer choose one product instead of
another. Consequently, often the decision escapes to the “rationality,” reaching

the goal of the marketing, to play on a series of sensible chords. This is one of the
big problems our students have. In their finance course, they learn that the
investor is perfectly rational when buying shares. Then they go to their marketing
course in the next room to learn that we can sell anything to anybody because the
choice is made from a series of emotional factors.
Therefore, even in the world of management, there is no consensus about the
definition of rationality. Following Simon, there are two main approaches to the
concept of rationality.
A person not familiar with the history of the actual research in

economy and in cognitive psychology may think that there are
close relationship between these two areas – like a constant double
way flow between theoretical concepts and empirical results. Mister
Coats, (…) describes a series of ancient tries, generally unsuccessful,
to apply the results of the psychology to the economic theory. Now,
there is still very little communication between these two fields. In
the USA, at least, there seems not to have, for the students preparing
a doctorate in economics, any course asking them to master
the psychological literature on the rationality; as well as, for the
student in psychology, there is no course forcing them to learn the
economic theories of the rationality. (…). This reciprocal state of
ignorance becomes understandable when we realize that the research
in economics and in psychology has for objective to answer to very
different series of interrogations and that each of these fields adopted
a conception of the rationality more or less appropriate to its own
research problems. (Simon, 1992, p.) (Our translation)
Substantial rationality is the one proposed by the economists, while the pro-
cedural rationality emanates from the world of psychology. Despite his kindness
toward the economists, Simon remarks their propensity to ignore the world in
which they are elaborating their theories.
Then, the hypotheses of utility or of profit maximization on the one

hand, and the hypothesis of substantive rationality on the other hand,
have preserved economics from all dependency toward the
psychology. As long as these hypotheses were not questioned,
there was no reason for an economist to become familiar with the
psychological literature concerning the human processes of cognition
and choice. There was absolutely no place where the results of the
research in psychology would have been applied to the process of
economic analysis. The inadequacy of psychology to economy was
total. (Simon, 1992, p.) (Our translation)
Substantive rationality is a matter of reaching a goal within the given condi-

tions or constraints. Therefore, rational behavior depends, for a large part, on the
conditions prevailing in the environment. The classical economic analysis assumes

that the economic actor is rational following the definition of what Simon called
the substantive rationality. Therefore, as Simon said before, there was no need to
question further the dimensions of this rationality, and the “homo oeconomicus”
was ready to be born. However, the “homo oeconomicus” is such a limited fiction
that he is incapable to represent the current behavior of a human being.
The procedural rationality reflects some thinking preceding the action. There is
no limitation to the motives able to sustain the choices, while the possibilities of
the “homo oeconomicus” are very much limited. However, such diversity is
difficult to mathematically model, which is probably why the economists tend to
avoid it. We have to remember that most economic modelization is still func-
tioning with a very limited number of goods, traders, trading periods, and little
information; all that in certainty, most of the time.
If the experimental demonstrations, revealing the incapability of

human being to follow the rules of the substantive rationality in a
situation of choice with an uncertain issue, have caused some
surprise to the economists (…), it caused no surprise for the
experimental psychologists familiar with the human capacity for
processing information. (Simon, 1992) (Our translation)
Therefore, if we follow Simon, we will conclude that the problem is uniquely

the conception of the rationality in economics. However, as we will see later, the
reference to heuristic biases raises questions about the definition of the rationality
used in psychology also.
Simon, with his reference to Cournot, leads us to the game theory.
More than a century ago, Cournot identified a problem that became

the permanent and ineradicable scandal of the economic theory. He
observed that where a market is feed by only a few producers, the
notion of profit maximization is not well defined. The substantively
rational choice for each actor depends on the choices made by the
other actors; nobody can choose without emitting some assumptions
on the choices of others. (Simon, 1992) (Our translation)
Choosing while considering what others might have done is the essence of the
game theory.
The concept of rationality is at the center of the first three tendencies we have
described, while the fourth one uses completely different parameters to discuss the
question of decision-making.
9.2 The Contradictions of the Agency Theory

In this context, the agency theory looks like the confrontation of two opposed
rationalities derived from a divergent curve of preferences. In such a vision, the
protagonists, the principal and the agent, are totally rational. Moreover, the
principal is less able to impose his rationality to the agent as he is out of the firm.
He is not a real entrepreneur, only an entrepreneur by delegation. Therefore, to
promote the ideology of the supremacy of the property right over any other, the
tenants of the agency theory will create the concept of “moral hazard” to fustigate
any rational behavior on the part of the agent, behavior that is supposed to be
endemic to human nature. Therefore the agent is supposed to fight against his
human nature to help the principal to satisfy his. Such a line of reasoning is
proposed as rational.
Based on the “fact” that anyone is looking for himself (which is the very basis
of the system as described by Adam Smith), they will generate different processes
to align the curves and to monitor the actions of the agents. “One of the
fundamental tenets of economics is that individuals act in their own personal self-
interest to maximize their utility” (Zimmerman, 1995, p. 146). Therefore, the
common good may emerge from the actions of everyone looking for his own
good, except for all employees because the property rights “theory” impose to
them to forget their own preferences to adopt the preferences of the providers of
capital who were supposed, in the classical liberal theory, to earn their compen-
sation from organizing the production, not just “lending” money. But, with the
supremacy of the property comes the rights for the investors to not being an
entrepreneur anymore. This moves the place occupied by the power, the locus of
decision, in the hand of the specialists of finance (Pesqueux, 2002).
The presence of the owner-entrepreneur to organize the production implied his
knowledge of the production process. But, with the departing of the investor-
entrepreneur from the premises of the firm, the question of the technical knowl-
edge becomes of first importance.
The agency theory crystallizes the changes in the conception of the economic
model and of the firm having a huge impact on the conception of accounting. The
decision model changes with the conception of rationality. From the vision that
the best way of maximizing a utility curve is to take matters into one’s own hands,
comes a vision that it is better to delegate to specialists. These specialists are less
and less specialized in the production but in finance. The direction of firms, over
the last 100 years, has been transferred from engineers to MBAs. The conse-
quence is that instead of returning the profit to the investors or investing in the
production, they play with the profits on the stock market backed by the going
concern obsession of accountants.
As a consequence of the entrepreneur becoming an investor and leaving the
firm, we see a tendency, at least in accounting, to separate the financial
accounting, i.e., accounting for the external stakeholders, from the management
accounting, i.e., accounting for the internal users. The decisions they have to take
are then viewed as totally different. The external user decides to buy, hold, or sell,
while the manager uses accounting reports to monitor the production system.
Internal accounting systems are used for two purposes: to provide

some of the knowledge planning and decision making and to
help motivate and monitor people in organizations. (Zimmerman,
1995, p. 3)
The separation between the interior and the exterior is then reinforced by the
agency theory.
The vision of the organization as a “nexus of contract” is not far from the
definition of Simon (1992) seeing an organization as a complex nexus of
communication within a group of individuals, except that the agency approach
gives priority to the interests of the owners. For Simon, there are organizational
objectives which cannot be confounded, as in the agency, with the owners’
objectives. However, some actions must be taken to provoke the adhesion of the
employees of all levels to the organizational objectives. Unfortunately, it seems
that the current in which the agency theory stands did the contrary to extract
value:
Firms have cut costs, eliminated waste, focused, outsourced,

downsized, let go, and generally pared themselves to the bone.
(…). Value has been extracted, but at what price? (Goshal et al.,
1999, p. 10)
To do so, the deciding actors in the firm played the game of each for himself.
Explicit or implicit past contracts with both employees and suppliers

were broken. Employee loyalty and commitment have been
shattered. So has management confidence in its ability to create
instead of cut: witness the vogue of high-growth companies like
Reuters handing back cash to shareholders via share buybacks and
special dividends instead of investing it to pursue emerging
opportunities. (Goshal et al., 1999, p. 10)
Since the arrival of the concept of bounded rationality along the agency the-
ory, the coherence has still diminished. The “theory” is based on the market
efficiency hypothesis and now it includes asymmetry of information, which is
hardly reconcilable.
9.3 The Game Theory

From the beginning the game theory appears as a Gemini of the economic theory.
It works well with only rational decision-makers, by the number of two prefer-
ably, in a context with one piece of information, one simple choice that cannot be
discussed, and one period.
Game theory is designed to address situations in which the outcomes

of a person’s decision depend not just on how they choose among
several options, but also on the choice made by the people with whom
they interact. (Easley & Kleinberg, 2010, p. 139)
Theoretically there may be many players moving in very complex environ-

ments. However, all the examples given are always quite simple. The best known
example is the prisoner’s dilemma. But many other simple examples had been
proposed through time.
Discussing the behavior of people through mathematics generally implies some
simplification of this behavior. When the simplification process goes too far, the
model does not apply to a real situation. That is why the economic model
remained blocked for so long. Easley and Kleinberg (2010) present some of these
assumptions:
First, we assume that everything that a player cares about is

summarized in the player’s payoffs. (…).
We also assume that each player knows everything about the

structure of the game. To begin with, this assumption means that
each player knows his or her own list of possible strategies. It seems
reasonable in many settings to assume that each player also knows
who the other player is (in a two-player game), the strategies
available to this other player, and what his or her payoff will be
for any choice of strategies. (…).
Finally, we suppose that each individual chooses a strategy to

maximize her own payoff, given her beliefs about the strategy
used by the other player. This model of individual behaviour,
which is usually called rationality, actually combines two ideas.
The first idea is that each player wants to maximize her own
payoff. (…). The second idea is that each player actually
succeeds in selecting the optimal strategy. (Easley & Kleinberg,
2010, pp. 144–145)
We see that this thickness of the assumptions make the model disincarnated.
Easley and Kleinberg add, after having quoted other examples including the
prisoner’s dilemma, that “While no model this simple can precisely capture
complex scenario in the real world (…)” (p. 145).
Moreover, the degree of expertise of the participants seems to have an effect on
their acting in accordance with the theory.
Classical laboratory experiments shows that novice subjects do not

adopt optimal strategies in the games with equilibrium in mixed
strategies while case studies show that professional athletes (…) find
the equilibrium strategy. (…). Obviously, the majority of the game
with constant payoffs (real) is found in an intermediary context
between these two polarized cases; but we know little about these
“intermediary” situations. (Eber, 2013, p. 27) (Our translation)
When the situation becomes slightly more complicated, the predictability of

the behaviors decreases sharply. Even if the players can exhibit more sophisticated
behavior, integrating anticipations on the degree of rationality of the other player,
this cannot be included in the definition of equilibrium. In this model, discussed

by every author, the rationality is absolute, conventional, and the possibilities are
known by everyone a priori. We can say that the definition is simple and limi-
tative, i.e., normative.
If the two players reach the best individual outcome, it is far from being certain
that they reach an optimum for the society, defined by the pareto optimality or the
social optimality (Easley and Kleinberg). Obviously, these players have to be
rational (Eber, 2013). Foucault preceded us in this reservation:
I take for dangerous the word itself of rationalisation. When some

people try to rationalize something, the essential problem is not to
try to know if they conform or not to the principles of the rationality,
but to discover to which type of rationality they are referring.
(Foucault, 2004, p. 667) (Our translation)
So, we have here another normative model. At least, Maslow was allowing
people to have a certain evolution. In the economic game theory model, the
payoffs remain at the level of the basic needs and motivations.
It would be difficult to include self-actualization in a table of payoffs from a
game theory case.
Once again, in the business school where we have studied, there were courses
on Maslow’s pyramid and other courses based on the economical definition of
rationality. The problem is that they don’t teach those pieces of knowledge as
instruments to understand the world but as tools to be put in a toolbox. When, as
president of your enterprise, you will have to discuss human resources remuner-
ation, you will take Maslow’s stuff out of the box and when discussing the CEO’s
compensation, you will align the utility curves. But nobody is supposed to connect
both and to ask which view has the best chance to represent human behavior. If
Maslow would allow us the possibility of being at more than one level at a time,
his pyramid would be far in advance on the vision of rationality.
Obviously, in human sciences the notion of the norm is important: a psy-
chological norm establishing the space of the normality and the space of the
deviance, a sociological norm establishing the space of the socially acceptable and
unacceptable and a discursive norm, helping to make the difference between the
previous categories (Foucault, 2004). This capacity to generate norms and rules
creates the image of a “decent” human being and allows, by opposition, the
determination of the frontiers of sickness.
9.4 The Theory of Bayes

This theory is like an older version of the game theory, the principle being that the
decision-maker always tries to maximize his payoffs. But, this theory does not
integrate the interaction between the decision-makers and the prediction of the
behavior of others. From this point of view, the game theory appears as a
development of the Bayesian theory by adding the interaction between
“numerous” decision-makers.
9.4.1 Nobody Earns the Expected Result

A simple example of the computation of the probabilities is provided by Habib
(2013).
For a lottery with a number of options equal to n, the expected value
is as follows: E(x) 5x1p1 1 x2p2 1 (…) 1 xnpn. Let’s imagine that
somebody proposed you to turn a wheel of fortune where you have
50% chances to win 100$ and 50% chances to lose 50$, the
mathematic expected result of this operation is calculated as
follows: .50 3 100 1 .50 3 (250) 1 25. (Habib, 2013, p. 18)
(Our translation)
This is expressing very well the problem. Nobody wins $25 in this operation;
one wins $100 or loses $50. If you are Bill Gates, you just don’t care. But if you
are on welfare and the last $50 you have is to buy food for your children, will you
risk it for the great advantage of having another $50 that you surely need very
much but that is not essential for your survival? That is where the situation
changes the behavior and that you go back to the bottom of Maslow’s pyramid.
To understand what conduct each person to take a specific decision,
Bernouilli introduces the concept of the subjective value of money
(meaning personal to each individual) replacing the concept of
nominal value of the money. Effectively, the pleasure of winning
1000V will not be the same for somebody with very modest revenues
and somebody with very high revenues (Bernoulli, 1954; Mellers,
2000). Individualism really assesses the pleasure or the
psychological satisfaction of the gain instead of the gain itself: he
called this concept the utility. The utility is calculated by
establishing a ratio between the gain and the fortune already
possessed (Cadet and Chasseigne, 2009). A person who would
make choices on the basis of the expected utility as defined by
Bernouilli, will considered uniquely the fortune that will be
his(hers) after the choice (Loewenstein, Rick & Cohen, 2008)
and not the choice by itself. (Habib, 2013, p. 19) (Our translation)
And this is only considering the gain. When a loss is in perspective, the
problem is more difficult. Then the scale of the utilities is not constant. Honestly,
the probability is that Bill Gates will not spend 10 seconds to play the game we
discussed above because the gain is irrelevant and he may evaluate his time higher
than this opportunity.
9.4.2 Simplistic Games in Situation of Limited Information

It is possible to simulate markets in a classroom. The result will be that we will reach
equilibrium. The settings will include two goods, one piece of information and a
limited number of trading sessions; fine, but it proves nothing. But real life contains
a multitude of ways, with a multitude of information pieces and a multitude of
motivations admitted or not and a multitude of degrees of knowledge about the

situation. That is why the game theory cannot be, for the time being, a model for the
decision-making process. These “normative” theories are not based on observa-
tions but on how people might behave if there would be rational encounter prob-
lems when confronted with the real world. They do not look “grounded” enough.
Allais has some doubts about these “theories” in the real world. He proposes
some different examples:
Enounce 1: Do you prefer situation A or situation B?

Situation A: Receive 100 million in total certainty.
Situation B: 10% probability to receive 500 million, 89%
probability to receive 100 million, and 1% probability to
receive nothing.
Enounce 1’: Do you prefer situation C or situation D?
Situation C: 11% probability to receive 100 million and
89% probability to receive nothing.
Situation D: 10% probability to receive 500 million and
90% probability to receive nothing.
Following the axiom of substitution and the axiom of independence, the

subjects’ choices must be coherent: if in the enounce 1, the situation A is
the most popular, in the enounce 19, it is the situation C that must be
most popular. But the results obtain by Allais (1952) are not conformed
to this description. (Habib, 2013, p. 23) (Our translation)
We may propose, as an explanation, that for the ordinary citizen, although in

old francs, the difference 500 million will do over 100 million is not that important
in regard of securing the first 100 million. But, to discuss that with some relevance
we would have to know what the purchasing power of 100 million of francs was at
the time (Allais, 1952), what was the situation of ordinary people at the time in
terms of retirement, for instance, and who were the subjects Allais observed. So,
we cannot judge the situation with a mere computation of probability.
If the expected gain was the only criteria of choice, no lottery would sell any
ticket and the casinos will not exist. However, they both exist and continue to
prosper very well. Therefore there are other variables that do not disappear in the e
term of the equation, for instance, the price to enter into the game which can be
illustrated by the negative in saying that in a casino most people play with the slot
machines where the entry cost is quite low. Although the situations offered by
Kahneman and Tversky (1979) do not reproduce the situations presented by Allais,
they lead the researchers to the same conclusions as they reflect similar behaviors.
9.4.3 Historical Period and References

Bernouilli (1954) and Cadet and Chasseigne (2009) said that the point of reference
to assess an opportunity was the fortune already gathered by the subject. Kah-
neman and Tversky (1979) change this point of reference in their model.
It is supposed to be more natural to consider the financial results as gains and

losses instead of states of overall wealth (Kahneman & Tversky, 1984).
We are not certain it is that “natural.” If we go back in history only half a
century, or a little more, we see that the balance sheet was the most important of
the financial statements. The statement of the results was considered less impor-
tant in his transitory function. People would refer to their balance sheet as
reflecting their overall success and showing their position in the society.
Historically, it is impossible to really have an income statement, in its actual
meaning, before the generalization of double-entry accounting. But, lists of assets
have existed since immemorial times. Therefore, the accent was on the balance
sheet and not as a list of means to produce revenues, but as a list of what a family
possess expressing their rank in society. We also have to remember that the nobles
were not working till the end of the nineteenth century, neglecting the revenue
they would be able to produce by themselves from their assets.
The importance of the revenue to attribute a value to an organization is
relatively recent in the history and is by no means “natural.” In fact, the economic
definition of profit was more “natural” when the owners were integrated in the
calculation, meaning that the expenses for the standing of the family were taken
into consideration. Some artificial distinctions between the owner and the enter-
prise had changed the way of considering the calculation of the benefit.
The scientific discussion about the exact form of the utility curve will continue
probably for decades ahead. At this point, we would just underline how such
research tries to find the origins of risk aversion in the physical characteristics of
humans and, maybe after, they may expand it to animals. Before evaluating the
consequences of these findings on the form of accounting information to provide,
let’s look at the bias that has been identified and at the meaning of the use of the
word “bias.”
9.4.4 Biased or Unbiased, That Is the Question?

If we say that there is a bias, it is because we have a benchmark that is the
unbiased way to do the thing or to conceive it.
To answer this question was supposing an important epistemological

change instituting the decisional behaviour as the principal studied
object instead of the corpus of formal rules. (Cadet & Chasseigne,
This escaping from the prison of the logical modeling (from illogical premises)
will not last long. These researchers, having escaped from the normative theories,
are falling back into the trap of implicitly saying what is normal and what is biased.
9.4.4.1 The framing

The way the situation is presented seems to have an influence on the decision. It
seems that people have a preference for certain gains and an aversion for certain
losses. So when the situation is reversed and the certain gain is presented on the
other side as a certain loss, the choice is modified and the aversion for the risk is
also altered.
The behavioural results are congruent with the results obtained by

Tversky and Kahneman (1981), the participants being very strongly
affected by the framing of the decision. In case of a loss, the
participants will show a strong tendency to taking risk, while in
case of a gain they will prefer the sure option. These behavioural
results are supported by neurofunctional results, this tendency to
be influenced by the framing being tied to the activation of
the amygdale bilateral. This cerebral zone, known to be strongly
implicated in emotional treatment (Trepel et al., 2005), is
significantly more activated when participants choose the risky
option in the case of a loss and the sure option in the case of a
gain. (Habib, 2013, p. 37) (Our translation)
Therefore, this effect is “physical,” which normally means “natural,” not

“cultural.” However, the zone of the brain that is stimulated is strongly related to
the results of experience, individual or collective.
9.4.4.2 The double process theory

This theory postulates the existence of two ways of processing information. The
first type is a very intuitive, very fast process of a lot of information without
having to monopolize the working memory of the subject. It is considered an
autonomous system (Habib, 2013). The second type is highly dependent on the
cognitive capabilities of the subject. It is quite slow and demands more space of
working memory and more resources.
9.5 Conclusion
In conclusion, we have little human considerations in that normative model.
Therefore the situation of people in their day-to-day life is not taken into
consideration and the model brings us very little guidance in the formulation of a
theory of accounting. What is the translation of the parameters of this model in
the accounting language? There seems to be very few implications. The choice to
be done after looking at accounting numbers are still in uncertainty, mainly
because the financial statements are not talking about the future possible gains
but about the past ones assuming the future to be a linear continuation of the
past. After the discussions on the “conceptual framework” the relevance had been
placed ahead of the desired characteristics supposedly because investors were
interested not in what their money had produced, but in what it will produce in
the future. We have to acknowledge that this was not very new basically, what
was new was the form of the inference. If we look a little more deeply, we may
find different forms of the line indicating the behavior of the future. Then, a
reasonably accurate estimate of this line will necessitate more, or at least new,
information.
We know very little about how decisions are taken at least from the so-called
theories of decision. In the circumstances we know equally little about the use of
information in such a process when it is not perfectly simple and following
unrealistic assumptions. Therefore, we have no guidance to make a theory of
accounting as an instrument for decision-making.
Questions
1. What are the assumptions behind the “rational choice” approach?
2. The British political system is like the British economic system, giving some
power to the “Commons” but under the control of the “Lords.” Comment
referring to Hobbes, Smith, Rousseau and others.
3. Following Pesqueux, the classical model of decision is based on certainty as
their first characteristic. Which consequence do you see for the validity of the
model?
4. Provide some definitions of rationality.
5. What does the concept of bounded rationality bring to our understanding of
economic choices?
6. Can the agency theory be called rational?
7. What do we learn from the game theory?
8. What is the main critic we can address to the Bayes calculation system?
9. Can we base a new accounting theory on the available decision theories?
Why?
10. If it works like Smith was pretending, we have little decision to take, we only
have to follow the flow and the “invisible hand” will equilibrate the entire
system. Comment.
Chapter 10
A Theory of Accounting
It would be a little meager to say that as accounting is supposed to provide

information for decision-making then theories of decision are theories of
accounting. For that, we would need at least a theory of decision more explicit
than what we have yet.
Firstly, we have to define which accounting needs a theory. To start, we have
to separate the different levels. At the first level, as we said earlier, accounting is a
language implying that it is a social object, like any other language. As such, it
can be the object of a science. However, no accounting activity needs a specific
science to continue to fulfill its social function.
10.1 Decision and Information

The types of decision to be informed by accounting numbers have been described
in many handbooks. The CICA (Canadian Institute of Chartered Accountants),
undertaking the elaboration of standards for Canada, stated the goal of the
profession as providing information to increase the efficiency in the allocation of
resources.
Those who tried to establish a conceptual framework made a hierarchy of the
decisions to be informed in priority.
Formulating the objectives of accounting depends on resolving the

conflict of interests that exist in the information market. More
specifically, financial statements result from the interaction of
three groups: firms, users, and the accounting profession.
Firms comprise the main party engaged in the accounting process. By

their operational, financial, and extraordinary (that is, nonoperational)
activities, they justify the production of financial statements. Their
existence and behaviour produce financial results that are partly
measurable by the accounting process. Firms are also the preparers of
accounting information.
Users comprise the second group. The production of accounting

information is influenced by their interests and needs. Although it

doi:10.1108/978-1-78769-793-520181010
is not possible to compile a complete list of users, the list would

include shareholders, financial analysts, creditors, and governmental
agencies.
The accounting profession constitutes the third group that may

affect the information to be included in financial statements.
Accountants act principally as “auditors” in charge of verifying
that financial statements conform to generally accepted accounting
principles. (Belkaoui, 1992, p. 179)
Belkaoui raises many questions. Firstly, who is the firm and why the interests
of the firm would be different of those of the shareholders? Another problem is
that the traditional vision separates radically the problem and the decision. But
now, problem framing is recognized as an important part in reaching a decision.
Although, in the CICA Handbook, for instance, accounting is supposed to be
neutral in its presentation of the information, others believe it is not the case and
still others, among who we may figure, believe that it is impossible because there is
no objective reality or even facts. Cooper and Morgan (2013) are in the second
group presenting accounting as changing unduly the world it is supposed to
present “fairly.”
The classical vision is supported by the agency theory having transformed the
firm into a kind of market within which many different groups are contracting.
This view underlines the differences in the interests of each group involved around
the firm (because there is no way to say “in the firm” anymore).
1. The shareholders
There are actual shareholders having an interest in increasing the market value
of their shares, to sell it at a higher price, without changing the risk and return
parameter. There are also potential shareholders having an interest to decrease
the market value to not pay too much for their shares and therefore increase
their returns for a given investment. There are also the preferred shareholders
wanting to secure their payments.
2. The managers
A lot had been said about the interest of the managers that seem to be
contradicted by the empirical results. An example of that is the disciplining
of the managers through the markets. We have now multiple examples of
managers leaving bankrupted firms with huge golden parachutes and finding
new positions within a few weeks. Also we may assume that working for
their own interests cannot be considered as narrowly as in the economic
theory and that other factors, like the hubris, will intervene in their decision-
making process. In such a system where the shareholders may even ignore
what the firm is doing, the manager has the possibility to entrench himself
and play the game to his taste. Depending on his interests of the moment, he
may want to present high or low results.
A Theory of Accounting 171
3. The employees
The employees may want to influence results in the right direction to have
bonuses or if they are negotiating some collective agreement to show a healthy
situation implying salary increases or simply to keep their jobs if the firm is in
danger.
4. Financial analysts
They are only an extension of the shareholders. But they are taking their
information from the management. So, there is in conflict of interest between
these two groups. As the newspapers, when the firm will issue its preliminary
announcement, will compare the profit expected by the stockbroking firms with
the one presented by the firm and that every difference will be imputed to the
ineptitude of the analysts, they are better to forecast the manipulated profit
rather than the “real one” (Breton & Taffler, 1995). Moreover, if they correct
the profit figure to eliminate manipulation, they will fall further from the
announced one and will look more out in the newspapers not taking into
consideration the reasons behind the forecasted numbers. Therefore the firm
will not be happy and the investor relying on analysts’ advices will lose confi-
dence. In substance, they are better to forecast the manipulated profit as dis-
closed in advance by the management team and everybody will be happy if not
richer for some.
5. The government
Normally, over the taxes, the government has the job to first make the society
function and to ensure that, among others, the economic activity is conducted
by the right institutions. In other words, the government has to verify if the
firm, as a social institution, is fulfilling its social contract. Unfortunately,
States rarely do that and the switch, in European countries, from the old
financial statements to the normalized international standards is not helping
them in doing their job.
These groups desire different accounting numbers to sustain the decision that is
already made because it logically derives from the needs of each group. This late
vision opposes two kinds of pragmatisms, the latter implying that accounting
numbers serve more as justifications after the facts than informing decisions
ex ante.
In the traditional framework, the investment decision came first. Therefore we
may believe that the first decision to be informed by accounting is investment. The
consequence is that we may apply what we know about the theory of decision-
making to this particular case. This application had not been really done because
every text on this question applies the rationality of the economic man and
therefore biases the results. A standard as the “going concern” is interfering with
the free decision-making process. If the numbers are made in order to support the
investment in the firm in question, the free will is biased and the accountant takes
the decision partly at the place of the investor. There is no reason why the
“neutral” accountant will have an opinion about the desirability of the going
concern of the firm.
To be perfectly rational, as described by the economic theory, an individual has to

know clearly what he wants, and he preferably may want a supplementary unit of
consumption reachable through an increase of the money he has at his disposal. He
also must be perfectly informed already of all the possibilities existing on a perfect
market. Obviously, we know nobody qualifying to be this person. If we start with the
idea that information is not perfect and moreover that it can be institutionally biased,
like with accounting principles, the decision process appears even more biased.
To bring back the categories of the agency theory, the first interrogation might
be: who is the principal of the firm? We are not sure that it is the shareholders as
they are no more the entrepreneurs although they are the persons having to take
investment decisions even if they have councilors for that. The shareholders
are now entrepreneurs and often investors by delegation. Therefore, they do not
take decisions within the firm, except for some controlling shareholders. They are
reputed to take decisions on the place where their money is invested, but with the
tendentious information (there is no other) provided by their brokers becoming
undertakers for the firm’s shares nothing is less sure. If we keep the principle that
financial accounting information is destined to those being far from other internal
sources of information, the target of the information is outside the firm and this
targeted outside investor, having possibly never seen the name of the firm, may
not know what its activity is.
The first locus of power in our occidental societies is constituted by the people.
That has been accepted since a long time (Rousseau, 1964). This power of the
citizens (we the people…), altogether, is delegated to the state (which is normally
organized with a kind of legislative plus executive and judicial powers). Normally, if
we were to start a democratic country today, we will want to produce as much
wealth as needed using as few resources as possible. To do that, we will have to
determine the best way to allocate the property rights that, at the very beginning, are
all in the hand of the state. This allocation is supposed to be the one producing the
best incentives to lead the ensemble of the people to fulfill the best of the goals we
enunciated above. Our societies have decided, although there had been no identifi-
able starting point, that the private property provides the best motivation system.
Fig. 10.1 shows the different layers of delegation of power we have in our
societies. Each delegation implies a rendition of accounts. The form of these
accounts will be derived from the resources over which some power had been
delegated and the goal that were assigned to the agent by the principal. The
bottom is constituted by the same group as the top except that at the top they take
decisions and at the bottom they receive the services organized and provided
through this structure. Going along the structure is a cascade of economic deci-
sions to be taken that firstly come from citizens and governments before coming,
in detail, from businessmen.
10.1.1 The Citizen Decision

The first level of delegation of power is made by the citizens forming the society.
The group called citizen has some characteristics that are not to be confounded
with those of the groups called customers, although constituted by the same
individuals. Cooper and Morgan (2013) argue that accounting numbers partici-
pate to the financialization of the economy and, as this process is eliminating the
scarcity of the capital as a resource, the democratic control that is reputed to exist
over the attribution of the resources, through the role of the state, is eliminated.
However, as we have seen clearly with Freddie Mac and Fannie Mae,5 the
withdrawal of the allocating decision from the democratic sphere does not
eliminate the citizens from taking charge of the results if it goes wrong. However,
we cannot say that accounting favored the financialization. To the contrary, it
fought inch by inch to avoid the recognition of unrealized profits and of the
present value of assets biasing the ratios and presumably the decisions taken from
it. Whatever will be the results of this financialization or any other such tendency
in the society, accounting is not leading the way; it is only following far behind.
The magic of using the same capital twice by selling titles made of already
accepted mortgages has not been concocted in an accounting laboratory.
As an agent, the government is supposed to rend accounts to its principal, the
society. But the form that had been developed for these accounts is quite strange.
All the resources of the society had been entrusted to the government; therefore
the report must be on the use of all these resources. These resources are mainly
tied to a territory and a group of persons called a nation. That is the basis of the
two indicators we have: the GNP and the GIP.
As noted by Stiglitz (2014), the state has no balance sheet. Thus, we have no
account of the assets of the nations and of their use. We do not have any accounts
for the assets owned by the government itself, directly or indirectly. From this
statement we can understand that the citizens do not receive the information they
need to reach any decision. The GIP and GNP are so general that it will be very
difficult to know what exactly is producing this aggregated result.
10.1.2 The Governmental Decision

In Fig. 10.1, the state is the first entitled to receive reports from the firms in order to
take decisions. These decisions are about the system of private property and private
enterprise. The questions must lay on the ability of this system to produce as much
wealth with as few resources as possible. Then there must be questions about the
disseminating of this wealth. There is where the income tax enters into action. The
system of the firm having shown its inability to disseminate the created wealth,
the state must compensate by taking the money where it is and distributing it where
it is needed. Obviously it is the locus of the biggest continuing fight in our society.
The producers of wealth try to keep as much as possible while the role of the
government is to take care of all the citizens who collectively are the owners of the
resources used by the firms in their process of creating wealth.
At this point, we have to ask what is really meant by the expression
“creating wealth”? The creation of wealth can be translated by what govern-
ments called the value added. A piece of raw material enters a shop at a
5
Freddie Mac and Fannie Mae are acronyms for two banks where the 2008 crisis started.
The citizens, altogether
Are represented by
The State
Is represented by
Executive power (Government)
Acting through
The state institutions
Agencies - Ministries - Departments - Firms - Schools - Hospitals - etc.
Shareholders Stakeholders
The citizens as forming the society
Fig. 10.1: Organization of the Society.
certain price. Then it will be transformed by the labor or the machines and
sold at a higher price than the one paid for the raw material. What is creating
the value and to whom it belongs are questions that we will not settle here as
there is quite a lot of literature on the question. For one, Marx (1985) would
say that if it is created by the labor, the value must be to the workers after the
factors had been remunerated. Ricardo (1992) will say otherwise although
recognizing that it is the quantity of labor that determines the price of a good.
Consequently, the question is around the appropriation of the value. While
Marx continues to conceive the value created by the work as the remuneration
of the work, Ricardo (1992) treats the work as any other merchandise on a
market and fixes the price at the intersection of the demand and the offer.
Therefore the price fluctuates and the rest of the value added constituting the
profit will fluctuate in function of the market price of the labor and other raw
components. Unfortunately, Ricardo is unable to conceive the capital under
the same structure.
One may believe that these questions are far from the accounting theory. But,
to the contrary, all the discussions around the recognition of assets that are, in
part, in the head of the workers (like in the computer business) raise the question
of the other side of the balance sheet; who will figure as the owner of these assets
and what will be the way to compensate this investment, which is in great part a
social investment (i.e., education, health).
In accounting terms, the question is what the society has invested in the firm
and what kind of report will it need to assess the performance of this investment.
The investment is constituted as follows.
1. The level of health in a society

To be productive a society needs a high general level of health (Sen, 2003).
Therefore, with a good health system the society may be able to prosper. But,
the work should not produce sickness. If the activities of a company produce a
sickness that is discovered many years after being contracted, it is the entire
society who will pay to cure the sick ones. Therefore the cost of taking care of
these persons is externalized from the firm which will be able to sell a product
at a price that is not representing the full cost. This full cost would have
possibly limited the selling of such a product. Therefore, many units would be
made in excess of their normal capacity and will constitute a spoiling of
resources.
2. The level of education in a society
It is mostly impossible to work in our societies without a basic mastering of
reading and counting. It is so much part of us that we don’t realize that we are
using such abilities all the time. Even the illiterate have developed a way to
“read” the signs appearing everywhere now. We must say that the develop-
ment of pictograms, as an effect of the cultural diversification of our societies,
help greatly the illiterate to function and remain unnoticed.
However, for a society to develop and create, it must have a good level of
education (Sen, 2003). This education must be conceived independently of the
needs of the firms but in accordance with the advancing of the society in
general.
10.1.3 The Investor’s Decision

There had been some studies about the way an investment decision is taken.
However, in hyperreality where the neoliberal economy functions, the investor is
supposed to be the entrepreneur. But since many years now, this is no more the
case and the investor is replaced as an entrepreneur by some “specialists” sup-
posed to take his interests as their own for a “just” compensation. However, as
one example of malfunction, the compensations of these managers have reached
levels never thought of before.
The investor’s decision is firstly made in function of a portfolio which is
supposed to equilibrate the risk. That is essentially what is taught in the business
schools. However, if we take the example of France, there are about 1,000 firms
registered with the Paris Stock Exchange while the database “Diane” registered
more than 1,000,000 firms. We may temper our conclusions so easily drawn from
observation limited to listed companies. In the rest of the French business world
(1,000,000–1,000), the control block is generally over 50% of the shares rending
easier the decision process.
The noncontrolling shareholder’s decisions can be summarized as buy, hold, or

sell. These recommendations are not equally distributed. On a UK sample, Breton
and Taffler (2001) found a very small proportion of “sell.” By far, the larger
number of recommendations was “hold,” which is a two-sided recommendation,
if you have some stock hold means keep it, while if you have no hold means don’t
buy any. As Rogers and Grant (1997) and Breton and Taffler (2001) conclude,
accounting information is not the most important when reaching a recommen-
dation. The quality of the management and the strategy proposed come first.
The decision of a noncontrolling shareholder of a listed company is not to
change things in the firm but to leave if the direction taken by the management is
not to his taste. That leaves a large open space to the management. In the unlisted
firm, the controlling shareholder may cumulate firstly the role of manager, or he
may be in position to intervene directly. It is not the same function at all.
The accounting system wants to inform both types of decision. In the first
situation there are many other sources of information, even for the minority
shareholder. In the second type of decision, the minority shareholder may be
totally left in the dark by the controlling shareholders and the management. In
this case, the minority shareholder will at least receive the annual financial
statements.
10.2 What Would Be a Theory of Accounting?

A complete theory of accounting will be multiple entries. As we have said before,
it will take a sociological dimension by taking the question of the rendition of
accounts at its roots. Therefore it will have to theorize the relationships between
the different persons or groups demanding or receiving accounts. This part will
belong to the sociology per se.
The principal rendition of accounts in a society occurs between the government
and the citizen. Then, the government delegates some parts of its mandate to
several institutions. These delegations are associated with the use of resources that
are developed by the state for the general well-being of the society like health and
education, or some specific resources under the authority of the state that can
come from the territory, like natural resources.
A theory of accounting following the forms accounting has taken lately will
have to be included in a theory of accounting that is more general, including
different forms of accounts that may be elaborated even without any recourse to
the accounting language we know. For instance, we may refer to the social bal-
ance sheet that had been implemented in the 1970s in France. The means were
economic indicators, like the proportion of women in the top management, the
proportion of minorities in the whole working force, etc. These balance sheets
constituted a form of rendition of accounts without using the accounting
mechanic. Therefore, classical accounting appears as one possible form for the
rendition of accounts, and the theory of accounting is firstly a theory of the
political bodies in a society and of their relations implying a delegation. As we
said earlier, a theory of accounting also implies to analyze the behavior of people
invested in a delegation relationship. Psychological aspects will influence the form

of this relationship. The best part may belong to the psychology.
Finally, the economic theory must be reconceptualized to fit the “reality.” The
portfolio theory changed the situation and must be taken into consideration in the
economic theorization process.
At this point, however, we may see that the theory of accounting will be
centered on the communicative function.
Questions
1. Which levels can we distinguish in the study of accounting?
2. What is the goal of the accounting profession for the CICA? Explain the ties
between this goal and the theory of economy from which it is derived.
3. Accounting is a market failure. Explain.
4. Accounting goes against the EMH. Explain.
5. Who are the users of accounting reports?
6. Can we say: the shareholders, as if they were forming a homogeneous group?
7. The decisions taken by investors depend for a small part (if any) on the
results of individual firms. Comment.
8. Which difference do you see between a citizen and a consumer?
9. Do you believe the citizens to be well informed by the public accounts for
taking their decisions?
10. How do you see, in practice, that the financial statements we have reflect
more the conception of Ricardo than the one of Marx about the property of
the value added?
11. List some of the investment of the society in the firm.
SECTION 3: “TESTING” THE THEORY
Chapter 11
Analyzing the Documents Accompanying

Decisions
Accounting data in financial statements are published in a larger document called

the Annual Report. This report is constituted by an ensemble of texts or discourses
of which the financial statements constitute only a section. These annual reports
are all constructed around the same structure. As a support for communication,
we can use communication analytical instruments to deconstruct the annual
report.
There are many possible approaches to text analysis that can be used in
accounting and on the annual report where the financial statements have a role to
play in the whole dynamic of the text. We will present the content analysis,
readability analysis, semiotic analysis, and the rhetoric of Aristotle and then
discuss the apparent and the hidden programs included in a text.
11.1 Content Analysis

For Krippendorf (1980), content analysis is a simplification allowing adding
statistical treatment to previous forms of text analysis in the purpose of making
inferences. The method had been widely used in accounting studies. Jones and
Shoemaker (1994) reported on a series of studies doing content analysis of annual
reports and other financial documents. The list is now much longer.
11.1.1 Classical Content Analysis

Content analysis consists essentially in counting the occurrences of lexical forms
or the co-occurrences of those forms. It is based on the assumption that frequency
is an important indicator, which had been reasonably demonstrated through time.
However, to extract some “meaning” from these frequencies, we have to, for
example, firstly organize the lexical forms into meaningful structures called
themes (Breton & Côté, 2006; Breton & Taffler, 2001; Smith & Taffler, 2000).
Other related methods had been developed as the model of Botosan (1997), for
instance. As in classical content analysis, she defines categories to be traced later
in her corpus. We may also include, among the extensions of content analysis, the

doi:10.1108/978-1-78769-793-520181011
works of Sydserff and Weetman (2002) counting the frequencies of passive form
sentences, building the DICTION score.
One important limitation of the method consists in focusing uniquely on
words, although assembled into themes. The effects produced by specific
arrangements of words, by intertextual references, or other significant elements
that are not included totally in one word or the recurrent association of two of
them, are mostly ignored by such research strategies.
11.1.2 The Accounting Content of Websites

It is current now to limit the number of a printed annual report assuming that
interested parties will find it on the website. However, is it possible to analyze the
content of a website like the content of a document? If you look for an annual
report on a website, you will rapidly discover that one specific characteristic of a
website is that it is made of a series of layers. Therefore, what is easily available at
first sight is not equivalent to what must be looked for in the depths of the site. In
terms of financial disclosure, what is easily available on a website would be the
information for investors. These information will contain the share prices evo-
lution and other stock exchange information and maybe a few accounting
numbers like in a preliminary announcement.
If you want the annual report with the complete set of financial statement, you
will have to go in a subsubsection to find it. It must be at the fourth or fifth level
while the information for investors will be at the first or second level. Therefore,
investors and even actual shareholders will satisfy themselves with this easily
(short) assimilated information avoiding going further for a more complete
report.
Researchers in marketing have some advanced on accountants in analyzing
websites. Perry and Bodkin (2000) analyzed the websites of the 100 largest
Fortune 500 companies. They were looking for the advertising use of the
website and they found a series of elements filling this function of pushing the
annual report at the bottom of the sites. Analyzing the elements of content on
a simple plan is not reserved to accountants. For instance, Ellinger, Lynch,
Andzulis, and Smith (2003), analyzing the elements, produced a list of fre-
quencies that placed every item on the same plan, as did Botosan (1997). Some
more appropriate methods have yet to be developed to take into consideration
the specificities of the website as a new system for communicating information
or hiding it.
11.2 Readability Analysis

If accounting is supposed to provide information for decision-making, it must be
accessible to the users. Based on this principle, researchers have decided to use
some measuring system to evaluate the easiness with which the financial state-
ments can be read. Obviously, we are again in a case of transportation without
care of concepts from one universe to another.
It is difficult to assess if the message received is the one intended to be sent.
Analyzing the Documents Accompanying Decisions 183
To satisfy his communication responsibilities and to ensure that the

message intended is, in fact, the message received, the writer relies
on feedback. (Adelberg, 1983, p. 163)
In an educational context, we spend our time testing (obtaining feedbacks) if

students have received what we wanted them to learn in a course or during a
certain period. However, if they study from a textbook, to some extent, it can be
tested at the source. Measures have been developed to evaluate the level, in terms
of age and grade, of scholarly textbooks. What we have here is not a readability
known by feedback but an a priori readability determined in the absence of
readers.
What the accounting profession lacks, and what this paper intends to
provide, is a pragmatic tool that will allow writers to evaluate the
comprehensibility of accounting messages before dissemination to
readers. (Adelberg, 1983, p. 163)
It looks like a miracle solution to make any communication more easily

understood, but, are we really talking about understanding?
11.2.1 Readability, Understandability, and Comprehensibility

Many writers did not ask the question of the potential difference between read-
ability and understandability. They treat the question as if it was the same thing,
implying that if the text is easy to read it will be easy to understand.
However, other researchers make a difference between the concepts. Smith and
Taffler (1992) compare some indexes of readability with a test devoted directly to
the understandability: the CLOZE test. This test consists in eliminating one word
on every five in this case, and asks the subjects to replace the missing words. They
conclude that in a specialized context, the CLOZE is a better measure of
understanding. They also found that their best performing group, the accounting
practitioners, had an average level of understanding that was far from being
impressive (just above 50%). However, we still have difficulties imagining what
would be the definition of readability without referring to understandability, as
without this latter, readability means nothing except the possibility for the eyes to
run over the paper. Nevertheless, we see that the CLOZE is based on the content
(cutting one piece of content every five), while the indexes are more focused on the
form (length of the words, etc.).
11.2.2 The Construction of the Indexes

Lewis, Parker, Pound, and Sutcliffe (1986) provide a good description of some of
the indexes. These indexes are, among others, the Dale–Chall, the Flesch, the
Fog, the Kwolek, the Fry, and the LIX. If you ever ask yourself how the dic-
tionary included in your word processor dared to tell you that your sentence was
too long, that a word was too long, or that your text was “wordy,” it is because
such measures of readability are included in your text processor.
If we take the scale for the LIX, a score of 20–25 means very easy, 30–35 easy,
40–45 medium, 50–55 difficult, and over 60 very difficult. The LIX scores, as
reported by Courtis (1995), for the Chairman’s statement were around 58 and for
the footnotes over 60. The few researches we have using these indexes classified
accounting narratives among very difficult, or scientific, or any other categories
meaning very difficult.
Consequently, if these measures have some relevance, we may wonder why
accounting reports can continue to remain the same while carrying so little
understandable information for decision-making and through which process the
accounting profession can continue to pretend the contrary.
11.3 Semiotic Analysis

Meaning is not univocal, and not situated on a unique dimension. Consequently,
there is not one but a multitude of meanings participating to the overall signifi-
cance. Some approaches are more prone to enclose this explosion of meaning.
However, it is obvious that the discourse itself (as an ensemble of

sentences) is organized and that, through this organization, it
appears as the message of another language, superior to the
language of the linguist. (Barthes, 1966, p. 3) (Our translation)
Saussure’s linguistics fixed its limits to the sentence. By opposition, the semi-
otics project proposes a “linguistic” of the discourse recognizing the specificities of
the text over the limits of the sentence and the presence of isolated words. Pre-
sented this way, it includes all the analytical methods referred previously.
A communication will have more or less opacity following the context in which
it is produced. However, even a scientific communication will have a degree of
formal opacity even if, in this category, the form is supposed to be transparent on
the content. Moreover, a scientific communication is also a literary “genre” using
conventional forms and structures. Thus, an analysis of communication must take
into consideration its format and context.
Every communication is an amalgamation of many of the functions described
by Jacobson (1963), depending on the circumstances. An ensemble of these fac-
tors equally influences each of the elements forming the basic model of the
communication (Fig. 11.1).
Despite all the good intentions, something will be lost and added between what
the source wanted to say and what the receiver will understand. In summary, the
communication will always be imperfect and it is possible to learn how to take
advantage of these imperfections. Consequently, knowledge of the communica-
tion process would allow to play on what will be understood by the receiver. It is
not for nothing if the annual report of the large firms are conceived and realized
by specialists in public relations.
To illustrate these ideas, which may look esoteric to many accounting spe-
cialists, we will apply a modern version of the Rhetoric of Aristotle to the annual
report.
SOURCE CHANNEL MESSAGE RECEIVER
Mental universe Mental universe

Cultural universe Cultural universe
Type Complexity
Level of language (verbal or Level of language
Perception of the written) Perception of the
self Coding self
Noise
Perception of the Perception of the
receiver source
Fig. 11.1: Communication Scheme. Source: Breton (2009).
11.3.1 Aristotle’s Rhetoric

There are four fundamental categories in Aristotle’s Rhetoric: the euresis, the
taxis, the lexis, and the hypocrisis. This rhetoric flows from the organization of the
democracy in the political environment. So, as democracy is based on the choice
of the majority of an ensemble of people, the first goal of the discourse is to
convince.
1. The euresis consists in choosing the arguments.

2. The taxis is the syntax of these arguments. These arguments must be placed in
an order apt to produce the desired effect.
3. The lexis consists in choosing the figures of speech destined to embellish the
discourse but also to create dramatic or any other kind of effects in order to
provoke the adhesion of the auditor: effects of aesthetic, authority, reality, etc.
4. The hypocrisis refers mainly to the delivery. It is the staging of the
intervention.
These four phases are parts of a strategy to convince. This is always done in
a moment of crisis in the general sense this word had in the classical theater.
There is a situation demanding that other people may be convinced of
something.
11.3.1.1 Euresis
First, we have the list of arguments. These arguments will covers many topics and
take many forms. The subjects covered depend on the domain of the discussion.
However, the form depends on the strategies, which are quite stable across the
possible topics.
Following our analysis of Perelman and Olbrechts-Tyteca (1971), Breton

(2006), and Breton and Gauthier (2000), we may have some broad categories:
the framing arguments, the authoritative arguments, the community arguments,
and the analogical arguments. All these categories present many forms of
actualization in the discourse. Therefore, in an annual report, we may have
arguments about the profit and the state of the market. This argument may be
associated with a community argument: as we all know, the economy had been
this or that this year. If the receiver is not aware of the alleged economic diffi-
culties, he may feel guilty of ignorance and consequently accept the argument.
That is a well-known form of manipulation of the perceptions based on an
authoritative argument.
A rhetorical study will begin with the establishment of the list of arguments.
These arguments will imply some people having a role in the process: the
president of the board, the members of the board, the CEO, the employees,
etc. It will also be possible to study the actantial structure (Greimas, 1973).
The arguments are about transfers and transformations. The firm’s represen-
tative wants to transfer always more value to shareholders and, to do so, he
will transform the firm into a more profitable one, but entertain a surface
discourse pretending the goal of the company is to ameliorate the life of
people.
The report we analyzed was, as usual, separated into two main sections
(Breton, 2009). These sections are totally different in term of characters, spaces,
and even for the paper used. We have analyzed the first part (the narratives, 19
pages).
Independently of the structure of the report we have considered the arguments
in this section. After presenting the highlights and a 10-year summary, we can find
a map showing the retail facilities of the firm, then begin the narratives sections
with the president and the chairman of the board reports. After that, we find a
review of operations covering the rest of the 19 pages. The complete list of the
arguments is quite limited as they are repeated in each section with sometimes a
few details added (Table 11.1).
The argumentation is quite simple and can be schematized through the tools
developed in our model.
11.3.2 Transformation
A text may contain many transformations. They generally can be ordered. The
transformation operates between an initial and a final situation (Everaert-
Desmedt, 2000). The difference between the situations is the transfer of some-
thing, an alteration of the situation.
In our chairman’s report, the object transferred is the value for shareholders.
From a positive but modest initial situation the shareholders are assured of a
bright future, which means steady streams of revenues. It is then the financial
situation of the shareholders that is transformed through the new value created by
the management team. To better understand the relationships between those
people we can study the actantial structure.
Table 11.1: Arguments Found in an Annual Report.

These arguments are as follows:
1. we are the best (number one),
2. record results,
3. the current year shows improvement in: the sales, the profits, the debt/
equity ratio and the coverage of interests,
4. next year will be still better,
5. the administration is solid, its strategy is well founded,
6. there had been an important investment program implying acquisitions
during the last three or four years,
7. some difficult adjusting years had followed,
8. all is settled now,
9. the expansion had weakened the historical basis of the firm in the
eastern part of the country,
10. the economic conditions are difficult,
11. the difficulties are now behind, the proof being that the indicators are
good,
12. the future shines.
Source: Breton (2009).
11.3.2.1 The actantial structure

An “actant” is not an actor; it is an archetype, a function, a category of actors. If
the list of actors may have no limit in terms of number or diversity, they can be
grouped into a limited number of categories, for instance, as follows:
Actor: Superman
Actant: hero
Action: save the world
There is an infinity of actors entering into an actantial class playing the same
role, performing comparable actions. In the same way, an actor can change its
actantial role during the process. The actor is totally integrated in the semantic
level of the text, while the actant is a syntactical category expressing the orga-
nization of the narrative at the structural level (Fig. 11.2).
As elements of an actantial structure, the actants possess some principal
attributes: the competency and the performance. This competency is expressed in
terms of will, power, and knowledge. The competency appears through the per-
formance. However, a part of this competency can remain virtual. The acquisition
of the competency is very important and normally precedes the main
performance.
In our annual report we have many actors playing some fundamental role.
Axis of transfer
Destinator Object Receiver
Axis of desire
Adjuvant Subject Opponent
Axis of power
Fig. 11.2: Actantial Model. Source: Hasbani and Breton (2013).
• Chairman of the Board • Adjuvant (has the knowledge)

• President
• Company (management team) • the hero
• Shareholder • the receiver
• Directors (altogether)
• Market • opponent
• Narrator • adjuvant (not clearly identified)
The narrator is not specifically mentioned in the text. For the chairman’s
report, it must be the chairman. However, the tone is much the same in the
chairman’s and the president’s report, making it difficult to perceive two narra-
tors. For the review of operations, the reader cannot exactly identify a narrator.
Moreover, as there is a specifically identified section entitled management dis-
cussion and analysis, who is narrating the review of operations?
The shareholders are the receiver: “your company.” The discourse is about
the company explaining how it had improved during the last period. The
market is presented as an opposing force having to be tamed and used to our
profit.
The role of the chairman is to draw a general picture of the activities of the
firm, interpreting for the hero the situation and its probable issue. Consequently,
his text is articulated in three periods: the past, the present, and the future.
The other sources are giving details of the general vision provided by the
chairman. These details can be ignored by the reader if he decides to be content
with what the chairman said to him as it was mostly the case in the research done
by Lee and Tweedie (1977, 1981). In our case, it can happen easily as the
chairman’s report is preceded by numbers showing a very positive situation and a
map showing an interesting geographical spread for the firm.
The governance is assessed following the description of the situation. The

strategies are said to be fruitful despite a period of uncertainty following the
massive investment program initiated a few years ago. Briefly, the management
has won. This management team is the perfect adjuvant bringing knowledge and
wisdom to allow an increase of the shareholders’ value.
11.4 The Functions

These functions appear often in a similar order, although some variations can
happen. For instance, the hero marries the princess at the end. If, this event
appears placed at the beginning, the union will not be consummated before the
end as a series of events will delay it, these events constituting the essential of the
story. Or, as we often see in movies, the story will start with the end, the marriage,
and then restart at the beginning with the story leading to this end. This changes
nothing on the basic diegesis of the story and to the principles behind the analysis.
Propp (1965) repertoires a series of stereotyped activities. The popular stories
constituted a fertile soil for this, due to their initiatory dimension (Bettelheim,
1976). One may be surprised to find that those stereotypes are widely spread in the
fiction we see on television or in the movies. The functions can be equivalent to
what Fiol (1989) termed programs.
11.4.1 Example of Functional Analysis

A traditional analysis will look for recurrent situations. Here we have a few
examples:
THE NARRATIVE SECTIONS: 1. make a summary of the situation

2. predict the future
3. present the situation in detail
4. show the numbers
THE FINANCIAL 5. authenticate the numbers (audit
STATEMENTS: report)
6. invite the shareholders to the
annual general meeting (AGM)
As the functions are always there, we see that predicting the future is one of the
most important functions in the annual report. This prediction is based on a
comforting interpretation of the past. The annual report practices some historic
revisionism.
These functions operate always into a temporal structure inherent to the
comparison between an initial and a final situation. The analytical categories
proposed by Genette (1966) are prone to take care of their temporal
dimension.
11.4.2 The Temporal Structure
One interest of Genette (1966) resides in the temporal analysis. Any story contains
a central part delimited in time, the diegese. But often, the stories are not told in a
chronological sequence. These temporal manipulations are there to generate some
narrative effects: explanations, justifications, anticipations, etc. Anticipations
justify the present in showing its results in the future while flashbacks are used to
provide the sources of an actual situation or the background of a character, for
instance. Genette is also interested by the narrator: who is telling the story and
when? The story can be told in advance (very rare), during the events happening,
or after. The narrator can be omniscient, knowing the motives and secrets of
everyone, or he can be relatively ignorant, telling only what his position in the
story allows him to know or any other median position.
In the studied annual report, time plays an important role. The report opens on
a five-year summary. The chairman’s report is clearly structured around the
notion of time and of the qualifications associated with the periods. The reference
to the past as a benchmark (an initial situation) is always present. Results are
better, the sales increased, while better profits and wider expansion are in view. The
narrator travels constantly between the past and present to produce an impression
of security to the reader. We have a narrator of the “guiding” category, although
it is the chairman, the president, or anybody else. He is very knowledgeable. He
can explain what happened in the firm broadly or in detail. Consequently, he
creates an effect of confidence and security.
We can see the interest of this type of analysis of annual reports. At a macro
level, we will notice an underlying ideology of growth, implied in studies about
income smoothing, for instance, driving this temporal structure. This underlying
ideology of continuous growth (Piketty, 2013) can be traced in the political
discourse and economical comments. This increasing process can be associated
with the vision of the ever growing GIP as the expression of progress, a highly
desirable thing in our societies.
Bremond (1966) applies Propp’s analysis to a wider corpus of narrative texts.
He connects the functions proposed by Propp into chains that he called
elementary sequences (Fig. 11.3).
These elementary sequences are then combined into more complex sequences
that can be made of two or more elementary sequences. The possibilities are
multiple. For Bremond, all these chains of actions are part of a process of
amelioration or degradation.
Annual reports repeat always the same structure. The fundamental functions
are implicit in the text, relating to the idea of keeping the firm alive and generating
value for the shareholders. Concepts like amelioration and degradation seem
totally appropriate in the circumstances. Degradation will be less often the central
process of the report as many observers think that the report generally presents an
optimistic view of the situation. On the other hand, amelioration is very often at
the heart of the report. As we previously said, most of the time, the future is
presented as brighter while the present is already better than the past. However,
one program often hides another one (Hasbani & Breton, 2013). Even in the
Goal reached
(success)
Actualization
(action to reach
the goal) Goal missed
(failure)
Virtual (goal)
Absence of
actualization
(Inertia, barriers
to action)
Fig. 11.3: Bremond’s Elementary Sequences. Source: Breton (2009).
folktales there are always two levels. For instance, the princess is transferred as
the object of desire. But the princess brings with her the power in the realm as I
can’t remember this princess having a brother ready to take the throne.
11.5 The Apparent and the Hidden Programs

The apparent program is given in the actantial structure as proposed by Greimas
(1973). The traditional distribution will propose the prince as the subject and
receiver of the object that is the princess. However, the story always starts with a
political crisis resolved by a wedding that is the cause of the “they lived happy and
had many children.” Psychoanalytically, the crisis can be interpreted as the
apparition of the sexual desire for the adolescent that will lead to the discovery of
the “object” that will satisfy this desire (Bettelheim, 1976). It is difficult to deny
that folkloric stories reproduce this structure ad infinitum. There is a third level
more immediately interesting for us. The princess, although a most appreciated
gift, comes with the keys of the realm and the power to govern it. The capacity to
govern is tested through the task the hero has to perform before reaching the
princess. To govern means mainly to protect and the task is generally to eliminate
a dangerous peril for the realm. So behind these magic stories of princes and
princesses, there are stories of richness and power and dangers and protection that
may impact at other levels. Therefore, the program is not univocal and has several
layers. The fundamental message is the basis of what is called the American
Dream, implying that anybody can reach the highest position if he has the
intrinsic qualities leading to it.
In their annual reports, pharmaceutical firms have all the goals of providing
the best medicine for the lowest possible prices to save as much people as they can.
However, in economically difficult years, their constant underlying program,
create value for shareholders, has to resurface. Table 11.2 provides an example of
analysis of the stated program of Pfizer over 20 years (only the last 10 ones are
illustrated).
Table 11.2: Initial State, Final State and the Position at the End of the Year.
Years Initial Situation Final Situation Success/Failure

1998 Pfizer is in a very good Pfizer is in a better Success
situation situation than ever. The
success cannot be
complete, however,
without always helping
people more
1999 Pfizer is finally world Pfizer is not satisfied being Success
number one number one; the hero
wants to help people
2000 Pfizer is world More people have access Success in
number one to Pfizer medicines. The progress
hero helps humanity more
than any other firm in the
sector
2001 Pfizer is world The hero is ready for his Success
number one new mission and is
admired more than ever
2002 People from poor Amelioration of the Success in
countries don’t have access to medicines for progress
access to medication people from developing
countries. However, there
is still much to do
2003 No universal access to The goal is approaching. Success in
health care More people have access progress
to health care
2004 Lack of communication Following the open Success in
between the firm and the dialogue recently progress
stakeholders enforced, the
incomprehension has
become to be part of the
pass
2005 Adverse changes in the Pfizer adapted itself Success in
pharmaceutical industry successfully, but the progress
situation is not over yet
2006 Pfizer experiences a period Pfizer creates more Success in
of rapid changes proprietary value progress
2007 Pfizer is criticized again Pfizer fulfills its mandate Success in
progress
Source: Hasbani and Breton (2013).
The deep structure is always there, but appears clearly in the years where the
financial results are more uncertain. In the good years, the surface structure comes
back and the philanthropic discourse takes the entire space.
The analyzed annual report tells a story entering perfectly in the categories of
traditional stories or of their modern transpositions. Doing that, the report
mobilizes the instinctive capacity of the reader to recognize these structures and
understand their functioning. The victory of the firm will leave the reader in the
same state of satisfaction as the victory of the hero and make him ready to
invest.
11.6 The Figures of Speech (the Lexis)

To separate the lexis from the preceding phases remains artificial. A discourse is
not a set of blocks that it would be possible to take at random and to decorate in a
subsequent phase. In the discourse, all that is going alongside and the decoration
is an integrative part of the very construction of the discourse. Our study of the
lexis will follow the Rhétorique générale of the Groupe m (1972). Some figures
influence mainly the form while others have their main effect on the content. For
instance, a figure altering the form would abbreviate a word, like writing “perks,”
instead of perquisites. We will focus here on the figures altering the content. In a
semi-technical language, like accounting, the form is supposed to be transparent
on the content implying that the figures must be limited. The Groupe m proposes a
series of figures of content.
These figures modify the basic discourse to make it more interesting, more
captivating, more convincing, in substance. In the chairman’s report, we find a
“personalization.” The company is presented with human attributes. This
report remains, however, relatively short. In the chairman’s report, covering 82
lines, we find a chronological effect and a series of hyperbole: earnings of
almost $100 million, the highest in our history; this highly positive growth rate;
uniquely positioned corporate brands; our management team has never been
stronger; nor has it ever work better; etc. The chairman’s report is highly ori-
ented toward the positive side, evoking the negative possibilities only to
eliminate their effect and show how the company is strong. Figures of speech
based on exaggeration and superlative will be very current in a report mainly in
the president letter.
11.7 Hypocrisis
The hypocrisis is the delivery or the staging. For an annual report, it would
include an analysis of the images, of the proportions between the text and the
images, of the differences in characters and paper between the narrative sections
and the financial statements, etc.
A complete analysis of all these elements would take a complete book. It is the
same situation for the Internet sites. When we see lists of items like in the analysis
proposed by Botosan (1997), we must realize that it is falling short of the goal
which would be to account for the specificity of the medium. An analysis must
specify at which level the information is and how easy it is to pick up. Then, it
must specify also which information is easier to find and is proposed at the place
of the other one.
11.8 Analyzing the Images

This section is an illustration of what we can do with pictures through a semiotic
analysis. Since the article of Barthes (1964), which was far from being conclusive,
the approaches have been improved. Our study is done on annual reports of
pharmaceutical firms. The next figure shows the cover of the 2006 Annual report
of Merck (Fig. 11.4; Table 11.3).
Fig. 11.4: Merck 2006, Cover of the Annual Report. Source: Hasbani
and Breton (2016).
Table 11.3: Application of the Semiotic Tools to the Story of Jamilla

Colbert.
Actantial Structure
Merck Health Jamilla Colbert and
other patients
Adjuvant Hero Opponent
Merck Jamilla Colbert CUTANEOUS T-
Her doctor CELL LYMPHOMA
Functional structure
Initial situation Transformation Final situation
“I felt so alone,” Jamilla Zolinza has definitely “I have been blessed.
recalls. “The doctors had improved her life. There is hope out
no idea what more they there.”
could do for me.”
Five pictures imply five stories. The fourth story will be described this way:
For much of her adult life, Jamilla Colbert suffered from the
disfiguring effects of cutaneous t-cell lymphoma. Most people have
never heard of cutaneous T-cell lymphoma (CTCL). But for those
who have this form of cancer, which affects the skin, every day is a
challenge: pain and discomfort, stares from unthinking strangers,
frustration that nothing provides real relief. It’s been 25 years since
Jamilla Colbert noticed the first signs of CTCL – itchy skin, followed
by growths on every part of her body that wouldn’t go away. Over the
years, Jamilla’s search for relief led to one disappointment after
another. From topical ointments and chemotherapy to full body
radiation and surgical removal of tumors, nothing proved
completely satisfactory. Although she got relief from some of these
treatments, over time she still experienced symptoms of her CTCL. “I
felt so alone,” Jamilla recalls. “The doctors had no idea what more
they could do for me.” Then, two years ago, her doctor learned about
a Merck clinical trial for the treatment of CTCL and immediately
thought of Jamilla. She enrolled and had very positive results from
treatment with the drug, called Zolinza. And while not all patients
respond as favorably as Jamilla has, Zolinza has definitely improved
her life. As Jamilla will tell you, “I have been blessed. There is hope
out there.” (Hasbani & Breton, 2016, p. 7)
We have the typical structure of a story with a negative situation at the

beginning, then a transformation (amelioration, Bremond, 1966), helped by the
adjuvant, leading to a much more satisfactory situation at the end. This happy
ending is also the defeat of the opponent, the sickness and the resulting
miserable life.
Such a story is legitimizing the pharmaceutical sector in many ways. Firstly, by
eliminating the sickness, the pharmaceutical industry appears to fulfill its social
contract and to redeem its right to use public resources. Secondly, the industry is
sending back to the society important resources that were not performing because
of the illness. Therefore, the pharmaceuticals are rending back what they took.
The sick person is the main agent of the recovery. Merck is just helping and
bringing health to the people, as it is its mission.
The picture has to be taken in a series. The five pictures show happy people.
On the cover of the report, every one illustrates a story of somebody happy after
having received effective treatment from the company. So, the firm is making
people happy by giving them access to a healthier life. From the second picture,
the eyes have to travel not only from top to bottom but also from right to left to
follow the people. This is used to slow the eyes and make the brain register a more
pregnant impression created by these images in series.
Dark images are separated by brighter ones. The fourth image, those of
Jamilla Colbert, is a bright one. The first things we see are the dolphins looking
playful. Then immediately comes Jamilla looking happy. The simple existence of
this picture is a statement by itself because her sickness was altering her
appearance and provoking reactions, “stares from unthinking strangers.” Now,
there is nothing to stare at and she can appear in full light on the cover page.
A publicity picture is constructed in such a way that the eye will focus on the
surfaces where the key information is placed (Joly, 2009). For Péninou (1970),
there are four principal configurations in the construction of publicity pictures.
The focalized construction places the product where all the lines are converging.
The axial construction places the product at the center of the picture. The con-
struction in depth integrates the product into a scene although it is placed at the
first level. Finally the sequential construction places the product at the end of the
path the eyes are following. Normally, in our societies where we read from left to
right the look will follow a kind of Z form, starting at the left top to scan the top
then following a diagonal from the top right to the bottom left and then going to
the bottom right (Péninou, 1970). We must also consider the light because it will
play a role in directing the attention. The fact that we have a high angle or a low
angle shot also influences our perception of the image. Those findings had been
applied (Stones, 2013). Following Levie and Lentz (1982), illustrations have four
fundamental functions (Table 11.4).
In marketing, all these functions lead to the formation of a positive attitude
toward what the firm is selling. In the images we present here, the affective
function is quite prominent, provoking emotional response.
The term “affective” refers to empathetic, meaningful design that

intents to evoke affect. Carliner (2000) added the term “affective” to
a framework for information design, referring to it as “designing the
communication product for its optimum emotional impact.”(…). The
Table 11.4: Functions of Text Illustrations.
Attentional 1. attracting attention to the

material
2. directing attention within the
material
Affective 3. enhancing enjoyment
4. affecting emotions and
attitudes
Cognitive 5. facilitating learning text
content via
a.improving comprehension
b.improving retention
6. providing additional
information
Compensatory
7. accommodating poor readers
terms then relate strongly to products that are either bought or

selected/used over key competitors, with positive affection playing a
role in that selection criteria or continued use. (Stones, 2013, p. 87)
These effects will be felt through a certain way of “reading” the pictures. In our
case, the image is clearly made to be read following the “Z” pattern (Fig. 11.5).
The first thing in the spot is the face of the researcher. We can describe his
jocundial smile as expressing his satisfaction. Then we go down and see, from
the smock he is wearing, that he is a scientific. If we do not understand at first
glance, it is written on it. And, finally, we go toward the computer that we
recognize mainly by the keyboard. The legend is: “It’s wonderful to make a
difference in someone’s life.” The picture is also slightly low angle giving the
superior place to Doctor Hess, the great researcher. We are at the bottom of the
picture and, at the top, the Doctor is looking up, inside himself in fact, for new
great ideas that we are too low to conceive but that will have wonderful effects
on our lives (Table 11.5).
Here again, it is about having fulfilled the mandate given to the industry to
help people recovering health and spreading this goodwill as widely as possible.
To end this subsection about semiotics, we may discuss a little bit of what is
semiotic and what it is not.
It is known, the linguistic limits itself to the sentence: it is the last

unit she believe to have the right to work on; if, effectively, the
sentence being an order and not a series, cannot be reduced at the
sum of the words composing it, and constitute consequently an
Fig. 11.5: Image of a Satisfied Doctor after Having Changed the Life
of One Patient. Source: Hasbani and Breton (2016).
original unit, an enounce, to the contrary, is nothing more than the

succession of the sentences that make it. “The sentence, says
Martinet, is the smallest segment perfectly and fully representing
the discourse.” The linguistic cannot give to itself a superior object
than the sentence, because, over the sentence there are only other
sentences: after having described the flower, the botanist has no
business describing the bouquet. (Barthes, 1966, p. 3) (Our
translation)
Barthes expresses here the famous dichotomy proposed by Saussure between

the code and the speech. Limited to the sentence, the Saussurian linguistic study,
exclusively the code and the characteristics of the code are totally included in the
study of the sentence. For Barthes, the linguistic is the code less the speech.
Having taken this epistemological position, the linguistic pretends that the
understanding of the speech, the discourse, is reducible to the understanding of its
code. Then, the message of Barthes is that the discourse is not reducible to the
code and must be studied by itself.
Table 11.5: Application of the Semiotic Tools to the Story of Doctor Hess.
Actantial Structure
J&J Health Unidentified patients
Adjuvant Hero Opponent
Doctor Hess Doctor Hess Scoliosis and other
J&J spinal deformities
Functional structure
Initial situation Transformation Final situation
Many have an uneven “The vision we have is “It makes a difference
waist, asymmetrical to use Harmonic in the care I can
shoulders, or a large technology as the provide for my
hump. Some are in such cornerstone of a patients.”
great pain that they’re growing energy
barely able to walk. franchise that will offer
multiple benefits to
surgeons and patients
in any procedure.”
However, it is obvious that the speech itself (as an ensemble of

sentences) is organised and that through this organization it appears
as the message of another language, superior to the language of the
linguists: the speech has its units, its rules, its “grammar”: over the
sentence and although made uniquely of sentences, the speech must be
the object of another linguistic. (Barthes, 1966, p. 3) (Our translation)
Barthes is using the linguistic metaphor to describe the new science, but he is
not really projecting the categories of the structural linguistic on the speech.
Others, coming from different horizons can have different ways of classifying
things. Schaff (1969), coming from the anthropology and the philosophy of lan-
guage, presents the language as a way of understanding our environment. From
this, we can imply that a language is not only a code that we share with others, it
is a way to cut pieces in the substance of the content.
But, as Fiol said, the semiotic has the project to encompass every symbolic
activity. The signs used in these activities don’t share all the same characteristics.
The linguistic sign is separated from the referent while the iconic sign cannot be
separated from its referent in the same way as this referent is already in the sign.
11.9 Summary
All this leads us to the conclusion that if there is something to be kept in the
agency “theory” is the opposition between those giving the mandates and those
acting as agents. This is true between the shareholders (taken altogether) and the
managers; but it is also true between the firm and the society. In this context, we
have many levels of asymmetry of information and everyone is trying to take
advantage of it. The firms, i.e., the managers and key people on the board, may
have good reasons for agreeing to expense huge amounts to create and dissemi-
nate those annual reports that nobody reads. So, if they can learn how to make
effective reports, the other side may learn how to decode it. What we are pro-
posing here is an extension of the works on the numbers: earnings management,
income smoothing, big bath accounting, etc., to the rest of the report.
Questions
1. Explain rapidly what is the “content analysis” method?
2. What would be the differences between analyzing a text and an Internet site?
3. Discuss some of the limitations of the content analysis method.
4. Define the “readability analysis” method.
5. Discuss the differences, if any, between readability and understandability.
6. What are the main ideas behind the indexes used in readability analysis?
7. Define the “semiotic analysis” method.
8. How the characteristics of every element of the basic communication scheme
may impact on the results of the communication process?
9. What are the main categories of Aristotle’s rhetoric?
10. What is an actantial structure and what is the difference between an actor
and an actant?
11. What is a “function” in a text?
12. How can such analysis lead us to the conclusion that annual reports are
storytelling?
13. How are images built?
Chapter 12
Manipulating and Lying
Many studies have focused on accounting manipulations (Stolowy & Breton,

2004), although the word manipulation raised some contestation. If we
remember the phases of a crisis described by Coombs (1999), the accounting
profession, despite the scandals having shaken it during the last decades
forming a crisis, is at the second stage and never, to our knowledge, went over
denial.
12.1 Accounting Manipulations

The different techniques for manipulating accounts are well known. In the liter-
ature, they have received various names: earnings management, income
smoothing, big bath accounting, in the UK window-dressing, creative accounting
or, in the US accounting shenanigans.
If we start from the principle that the agents do not see markets as efficient,
manipulating information becomes a privileged way to operate a transfer of
wealth between categories of agents in the market or stakeholders in the firm.
These transfers come from the usage of management’s discretion to make
accounting choices or to design transactions. These transfers will operate
between the firm and the society, political costs, funds providers, cost of
capital, or managers’ compensation plans. In the first two cases, the firm is the
beneficiary from the transfer, while managers benefit in the third one
(Fig. 12.1).
The possibility of such transfers flows from the basic asymmetry of infor-
mation between managers and the other categories of stakeholders. The
literature proposes two bases for judging the performance of a firm. These
bases will become the target of accounts manipulation: the earnings per share
and the debt equity ratios (Breton & Taffler, 1995). Earnings per share
can be modified by adding or removing certain revenues or expenses (modifi-
cation of the net income), or by presenting an item before or after the profit
number used to calculate the earnings per share ratio (classificatory
manipulation).
Stolowy and Breton (2004) propose a general framework for understanding
account manipulations (Fig. 12.2).

doi:10.1108/978-1-78769-793-520181012
Fig. 12.1: Principles of Accounts Manipulation. Source: Stolowy and

Breton (2004).
Science and Politics

We have to first make a distinction between a scientific process and a political
process. A theory, even when proposing “laws” resulting from systematic
observations, tries to explain and predict from the acquired knowledge of the
object what its behaviour will be. A standard is a choice made by people; therefore
a political choice in its most fundamental meaning tries to prescribe the behaviour
and not predict it. Obviously, when distorting the meanings of the concepts, one
can pretend to predict a given behaviour as it is prescribed, as we can predict that
somebody will stop at the red light (maybe) not from an observation of the natural
behaviour of the subjects, but from the knowledge of the convention. In
accounting, the confusion between those two processes always persists.
Accounts manipulation remains in the limits of the law or the standards. Outside
these limits we have fraud. Here, we are discussing far-fetched and abusive inter-
pretations of the laws and the standards. “Fabricating false invoices to boost sales
figures is fraud, while interpreting consignment sales as ordinary sales is an error”
(Stolowy & Breton, 2004, p. 11). However, the frontier between interpretation of the
standards and fraud is not so easy to trace. Furthermore, the intents of the preparer of
the report must be taken into consideration. So, if the distortion is significant and
purposely done, it is a manipulation even if remaining in the limits of the standards.
Manipulating and Lying 203
Fig. 12.2: A Proposed Framework for Understanding the Practice of

Accounts Manipulation. Source: Stolowy and Breton (2004).
(…) deliberate deception in financial reporting is a form of fraud. In

other words, the distortion of accounting numbers is a cynical
exercise by corporate management to mislead shareholders, other
stakeholders and protectors. (Lee, 2006, p. 423)
For Lee, it is clearly purposeful and the effect of a system where self-interest
has taken priority over public interest that is supposed to be the goal of the
standards-setting process and of the professions. Lee wonders also that this
possibility to “fool their auditor so persistently” remains at the turn of the mil-
lennium. This question, quite relevant, opens a debate on the role and the prac-
tices of auditors. Auditors are not looking for the highest level of truthiness but
for the lowest level of risk.
Lee (2006) reminds us that the constant increase in the quality of the disclosure
had been the results of governmental actions. But every new regulation raises a
movement to find a way to pass around it. For him, auditors had been too busy to
enlarge the power of their corporations to take their responsibilities seriously.
Therefore the corporations engage in techniques of “image management” not far
from “earnings management.”
12.1.1 Earnings Management

To better understand earnings management, we have to consider its objectives.
Firstly, the firm will try to avoid being spotted as exerting a market influence
(Watts & Zimmerman, 1986). Then the firm will try to delay environmental
regulation and minimize its income tax or other possibilities involving a rela-
tionship with public authorities of many kinds.
The second objective is also to the benefit of the actual shareholders. If the cost
of the new investments in the firm is kept as low as possible, the share of the profit
going to the actual shareholders is as much increased.6 Under this objective we
will have all the financing and refinancing possibilities.
This category of objective is the only one implying maximizing the accounting
numbers. Normally the compensation contract defines a zone where the
compensation is maximal (Healy, 1985; Lee, 2006). The manipulation will keep
accounting numbers in this space. However, this was true with bonuses. As
compensations are sliding toward share options, the image had been altered. For
instance, a CEO can receive hundred thousand dollars, even millions, of special
compensation in options although the accounting result may be negative. In fact
the direct tie between accounting numbers and compensation has loosened
through time and, in consequence, the model of Healy had become largely even if
not completely obsolete.
12.1.2 Income Smoothing

There are different kinds of smoothing recognized in the literature. However,
some of them are more important in practice. Many tests of the smoothing
(Eckel, 1981; Imhoff, 1977, 1981) are based on the idea that the variability of the
results numbers must increase as we go down the results statement. If the net
profit has a lower variance than the sales figure, it must be the result of a
All this depending on the “legal” organization of the categories of shares.

6
smoothing of some kind. That is one of the methods that had been proposed to
test this hypothesis. Some other researches have considered that the target for
the profit of the year is the one of the preceding year. Consequently, any change
is an attempt at smoothing. Many more sophisticated methods have been
derived from this one.
The papers on smoothing have almost disappeared since 2000. This specific
concern had been replaced by others in the field of account manipulations. The
effect of the replacement of national standards by IFRS (International Financial
Reporting Standards), and the quality of the numbers produced with these new
standards have been at the center of the research since 2000. For instance, the
question of the compared easiness to manipulate accounts with the old and the
new standards had taken a large place.
12.1.3 Big Bath Accounting

There had been a few studies on this particular kind of manipulation. The intu-
ition comes from Healy (1985) when he says that if the results were too low under
the lower limit of the bonus area, the reaction would be to lower it more by taking
a series of expenses that had been delayed in provisions in the balance sheet. Such
an operation will allow cleaning the provision accounts for subsequent use in
better years.
The intuition had proved conformed to the experience even in another situa-
tion. Pourciau (1993) found evidence that a new CEO will clean the accounts by
creating a big loss in the first year that will be attributed to his predecessor. In a
more general experience point of view, almost every time a new government is
elected, the new person responsible for the finance declares that his predecessor
has hidden many expenses and that the result of their first year will be lower than
what had been promised during the campaign.
Another variation is when a large negative event happened. For instance,
Bombardier made a huge write-off after September 11 to clean a lot of old
unfinished projects and unsold material. They said, and the analysts after them,
that it was the effect of September 11. Therefore, we have three situations apt to
encourage a big bath accounting situation for a firm: already low results, change
of CEO, or a particularly negative event in the environment. We also have the
case of changing control for the governments.
12.1.4 Creative Accounting

Research on creative accounting are differentiated from those made in the US by
their proximity to the practice. Many books had been published in the UK:
Griffiths (1986, 1995), Jameson (1988), and the famous one of Terry Smith,
Accounting for growth (1992), subtitled the book they tried to ban. These books are
not the results of any academic research, but they tell well-documented stories
about specific firms having “cooked their books.” In the academic field we have
Tweedie and Whittington (1990), who examined some of the schemes denounced
mainly by Smith. Breton and Taffler (1995) tested the reactions of financial
analysts facing manipulated accounts. They found no reaction at all, what they
expected and explained by the structure of relationship between investors, firms,
financial analysts, and financial journalists.
12.2 The Efficiency of Manipulation

Since the agency theory, the belief in accounting research is that managers are the
bad guys trying to operate transfers of wealth from the shareholders to their own
accounts.
12.2.1 Gains and Losses From Accounts Manipulation

Firstly, we have to separate actual shareholders from potential shareholders. If
the returns look better and/or the risk looks lower, the rate of return asked by new
shareholders will be less. Therefore they will pay more for the share presenting a
given level of return. Who will benefit from that? Not only the firm but also the
actual shareholder, seeing the market value of the shares increasing. Therefore,
managers and actual shareholders will benefit from manipulating accounts.
The categories of players asking for manipulations are far more important
than just the managers in their opposition to shareholders. Many stakeholders are
touched, from the employees to the whole society. Manipulating accounts is then
a social question (Breton, 2016; Lee, 2006).
12.2.2 Particular Studies

The interest of some categories of participants having a word on the establishment of
the financial statements to bias accounts has been studied. The CEO had been the
target of such investigation as the agency theory points at managers as being the bad
guys in the manipulation game. However, the preceding tables show that many others
are benefitting, at least on the short term from this activity. Dechow and Sloan (1991)
analyze the CEO in his last year of office to detect manipulations of the R&D
expenditure in order to increase the benefits. The rationale for such behavior being:
A detailed analysis of the incentive compensation plans in place at

Merck & Co indicates a well-defined link between CEO incentive
compensation and accounting-earnings performance. Furthermore,
because executive retirement benefits are based on the compensation
received in executives’ final years, departing CEOs face even greater
incentives to increase their earnings-related incentive compensation
in these years. (Dechow & Sloan, 1991, pp. 87–88)
Pourciau (1993) had some positive results when analyzing accounting results
and nonroutine executive changes. However, the ensemble remains inconclusive.
Others (DeAngelo, DeAngelo, & Skinner, 1994) discussed the possibility of a
relationship between the financial performance of the firm and the level of
manipulation made through accounting choices. They found very weak although
significant results. The numbers of possible factors possibly explicating the results
temper the strength of the conclusions. Beneish (1997) compares the behavior of
two samples of firms. The first one is constituted of firms openly recognized as
GAAP violators and the second is constituted by companies having large
accruals, which is recognized as a characteristic of the GAAP violators, although
these had not been pursued or exposed as such. He found that financial statements
can provide useful information if correctly analyzed, and that market participants
underutilize the financial statements information which can also be concluded in a
way from the works of professor Briloff.
12.3 Far-fetched Interpretation or Lies

We have made a distinction between accounts manipulations and fraud. A fraud
consists in doing something that is clearly against the law.
Fraud in general is “an act of deception carried out for the purpose
of unfair, undeserved, and/or unlawful gain, esp. financial gain”
(Humphreys, Moffitt, Burns, Burgoon, & Felix, 2011, p. 585)
Usually, the accounting literature recognizes three factors that are fraud pre-
dictors in an organization: opportunity, incentive/pressure, and attitude/
rationalization (Murphy, 2012). Managers “cooking the books” are buying time:
(a) time before the problem appears clearly to anyone and (b) time to redress the
situation, as like gamblers they always believe the situation will be straightened if
enough time would be allowed, which constitutes a motivation. That is where the
rationalization enters into consideration. In the first case, by delaying the public
knowledge of the bad news, they smooth the shock assumed by the shareholders.
In the second case, they avoid the iceberg and save the shareholders. It might be
possible or only an expression of a huge managerial hubris (Wiltermuth & Flynn,
2013), which would be in line with the rationalization. There are some research
about the fact that the auditor’s report will not include a provision for a well in
sight bankruptcy. They do that because they don’t want the “rats to leave the
boat” too fast jeopardizing any chance of recovery, if there is any. Obviously, if the
markets are efficient, all that has absolutely no importance as the relevant infor-
mation has been already included in the price since long. One thing is certain, there
is no positive (in the sense of coming from positivism) way of seeing the situation
as opposed to a manipulative one. In the absence of any benchmark, it becomes
very difficult to discriminate between honest and dishonest presentations. There-
fore curtains are there as much to make windows prettier as to hide what is inside.
That is the main internal contradiction in the concept of window dressing. Lee
(2006) would say, based on intention, that any manipulation is a fraud at the end
of the day even if it is not considered such by the law.
Therefore, shareholders will increase control over managers to limit account
manipulations (Garcia-Osma & Guillamon-Saorin, 2011). That is the message of
the agency theory. Unfortunately, as there is no “real profit,” it is difficult to
evaluate the importance of the deviation included in the presented profit and
consequently the trust we can invest in the financial reported numbers. Moreover,
as we said earlier, shareholders can also benefit from manipulation.
In the example of the restatements, the difference is difficult to make. In the
US, for instance, the Securities and Exchange Commission (SEC) has issued rules
to frame the information following such a decision. The companies doing
restatements declared it was an error, a bad interpretation of the standards, or
somebody involved in fraud within the firm. Sometimes it sounds unbelievable,
but it is difficult to formerly contradict such declaration.
We all know how practical it can be to restate the financial statements. In a
given year you forget to include an expense; so the profit is higher. Three years
after, the question of this expense is raised. Then, you send it back in history with
no effect on the financial statements, except for the opening balance of the capital
section. Companies do that all the time with or without a restatement. If you take
a 10-year profit table in an annual report compared with the original financial
statements for these 10 years, you will often see quite huge differences with no
explanations. Therefore, it may be interesting to see if we can detect lies in financial
statements, particularly in Form 8-K that must be filled in case of a restatement.
12.3.1 Detecting Lies

The degree of truthfulness of a discourse has long been among the main focus of
the philosophy of language. Logic has developed many formulas to assess the
reliability of sentences (Kant, 1970) although remaining quite abstract. Lying is
traditionally defined as, “(…) say something that you believe to be false with the
intent to deceive about what you say” (Fallis, 2011). Lying in general does not
always have this voluntary deceptive aspect. One can lie to somebody because
what he asks for is not of his businesses.
We think of utterly truthful persons as a hazard, and for lying, we all

lie all the time. That there is a gulf between what we think we ought
to do and what we do in fact is hardly a novel observation; the world
is a wicked place. (Mothersill, 1996, p. 913)
But lying is the oil that allows the social intercourse to continue; it is the result
of the continual fight between the self and the society. In other words, we cannot
appear in society without looking for a certain degree of consensus implying
hiding a part of what we feel essential to reach such a “temporary consensus”
(Goffman, 1973). For him, we all wear a mask all the time. The self that is
presented to others is a construction:
In this meaning and as long as it represent the idea that we are

making of ourselves – the role that we try to assume – this mask is
our real self, the self that we would like to be. In the long term, the
idea we have of our role becomes an integrative part of our
personality. We are born as individuals, we assume roles and we
become persons. (Park, quoted by Goffman, 1973, p. 27)
Therefore, from the fact that we accept that most women we encounter would
wear makeup, which is generally considered an amelioration of the person before
any presentation in public, we must admit that often lying is a quotidian and
normal activity and must be discussed without any false reference to morals.
Nobody will go for a job interview without wearing convenient clothes, having
his/her hair well placed, and trying to look at his/her best. There are research
trying to determine if people looking good have better opportunities in life. Their
results suggest they have. Other researchers have studied lying in a business
context. Referring to the job interview discussed above, it seems that 40%–70%
exaggerate on their resumes (Williams, Hernandez, Petrovsky, & Page, 2008).
There is, however, a difference between arriving at the best presentation of the self
and lying to others in order to take advantage of them. This is also a part of the
definition of lying.
Methods to evaluate the truthfulness of enounces had been developed for the
spoken language. The lie detector is inferring the truthfulness of enounces through
the physical reactions of the enunciator registered by a machine. Ekman (2010)
used a similar approach associating observable reactions with telling the truth.
Social psychology uses emotional markers to identify deceptive messages (Hob-
son, Mayew, & Venkatachalam, 2012).
A variety of methods are available to assist professionals with the

task of deception detection, but few are relevant to text-based
communications so prevalent today. Additionally, these approaches,
such as Computerized Voice Stress Analysis, Scientific Content
Analysis (SCAN), Content-Based Criteria Analysis (CBCA)
(…). (Fuller, Biros, & Wilson, 2009, p. 695)
Deception has been studied by researchers from the various fields of social
sciences (Buller & Burgoon, 1996; McCornack, 1992), psychology (Masip, Gar-
rido, & Herrero, 2004), philosophy (Chisholm & Feehan, 1977; Mahon, 2007),
and even semiotic (Klinkenberg, 1996). Sutherland (1983), among white-collar
crimes, lists a series of lies happening within organizations:
They include misrepresentation in the form of stock market

manipulations, fraud in sale of securities, enormous inflation of
capital, inadequate and misleading financial reports, and other
manipulations. (Sutherland, 1983, p. 153)
Deception is quite likely to occur in the context of restatements, supposedly

resulting from errors or lack of information. The multiplication of these
restatements, during the first decade of the 2000s, casts a doubt about their purely
random source.
The study analyzes the information provided in Form 8-K and the press
release (8K_PR) by applying the information manipulation theory (IMT)
(McCornack, 1992, 2008). To investigate whether publicly held companies
manipulate restatement information released in 8K_PRs, through the quantity,

the quality, the manner, and the timing of information, we propose an index
based on SEC guidelines and previous literature on disclosure. Our model may
help investors and regulators to discriminate manipulative disclosure and to
improve the guidelines for disclosing information related to restatements in
8K_PRs.
12.3.2 Restatements: Form 8-K

A firm has a duty to make corrections if the statements are “discovered to have
been false and misleading from the outset, and knows or should know that some
persons are continuing to rely on all or any material portion of the statements”
(SEC, 1979). Before 2004, a company could announce restatements in different
ways (Palmrose, Richardson, & Scholz, 2004; Scholz, 2008). At that time, there
was no regulation.
In August 2004, the SEC required companies to announce the restatement in
the Form 8-K under Item 4.02 within four business days of discovering that
previously issued financial statements should not be relied upon. By regulating
restatement announcement (RA), the SEC emphasizes the importance of
transparency and timeliness (Jorgenson, 2004). Precisely, it stresses the impor-
tance of “balanc[ing] investors’ needs for timely access to information about the
companies (…) about which they are making investment decisions with the time
needed by companies to prepare accurate and complete information” (SEC, 2004,
quoted by Jorgenson, 2004, p. 2).
Despite the SEC regulation, there is no requirement to report the restatement’s
impact (Dorsey & Whitney, 2004). The information provided in 8K_PRs about
accounting problems varies widely (ACIFR, 2008; Palmrose et al., 2004). A
company may indicate that the restatement is possible but the impact on earnings
is uncertain, or that the restatement is necessary and quantify the changes
(Palmrose et al., 2004, p. 61). It appears that companies have certain latitude in
the information disclosed in 8K_PRs.
12.3.2.1 Transgression of the maxims

In general, literature attempts to classify the various methods of manipulating
information into two groups: commission, consisting in voluntarily providing
false information, and omission. Commission takes three different forms:
exaggeration/minimization, ambiguity, and falsification. Omission occurs when
the speaker induces the receiver to believe something that is false by omitting
some parts of the story. This could take three forms: half-truth/secret, diversion,
and collusion. Most researchers examine one or two methods (Hubbell, Chory-
Assad, & Melved, 2005; McCornack, 1992).
In 1992, McCornack developed the IMT that consolidates within a single
theory four primary ways of manipulating information. Grice (1989) offers four
maxims describing the cooperative principle used as the basis for IMT, proposing
that messages are perceived as deceptive when they discreetly violate the following
conversational maxims:
• Quantity: the amount of information needed to communicate between the

sender and receiver,
• Quality: the veracity of information,
• Manner: the clarity of information,
• Relation: the relevance of information.
These maxims have been applied in an organizational context (Fisher &

Downes, 2008; Hubbell et al., 2005) and in the text-based communications (Fuller
et al., 2009).
Some studies have analyzed the relationship between the quantity maxim
and accounting manipulation (Hollander, Pronk, & Roelofsen, 2010; Lapointe-
Antunes, Cormier, Magnan, & Gay-Angers, 2006) or the quality of information
and accounting manipulation (Holder-Webb & Cohen, 2007; Lapointe-Antunes
et al., 2006; Shaw, 2003). These studies investigated only one or two maxims from
the IMT.
Since the SEC issued the restatement disclosure rules in 2004, researchers
found more negative stock price reactions when restatements are disclosed
prominently in the headline (Files, Swanson, & Tse, 2009). Other studies find that
the market reaction to RA in Form 8-K depends on the characteristics of the
restatement (Feldman, Livnat, & Segal, 2008; Hennes, Leone, & Miller, 2008;
Scholz, 2008). More negative returns are associated with restatements involving
fraud, affecting core earnings, being of high magnitude, or imposed by auditors.
Researchers also examined the determinants of the timing of a firm’s decision
to release an earnings restatement (Badertscher & Burks, 2011; Myers, Scholz, &
Sharp, 2013). For example, Myers et al. (2013) suggest that more severe
restatements tend to be disclosed in a less timely manner. In particular, com-
panies, having larger income-decreasing restatements, restating to correct lease
accounting, for the second and third time, or those having more aggressive ex ante
reporting practices, would delay issuing a Form 8-K. In substance, accounting
literature has looked at how restatement characteristics could influence the
market reaction and the timing of disclosure.
Restatements may be induced by the SEC or the external auditor. The number
of such investigations increased by 65% between 1991 and 2000 (general auditor
office, thereafter GAO, 2002). If the SEC allocates resources to impose a
restatement, it can be assumed that the situation is serious (Hee, 2008). Files et al.
(2009) find the probability of litigation to be higher when the SEC initiates the
restatement. Some studies use a SEC restatement notification as a proxy for poor
quality financial statements (Richardson, Tuna, & Wu, 2002; Wu, 2002).
The external auditor is responsible for notifying the company of the presence
of material errors and/or frauds. The survey conducted by Graham et al. (2005)
shows that approximately two-thirds of respondents (CFOs) admit delaying
disclosing bad news in hopes of improvement before the next required report.
Previous studies show that restatements initiated by the external auditor induce
(1) a greater increase in the cost of capital (Hribar & Jenkins, 2004) and (2) a
sharper decline in the market price (Palmrose et al., 2004).
12.4 Testing the Truthfulness of Statements

In the recent decades, methods to test the truthfulness of spoken statements
have been developed. We all know the polygraph, which effectuates a com-
parison between the content of the discourse and the physical reaction of the
speaker.
Ekman (2010) developed a method to triangulate the content of the speech
with the facial and body attitudes of the speaker. However, such models are
difficult to apply to written material. Previously we had graphology, but with the
invasion of computers, we have little handwritten material these days. So, what to
do with written statements?
The FBI, in the US, has developed a computer program to analyze the written
answers of an interrogation to detect certain elements prone to indicate truth or
lie. However, it is not sure if it can be applied in other contexts.
McCornack’s method is supposed to apply at large, in the day-to-day life. Is
it the case for specialized sectors? Moreover, McCornack tested his model in
quasi-experimental settings. Therefore he had the control of the situations he
proposed to his subjects and of the messages he sent to them. Are the results of
McCornack exportable at large? It remains to be demonstrated through time
and studies.
Other methods have been proposed to detect deception. Many of them had
been developed by or around the judicial system. One, proposed by Humpreys
et al. (2011), is the Criteria-Based Content Analysis following 19 criteria based on
the idea that an experienced situation will not be told the same way as a fantasy.
They also report a number of “methods” or proceeds used for the same purpose.
The problem is the use of the words: hypothesis or theory, where there is, at best,
only a wild guess about the structure of a phenomenon. It is easy to say that the
experience and the fantasy will differ; it is less obvious to explain how that may be
applied to other situations.
12.5 Summary
As accounting is reputed to provide information for decision-making purposes,
the quality of the decision is dependent on the quality of this information.
Accounting is not the only source of information entering into account in these
decision processes. The part accounting information takes in these processes is
still debated.
Despite this uncertainty, because the decisions that are arguably taken from
accounting information are of the economic kind having considerable potential
effects on the quality of life of many people, accounting numbers and reports have
become stakes in the continuous economic struggle of the firms to survive.
Therefore, a theory of accounting might consider the possibilities for manipu-
lating information and the effects it can have. In fact, proposing bias numbers
constitutes a way to use accounting and therefore must be an integrated part of
such theory.
Questions
1. What are the general goals in manipulating accounting numbers?
2. What are, as appearing in the literature, the different types of account
manipulations?
3. What is the difference between window dressing and fraud?
4. What can be the specific objective for manipulating accounting numbers?
(Which numbers are the main targets, and why?)
5. What are the types of income smoothing?
6. Do you believe it possible to practice “natural smoothing”?
7. What is “big bath accounting”?
8. Is accounts manipulation benefitting only to managers?
9. Do you believe the extraordinary increase in the number of restatements seen
lately can be purely random? (Refer to the standards for being authorized to
make a restatement.)
Conclusion
Normand Baillargeon (2005) wrote a very interesting book titled Petit cours
d’auto-défense intellectuelle (A small course in intellectual self-defense). In the
same spirit, we wanted to deconstruct accounting productions in order to show its
components to those preparing the reports, but mainly to those using it. For that,
we privilege a postmodern position (as it is not an approach) consisting briefly in
doubting everything we believe to know and questioning any evidence we have
learned as secular truths.
Consequently, we are not searching for a consensus or a reconciliation of
academics and practitioners, for instance. Our goal is to treat accounting as any
other discipline of its kind and, while passing, to clearly define this kind. To make
this epistemological tuning of accounting, we have to be clear about our own
epistemological position and the theory of knowledge we believe is the only
tractable one taking into account the actual state of the science.
As these elements have been very lightly treated in traditional “accounting
theory,” we review the preceding handbooks to schematize their vision of the
question. This vision ignores the scientific process in general and what theories,
paradigms, knowledge, etc., are. Consequently, they have blindly followed the
traditional authors in considering the standards-setting process as a theoretical
system. The adjunction of a “conceptual framework” as a smoke screen hiding
the poverty of the basic conception has not helped to raise the level of the
discussion.
Another important classification relates to the social organization and the
flowing hierarchies. The accounting profession is not a private affair but a public
good as it is ruled by the governments. These hierarchies established that firms are
social institutions and have to account for their realizations and the fulfillment of
their social contract. Therefore accounting, defined as the activity of providing
accounts, exists at multiple levels in the society and constitutes a crucial mecha-
nism in a chain of delegation and corresponding accountability levels. In this
spirit, we devoted some space to the dismantlement of some “theories” imported
in accounting with huge damages like Hofstede’s or Kohlberg’s “theories.” We
also had to battle with the concept of normative theory that had been used for
years as a justification for calling standards theories.
Accounting is a social institution by many aspects. Institutions are involved in
a continuous fight against all the other institutions to obtain as much social

doi:10.1108/978-1-78769-793-520181013
resources as possible. To do that, every institution has to keep a good level of

legitimacy, which means to look important, if not essential, to the citizens, the
ultimate locus of power in our societies (at least in theory). One way of doing that
is to pretend to enter in a group of more prestigious and legitimated institutions.
Teaching accounting, after becoming a profession, which means associating itself
with old and essential activities like medicine, is entered into universities associ-
ating it with knowledge instead of technics that are taught at lower levels. Then, in
the universities, accounting tried to be associated with mathematics, which is used
all the time in “pure” sciences. So administrative “sciences,” being perceived as
being in the middle of the pure and human sciences, have maneuvered to be
associated with pure sciences through the use of mathematics. In fact, the kind of
accounting that is taught at university is destined to help students pass their exams
and enter into professional bodies. This is an almost pure technique and has little
to do with the university. We might teach how to decode the accounting reports
and not be fooled or misled by the financial information or even intoxication they
may carry.
The theory is the first component of science. Therefore, after having cleared the
field, we will search for some theories for accounting. We do not believe there
must be only one as we read often in accounting journals. To do so, we had to
define what accounting is and to separate, in the accounting language, the code is
from its uses. After having described accounting as a code, it became possible to
describe the angles its “linguistic” will be able to take. These angles are firstly
purely devoted to the mechanic of the language, but then we will take the
sociological, psychological, and communicational angles to describe the
accounting phenomenon. That leads us to the decision-making process and what
we know of it.
From a sociological point of view, accounting is used to convince the citizens
of the relevance of certain decisions, like privatization, for instance, that are not
always in the general interest. One of the main instruments to perform this task is
the notion of profit that is presented as the alpha and omega of any organization
in the society.
From a psychological point of view, we will see how the shadow of the homo
oeconomicus covers the accounting field. This concept eliminates the real human
being from the definition of human and therefore transforms him into a machine.
This constitutes a very bad start for understanding the decision-making process.
The theories of decision are very meager and say little about the human pro-
cessing of information. This fundamental weakness comes from their filiation
from economics, a domain where establishing theories have nothing to do with
human behaviors. Therefore, the incoherency of the assumptions eliminates all
verisimilitude from these “propositions.”
To end, we discuss another myth which is to “present fairly” the “financial
situation” of the organization. In the first part, we see that, even in the best of
cases, such a thing is impossible as there is no place where can be found a
benchmark for the financial situation of the organization. So it is purely a con-
struction. Secondly, we have seen that the accounting we know is not really “fair”
and carries the interests of specific groups in the society, while pretending the
Conclusion 217
contrary. So, in the last chapters, we consider how accounting numbers can be
manipulated to manipulate the users and bring them to decide along the pre-
determined lines.
This handbook is far from being definitive. It merely opens new doors without
exploring the interiors. We can suppose that a better integration of accounting in
the university and an equilibration of the system of recognition in the institution
will lead to some better understanding of what can be accounting theory.
References
ACIFR. (2008). Final report of the Advisory Committee on Improvements to Financial

Reporting to the United States Securities and Exchange Commission. Retrieved
from www.sec.gov/about/offices/oca/acifr/acifr-finalreport.pdf.
Adelberg, A. H. (1983). The accounting syntactic complexity formula: A new
instrument for predicting the readability of selected accounting communication.
Accounting and Business Research, 13, 163–175.
Adler, N. (2002). International dimensions of organizational behavior. Australia: South-
Western/Thomson Learning.
Akerlof, G., & Schiller, R. (2013). Les esprits animaux: Comment les forces
psychologiques mènent la finance et l’économie. Paris: Flammarion.
Akerlof, G., & Schiller, R. (2016). Marchés de dupes: L’économie du mensonge et de la
manipulation. Paris: Éditions Odile Jacob.
Alchian, A., & Demsetz, H. (1972). Production information costs and economic
organization. The American Economic Review, 629(5), 7–8.
Allais, M. (1952). Le comportement de l’homme rationnel devant le risque: critique
des postulats et axiomes de l’école Américaine. Econometrica, 21(4), 503–546. doi:
10.2307/1907921.
Amir, E., Lev, B., & Sougiannis, T. (2003). Do financial analysts get intangibles?
European Accounting Review, 12(4), 635–659.
Anderson, J. C., & Frankle, A. W. (1980). Voluntary social reporting: An iso-beta
portfolio analysis. The Accounting Review, 55(3), 467–479.
Anderson, R. C., Mansi, S. A., & Reeb, D. M. (2004). Board characteristics,
accounting report integrity and the cost of debt. Journal of Accounting &
Economics, 37, 315–342.
Badertscher, B., & Burks, J. J. (2011). Accounting restatements and the timeliness of
disclosures. Accounting Horizons, 25(4), 609–629.
Baillargeon, N. (2005). Petit cours d’auto-défense intellectuelle. Montréal: Lux
Éditeur.
Baillargeon, N. (2017). Introduction à la philosophie. Montréal: Les Éditions Poètes de
Brousse.
Bangerter, A. (1995). Rethinking the relation between science and common sense: A
comment on the current state of social representation theory. Papers on Social
Representations, 4(1), 61–78.
Barthes, R. (1964). Éléments de sémiologie. Communications, 4, 91–135.
Barthes, R. (1966). Introduction à l’analyse structurale des récits. Communications, 8,
1–27.
Barth, M. E., Landsman, W. R., & Lang, M. H. (2008). International accounting
standards and accounting quality. Journal of Accounting Research, 46(3),
467–498.
220 References
Baskerville, R. F. (2003). Hofstede never studied culture. Accounting, Organizations

and Society, 28, 1–14.
Baudrillard, J. (1981). Simulacres et simulations. Paris: Éditions Galilée.
Beaver, W. H. (1966). Financial ratios as predictors of failure. Journal of Accounting
Research, 4(Suppl.), 71–111.
Belkaoui, A. (1980). The interprofessional linguistic communication of accounting
concepts: An experiment in sociolinguistics. Journal of Accounting Research, 18(2),
362–374.
Belkaoui, A. (1989). Accounting and language. Journal of Accounting Literature, 8,
281–291.
Belkaoui, A. (1992). Accounting theory (3rd ed.). London: Academic Press.
Ben Yedder, W., & Breton, G. (2017). Connexions politiques et industrie de la
construction. In S. Dicko (Ed.), Réseaux de relations sociales, connexions et
élitisme (pp. 135–169). Montréal: Ėditions JFD.
Beneish, M. D. (1997). Detecting GAAP violation: Implications for assessing earnings
management among firms with extreme financial performance. Journal of
Accounting and Public Policy, 16, 271–309.
Berger, P., & Luckmann, T. (2005). La construction sociale de la réalité. Paris:
Armand Colin.
Berle, A. A., & Means, G. C. (1933). The modern corporation and private property.
New York, NY: Macmillan.
Bernouilli, D. (1954). Exposition of a new theory on the measurement of risk.
Econometrica, 22(1), 23–66.
Bernoux, P. (1985). La sociologie des organisations. Paris: Éditions du Seuil.
Bernoux, P. (1999). La sociologie des entreprises. Paris: Éditions du Seuil.
Bettelheim, B. (1976). Psychanalyse des contes de fées. Paris: Éditions Robert Laffont.
Boardman, A. E., & Vining, A. R. (1989). Ownership and performance in competitive
environments: A comparison of the performance of private, mixed, and state-
owned enterprises. Journal of Law and Economics, 32, 1–33.
Boje, D. (1995). Stories of the storytelling organization: A postmodern analysis of
Disney as “Tamara-Land”. Academy of Management Journal, 38(4), 997–1044.
Boje, D. (2001a). Accounting is specularity and storytelling. Working Paper. New
Mexico State University, NM.
Boje, D. (2001b). Narrative methods for organizational & communication research.
London: SAGE Publishing.
Boje, D., Oswick, C., & Ford, J. (2004). Language and organization: The doing of
discourse. Academy of Management Review, 29(4), 571–577.
Borgatti, S. P., Everett, M. G., & Johnson, J. C. (2013). Analyzing social networks.
London: SAGE Publishing.
Botosan, C. A. (1997). Disclosure level and the cost of equity capital. The Accounting
Review, 72(July), 323–349.
Boudon, R. (1986). L’idéologie. Paris: Fayard.
Bourdieu, P. (1979). La distinction. Paris: Les Éditions de Minuit.
Bourdieu, P. (1984). Homo academicus. Paris: Les Éditions de Minuit.
Bourdieu, P. (2001). Science de la science et réflexivité. Paris: Éditions Raisons d’Agir.
Bourdieu, P., & Passeron, J.-C. (1970). La reproduction. Paris: Les Éditions de Minuit.
Bouwman, M. J. (1985). The use of protocol analysis in accounting. Accounting and
Finance, 25(1), 61–84.
References 221
Bowman, E. H., & Haire, M. (1976). Social impact disclosure and corporate annual
reports. Accounting, Organizations and Society, 1(1), 11–21.
Boyce, G. (2000). Public discourse and decision making: Exploring possibilities for
financial, social, and environmental accounting. Accounting, Auditing &
Accountability Journal, 13(1), 27–64.
Boycko, M., Shleifer, A., & Vishny, W. (1994). A theory of privatization. The
Economic Journal, 106, 309–319.
Bozec, R., & Breton, G. (2003). The impact of the corporatization process on the
financial performance of Canadian state-owned enterprises. The International
Journal of Public Sector Management, 16(1), 27–47.
Bozec, R., Breton, G., & Côté, L. (2002). The performance of state-owned enterprises
revisited. Financial Accountability & Management, 18(4), 383–407.
Bozec, Y., & Laurin, C. (2000). L’impact de l’annonce de la privatisation sur la
performance: Étude de cas sur le Canadien National (CN). L’Actualité
Économique, 76(2), 265–298.
Bremond, C. (1966). La logique des possibles narratifs. Communications, 8, 60–76.
Breton, G. (1982). L’arbitraire culturel. In R. Giroux (Ed.), L’arbitraire culturel
(pp. 31–84). Cahiers d’études littéraires et culturelles, no 6. Sherbrooke:
Université de Sherbrooke.
Breton, G. (2000). Les orphelins de Bouchard. Montréal: Triptyque.
Breton, G. (2009). From folk-tales to shareholders-tales: Semiotics analysis of the
annual report. Society and Business Review, 4(3), 187–201.
Breton, G. (2016). Sociologie de la comptabilité. Montréal: Éditions JFD.
Breton, P. (2006). L’argumentation dans la communication. Paris: La Découverte.
Breton, G., & Caron, M.-A. (2008). Elements for sociology of profit. Society and
Business Review, 3(1), 72–90.
Breton, G., & Chenail, J. P. (1997). Une étude empirique du lissage des bénéfices dans
les entreprises canadiennes. Comptabilité - Contrôle - Audit, 3(1), 53–68.
Breton, G., & Côté, L. (2006). Profit and the legitimacy of the Canadian banking
industry. Accounting, Auditing & Accountability Journal, 19(4), 512–539.
Breton, G., & Dicko, S. (2015). Directors’ networks and access to collective resources.
Society and Business Review, 10(3), 223–238.
Breton, G., & Pesqueux, Y. (2006). Business in society or an integrated vision of
governance. Society and Business Review, 1(1), 7–27.
Breton, G., & Taffler, R. J. (1995). Creative accounting and investment analyst
response. Accounting and Business Research, 25(98), 81–92.
Breton, G., & Taffler, R. J. (2001). Accounting information and analyst stock
recommendation decisions: A content analysis approach. Accounting and Business
Research, 31(2), 91–101.
Breton, P., & Gauthier, G. (2000). Histoire des theories de l’argumentation. Paris: La
Découverte.
Bromwich, M. (1992). Financial reporting, information and capital markets. London:
Pitman Publishing.
Brown, P., & Ball, R. (1967). Some preliminary findings on the association between
the earnings of a firm, its industry, and the economy. Journal of Accounting
Research, 5(Suppl.), 55–67.
Buchholz, R. A. (1992). Corporate responsibility and the good society: From
economics to ecology. Business Horizons, 34(4), 19–31.
222 References
Buller, D. B., & Burgoon, J. K. (1996). Interpersonal deception theory.

Communication Theory, 6(3), 203–242.
Burchell, S., Chubb, C., Hopwood, A., Hughes, J., & Nahapiet, J. (1980). The roles of
accounting in organizations and society. Accounting, Organizations and Society,
5(1), 5–27.
Burgstaler, D., & Dichev, I. (1997). Earnings management to avoid earnings decreases
and losses. Journal of Accounting & Economics, 24, 99–126.
Burris, V. (2005). Interlocking directorates and political cohesion among corporate
elites. American Journal of Sociology, 111(1), 249–283.
Cadet, B., & Chasseigne, G. (2009). Psychologie du jugement et de la décision.
Bruxelles: De Boeck.
Caillé, A. (2006). Préface. In A. Bevort & M. Lallemant (Eds.), Le capital social;
Performance, équité et réciprocité. Paris: La Découverte.
Carlon, D. M., Downs, A. A., & Wert-Gray, S. (2006). Statistics as fetishes: The case
of financial performance measures and executive compensation. Organizational
Research Methods, 9(4), 475–490.
Chalmers, A. F. (1987). Qu’est-ce que la science. Paris: La Découverte.
Champy, F. (2012). La sociologie des professions. Paris: Presses Universitaires de
France.
Chaney, P. K., Faccio, M., & Parsley, D. (2011). The quality of accounting information
in politically connected firms. Journal of Accounting & Economics, 51, 58–76.
Chang, D. L., & Birnberg, J. G. (1977). Functional fixity in accounting research:
Perspective and new data. Journal of Accounting Research, 15(2), 300–312.
Chisholm, R. M., & Feehan, T. D. (1977). The intent to deceive. The Journal of
Philosophy, 74(3), 143–159.
Chomsky, N. (1969). Structures syntaxiques. Paris: Éditions du Seuil.
Chomsky, N. (1971). Aspects de la théorie syntaxique. Paris: Éditions du Seuil.
Christensen, M. (2004). Accounting by words not numbers: The handmaiden of power
in the academy. Critical Perspectives on Accounting, 15, 485–512.
Chua, W. F. (1986). Radical developments in accounting thought. The Accounting
Review, 61(4), 601–632.
Cibois, P. (1992). Pierre Bourdieu – présentation. In K. M. Van Meter (Ed.), La
sociologie (pp. 787–789). Paris: Éditions Larousse.
Coase, R. H. (1937). The nature of the firm. Economica, 16, 331–351.
Collin, P. H., & Joliffe, A. (1992). Dictionary of accounting. Teddington: Peter Collin
Publishing.
Comte, A. (1998). Discours sur l’ensemble du positivisme. Paris: Flammarion.
Coombs, W. T. (1999). Ongoing crisis communication: Planning, managing, and
responding. Thousand Oaks, CA: SAGE Publishing.
Cooper, D. J., & Morgan, W. (2013). Meeting the evolving corporate reporting needs
of government and society: Arguments for a deliberative approach to accounting
rule making. Accounting and Business Research, 43(4), 418–441.
Cormier, D., & Magnan, M. (1996). L’attitude des investisseurs boursiers face au bilan
environnemental de l’entreprise: Une étude canadienne. Comptabilité - Contrôle -
Audit, 2(2), 25–49.
Courtis, J. K. (1995). Readability of annual reports: Western versus Asian evidence.
Accounting, Auditing & Accountability Journal, 8(2), 4–17.
References 223
Covaleski, M. A., Dirsmith, M. W., & Samuel, S. (2003). Changes in the institutional
environment and the institutions of governance: Extending the contributions of
transaction cost economics within the management control literature. Accounting,
Organizations and Society, 28, 417–441.
Cuervo, A., & Villalonga, B. (2000). Explaining the variance in the performance
effects of privatization. Academy of Management Review, 25(3), 581–590.
Dauzat, A. (1938). Dictionnaire étymologique. Paris: Éditions Larousse.
De Castro, J. O., Meyer, G. D., Strong, K. C., & Uhlenbruck, N. (1996). Government
objectives and organizational characteristics: A stakeholder view of privatization
effectiveness. The International Journal of Organizational Analysis, 4(4), 373–392.
De Nooy, W., Mrvar, A., & Batajelj, V. (2011). Exploratory social network analysis
with Pajek (2nd ed.). Cambridge: Cambridge University Press.
DeAngelo, H., DeAngelo, L., & Skinner, D. J. (1994). Accounting choice in troubled
companies. Journal of Accounting & Economics, 17, 113–143.
DeAngelo, L. (1986). Accounting numbers as market valuation substitutes: A study of
management buyouts of public stockholders. The Accounting Review, 61, 400–420.
Dechow, P., & Skinner, D. J. (2000). Earnings management: Reconciling the views of
accounting academics, practitioners, and regulators. Accounting Horizons, 14(2),
235–250.
Dechow, P., & Sloan, R. G. (1991). Executive incentives and the horizon problem.
Journal of Accounting & Economics, 14, 51–89.
Dechow, P., Sloan, R. G., & Sweeney, A. (1995). Detecting earnings management.
The Accounting Review, 70(2), 193–225.
Deegan, C., Rankin, M., & Tobin, J. (2002). An examination of the corporate social
and environmental disclosures of BHP from 1983 to 1997: A test of legitimacy
theory. Accounting, Auditing & Accountability Journal, 15(3), 312–343.
Demsetz, H. (1998). L’économie de la firme. Caen: Éditions Management et Société.
Dharwadkar, R., George, G., & Brandes, P. (2000). Privatization in emerging
economies: An agency theory perspective. Academy of Management Review,
25(3), 650–669.
Dicko, S., & Breton, G. (2013a). Do directors’ connections really matter? International
Academic Research Journal of Business and Management, 1(7), 1–19.
Dicko, S., & Breton, G. (2013b). Social networks of the board members and
acquisition of resources by the firm: A case study. International Academic
Research Journal of Business and Management, 1(8), 30–47.
Donaldson, T. (1999). Making stakeholder theory whole. Academy of Management
Review, 24(2), 237–241.
Dorsey and Whitney (Law Firm). (2004). SEC expands and accelerates form 8-K
reporting. Retrieved from http://www.dorsey.com/en-US/newsevents/uniEntity.aspx?
xpST5PubDetail&pub5184.
Dortier, J.-F. (2001). Questions sur le langage. In J. F. Dortier (Ed.), Le langage.
Nature, histoire et usage (pp. 1–13). Auxerre: Éditions Sciences Humaines.
Dubar, C., & Tripier, P. (1998). Sociologie des professions. Paris: Armand Colin.
Due, J. F. (1956). Intermediate economic analysis. Homewood, IL: Richard D. Irwin.
Durkheim, E. (2007). De la division du travail social. Paris: Presses Universitaires de
France.
Easley, D., & Kleinberg, J. (2010). Networks, crowds, and markets: Reasoning about a
highly connected world. New York, NY: Cambridge University Press.
224 References
Eber, N. (2013). Théorie des jeux (3rd ed.). Paris: Dunod.

Eckel, N. (1981). The income smoothing hypothesis revisited. Abacus, 17(1), 28–40.
Egginton, D. A. (1990). Towards some principles for intangible asset accounting.
Accounting and Business Research, 20(79), 193–205.
Einstein, A. (2009). Comment je vois le monde. Paris: Flammarion and Le Monde.
Ekman, P. (2010). Je sais que vous mentez. Neuilly-sur-Seine: Michel Lafon.
Ellinger, A. E., Lynch, D. F., Andzulis, J. K., & Smith, R. J. (2003). B-to-B E-
commerce: A content analytical assessment of motor carrier websites. Journal of
Business Logistics, 24(1), 199–220.
Everaert-Desmedt, N. (2000). Sémiotique du récit. Bruxelles: De Boeck.
Fairclough, N. (2010). Critical discourse analysis. The critical study of language (2nd
ed.). Harlow: Pearson.
Fallis, D. (2011). What is deceptive lying? Paper presented at the 2011 Pacific Division
Meeting of the American Philosophical Association, San Diego.
Feldman, R., Livnat, J., & Segal, B. (2008). Shorting companies that restate
previously issued financial statements. Journal of Investing, 17(3), 6–15.
Fernandez, S., & Fabricant, R. (2000). Methodological pitfalls in privatization
research: Two cases from Florida’s child support enforcement program. Public
Performance and Management Review, 24(2), 133–144.
Feyerabend, P. (1979). Contre la méthode. Paris: Éditions du Seuil.
Files, R., Swanson, E. P., & Tse, S. (2009). Stealth disclosure of accounting restatements.
Accounting Review, 8(5), 1495–1520.
Finances Québec. (2005). Comptes publics, 2004–2005. Québec: Gouvernement du
Québec.
Finances Québec. (2006). Statistiques fiscales des sociétés. Québec: Gouvernement du
Québec.
Finances et Économie Québec. (2013). Public accounts 2012–2013. Québec:
Gouvernement du Québec.
Fiol, M. (1989). A semiotic analysis of corporate language: Organizational boundaries
and joint venturing. Administrative Science Quarterly, 34(2), 277–303.
Fisher, C., & Downes, B. (2008). Performance measurement and metric manipulation
in the public sector. Business Ethics: A European Review, 17(3), 245–258.
Foster, G. (1986). Financial statement analysis. Englewood Cliffs, NJ: Prentice Hall.
Foucault, M. (1975). Surveiller et punir. Paris: Éditions Gallimard.
Foucault, M. (2004). Philosophie. Paris: Éditions Gallimard.
Fracassi, C. (2009). Corporate finance policies and social network. Working Paper.
Social Science Research Network.
Fracassi, C., & Tate, G. (2010). External networking and internal firm governance.
Working Paper. Social Science Research Network.
Frederick, W. C. (1995). Values, nature and culture in the American corporation. New
York, NY: Oxford University Press.
Frydman, R., Gray, C. W., Hessel, M., & Rapaczynski, A. (1997). Private ownership
and corporate performance: Some lessons from transition economies. Policy
Research Paper No. 1830. World Bank, Washington, DC.
Fuller, C. M., Biros, D. P., & Wilson, R. L. (2009). Decision support for determining
veracity via linguistic-based cues. Decision Support Systems, 46, 695–703.
Gabrié, H., & Jacquier, J. L. (1994). La théorie moderne de l’entreprise. Paris:
Economica.
References 225
Garcia-Osma, B., & Guillamon-Saorin, E. (2011). Corporate governance and

impression management in annual results. Accounting, Organizations and Society,
36, 187–208.
Gay, L. R., & Diebl, P. L. (1992). Research methods for business and management.
New York, NY: Macmillan.
Genette, G. (1966). Figures. Paris: Éditions du Seuil.
Giddens, A. (1982). Sociology: A brief but critical introduction. Orlando, FL: Harcourt
Brace Jovanovich Publishers.
Godfrey-Smith, P. (2003). Theory and reality. Chicago, IL: University of Chicago Press.
Goffman, E. (1973). La mise en scène de la vie quotidienne, 1-La présentation de soi.
Paris: Les Éditions de Minuit.
Goldman, E., Rocholl, J., & So, J. (2009). Do politically connected boards affect firm
value? The Review of Financial Studies, 22(6), 2331–2360.
Gomez, P.-Y., & Korine, H. (2009). L’entreprise dans la démocratie. Bruxelles: De
Boeck.
Gordon, M. J. (1994). Dividends, earnings and stock price. In K. Ward (Ed.),
Strategic issues in finance (pp. 158–170). Oxford: Butterworth-Heinemann.
Goshal, S., Bartlett, C. A., & Moran, P. (1999). A new manifesto for management.
Sloan Management Review, 40(3), 9–20.
Graham, J. R., Harvey, C. R., & Jgopal, R. A. (2005). The economic implication of
corporate financial reporting. Journal of Accounting and Economics, 40(1–3), 3–73.
Granovetter, M. (2008). Sociologie économique. Paris: Éditions du Seuil.
Grant, R. M. (1996). Toward a knowledge based theory of the firm. Strategic
Management Journal, 17, 109–122.
Gray, R., Owen, D., & Adams, C. (1996). Accounting & accountability. London:
Prentice Hall.
Greimas, A. J. (1973). Du Sens. Paris: Éditions du Seuil.
Grice, P. (1989). Studies in the way of words. Cambridge, MA: Harvard University Press.
Griffiths, I. (1986). Creative accounting. London: Unwin Paperbacks.
Griffiths, I. (1995). New creative accounting. London: Macmillan.
Grossman, J., & Stiglitz, J. E. (1980). On the impossibility of informationally efficient
market. American Economic Review, 70(June), 393–408.
Groupe m. (1972). Rhétorique générale. Paris: Éditions Larousse.
Groupe m. (1992). Traité du signe visuel. Paris: Éditions du Seuil.
Haas Edersheim, E. (2007). The definitive Drucker. New York, NY: McGraw-Hill.
Habermas, J. (1973). La technique et la science comme “idéologie”. Paris: Éditions
Gallimard.
Habib, M. (2013). Influence des émotions sur la prise de décision chez l’enfant,
l’adolescent et l’adulte: Comment le contexte socio- émotionnel et le développement
des émotions contre- factuelles influencent-ils nos choix? Psychologie, Université René
Descartes - Paris V, Français. NNT: 2012PA05H111.
Haried, A. (1972). The semantic dimensions of financial statements. Journal of
Accounting Research, 10(2), 376–391.
Haried, A. (1973). Measurement of meaning in financial reports. Journal of
Harré, R. (2002). Material objects in social worlds. Theory, Culture & Society, 19(5/6),
23–33.
Hart, O. (1995). Firms, contracts, and financial structure. Oxford: Clarendon Press.
226 References
Hasbani, M., & Breton, G. (2013). Restoring social legitimacy: Discursive strategies
used by a pharmaceutical industry leader. Society and Business Review, 8(1), 71–89.
Hasbani, M., & Breton, G. (2016). Discursives strategies and the maintenance of
legitimacy. English Language and Literature Studies, 6(3), 1–15.
Haugen, R. (1986). Modern investment theory. Englewood Cliffs, NJ: Prentice Hall.
Healy, P. M. (1985). The effect of bonus schemes on accounting decisions. Journal of
Accounting & Economics, 7, 85–107.
Hee, K. W. (2008). Earnings persistence of restating firms: Should all earnings
restatements be treated equally? Working Paper. University of Colorado Boulder.
Retrieved from http://www.docstoc.com/docs/17710533/Earnings-Persistence-of-
Restating-Firms-Should.
Hendriksen, E. S. (1970). Accounting theory. Homewood, IL: Richard D. Irwin.
Hennes, K. M., Leone, A. J., & Miller, B. P. (2008). The importance of distinguishing
errors from irregularities in restatement research: The case of restatements and
CEO/CFO turnover. Accounting Review, 83(6), 1487–1519.
Hill, C. W., & Jones, T. M. (1992). Stakeholder—Agency theory. Journal of
Management Studies, 29(2), 131–154.
Hillman, A. J., Cannella, A. A., & Paetzold, R. L. (2000). The resource dependence
role of corporate directors: Strategic adaptation of board composition in response
to environmental change. Journal of Management Studies, 37(2), 235–255.
Hobbes, T. (2000). Leviathan. Paris: Éditions Gallimard.
Hobson, J. L., Mayew, W. J., & Venkatachalam, M. (2012). Analyzing speech to
detect financial misreporting. Journal of Accounting Research, 50(2), 349–392.
Hofstede, G. (1994). Cultures and organizations. London: HarperCollins Publishers.
Holder-Webb, L., & Cohen, J. R. (2007). The association between disclosure, distress,
and failure. Journal of Business Ethics, 75(3), 301–314.
Hollander, S., Pronk, M., & Roelofsen, E. (2010). Does silence speak? An empirical
analysis of disclosure choices during conference calls. Journal of Accounting
Research, 48(3), 531–563.
Hoskin, K. W., & Macve, R. H. (1988). The genesis of accountability: The west point
connection. Accounting, Organizations and Society, 13(1), 37–73.
Hribar, P., & Jenkins, N. T. (2004). The effect of accounting restatements on earnings
revisions and the estimated cost of capital. Review of Accounting Studies, 9(3),
337–356.
Hubbell, A. P., Chory-Assad, R. M., & Melved, C. E. (2005). A new approach to the
study of deception in organizations. North American Journal of Psychology, 7(2),
172–180.
Humphreys, S. L., Moffitt, K., Burns, M. B., Burgoon, J. K., & Felix, W. F. (2011).
Identification of fraudulent financial statements using linguistic credibility analysis.
Decision Support Systems, 50, 585–594.
Hunt, H. G. , III, & Hogler, R. L. (1990). Agency theory as ideology: Analysis based
on critical legal theory and radical accounting. Accounting, Organizations and
Society, 15(5), 437–454.
Hwang, B.-H., & Kim, S. (2009). It pays to have friends. Journal of Financial
Economics, 39(1) 138–158.
IASB. (2006). Normes internationales d’information financière. London: International
Accounting Standards Board.
References 227
ICCA-CICA (Canadian Institute of Chartered Accountants). (1992). L’Information à

Inclure dans le Rapport Annuel aux Actionnaires. Toronto: Canadian Institute of
Chartered Accountants.
Imhoff, E. A. (1977). Income smoothing—A case for doubt. Accounting Journal, 1,
85–100.
Imhoff, E. A. (1981). Income smoothing: An analysis of critical issues. Quarterly
Review of Economics and Business, 21(3), 23–42.
Jacobson, R. (1963). Essais de linguistique générale. Paris: Les Éditions de Minuit.
Jameson, M. (1988). A practical guide to creative accounting. London: Kogan Page.
Jensen, M. C., & Meckling, W. H. (1996). Theory of the firm: Managerial
behavior, agency costs, and ownership structure. In P. J. Buckley & J. Michie
(Eds.), Firms, organizations and contracts (pp. 103–167). Oxford: Oxford
University Press.
Joly, M. (2009). Introduction à l’analyse de l’image (2nd ed.). Paris: Armand Colin.
Jonäll, K., & Rimmel, G. (2010). CEO letters as legitimacy builders: Coupling text to
numbers. Journal of Human Resource Costing & Accounting, 14(4), 307–328.
Jones, J. (1991). Earnings management during import relief investigations. Journal of
Jones, M. J., & Shoemaker, P. A. (1994). Accounting narratives: A review of empirical
studies of content and readability. Journal of Accounting Literature, 13, 142–184.
Jorgenson, M. A. (2004). The balancing scale of accounting-problem disclosure. New
York, NY: Legal Counsel Worldwide.
Kabir, H. (2017). Normative accounting theories. Dhaka University Journal of
Business Studies, 26(1), 87–123.
Kahneman, D., & Tversky, A. (1979). Prospect theory: An analysis of decision under
risk. Econometrica, 47, 263–291.
Kahneman, D., & Tversky, A. (1984). Choices, values, and frames. American
Psychologist, 39(4), 341–350.
Kam, V. (1990). Accounting theory (2nd ed.). New York, NY: John Wiley & Sons.
Kant, E. (1970). Logique. Paris: Librairie Philosophique J. Vrin.
Kant, E. (1980). Critique de la raison pure. Paris: Éditions Gallimard.
Kim, Y. (2005). Board network characteristics and firm performance in Korea.
Corporate Governance, 13(6), 800–808.
Klinkenberg, J. M. (1996). Précis de sémiotique générale. Paris: De Boeck & Larcier.
Knoke, D. (1993). Networks of elite structure and decision making. Sociological
Methods and Research, 22(1), 23–45.
Krieg, A. (2001). Ferdinand de Saussure: Le « père fondateur » de la linguistique
moderne. In J. F. Dortier (Ed.), Le langage: Nature, histoire et usage (pp. 21–24).
Auxerre: Éditions Sciences Humaines.
Krippendorf, K. (1980). Content analysis: An introduction to its methodology. London:
SAGE Publishing.
Kuhn, T. (1983). La structure des révolutions scientifiques. Paris: Flammarion.
Labelle, R., & Thibault, M. (1998). Gestion du bénéfice à la suite d’une crise
environnementale: Un test de l’hypothèse des coûts politiques. Comptabilité -
Contrôle - Audit, 4(1), 69–81.
Labov, W. (1976). Sociolinguistique. Paris: Les Éditions de Minuit.
Lafaye, C. (2005). Sociologie des organisations. Paris: Armand Colin.
228 References
Laffont, J.-J., & Tirole, J. (1993). A theory of incentives in procurement and regulation.
Cambridge, MA: MIT Press.
Lainey, P. (2015). Psychologie de la décision. Montréal: Éditions JFD.
Lapointe-Antunes, P., Cormier, D., Magnan, M., & Gay-Angers, S. (2006). On the
relationship between voluntary disclosure, earnings smoothing and the value-
relevance of earnings: The case of Switzerland. European Accounting Review,
15(4), 465–505.
Larson, K. (1969). Implications of measurement theory on accounting concepts
formulation, Quoted by: H. J. Wolk, J. R. Francis, & M. G. Tearney (Ed.),
(1992). Accounting theory: A conceptual and institutional approach (3rd ed., p. 9).
Cincinnati, OH: South-Western Publishing Company.
Latour, B. (1991). Nous n’avons jamais été moderne. Paris: La Découverte.
Leana, C. R., & Van Buren, H. J. (1999). Organizational social capital and
employment practices. Academy of Management Review, 24(3), 538–555.
Lee, T. (2006). The war of the sidewardly mobile corporate financial report. Critical
Perspectives on Accounting, 17(4), 419–455.
Lee, T. A., & Tweedie, D. P. (1977). The private shareholder and the corporate report.
London: The Institute of Chartered Accountant in England and Wales.
Lee, T. A., & Tweedie, D. P. (1981). The institutional investor and financial
information. London: The Institute of Chartered Accountant in England and
Wales.
Lester, R. H., & Cannella, A. A. (2006). Interorganizational familiness: How family
firms use interlocking directorates to build community-level social capital.
Entrepreneurship Theory and Practice, 30(6), 755–775.
Lev, B. (2001). Intangibles: Management, measurement and reporting. Washington,
DC: Brookings Institution Press.
Levie, W. H., & Lentz, R. (1982). Effects of text illustrations: A review of research.
Educational Communication and Technology Journal, 30(3), 195–232. doi:10.1007/
BF02765184.
Levie, W. H., & Lentz, R. I. (1982). Quoted by: Stones, C. (2013). Positively picturing
pain? Using patient-generated pictures to establish affective visual design qualities.
International Journal of Design, 7(1), 85–97.
Lewis, N. R., Parker, L. D., Pound, G. D., & Sutcliffe, P. (1986). Accounting report
readability: The use of readability techniques. Accounting and Business Research,
16, 199–213.
Lobina, E., & Hall, D. (2001). UK water privatisation—A briefing. London: Public
Services International Research Unit (PSIRU).
Mahon, J. E. (2007). A definition of deceiving. International Journal of Applied
Philosophy, 21(2), 181–194.
Major, R. (2012). L’enfance (sans origine) de la déconstruction. Les Temps Modernes,
87(669–670), 202–216.
Malkiel, B. G. (1985). A random walk down Wall Street (4th ed.). New York, NY: W.
W. Norton & Company.
Maman, D. (2000). Who accumulates directorships of big business firms in Israel?
Organizational structure, social capital and human capital. Human Relations,
53(5), 603–629.
Marcuse, H. (1964). L’homme unidimensionnel. Paris: Les Éditions de Minuit.
References 229
Maris, B. (1999). Lettre ouverte aux gourous de l’économie qui nous prennent pour des
imbéciles. Paris: Éditions Albin Michel.
Maris, B. (2003). Antimanuel d’économie. Rosny: Éditions Bréal.
Martin, S., & Parker, D. (1995). Privatization and economic performance throughout
the UK business cycle. Managerial and Decision Economics, 16, 225–237.
Marx, K. (1985). Le capital. Paris: Flammarion.
Masip, J., Garrido, E., & Herrero, C. (2004). Defining deception. Anales de
Psicologia, 20(1), 147–171.
Mathews, M. R., & Perera, M. H. B. (1991). Accounting theory & development.
Melbourne: Nelson.
Mathews, M. R., & Perera, M. H. B. (1996). Accounting theory & development (3rd
ed.). Melbourne: Nelson.
McClish, M. (2001). I know you are lying. Winterville, NC: The Marpa Group Inc.
McCloskey (1985). The rhetoric of economics. Quoted by: van Bavel, R., & Licata, L.
(2002). Une approche théorique des représentations sociales de l’économie. Au-
delà de la science et du sens commun. In C. Garnier & W. Doise (Eds.), Les
représentations sociales. Balisage du domaine d’études. Montréal: Éditions
Nouvelles. Madison, WI: University of Wisconsin Press.
McConnell, C. R., Pope, W. H., & Julien, P. A. (1983). L’économique (2nd ed., Vol. 1).
Montréal: McGraw-Hill.
McCornack, S. (1992). Information manipulation theory. Communication Monographs,
59, 1–16.
McCornack, S. (2008). Information manipulation theory: Explaining how deception
occurs, In L. A. Baxter, & P. O. Braithwaite (Eds.), Engaging theories in
interpersonal communication: Multiple perspectives. Los Angeles, Sage, pp. 215–226.
Meda, D. (1999). Qu’est-ce que la richesse? Paris: Flammarion.
Meyer, J. W., & Rowan, B. (1977). Institutional organizations: Formal structure as
myth and ceremony. American Journal of Sociology, 83, 340–363.
Mill, J. S. (2010). L’utilitarisme. Paris: Flammarion.
Ministry of Finances. (1997). Public accounts 1996–1997. Québec: Government of
Quebec.
Morck, R., Shleifer, A., & Vishny, R. W. (1988). Management ownership and market
valuation: An empirical analysis. Journal of Financial Economics, 20(January–
March), 293–315.
Morgan, C. (1961). Introduction to psychology (2nd ed.). New York, NY: McGraw-Hill.
Moriarity, S. (1979). Communicating financial information through multi-
dimensional graphics. Journal of Accounting Research, 17, 205–224.
Most, K. S. (1982). Accounting theory (2nd ed.). Columbus, OH: Grid Publishing Inc.
Mothersill, M. (1996). Some questions about truthfulness and lying. Social Research,
63(3), 913–929.
Mouck, T. (1992). The rhetoric of science and the rhetoric of revolt in the “story” of
positive accounting theory. Accounting, Auditing & Accountability Journal, 5(4),
35–56.
Mouck, T. (2004). Institutional reality, financial reporting and the rules of the game.
Accounting, Organizations and Society, 29, 525–541.
Mozes, H. (1992). A framework for normative accounting research. Journal of
Accounting Literature, 11, 93–120.
230 References
Mullins, D. W. (1982). Does the capital asset pricing model work? In K. Ward (Ed.),
1994, Strategic issues in finance (pp. 115–133). Oxford: Butterworth-Heinemann.
Murphy, P. (2012). Attitude, Machiavellianism and the rationalization of misreporting.
Accounting, Organization and Society, 37, 242–259.
Myers, L., Scholz, S., & Sharp, N. (2013). Restating under the radar? Determinants of
restatement disclosure choices and the related market reactions. Working Paper.
University of Arkansas. Retrieved from http://papers.ssrn.com/sol3/papers.cfm?
abstract_id51309786.
Nicholson, G. J., Alexander, M., & Kiel, G. C. (2004). Defining the social capital of
the board of directors: An exploratory study. Journal of the Australian and New
Zealand Academy of Management, 10(1), 54–72.
Nitterhouse, D. (1989). Behavioral aspects of financial accounting and reporting. In
G. Siegel & H. Ramanauskas-Marconi (Eds.), Behavioral accounting (pp.
380–399). Cincinnati, OH: South-Western Publishing Company.
Osgood, C. E., Suci, G. J., & Tannenbaum, P. H. (1957). The measurement of
meaning. Champaign, IL: University of Illinois Press.
O’Connell, V., & Cramer, N. (2010). The relationship between firm performance and
board characteristics in Ireland. European Management Journal, 28(5), 387–399.
Pacioli, L. (1494). Traité des comptes et écritures. Titre IX de la Summa de arithmetica,
geometrica, proportioni y proportionalita. Paris: Ordre des Experts-Comptables.
Palast, G. (2006). Démocratie—Business. Genève: Timéli.
Palmrose, Z. V., Richardson, J. V., & Scholz, S. (2004). Determinants of market
reactions to restatement announcements. Journal of Accounting & Economics,
37(1), 59–89.
Parsons, T. (1960). Structure and process in modern societies. Journal of Business
Ethics, 66(1), 71–88.
Péninou, G. (1970). Physique et métaphysique de l’image publicitaire. Quoted by:
Joly, M. (2009). Introduction à l’analyse de l’image. Paris: Armand Colin.
Perelman, C., & Olbrechts-Tyteca, L. (1971). The new rhetoric. Notre Dame, IN:
University of Notre Dame Press.
Perry, M., & Bodkin, C. (2000). Content analysis of Fortune 100 company Web sites.
Corporate Communications, 5(2), 87.
Pesqueux, Y. (2002). Organisations: Modèles et représentations. Paris: Presses
Universitaires de France.
Pfeffer, J., & Salancik, G. R. (2003). The external control of organizations. Stanford,
CA: Stanford Business Books.
Philips, N., Lawrence, T. B., & Hardy, C. (2004). Discourse and institutions. Academy
of Management Review, 29(4), 635–652.
Piketty, T. (2013). Le capital au XXIè siècle. Paris: Éditions du Seuil.
Pinch, T. J., & Bijker, W. E. (2012). The social construction of facts and artifacts: Or
how the sociology of science and the sociology of technology might benefit each
other. In W. E. Bijker, T. P. Hughes & T. J. Pinch (Eds.), The social construction of
technological systems. Cambridge, MA: MIT Press.
Polanyi, K. (1983). La grande transformation. Paris: Éditions Gallimard.
Ponemon, L. A. (1992). Auditor underreporting of time and moral reasoning: An
experimental lab study. Contemporary Accounting Research, 9(1), 171–189.
Popper, K. (1991). La connaissance objective. Paris: Flammarion.
References 231
Pourciau, S. (1993). Earnings management and nonroutine executive changes. Journal

of Accounting & Economics, 16, 317–336.
Propp, V. (1965). Morphologie du conte. Paris: Éditions du Seuil.
Putnam, R. (2006). Bowling alone: Le déclin du capital social aux États-Unis. In A.
Bevort & M. Lallement (Eds.), Le capital social. Performance, équité et réciprocité
(pp. 35–50). Paris: La Découverte.
Ramanathan, K. V. (1976). Toward a theory of corporate social accounting. The
Accounting Review, 51(3), 516–528.
Ricardo, D. (1992). Des principes de l’économie politique et de l’impôt. Paris:
Flammarion.
Richardson, A. (1996). Research methods in accounting. In A. Richardson (Ed.),
Research methods in accounting: Issues and debates. Vancouver: Canadian General
Accountants’ Research Foundation.
Richardson, S., Tuna, I., & Wu, M. (2002). Predicting earnings management: The case
of earnings restatements. Working Paper. University of Pennsylvania. Retrieved
from http://papers.ssrn.com/sol3/papers.cfm?abstract_id5338681.
Rogers, R., & Grant, J. (1997). Content analysis of information cited in reports of sell-
side financial analysts. Journal of Financial Statement Analysis, 3(1), 17–30.
Romano, C. (2010). Au Cœur de la raison, la phénoménologie. Paris: Éditions
Gallimard.
Rosanvallon, P. (1992). La crise de l’État-providence. Paris: Éditions du Seuil.
Rosanvallon, P. (2008). La légitimité démocratique. Paris: Éditions du Seuil.
Rosanvallon, P. (2015). Le bon gouvernement. Paris: Éditions du Seuil.
Rousseau, J. J. (1964). Du contrat social. Paris: Éditions Gallimard.
Ryan, B., Scapens, R. W., & Theobald, M. (1992). Research method and methodology
in finance and accounting. London: Academic Press.
Sainsaulieu, R. (1997). Sociologie de l’entreprise (2nd ed.). Paris: Presses de sciences po
et Dalloz.
Salmon, C. (2007). Storytelling, la machine à fabriquer des histoires et à formater les
esprits. Paris: La Découverte.
Samuelson, P. A. (1972). L’économique (Vol. 1). Paris: Armand Colin.
de Saussure, F. (1995). Cours de linguistique générale. Paris: Payot.
Schaff, A. (1969). Langage et connaissance. Paris: Éditions Anthropos.
Scheff, T. J. (2006). Concepts and concept formation: Goffman and beyond.
Qualitative Sociology Review, 2(3), 48–65.
Scholz, S. (2008). Treasury releases restatement study. Journal of Accountancy, 205(6),
21.
Schwaiger, M. (2004). Components and parameters of corporate reputation—An
empirical study. Schmalenbach Business Review, 56, 46–71.
Scott, W. (2003). Financial accounting theory (3rd ed.). Toronto: Prentice Hall.
Securities and Exchange Commission (SEC). (1979). Accounting Rule No. 6084, SEC
Docket 1048, Securities Act Release No. 6084.
Securities and Exchange Commission (SEC), (2004). Financial reporting release nos.
33-8400; 34-49424: Final rule: Additional Form 8-K disclosure requirements and
acceleration of filing date. Retrieved from http://www.sec.gov/rules/final/33-
8400.htm.
Sen, A. (2003). Un nouveau modèle économique: Développement, justice, liberté. Paris:
Éditions Odile Jacob.
232 References
Shannon, C., & Weaver, W. (1949). The mathematical theory of communication.

Champaign, IL: University of Illinois Press.
Shaw, K. W. (2003). Corporate disclosure quality, earnings smoothing, and earnings
timeliness. Journal of Business Research, 56(12), 1043–1050.
Shleifer, A., & Vishny, R. W. (1994). Politicians and firms. Quarterly Journal of
Economics, 109(4), 995–1025.
Shocker, A. D., & Sethi, S. P. (1973). An approach to incorporating societal
preferences in developing corporate action strategies. California Management
Review, 15(4), 97–105.
Simon, H. (1992). De la rationalité substantive à la rationalité procédurale. Site,
MCX-APC. Accessed on February 4, 2018.
Smith, A. (1991). La richesse des nations. Paris: Flammarion.
Smith, T. (1992). Accounting for growth—Stripping the camouflage from company
accounts. London: Century Business.
Smith, M., & Taffler, R. J. (1984). Improving the communication function of
published accounting statements. Accounting and Business Research, 14, 139–146.
Smith, M., & Taffler, R. J. (1992). Readability and understandability: Different
measures of the textual complexity of accounting narrative. Accounting, Auditing
& Accountability Journal, 5(4), 84–98.
Smith, M., & Taffler, R. J. (2000). The chairman’s statement – A content analysis of
discretionary narrative disclosures. Accounting, Auditing & Accountability Journal,
13(5), 624–646.
Solomon, J. F., Solomon, A., Joseph, N. L., & Norton, S. D. (2013). Impression
management, myth creation and fabrication in private social and environmental
reporting: Insights from Erving Goffman. Accounting, Organizations and Society,
38(3), 195–213.
Stiglitz, J. (2014). Le prix de l’inégalité. Arles: Babel.
Stolowy, H., & Breton, G. (2004). Accounts manipulation: A literature review and
proposed conceptual framework. Review of Accounting and Finance, 3(1), 5–66.
Stone, D. (1989). Causal stories and the formation of policy agendas. Political Science
Quarterly, 104(2), 281–300.
Stones, C. (2013). Positively picturing pain? Using patient-generated pictures to
establish affective visual design qualities. International Journal of Design, 7(1), 85–97.
Suchman, M. C. (1995). Managing legitimacy: Strategic and institutional approaches.
Academy of Management Review, 20(3), 571–610.
Sutherland, E. (1983). White collar crime. New Haven, CT: Yale University Press.
Sydserff, R., & Weetman, P. (2002). Developments in content analysis: A transitivity
index and diction scores. Accounting, Auditing & Accountability Journal, 15(4),
523–545.
Tipgos, M. A. (1977). Toward a theory of corporate social accounting: A comment.
The Accounting Review, 52(4), 977–983.
Tweedie, D., & Whittington, G. (1990). Financial reporting: Current problems and their
implications for systematic reform. Accounting and Business Research, 20, 87–102.
Underdown, B., & Taylor, P. J. (1985). Accounting theory and policy making. Oxford:
Butterworth-Heinemann.
Unegbu, A. O. (2014). Theories of accounting: Evolution and developments, income-
determination and diversities in use. Research Journal of Finance and Accounting,
5(19), 1–15.
Internet References 233
Vafeas, N. (2000). Board structure and the informativeness of earnings. Journal of

Accounting and Public Policy, 19, 139–160.
van Bavel, R., & Licata, L. (2002). Une approche théorique des représentations
sociales de l’économie. Au-delà de la science et du sens commun. In C. Garnier
& W. Doise (Eds.), Les représentations sociales: Balisage du domaine d’études.
Montréal: Éditions Nouvelles.
Wallace, W. (1991). Accounting research methods. Homewood, IL: Richard D. Irwin.
Watts, R. L. (2003). Conservatism in accounting. Part 1: Explanations and
implications. Accounting Horizons, 17(3), 207–221.
Watts, R. L., & Zimmerman, J. L. (1986). Positive accounting theory. London:
Prentice Hall.
Watzlawick, P. (1976). La réalité de la réalité. Paris: Éditions du Seuil.
Weber, M. (1963). Le savant et le politique. Paris: Plon.
Weber, M. (1995). Économie et société (Vol. 1). Paris: Plon-Pocket.
Webster. (1965). Webster’s seventh new collegiate dictionary. Toronto/Springfield,
MA: Thomas Allen & Son Limited/G & C Merriam Company.
Wells, M. C. (1976). A revolution in accounting thought. The Accounting Review, 51,
471–482.
Williams, K. C., Hernandez, E. H., Petrovsky, A. R., & Page, R. A. (2008). The
business of lying. Journal of Leadership, Accountability and Ethics, 12(3), 1–20.
Williamson, O. (1964). The economics of discretionary behavior: Managerial objectives
in a theory of the firm. Englewood Cliffs, NJ: Prentice Hall.
Wiltermuth, S. S., & Flynn, F. J. (2013). Power, moral clarity, and punishment in the
workplace. Academy of Management Journal, 56(4), 1002–1023.
Wolk, H. J., Francis, J. R., & Tearney, M. G. (1992). Accounting theory: A conceptual
and institutional approach (3rd ed.). Cincinnati, OH: South-Western Publishing
Company.
Wood, D. (1991). Toward improving corporate social performance. Business
Horizons, 34, 66–73.
Wu, M. (2002). Earnings restatements: a capital market perspective. Working Paper.
University of Hong Kong. Retrieved from http://papers.ssrn.com/sol3/papers.cfm?
abstract_id=1844265.
Ziegler, J. (2002). Les nouveaux maı̂tres du monde, et ceux qui leur résistent. Paris:
Fayard.
Zimmerman, J. L. (1995). Accounting for decision making and control. Chicago, IL:
Richard D. Irwin.
Internet References
https://accountingtheory.weebly.com/
Collins dictionary of sociology (3rd ed.). © HarperCollins Publishers 2000. In The free
dictionary. Accessed on February 14, 2017.
Maslow. Bing.com/images.
www.answers.com. Accessed on February 14, 2017.
www.investopedia.com/terms/a/accounting-theory.aspixzz5AxNXJnHt.
Index
Accounting Communication
double-entry, 29, 30, 165 functions, 136
intangibles, 83–84, 94, 109, 124 scheme, 77, 185
manipulation(s) Conceptual framework
big bath accounting, 201, 205 adjunction of, 215
creative accounting, 201, approach, 28
205–206 financial information, 30
earnings management, 204 international, 39
income smoothing, 201, 204–205 self-designated, 55
method, 45, 54 Conservatism, 26
practices, 36 Constructivism, 53, 57–59, 128
procedures, 45, 80 Control
psychological aspects, 135–152 cost, 136
reports, 2, 39, 56, 150, 159, 184 economy, 102
research, 2, 21, 33, 45, 126, 142 Fordism, 136
sociology of, 115–130 people, 135–136
theory. See Accounting theory psychology, 133–135
Accounting theory shareholders, 176
conception of, 49 Taylorism, 136
traditional vision of, 21–42
Adverse selection, 3, 40, 61, 62
AICPA. See American Institute of Decision
Certified Public citizen, 104–111
Accountants (AICPA) game theory, 160–162
American Institute of Certified Public governmental, 173–175
Accountants (AICPA), 29, making. See Decision-making
65, 66, 67, 82 process
Argumentation, 186 theory, 30
technic, 23 Decision-making process
accounting numbers, 67
Capital basis for, 59
accounting, 83–94 conceptions of, 154
intellectual, 84, 86, 95 individual, 115
political, 86 political, 153
scientific, 86 rational, 155
social, 84–87 Deconstruction, 1
symbolic, 85, 86 Discourse
CAPM (Capital Assets Pricing degree of truthfulness, 208
Model), 133 ideological, 104
236 Index
multitude of, 68 Information manipulation theory

parole, 67 (IMT), 140, 209, 210,
philanthropic, 193 211
religion, 15 International Financial Reporting
social, 130 Standards (IFRS), 8, 26,
110, 137, 205
Economics
classical theory, 11 Kohlberg theory, 33
property rights, 11
utility curve, 155
Language
Epistemology, 18, 32, 34
code, 74
Ethics, 43, 101–103
discourse, 54, 76
Externalities, 100–101
jargon, 71, 73, 75, 77, 95
Financial natural, 68, 71, 76, 77
information, 30, 94, 216 parole, 67
statements. See Financial semi-technical, 72, 73, 74,
statements 193
Financial statements technical, 73
GAAP system, 28 Legitimacy
legitimacy, 124 activity, 9
traditional, 2 legal, 120
process, 120, 123
GAAP. See Generally accepted public sector, 121, 122
accounting principles social contract, 123
(GAAP) Linguistic
Generally accepted accounting l’arbitraire du signe, 70
principles (GAAP), 27 connotation, 74
Gross domestic product (GDP), 105, denotation, 72, 73
106 sign, 70, 199
signified, 70
Historical cost, 25 signifier, 70
Hyperreality, 14, 105, 138, 175 syntactic, 76
Ideology, 33, 92, 121, 126, 190 Market

IFRS. See International Financial efficient market hypothesis
Reporting Standards (EMH), 60, 133,
(IFRS) 156
Impression management, 150 entrepreneur, 102
Industrialization, 17 failure, 12, 62, 80, 155
Inflation, 26 firm, 81, 82
Information functional fixation, 82
faces, 69 laws, 17
financial, 30, 94, 216 Mathematics, 12–15, 154, 216
quality, 2 Moral hazard, 3, 40, 61, 159
Index 237
Networks privatization, 78, 126

board of directors, 87, 94 rates, 122
external members, 94 state-owned enterprise (SOE), 82,
resource dependence theory, 87, 94 125
subsidiaries, 37
Organization tariff, 127
accounting, 77, 128 Psychology
conception, 78 behavioral, 73
democracy, 185 cognitive, 73, 154, 157, 197
entrepreneur, 62 conditioning, 134
financial situation, 216
information manipulation theory Rationalism, 31
(IMT), 209 Reality
networks, 87-94 constructivist, 50
organizational culture, 143 economic theory, 177
people in, 2, 11, 38 objective, 53, 170
social institution, 119 predictions, 44
society, 174 research, 3
storytelling organization, 104–105 social responsibility, 98–99
technology in, 49 socially constructed, 59
vision, 160 spatial model, 28
Reason
Paradigm, 50–54 pure, 24, 31
Phenomenology, 24, 31 rational, 154, 159, 172
Positivism, 24, 25, 50, 58–59 rationalism, 31
Post-modernism, 1 rationality
Privatization procedural, 157, 158
monopoly, 80, 127 substantial, 158
profit, 78, 126 Representation
tariffs, 82, 111 social, 15, 28, 30, 51, 80, 81
Probabilities, 135, 154, 163 spatial, 27–29
Profession Reproduction
accounting profession, 48, 63, 78, school, 85
103, 170 social, 85
goal, 169 Reputation, 120, 123
jargon, 73, 75, 77 Research
professionalization, 66, 71 applied, 56, 57
vertical structure, 30 assumption, 34, 36–40
Profit hypothesis, 34, 205
accounting profit, 98 pure, 57
against market, 80–83
concept, 105 School of thought, 1, 3, 7–19, 54
definition, 22, 46, 74 Science(s)
dividends, 38 hard, 9, 10, 18
maximization, 45 human, 10, 14, 24, 53, 150, 162
238 Index
methodology, 24, 47 setting, 1, 2, 21, 27, 48, 204, 215

natural, 13–15, 17, 24, 35, 47, 53 stable monetary unit, 38, 72
philosophy, 14, 24 Storytelling, 104, 105, 137
pure, 10, 14, 35, 57, 216 Syllogism, 23
scientific process, 23, 50, 52, 202,
215 Text analysis
soft, 14 content analysis, 181–182
Society readability, 182–184
governments rhetoric, 52, 181, 185
accounting for the deficits, 110 semiotic
manipulating accounts, 201, actantial structure, 187–189
206 functions, 184, 187
public accounts, 106, 111 Theory
grand narrative, 105 agency, 11, 40, 61, 154, 158–160,
ideology, 121, 125, 126, 190 199
social decisions, 78, 101, 125–127 institutional, 19
social responsibility, 96, 98–101 manipulation (IMT), 140, 209
state-owned enterprise, 18, 82, 126 normative, 26, 43–48
Sociology positive, 26, 45, 47, 52
accounting, 18, 23, 68, 115–131 Trueblood Committee, 7
organization, 215
professions, 66, 71 Uniformity, 117, 143
social contract, 115–117 Utility curve, 153, 154–155, 156,
social institution, 8, 94, 117, 139, 162
215
Stakeholders
Values, 43
Standards
Vision, 3, 15, 21–42, 134, 160
accounting period, 39
business entity, 36–37
GAAP, 27–28, 36, 207 Wealth of Nations (Adam Smith),
going concern, 38 81, 154
historical cost, 25, 39 Websites, 182
matching, 39 Workplace, 145
money measurement, 39 World Bank, 104, 126
objectivity, 24, 39–40
setters, 9, 28 “Z” pattern, 197

2018 Gaétan Breton - A Postmodern Accounting Theory - An Institutional Approach-Emerald Publishing

Uploaded by

Copyright:

Available Formats

You might also like

2018 Gaétan Breton - A Postmodern Accounting Theory - An Institutional Approach-Emerald Publishing

Uploaded by

Document Information

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

2018 Gaétan Breton - A Postmodern Accounting Theory - An Institutional Approach-Emerald Publishing

Uploaded by

Copyright:

Available Formats

A POSTMODERN ACCOUNTING

United Kingdom – North America – Japan – India – Malaysia – China

First edition 2019

Copyright © 2019 Emerald Publishing Limited

Reprints and permissions service

No part of this book may be reproduced, stored in a retrieval system, transmitted in

British Library Cataloguing in Publication Data

ISBN: 978-1-78769-794-2 (Print)

SECTION 1: THEORIES AND ACCOUNTING 5

Chapter 2 Theories and Schools of Thought 7

Chapter 3 The Traditional Vision of Accounting Theory 21

Chapter 4 Accounting in the Scientiﬁc Institution 43

Chapter 5 For a Deﬁnition of Accounting 65

Chapter 6 Accounting: the State and the Firm 97

SECTION 2: THEORIES OF ACCOUNTING 113

Chapter 7 Sociology of Accounting 115

Chapter 8 The Psychological Aspects of Accounting 133

Chapter 9 How Decisions are Made 153

Chapter 10 A Theory of Accounting 169

SECTION 3: “TESTING” THE THEORY 179

Chapter 11 Analyzing the Documents Accompanying Decisions 181

Chapter 12 Manipulating and Lying 201

Table 8.3. Power Distance Index (PDI) Values for 50

We would like to thank particularly:

Postmodernism is ﬁrstly forced to apply its principles to itself. Then, as the

The postmodern condition of fragmentation and simulation makes

A Postmodern Accounting Theory, 1–4

A book about accounting theory must inevitably draw on accounting

Yet, this increase in disclosure did not “just happen.” It (…) is

Independently of whether it affects current practice, however, there

The following section inventories the methods to be used in analyzing

Theories and Schools of Thought

A theory is a systematic statement of the rules or principles which

The basic objective of ﬁnancial statements is to provide information

A Postmodern Accounting Theory, 7–19

Although all the needs for information of these users cannot be

Any social institution - and business is no exception - operates in

In a dynamic society, neither the sources of institutional power nor

must constantly meet the twin tests of legitimacy and relevance by

Thus, accounting standard-setters can hardly consider as accessory the needs

Are accounting standards nothing more than political compromises

Science and Politics

The question is why transform standards into theoretical statements? The

Accounting information is particularly useful for legitimization

Another direction to understand the phenomenon comes from an institutional

accounting professors may increase their level of diploma to the university

In term of “capacities”, which position in the social space depend

Bourdieu concludes that university professors rank below businessmen of all

2.1 “Economics” as a Science

If the market constitutes and unconscious principle of organization,

In other words, to the limit, the ﬁrm as a social organization has no

virtue of the private property “theory.” In this system of relationships, accounting

2.2 Some Considerations About Mathematics and Sciences

I propose to say that the goal of science is to discover satisfactory

Statistics, (…), are a scheme of rationality, a scheme that orders

This statistical representation system can become, under its exacerbated

2.3 The Social Representations

Effectively, experience itself is a mode of knowledge necessitating a