Here’s the abstract of an article available online, written by Shaul Hayoun of the University of Edinburgh:
- Purpose The purpose of this paper is to contribute to the discussion on the non-essence of accounting by focusing on financial accounting’s distinct technology: financial statements. Complementing the genealogical perspective on accounting’s changing socio-historical settings, it proposes a semiotic perspective on the accounting statement.
- Design/methodology/approach The paper takes an interdisciplinary approach in the theoretical framing of IFRS recognition and measurement principles that underlie the statement of financial position. It mobilises Saussure and Barthes’ sign theory – semiology, as it provides a meaningful delineation of financial accounting, bringing out its distinct numerical-linguistic knowledge-construction operation.
- Findings In addition to the justification of employing semiology as a parent discipline for accounting, it is shown how IASB’s recognition and measurement procedures manifest the interrelated non-essentialist semiological principles of reciprocal articulation and value constellation. Accounting entries (“expression”) are not representations of pre-existing economic resources (“content”), but rather both are mutually constituted by delimiting the resource/asset from its broader category. Such judgment-based articulation results with value constellations, where asset value is merely a relational product of other values.
- Originality/value To the long-established critique that accounting has no essence, the paper adds a formulation of a non-essentialist semiotic logic: the financial statement’s semio-logic. It further sheds light on the role of such logic as an epistemological presupposition to the accounting – society reciprocity, where accounting is a malleable product of, and is used to exert power over, its social surroundings.
I happened to see this shortly after coming across a few stories of academic journals falling for hoax articles (like this one), and it did cross my mind that it might be another instance of that. I moved on from that thought, although admittedly not enough to purchase the full text of the article (well, I’m not an academic). At its heart, the summary expresses something we’re all perpetually aware of – that a company’s reported “revenue” or “profit” or whatever it may be aren’t somehow illuminating something that would exist even in the absence of accounting – they’re created by the principles and conventions and judgments that give rise to them (and can change dramatically in line with changes in those factors). Although everyone knows that on some level, we’re often overly primed to forget it and to find excessive meaning in (for instance) the minor difference between a quarterly earnings number and an analyst’s expectation. I wrote a while ago about the issue of defining the term “primary financial statements,” arguing that “one can imagine a different philosophy whereby the ‘primary’ statements are more akin to a table of contents or index that leads the reader into the story, without ever being likely to be taken for the story in itself.” In terms of the article cited above, this might be regarded as my (very modest) attempt to retain some resistance to the knowledge-construction operation, by consistently interrogating its workings and underlying premises.
If the comment that “accounting is a malleable product of, and is used to exert power over, its social surroundings” sounds fanciful, consider the long debate over the role (or not) of accounting standards in contributing to the 2008 financial crisis: a simple Google search on the topic provides plenty to look at. I looked at an article that summarizes a follow-up research project:
- The study examined a sample of 3,327 loans to 513 borrowers from 48 banks covering 16 countries across North America, Europe and Australia, between 2006 and 2009. The research also tested whether banks with prudent accounting responded to the 2008 crisis differently than other banks.
- Their research threw out some very suggestive results. The banks with conservative accounting were indeed more prudent in their lending. And during the 2008 crisis the same group of banks, being less affected, did not need to increase the price of their loans, thus providing a more stable source of credit to the market.
- While Professor Lim found associations between how a company records its financial position and its business activity, he says the complexity of business makes it difficult to prove a simple cause and effect relationship.
- “Proving cause and effect, that prudent accounting causes prudent lending, would have been a nice conclusion.” But business is not so neat in real life, he notes. “There are unobservable factors affecting a bank’s overall culture; how do we measure it? It could be the CEO’s influence as much as the accounting influence.”
Still, even the possibility of that “nice conclusion” (or the opposite, that reckless accounting would cause reckless behaviour) suggests the power referred to above. After all, in the abstract, “prudent lending” probably sounds great. In day to day terms though, it might largely mean real people who couldn’t refinance their mortgages or their business loans. That may or may not be a “good thing” by various measures: I would argue not so much if, for instance, those measures are accounting ones driven in large part by perverse compensation incentives. The broad point is, the more we know the workings of the machine as a whole, the better we can assess the acceptability (and even morality) of its consequences.
I apologize to Hayoun if by bouncing so loosely off the abstract of the article, I’ve misrepresented the implications of his work. Again, I’m not an academic, so my point is inevitably a broad one: keep questioning, keep alert, and (with thanks to Quincy Jones) keep reachin’!
The opinions expressed are solely those of the author