Critical Perspectives on Accounting (1990) 1,239-261
ONTOLOGY A N D ACCOUNTING: THE CONCEPT
OF PROFIT
K A R l LUKKA
Turku School o f Economics and Business A d m i n i s t r a t i o n , Finland
Whenever accounting is discussed it involves dealing with concepts like
revenue, cost, depreciation and profit. The question raised in this paper is
in what sense do those phenomena that accounting concepts refer to
actually exist. Therefore, the underlying assumptions about the existence of
reality that are reflected in accounting concepts are discussed. The analysis
concentrates on the ontological nature of the concept of profit in
accounting.
Traditionally, and even today, the general idea of objectivity dominates
the thinking in both accounting theory and practice: accounting concepts
are usually interpreted as reflecting the reality that exists somewhere "out
there." From the ontological point of view, this corresponds to realism in
philosophy. However, it seems that this interpretation is insufficient if we
wish to gain a more thorough understanding of the significance and the
roles of accounting in organizations and society.
It is argued that in order to deepen this understanding it will be necessary
to reduce the dominant role of realistic ontology in favour of idealistic
ontology. In line with this it is suggested that the social constructivist v',ew
might offer a common and fruitful basis for the interpretation of the basic
nature of accounting concepts. A detailed ontological analysis of the
concept of profit is presented to support this basic argument.
Introduction
In general, any discussion of accounting tends to deal w i t h concepts like
revenue, cost, depreciation and profit. Despite m a n y significant d e v e l o p m e n t s
in accounting t h i n k i n g d u r i n g the last few decades, some of the most
i m p o r t a n t problems relating to accouting concepts do not appear to have
been solved. It may be argued that certain m i s c o n c e p t i o n s impede all the
three d i m e n s i o n s of accounting, that is practice, teaching and research, as far
as the basic nature of accounting concepts is concerned. These p r o b l e m s
often arise from the fact that accounting concepts, or actually the p h e n o m e n a
they refer to, are interpreted too objectively and mechanistically. A c c o u n t i n g
concepts are usually interpreted as reflecting the reality existing s o m e w h e r e
" o u t t h e r e ; " accounting is t h u s rather closely linked w i t h realistic o n t o l o g y . 3
This v i e w has m a n y dysfunctional consequences w i t h regard to the different
d i m e n s i o n s of accounting, including the f o l l o w i n g :
(1) The value of the measures and theories based on accounting concepts is
usually judged on the scale t r u e - - u n t r u e , t h o u g h j u d g e m e n t s o p e n l y based
on the usefulness d i m e n s i o n w o u l d perhaps be more fruitful. 2
Address for correspondence: K. Lukka, Turku School of Economics and Business Administration,
Rehtorinpellonkatu 3, SF-20500 Turku, Finland.
Received 12 September 1989; revised 22 October 1989, 3 March 1990; accepted 3 April 1990.
2,39
1045-2354/90/030239 + 23 $03.00/0
~ 1990 Academic Press Limited
240
K. Lukka
(2) The roles of accounting in organizations and society are often understood too objectively, as if accounting would give us an impartial and
unbiased picture of the functioning, resources and results of firms and other
organizations. 3
(3) The mechanistic and objective ontology has not been apt to promote the
adoption of a wider, i.e. behaviourally, organizationally and socially more
sensitive, perspective of the roles of accounting. For example, it has led to the
fact that the links between accounting and the power and interest structures in
organizations and society have not been recognized in accounting research
until quite recently. 4
The question raised in this paper is in what sense do those phenomena
that accounting concepts refer to actually exist. Accordingly the underlying
assumptions about the existence of reality that are reflected in accounting
concepts are discussed. This calls for an ontological analysis, the purpose of
which is to clarify the basic nature of accounting concepts by pointing out
how inappropriate ontological assumptions have led to obscurity and ambiguity. This analysis is essentially philosophical by nature, though it has
practical consequences as well. The discussion focuses on the ontological
nature of the concept of profit, perhaps the most central concept in
accounting.
The paper is divided into three major sections. The exposition begins with
an outline of the ontological discussion in philosophy. In this section the
alternative ontological views used in further analysis are put forward. In the
second section the ontological assumptions that underlie accounting thinking
in general are analysed. Here a review of one of Chua's recent articles (1986a)
plays a major role. Further, the key issue of this paper, the notion of a socially
constructed reality, is presented and briefly discussed in this context. The
third major section attempts to illustrate the main arguments of this paper by
focusing the analysis on the concept of profit in accounting. The final section
pulls the arguments together and provides some concluding remarks.
The Notion of Ontology in Philosophy
Philosophers have always been interested in knowing what constitutes the
world, i.e. what entities and beings exist, and what the essential nature of
their existence is. That branch of philosophy that deals with the nature of
existence is called ontology. ~ In fact, everything that is said in philosophy is
tied up with this question. The history of philosophy reflects this point very
clearly: almost all of the greatest thinkers have based their ideas, at least to
some extent, on an individual ontological perspective (Russell, 1984; Saarinen, 1985). Plato's theory of ideas as well as the starting point of Descartes'
philosophy, the argument that "1 think, therefore I am," may be mentioned as
examples. 6
It is characteristic of ontology, perhaps even more so than of philosophy in
general, that due to its metaphysical nature the problems it deals with are
principally unsolvable, "eternal" questions. Ontological ideas tend always to
Ontology and accounting
2.41
remain at the level of pure linguistic argumentation: there is no empirical
evidence that could either verify or definitely falsify them (see Sintonen,
1986). Though this is the case it does not, however, imply that the ontological
discussion would be irrelevant. On the contrary, there is always a need for an
analysis that will uncover our more or less silent basic assumptions and their
implications. 7
The alternative traditional ontological assumptions in philosophy are realism, nominalism and conceptuatism, tn addition to these, idealism and
materialism should also be mentioned (Niiniluoto, 1980; Russell, 1984;
Saarinen, 1985). The difference between realism, nominalism and conceptualism is linked to divergent views of the existence of universals and their basic
nature. As the most important issue with regard to this paper is, however,
whether an objective reality may be assumed to exist or not, we shall
concentrate here on the relation between realism and idealism, though some
features o f materialism are discussed, too. The most essential features of
these ontologies are outlined in the following.
The ontological contents of realism may be divided into t w o interrelated
parts: metaphysical and conceptual realism. According to the former, which is
of the most interest here, the entities exist independently of our consciousness, i.e. the world is objectively what it is. Metaphysical realism includes
various, and in many senses controversial, forms. According to Platonic
realism we cannot ever perceive the real entities which exit objectively in the
eternal world of ideas only. In Plato's view, our perceptions can at best only
vaguely reflect real things, i.e. pure ideas (Russell, 1984; Saarinen, 1985). On
the other hand, the logical positivists, though they also believe in the
objectively existing world, rely purely on perceptions. Here a solution to
ontological problems is provided by the so-called verification thesis: science
should only examine the validity of statements that can be either supported or
contradicted by empirical evidence. According to logical positivism, only
these kind of statements c a n make sense (cf. Sintonen, 1986). The so-called
scientific realists seem to hold an in-between position: according to their view
both perceived things and theoretical ideas may exist and thus be parts of the
objectively existing world (Harr6, 1970; Bhaskar, 1978; Outhwaite, 1983; M~iki,
1986).
Conceptual realism claims that an essential feature of the world is the
existence of so-called universals, i.e. general concepts. According to this view,
the term "yellow," for example, in fact names an abstract entity, yellowness,
that exists independently of the thoughts of individuals. Conceptual realism
distinguishes various degrees. According to a strictly Platonic view only the
universals exist. On the other hand, according to the moderate Aristotelian
view the universals exist, but only through individual concepts, through
particulars (Niiniluoto, 1980; Russell, 1984; Saarinen, 1985). 8
Thus, according to any form of (metaphysical) realism the world is
considered to exist objectively. Entities do not depend, for their existence, on
the fact that some mind is aware of them. For example, what is left for the
researcher is therefore only to discover and examine the world that has
already been created. Our consciousness has nothing to do with existence
itself. 9
242
K. Lukka
Idealism, as opposed by (metaphysical) realism, regards existence as
basically spiritual by nature, or at least essentially dependent on human
consciousness (Niiniluoto, 1980; Russell, 1984; Saarinen, 1985). 1° For a
researcher idealism offers views that differ radically from those of realism.
Here the researcher examines a constantly changing world that is dependent
on individuals who act within and are involved with the research object. In
addition, researchers have to bear in mind that they themselves are also
active subjects whose reality is created by their own consciousness to a
greater or lesser degree.
Dialectic laws of development that explain the relations between things are
essential features of the "objective idealism" of Hegel, whose philosophy is
based on Kant's work. For Hegel the world was a reflection of the "Absolute
Spirit." Marx and Engels interpreted Hegel's dialectics in a new way, which
resulted in dialectic materialism, a way of thought that is, however, in sharp
contrast with idealistic ontology: according to materialism the world is
basically composed of matter, and it is thus essentially material, not spiritual.
The material being of individuals determines their consciousness, and not the
other way round. For example, from the viewpoint of the philosophy of
history this implies that all human thinking, culture and development is
determined by hard economic and social realities (e.g. Niiniluoto, 1980;
Russell, 1984; Saarinen, 1985).
An outline of a philosophical discussion of ontology was presented very
briefly above. As far as this paper is concerned, the most important
alternatives emerging from this discussion are the following two distinct
views:
(1) The world exists objectively independently of individual perception.
Reality and the entities it consists of can thus be discovered, but they cannot
be created. This is the view represented by realism.
(2) The world is basically spiritual or at least dependent on the consciousness of separate individuals. The world is thus essentially subjective by
nature, created by perceiving and acting individuals themselves. This is the
basic view represented by idealism.
Both extreme views include significant variations. Of these may be mentioned, e.g. Kant's critical idealism described above, which in fact seems to be
to some extent reconcilable with Plato's realistic ontology. 11 Ontological
assumptions that are linked to idealism, albeit loosely, are also included in
Sartre's existentialism, but especially in Husserl's phenomenology, two ways
of thought that are linked together by their emphasis on the concept of
intentionality. TM It is especially characteristic of the latter to b r i n g the
ontological problems to the focus of discussion, as one of the most basic
questions raised in existentialism is: "What is the nature of the existence of
consciousness?" (Saarinen, 1986, p.124). 13
Ontology in Accounting: An Outline
While there are some indications of an increasing interest in ontological
analysis in the field of accounting (e.g. Davis et al., 1982; Tinker et al., 1982;
Ontology and accounting
243
Tomkins & Groves, 1983; Hopper & Powell, 1985; Chua, 1986a, b), to date very
little attention has been given to the objects of accounting measurements. The
focus has been on h o w accounting measurements should be made in specific
situations (e.g. Sterling, 1970; Vehmanen, 1982) even though measurement
theorists have recognized the importance of the fundamental objects of our
measurements (e.g. Ijiri & Jaedicke, 1966; Vehmanen, 1979, 1982). This
omission is addressed here by explicitly raising the questions of (1) what kind
of objects (or, in terms of philosophy, entities) accounting actually attempts to
measure and (2) in what philosophical sense do these objects exist?
Above all an ontological emphasis seems to be characteristic of the
so-called critical accounting research, which at present has a rather significant
standing in the UK (see e.g. Burchell et al., 1980; Cooper, 1980, 1984;
Hopwood, 1983, 1987; Cooper & Sherer, 1984; Cooper & Hopper, 1987;
Laughlin, 1987; Hopper et al., 1987; Miller & O'Leary, 1987). However, there
are researchers working in this field in other countries as well, especially in
the US and Australia (e.g. Tinker, 1980, 1985; Tinker et al. 1982; Neimark &
Tinker, 1986; Lehman & Tinker, 1987; Williams, 1987; Arrington & Francis,
1989; Chua, 1986a, b; Hines, 1988, 1989a ,b).
In general critical accounting research is committed to the emancipation of
humans from the constraints imposed by other humans. The purpose of the
critical studies has often been to reveal the implicit links between accounting
and various power structures in organizations and society. Usually the key
issues addressed deal with competing interests and the significance of diverse
accounts. In many cases critical studies have been more or less straightforward attacks both against the ideas included in neo-classical marginalist
economics and against positive accounting research. As to the former attack,
it has been suggested for instance that certain ideas growing out from
classical political economy (especially alternative theories of value) should be
taken into consideration again. Positive accounting research in turn has been
criticized by its claim for the value-freeness of accounting research. TM
However, even though it is possible to outline the area and the issues
questioned, what critical accounting research is ultimately about seems to be
an unresolved issue so far. There are a couple of sub-schools in this field
which often appear to be more united by what they are not than what they
are. The issue of materialism is one of the dividing questions in this respect:
some of the critical researchers base their studies explicitly on materialistic
philosophy, but there are also many, e.g. the interpretive and the Foucauldian
researchers, whose studies are overtly non-materialistic.
While critical researchers have been alert to ontological issues in accounting, it could yet be argued that the different ontological alternatives have not
been analysed in critical accounting research as thoroughly as would have
been possible, perhaps not least because the ontological nature of materialism seems to be far from clear.
The examination of ontological problems in accounting has often been
based on a sort of scale approach: the alternative ontologies have been
located on a continuum, the counterpoles of which are extreme realism
("reality as a concrete structure") and extreme idealism ("reality as a
projection of human imagination"). TM Ontology itself, as a philosophica~
244
K. Lukka
concept, remains in the background and the emphasis is on the socioscientific "applications" of ontological ideas.
To outline the state of the art of ontological discussion in accounting
research, the contents of Chua's recent article (1986a) will now be reviewed.
Chua approaches accounting research by analysing the assumptions of
ontology, epistemology and the relationship between theory and practice on
which the different modes of studies are based. She distinguishes three
alternative lines of accounting research: mainstream accounting thought,
interpretive perspective and critical perspective.
According to Chua, the adoption of realistic ontology is characteristic of
mainstream accounting thought. 16 This line of research is based on the
assumption that an objective reality exists independently of individual
perception. On the one hand the object (that which is perceived) and on the
other the subject (the one who is perceiving) are strictly distinguished from
each other in the act of perception. Individuals are dealt with as passive
entities, i.e. they are mechanized to a great extent. As examples of research
based on realistic ontology Chua mentions, among others, the applications of
contingency theory to accounting research (see e.g. Hayes, 1977; Otley, 1980)
and the principal-agent literature (see e.g. Baiman, 1982; Scapens, 1984).
As an alternative for mainstream accounting thought, Chua presents the
interpretive perspective of accounting research, linking it closely to the
tradition of German philosophy, which regards human behaviour as meaningful, future-oriented and intentional, in fact, as action. Though the private
reality of individuals is primarily subjective, meanings and norms are
considered to become intersubjectively real through social interaction. The
existence of individuals is therefore also regarded as essentially social by
nature. As examples of interpretive research in accounting Chua refers,
among others, to Hopwood (1983, 1987), Tomkins & Groves (1983) and
Boland & Pondy (1983).
However, the actual alternative for the mainstream accounting thought
offered by Chua (1986a) is critical accounting research. This perspective
stresses the unfulfilled potentialities of entities. Everything is thus seen as
being simultaneously both what it is and what it is not, or at least has not yet
become. This is supposed to be especially characteristic of human beings.
Their potentiality, however, is regarded as being restricted by the prevailing
systems of power and domination, which alienate people from self-realization.
The thought that entities exist only as parts of certain totalities is especially
important from the ontological viewpoint; entities isolated from their environment are, according to this perspective, always incomplete. An interactive
relationship is considered to exist between individual actions and social
reality, in which.the two determine each other: social reality and its structure
give individuals a framework to act in, but at the same time it is this action
that creates reality. As examples of critical accounting research Chua refers,
among others, to the studies by Cooper and Tinker, published both individually and in collaboration with other researchers (see e.g. Cooper, 1984;
Cooper et al., 1985; Tinker, 1984; Tinker et al., 1982).
It should be mentioned that Chua clearly defines the scope of critical
accounting research more narrowly than the dominant, though perhaps
Ontology and accounting
2.45
challengeable, view presented earlier in this section, which tends also to
include, e.g. interpretive studies in the area of critical accounting research. In
this paper the more common and broader concept is adopted.
In general, Chua's (1986a) article may be seen to reflect the increasing
interest in ontological problems within the field of accounting. As the
mainstream accounting thought mostly disregards these questions as metaphysical and therefore empty conceptual theorizing, the advocates of the
alternative perspectives seem to be willing to widen their discussion to cover
this area, too. In the background there is the desire to renew and refresh
accounting thinking, which quite naturally implies the possibility of also
criticizing and reappraising the basic assumptions of this discipline.
Beyond Chua's (1986a) article it is worth noting that among the several
potential approaches to critical accounting research there is the idea of social
constructivism (Berger & Luckmann, 1966; Garfinkel, 1967) on which particular emphasis is nowadays often placed. According to this view social reality is
considered to be reflectively constituted by accounts of reality: the decisions
and actions of actors, based on these accounts, construct, maintain and
reproduce social reality again and again (Hines, 1989a, b). From the ontological viewpoint this approach seems to link the features of realism and idealism
with each other: the world is regarded as existing objectively with regard to
physical existence, but it is seen as having been subjectively created by
human beings as far as the social side of existence is concerned. 17
The ideas inherent in social constructivism are today commonly used in the
area of critical accounting research (e.g. Lehman & Tinker, 1987; Thompson,
1987; Hines, 1988, 1989a, b; Pihlanto, 1988). Correspondingly, assumptions
about a socially constructed reality are substituted for notions lined with an
objective reality, i.e. ontological realism is substituted by a view in which
idealism plays a significant role. In addition, a dialectic interpretation plays an
important role in social constructivism according to which the physical and
the social are in a process o f a never-ending interplay where both of them
reflect and interactively determine each other (e.g. Tinker et al., 1982; Neimark
& Tinker, 1986).
Though social constructivism is also in a contestable position, the adoption
of this ontological viewpoint seems to open useful new perspectives to the
understanding of the significance and the roles of accounting in organizations
and society, of the interests it promotes or may be used to promote, and of
the variety of processes in which it is interwoven. Moreover, this view enables
us to better understand the fundamental characteristics of the concepts
accounting uses as their socially constructed nature is brought into the focus
of analysis. In this paper the notion of a socially constructed reality is used
especially in an attempt to open up the basic nature of the concept of
accounting profit.
The role of accounting in creating reality is a feature that is especially
highlighted by social constructivism. 18 The notion of visibility is most
important in this respect (e.g. Burchell et al., 1980; Hopwood, 1983, 1987;
Mouritsen, 1987; Lehman & Tinker, 1987). In fact, visibility is linked to
everything that accounting is about: most of the financial phenomena in
organizations and society are either unperceivable, disregarded or simply do
K. Lukka
246
not exist, unless rendered visible by accounting: "in communicating reality,
we construct reality" (Hines, 1988). Recently the question of why certain
issues are rendered visible by accounting, while others are not, has also
aroused increasing interest among accounting researchers. For instance, the
question has arisen of what lies behind situations or issues in which
accounting is non-existent (Hopwood, 1986; Choudhury, 1988). Relatedly, the
question has been raised of which other phenomena the existence of
accounting denies or prevents from emerging, and what the implications of
this are for the significance of accounting (cf. Lehman & Tinker, 1987;
Thompson, 1987).
Furthermore, there is an interesting historical perspective associated with
the concept of visibility. The practice of and research on accounting has
evolved from a situation where there was actually nothing to operate with.
With regard to cost accounting practice this was the case only about 200 years
ago. There were no, or at least not enough, categories or concepts of
accounting where entities could be placed; basically the methods of making
things visible were insufficient. As Hopwood (1987) has described in a detailed
way, the process of developing useful categories for cost accounting has not
only been laborious and difficult, but it has also presupposed a significant
amount of creativity (cf. Johnson & Kaplan, 1987; Miller & O'Leary, 1987).
To sum up the main argument of this section, the adoption of social
constructivism seems to offer a potentially fruitful ontological basis for
increasing the understanding of both the roles of accounting in its social and
organizational settings and the fundamental nature of accounting concepts in
their various uses (cf. Hopwood, 1983; Dent, 1986; Richardson, 1987;
Kettunen, 1987, 1988a; Thompson, 1987; Morgan, 1988; Hines, 1988; Pihlanto,
1988). A large amount of financial information is processed and communicated in organizations and society through the accounting function. At the
same time accounting is involved in creating and modifying reality in a way
that can largely not be understood on the basis of realistic ontology. A helping
of idealistic ontology seems to be necessary for the nature of accounting to
open up in a fruitful manner. From the social constructivist perspective it
becomes evident that accountings and calculations cannot have a simple
one-way relation with the underlying things, whatever they are. Moreover,
social constructivism leads us to question and analyse the complex chain of
meanings linked with accounting concepts and the various practices of
calculation accounting involves (cf. Thompson, 1987).
The Significance of Ontological Assumptions in Accounting:
The Concept of Profit
Background
Profit is clearly one of the major concepts in market economies. According to
the conventional micro-theoretic view, the firm is assumed to seek efficiency
in production, marketing and generally in everything that concerns the
transformation of the factors of production to the final products in order to
maximize its profits. 19 The allocation of resources is assumed to take place
Ontology and accounting
247
efficiently in markets, directed by an "invisible hand," because the watchful
firms (in fact, the entrepreneurs managing the firms) capable of coordinating
the factors of production take advantage of the emerging possibilities to gain
profits in the markets. 2°
The view presented above reflects the dominant marginalist, utility-based
concept of value: the values of goods in the various markets are considered
as functions of the subjective preferences of the actors dealing in those
markets (demand side valuation). An alternative view held especially by the
classical economists and their followers, would regard the labour accumulated in a commodity as the determinant of its value, arguing that it is
expressly labour that is the common origin of all value (production side
valuation). Capital, for instance, is thus considered as labour that has only
changed its appearance during the processes of transformation. According to
this, the concept of profit may also have another interpretation: profit can be
viewed as a social surplus having links with social alienation and exploitation
(see e.g. Tinker et al., 1982; Tinker, 1985).
The fact that accounting has grown up in the context of marginalist
economics has had several important implications. One of them is the
emphasis on individualism: accountings are often directed for the use of
separate individual parties (e.g. the owner of the firm, the manager, the firm
as a legal entity), which has not been liable to encourage the questioning of
such issues as the roles of accounting from a broader social perspective, or
the particular interests accounting serves in organizations and society.
Another, and in this context a more important aspect relating to the fact that
accounting originates from marginalist economics, is its attachment to the
idea of objectivity: at best accountants tend to think of themselves as
impartial record keepers who therefore should stick to leaning on the
"objective" prices "realized" in the markets (historical or current). Moreover,
the discussion on the notion of value in the spheres of accounting has been
very limited, both in depth and scope, compared with economics: in fact,
some scholars, e.g. Littleton (1928), have gone as far as to claim that value
and cost are actually unrelated (cf. Tinker et al., 1982).
Historically, it is interesting to note that the pursuit of profit has not always
been morally acceptable in the western world. Until the late Middle Ages
avarice, a notion closely related to the genuine pursuit of profit, was regarded
as one of the most mortal of the deadly sins. However, at the time, because of
Machiavelli's influence, the idea that "wild passions" and "interests" are
separate from each other began to spread: the important role of the interests
was considered to be to moderate and replace the wilder passions so that the
social order could be protected. In this way the pursuit of profit began to
achieve a generally accepted status. This has obviously had a most important
effect on the development of capitalism in the western world (Hirschman,
1981 ).
The Position of the Concept of Profit in Accounting
It may be rightfully argued that profit is the most central concept in
accounting. 21 One of the major aims of financial accounting is to show
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K, Lukka
the principles according to which the distributable profit of a firm can be
measured. In the area of management accounting the concept of profit is
linked to the control of the efficiency and effectiveness of the firm both as a
whole and as a network of responsibility centres. Profit is a principal concept
in which a large amount of information concerning the functioning of a
financial entity in a market economy is considered to be concentrated, not
only from the viewpoint of those people directly interested in profit distribution (the owners), but also from the viewpoint of other interested parties.
Despite the importance of the concept of profit in accounting, or perhaps
expressly for this reason, there exist a large number of variations of the
measurement of profit. For example, among both academic accountants and
those in practice, there has been a great deal of debate during the last few
years on the problems of bookkeeping and income measurement in the
context of international harmonization of financial accounting. On the other
hand, with regard to management accounting the discussion of the measurement of profit has not been especially lively in recent years, at least in the
academic circles. For example, though actively studied in other respects, the
field of accounting in divisionalized organizations seems to have got stuck for
the past 20 years at a debate on ROI- and RI-measures of profitability
(Dearden, 1969). Neither has anything revolutionary emerged in the field of
capital budgeting as far as profit measurement is concerned. This is perhaps
due to the fact that in this field opinion on what the profitability of a n
investment means and how it should be measured is relatively unanimous
(e.g. Bussey, 1978; Copeland & Weston, 1980; Bierman & Smidt, 1984).
However, in practice the concept of profit can be regarded as problematic also
in management accounting. It is symptomatic of this that there seem to be
almost as many different managerial profit measures as there are measurers.
As the basic principles of the functioning of the market economies do not
seem to change, the concept of profit will undoubtedly remain one of the
major objects of accounting measurement. With regard to the theme of this
paper, there is a good reason to ask, what kind of a phenomenon profit
ultimately is? What is the ontological nature of this concept, i.e. what are the
entities that underlie, and thereby reflect themselves in, the concept of
accounting profit? To what extent is it an ontological issue that the concept of
profit makes such an ambiguous impression on us? These questions will be
examined in the following, first, by outlining the different theoretical approaches to profit measurement in accounting, and second, by charting and
analysing their ontological status and implications. The following quotation
from Kettunen (1988b, p. 44) offers a starting point for this analysis. 22 "The
income that is the object of our measurement is non-material and difficult to
perceive. There are many who doubt that it exists at all."
The Principal Theoretical Approaches to Profit Measurement in Accounting
As a basis for an ontological analysis of the theory and the development of
profit measurement in accounting, the classification including three approaches distinguished by the AAA (1977) is selected to be used here (.cf. e.g.
Sterling, 1970; Ijiri, 1975; Hakansson, 1978; Peasnell, 1978; Davis et al., 1982;
Ontology and accounting
249
Kettunen, 1987; Knoops, 1988): 23
(1) Classical approach
(2) Decision-usefulness approach
(3) Information economics
The classical approach began to emerge in the beginning of the 1900s
representing, as its name implies, the pioneer period in the development of
accounting theories. Two separate schools of thought, that is the normativedeductive and the inductive school are distinguished in this approach.
(a) Essentially the normative-deductive school is based on neo-classical
marginalist economics. Its purpase is to measure the "true income" of the
firm. Though the opinions of the various authors representing this school
differ to some degree, it may be said that typically the normative-deductive
school abandons the realization principle and historical costs, the latter being
replaced by current costs or values. This school of thought is represented, for
example, by Paton (1922), Canning (1929), Alexander (1950) and Edwards &
Bell (1962).
(b) In contrast to the normative-deductive school, the inductive one has
close links with the prevailing financial accounting practices. Profit measurement is based on "realized" transactions only and on historical costs. The
theory of profit measurement is then actually a rationalization, and sometimes
even justification, of the way profit is measured in practice. However, while no
coherent theories have been formulated, attempts have been made to identify
potential gaps in practice. Hatfield (1927), Gilman (1939), Littleton (1953) and
ijiri (1975), for example, are representatives of the inductive school.
The decision-usefulness approach takes into consideration the benefits of
accounting information to its users. 24 The fundamental difference between
this and the classical approach is that the processing of accounting information is considered to extend to the reception and use of that information. In
terms of profit measurement, this approach implies the adoption of the
coalition theory view of the firm (e.g. Cyert & March, 1963), meaning that the
different information needs, and the ability to use information, of the various
interest groups of the coalition are considered. Two major branches of
thought may be distinguished within this approach, one emphasizing decision
models and the other focusing on decision makers.
(a) The purpose of the branch that stresses decision models is to satisfy the
needs of the decision model that the user of accounting information is
assumed to have. The receiver of the information is thus modelled and
mechanized in order to gain benefits in the analytical treatment of the
problem. Chambers (1955) and (1966), Staubus (1961), Sterling (1972) and
Revsine (1973) may be mentioned as examples of researchers w h o have
carried out the decision model branch of the decision-usefulness approach.
(b) The decision maker branch focuses on the behaviour of individuals or of
aggregate investment markets using accounting information. The behaviour
assumptions of the users of this information are n o w more "realistic."
Further, empirical evidence is emphasized more than in the decision mode~
250
K. Lukka
branch. For example Hofstedt (1972), Kaplan & Roll (1972), Gonedes &
Dopuch (1974) and Libby (1975) have carried out studies representing this
branch of thought.
The third major approach of the AAA's (1977) classification, information
economics, applies the principles of economics directly to information
production. The starting point is that as information is not a free commodity,
the structure and the functioning of an optimum information system depends
on the relationship between the costs and benefits that the information
produced will offer to its users. 25 The studies of this approach have typically
been normative-deductive models based on an assumption of decision
maker's rationality and on the Bayesian theory of conditional probabilities. 26
From the viewpoint of profit measurement in accounting, information economics is linked to the question, whether it is necessary and/or beneficial, and if
so, to what extent, to regulate the information disclosure of firms in a market
economy. This line of research is represented, among others, by Fama &
Laffer (1971), Jaffe (1974) and Gonedes (1975).
The Ontology of the Concept of Profit
On which kind of ontological arguments are the approaches to profit
measurement outlined above based? This question is difficult to answer, not
least because the bulk of studies of profit measurement in accounting seems
to ignore ontological problems. Even though the AAA (1977) classification
outlined above also offers only a restricted basis for the assessment of the
ontological nature of its approaches, particularly as it does not explicitly deal
with this matter itself, some important insights may yet be gained on that
basis. The analysis is structured as follows: first, the most obvious implicit
interpretations of the ontological assumptions related to each approach are
presented, and second, these interpretations are questioned on the basis of
the social constructivist perspective and claimed to be in several respects
superficial.
The normative-deductive school of the classical approach may be regarded
as reflecting realistic ontology: an entity called profit is assumed to exist
independently of the human mind. "True profit" is considered to be represented by the difference between the economic value of the firm from one
point of time to another, duly added and/or subtracted by any flows between
the firm and its owners. The normative-deductive profit concept may be
regarded as ontologically realistic even though any attempt to calculate profit
on this basis, as practical measurement is always important in an accounting
context, will imply subjective assessments about the future values of financial
phenomena (cf. Tinker et al., 1982). 27
The inductive school of thought of the classical approach may be interpreted as reducing the gap between the theoretical idea and the practical
calculation of profit. According to the inductive school, the measurement of
profit may thus be considered to reflect realistic ontology in both theory and
practice. This feature is linked especially to one of the key characteristics of
this school of thought: accounting is closely anchored on the "realized" and
thereby (seemingly) "objectified" transactions and values.
Ontology and accounting
251
The decision-usefulness approach may be regarded as a move away from
the search for the "absolute truth," characteristic of the classical approach,
towards an explicit search for the "conditional truth." From the viewpoint of
the concept of profit this could have the following consequences: (1) the idea
of objective profit is completely abandoned and/or (2) profit is more explicitly
aimed to be presented and communicated in a manner consistent with the
receiver's ability to interpret the message or consistent with the functioning of
the decision model he/she is assumed to be using. From the ontological
aspect in particular the first alternative would be interesting. However, in
practice the decision-usefulness approach usually reflects the second alternative, as a kind of fine-tuning of the profit basically calculated as "absolute
truth."
An ontological analysis of the information economics approach does not
seem to offer anything especially important in addition to what the decisionusefulness approach does. From the ontological aspect the idea of "costly
truth" seems to be principally similar to the idea of "conditional truth:" the
only new conditioning element emphasized in the information economics
approach is the cost-benefit analysis of the accounting methods selected.
The approaches of the AAA (1977) classification, in general, may be
considered to reflect implicitly realistic ontology. This applies especially to the
classical approaches, but to a large extent to the other approaches as well,
suggesting that "true profit" is assumed to exist somewhere "out there"
independently of the human consciousness.
Are there some inherent problems associated with the seemingly obvious
ontological interpretations presented above? W h a t follows if we adopt the
social constructivist perspective? It is possible to argue that it could s o m e h o w
better "represent" the prevailing state of affairs? Can there be objectivity in
the measurement of profit or is it just a myth?
There are numerous serious problems that follow if we say that profit exists
in a sense of realistic ontology. The case of the normative-deductive school of
the classical approach may seem to be rather strong: it may sound reasonable
to claim that at least the abstract idea of a "true profit" exists objectively.
However, it can be argued that this objectivity is largely an illusion only. The
existence of the objective abstract idea of "true profit" is questionable, not
least because all the optional concepts of profit must inevitably be linked with
some concept of value. The concept of value again is always tied up in such
issues as power structures and competing interests in society. Accordingly,
the significance of the concept of value is not self-evident but varies as a
function of various complex issues being thus contestable and socially
constructed (cf. Tinker, 1980; Cooper, 1980; Tinker et al., 1982; Neimark &
Tinker, 1986). As the notion of value is socially constructed, 28 any other
concept based on it is obviously socially constructed as well.
Though being seemingly unproblematic, perhaps the severest problems
linked to a claim of realistic ontology are inherent in the inductive shool,
which is, at least from the practical viewpoint, the most important of the
approaches and schools presented above as far as the measurement of
accounting profit is concerned. These problems are in the first place linked to
the fact that the concept of profit is in this case defined on the basis of various
252
K. Lukka
principles and standards that are used, for example, in the valuation of assets
and in the temporal allocation of costs. Even though they are sometimes
based on coherent theories of financial accounting, as in Finland, 2~ in the
final analysis these accounting principles and standards are always a result of
political bargaining processes, and thus socially constructed (Hines, 1989b).
In addition to this, it is also questionable to what extent the realized
historical values, on which the inductive school has based its case, are
objective. In a relative sense they may perhaps be regarded as objective: the
realized historical values are numerals that are considered to reflect the
monetary values of certain amounts of goods at one time and in one place.
However, from a wider perspective they must be considered at the most
intersubjective: the realized historical values are interwoven in the value
systems in societies as a whole and are linked with prevalent economic,
political and social conditions (cf. Arrington & Puxty, 1989). For instance, there
are many externalities that are not included in the realized values of goods
today, but might be considered, from some other aspect, to have an effect on
their "real" values. As has been noted earlier, the entire notion of value is
contestable. Therefore it is not at all self-evident that an entity like profit
becomes objective when its definition and calculation is based on the realized
historical values.
Furthermore, the position that the realized historical values are objective,
and thus reflect realistic ontology, is based on the idea that behind the
historical values there are physically perceptible monetary units. 3° However, it
should be taken into account that the ontological nature of money is
problematic as an instrument with which to measure profit, or in fact anything
(cf. Vehmanen, 1982). Fundamentally this is due to the fact that the meaning
of money is also socially constructed, based on common and public agreement in society. 31 Accordingly, money may be regarded as a part of the
collective and intersubjective, but basically not objective, reality that is
implicitly accepted by individuals. Its fundamental role is to signal and
transmit "internally installed" meanings determining interactively each other
(Thompson, 1987).
In the context of the inductive school we also encounter some more
practical questions to profit measurement, for example the problem of
temporal allocation. In this respect a strong case has been made for the
argument that any allocation, both to periods and to objects, is always
"incorrigible:" there cannot possibly be only one correct and uncontestable
method of allocating costs (Thomas, 1969, 1974). The many competing
principles, standards and rules that have been applied in an attempt to solve
this problem clearly support the claim for an interpretation based on social
constructivism.
Though they have some inherent potentially interesting features, both the
decision-usefulness approach and the information economics approach of the
AAA (1977) classificationwere assessed above as being relatively uninteresting ontotogically. However, research linked to the decision-usefulness approach has resulted in a couple of findings that are significant for an
examination of the ontological nature of profit. Especially in the US, a great
deal of research has been done on the efficiency of the stock markets through
Ontology and accounting
2.53
an analysis of the effects the signals given of the listed firms' profit have on
share prices. These studies have examined, for instance, whether investors (or
the aggregate markets) are able to make a distinction between the effect of
"cosmetic" accounting changes 32 and the effect caused by "fundamental"
changes. 33 The theory of finance would hypothesize that only the latter
changes, i.e. changes with cash-flow consequences, affect share prices. Even
though this issue is still unclear, some studies have shown, however, that this
is not always the c a s e in practice: at least in some instances investors cannot
make the expected distinction (e.g. Lev & Ohlson, 1982). In fact, it becomes
questionable which changes are ultimately "cosmetic" and which are not:
perhaps the difference between the "cosmetic" and the "fundamental" factors
is not as unambiguous as is generally assumed. Accounting does not only
reflect reality but it also creates it (Hines, 1988).
To sum up, even though the common implicit purpose of the theories of
profit measurement in accounting seems to be to determine the value of the
entity called profit on the basis of realistic ontology, these theories are, in fact,
always more or less linked to idealistic ontology because of their fundamentally socially constructed nature. The objectivity of profit measurement in
accounting seems to be largely only a myth (Morgan, 1988). Our example
concept thus supports the more general argument presented earlier in this
paper that, as a way of thought that links together the features of realism and
idealism, social constructivism offers potential for an analysis and an illustration of the ontological nature of accounting concepts. However, this is no
doubt a limited approach, if we for instance wish to analyse the production
and evolution of these constructions: w h y do some of them "win out" in
organizations and society and some others do not?
The Significance of an Ontological Analysis of the Concept of Profit
At this stage, it might be asked what the potential implications of the
arguments presented and discussed above in terms of the concept of profit
really are. Perhaps the most important of these is the need to reconsider the
basic position adopted with regard to accounting concepts and measurements. Obviously it should be borne in mind in accounting research, practice
and teaching that we are constantly dealing with phenomena that to a large
extent do not exist objectively somewhere "out there" reflecting realistic
ontology (cf. Morgan, 1988; Pihlanto, 1988). Profit, for instance, derives ~ts
significance in organizations and society as an integral part of a system
involving a large number of collective agreements and their subjective
interpretations at the individual and intersubjective levels. The nature of the
concept of profit can thus be understood only in an interdependent relation to
many other categories, within a chain of signs in their own terms (cf.
Thompson, 1987).
One interesting piece of evidence which supports the assumption of the
implicit dominance of the realist ontology in accounting thought is the respect
most laymen seem to have for accounting reports. Ctearly these reports
are commonly regarded as far more objective than they actually are. This
254
K. Lukka
may be a result of the accountants' unwillingness, and perhaps also inability,
to inform other parties of the uncertainties behind their calculations and
reports. This inability may result from the obvious fact that accounting
education tends to omit the ontological aspects of accounting. The unwillingness again may result from the fact that knowledge and understanding of
these uncertainties is an important basis for the power accountants have in
organizations and in society (see e.g. Bacharach & Lawler, 1980; Pihlanto,
1985, 1988). Though it may be claimed that professional accountants do not
take profit figures at their face-value, it is also clear that they very often act as
if the figures would reflect the objective truth. In addition, it is not clear h o w
far behind the accounting figures even the professionals can see as the
objectivity of accounting information is always limited.
Though the concept of profit cannot be understood on the basis of realistic
ontology, it has yet heavy argumentative weight: a large number of decisions
at several levels, both in firms and in the public sector, are continually made
on the basis of the concept of profit or some of its applications. However,
idealism has obviously certain limits in this context: the measurement of
profit obviously has to correspond in a sufficient degree to the picture of
reality the parties interested in profit otherwise have (Hines, 1988; Pihlanto,
1988). 34 These limits, and at the same time the room for manoeuvre in profit
measurement are, however, extended by the fact that the processes of
creating social reality tend to strengthen themselves: "And by responding to
that picture of reality, they make it so: it becomes real in its c o n s e q u e n c e s . . .
they see it as a proof of our having correctly conveyed reality" (Hines, 1988,
p. 257).
Concluding Remarks
This paper analysed the ontological aspects of accounting concepts. The
purpose was to clarify their basic nature by a discussion of the underlying
assumptions about the existence of reality that are reflected in accounting
concepts.
To begin with, ontology was discussed as a branch of philosophy taking
into account its considerable importance in the history of western thought.
Two distinct alternatives emerged as the most important ontologies, at least
as far as this paper is concerned: the realistic and the idealistic ontology.
It was argued that so far there has been very little explicit discussion on the
ontological aspects of accounting. However, recently some indications of a
growing interest towards these questions have emerged, in particular among
the critical accounting researchers. To outline the state of the art of
ontological discussion in accounting research, Chua's recent article (1986a), in
which mainstream accounting thought, the interpretive perspective and the
critical perspective were distinguished, was briefly reviewed. However, in this
paper the domain of critical accounting research has been understood more
widely than what Chua did in her paper, i.e. also to cover for instance
interpretive research. In the context of this discussion, the idea of social
constructivism was presented as a way of thought that links together the
features of realistic and idealistic ontologies in a manner that seems to open
Ontology and accounting
255
up useful perspectives for the understanding of the significance and the roles
of accounting in organizations and society.
Finally, as an example, the ontological nature of the concept of profit in
accounting was analysed in more detail. After outlining the background of the
concept, the A A A ' s (1977) classification distinguishing three perspectives of
accounting theory, namely the classical approach, the decision-usefulness
approach and information economics, was presented as a starting point for
the analysis.
It was concluded that the concept of profit is basically contractual by nature,
and thus always reflects a more or less idealistic ontology. There are several
issues presented above in detail that support this argument. The most
important of these is the fact that any concept of profit must inevitably be
based on some notion of value, which itself is a socially constructed concept.
Thus the concept of profit cannot refer to an entity existing objectively
somewhere " o u t there." On the contrary, it is essentially a concept created by
human consciousness and explicit or implicit collective agreements in society.
On the whole, an ontological analysis of the concept of profit supported the
basic argument presented in this paper that social constructivism offers a
fruitful basis for increasing our understanding of the basic nature of accounting concepts.
The concept of profit was selected as an example concept in this paper
because of its enormous significance in both accounting research and
practice. Profit is a social artifact that certainly affects everyone's life.
Furthermore, it has considerable argumentative power, at least in the western
societies. This is despite the fact that profit does not exist in a w a y it is often
assumed to exist: the objectivity of the concept of profit seems to be largely
nothing but a myth.
Acknowledgements
The author gratefully acknowledges helpful comments and suggestions on the
previous versions of this paper from Ed Arrington, David Cooper, Ruth Hines, Trevor
Hopper, Anthony Hopwood, Peter Miller, Pekka Pihlanto, Mike Power, Tony Tinker,
Cyril Tomkins, participants at research seminars at the Universities of Monash and
Macquarie and two anonymous reviewers.
Notes
1. The notion of ontology, and realistic ontology as a form of it, is discussed later in the section
"The Notion of Ontology in Philosophy."
2. Compare the difference between the empiristic and pragmatic notions of knowledge, see e.g.
Venkula (1988).
3. This kind of thinking seems to be characteristic of positive accounting research, see e.g. Watts
& Zimmermann (1986).
4. In recent years this line of research has aroused increasing interest, see e.g. Tinker (1980),
Cooper (1980), Burchell et al. (1980), Cooper et al. (1981), Tinker e t a / . (1982), Hopwood (1983),
Pihlanto (1981, 1985), Cooper & Sherer (1984), Neimark & Tinker (1986), Chua (1986b),
Kettunen (1987, 1988a), Lehman & Tinker (1987), Thompson (1987), Williams (1987) Cooper &
Hopper (1987), Laughlin (1987), Hines (1988, 1989a, b) and Lukka (1988).
5. The doctrine of epistemology deals with the nature and methods of acquiring knowledge
about existence. As ontology has strong links with the issues of epistemology, any
ontological discussion, often unavoidably, tends to conflate these ,two areas of philosophical
discourse.
6. It has to be added that the "cogito ergo sum" thesis of Descartes is perl~aps even mor~
important from the epistemological point of view.
256
K. Lukka
7. This point is emphasized by many philosophers, see e.g. Rauhala (1989).
8. The metaphysics of Aristotle, a student of Plato, is critical of Plato's ontological thoughts i.e.
of his theory of ideas. Aristotle considered that the Platonic world of ideas doubles the
existence unnecessarily and that the link between ideas and perceptions is broken. Perhaps
the largest difference between Plato and Aristole is that, as Plato was an intensive supporter
of the aprioristic method of thinking, Aristotle was much more inclined to base his theories on
empirical evidence, see e.g. Russell (1984) and Saarinen (1985).
9. Cf. e.g. Tinker et al. (1982, p. 168): "Realist philosophy asserts that reality objectively exists
"out there" and is independent of our perceptions and thus reality is ultimately the same for
every observer."
10. The emergence of idealism as a separate way of thought is linked to Kant's so-called critical
idealism, according to which our knowledge of the world is presupposed by the existing
"things in themselves" (Dinge an sich). However, this knowledge cannot deal with the existing
entities themselves but only with our perceptions of them. This view is in a way dualistic, like
Plato's theory of ideas. However, as Plato regarded the perceived world as a mere "world of
shadows" and therefore considered it valueless, Kant raised the world that is perceived by
individuals to the focus of his epistemology (see Saarinen, 1985). Kant's perhaps most
important idea was to emphasize the role of the perceiving subject: consciousness does not
only receive information but it is also actively involved in the processes of perception and
experience. According to Kant, individuals themselves shape their own realities. As Kant's
"things in themselves" were eliminated, his critical idealism developed rather rapidly in
German philosophy into the idealism that we recognize today. In this way idealism
completely eliminated the assumption of reality existing independently of our consciousness.
See e.g. Niiniluoto (1980) and Saarinen (1985).
11. See note 10 above.
12. In Husserl's phenomenology intentionality means the directed nature of consciousness: it is
regarded as continuously referring to one or other thing. The world is, according to this view,
interpreted as being the object of intentional acts. However, phenomenology is not as deeply
interested in the existence itself (the objects) as in the existence that is constituted by
consciousness through meaning structures ("the noemas") formulated by objects in each
particular situation. Phenomenology is thus clearly in line with the idealistic ontology. On the
other hand, in Sartre's existentialism intentionality is considered as linking human consciousness to the outside world: intentionality thus in a way "gives" the reality to the individuals.
Existentialism, as does phenomenology, emphasizes the issues linked with subjectivity: an
individual, absolutely unique being is the starting point for the discourse. However,
existentialism seems to include certain elements of realistic ontology as well. See e.g.
Saarinen (1986).
13. One of the leading ontologists of our century was Martin Heidegger. His main project, the
so-called fundamental ontology, is rooted in Husserl's phenomenology even though it in
many substantial points radically differs from Husserl's ideas. Heidegger's thinking is rather
difficult to locate on the realism-idealism axis. His main contribution is perhaps the extremely
profound analysis of the fundamental nature of man's being, in which the quite revolutionary
concept of "being-there" (Dasein) is in a major role. This many-sided notion includes, among
others, the idea that on the level of consciousness our interpretations are restricted by the fact
that we beforehand implicitly but unavoidably self-locate ourselves in time and space. See
e.g. Kusch (1985), Kearney (1987) and Rauhala (1989).
14. As examples of positive accounting research, see e.g. Jensen & Meckling (1976) and Watts &
Zimmermann (1979, 1986).
15. E.g. Tomkins & Groves (1983) used a six point scale based on Morgan & Smircich (1980).
16. She shares this view with e.g. Morgan (1988), Hines (1988) and Gaffikin (1988).
17. Cf. Giddens' structuration theory, see Giddens (1979) and (1984).
18. Hopwood (1983) used the notion "constitutive role of accounting."
19. Naturally the existence of other goals of the firm is generally acknowledged as well. However,
profitability seems to always restrict the functioning of the firm in the long run as some
amount of profit is needed to maintain the coality equilibrium of the firm, compare e.g. Cyert
& March (1963).
20. Paradoxically, in the long run economic profit tends to be zero in the perfect markets that are
in equilibrium: the profit is eliminated in the course of time by costs, if they are interpreted
widely (i.e. in the way of economics) covering the costs of all invested capital including
equity. See e.g. Naylor & Vernon (1969) and Tinker (1980). In that kind of a situation, though it
may be merely imaginative, it would be, of course, problematic to explain the acts of the
entrepreneurs on the basis of profit-seeking only, see e.g. Obrinsky (1983).
21. However, its influence may be diminishing in the long run if wider perspectives of appraising
the activities of the firms are adopted, see Kettunen (1987).
Ontology and accounting
257
22. Translation by the author of this report.
23. The classification of AAA (1977) is, of course, just one alternative starting point for the
analysis; e.g. the normative/positive typology used by Watts & Zimmermann (1986) and
others could have been chosen instead. The AAA's classification was chosen both because of
its rather direct links to the measurement of profit and for a kind of well-established position it
has managed to achieve in spite of its many inherent ambiguities.
24. In management accounting this kind of starting point for tninking has been linked to the idea
of "conditional truth," which in the 1950s began to replace the earlier dominating idea of
"absolute truth," see e.g. Ijiri (1975) and Scapens (1984).
25. in management accounting this approach is linked to the idea of "costly truth," see e.g. Ijiri
(1975) and Scapens (1984).
26. For example, agency theory may be regarded an extension of the information economics
approach, see Scapens (1984).
27. Cf. the complementary concepts of "rationalities" and "technologies" in Miller & Rose (1989).
In these terms the concept of profit can be seen as a rationality and its calculation as a
technology, which together form the device of controlling organizations and of allocating
resources within them and in the economy as a whole.
28. See the discussion in section "Background" earlier in this chapter.
29. Of the principles of this theory, called the expenditure-revenue theory of financial accounting, see Saario (1945, 1958), Lehtovuori (1969), Lukka et al. (1984) and Majala & Manner
(1988).
30. The historical values registered in accounting are in practice based on receipts. These may, in
turn, be incorrect so that the connection between profit measurement and the financial
process breaks down, cf. Vehmanen (1982).
31. Moreover, it seems to be difficult to make a sound argument that money could ultimately
represent value, i.e. to make value present in its absence. This can be easily seen in times of
rapid inflation when monetary variables quite obviously lose their connection to "real"
quantities, but it holds true more generally as well. However, while money fails to represent it
always signifies something. See Thompson (1987).
32. For example, a change from LIFO and FIFO in inventory valuation or a change in the
depreciation method applied. However, in many countries, the strong linkages between
financial accounting for investors and for taxing purposes may cause fundamental cash-flow
consequences in the mentioned example situations, too. See e.g. Foster (1986).
33. For example, changes in the interest group structure of the firm, in its different markets or in
its inner processes having an effect on its efficiency and effectiveness.
34. The question of the specific nature of this correspondence is philosophical and basically
unsolvable. Compare the different definitions of the truth in philosophy, e.g. Niiniluoto (1980).
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