Meeting the evolving corporate reporting needs of government and society: arguments for a deliberative approach to accounting rule making

Abstract

We review ways in which corporate reporting might be useful for the government's management of the macro economy and for society's needs for more comprehensive reporting of corporate social and environmental performance. We highlight the constitutive as well as the representational nature of corporate reporting and how accounting subtlety impacts the culture and focus of governments, societies and corporations. Prominent examples are the ways accounting encourages financialisation and fails to account for externalities and the environment. While many proposals for the reform of corporate reporting emphasise more standards and rules, we suggest that what is needed instead are different rules, brought about by a more deliberative approach. A move to deliberation, however, requires that accountants highlight the pervasive but often subtle impacts of accounting.

Keywords:

• deliberation
• financialisation
• social audit
• stability
• sustainability accounting
• the state

Notes

We will not here pursue the idea of accounting as narrative (Davison 2011), but point out that what is particularly relevant to our essay is the notion that accounting narratives create specific visibilities and invisibilities (Hopwood 1996) rather than a concern with readability or analysis of specific components of corporate reports (Clatworthy and Jones 2003).

Perhaps, this is the belief behind the courageous and ambitious initiative on ‘Information for better markets’. But political philosophers at least since Adam Smith have recognised that unless all human activities take place in well-functioning and complete markets (e.g. no monopolies, equal endowments of resources), there is no guarantee that social welfare will be maximised, or be just. Further, it is unclear whether or if all human activities could take place in markets.

Of course, this begs the question about the training and expertise of accountants; the history of accounting indicates that accountants acquire new expertise as demands change.

Burchell et al. (1980) point out that most (normative and prescriptive) discussions of the role and purposes of accounting are disconnected from careful studies of how accounting is actually used and practiced; our essay is normative and prescriptive in seeking to improve accounting policy and practice, but also builds upon studies about how accounting is used by multiple users.

The adoption of IFRS in various countries, given varieties of capitalism and varying needs of governments and society in each of these countries, is an area for future research. Such research could highlight additional ways in which accounting meets the needs of governments and society (or not), especially as may be revealed by governments' and society's relative (un)willingness to adopt IFRS.

We do not discuss further what are some of the more obvious uses of corporate reporting by governments – for example, to determine corporate tax liabilities, or more generally, to regulate industries or assess the success of particular policies.

A focus on the needs of capital providers displaces resources that may be used to set or improve accounting standards that meet the needs of government and society.

That is, choices about what and how we account for specific activities, including debates about the conceptual frameworks and the boundaries of what is accounting and auditing.

Such deliberations would involve experts, such as accounting professionals, but should not be limited to experts and their definition of appropriate affected parties, such as users or preparers.

As Young (2006) demonstrates even the conception of who is the appropriate user of financial reporting changes over time and most likely across jurisdictions.

As a simple example of the power of accounting, in this case its terminology, to make some things appear legitimate (and others less so), note how the term ‘fair’ values helps to legitimate market value by assuming that market transactions are ‘fair’, even if they involve monopoly power, unequal knowledge in transactions, or where access by some people is limited, for example, for reasons of gender, race or lack of resources.

It would be invisible just as many other ‘transactions’ (externalities) are invisible to accounting. Matters are more complicated: the return to capital that accounting measures and enforces would be impacted, it is unclear what would signal capital to shift from industrial to financial activities, cash flows and income measurements would differ, and so on. These are beyond our point here, which is that accounting made financialisation visible.

They could also measure the extent of an economy's financialisation, or much more practically, how many quarters are left in the current boom or until the next crisis.

We use the terms sustainability, corporate social reporting and environmental accounting in a loose and undifferentiated manner. The issues we discuss in the section apply to various accounting approaches concerned to provide an account to and for society.

What is, or is not, practical depends at least in part, on available technology and expertise. Investments in technologies or expertise to identify and perhaps measure can shift the domain of the practical. Further, as numerous accounting studies have shown (Miller and O'Leary 1990, Power 1997), discourses about activities are also important in determining practicality. This is an important point that we return to in the conclusion.

This would seem to reinforce Mouck's (1995) concern that environmental accounting is all too often dominated by the ideas of modern finance theories and tends to marginalise perspectives informed by other ideas.

Recent research on US firms continues to offer inconsistent results (Cho et al. 2012, Mahoney et al., in press).

Of course one result of corporate reporting is increased deliberation and dialogue – corporate reports are to be read, discussed, analysed and acted upon. Our focus instead is on how the standards and requirements for this corporate reporting may be developed beyond existing ‘users’ of corporate reports.

Compare their budgets to World Bank estimates of $50 trillion for stock market capitalisation and $70 trillion for global GDP. These budgets are clearly insignificant in relation to the value of geo-political stability and ecosystem viability.

We recognise that the IASB has a somewhat ambiguous position in terms of global governance and funding. Our proposal implies an international tax regime or a system of national contributions rather than funding from corporate and professional groups. We also recognise that our proposal would need to be based on global opportunities to participate and a need to overcome histories of imperialism and colonialism. Such issues of institutional design, whilst crucial, are beyond the scope of the current paper.