FAC4865/Learning Unit 2/CONCEPTS/2022
FAC4865
Advanced Corporate Financial Reporting
Where Leaders Reason, Connect & Explore
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RESEARCH
CONCEPTS
ANCHORS
KING IV
FAIR VALUE
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Concepts
In the field of theoretical development, without
a sound understanding of the basic rules and
concepts involved, follows but growing
uncertainty in terms of direction and
relevance ...
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FAC4865/Learning Unit 2/CONCEPTS/2022
Concept
Source: https://bcdbimages.s3.amazonaws.com/other7/big_idea1.jpg
A concept is a thought or idea.
If you're redecorating your bedroom, you might want to start with a concept, such as a
"flower garden," or, if that's too femme, a "black hole in outer space."
A concept is a general idea about a thing or group of things, derived from specific instances
or occurrences. It often applies to a theoretical idea in science, for example: Einstein's
contribution to the concept of relativity.
The term Concept was borrowed from the Late Latin term conceptus, and is understood
from the Latin term concipere, meaning to take in, conceive or receive. A concept is an idea
conceived in the mind. The original meaning of the verb conceive was to insert sperm into a
womb, and by a later extension of this meaning, to place an idea into a mind.
Source: Vocabulary.com Dictionary: https://www.vocabulary.com/dictionary/concept
The importance of basic scientific concepts
Basic scientific concepts aid the [effective] pursuit of knowledge. The National Science
Foundation argues that understanding these concepts helps to acquire a better
understanding of i) science-related material that is heard, read or discussed, as well as of ii)
the elements of scientific inquiry. By knowing the basic scientific concepts [in respect of a
field of study], a better and more accurate perception of how the world [or a field of study]
works can be obtained.
Source: Flora Richards-Gustafson in Sciencing. 2017: https://sciencing.com/key-concepts-basicscience-15676.html
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What are the most beautiful concepts that you know of,
in any field?
One suggestion:
““City in the Sky” is about an imaginary tranquil oasis above the mega-developed and
polluted city, where one can escape from the everyday noise and stress.
The concept is inspired by the Lotus flower which is known for its ability to emerge above
the murky waters pure and clean. Although it is realistically presented, the concept doesn't
intend to be realistic in terms of structure-engineering or real living environment.”
Source: https://www.youtube.com/watch?v=IZOedbGd64E
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Learning unit outcomes
After the successful completion of this learning unit, you must be able to:
1. Name and in your own words describe the basic conventional accounting
concepts as addressed in this learning unit.
2. Name and in your own words describe the basic transdisciplinary concepts
and theories as addressed in this learning unit.
3. Debate whether accounting can be viewed as a social science by, among
other things, in your own words, referring to the published work of researchers
in this regard to support your viewpoints.
4. Suggest changes to be made to accounting theory and practice to improve its
stature as a social science by, among other things, in your own words, referring
to the published work of researchers in this regard to support your viewpoints.
5. In your own words, discuss the opportunities that communication theory
holds for the advancement of accountancy, and to support your arguments by
referring to the published work of researchers in this regard.
6. Design a model of accountancy based on communication theory, supported
by the published work of researchers in this regard.
7. Debate, in depth, whether the application of the general systems theory is
relevant to the development of accounting theory.
8. Analyse the processes and products of accounting against the “seven
[foundational] pillars of [scientific] wisdom”, and to conclude whether and to
what extent these processes and products are in agreement with the pillars.
9. In your own words, analyse, compare and critique case studies/practical
scenarios within the scope of this learning unit, and to suggest properly
motivated solutions if so required.
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Main activities required to achieve the learning unit outcomes
Research-and-learning activities
Prepare and study your answers to all the research-and-learning activities in this learning unit.
The main aim of these activities is to assist you in focusing on important sections of the prescribed
study materials given in the research-and-learning activities.
Other study materials
Understand and study the other study materials given in this learning unit so that you can, for example,
discuss, explain, and assess it.
Assessments (Assignments)
Prepare and submit Assessments (Assignments) 01 and 02, where applicable to this learning unit, by
the due dates thereof.
Study the solutions to Assessments (Assignments) 01 and 02 (in TL 201 and TL 202), where applicable
to this learning unit.
Critical Thinking/Reasoning
Critically assess the contents of this learning unit from the systems theory or another transdisciplinary
perspective. (To enhance your critical thinking skills, in FAC4865, transdisciplinary approaches such
as systems theory are applied where applicable.)
Critical thinking
The intellectually disciplined process of actively and skillfully conceptualising, applying, analysing,
synthesising, and/or evaluating information gathered from, or generated by, observation, experience,
reflection, reasoning, or communication, as a guide to belief and action.
Source: Defining Critical Thinking – Foundation for Critical Thinking
Available from: http://www.criticalthinking.org/pages/defining-critical-thinking/766
Critical reasoning questions
test your ability to put forth and analyse logical arguments.
Source: GMAT Critical Reasoning: Practice Tests and Information
Available from http://www.majortests.com/gmat/critical_reasoning.php
Transdisciplinary research
Efforts conducted by investigators from different disciplines working jointly to create new conceptual,
theoretical, methodological, and translational innovations that integrate and move beyond disciplinespecific approaches to address a common problem.
Source: Harvard Transdisciplinary Research in Energetics and Cancer Center
Available from: https://www.hsph.harvard.edu/trec/about-us/definitions/
Systems theory
The transdisciplinary study of the organisation of phenomena, independent of their type ... of
existence. It investigates both the principles common to all complex entities, and the (usually
mathematical) models that can be used to describe them.
Source: Principia Cybernetica Web
Available from: http://pespmc1.vub.ac.be/SYSTHEOR.html
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Do not study the above four descriptions for the
examination, but make sure that you understand the
meanings thereof for answering questions.
In FAC4865, the terms “critical thinking” and “critical
reasoning” are used interchangeably. Your critical
assessments must always include your points of view by
means of discussions, explanations, comparisons etc., and
they should be motivated convincingly.
Learning unit assessment
Your uniquely prepared answers to all the research-and-learning activities in this
learning unit
Formative and/or Summative:
Can be assessed by the same and/or similar theoretical and/or critical reasoning questions.
Other study materials in this learning unit
Formative and/or Summative:
Theoretical and/or critical reasoning questions can be asked.
Prepared and studied formative assessments (assignments)
Formative:
Summative:
The marking of Assignments 01 and 02, where applicable to this learning unit.
Theoretical and/or critical reasoning questions can be asked from (and/or based
on): TLs 201 and 202, where applicable to this learning unit.
Critical reasoning from the systems theory or another transdisciplinary
perspective
Formative and/or Summative:
Based on the prescribed study materials, transdisciplinary critical reasoning questions can be asked
where you must assess theories and/or accounting practices pertaining to this learning unit from your
point of view, convincingly motivated.
NB: All questions must be answered in your own words, unless where indicated otherwise.
Concerning your answers to assessments, all information drawn from a resource, whether quoted or
written in your own words, must be referenced according to the Harvard Referencing System.
Formative assessments
Assessments by assignments.
Summative assessments
Assessments by online (non-venue based) examinations.
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Introduction
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Basic conventional accounting concepts
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Accounting
Financial accounting
Theory
Accounting theory
Basic transdisciplinary concepts and theories
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Transdisciplinary (TD)
Transdisciplinary research
Social theory
RESEARCH-AND-LEARNING ACTIVITY 1
Communication theory
RESEARCH-AND-LEARNING ACTIVITY 2
Systems theory – overview
RESEARCH-AND-LEARNING ACTIVITY 3
On the shoulders of Raymond John Chambers (1917 – 1999):
A synopsis
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RESEARCH-AND-LEARNING ACTIVITY 4
Study materials on Learning Unit 2 for examination purposes
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Checklists: Learning unit activities and outcomes
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References
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CONTENTS
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2.1 Introduction
Study the introduction for the examination.
In the practise of any science, to obtain direction, it is crucial to first determine the basic
rules that must be adhered to, and how related core concepts are described within the
context of the field of study. In short, one ought to know the “rules of the game”. If the
aim of the accounting discipline is to be recognised as a science, these rules must be
followed.
Primarily, conceptual frameworks fulfil the function of orientation in accounting.
Therefore, conceptual frameworks must be broad (generic) in scope, and so wellresearched that it need not be adjusted when more detailed aspects of the theory are
being developed. This is only possible when the detailed aspects are developed within
the same frames of reference that were applied during the development of the
conceptual frameworks.
In science, a conceptual framework is based on a “frame of
reference”, which can be a concept, viewpoint or a generic theory
(for example, systems theory).
All theoretical developments that are based on a conceptual
framework (for example, the IFRSs are based on the 2018
Conceptual Framework for Financial Reporting as issued by the
IFRS Foundation) therefore hold to the same frame of reference as
that on which the conceptual framework is based.
Scientifically, a conceptual framework should not be adjusted
simply to accommodate forthcoming theories that disregard its
orientation.
THE DEVELOPMENT PROCESS OF THEORY:
3) Develop detailed theory
(specialised, based on a conceptual framework)
2) Prepare a conceptual framework
(generic, based on a frame of reference)
1) Identify a frame of reference
(generic, based on a concept, viewpoint or general theory)
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The application of a conceptual framework ought not to be subordinate to any theory
forthcoming from it. For example, an International Financial Reporting Standard
(IFRS) should not contravene the 2018 Conceptual Framework for Financial
Reporting, as the framework then loses its directional function.
Therefore, a reporting standard ought not to result in the adjustment of a related
conceptual framework, as the framework is then stripped of its foundational value.
However, in the 2018 Conceptual Framework for Financial Reporting it is specifically
stated that: “Nothing in the Conceptual Framework overrides any Standard or any
requirement in a Standard” and that: “To meet the overall objective of general purpose
financial reporting, the Board may sometimes specify requirements that depart from
aspects of the Conceptual Framework” (IFRS Foundation 2018:6). If the IASB does
so, “it will explain the departure in the Basis for Conclusions on the Standard” (IFRS
Foundation 2018:6).
An important question that arises concerning the above standpoint of the International
Accounting Standards Board (IASB), is whether a departure from the conceptual
framework when developing detailed theory (such as the IFRSs) was caused by the
application of a different and contravening frame of reference. If so, the development
of the IFRSs is proceeding in the wrong direction, scientifically.
Should the frame of reference of a science need to be adjusted, owing, for example,
to a significantly permanent shift in the dynamics and traits of the environment within
which it functions, the adjustments should be made prior to the development of any
forthcoming specialised theory. By following this methodology, the foundation and
directional focus of the science is sustained, thereby contributing to the development
of theory in a more orderly and cohesive fashion, without continuously and at random
revisiting the identification and description of basic concepts and methodologies.
During your undergraduate studies in corporate financial
reporting, you have encountered many accounting
concepts. Some of these, together with transdisciplinary
concepts that are relevant to the current economic
environment and the accounting discipline, are
addressed in this learning unit.
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2.2 Basic conventional accounting concepts
Since FAC4865 is research-oriented, it is not the aim of the module to venture into
excessive theoretical discussions on basic conventional accounting concepts. Rather,
the aim of the module is to describe the four basic concepts that are relevant to
FAC4865, because they can serve as a starting point to enhance an understanding
of accounting theory in terms of its scientific orientation and structure. These concepts
are i) accounting, ii) financial accounting, iii) theory and iv) accounting theory.
It is important to note that no generally accepted descriptions of the concepts in this
paragraph exist. In other words, the descriptions are not generally accepted,
worldwide, in the study field of accounting. To arrive at a generally accepted
description of concepts is an ideal towards which any science should strive.
Study all the concepts/descriptions in the below
paragraphs for the examination, except where
indicated otherwise.
2.2.1 Accounting
Over time, accounting has been viewed as many different “things”, such as an art, a
science, a practice, and a profession.
The following is the viewpoint of the American Accounting Association via its
Pathways Commission Report of 2012 (note how the elements in this description align
with the scope of FAC4865):
Accounting is a “learned profession”, comparable to medicine, law, and
theology. Three common elements of these professions are
(1) Theory
(2) Advanced education for the technical practice of theory
(3) Research for the enhancement of current theory
Source: Pathways Commission in Barthel 2014:135
Available from: http://www.na-businesspress.com/JAF/BarthelL_Web14_4_.pdf
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2.2.2 Financial Accounting
Study any ONE of the following two descriptions for
examination purposes.
Financial accounting is the art of recording, classifying and summarising in a
significant manner and in terms of money, the transactions and events, which are in
part at least, of a financial character, and interpreting the results thereof.
Source: Description of the former Committee on Terminology of the American Institute of
Accountants (1941), cited in Kam 1990:33
OR
Financial accounting is the process of identifying, measuring and communicating
economic information to permit informed judgement and decisions by the users of the
information.
Source: Description of the American Accounting Association (AAA) (1966), cited in Kam 1990:34
To broaden your knowledge on viewpoints concerning theory, and more
specifically, concerning accounting theory, view the discussion of Phillip
Wong (16:20 minutes):
View full screen: https://www.youtube.com/watch?v=CfjEVNOXTZg (Skip
the Ads)
The Wong discussion is a worthwhile starting point for studying
theories. Use it for answering any related question/(s) in the
assignments, and you may apply this discussion on own initiative
when answering related critical reasoning questions in the
assignments and/or the examination.
You do not have to study the entire discussion. Only study the
answer/(s) to an assignment, and the information that you deem
relevant for critical reasoning.
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2.2.3 Theory
A theory could be any one of the following:
1. a plausible or scientifically acceptable general principle or body of principles
offered to explain phenomena, for example: The wave theory of light.
2. • a belief, policy, or procedure proposed or followed as the basis of action, for
example: Her method is based on the theory that all children want to learn,
or
• an ideal or hypothetical set of facts, principles, or circumstances, for example:
In theory, we have always advocated freedom for all.
3. • a hypothesis assumed for the sake of argument or investigation,
• an unproved assumption: conjecture, or
• a body of theorems presenting a concise systematic view of a subject, for
example: the theory of equations.
4. the general or abstract principles of a body of fact.
5. abstract thought: speculation.
6. the analysis of a set of facts in their relation to one another.
Source: Merriam-Webster online Dictionary
Available from: https://www.merriam-webster.com/dictionary/theory
The definitions above relate mainly to practice or research. For example,
descriptions 1 and 2 relate to practice, whereas descriptions 3 and 6 relate to
research. Description 4 relates to research and practice. Description 5 must be
avoided in financial accounting practice and research at all costs.
The descriptions of theory above are aimed at
giving you insight into the broad scope of the term
“theory”. You need not study them for the
examination.
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2.2.3 Theory (continued)
The remainder of the material below must be studied
for the examination.
Collins (2007:142) explains that when theory is viewed as a set of fundamental
principles underlying a science, art etc., – the word “theory” does not imply
uncertainty, since the word “hypothesis” is used by scientists to indicate uncertainty.
However, he further explains that, in common parlance, the concept “theory” is
interpreted more in terms of uncertainty.
From a natural-scientific perspective, Hawking (1988:10) explains theory as “just a
model of the universe, or a restricted part of it, and a set of rules that relate
quantities in the model to observations that we make.”
Comment
According to Hawking, a theory can be regarded as a good theory if it satisfies the following
two requirements: “It [1] must accurately describe a large class of observations on the basis
of a model that contains only a few arbitrary elements, and [2] it must make definite predictions
about the results of future observations.
The shift from prediction to probability
In the field of theoretical physics, on a microscopic scale, quantum theory could not uphold
the strict requirement of prediction related to the classical theories in physics and natural laws.
Consequently, the concept of probability was introduced to theoretical physics at the quantum
scale.
Voluntary viewing: The exceptional positive
attitude and perseverance of Stephen Hawking
(1942 – 2018) − His inspirational last speech to
humanity (3:05 minutes):
https://www.youtube.com/watch?v=VYxjumUhji0
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2.2.3 Theory (continued)
From a social-scientific perspective:
Webster (cited in Schroeder & Clark (1998:1) defines a theory as
“a systematic statement of principles … a formulation of apparent
relationships or underlying principles of certain observed phenomena,
which has been verified to some degree.”
Yu (1976:11) argues that
no theory derived from human experience can be unassailably proved or
certain.
A theory, and therefore also accounting theory, may be descriptive and/or normative.
Descriptive theory explains what was observed and why things are as they are.
Therefore, descriptive accounting theory describes existing (present) accounting
practice and procedures, and why they exist.
Normative theory prescribes how things ought to be. Normative accounting
theory, therefore, directs how accounting practice and procedures ought to
function; it attempts to prescribe what financial information should be collected,
measured and communicated.
Source: Faul, Van Vuuren, Redelinghuys & Everingham 1981:557, 560
It is important to note that the development of accounting theory has mainly been
initiated reactively by events in practice, that is, from practice to theory. For example,
Van der Schyf (1985:viii) states that accounting theory aids to extend and strengthen
accounting applications/practice.
According to Sterling (1967:99) this is a major problem in the development of
accounting theory. He motivated his viewpoint by advocating that accounting theory
ought to be developed proactively rather reactively, according to scientific guidelines,
and not merely in response to problems being experienced in the practice of
accounting. He argued:
“Perhaps it [the development of accounting theory] will go from theory to
practice instead of the previous direction. If so, it will be the most significant
development since Pacioli.”
2.2.4 Accounting theory
The following description is adequate for FAC4865:
[Accounting theory] is a coherent set of hypothetical, conceptual, and pragmatic*
principles forming a general frame of reference for inquiring into the nature of
accounting.”
Source: Hendriksen & Van Breda 1992:21
*
Pragmatic: Dealing with things sensibly and realistically in a way that is based on practical
rather than theoretical considerations. In Greek “pragma” means “deed” or “to do”.
Available from:
https://www.google.co.za/search?q=pragmatic+meaning&oq=pragfmatic&aqs=chrome.2.69i5
7j0l5.4806j1j8&sourceid=chrome&ie=UTF-8
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2.3 Basic transdisciplinary concepts and theories
Voluntary viewing: Why is transdisciplinary research, concepts and theories becoming
important? View the clip below, as prepared by the Michigan Technological University
(https://www.youtube.com/watch?v=x5xGi9EFCSY) (3:50 minutes)
In line with the above clip, should there, in the field of accounting theory and practice, be
a more deliberate acknowledgement and application of transdisciplinary thinking? If so,
how would this affect the theoretical development of accounting in the future?
Financial reporting theory and practice does not operate in an isolated zone.
Therefore, accounting should be viewed, fundamentally, from as broad a perspective
as possible – especially in the current, highly interconnected economic environment,
nationally and globally. At the very least, accounting should be viewed within the
context of the “system-oriented” sciences, for example, the social sciences.
Once you realise the interconnectedness of accounting
with other disciplines, the transdisciplinary dimensions
thereof are spontaneously noticed.
Consider, for example, that if accounting is viewed as a social science, a well-rounded
postgraduate corporate financial reporting student ought to know what a social
science is, and how accounting theory adheres to these traits. If accounting is viewed
as an information system, a well-rounded student ought to know what the main
elements of communication theory are, and how they relate to the main elements of
current day accounting theory.
The following descriptions are sufficient for studying FAC4865. No generally accepted
descriptions of these transdisciplinary concepts exist.
2.3.1 Transdisciplinary (TD)
Relating to more than one branch of knowledge; interdisciplinary.
Source: English Oxford Living Dictionaries
Available from: https://en.oxforddictionaries.com/definition/transdisciplinary
Comment
In the academia, the concepts “transdisciplinary” and “interdisciplinary” are differentiated. With
FAC4865, these two terms may be used interchangeably.
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2.3.2 Transdisciplinary research
On the value of transdisciplinary thinking and research:
Magaret Wheatley is exemplary when applying
transdisciplinary thinking and research. Among other things,
she developed groundbreaking viewpoints by investigating
how new discoveries in quantum physics, chaos theory and
biology challenge our ordinary ways of thinking in and about
organizations.
Voluntary: Read more about her transdisciplinary viewpoints
by means of an interview held with her by Scott London:
http://scott.london/interviews/wheatley.html
Transdisciplinary research refers to:
Efforts conducted by investigators from different disciplines working jointly to
create new conceptual, theoretical, methodological, and translational
innovations that integrate and move beyond discipline-specific approaches to
address a common problem.
Source: Harvard Transdisciplinary Research in Energetics and Cancer Center
Available from: https://www.hsph.harvard.edu/trec/about-us/definitions/
Voluntary enquiry: TD: The Journal for Transdisciplinary
Research in Southern Africa
The aim of the journal is stated as: “The journal is aimed,
primarily, at the humanities and social sciences. However, in
view of transdisciplinary initiatives there are numerous
attempts at working towards collaboration with the natural
sciences. Some of the material may be of relevance to natural
scientists, but only to those who are interested in seeking
collaboration within the context of transdisciplinary research
methodologies.”
To obtain information on current transdisciplinary research
topics, and to further your understanding of transdisciplinary
research, visit the website of this journal:
https://journals.co.za/content/journal/transd
2.3.3 Social theory
Accounting operates, among other things, in the broader field of the “social sciences”.
Yet, very little of accounting theory is based on the principles of a social science.
Social theory is a trained reflection on ways of knowing social life. Social theory
arises from everyday life, from an enormous variety of contexts, discussions and
other interactions between ordinary people.
Source: Austin Harrington Ed. 2007. Modern Social Theory: An Introduction. Oxford University Press
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2.3.3 Social theory (continued)
RESEARCH-AND-LEARNING ACTIVITY 1 (11 marks)
Required:
Read the article below (10 pages; 584 KB) and answer the two questions in your own
words pertaining to the article in as much motivational detail as possible.
Article: Accounting as a Social Science. 1963. RK Mautz
Source: The Accounting Review (link to: Find e-reserves and Recommended
books of the Unisa library for FAC4865)
Study your your authentic answers for the examination.
Background:
In his article, Mautz (1963:317) states his research question as: “Is Accounting a Social
Science?” and he seeks “... ways to provide better service, expend greater intellectual
effort, perform more fundamental research, hold ourselves to higher standards, and [to]
be even more humble in our achievements ...”.
Questions:
1. In your own words, discuss whether Mautz, assessed against the guidelines provided
by P Herring, concluded that (academic) accounting is a social science. Identify in
your discussion four reasons that Mautz provided to support his finding.
(5 marks)
2. Mautz (1963:318) stated that “It is one thing to be accepted into the family [of social
sciences]; it is quite another to claim a place at the table by right of accomplishment.”
In his recommendations, Mautz suggested a number of changes to be made to the
accounting profession to improve its chances of being considered a social science.
In your own words, identify four of these suggested changes and argue in respect of
each change whether it is currently (around 2019 to 2022) still valid for accounting.
(Present your arguments in as much motivational detail as possible.)
(6 marks)
Comment
The answers to the questions in the research-and-learning activities in this learning unit
are not provided by the lecturer. The reason for this is that they are based on prescribed study
materials that are included in the scope of the study materials that must be studied for examination
purposes. The questions can, therefore, be asked in an examination question paper, but with you
having had the opportunity to address them beforehand. The research-and-learning activities
further grant you the opportunity to focus on important sections of the prescribed study materials
as given in the research-and-learning activities before the examination.
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2.3.4 Communication theory
Accounting operates, among other things, in the field of communication. Yet, very little of
accounting theory is currently specifically based on the requirements of communication
theory.
Communication theory is a theory that deals with the technology of the
transmission of information (as through the written word or a computer) between
people, people and machines, or machines and machines.
Source: Merriam-Webster online dictionary
Available from: https://www.merriam-webster.com/dictionary/communication%20theory
RESEARCH-AND-LEARNING ACTIVITY 2 (8 marks)
Required:
Read the article below (11 pages; 772 KB) and answer the question pertaining to the
article in your own words in as much motivational detail as possible.
Article: A Communication Theory Approach to Accountancy. 1962. NM Bedford and V
Baladouni
Source: The Accounting Review (link to: Find e-reserves and Recommended books
of the Unisa library for FAC4865)
Study your authentic answers for the examination.
Question:
Bedford and Baladouni argue in the introduction to their paper that communication theory
holds a number of opportunities/advantages for the advancement of accountancy. In your
own words, discuss these opportunities/advantages and state whether you agree.
(Present your argument(s) in as much motivational detail as possible.)
(8 marks)
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2.3.5 Systems theory – overview
2.3.5.1 System
A system is an organised, purposeful structure that consists of interrelated and
interdependent elements (for example, components, entities, factors, members, parts
etc.). These elements continually influence one another (directly or indirectly) to maintain
their activity and the existence of the system, in order to achieve the goal of the system.
All systems have (a) inputs, outputs and feedback mechanisms, (b) maintain an internal
steady-state (called homeostasis) despite a changing external environment, (c) display
emergent properties*, and (d) have boundaries that are usually defined by the system
observers.
Systems [are usually] part of a larger system. Systems stop functioning effectively when
an element [thereof] is removed or changed significantly.
Although different types of systems (from: a cell to a human body; soap bubbles to
galaxies, and from ant colonies to nations) look very different on the surface, they have
remarkable similarities. At the most basic level, systems are divided into two categories:
(1) Closed systems: That is systems that do not interact with the environment and are not
influenced by their surroundings. Only the components within the system are significant.
Example: a sealed jar - nothing enters or exits the jar, but whatever is inside can interact;
(2) Open systems: That is real-world systems whose boundaries allow for the exchanges
of energy, material and information with the larger external environment in which they
function.
Source: Business Dictionary
Available from: http://www.businessdictionary.com/definition/system.html
*
Emergent properties: Properties of a system as a whole rather than the properties of the
individual components of the system.
Voluntary viewing: A slideshow on emergent properties prepared
by Ian Sommerville at:
https://www.slideshare.net/sommerville-videos/emergent-properties
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2.3.5.2 Systems theory
Systems theory is a transdisciplinary study of the organisation of phenomena,
independent of their type ... of existence. It investigates both the principles
common to all complex entities, and the (usually mathematical) models that can
be used to describe them.
Source: Principia Cybernetica Web
Available from: http://pespmc1.vub.ac.be/SYSTHEOR.html
2.3.5.3 Accounting as an information system
If accounting is viewed as an open system, it means that accounting theories and
practices are in relationship with environments that influence the dynamics and standing
of accounting. Similarly, accounting theories and practices influence the dynamics and
standing of their environments.
Accounting theory, viewed as an open system, thus cannot be developed in isolation from
other related disciplines, and financial accounting practice cannot continue to report on
issues that are unrelated to the current economic environment according to outdated
reporting methodologies. In the field of accounting theory, it has become important to
acknowledge systemic issues such as interdependence, connection, uncertainty,
flexibility and relativity.
Communication is an integral part of systems, and therefore the study of information and
communication is directly related to systems theory (Bailey 1970:25-26). The theoretical
umbrella under which information studies function is sometimes called "communication
theory", which is addressed in paragraph 2.3.4 of this learning unit.
In a mathematical sense, information theory is a rather narrow field of study, useful
primarily in the technical aspects of information transmission. A limitation of information
theory is that it does not consider factors such as the meaning, reasonableness, and the
personal importance of a message, while communication theory does.
An accounting information system [AIS] combines the theory and practice of
accounting with the design, implementation, and monitoring of an information
system. An AIS involves applying modern information technology to adhere to
required accounting methods. An AIS is often a component of an entity's
management information system. An AIS aims to provide the necessary financial
information by which to manage an organisation.
Source: Encyclopedia of Business and Finance, 2nd ed. 2007. Thomson Gale
Available from: http://www.encyclopedia.com/finance/finance-and-accounting-magazines/accountinginformation-systems
13
2.3.5.4 General systems theory (GST)
RESEARCH-AND-LEARNING ACTIVITY 3 (74 marks)
Required:
Refer to the digital format of the dissertation below (do not print the dissertation; it
comprises 197 pages; 9.32 MB) and in your own words answer the eleven questions
pertaining to the dissertation in as much motivational detail as possible.
Dissertation:
An Application of General Systems Theory to the Determination of the Nature of
Accounting. 1970. ER Bailey
Source: (link to: Find e-reserves and Recommended books of the Unisa library for
FAC4865)
Comment
This dissertation is an excellent example of the application of the general systems theory in the
theoretical field of accounting, as early as 1970. Yet, almost 50 years later, the application of the
general systems theory, although very relevant to the traits and dynamics of current economies
and business entities, remains neglected.
The thinking of the researchers mentioned in the dissertation was either way ahead of time, or
these priceless perspectives somehow got “lost” along the way.
Various solutions to current day corporate reporting problems can be identified by consulting this
dissertation.
Study your authentic answers for the examination.
Questions:
1. According to Ludwig von Bertalanffy and Beer, in your own words, describe a system.
(Refer to page number: 17.)
(4 marks)
2. In your own words, describe the concept “general systems theory” (GST). (Refer to page
numbers: 12, 22, 29 and 30.)
(5 marks)
3. Identify the person and his/her profession, who developed and publicised the idea of a
general systems theory. (Refer to page numbers: 12 and 13.)
(2 marks)
Research-and-Learning Activity 3 to be continued on the next page.
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FAC4865/Learning Unit 2/CONCEPTS/2022
Research-and-Learning Activity 3 continued.
4.
Name an economist who published a classical work on the general systems theory,
and in your own words discuss two viewpoints that this economist held in this regard.
(Refer to page numbers: 4, 10, 11 and 37.)
(3 marks)
5.
When Bailey prepared his dissertation, beyond the basic writings in respect of the
general systems theory (for example, by Ludwig von Bertalanffy and Boulding), the
principles of systems were described in respect of various fields, and applied as such.
Name three of these fields. (Refer to page numbers: 4 and 5.)
(3 marks)
6.
In your own words, discuss the aim(s) of the general systems theory. (Refer to page
numbers: 2 and 30.)
(5 marks)
7.
Argue whether the general systems theory is an interdisciplinary approach by which
fields of study can be assessed and/or developed. Motivate your answer by giving
two reasons. (Refer to page numbers: 8, 11 and 156.)
(3 marks)
8.
Ludwig von Bertalanffy divided the systems sciences into two categories. Name, and
in your own words, describe these categories, as well as the fields of practice to
which each category relates. (Refer to page number: 16.)
(6 marks)
9.
In your own words, discuss whether the general systems theory deals with open
systems, closed systems, or both. Motivate your answer and include in your answer
a description of open and closed systems in your own words. (Refer to page
numbers: 16, 19, 20 and the first paragraph on page 21.)
(10 marks)
10. Background: One of the traits of open systems, such as business entities, is the
presence of a hierarchical order in the design of these systems. In short, it is stated
that this type of order means that every open system is a component or subsystem of
a supra-system, except for the largest known system ‒ namely the universe. With
reference to a collection of systems from a very broad perspective, Kenneth Boulding
(in Bailey 1970:37) referred to a “system of systems”, and suggested thereby a
hierarchy of systems, graded according to the complexity of the systems in terms of
design and dynamics.
In your own words, discuss Boulding’s “hierarchy of systems”. Name, describe and
give an example of each level of system in this hierarchy. (Refer to page numbers: 37
to 42.)
(25 marks)
11. Identify two levels of systems in the hierarchy of systems as was given by Boulding
which applies to accounting theory and/or practice. Motivate your answer in line with
the descriptions of the two levels of systems that you have identified. (Critical
reasoning question.)
(8 marks)
15
2.4 On the shoulders of Raymond John Chambers (1917 –
1999): A synopsis
The following synopsis was sourced from: Raymond J. Chambers’ Contribution to the
Development of Accounting Thought. 2001. By Abdulmalik A. Al-Hogail Case Western
Reserve University & Gary J. Previts Case Western Reserve University.
Available from:
www.accountingin.com/accounting-historians-journal/volume-28-number-2/raymond-j-chamberscontribution-to-the-development-of-accounting-thought/
You do not have to study the synopsis presented below
for examination purposes, but the information could be
used as given information in the examination for a critical
thinking/ (reasoning) question.
Raymond John Chambers was born in Newcastle, New South Wales, Australia.
Chambers had early interests in the study of the English language and literature,
mathematics and physics. His further interests were in the fields of sociology,
psychology, and the history and philosophy of science.
He was known for his endless efforts to help and support his colleagues and students,
and to encourage young academics and writers to produce high quality research.
Chambers’ completed his undergraduate studies in economics in 1939. Thereafter he
qualified for membership in the Commonwealth Institute of Accountants and the
Australian Institute of Cost Accountants.
Chambers started his work experience as a junior clerk in the New South Wales’ Attorney
General’s Office, and later as a stock clerk with Shell Oil Company as a materials
controls supervisor, and a statistical officer at the Electricity Meter and Allied Industries
Company. He worked with the Australian Prices Commission from 1943 to 1945. He also
provided consultation to various companies and to governmental and professional
bodies.
The first academic assignment of Chambers came in 1945, when he was appointed as
a teacher in the School of Management of Sydney Technical College. In 1953, he
became the first full-time appointed senior accounting lecturer in the Faculty of
Economics at the University of Sydney. He was later appointed as the University’s
Foundation Professor of Accounting when the Department of Accounting was
established as a unit separate from the Department of Economics. During his extensive
academic career, Chambers accepted various fellowships and invitations to teach and
present lectures and seminars in numerous prestigious universities throughout the world,
including the United States of America, the United Kingdom, New Zealand, Europe,
Canada, Southeast Asia and South Africa. Chambers retired in 1982. He continued his
academic work as an Emeritus Professor at the University of Sydney and as an Adjunct
Professor at Deakin University for over a decade.
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FAC4865/Learning Unit 2/CONCEPTS/2022
In 1965 Chambers launched a scholarly publication, the Abacus, to fill the gap that
resulted from the discontinuance of the publication, Accounting Research in the U.K., in
1958. His main goal was to promote high quality research in accounting from a variety
of perspectives. His commitment to Abacus and to accounting research resulted in the
worldwide recognition of this journal of publication.
Despite devoting himself to academic work, Chambers identified with the practicing
accounting profession, and sought to foster relationships between academics and
practicing accountants. He accepted numerous invitations to address professional
associations and served in professional and governmental committees as well as in
advisory and editorial boards.
During his career, Chambers received many honours and awards. In 1967, he was
awarded the American Institute of CPA’s Gold Medal for his contributions to accounting
literature. He was also the first overseas invitee to be the American Accounting
Association’s Distinguished International Lecturer. In 1991, Chambers was awarded the
American Accounting Association’s prestigious Outstanding Accounting Educator
Award, and he was also the first inductee into the Accounting Hall of Fame from AustralAsia. He also earned three citations from the Australian Society of CPAs and was elected
as a Fellow of the Academy of the Social Sciences in Australia. Chambers was made a
life member of many accounting organisations and was granted several honorary
doctorates by various universities. He was named an Officer of the Order of Australia for
his services and contributions to research and education.
Chambers’ valuable contributions to accounting literature took the form of several books,
numerous monographs, and more than 200 articles, conference papers and submissions
to governmental and professional bodies. His works were also published in Spanish,
Italian and Japanese. His first publication was a book titled Financial Management
[1947], which was the outcome of the first two years of his teaching experience. His last
published paper, “The Poverty of Accounting Discourse”, appeared in Abacus in October
1999 – the year in which Chambers died.
Chambers has been described as “inspirational and visionary” [Wolnizer:1999 in AlHogail & Previts:2001]; a “philosopher” and “reformer” [Barton:1982 in Al-Hogail &
Previts:2001]; “one of the most influential theorists of his time”, “a man for all seasons”
[Lee:1987 in Al-Hogail & Previts:2001]; an “intellectual giant” [Mathews:1982 in Al-Hogail
& Previts:2001]; and a “determined seeker of truth and fairness” [Gaffikin:1994 in in AlHogail & Previts:2001].
Voluntary reading of article: The golden age of Raymond John
Chambers, professional accountant and university educator 1917 to
1999: a memorial by TA Lee. 2000:
https://www.tandfonline.com/doi/abs/10.1080/00014788.2000.9729599
17
RESEARCH-AND-LEARNING ACTIVITY 4 (27 marks)
Required:
Refer to the article below (12 pages; 2.72 MB) and in your own words answer the two
questions pertaining to the article in as much motivational detail as possible.
Article: The Poverty of Accounting Discourse. 1999 (reprinted in 2005). RJ Chambers
Source: Accounting Education: An international journal, Vol. 14, No. 1, 5-15, March 2005
(link to: Find e-reserves and Recommended books of the Unisa library for FAC4865)
Study your authentic answers for the examination.
Background: In his paper, The Poverty of Accounting Discourse, Chambers reviewed
the processes and products of accounting against what he referred to as the “seven
pillars of wisdom”: 1) mathematics (arithmetical propriety), 2) sound economics
(wealth, income and all that), 3) law and order, 4) judgement and choice (adaptive
behaviour), 5) language and communication (language and understanding), 6)
metrology, (sound measures and measurements), and 7) politics and ethics
(responsibility and accountability).
Questions:
1. In your own words, briefly discuss the viewpoints of Chambers on how the
processes and products of accounting met the requirements of each of the above
“seven pillars of wisdom”.
(15 marks)
2. Identify and in your own words discuss four accounting problems that Chambers
raised in the closing paragraph of his article (Prospects) that are still relevant
today. Motivate your answer with examples from current accounting theory and/or
practice.
(12 marks)
18
FAC4865/Learning Unit 2/CONCEPTS/2022
2.5 Study materials on Learning Unit 2 for examination
purposes
Study the following for the examination:
1. This entire learning unit (except where indicated otherwise).
2. Your answers to all the research-and-learning activities in this
learning unit.
3. The solutions to Assignments 01 and 02, where applicable to this
learning unit. (TLs 201/0/2022 and 202/0/2022 will be uploaded under the:
Solutions to Assessments (Assignments) tab on the FAC4865 website).
Comments
Any resource that you had to use to do the research-and-learning activities in this learning unit
and/or a related assignment, must not be studied in its entirety. Study only the section/(s) of
the resource as required by the research-and-learning activity/(ies) and/or the assignment/(s).
Since the examination is limited to a three-hour question paper, not ALL the prescribed study
materials can be assessed during the examination.
19
2.6
Checklists: Learning unit activities and outcomes
YES
NO
UNCER
-TAIN
√
X
?
YES
NO
UNCER
-TAIN
√
X
?
YES
NO
UNCER
-TAIN
√
X
?
Learning unit activities
1
Did you prepare all the research-and-learning activities?
2
Did you read the study material meticulously, and do you understand it?
3
Did you prepare the relevant sections of Assignments 01 and 02?
4
Can you explain what transdisciplinary research entails?
5
Can you discuss the advantages of transdisciplinary research?
6
Can you describe systems theory?
7
Can you discuss the advantages of applying systems theory in
accounting research and the development of accounting theory?
8
Did you master the application of critical reasoning skills?
9
Did you study the prescribed study material for examination purposes?
Learning unit outcomes
Are you able to do the following?
1
Name and in your own words describe the basic conventional accounting
concepts as addressed in this learning unit.
2
Name and in your own words describe the basic transdisciplinary
concepts and theories as addressed in this learning unit.
3
Debate whether accounting can be viewed as a social science by, among
other things, in your own words, referring to the published work of
researchers in this regard to support your viewpoints.
4
Suggest changes to be made to accounting theory and practice to
improve its stature as a social science by, among other things, in your
own words, referring to the published work of researchers in this regard
to support your viewpoints.
5
In your own words, discuss the opportunities that communication theory
holds for the advancement of accountancy and support your arguments
by referring to the published work of researchers in this regard.
6
Design a model of accountancy based on communication theory,
supported by the published work of researchers in this regard.
7
Debate, in depth, whether the application of the general systems theory
is relevant to the development of accounting theory.
8
Analyse the processes and products of accounting against the “seven
[foundational] pillars of [scientific] wisdom”, and to conclude whether and
to what extent these processes and products are in agreement with the
pillars.
9
In your own words, analyse, compare and critique case studies/practical
scenarios within the scope of this learning unit, and to suggest properly
motivated solutions if so required.
General for FAC4865
Are you able to do the following?
10
Read research articles methodically.
11
Select relevant information from published work for your own research
projects.
12
Incorporate the viewpoints of other authors with your own, without
committing plagiarism.
20
FAC4865/Learning Unit 2/CONCEPTS/2022
References
IMAGES
The above image and derivatives thereof are used throughout this document. It is sourced as follows:
Anastasia Mazeina/Shutterstock.com, under the enhanced licence obtained by Unisa from
Shutterstock.com.
The above image and derivatives thereof are used throughout this document. It is sourced as follows:
Viktoriia Panchenko/Shutterstock.com, under the enhanced licence obtained by Unisa from
Shutterstock.com.
THEORETICAL
Al-Hogail, AA & Previts GJ. 2001. Raymond J. Chambers’ Contribution to the Development of
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Available from:
http://www.accountingin.com/accounting-historians-journal/volume-28-number-2/raymond-j-chamberscontribution-to-the-development-of-accounting-thought/
Bailey ER. 1970. An application of general systems theory to the determination of the nature of
accounting. Louisiana State University and Agricultural & Mechanical College.
Barthel, L. 2014. Prevalence of Accounting Theory in Top-Ranked Undergraduate Accounting
Programs. Journal of Accounting and Finance. Vol. 14(4): 135-140.
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English Oxford Living Dictionaries. Downloaded on 12 December 2017.
Available from: https://en.oxforddictionaries.com/definition/transdisciplinary
21
References (continued)
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Foundation for Critical Thinking. Defining Critical Thinking.
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GMAT Critical Reasoning. GMAT Critical Reasoning: Practice Tests and Information
Available from: www.majortests.com/gmat/critical_reasoning.php
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Hawking, S. 1988. A brief history of time: from the big bang to black holes. New York: Bantam.
Hendriksen, ES & Van Breda, MF. 1992. Accounting theory. 5th edition. Homewood, Ill: Irwin.
IFRS Foundation. 2018. Conceptual Framework for Financial Reporting.
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Mautz, RK. 1963. Accounting as a Social Science. The Accounting Review, Apr:317-325. Downloaded
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encore.unisa.ac.za.
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on
on
12 December 2017.
12 December 2017.
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Quora. What are the most beautiful concepts you know, in any field? Downloaded on
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Schroeder, RG & Clark, MW. 1998. Accounting theory: text and readings. 6th edition. New York: John
Wiley & Sons.
Sciencing. Richards-Gustafson, F. 2017. Downloaded on 5 February 2019. Available from:
https://sciencing.com/key-concepts-basic-science-15676.html
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© UNISA 2022
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