Examining how accounting is implicated in the construction of social reality


"Accounting is essentially highly subjective. Contemporary debates in the field of accounting revolve around the advocacy of competing images and the way accounting is implicated in the construction of social reality".


Accounting is a language of business; organizations use it as a method to communicate financial information to public. There is no single and accepted definition of accounting. In general it is possible to say that accounting exists to provide services, or to response to perceived needs. Through centuries accounting has developed and progressed the same way the needs of users of the financial information changed. In different regions and countries accounting has developed in different ways response to a particular environment.

This essay is structured as follows. In the first section this essay will attempt to examine the subjectivity of accounting and subjective limitations of it. In addition the second part will try to analyze the Major accounting images that have shaped the nature of accounting theory. Also this essay will try to bring a light on how accounting is implicated in the construction of social reality. Finally the last section will summarize the topics discussed in the main body of this essay.

Subjectivity of accounting.

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The definition of subjectivity is: "Subjectivity refers to a person's perspective or opinion, particular feelings, beliefs, and desires. It is often used casually to refer to unsubstantiated personal opinions, in contrast to knowledge and fact-based beliefs. In philosophy, the term is often contrasted with objectivity."

Subjective limitations of the accounting are fully formed under the influence of the economic interests of users. Understanding that the information formed by the accounting is likely to dispel the user's attention and make it difficult concentrating on the main components of financial performance of an organization, explains the appearance in the reporting accountant's professional judgments. Note that the level of economic development in countries with market economies directly correspondent with the level of development of the national system of accounting determines the qualitative state of accounting standards and the importance of professional judgments of Accountants.

The most important subjective limitation in the accounting is the established collection of accounting forms and their content. The regulation of accounting forms shows that such reporting is even more subjective nature but its content is limited to information necessary to perform prospective and current problems.

Limitations of information in IFRS financial statements identified in paragraph 1 of IAS, "Presentation of financial statements ", where are mentioned the minimum requirements for its content. They are, in fact, the fundamental assumptions and qualitative characteristics of the financial statements as laid down in the Committee's IFRS Principles of Preparation and Presentation of Financial Statements.

The basis of the subjective limitations are consequences of the objective nature of limitations: elements of financial statements presented in paragraph 7 of IAS, "Presentation of Financial Statements" as assets, liabilities, equity, revenues and expenses, including gains and losses, as well as the economic interests of the users for whom information is presented.

Knowing in advance the main users, the drafters of the financial report should provide information, which they believe provides the best opportunity to form realistic view of an organizations performance. However in practice accountants often unconsciously, tends either to embellish, or impair the real picture, depending on what information is more interesting to a user of financial report.

Accountant in the force of impact the actual circumstances are not able to know and consider what accounting information most valuable and useful for a particular category of users. In this case, it is meaningless for organization to represent the information, since hardly costs incurred by the organization for reporting, will be covered by the economic benefits.

Images of Accounting.

There are four main accounting images that are used by accounting theorists and researchers to understand the world of organization. They are: the perception of accounting as a historical record; accounting as a current economic reality; accounting as an information system and accounting as a


Accounting as a historical record.

This image of accounting is providing the history of organization, recording the economic transactions of its entity. It is useful image for shareholders and owners of an organization, because it provides historical information about manager's stewardship of the resources of organization.

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When accounting is analyzed as provider of a historical record, importance is placed on keeping a realistic record of the actual exchange events of an entity; with an emphasis on information that is reliable, verifiable and quantifiable. The only acceptable form of financial accounting is the historical cost accounting. Usually money is the best value to represent simple standard of the historical record. (Davis 1982)

In the historical record image of accounting the proficiency of the accountant is very important when accounting data is summarized and classified in a way that assists in the reporting of relevant events. This involves accountant in the process of interpretation, it makes an accounting a matter of taste and so accounting can be described as an art. (Sterling, 1975)

Accounting as current economic reality.

Another image of financial accounting comes from the idea that accounting should be presenting the current economic reality. The main idea of this image is that the development of accounting statements, such as statement of financial position and statement of comprehensive income should be based on valuation system, because that is more reflective of economic reality than historical cost.

Idea is that the statement of financial position in this method should expose the resources of organization by using the economic values of the assets and liabilities. The aim of this image is to determine the true income of the organization in other words to show the changes in the wealth of a company in some period of time. (Belkaoui, 2004)

The different and divergent needs of users are often ignored by the current economic reality image. In this image accounting is seen as a provider of current value information and there is no need to consider the cost of information production, or indentify the circumstances when this cost may be imposed on private individuals. (Davis 1982)

Accounting as an information system.

This image dominates the accounting researches today. From the perspective of this image accounting is seen as a process linking the accountant and the external users of the financial report. Essential aspect of this image is to show the importance of the usefulness of the information. Accounting exists only because there are users who need useful and reliable information. The importance on usefulness has influenced the way in which accountants view the role of accounting.

"One of the implications of the information system image is that since channels of communication are necessarily restricted in terms of capacity the accountant must choose which information to transmit, on the basis of its usefulness to receivers". (Davis 1982)

According to information system image of accounting, accountant should know how user uses the information provided, so that he was able to adjust the frequency, the speed, the form and the redundancy of the information transmitted.

This image argues that there is no longer need for accounting to be justified in terms of its ability to give information about historical performance of organization or to generate "true income". Utility of alternative accounting system can be established as long as different external users of financial information find the information provided by the accountant useful. (Davis, 1982).

Accounting as a commodity.

This is another new image of the accounting. According to this image production of accounting information is seen as a economic activity. If there is a demand for accounting information it will be produced, and it is available because there is a supply. Accounting information is a public commodity and so its production and distribution need to be regulated by the standards setting body for better allocation of the resources in the economy. This body will decide on suitable disclosure policies for the benefit of the public for the availability of the information against the private cost of producing the information.

"Accounting as a commodity image has arisen in the era of mushrooming regulation and increasing concern about public interest in the situation of scarce resources and many competing demands. It has provided the rationale for accounting policies which seek to aid the allocation of resources in the service of the public interest". (Davis, 1982).

Social reality.

Reality does not exist independently; it is created by the society and changes according to the changes in people's views on life and on the world.

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Hines (1986a 1987) shows that typical financial accounting research is based on taken-for- granted reasonable assumptions and conceptions. "Stopping the world", or dissolving our taken-for-granted conceptions of reality, and thereby seeing that the essentially arbitrary and constructed rather than "true" is the first step to gaining a new reality or a new way of seeing" (Castenda , 1971, 1974).

When accounting is seen as simply reflecting and monitoring the features of firms and organizations, then some accounting methods are seen as "cosmetic", i.e. do not have "information content" about reality, or "arbitrary" and it is believed that investors can see through these methods to the real company. Early efficient market research tested for those methods and standards which were "cosmetic". Certain accounting changes and standards were thought as being "cosmetic", and markets were tested on the basis of this maintained assumption. Although, no clear or consistent picture come into view from this research as to which methods, issues or standards are indeed "cosmetic". (Hines 1984) When it is recognized that reality does not pre-exist financial accounting practice, but rather arises without interest and interactively with inter alia financial accounting practices, the state of affairs stops to be surprising or anomalous. After such recognition, it becomes clear why companies have so strongly opposed apparently "cosmetic" accounting standards, and why managements wanted to lessen the effects of them. It is not necessarily that managements do not understand the Efficient Market Hypothesis; it is rather they do not think of their company's size, stability, performance etc. As existing independently of financial accounting practices, so that experienced investors can work out accounting numbers to it. That is why managements, go to expensive lengths, in order to maintain company's manifestation.


Accounting is highly subjective and so it has many subjective limitations like established collection of accounting forms and their content. Accounting is developing for centuries in different ways according to the region where it is used. The accounting is a social science, so it has an affect by internal and external changes in its environment. In accounting unlike the natural science social reality depends on the people's vision of accounting.

This essay pointed four main images of accounting that have shaped accounting theory, but subjective nature of images leads us to believe that no one image can capture completely real meaning of accounting. New images will appear to put accounting on new level, and to shape accounting process to gather changes in its background. Appearance of new accounting images will show fresh ideas and new perspectives on the common accounting and will find out new unknown aspects of this science.