A Postmodern Accounting Theory

Sociology of Accounting
Gaétan Breton,
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To cite this document: Gaétan Breton, "Sociology of Accounting" In A Postmodern
Accounting Theory. Published online: 14 Nov 2018; 151-131.
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 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
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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

A Postmodern Accounting Theory, 115–131

Copyright © 2019 by Emerald Publishing Limited
All rights of reproduction in any form reserved
doi:10.1108/978-1-78769-793-520181007
 116 A Postmodern Accounting Theory

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
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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
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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)
 118 A Postmodern Accounting Theory

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
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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
 Sociology of Accounting 119

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
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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.
 120 A Postmodern Accounting Theory

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
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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).
 Sociology of Accounting 121

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

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activity of a sector is of general interest. (Pfeffer

Activity and Salancik, 2003; Suchman, 1995, Parsons,
1960)

Recognition by the member of the society that the

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.
 122 A Postmodern Accounting Theory

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

Recognition by the member of the society that the

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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
 Sociology of Accounting 123

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.
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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
 124 A Postmodern Accounting Theory

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).
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• 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
 Sociology of Accounting 125

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)
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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.
 126 A Postmodern Accounting Theory

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
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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
 Sociology of Accounting 127

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
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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
 128 A Postmodern Accounting Theory

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-
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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
 Sociology of Accounting 129

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?
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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)
 130 A Postmodern Accounting Theory

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.
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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?
 Sociology of Accounting 131

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?
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