Financial Accounting Theory
Craig Deegan
Chapter 12
Critical perspectives of accounting
Slides written by Craig Deegan and Michaela
Rankin
Copyright  2006 McGraw-Hill Australia Pty Ltd
PPTs t/a Financial Accounting Theory 2e by Deegan
12-1
Learning objectives
• In this chapter you will be introduced to
– particular perspectives that challenge conventional
opinions about the role of accounting within society
– the basic arguments that suggest that financial
accounting tends to support the positions of individuals
who hold wealth and social status, while undermining the
positions of others
– the fact that disclosure (or non-disclosure) of information
can be construed to be an important strategy to promote
and legitimise particular social orders
Copyright  2006 McGraw-Hill Australia Pty Ltd
PPTs t/a Financial Accounting Theory 2e by Deegan
12-2
Critical perspective defined
• Refers to accounting research that goes beyond
questioning whether particular methods of
accounting should be employed
• Focuses on the role of accounting in sustaining the
privileged positions of those in control of resources
(capital) while undermining or restraining the voice
of those without capital
Copyright  2006 McGraw-Hill Australia Pty Ltd
PPTs t/a Financial Accounting Theory 2e by Deegan
12-3
Critical perspective defined (cont.)
• Critical accounting theorists seek to highlight,
through critical analysis, the key role of accounting
in society
• Challenges the view that accounting can be
construed as objective or neutral
• Accounting seen as a means of constructing or
legitimising particular social structures for the
benefits of those that currently have wealth
Copyright  2006 McGraw-Hill Australia Pty Ltd
PPTs t/a Financial Accounting Theory 2e by Deegan
12-4
Philosophical basis of critical accounting
research
• Much of the critical research is informed by the
works of Karl Marx
• However, some critical research adopts a ‘deep
ecologist’ philosophy
– questions the trade-off between economic performance
and ecological damage
• Other critical accounting research adopts a radical
feminist perspective
– believe that accounting maintains and reinforces
masculine traits such as ongoing quests for success,
conflict and so forth without any consideration to
cooperation, respect, loyalty, caring and so forth
Copyright  2006 McGraw-Hill Australia Pty Ltd
PPTs t/a Financial Accounting Theory 2e by Deegan
12-5
Criticism of capitalist system
• Critical theorists tend to oppose aspects of the
capitalist system and accounting
• Emphasise that systems of accounting are built
around the prevailing social order—and support
the social order
• Given the practice of accounting is in the hands of
large corporations and accounting regulation in the
hands of government, accounting information will
never do anything but support the current system
Copyright  2006 McGraw-Hill Australia Pty Ltd
PPTs t/a Financial Accounting Theory 2e by Deegan
12-6
Origins of critical perspective
• Grounded in Political Economy Theory
• ‘Political economy’ is the social, political and
economic framework within which human life takes
place (Gray, Owen & Adams 1996)
• Based on ‘Classical’ branch—challenges the
existing nature and structure of society
Copyright  2006 McGraw-Hill Australia Pty Ltd
PPTs t/a Financial Accounting Theory 2e by Deegan
12-7
Classical political economy perspective
• As already indicated, much critical accounting
research is related to the works of philosophers
such as Marx
• Explicitly considers structural conflict, inequity and
the role of the State at the heart of the analysis
• Highlights issues which may not otherwise be
addressed
– social welfare
Copyright  2006 McGraw-Hill Australia Pty Ltd
PPTs t/a Financial Accounting Theory 2e by Deegan
12-8
Disclosure of social responsibility
information
• Critical theorists argue that disclosure of social
responsibility information is wasted unless
accompanied by fundamental changes in how
society strucutred
• Acts to legitimise, not challenge, those providing
the information
• Need social reform, and not more ‘accounting’
Copyright  2006 McGraw-Hill Australia Pty Ltd
PPTs t/a Financial Accounting Theory 2e by Deegan
12-9
Views on social and environmental
accounting
• As accounting deemed to sustain particular social
structures, introduction of new forms of accounting
only help to sustain that social system
• Considered wasted effort to use accounting to
solve problems
• One is using the very process that caused the
problem to try to solve the problem
Copyright  2006 McGraw-Hill Australia Pty Ltd
PPTs t/a Financial Accounting Theory 2e by Deegan
12-10
Criticism of critical perspective
• Critical theorists often marginalised to a greater
extent than others
• Often do not provide solutions to perceived
problems
– inconsistent with normal training of accountants to
provide solutions if problems are evident
• Critical of accountants
Copyright  2006 McGraw-Hill Australia Pty Ltd
PPTs t/a Financial Accounting Theory 2e by Deegan
12-11
Role of the State
• The State is seen as a vehicle of support for
holders of capital and for the capitalist system as a
whole
• Government will take action to enhance the
legitimacy of the (unjust) social system
• Social disclosures seen as a means of pacifying
challenges against the capitalist system where
corporations given many rights and powers
Copyright  2006 McGraw-Hill Australia Pty Ltd
PPTs t/a Financial Accounting Theory 2e by Deegan
12-12
Role of the State (cont.)
• Restricting the flow of information, or availability of
specific types of information, seen as a means of
maintaining particular organisations and social
structures
• Government does not operate in the public
interest, but in the interests of ‘well off’ groups
• Corporations typically lobby against regulation that
could increase their accountability to society
Copyright  2006 McGraw-Hill Australia Pty Ltd
PPTs t/a Financial Accounting Theory 2e by Deegan
12-13
Role of accounting research
• ‘Mainstream’ accounting researchers are seen as
providing research results and perspectives that
help to legitimise and maintain certain political
ideologies
– e.g. anti-regulation stance and EMH during the late 1970s
and 1980s matched the views of government at the time
– rise of PAT consistent with political views at the time
Copyright  2006 McGraw-Hill Australia Pty Ltd
PPTs t/a Financial Accounting Theory 2e by Deegan
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Role of accounting research (cont.)
– rise of ‘economic consequences’ research seems to have
been motivated by desire of large corporations to counter
attempts to change reporting systems and levels of
disclosure
– results supported corporations’ call for reduction in
regulation
– research efforts into inflation accounting were seen as
being motivated by a desire to alleviate shifts in real
wealth from owners to higher wages, not by rate of
inflation
Copyright  2006 McGraw-Hill Australia Pty Ltd
PPTs t/a Financial Accounting Theory 2e by Deegan
12-15
Role of accounting practice
• Critical theorists see conceptual frameworks as
legitimising the accounting profession and of
financial reports produced by reporting entities
• Accountants seen as imposing their own views
about which performance characteristics are
important or not important
Copyright  2006 McGraw-Hill Australia Pty Ltd
PPTs t/a Financial Accounting Theory 2e by Deegan
12-16
Role of accounting practice (cont.)
• Attention is directed to particular measures (e.g.
profits) through accounting
• In communicating reality, accountants
simultaneously construct reality
• Political economy perspective emphasises the role
of accounting reports in maintaining social
arrangements
• See corporate social reporting as harmful as it
gives the impression of concern and change
without any real change occurring
Copyright  2006 McGraw-Hill Australia Pty Ltd
PPTs t/a Financial Accounting Theory 2e by Deegan
12-17