Reform of Accounting Education in the Post-Enron Era: Moving Accounting ‘Out of the Shadows’
Abstract
This article reflects critically on the general state of university-based accounting education. It highlights the chiding of business school educators by the President of the U.S.A., George W. Bush, in his response to the collapse of Enron and subsequent corporate failures. It draws attention to Bush's plea for corporate accounting to be moved ‘out of the shadows’.
An agenda of reform for accounting education is proposed, seeking a greater responsiveness by accounting educators to three broad matters: first, the political, rhetorical and ideological nature of accounting; second, the ‘poverty of discourse’ in accounting curricula; and third, the merits of a better understanding of accounting history. It is suggested that responsiveness to these matters be manifest in a stronger commitment to critique of accounting. This entails implementation of four curriculum themes commencing in the first class in accounting. The benefits of reading and reflecting upon the collected life's work of distinguished intellectual forbears of our discipline are canvassed. Wide-ranging general proposals for the reform of accounting education are advanced.
—‘What Enron has done is recast the landscape’1
In the wake of the collapse of Enron, WorldCom and other large companies during 2001 and 2002, there have been many proposals to reform accounting, auditing, and corporate governance. These have included strong calls from diverse quarters for the business community to commit determinedly to new ethical and moral values, to develop better mechanisms for corporate governance, and to exercise better corporate responsibility. For some, one of the causes of the seemingly never-ending parade of accounting scandals and unexpected company collapses has been the inadequacy of university curricula in accounting and business education (Bush, 2002; Sikka and Wilmott, 2002). Indeed, reform of accounting education has been regarded as of ‘economic importance’ by such influential voices as PriceWaterhouseCoopers (2003, p. 3): they have argued that ‘accounting educators must play a clear role in restoring the public trust . . . [and that] we must consider what reforms are necessary in the accounting education system that in turn develops practitioners who provide critical support to the US economy’.
This article examines aspects of the alleged culpability of accounting educators for the accounting-related behaviours that contributed to major corporate crises in 2001 and 2002.2 It explores whether there is substance to the explicit entreaties and implicit accusations levelled at accounting and accounting educators by American President George W. Bush in particular; and the political establishment, the financial press and other critics, in general.3 We explore the criticisms President Bush levelled at accounting and business school educators. But many of the issues he raised, directly and indirectly, are beyond the scope and capacities of a single scholarly article. Accordingly, three matters are stressed.
First is the need for accounting educators to have students appreciate the idiosyncratic, political, rhetorical, ideological and non-objective nature of accounting. It is important for accounting educators and the general populace to embrace a (for many, novel, but more realistic) view of accounting as something other than a tangible and technical means of accessing a ‘measurable world’. The domain of accounting ought not to be characterized axiomatically as precise, objective and capable of producing financial statements upon which anyone ought to be capable of attesting that they represent a ‘true and fair’ view (in any ordinary sense of the words). It is important to convey a sense of the ‘abstract’ about accounting. In particular, about how accounting is a fashioner of perception and image, and how it unavoidably embraces rhetoric, metaphor and ideology.
Second, we explore and review what is taught in accounting—the curricula.4 Views of the late Professor Raymond J. Chambers (1994, 1999) are cited to argue that important fundamentals are routinely ignored in our teaching and research and that, consequently, there is a ‘poverty of discourse’ (Chambers, 1999) in accounting education.
Third, history is drawn upon to provide some counterbalance to the hyperbole, overblown emotion and jaundice in the current debate. Several long-standing criticisms of accounting and accounting education that seem to have had no lasting effect are cited. In so doing, current critics and commentators (including President Bush) are reminded that recent indictments of accounting, and some of the reforms suggested, are déjà vu, and have been ignored by accountants and accounting educators for decades. We cite some examples of these criticisms and invoke them as part of an appeal for greater regard to be accorded to the study of accounting history.5 Accusations of failing to heed the lessons of our history will have more substance if ignorance of accounting's past can be shown.
To illustrate that the current criticism and scorn for accounting and accountants (and by implication, accounting academics) is not a new phenomenon, support is drawn from two rich and pertinent sources: the writings and commentary of Professor Henry Rand Hatfield (1866–1945), the ‘humanist, scholar and accounting educator’ (Zeff, 2000, p. iii); and Professor Raymond J. Chambers (1917–99), ‘an eminent scholar, influential theorist, prominent educator, dedicated researcher, and important contributor to the study of the history of accounting thought’ (Al-Hogail and Previts, 2001, p. 24). We infuse the latter sections of this article with their thoughts and utterances. There are a dozen or so distinguished scholars in accounting we could easily have chosen to illustrate our case. But we have settled on Hatfield and Chambers because we wanted to draw upon the evidence of their diverse backgrounds, generations and principal reasons for distinction. Whereas the American, Hatfield, was prominent in the first half of the twentieth century, the Australian, Chambers, was prominent in the second half. Whereas Chambers was better known for his ‘grand theory’ of Continuously Contemporary Accounting (CoCoA), Hatfield was not regarded as a grand theorist. He was better known as the ‘dean of accounting teachers’ for his oral and written pedagogy and as a ‘significant contributor’ to the ‘early evolution of accounting as an academic and professional field’ (Zeff, 2000, p. xv).
We reflect also upon the implications of Enron for accounting education and conclude by advancing a tentative reform agenda aimed at enhancing the quality of accounting curricula.
BUSH'S FINGER OF BLAME
Accounting has rarely received such a high level of sustained attention by the media and the general populace as it has since the onset of the Enron affair, and similar corporate scandals, in late 2001. Numerous editorials and feature articles in prominent newspapers and news magazines, biting editorial cartoons, a steady diet of commentary on current affairs television, and Congressional hearings before various committees of America's House of Representatives and Senate, as well as reverberations outside the U.S.A., all attest to the recent cultural prominence (earnestly unwanted by the profession) of accounting. But perhaps one of the most significant of all these social and media indicators has been the attention that President George W. Bush has paid to accounting.
On 9 July 2002, President Bush delivered a much-heralded speech in New York on ‘Corporate Responsibility’ (reproduced in the Appendix) in which considerable focus was given to the mis-performance of corporate accounting. The speech received mixed reviews in the business media (Crane, 2002; Dobbs, 2002; Olive, 2002), but was promoted widely as a government manifesto on corporate reform. President Bush used the speech to announce tough corporate accountability enforcement initiatives following the accounting and related scandals of Enron, Global Crossing, WorldCom, and numerous other companies. Bush (and his advisers and speech-writers) clearly seemed to be of the view that the inadequacy of university curricula in accounting and business education was, in good part, responsible for the spate of accounting scandals and corporate collapses in the U.S.A. in 2001 and 2002.
The fact that such a prominent, powerful political figure as the President should engage in criticism of accounting and business educators should not be surprising. As Osborne (2003, p. 22) has observed, we should acknowledge that the nature of the realpolitik in an era of mass higher education (much of it funded by government) is that universities increasingly have to accept the responsibilities and expectations imposed by society and government. Consequently, universities should not expect to operate as idiosyncratic ‘ivory towers’ at the periphery of society where they are afforded a safe haven from which to pursue their own curricula unobtrusively and without ‘the glare of public scrutiny’ (Osborne, 2003, p. 22).
Morally Confused ‘Surrenderers’
President Bush used powerful rhetoric as part of his j’accuse. He did so explicitly through his entreaty that ‘Our schools of business must be principled teachers of right and wrong, and not surrender to moral confusion and relativism’ (see Appendix). What George Bush meant by this is perplexing. His argument seems to be based on what philosophers refer to as ‘relativism in morality’—a relativist view in which ‘each person, or interest group, has its own views as to what is right and wrong, and acknowledges there is no absolute standard that can validly decide between them’ (Campbell, pers. comm., 2002). Yet, curiously, Bush seems to imply there is an absolute standard by which to choose between ‘right’ and ‘wrong’—presumably, his standard. Bush's recourse to ‘relativism in morality’ is self-refuting and incoherent because he adopts a relativist stance himself—albeit one in which a person simply ‘adopt[s] the policy of not admitting to serious consideration claims which others present as contrary to [his/her] own unless those claims seem true to [him/her]’ (Campbell, 1992, p. 402).
There seems to be no room in President Bush's argument for tolerance of ambiguity, diversity, deviance from accepted norms (all values of ‘traditional’ universities), as these would constitute ‘unprincipled’ behaviour. So, in a sense, the university ideal of exposure to a variety (‘a universe’) of views of the business world, of tolerating non-conformist behaviour by denizens of that world, and of countenancing the teaching of material that is unorthodox, unconventional and anti-establishment is anathema. Bush seems to have a vision of a non-pluralist, conformist world of business education in which there are rigid rules-based curricula, free of corporate critique, and sustained by strictly regimented servings of conservative, ‘moral majority’ and neo-conservative-accepted views. If so, then Bush is misguided. Business education seems to be regarded as ‘principled’ if it adheres to his ‘worldview’ of right and wrong. Those educators who don't adhere to Bush's views, but act in accordance with their own principles and the ideals of a university, are wrongly condemned as morally confused, and unprincipled, ‘surrendering’ reprobates. Of course, in highlighting the inadequacies of Bush's stance, it is acknowledged that we might attract deserved criticism for engaging in the type of ‘moral relativism’ for which we scold Bush. Therein lies an important point: One should be less dogmatic and more cautious about moral values, including about ‘right’ and ‘wrong’.
Three Implicit Failures of Accounting Educators
A much stronger implicit rebuke for accounting educators permeates President Bush's statement. Bush invokes a powerful metaphor to indicate his administration's intention to ‘mov[e] corporate accounting out of the shadows, so the investing public will have a true and fair and timely picture of assets and liabilities and income of publicly traded companies’ (Appendix). Bush's ‘shadows’ metaphor includes strong evocative imagery and entailments. It conjures an image of accounting as something that is dark, lurking and sinister—as something that needs to be more open, savoury and subject to scrupled illumination. Indeed, his deployment of this metaphor is resonant with a more pervasive metaphor in American social life—U.S. Supreme Court Justice Brandeis’ much-quoted dictum, ‘Sunlight is the best disinfectant’. Brandeis’ metaphor and its derivatives are evoked often in connection with legal matters and corporate and securities issues, and Bush has adroitly tapped into that reservoir of metaphorical capital.
In advocating a ‘move . . . out of the shadows’, Bush, in effect, signalled at least three performance failures by accounting educators.
Failure to Deliver Professional and Moral Behaviour Implicit in Bush's rhetoric is the view that accounting and business educators have failed to properly fashion the bright impressionable minds of young students entering the accounting profession. Under this view, accounting educators have neglected to make students aware of their obligations as professional persons: to have them accept, as reflexive compunction, the need to act in an honest way, with integrity, and to commit to a life in which they forsake personal well-being for the interests of the broader community. We are invited to believe that the result of this alleged neglect is a dilution of the professional status and moral foundations of accountants. The sentiment associated with this viewpoint was lampooned in a cartoon by Dolighan (2002) in which a student bedecked in graduation robes and with degree testamur in hand is berated by his despairing, incredulous parents: ‘You want to be an ACCOUNTANT!? Where did we go wrong? We tried to give you a good moral foundation.’
However, such sentiment misses an important point. Whereas accounting educators (and the parents in Dolighan's cartoon for that matter) can teach students principles of ethical and moral behaviour, they cannot (and should not) be held responsible for the actual ethical and moral behaviour of students after graduation.
Despite the best intentions of determined curriculum reform initiatives over many years (e.g., Bedford Committee Report of the American Accounting Association [AAA], 1986; Albrecht and Sack, 2000), accounting educators seem to be regarded as having abrogated their duty to provide well-rounded graduates of service to society. There are some meritorious aspects of this ‘abrogation hypothesis’—but not necessarily those Bush had in mind. For example, there are strong grounds for contending that accounting educators have been compliant facilitators of the ‘technicization’ of auditing and accounting (especially but not exclusively in the U.S.A.), of the marginalization of the genuinely independent, adversarial, arm's-length audit (see Briloff, 1990). Further, they have done so in the absence of critique (a matter to which we turn shortly).
If the way contemporary accounting is practised is ‘in the shadows’ and validly characterized (using terms employed by Bush elsewhere in his speech) as misleading, ‘false’, deceptive, ‘dishonest’, unethical, untrustworthy, lacking transparency, corrupt, ‘shading the truth’ and ‘cooking the books’, then isn't that the fault, in good part, of accounting educators? Clearly, many social commentators, such as cartoonists, seem to think so. For example, a cartoon in Canada's Windsor Star (3 September 2002) shows two university undergraduates conversing. The caption has one saying to the other: ‘I’ll be studying cooking and bookkeeping . . . I plan to be a corporate accountant.’
But accounting educators should not be held directly responsible: the central problem is, in large part, ingrained and systemic. Even if auditors were educated to be ethical and moral (assuming that we could agree on the meaning of these terms) and, in their professional lives as auditors, were ‘as honest as possible, [had] impeccable integrity and [were] competent and intrepid to the hilt’, the fact that they follow and endorse generally accepted accounting rules and practices means that ‘almost certainly they will be signing off on what mostly is financial nonsense!’ (Dean et al., 2002, p. iii). All the ‘moral foundation’ in the world will not help an auditor who acts honestly, but attests in good faith to depictions of wealth and profit that have resulted from the deployment of a collection of generally accepted, but highly dubious, accounting practices involving such things as provisioning for bad debts, capitalizing expenses, writing off assets, or recognizing sales revenue in advance of product delivery. Auditors who intend to pursue a moral path, to do the right thing (however unlikely it is that a society can agree on just what this is, other than by compulsion), are bound to failure, except in the most trivial way, if (as Dean et al., 2002, claim) the foundation of the reporting system upon which they attest to compliance is, itself, a perversion.
The Absence of Critique A second failing of accounting educators, implicit in President Bush's rhetoric, is to allow accounting to continue to be perceived by the public as somehow a revealer of an underlying natural truth. Accounting academics are doubly at fault here because they are (or should be) the conscience of the profession,6 and not merely the willing servants of professional reproduction and corporate triumphalism. Their role in society is to make the teaching, research and practice in the discipline of accounting as good as it can be for society at large.7 One aspect of the role of accounting educators (which, from the tone of his speech, would probably sit uncomfortably with Bush) is to assess critically accounting practices and principles, and in doing so expose false prophets and humbug, including the political and economic ideologies that extant accounting practices and principles facilitate.
There are strong grounds for regarding accounting, the well-named language of business, as helping to make various customs and rituals (including some that are anti-human and anti-humane8) seem natural. We should remain alert to any contention that accounting is an important part of the ‘production of images and discourses’ in our society and is one of those crucial social practices ‘that has to be analyzed as part and parcel of the reproduction and transformation of any symbolic order [because][a]esthetic and cultural practices matter, and the conditions of their production deserve the closest attention’ (Harvey, 1990, p. 355).
The Failure of Scholarly Endeavour? It is sobering to reflect on what has been (or ought to have been) one of the central purposes of accounting research and teaching by thousands of accounting academics in many countries over many decades: theorizing and making socially serviceable the periodic measurement and reporting of the financial position (wealth) and operating performance (change in wealth) of a business entity. If, as President Bush argues, Enron and related scandals show that we still do not have reliable audited measures of assets and liabilities (wealth) and operating performance (profit), then there appear to be sustainable grounds for implying that this is a third failure by accounting educators. Despite much research that has allegedly made the practice of accounting better, nonetheless, decades of research and scholarly enquiry by legions of accounting academics might be characterized, generally, to have been in vain.
This may be a harsh assessment. Perhaps the problem has been that of ineffective transmission of knowledge9 from the halls of academe to the accounting and financial reporting systems of businesses. This is not surprising in view of the ‘ten year retrospective of accounting education, 1992–2001’ by Wilson (2002, p. 308) in which he highlighted, as a ‘conspicuous’ cause for concern, ‘the limited dialogue which has emerged between accounting educators, accounting practitioners and staff in professional accounting bodies’. Many accounting academics seem to lack the communication skills and the rhetorical wherewithal to convince practitioners of the merits of their research and of the accounting ‘theory’ they espouse. Or perhaps the problem lies with the practitioner arm of the accounting profession and the semblance of antagonism and diffidence it often appears to display to academicians. The problem is not alleviated by what Goch observed in 1970 (and which we contend is still true today) as the ‘tedious prose’ of accounting academics. Goch (1970, p. 56) was flabbergasted about the incomprehensibility of accounting academics in communicating with practising accountants:
I cannot for the life of me understand why it is that when a man takes up a lecturing career he feels impelled to adopt all the trappings of the new accounting gobbledegook . . . Unless they want to be condemned forever to taking in each other's verbal washing, they have got to learn to communicate their ideas to their real audience—the broad mass of accountants—in good, plain, English.
Mautz (1974, p. 356) too, in lambasting what was at the time thought by many to be the world's most prestigious peer-reviewed journal in accounting, The Accounting Review, mused quizzically:
For goodness sake, what has happened to The Accounting Review? Most of us, and here I include academic types as well as practitioners, find this foreign language magazine almost impossible to read . . . I cite this as an illustration of how far apart academic and applied accounting have become.
What Mautz wrote in 1974 seems true thirty years later. Journals like The Accounting Review seem sadly out of step with the needs of society. They focus largely on superficial problems in order to demonstrate some versions of technical research virtuosity, avoid substantive critique, and adopt an almost hubristic gatekeeper mentality as an effective means of limiting perspectives.10 As Neu aptly puts it: ‘Although accounting research is a thriving industry, the majority of accounting research remains insular from events of importance to the majority of the world’ (2001, p. 321).
UNDERSTANDING THE POLITICAL, IDEOLOGICAL, NON-OBJECTIVE NATURE OF ACCOUNTING
In 2001, Professor Henry Giroux lamented:
As freedom is defined increasingly through the logic of consumerism, the dynamics of self-interest, an e-commerce investment culture, and all things private, there seems to be a growing disinterest on the part of the general population in such non commercial values as empathy, compassion, loyalty, caring, trust, and solidarity that bridge the private and the public and give substance to the meaning of citizenship, democracy, and public life. (2001, p. 2)
Giroux's lament should be of more than passing interest for accounting educators because all education, including that of accounting in the university, is political, and indeed, ideological. At the very least, students deserve to understand, critically, the discourses that render them, and their world, as they are. Should university educators promote accounting education as merely the learning of methods to facilitate ‘better’ private decisions? Should accounting educators be content, for example, to teach the technical mechanics of International Financial Reporting Standards despite concerns that these (and similar) accounting rules and requirements may have been developed in a social lacuna bereft of compassion for humanity? Should the possibility that the accounting we teach will help our students to design a ‘better’ management control system for a rapacious, profit-hungry mega-corporation be a source of contentment? How should the accountability of university accounting educators be discharged?
Giroux (2001, p. 2) appositely captures the point that accounting is not taught in the university (or in colleges, high schools, and elsewhere) with an intent to ‘foster critical consciousness, engender a respect for public goods, and affirm the need to energize democratic public life and reinvigorate the imperatives of social citizenship’. Even in ‘advanced’, mature settings, financial accounting, for example, is taught as an information system that generates earnings numbers for business valuation models and, more generally, for ‘contracting’ purposes. Management accounting is taught as a decision-support system.11 While there are instances of curricula that bring a more social (but hardly ever a radical) perspective, examples are rare12: they are often hived off in special, often marginal, courses. And when a more social, critical approach is proposed it is often in disguise.13
By ignoring the social perspective of accounting we are not playing ‘fair’ with the students who ‘learn’ accounting, and with the future generations of people who will bear the consequences of ill-informed accounting behaviour by those students when they enter practice. We should be mindful that accounting is not only a ‘malleable resource’ (Burchell et al., 1980), but that it helps create a portrait of what many regard to be ‘economic reality’ (Hines, 1988). If nothing else, Enron provided vivid evidence of this. It is folly to argue that the failures of Enron, WorldCom and their like occurred because of a few rogue accountants and corporate executives who didn't receive sufficient dollops of ‘ethics’ as undergraduates or MBAs; and/or because U.S. GAAP was too ‘rule-bound’. Rather, we submit that a principal cause is that accounting is taught by studiously avoiding its essence, or its kernel.
To address the issues raised above, we recommend the following four (related) curriculum themes be introduced and sustained from the very first lecture in accounting.
Language
Accounting should be acknowledged, earnestly, as a language, a way of seeing, a way of perceiving—and therefore as something that will be contested. By enrolling to learn a certain ‘language’, one acquiesces to ways of seeing and thinking about the world. Every time an instructor prepares an income statement for ABC Company in the first class of the first accounting course, a range of socially contestable pedagogical decisions have already been made. But the students (and probably the instructors, too) proceed as if blithely unaware of them. For example, when an accounting instructor shows that the accounting language of business constructs a company's income statement by defining the return to capital as a distribution and not an expense, then students should be invited to ponder the possibility that this reflects a privileging of capital over labour. In the case of Enron, the accounting language of business led to the construction of a company balance sheet which excluded certain special-purpose entities that met a technical test for exclusion. This was a very cynical and seemingly mindless following of the ‘black letter’ language of accounting rules and requirements, with little regard for the intent of those rules and requirements. When assets and liabilities in a company's balance sheet (represented in dollars of differing amounts of purchasing power) are added to obtain grand totals and are offset to determine ‘net wealth’, then an illogicality of adding together unlike units has been adopted, thereby reinforcing logical ignorance and mathematical impropriety. Together, these practices and others sustain an ideology of unthinking respect for authority which contributes systematically to a sort of mindlessness (Langer and Moldoveanu, 2000).
Accounting language seems far from a language of enlightenment and fair play. West (1994, p. 44), for example, drew attention to the potentially ‘unenlightening’ nature of accounting when he observed aptly ‘one of the great ironies of contemporary accounting practice is the extraordinary imprecision of the words which define the fundamentals of accounting’. In this he has many supporters. Chambers (1994, p. 4), for example, drawing upon Montgomery (1937), implored us to ‘fight for honest accounting, clear financial statements . . . [and] easily understood accounting’ and to ‘fight’ against ‘weasel words’ in accounting.
Indeed, ironically, strong arguments can be made that accounting language does not ‘resonate’ with ‘fair play’. Accounting seems more akin to a language of perversity, dogmatism, class privilege, and of a secret society inhabited by a cognoscenti who are the only ones able to cut through the technical jargon employed. For example, on the issue of perversity and class privilege, we must acknowledge that the language used in support of accounting practice is based on a world of corporate endeavour which assumes the primacy of shareholders, and which imposes legal and fiduciary obligations on directors and corporate officers to promote shareholder value—there is no equal fiduciary duty to promote the well-being of employees and communities. Kelly (2003) suggests an interesting thought experiment that forces us to consider an alternative world without such ‘class privileging’—one in which employees and stockholders change places: where labour rights are primary and explicit, and where employees are spoken of as THE corporation, make up the boards of directors, nominate new members on such boards and have a fiduciary responsibility to maximize.14
The sociologist, Delaney, concludes (aptly in our view) that ‘if we continue to treat financial figures as objective reflections of firm health . . . we will miss the crucial role that power and strategy play in creating the financial portrait of the firm’ (1994, p. 514). His metaphor of ‘creating the financial portrait of the firm’ helps position accounting language as a far-from-neutral representation of some (alleged) objective reality.
Our students deserve to be made aware of how accounting language serves as a means of perception, thought and (ultimately) action. Accounting curricula should take seriously the characterization of accounting as the ‘language of business’ and invite students to consider the social, rhetorical and ideological essences of language in general, and of accounting language in particular.
Embeddedness
Accounting should be acknowledged as embedded in the other so-called ‘functional areas’ of business15 and the world at large. Accounting, as language, has extended its ideological reach into these areas; it is a profound social mechanism. Like writing, accounting ‘endow[s] social systems with an evolutionary dynamic’ (Baecker, 1992, p. 157). The data upon which economics, finance, marketing, industrial relations, HRM, and corporate governance, among others, largely feed, begin often with accounting, because it ‘deals with a microcosm of the world’ (Ijiri, 2002, p. 166). Costs, cash flows, assets, liabilities, profits, return on investment, and gross margins, both past and future, are found in all these functional areas of business. Indeed, areas like HRM pride themselves on becoming (allegedly) more objective by adopting quantitative accounting metrics such as return on investment to evaluate (in the case of HRM) various proposed training programs. Value-chain analysis and contribution margin calculations are integral parts of marketing. In industrial relations, financial statements are employed in collective bargaining to help assess a company's financial capacity to pay a wage demand. Consequently, Hines’ (1988) contention that people see companies within accounting seems valid. Indeed, many business phenomena seem to not exist until named or defined by accounting: the issue of executive stock options as an expense is a case in point.
Complexity
The settings within which accounting operates should be acknowledged as complex and messy. The temptation to suppress complexity in the accounting curriculum must be avoided; we should not dwell on oversimplified models and invite students to believe they represent the real world. We should be prepared to introduce complexity early, and often. In doing so, one suitable strategy would be to start with the real world that students know and understand, and then build on that foundation.16 We must be alert to the desirability of not prescribing oversimplified textbooks—or be mindful of the need to use them with caution. We should not ignore the teaching potential of a variety of accounting curriculum strategies, such as the planned withdrawal of structure (Amernic and Enns, 1979).
Students should be encouraged to read, and reflect upon, real, not textbook, accountings. This is not simply a plea for ‘more cases’ in accounting education. In our experience, many cases are trivializations of the complex, ideologically laden world in which people lead their lives. Many cases typically deployed within the accounting curriculum carry significant hidden ideological baggage.17
One way that we have experimented with complexity, while at the same time striving to incorporate Enron into our curriculum in a way that it is perceived to be part of the ongoing need to monitor the (unavoidable) excesses of capitalism, is described briefly in Exhibit 1.
- a The financial statements are not reproduced in this article. Students arrive at the first class of a financial accounting course, having taken a course in introductory financial accounting. Towards the end of the first class, after the instructor has introduced the theme of ‘quality of earnings’ (Amernic and Robb, 2003), a discussion case is distributed which consists of a set of financial statements of a company identified as ‘GES Corporation’, along with the following instructions: Assume that you are the ‘accounting and financial information advisor’ to the chief negotiator for your union, the Amalgamated Union of Canada (‘the AUC’). It is early in 2003, and the AUC is preparing for the upcoming negotiations with the company that employs their members, GES Corporation (‘GES’). GES is involved in several types of businesses, especially the buying and selling of various forms of energy. Your main job is to ensure that the union negotiating team is prepared to make supported arguments concerning GES’ ability to pay a compensation increase. The most recent set of financial statements of the company follows below.a 1. Derive financial statement ratios that might be helpful to you in your role. Be prepared to explain why the ratios that you have derived are helpful. 2. Is GES profitable? Explain. 3. Are any problem areas apparent in the financial information? Explain. 4. Do you have any comments on the company's cash flows? What would be the ‘optimal’ cash flow pattern (that is, if each of CFO, CFI, and CFF can take on either positive or negative values representing cash inflow or cash outflow, respectively, what pattern of signs is ‘best’, and why?) 5. Based on the information provided and your analysis, does GES have the ability to pay the members of the union a compensation increase? Explain. The results of the analysis indicate a company that is, according to the financial accounting information given, profitable, with increasing revenues, and with its most recent three years showing an optimal cash flow pattern of positive cash flow from operations, negative investing cash flow, and positive financing cash flow. Almost unanimously, students claim that—in answer to question 5 above—GES has the ability to pay a generous compensation increase. But then comes the zinger: the instructor announces that GES is in reality a well-known public company . . . Enron, with the financial statements being its final year (2000) along with comparatives. An audible gasp usually is heard from the majority of students. This ‘set-up’ in the first week is a prelude to a major assignment in which students are required to read and interpret the detailed testimony before the U.S. senate's Subcommittee on Investigations by Robert Roach, the subcommittee chief investigator, on Enron's so-called ‘prepay’ transactions with Chase, Citibank and other apparently complicit financial institutions. The testimony is available at http://govt-aff.senate.gov/072302roachindex.htm.
Metaphor
We need to identify the metaphors that inhabit the conceptual frameworks of financial accounting,18 and the various authoritative standards encompassing GAAP. We need to be sensitive to the metaphors that slip, perhaps unnoticed, into managers’ thinking, talking and acting about the accountings of their businesses.19 An appreciation of these metaphors is important, for they inevitably influence management's business and accounting decisions (Lakoff and Johnson, 1999; Amernic and Craig, 2000a, 2000b; Craig et al., 2001).
It seems fundamental and legitimate to examine the strong ideological footprint that metaphor leaves behind. Many of our pedagogical, heuristic and constitutive metaphors (Klamer and Leonard, 1994) in accounting and business education are subtle but often need to be acknowledged as dangerous, seductive and misleading. Metaphorical framing in accounting and business education often precludes a more realistic consideration of accounting curriculum issues. For example, the naming of the ‘sunk cost fallacy’ contributes to hasty conclusions regarding so-called sunk costs. In this vein, Walton (2002, p. 473) contends that ‘the sunk costs argument is not always fallacious, and in many cases can be seen to be a rational pre-commitment strategy’.
Postman calls metaphor an ‘organ of perception’ (1996, p. 174), a view consistent with taking the characterization of accounting as the language of business seriously. Metaphor needs to be brought into accounting education both in a macro and a micro perspective, for each of these perspectives contributes to the ideological construction of the language of business. In macro-perspective, for example, the very naming of accounting's conceptual framework evokes, metaphorically, a coherent structure. Like a framework of a building, it provides a logic of relationships that collaborate in the creation of a totality. It stands with its parts working together in a sort of natural unity, following (perhaps) natural laws in much the same way that a physical framework must follow natural, physical laws in order for the building to be durable, reliable, functional and predictable in its use. By (perhaps unobtrusive) metaphorical mapping from the domain of physical structures and their frameworks to the domain of accounting, the entailments thus transported may serve subtle, but profound, ideological ends in accounting and business. Indeed, in an even larger sense, the way we think, metaphorically, about accounting as a discipline has strong potential to frame the questions that we think are important for both our teaching and research. Is accounting metaphorically information in Demski's sense of ‘a commodity whose acquisition, like that of other commodities, constitutes a problem of economic choice’ (Demski, 1980, p. 2)? Or is accounting metaphorically text that is susceptible to varieties of textual analysis (Macintosh and Baker, 2002)? Or is it metaphorically a historical record (albeit another sort of text), or metaphorically something else, or metaphorically all these things at various times?
In micro-perspective, the accounting definitions that have been accorded revered status by standard-setters have an (unavoidably) metaphorical character that needs scrutiny in curriculum. For example, a common definition of the term asset in authoritative accounting literature is:
Assets are economic resources controlled by an entity as a result of past transactions or events and from which future economic benefits may be obtained. (CICA Handbook, Section 1000, ‘Financial Statement Concepts’, para. 29)
Many metaphors inhabit this definition. For example, we have:
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assets are ‘economic resources’,
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entities are controllers,
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assets are sources of ‘future economic benefits’,
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entities engage in ‘transactions’,
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entities are affected by ‘events’,
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entities are capable of extracting ‘future economic benefits’, and
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entities move through time.
Acknowledging metaphors (and cultivating the creative expression of identifying them) is important since people often (perhaps subliminally) reason and argue from definition (McGee, 1999), thus making their arguments to others (and also to themselves) based at least partly from the definition's metaphors. Making plain the metaphors and their entailments seems likely to broaden and deepen the usefulness and benefits of our accounting curriculum. Neil Postman highlights the importance of exposing our students to the metaphors in a discipline:
Through metaphors, we see the world as one thing or another . . . [i]s history unfolding according to some instructions of nature or a divine plan? Are our genes like information codes? . . . Do I exaggerate in saying that a student cannot understand what a subject is about without some understanding of the metaphors that are its foundation? I don't think so. In fact, it has always astonished me that those that write about the subject of education do not pay sufficient attention to the role of metaphor in giving form to the subject. In failing to do so, they deprive those studying the subject of the opportunity to confront its basic assumptions. Is the human mind, for example, like a dark cavern (needing illumination)? A muscle (needing exercise)? A vessel (needing filling)? (1996, p. 174)
Thus, metaphors we have about accounting the subject, about the things accounted for, and about accounting students (and, of course, about ourselves as accounting educators also) deserve reflection as we confront curriculum and other teaching choices. As shown in Figure 1, these metaphorical complexes seem to work together to frame the way we, as accounting educators, engage accounting education.
A reviewer has drawn our attention to the importance of reflecting upon the ways in which metaphors imperceptibly fashion the attitudes of educators too—including those of the authors in this article. From Fox (1983) and Lucas (2002), one can identify the metaphors that lecturers use when talking about teaching, and posit four conceptions of teaching:
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the ‘transfer’ conception: knowledge is a commodity to be transferred from one vessel to another;
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the ‘shaping’ conception: teaching is usually directed to ‘developing’ the minds of students;
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the ‘travelling’ conception: the teacher ‘leads’ students into new territory and, in doing so, gains new perspectives too; and
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the ‘growing’ conception: the teacher is a ‘nurturer’.
The metaphors we deploy do not give equal weight to each of these conceptions and some reader caution might be advisable. We emphasize the ‘subject matter as food’ and ‘learning as digestion’ metaphors to give primacy to the transfer conception of teaching. Additionally, we promote the shaping conception by placing responsibility for learning on the teacher rather than the student. But, as a reviewer has rightly noted, such an approach has some deficiencies: ‘if the travelling and growing metaphors are to be enacted, educators might do well to see themselves as working in partnership with students, designing learning activities that attempt, in a variety of ways, to place students in a position whereby they can identify new ways of thinking for themselves’. But, we contend, armed with the curriculum themes of language, embeddedness, complexity and metaphor (discussed above), accounting educators and students alike would seem better equipped to pursue ‘travelling’ and ‘growing’ conceptions.
THE POVERTY OF ACCOUNTING CURRICULA
The issue of what ought to be an appropriate curriculum for (especially) baccalaureate accounting students is a complex and multi-faceted one. Here we reinforce and extend the argument by Chambers (1999, pp. 250–1) that what we teach students in accounting is tantamount to a ‘poverty of discourse’ and an ‘educational scandal’. Chambers’ arguments, as paraphrased by Craig and Amernic (2002, pp. 9–10), are that:
accounting pedagogues have ‘turned a blind eye’ to the ‘fallacious arithmetic’ which underpins the variety of accounting they teach—an accounting where the symbols do not ‘correspond with the observable facts’ (p. 242) . . . [They] have failed . . . over many decades, to break free of the insulating ‘cocoon’ of generally accepted accounting practices (p. 249) ‘to defend accounting teaching and practice from the infiltration of vague, vagrant and self-serving ideas’ (p. 244). As ‘expositors’ of a variety of accounting with little regard for discovering the critical ‘dated money's worth of property in possession’ (p. 245) [accounting educators] are implicated as perpetrators of ‘specious arguments’ that advance ‘fallacious’ accounting processes leading to ‘error, deviousness and plain deceits’ (p. 248) [and are] accused of allowing ‘indoctrination’ and ‘brainwashing’ to triumph over ‘rigorous enquiry’. [Accounting educators] propagate ‘illogicalities’ and ‘inconsistencies’, abetted by their ‘undisciplined imagination’ and failure to focus on the ‘observables of real world affairs’ (p. 250) [and to] emphasise ‘knowledge of the present money's worth of things in possession’ (p. 251).
A ‘poverty of accounting discourse’ emerges from failure to engage more vigorously with the underlying fundamentals of definition, concept and measurement in accounting. It arises when accounting educators ignore or gloss over the importance of ideology and power in constructing both definition and measurement. We should not ignore the view that ‘Definitions are interest-driven and saturated with questions of power and persuasion’ (Schiappa, 1996, p. 266).
A poverty of accounting discourse will arise from condemning students to an exclusive diet of conventional accounting technique—one that is lacking in the vital trace elements of critique. Chambers, in his address to the 1994 Annual Conference of the Accounting Association of Australia and New Zealand, titled Pacioli 500 Years On,20 dwelt on this point. He seemed in an angry mood, barely able to disguise his disapproval of accounting curricula which continued to ignore ‘fundamental anomalies’ in the beliefs, dogma and principles underlying accounting that ‘scream for re-examination in the light of observables and experiences’ (p. 2). Specifically indicted by Chambers were the ‘going concern assumption’, the idea that ‘costs attach to outputs’, valuation according to ‘the cost or market’ rule, notions like ‘service potential’, and ‘a whole cluster of ideas on aspects of accounting as it is taught and practised [that] have been plainly described, by accountants themselves, as fictions’ (p. 2). He mused tellingly:
Have you ever paused to wonder how long it is since you saw a basic idea in accounting put under critical examination? . . .
You will look in vain for singular and clear concepts of income, wealth, capital, assets, liabilities, financial position, that tally with the phenomena of commercial intercourse. (pp. 2, 3)
Chambers appeared perplexed by the fevered imaginations allowing ‘an expectation’ to be regarded as an ‘asset’, and argued that ‘nothing in the future can be now’ (p. 4). (Perhaps he might have appreciated our contention regarding the importance of making explicit the metaphors in accounting definitions—such as those that inhabit the definition of ‘asset’.) He (correctly in our view) could see ‘no excuse’ for accounting teachers and researchers continuing to propagate ‘fictions, flaws and folly’ thereby giving succour to a variety of contemporary accounting that is ‘logically fallacious and practically pernicious’ (p. 2).
Chambers’ concerns go to the heart of the issue of the accountability of accounting educators. He seemed to accept, implicitly at least, that the socially constructive nature of accounting definitions would be conducive to clearer, fairer and better accounting education and practice.
If accounting students are to be nourished intellectually, they ought to be encouraged to critique underlying concepts and the social and ideological forces responsible for fashioning any accounting technique. It is important to encourage social critique and ‘deviations’ from the mainstream impositions of the in-vogue conceptions and paraphernalia of the ideology du jour, whether it be capitalism, socialism, communism, liberalism or any other ideology. Sadly, fewer professors of accounting seem to conceive their role as ‘professing the truth without fear or favour’, of leading the way, challenging the status quo, offering critique, ‘disturbing the peace’, setting the agenda, being the conscience of the profession, and offering ‘resistance’ to dominant ideologies. This is unfortunate, for we need to pierce the technical surface of accounting to expose the underlying ideology. We need to encourage students to ‘see’ the seemingly purely technical as inevitably carrying a heavy burden of ideology. We must have students engage in critique. We need to raise their awareness of the implications of ideology that are often obscured by faddishness and technical virtuosity (e.g., as evidenced in the vogue popularity of, for example, economic value added [EVA]).
We would fail in our accountability to society, as ‘disturbers of the peace’ (Passmore, 1967), if we continue to be obsequious, conformist and complacent and meekly provide little other than a curricular bill of fare dominated by market-driven technical menus (Craig and Amernic, 2002, p. 38). We should resist any temptation to expunge irritating, challenging material because it may offend sensibilities. Sikka and Wilmott (2002, p. 194) capture the essence of the accounting educator's duty when they write:
Accounting is central to the workings of capitalism. It prioritises property rights (as in a balance sheet), celebrates the supremacy of capital over labour (as in the income statement) and encourages belief in efficiency, private profits and competition . . . Emphasis on its technical aspects tends to displace consideration of accounting's role in representing social conflict. Instead of posing questions about the role of education in legitimizing practices that result in exploitation, poverty wages, environmental degradations and fraud, the issues become those of following the right techniques and/or accounting/auditing standards. In this way the social core of accounting becomes hidden from scrutiny.
Thus, accounting curricula should encourage critique, be informed by ideological awareness, and be served with healthy portions of skepticism. Accounting educators should promote a scholarly environment in which freedom to be skeptical and critical of conventional wisdom is tolerated and actively encouraged. A re-emphasis on critique will provide much-needed antidote to the dressed-up bluster and seductive patina that sustains the mechanics of rather arbitrary, but ideologically laden, accounting techniques such as EVA (as explained by Amernic et al., 2000). Sikka and Wilmott contend that crises such as Enron offer a unique moment during which accounting education may open up accounting's ‘social core’:
This core only gains public visibility when there are corporate collapses, scandals and revelations of frauds (e.g. Enron and WorldCom). Such moments of crisis weaken the dominant discourses and create possibilities of change. They provide a reminder that aspiring accountants are being taught techniques and values that can fail, have failed, or are failing. However, these moments of crisis are also opportunities for reconstruction, or at least discussion of it. But such discussion is rarely accompanied by questions about the role of accounting education in encouraging antisocial or errant conduct by auditors, company executives or corporate advisors. The connection is rarely made between the professional values and the role of accounting education in the proliferation of social problems. Thus opportunities for reforming education remained confined to the narrow confines of the universities or private mutterings of academics. They are rarely taken beyond the academy. (2002, p. 194)
The collapse of Enron, as a social phenomenon, ought to be regarded as providing a unique opportunity for accounting discourse that shows vividly the intertwining of the technical, the social and the ideological, and which therefore ought to be important in any accounting curriculum.
Dual Mandate
What we should teach in accounting will rarely be a matter for universal accord. But as scholars and educators in professional disciplines within universities, agreement on curriculum is unusually difficult, given the ‘dual mandate’ we are faced with of ‘commitment to traditional academic norms and scholarship . . . on the one hand, and commitment to the transmission of distinctly vocational skills on the other’ (Harman, 1989, p. 471). While we should not submit to control of syllabus by professional accounting bodies, we should be mindful of the need for a rapprochement between the ‘academic-scholarly’ and ‘practice-oriented’ cultures that influence curriculum design. We need to strike the right balance between the theoretical and practical components of what we teach in accounting, and open up our view of what constitutes ‘theory’ to include critical and rhetorical theory as well. At present, curricula seem out of kilter.
A strong argument can be made that this imbalance arises, in part, as a consequence of the absence of ‘any generally accepted view of the role and rationale of the university in the twenty-first century’ (Osborne, 2003, p. 22). Although an extensive body of literature exists about the purpose and functioning of the university, much of it is conflicting (Craig and Amernic, 2002, p. 124, fn. 9). This ambiguity of role and purpose poses considerable challenges for curriculum designers, especially in an era where universities increasingly seem to be adopting a functional, vocational and utilitarian role. In this vein, business school academics should ‘be extremely wary’ about the consequences of unquestioningly embracing a ‘creeping corporatism’ (Craig et al., 1999, p. 521) and, through their curriculum choices, allowing themselves to become ‘cheerleaders for whatever generates profits’ (Warde, 2001).
To resolve any problems of dual mandate, to achieve better practical manifestations of the art of accounting, and to attain the ‘moral foundation’ President Bush craves, we would do well to be cognizant of (and to respond to) the lessons of history and the wisdom of our leading intellectual forebears. Professor Henry Rand Hatfield, for example, in an address to the annual meeting of the American Institute of Accountants on 21 September 1927, criticized accounting practitioners in terms that would resonate as highly apt now. According to Hatfield, practitioners drew strength from their observance of ‘principles’ without having first built ‘a sound theory’, used ‘loose terminology, shallow and careless reasoning’ and conducted themselves with ‘apparent eagerness to avoid displeasing [their] clients’ (Zeff, 2000, p. 135). Current calls for greater transparency, probity and understandability in accounting repeat Hatfield's arguments:
Accounting is something other than a set of clever devices for beating the income tax with the least damage to one's conscience, something more than a specious way of window-dressing . . . it is the universal language of business.
The prime requisite of language is that it be understandable. There is a suspicion abroad that accounting as it exists today is not impeccable in this respect. Hartley Withers [a financial journalist] . . . speaks of it as an ‘impossible cryptogram with an esoteric meaning that is only revealed to an initiated caste, after much fasting and mortification’. (Hatfield, quoted in Zeff, 2000, p. 135)
What was then in 1927, according to Hatfield, is now too.21 Nothing seems to have changed: greed has triumphed over conscience. We still have ‘clever devices’ (e.g. Enron's special purpose entities) to disguise debt and window dress published accounts. Accounting is no more understandable or less esoteric today than it was in 1927. Indeed, it has become more difficult to unravel as we add more perplexing technical jargon to the accounting lexicon (e.g., terms associated with tax effect accounting and accounting for financial instruments). Accounting education (and Bush's sought-after ‘moral foundation’) would benefit if our students were required to read more of Hatfield's work and to understand his unwavering value system: ‘a commitment to ethical behavior and to accounting practices and terminology that were logical derivations of principle’ (Zeff, 2000, p. 153).
One wonders whether accounting practitioners will ever accept such a value system and pay it more than lip service. If not, accounting educators must be held partly responsible—for not instilling in students (the future practitioners of accounting) the value of theory-derived practices. In recent decades such a value system seems to have become passé and viewed perhaps as an irrelevant vestige of an ‘old economy’ mindset. But considering such a value system as an irrelevance is nothing new. When Hatfield addressed the American Institute of Accountants in September 1939, one could be forgiven for thinking that (then) recent events (the Great Crash of 1929, the new regulations of the securities industry in 1933/4, Roosevelt's New Deal and the revelations of the McKesson and Robbins fraud [see SEC, 1940]) would have prompted a greater acceptance of his value system. But this is not what Hatfield observed. Rather, ‘he lectured his audience sternly for doing so little to develop a sound theory . . . He counseled the profession, gently but firmly: define theory, have the courage of your convictions, and stop counting noses’ (Zeff, 2000, p. 196).
Hatfield's counsel was sound, and is equally applicable to modern day practitioners and accounting academics—despite the best intentions of various (failed) conceptual framework projects throughout the world. Hatfield's advice has met strong support, if not practical embrace, in sections of the accounting academy. Sprouse (1988, p. 121), for example, has averred that ‘for accountancy to be acknowledged as a legitimate learned profession, something more fundamental and enduring than facile application of an increasingly comprehensive set of detailed rules and procedures must be at its foundation’. We would be well served too by reflecting on the following very acute observation made by Hatfield in his 1939 address:
The conflict between theory and practice is a false one, for practice to be sound should be related to sound theories . . . practitioner[s’] . . . certificates state that in their opinion the accounts are ‘in accordance with accepted principles of accounting’. It certainly behooves the profession, therefore, to know what a principle is, and what are the principles of accounting. (Zeff, 2000, p. 196)
Indeed, what Hatfield ‘behooves’ the profession to do, the philosopher Whitehead (1929/1957, p. 38) sees clearly as a role for the university (and, we contend, the accounting educators within it). Whitehead argues that ‘[t]he really useful training yields a comprehension of a few general principles with a thorough grounding in the way they apply to a variety of concrete details . . . The function of a university is to enable you to shed details in favor of principles.’
If that is to be the case, we have not progressed far, if Baxter (1981) is to be believed. His view (which we agree with and regard as a good description of practice in 2004) is that accounting curricula are over-weighted with the study of standards and official pronouncements. We suspect that Zeff (1989, p. 165) would agree strongly too: he chides accounting educators for responding to the ‘proliferation of accounting pronouncements’ by ‘increasing the girth of intermediate accounting textbooks’ and covering many pronouncements in ‘mind-numbing detail’, unaccompanied by any discussion of historical development or contradictions between inconsistent standards. Baxter (p. 10) claims that insufficient attention is given to:
the economic reality the accounts are supposed to show . . . learning by rote replaces reason; the good student of today is he who can parrot most rules. On this spare diet, accounting students are not likely to develop the habits of reasoning and skepticism that education should instill.
Sprouse (1989, p. 107) concurs, and sheets the ‘lion's share of the blame’ to accounting educators for ‘imposing all those rules on their poor defenceless students’.
The philosophical underpinnings of accounting should not be thrown ‘out the window’ as some form of jetsam. But the task confronting accounting educators is not helped by our penchant for textbook-based courses that we find ‘easy to teach from’. We need to be mindful of Whitehead's contention that: ‘Whenever a textbook is written of real educational worth, you may be quite certain that some reviewer will say that it will be difficult to teach from it. Of course it will be difficult to teach from it. If it were easy, the book ought to be burned; for it cannot be educational’ (1929/1957, p. 16).
Few accounting graduates get a good exposure to the various underlying theories of their discipline. Most are exposed to GAAP, at great length, in the initial years of their study. It is often not until a final year semester-length elective unit, Accounting Theory, that they engage in any (even mild) critique of the accounting practices they have learned by rote. By this time they are already brainwashed into thinking that because accounting techniques are ‘generally accepted’, then those practices must be good and unchallengeable. Indeed, even when they are exposed to ‘theory’, such exposure is often perverse and highly delimited because of the theoretical perspectives that are excluded. For example, Scott's textbook Financial Accounting Theory (2003) is lavish in description of decision-usefulness and positive accounting theory, but is silent on anything resembling critical theories or rhetoric in its survey of the theory of the language of business. And Macintosh (2003, p. 198), in a review of Skinner and Milburn's Accounting Standards in Evolution, laments that ‘there is major lacuna in the authors’ choice of material — especially any material dealing with the historical development of the profession and accounting theory, despite the large corpus of scholarly work with a critical theory perspective’.
The challenge facing accounting educators who want to do more than teach procedures and technical competence, but are uncertain as to how they should meld professional core knowledge with a less gullible, less conservative, more critical social outlook, is not easily resolved. Ravenscroft (pers. comm., 2003) provides an anecdote that is both insightful and depressing:
I remember hearing a MAJOR critical theorist in the USA at an annual AAA [American Accounting Association] meeting sharing with us how he taught critically. I cannot tell you how eagerly I looked forward to this talk . . . and I cannot tell you how incredibly disappointed I was to learn that he was doing no more than I was . . . teaching a standard intermediate text book and supplementing it with articles from the current business press!!! I admire this person's writing (of which there are many examples) and his persistence in his somewhat lonely theoretical tower, but I admire him less than I used to, because I found out as a teacher he has the same feet of clay I do. He hasn't figured out how to navigate and negotiate the dual mandate either and he's put a lot more effort into it than I have. Technical competence from professionals is not to be scoffed at, YET, we want students to understand the social role, the embeddedness of accounting, its relative nature, its manipulation by political means, its nature as performative utterance rather than as revealed truth, etc . . . How to do both is crucial, key, absolutely what we all want to do and don't know how to do . . . We do not want to create more myopic mechanized machines who spit out tax code rapid-fire and don't question anything they are doing or learning.
Well said. We agree entirely.
GENERATIONS OF INTELLECTUAL IMPOVERISHMENT
Most accounting educators do not require students to read the original writings of the great minds of accounting. More often than not students are left intellectually impoverished by not reading such writings or by being served a menu of sanitized summaries in accounting theory textbooks.22 Accounting education would benefit if students were exposed to the corpus of wisdom (and the ‘warts’) embodied in the lifetime writings, including private correspondence,23 utterances,24 and thinking of accounting's major intellectual leaders over time—for example, through exposure to the lifework and thinking of scholars of the stature of Littleton, Paton, Hatfield and Chambers. Such exposure should be used to develop substantive curriculum themes and content.
While accounting curricula often include the occasional examination of one or two works of ‘contemporary research heroes’, they do not, as a rule, challenge students to analyse the lifework, attitudes and cerebral essence of our eminent forebears. Two good examples of the corpus of written and spoken scholarship worthy of substantive exposure lie in the writing, correspondence and other life's work of Professors Henry Rand Hatfield and Raymond J. Chambers.25 Their output deserves to be exposed to students: it provides a wealth of ideas, many contentious, for analysis. Accounting educators should require students to read, analyse and critique some of the thoughts of exemplary paragons of challenging thinking in accounting.
Criticism of the professional standards of practising accountants and accounting educators has a long history that is traceable through diverse settings over many years. Yet we seem to have become totally inured to it, immune to criticism that is counter to the overblown rhetoric of professional excellence and virtue promulgated routinely over many decades by professional accounting bodies.
The criticisms levelled currently at practising accountants and (by implication) accounting educators are not new. For example, Hatfield, in addressing San Francisco CPAs sometime in 1905–6, appealed to his audience to lift their standards of performance. What he had to say about accounting would not be out of place now, almost a hundred years later:
The . . . need of the profession is the establishing of the highest possible standard for its members. I plead not merely for technical dexterity in the investigation of accounts and the detection of frauds; not merely for knowledge derived from prolonged study of the principles of accounting . . . not merely for a high standard of personal probity . . . nor [a] high code of professional ethics . . . The profession should claim all of these, but much more . . .
The most important problem before the public is the regulation of corporations. There are many sides to this problem but most of them center about finances, the question of investment and of profits. In a word, they are questions of accounting. But there is no other country where such vicious principles of corporation accounting are countenanced as in the United States. In proof of this, look at the text book on corporation accounting recommended by the N.Y.C.P.A. This explicitly states that there is no objection . . . to listing assets acquired by stock purchase at twice their actual value . . . Is the C.P.A. prepared to take a stand for accuracy in corporation accounts? May not C.P.A. stand for Conscience, Probity, Accuracy? (Cited by Zeff, 2000, p. 64, emphases added)
Remarkably, the problems Hatfield alluded to were prevalent in the prelude to the recent spate of corporate collapses. Enron, for example, listed assets such as its ‘merchant investments and energy assets’ at inflated estimates of their fair value or ‘actual [net realizable] value’ (Benston and Hartgraves, 2002, pp. 114–17). Even more remarkably, the ‘vicious principles of accounting’ Hatfield alludes to as then ‘still countenanced in the U.S.’ are now still in place—and indeed, revered. For example, perhaps the most distinctive characteristic of U.S. accounting, LIFO, can be ‘vicious’ in its distorting effect on reported profits and inventories. The adoption of LIFO flow assumptions even when they are totally contrary to actual flows of inventory is an example of institutionalized deception. Yet such adoption remains unchallenged, tolerated because of its capacity to alleviate some of the distortions in inventory accounting that arise in periods of rising prices—and because of its compatibility with allowable tax assessment procedures. It reflects a triumph of pragmatism and expedience over principle and propriety.
Hatfield's criticisms persisted over several decades and have been supported then, and since, by a wide variety of accounting scholars. Chambers, for example, in his theory of Continuously Contemporary Accounting is alleged to have ‘demonstrated with logic and evidence that only an accounting system based on market selling prices is relevant to users’ evaluation and decision-making processes’ (Al-Hogail and Previts, 2001, p. 1).
Today, past criticisms of accounting (and by implication of accounting educators) have a familiar ring. It has been heard in commentary on the implication of accounting in corporate crashes, in many countries, over many decades.26 As recent editorials in Abacus aptly observe, ‘the tone of the rhetoric’ (that we observe with recent company collapses) mimics that surrounding like sagas (Penn Central, Equity Funding, S&L in the U.S.; Bond, Adsteam, Cambridge Credit in Australia; and Pergamon, Maxwell, BCCI in the U.K.) in previous decades’ (Dean et al., 2002, p. i). Indeed, the responses to on-going creative accounting and failures like that of Enron ‘appear to be in an intellectual groove’ from which they struggle to emerge (Dean, 2002, p. iii).
With this in mind, there would seem considerable merit in recognizing the importance of a ‘historical perspective’ in our curriculum choices. We should alert students to the fact that the history of corporate failure is littered with criticisms of accounting and auditing education and practices—and that ‘on each occasion . . . reform has been demanded and promised, only to lapse once the outrage has been aired’ (Dean et al., 2002, p. i). An historical perspective is important too, for as Funnell (2002, p. 11) appositely observed:
most accounting subjects taught at universities are to some extent dependent on the historical insights provided by accounting historians. Thus, students of financial accounting are unlikely to fully understand the importance of auditing and accounting standards if they do not have a good grounding in the history of the legislative protections provided by governments to shareholders, and society in general, as a result of financial catastrophes over the past two centuries.
Clearly, knowing the history of the highly politicized debate that has taken place over whether to expense stock options and the ethical propriety of external auditors conducting management advisory services for their audit clients would help students to understand the current problems of accounting that have emerged from the Enron collapse.
DISCUSSION AND RECOMMENDATIONS
There is still a misguided view in the broader community, including by Mr Bush and others (including also many in the ‘accounting industry’) that technical dexterity with the accounts is sufficient. For many, mere compliance with rules-based GAAP, without any professional ‘true and fair’ or ‘fairly presented’ override, is acceptable. Furthermore, the whole concept of a ‘professional person’ and of what that entails seems to have been swept aside or redefined. Perhaps accounting educators need to ponder the words of Sterling (1973, p. 49) on what he regards to be the almost unique approach adopted in preparing novices for service in the accounting profession: ‘Except for some theologies, I don't know of any other discipline that perceives its duty to be the passing along of accepted practices’. Indeed, as Chambers (1994, p. 2) observes tellingly:
In accounting the first and chief qualification of basic ideas is that they be generally accepted. If any one of them is contrary to fact, or inconsistent with another, that is ‘just too bad’ for facts and logic. The defect is plastered over with another dictum which qualifies forthwith as generally accepted; otherwise there would be no place for the provisos, caveats, exceptions and exclusions that becloud every one of them and confuse the utterances of professional bodies, standards boards and textbook writers.
In Chambers’ (1994, p. 4) assessment, we desperately need ‘protection from the nonsense parlayed by textbooks and standards boards’ and ‘the aid of independent thought rather than the dead hand of unwarranted general acceptance and abject compliance’. To encourage ‘independent thought’ and not ‘abject compliance’ with accounting practices that are ‘generally accepted’, we propose three sets of recommendations as a basis for conversation, formal discussion and adoption by accounting educators.
Recommendation 1: Curriculum Themes
The four curriculum themes (outlined above) should be introduced in the first class in accounting and should permeate all subsequent teaching of accounting:
Language Students should be made aware that accounting is the language of business; that it is contested in a way that affects perception, thought and action; and that it serves social, rhetorical and ideological ends. Accounting educators should go far beyond mere parroting of the superficial platitude ‘accounting is the language of business’, and consider accounting curriculum choices in which language is made problematic.
Embeddedness Students should be encouraged not to regard accounting as operating in an insulating cocoon but to appreciate it as a profound social and organizational mechanism embedded in the practice of other functional areas of business, such as marketing, and human resources management, and of society more generally.
Complexity Students should be encouraged to appreciate the complexity of accounting through exposure to real, as opposed to textbook, accountings. The complex, ideologically laden world in which accounting operates should not be overlooked or trivialized.
Metaphor Students should be encouraged to contemplate the abstract plane of accounting and the metaphors that, often subtly and unnoticed, influence accounting and the way our accountings are perceived.
Recommendation 2: Addressing the ‘Poverty of Discourse’
There should be a more determined commitment to address the ‘poverty of discourse’ in accounting curricula by:
First, engaging more vigorously with the underlying fundamentals of theory, definition, concept and measurement in accounting; and of encouraging a view that good practice needs to be founded on sound theory. As an example, the ideological and rhetorical power of definition should be opened up for discussion in the accounting curriculum.
Second, abandoning slavish, unquestioning adherence to conventional accounting techniques and over-preoccupation with uncritical study of extant accounting standards and official pronouncements issued by professional accounting bodies. Accounting educators should serve accounting with lashings of scepticism and should be prepared, even when it offends sensibilities, to encourage critique and deviations from GAAP. In many accounting educational settings, especially those with a professed mandate of ‘preparation for entering the profession’, this may require real determination on the part of faculty members.
Third, piercing the technical surface of accounting to expose its underlying ideology. We should not operate as unquestioning cheerleaders of any imposed ideology—such as those based on the virtues of market-based competition or of the supremacy of capital over labour.
Recommendation 3: The Lessons of History
Accounting curricula should accord greater cognizance of, and alertness to, the lessons of history and the wisdom and also weaknesses of prominent intellectual forebears in accounting by:
First, encouraging student exposure to the life's work of the great minds of our discipline.
Second, alerting students to the criticisms of the professional standards of practising accountants that have been made over many decades.
Third, alerting students to the long history of unexpected corporate failure: a history littered with criticisms of accounting and auditing practice in which promised reforms have lapsed once the outrage has subsided.
Fourth, at least encouraging an appreciation that some suggestions might support the contention that accounting, in ways still seemingly too subtle for us to comprehend adequately, was (and is) foundational to society's development. As Mattessich (1987, p. 71) observes:
Recent archaeological research offers revolutionary insight about the precursor of abstract counting and pictographic as well as ideographic writing. This precursor was a data processing system in which simple (and later complex) clay tokens of various shapes [represented] assets and economic transactions . . . The economic–philosophic implications of this discovery are important. First, it suggests that accounting preceded abstract counting as well as writing . . .
To sum up, we are all conflicted denizens of a confused, often-absurd world. Our chosen vocation, as accounting educators in the university, should cause us to pause, especially during and after moments of crisis such as Enron, to reflect upon how (imperceptibly even) we might help improve the world through our engagement with what and how we teach, and help lift veils of ignorance, if only slightly. By encouraging a social view in accounting education, by encouraging critique, and by encouraging a critical enthusiasm for the wisdom of the past, we aim to nudge accounting ‘out of the shadows’.
But ‘encouragement’ of such matters is only the beginning. There is ample scope for further consideration of how the agenda outlined above might be implemented. This would involve deeper analysis of the teaching and learning processes that would best support changes in the worldview expected of students. As well, attention needs to be directed to the form of pedagogy (or andragogy) that would best help implement the proposed agenda of reform, and to the ways in which educators might be persuaded to become more open to new ways of thinking.
Footnotes
Appendix
APPENDIX PRESIDENT BUSH'S SPEECH OF 9 JULY 2002
Downloaded from http://www.whitehouse.gov on 9 July 2002
For Immediate Release
Office of the Press Secretary
July 9, 2002
President Announces Tough New Enforcement Initiatives for Reform
Remarks by the President on Corporate Responsibility
Regent Wall Street Hotel
New York, New York
. . .
11:20 A.M. EDT
THE PRESIDENT: Thank you all. Thank you very much for that warm welcome. I'm pleased to be back in New York City. New York City is a unique symbol of America's creativity and character and resilience. In the last 10 months, New Yorkers have shown a watching world the true spirit of your city. (Applause.) A spirit that honors the loss, remembers its heroes, and goes forward with determination and with confidence.
People of this city are writing one of the greatest chapters in our nation's history, and all Americans are proud of New York. (Applause.)
I've come to the financial capital of the world to speak of a serious challenge to our financial markets, and to the confidence on which they rest. The misdeeds now being uncovered in some quarters of corporate America are threatening the financial well being of many workers and many investors. At this moment, America's greatest economic need is higher ethical standards—standards enforced by strict laws and upheld by responsible business leaders.
The lure of heady profits of the late 1990s spawned abuses and excesses. With strict enforcement and higher ethical standards, we must usher in a new era of integrity in corporate America.
I want to thank Bill for his introduction. There's nothing like being recycled. (Laughter and applause.) But thanks for having me. I'm honored to meet your family and Uncle Jack. (Laughter and applause.)
I appreciate very much Secretary O’Neill and Secretary Evans traveling with me today. I want to thank the members of the New York delegation, Senators Schumer and Clinton, as well as Congressman Fossella and Congressman Rangel. I appreciate so very much the Mayor—my friend, the Mayor, for being here to greet me as I came in on the chopper. Thank you, Mr Mayor, and thanks for the great job you’re doing for New York. (Applause.)
I'm honored that Cardinal Egan is here. And I appreciate so very much seeing John Whitehead, the Chairman of the Lower Manhattan Development Corporation. And thank you all for coming, as well.
The American economy—our economy—is built on confidence. The conviction that our free enterprise system will continue to be the most powerful and most promising in the world. That confidence is well-placed. After all, American technology is the most advanced in the world. Our universities attract the talent of the world. Our workers and ranchers and farmers can compete with anyone in the world. Our society rewards hard work and honest ambition, bringing people to our shores from all around the world who share those values. The American economy is the most creative and enterprising and productive system ever devised. (Applause.)
We can be confident because America is taking every necessary step to fight and win the war on terror. We are reorganizing the federal government to protect the homeland. We are hunting down the terrorists who seek to sow chaos. My commitment, and the commitment of our government, is total. We will not relent until the cold-blooded killers are found, disrupted, and defeated. (Applause.)
We can be confident because of the amazing achievements of American workers and entrepreneurs. In spite of all that happened last year, from the economic slowdown to the terrorist attack, worker productivity has grown by 4.2 per cent over the last four quarters. In the first quarter of 2002, the economy grew at an annual rate exceeding 6 per cent. Though there's much work left to do, American workers have defied the pessimists and laid the foundation for a sustained recovery.
We can be confident because we’re pursuing pro-growth reforms in Washington, D.C. Last year we passed the biggest tax cut in a generation, which encouraged job creation and boosted consumer spending at just the right time. For the sake of long-term growth, I'm asking Congress to make the tax reductions permanent. I'm asking Congress to join me to promote free trade, which will open new markets and create better jobs and spur innovation. I ask Congress to work with me to pass a terrorism insurance bill, to give companies the security they need to expand and to build. (Applause.) and I will insist on—and, if need be, enforce—discipline in federal spending, so we can meet our national priorities without undermining our economy.
We have much to be confident about in America. Yet our economy and our country need one more kind of confidence—confidence in the character and conduct of all of our business leaders. The American economy today is rising, while faith in the fundamental integrity of American business leaders is being undermined. Nearly every week brings better economic news, and a discovery of fraud and scandal—problems long in the making, but now coming to light.
We've learned of some business leaders obstructing justice, and misleading clients, falsifying records, business executives breaching the trust and abusing power. We've learned of CEOs earning tens of millions of dollars in bonuses just before their companies go bankrupt, leaving employees and retirees and investors to suffer. The business pages of American newspapers should not read like a scandal sheet.
The vast majority of businessmen and women are honest. They do right by their employees and their shareholders. They do not cut ethical corners, and their work helps create an economy which is the envy of the world.
Yet high-profile acts of deception have shaken people's trust. Too many corporations seem disconnected from the values of our country. These scandals have hurt the reputations of many good and honest companies. They have hurt the stock market. And worst of all, they are hurting millions of people who depend on the integrity of businesses for their livelihood and their retirement, for their peace of mind and their financial well-being.
When abuses like this begin to surface in the corporate world, it is time to reaffirm the basic principles and rules that make capitalism work: truthful books and honest people, and well-enforced laws against fraud and corruption. All investment is an act of faith, and faith is earned by integrity. In the long run, there's no capitalism without conscience; there is no wealth without character.
And so again today I'm calling for a new ethic of personal responsibility in the business community; an ethic that will increase investor confidence, will make employees proud of their companies, and again, regain the trust of the American people.
Our nation's most respected business leaders—including many gathered here today—take this ethic very seriously. The Business Roundtable, the New York Stock Exchange, the NASDAQ have all proposed guidelines to improve corporate conduct and transparency. These include requirements that independent directors compose a majority of a company's board; that all members of audit, nominating, and compensation committees be independent; and that all stock option plans be approved by the shareholders. I call on all the stock markets to adopt these sensible reforms—these common-sense reforms—as soon as possible.
Self-regulation is important, but it's not enough. Government cannot remove risk from investment—I know that—or chance from the market. But government can do more to promote transparency and ensure that risks are honest. And government can ensure that those who breach the trust of the American people are punished.
Bold, well-considered reforms should demand integrity, without stifling innovation and economic growth. From the antitrust laws of the 19th century to the S&L reforms of recent times, America has tackled financial problems when they appeared. The actions I'm proposing follow in this tradition, and should be welcomed by every honest company in America.
First, we will use the full weight of the law to expose and root out corruption. My administration will do everything in our power to end the days of cooking the books, shading the truth, and breaking our laws.
Today, by executive order, I create a new Corporate Fraud Task Force, headed by the Deputy Attorney General, which will target major accounting fraud and other criminal activity in corporate finance. The task force will function as a financial crimes SWAT team, overseeing the investigation of corporate abusers and bringing them to account.
I'm also proposing tough new criminal penalties for corporate fraud. This legislation would double the maximum prison terms for those convicted of financial fraud from five to 10 years. Defrauding investors is a serious offense, and the punishment must be as serious as the crime. I ask Congress to strengthen the ability of SEC investigators to temporarily freeze improper payments to corporate executives, and to strengthen laws that prevent the destruction of corporate documents in order to hide crimes.
Second, we’re moving corporate accounting out of the shadows, so the investing public will have a true and fair and timely picture of assets and liabilities and income of publicly traded companies. Greater transparency will expose bad companies and, just as importantly, protect the reputations of the good ones.
To expose corporate corruption, I asked Congress four months ago for funding to place 100 new enforcement personnel in the SEC. And I call on Congress to act quickly on this request. Today I announce my administration is asking Congress for an additional $100 million in the coming year to give the SEC the officers and the technology it needs to enforce the law. If more scandals are hiding in corporate America, we must find and expose them now, so we can begin rebuilding the confidence of our people and the momentum of our markets.
I've also proposed a 10-point Accountability Plan for American Business, designed to provide better information to shareholders, set clear responsibility for corporate officers, and develop a stronger, more independent auditing system. This plan is ensuring that the SEC takes aggressive and affirmative action.
Corporate officers who benefit from false accounting statements should forfeit all money gained by their fraud. An executive whose compensation is tied to his company's performance makes more money when his company does well—that's fine, and that's fair when the accounting is above-board. Yet when a company uses deception—deception accounting to hide reality, executives should lose all their compensation—all their compensation—gained by the deceit.
Corporate leaders who violate the public trust should never be given that trust again. The SEC should be able to punish corporate leaders who are convicted of abusing their powers by banning them from ever serving again as officers or directors of a publicly-held corporation. If an executive is guilty of outright fraud, resignation is not enough. Only a ban on serving at the top of another company will protect other shareholders and employees.
My accountability plan also requires CEOs to personally vouch for their firms’ annual financial statements. Currently, a CEO signs a nominal certificate, and does so merely on behalf of the company. In the future, the signature of the CEO should also be his or her personal certification of the veracity and fairness of the financial disclosures. When you sign a statement, you’re pledging your word, and you should stand behind it.
And because the shareholders of America need confidence in financial disclosures right away, the SEC has ordered the leaders of nearly a thousand large public companies to certify that the financial information they submitted in the last year was fair and it was accurate.
I've also called on the SEC to adopt new rules to ensure that auditors will be independent and not compromised by conflicts of interest.
The House of Representatives has passed needed legislation to encourage transparency and accountability in American businesses. The Senate also needs to act quickly and responsibly, so I can sign a good bill into law.
Third, my administration will guard the interests of small investor and pension holders. More than 80 million Americans own stock, and many of them are new to the market. Buying stock gives them an opportunity to build wealth over the long-term, and this is the very kind of responsible investment we must promote in America. To encourage stock ownership, we must make sure that analysts give honest advice, and pension plans treat workers fairly.
Stock analysts should be trusted advisors, not salesmen with a hidden agenda. We must prevent analysts from touting weak companies because they happen to be clients of their own firm for underwriting or merger advice. This is a flat-out conflict of interest, and we’ll aggressively enforce new SEC rules against this practice—rules which take effect today.
And the stock markets should make sure that the advice analysts give, and the terms they use, have real meaning to investors. ‘Buy’ should not be the only word in an analyst's vocabulary. And they should never say ‘hold’ when they really mean ‘sell.’
Small investors should also not have to have the deck stacked against them when it comes to managing their own retirement funds. My pension reform proposal would treat corporate executives the same as workers during so-called ‘blackout periods,’ when employees are prohibited from trading in their accounts. What's fair for the workers is fair for the bosses. (Applause.)
My reform proposal gives workers quarterly information about their investments. It expands workers’ access to sound investment advice, and allows them to diversify out of company stock. The House has passed these measures; I urge the Senate to do the same.
Tougher laws and stricter requirements will help—it will help. Yet, ultimately, the ethics of American business depend on the conscience of America's business leaders. We need men and women of character, who know the difference between ambition and destructive greed, between justified risk and irresponsibility, between enterprise and fraud.
Our schools of business must be principled teachers of right and wrong, and not surrender to moral confusion and relativism. Our leaders of business must set high and clear expectations of conduct, demonstrated by their own conduct. Responsible business leaders do not jump ship during hard times. Responsible leaders do not collect huge bonus packages when the value of their company dramatically declines. Responsible leaders do not take home tens of millions of dollars in compensation as their companies prepare to file for bankruptcy, devastating the holdings of their investors.
Everyone in a company should live up to high standards. But the burden of leadership rightly belongs to the chief executive officer. CEOs set the ethical direction for their companies. They set a moral tone by the decisions they make, the respect they show their employees, and their willingness to be held accountable for their actions. They set a moral tone by showing their disapproval of other executives who bring discredit to the business world.
And one of the principal ways that CEOs set an ethical tone is through their compensation. The pay package sends a clear signal whether a business leader is committed to teamwork or personal enrichment. It tells you whether his principal goal is the creation of wealth for shareholders, or the accumulation of wealth for himself.
The SEC currently requires the annual disclosure of a CEO's compensation. But that information is often buried in long proxy statement—proxy statements, and seldom seen—seldom seen—by shareholders. I challenge every CEO in America to describe in the company's annual report—prominently, and in plain English—details of his or her compensation package, including salary and bonus and benefits. And the CEO, in that report, should also explain why his or her compensation package is in the best interest of the company he serves.
Those who sit on corporate boards have responsibilities. I urge board members to check the quality of their company's financial statements; to ask tough questions about accounting methods; to demand that audit firms are not beholden to the CEO; and to make sure the compensation for senior executives squares with reality and common sense. And I challenge compensation committees to put an end to all company loans to corporate officers.
Shareholders also need to make their voices heard. They should demand an attentive and active board of directors. They should demand truly independent directors. They should demand that compensation committees reward long-term success, not failure. Shareholders should demand accountability not just in bad times, but especially in boom times, when accountability frequently breaks down. Shareholders are a company's most important constituency, and they should act like it.
The 1990s was a decade of tremendous economic growth. As we’re now learning, it was also a decade when the promise of rapid profits allowed the seeds of scandal to spring up. A lot of money was made, but too often standards were tossed aside. Yet the American system of enterprise has not failed us. Some dishonest individuals have failed our system. Now comes the urgent work of enforcement and reform, driven by a new ethic of responsibility.
We will show that markets can be both dynamic and honest, that lasting wealth and prosperity are built on a foundation of integrity. By reasserting the best values of our country, we will reclaim the promise of our economy.
Leaders in this room help give the free enterprise system an ethical compass, and the nation respects you for that. We need that influence now more than ever. I want to thank you for helping to restore the people's trust in American business. I want to thank you for your love of the country. And I want to thank you for giving me the chance to come and address you today. May God bless you all. (Applause.)
