Analyzing accounting as a science, a question might arise in whether to consider it as an objective subject. Taking examples of other sciences, it can be seen that their objectivity is derived from the way a theory is derived from the facts. For example, the inductivists argue that the objectivity of science is derived from “the extent to which observation, induction, and deduction are themselves seen as objective” (Chalmers, 1999). In the case of accounting, there are many aspects that should e considered, which include the purpose of the science and its components. In that regard, this paper critically analyzes the statement “Accounting is an objective subject,” taking the position that it is largely true.
Objectivity of Accounting
Understanding accounting as a subject can be achieved through relating it to such aspects as quality. This can be understood through the fact that accounting reforms as well as the introduction of new policies, rules, and standards imply that there was a particular deficiency with previous rules, standards, or policies that the reform is attempting to overcome.
In that regard, assessing the quality of accounting will require a particular objective criterion against which it will be measured. In that regard, it can be stated that accounting cannot be considered as a separable and self-sufficient entity, where it can be stated that the economic activities of a particular company might continue without accounting. Accounting exists as a method of describing the economic activity of the organization. In other words, accounting is information regarding the economic processes and their results. In that regard, if quality can be judged by the information that accounting produces, the objectivity of accounting as a subject can be assessed through the determination of the characteristics of such information.
As mentioned earlier, accounting is merely information on the economic processes and their results. The objectivity of accounting as a subject can be seen through the specific character of such information. The specific nature of accounting, as a special type of information, is determined through several characteristics. One such characteristic is the objectivity of the measures. All of the objects in accounting have a monetary unit gauge, i.e. information regard them is always represented through numbers. Numbers per se are an objective measure of things, where it can be stated with confidence that three does not equal five and that 0.5 does not equal 0.3. Thus, the information stated through numbers is always objective: five dollars, two computers, three years, etc.
An additional characteristic of the information in accounting is its specific nature in encoding. The main basic concepts in accounting can be seen through the static point of time concept, e.g. A=E, and the dynamic point of concept, e.g. matching a category and the appropriate charges against it. Accordingly, both concepts are linked through the double-entry theorem, which can be considered as a method or a technique of encoding such information (Goldberg and Leech, 2001). In that regard, such technique expressing the relationship between objects can be seen as objective in itself, where the relation is accordingly expressed in numbers, which as mentioned earlier is an objective measure. Thus, the combination of the unit of measure and the methods of encoding the information is the basis of accounting as an informational technology, which allows with mathematical accuracy to describe the economic processes, in which qualitatively different objects are used. In that regard, accounting as a mathematical technique is objective, and it does not need formal registration or legislation, just as mathematics does not need that as well.
Nevertheless, the objective nature of accounting can be discussed through the social nature of the economy, which assumes that there should be a common informational space, which is achieved through certainty in terminology and used by all participants of the economic community. In other words, all of the participants should equally understand the terms used in accounting and financial reporting, with no ambiguity. For example terms such as revenue, net sales, operating profit, net income, debt, interest expense, gross profit, and others, should exactly mean the same notions by all the participants of the economic community. The necessity of such a common space leads to that there is the necessity of standards in the systems of accounting and reporting. The absence of such standards does not lead to that accounting being less objective, rather the informational exchange between the participants of the economic processes becomes impossible.
Subjectivity of Accounting
The argument opposing the objectivity of accounting can be based on the fact that although the economic processes are objective, perceiving them can be considered as a subjective aspect. In that regard, for a particular subject, an objectively existent process might not exist. Taking for example such notion as non-taxable expenses, in which, it can be stated that although such expense exists, they are purposefully ignored. Thus, the regulatory base, which is an essential aspect of accounting, cannot be considered as a product of scientific knowledge or any other objective truth. It merely represents a statute or more or less established custom, i.e. a system of subjectively established notions. Nevertheless, it should be stated that for accountants, such notion objectively exists, and complying with the demands of the normative base is a requirement.
Another argument related to the issue of subjectivity of accounting can be seen through the sub-division of accounting, which is management accounting. In that regard, management accounting is defined as:
[T]he application of the principles of accounting and financial management to create, protect, preserve, and increase value so as to deliver that value to the stakeholders of profit and nonprofit enterprises, both public and private. Management accounting is an integral part of management, requiring the identification, generation, presentation, interpretation, and use of information relevant to formulating business strategy; planning and controlling activities; decision making; efficient resource usage; performance improvement and value enhancement; safeguarding tangible and intangible assets; and corporate governance and internal control (2008a).
It can be seen that the keyword in the aforementioned definition is interpretation, which implies the existence of different realities that can be set by different subjects conducting managerial accounting practices. In that regard, it can be stated that despite using objective measures such as numbers, and objective means of information representation and encoding, it can be stated that the usage of such information can be assessed by different recipients subjectively. An example, not related to accounting, can be given of a person reporting that he has a house. The information can consist, but not limited to the following variants: I have a house; I have a big house; I have a house that costs £100,000; I have a house that costs £100,000, and half of the costs should be paid during the following 10 years. It can be stated that all of the aforementioned information is regarding the same person, the same house, and all of which are true.
In that regard, despite the information being objective, it can be subjectively interpreted by various persons, each of whom will interpret the information based on its adequacy that he will consider appropriate. The same can be true regarding management accounting, where the information used can be interpreted differently, leading to different decisions. An example related to accounting, financial, not managerial, but indicating the interpretive nature of accounting, and which was already mentioned, is the non-taxable expenses. Non-taxable expenses, also known as allowable expenses, for business owners are anything the employer or the employees buy “that’s needed for the running of the business, and used exclusively for the business” (2009) Now taking such statement that a good accountant might save the business owner money, though calculating non-taxable expenses, and deduct them from the end of the year gross profit, implies various sums considered as non-taxable expenses by different accountants. Thus, the expenses are the same, but they will be subjectively managed and lead to different sums.
Another example can be seen through the functions of management accounting in an organization. The purposes of managerial accounting functions in the organization can be divided into generating reports with information regarding costs control, planning, and controlling organizations’ operations, and producing reports for managers that are used in tactical decisions, investing, prognosis, etc (2008b). In that regard, it can be assumed that no accounting managers will produce the same reports for the same company, and accordingly, the decisions might vary from report to report. Although they might bear similar approaches or directions, the information used in composing those reports is necessarily objective. However, the interpretive nature of the tasks implies that the produced information is a reflection of certain objects, in this case, numerical information, in the minds of the subject, and accordingly the produced information could be considered subjective.
Answering the Subjectivity Call
In stating that accounting is an objective subject, it should be mentioned that objectivity can be approached as a necessity, in addition to being a characteristic. In that regard, the development of subjective methods in accounting is an essential part of accounting, which nevertheless, does not put doubt on its objectivity. The concept of objectivity in accounting states that “[a]ll information must be maintained objectively, which means that it is free of bias and subject to verification” (Petroff, 1989). If a particular cannot be supported objectively, it is allowed for subjective methods to be used and to be based on subjective factors. Despite such a statement, “even subjective factors are influenced by objective evidence such as past experience” (Petroff, 1989).
In terms of accounting management, it should be stated that the subjectivity of accounting is objectified, where interpretive accounting management researches showed how “‘‘[s]ocial reality is emergent, subjectively created, and objectified through human interaction’’ (Ahrens). The process of turning the subjectivity of interpretive aspects of management accounting can be related to social and philosophical aspects of the sciences. This can be seen through the fact that people’s actions are largely carried subjective meanings by the people performing them, and in that regard, they cannot be understood without the reference to the meanings of such actions. Nevertheless, these actions are not sustained by themselves, taking place in a private vacuum, where people always trying to categorize and classify such actions using interpretive schemes, which are essentially social and intersubjective. These interpretations extend beyond our own actions to contain the actions of other people and vice versa. Through such a continuous process of social interaction and intersubjective interpretations the norms and meanings turn into objective reality (Ahrens). Thus, the same can be applied to the interpretive nature of management accounting, which through interactions, communications, and mutual interpretation turn into objective subjects.
Finally, it can be stated that objectivity can be seen through two different perspectives, or two schools of thought, the first of which argue that objectivity implies as much factual content as possible, i.e. facts, numbers, and information, which is easily verifiable. The second, on the other hand, argues, that objectivity can be indicated through the degree of consensus reached by independent opinions, which means that if a particular number of people agree on the statement that has different views and opinions, the statement becomes objective. In that regard, both schools agree that such verifiability is a desirable element in both of the schools nevertheless (Alexander and Britton, 1993).
It can be stated that accounting is an objective subject, where even its subjective elements can be objectified. The reliance on objective measures and objective methods for their representation can describe the objective nature of accounting. In terms of management accounting, it can be seen that its interpretive nature might be seen as an essential element, which is objectified through social interaction between the people. Thus, it can be stated that the statement “Accounting is an objective subject” is largely true.
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