MODERNISM vs POSTMODERNISM IN MANAGEMENT ACCOUNTING

Critical Perspectives on Accounting (1997) 8 , 125 – 145

MODERNISM vs POSTMODERNISM IN MANAGEMENT ACCOUNTING PAUL MONTAGNA Brooklyn College and CUNY Graduate Center , USA The debate over objective versus subjective measurement in accounting is reviewed within the broader framework of the worldviews of modernity / modernism and postmodernism. A description of these two periods of history helps to clarify their different as well as similar and often confusing characteristics. A review of the history of management accounting is conducted to highlight its role in shaping the modern period as well as how it was shaped by it. Existing and emerging problems in accounting in a postmodern era are examined. The role of critical accounting in this process is emphasized and some of its ideas and explanations are utilized in the analysis. Some implications for the accounting profession are discussed. ÷ 1997 Academic Press Limited ‘‘When social scientists import the dominant institutional logics into their analyses of individuals and organizations in unexamined ways, they unreflectively elaborate the symbolic order and social practices of the institutions they study.’’ (Friedland & Alford, 1991, p. 260) Herr Settembrini: ‘‘Do you believe in truth, in objective, scientific truth, to strive after the attainment which is the highest law of all morality, and whose triumphs over authority form the most glorious page in the history of the human spirit?’’ Naphtha: ‘‘There can be no such triumphs as those you speak of, for the authority is man himself—his interests, his worth, his salvation—and thus between it and truth no conflict is possible. They coincide. . . . Whatever profits man, that is the truth.’’ (Thomas Mann, The Magic Mountain )

Introduction It is increasingly argued that we have within the past few decades entered a new period of history in which there have been profound changes in the way we think and act, a period known as postmodernism. Much has been ascribed to this, from new forms of organization to new modes of production. In its simplest form, postmodernism is defined as events that are transitory, selves that are fragmented, ideas that are constantly changing, all without any underlying universal laws or guidelines. Modernism also champions transition, fragmentation, and radical change, but its task is to discover the eternal and immutable elements in the midst of such disruptions. The meaning of history is discovered and defined from within the chaos of change. For postmodernists, there is no history, only the multiple, ever-changing meanings applied to events. Address for correspondence: Professor Paul Montagna, Department of Sociology, Brooklyn College, CUNY, Brooklyn NY 11210, USA. Received 26 August 1996; revised 20 October 1996; accepted 4 November 1996. 125 1045 – 2354 / 97 / 020125 1 21 $25.00 / 0 / pa960091

÷ 1997 Academic Press Limited

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Recently, there have been some heated debates in accounting theory which focus on one aspect or another of modernism / postmodernism debate. I will examine some of these arguments to indicate the position of each and how it influences the direction of this debate. I’ll begin by reviewing the accounting quarrel over the nature of reality, i.e. reality as representative or as socially constructed, and how it affects accounting measurement. This will in turn prompt a discussion of the broader modernism / postmodernism debate that underlines this quarrel and should help to clarify other issues raised below, particularly with regard to management accounting and postmodern account. Representationalism / Social Constructionism Recently, David Solomons (1991a) argued the long-dominant position of value-free accounting. Accountants are like journalists, they should report the news, not make it. Accounting information is like a telephone in that it is ‘‘an informational commodity that promotes exchange’’ by being passive and by representing the speaker’s thoughts (i.e. management) to the listener (i.e. investors). Accounting is not an actor in the exchange, nor should it be. Accounting is not responsible for pollution, monopolies, or fraud; one should not slay the messenger who brings the bad news. Accountants cannot be blamed ‘‘for using values that are determined in the market when they are accounting for market transactions.’’ Solomons is adamant in his position that economic reality is based on market phenomena, on market appearances. The job of accountants is to measure as carefully as possible these economic phenomena. Accountants should not try to change society by mandating disclosures through the accounting standard-setting process. They must be neutral in financial reporting; they should represent the facts as observed. Solomons ends by referring to comments of the then FASB chair, Dennis Beresford, who says that the neutrality concept dominates every board discussion, informal conversation, and memo1. Tony Tinker’s response (1991) is that economic reality does not exist independent of our apprehension of it. There is no real world that exists out there independent of our perceptions of it. Reality is socially constructed. Accountants must consider research that investigates accounting errors and distortions by examining their underlying political and social structure. Solomons complains that accounting cannot be subverted to serve social ends, yet aren’t certain groups’ social ends served in the savings-and-loan scandal, the HUD corruption, the Wedtech bribes, and the like? Accounting is a system of signification and as such is open to the social constitution of the numerical sign. Solomons’ reply (1991b) is twofold. First, he disposes of the problem of ethics: [I]f doing business in South Africa is more profitable than doing business in Nicaragua, should an accountant not report accordingly? Note that I say ‘‘report,’’ not ‘‘advise.’’

Neutrality is claimed. There is ‘‘representational faithfulness,’’ i.e. accounting provides an accurate representation of the economic transactions being measured2. If one refuses to acknowledge the reasonableness of the

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opposing side’s argument then there is no argument. One does not have to deal with it. It is just smokescreens, or as Solomons accuses Tinker, ‘‘philosophical obfuscation.’’ Which introduces the second part of his reply, that if Tinker does not accept representative faithfulness then there is nothing to seek and if that is the case then we’re really in trouble because we ‘‘dismiss the external world as fantasy.’’ For Solomons, the specter of postmodernist nihilism would be upon us. For Solomons, what is represented or reflected is truth (the reality), and the mind, if trained properly, is able to reflect or mirror that reality3. Reflecting these events can only take place when data are captured objectively, i.e. without interference from human values. For Tinker, facts do not exist external to the individual. A fact—what is ‘‘true’’—is what exists in the interpretations of texts. Meaning is not found in texts (discourse) but instead is located in the interpretations (constructions) by readers in their search for meaning. Thus, we live in worlds of our own making (Rorty, 1979; Goodman, 1976). Like other disciplines, accounting comprises a series of narratives, in which truth emerges gradually from the passion expressed by the speaker (or writer or recorder); if one listens closely one may conjure the truth (Murphy, p. 48). One of the most celebrated narratives in accounting, double entry bookkeeping, states that profit is morally legitimate because it arises from a fundamentally equitable and balanced transaction. Personal metaphors used to describe human relations are extended to impersonal accounts. Just like our Renaissance forebears, we are persuaded that double entry bookkeeping is a thing of beauty, that like the human body it is an example of unity in duality and harmony through opposition. Rational, empirical considerations are only one part of constructing reality; simplicity and lines of harmony are another (Aho, 1985, p. 41). Facts comprise more than just objective indicators. Nor are all interpretations equally important. Some are more powerful because more of a text’s meaning is understood—because a better attempt is made to enter the linguistic world of the author or the reader. It is easy to see that the social constructionist position is equated with the postmodern world view of pluralism, fragmentation, identity crisis, conflict, and relativism4. But this is only a small part of a much larger story in which modernism as well exhibits such qualities. What, then, are the distinguishing characteristics of these two terms? This question can be addressed by examining their historical development as worldviews (Weltanschauungen ) and their respective dominant modes of social control. Modernism: Essence through the Ephemeral In order to grasp the meaning of postmodernism it is necessary to examine the term from which it is derived, modernism, and to locate or periodize both terms in capitalism and late precapitalism. Originally defined by Charles Baudalaire in his 1863 essay, ‘‘The Painter of Modern Life,’’ (Baudelaire, 1964) modernite ´ is one-half transient, fleeting, accidental, the other half eternal and unchangeable. Things are transitory. If there is any meaning to history, it has to be discovered and defined from

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within the chaos of change. Modernity can be characterized as a ‘‘neverending process of internal ruptures and fragmentations within itself.’’ An avant-garde plays a vital role in modernity, interrupting any sense of continuity by radical changes5. Its task is to discover the eternal and immutable elements in the midst of such radical disruptions. Modernity is an outgrowth of and reaction to Enlightenment thought, which emphasizes individuals freely pursuing the accumulation of knowledge through objective science, law, rational planning of social systems, and autonomous art—in sum, progress that will release us from the uncertainties of traditions. Modern artists and intellectuals argued that the eternal verities were not there for all to see, that they could no longer be taken for granted and that they must creatively construct new codes and significations to represent reality. They went about this task through an ‘‘instantaneous effect,’’ by using multiple radical modes of representation as shock tactics (Harvey, 1989, pp. 9 – 18, 27). As distinguished from modernity, whose roots are in the early 19th century, modernism is defined by some (e.g. Harvey, 1989; McGowan, 1991) as a movement within the modern period, beginning in the early 1990s. As McGowan describes it, modernity is comprised of several major autonomous social systems among which are included the economic, the legal / administrative, and the aesthetic. The battle of modernity is the struggle between these autonomous systems for dominance in society. These systems separate themselves from the practices of the ‘‘lifeworld,’’ which is the reflexive, more understanding forms of symbolic and communicative action (Habermas, 1987, Vol. II). The struggle is between system and lifeworld or between structure and culture (Bell, 1976). For Harvey, modernism is defined by the change primarily in the economic sphere—the mode of production, i.e. Fordism. For McGowan, modernism is defined by the change in the aesthetic sphere, or romantic artists and intellectuals who fight the dominant economic sphere by isolating themselves and forging a new unity out of the negative, commercialized, secularized life of modernity6. Most writers locate the beginnings of modernism in the early 1900s. Between 1910 and 1913 there was a cultural explosion of modernist thought. During this time, some of their greatest works were completed by Marcel Proust, James Joyce, D. H. Lawrence, Thomas Mann, Ezra Pound, Wassily Kandinsky, Manierre Dawson, Igor Stravinsky, and F. W. Taylor. Albert Einstein expounded his two theories of relativity just before (general) and after (special) this period. For the modernist, if there is any meaning to history, it has to be discovered and defined from within the chaos of change (Harvey, 1989, p. 20). The purpose of the author / artist is to bring order out of chaos, certainty out of uncertainty, by using the objects—in time and space—of chaos. Time-Space Compression To examine the change in worldviews that is being suggested here, the ideas of time and space are indispensable7. Harvey (1989) provides the most comprehensive analysis of our experience of space and time as the world-

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views of Western civilization have changed. He refers to ‘‘time-space compression’’ as the rapid or revolutionary shrinking or shortening of our spatial and temporal worlds. Compression is determined by comparing the periods under consideration. Harvey locates five of these relatively isolated worlds: feudalism, the Renaissance, the Enlightenment, modernism, and postmodernism. Time and space cannot be assigned objective meanings independently of material processes and practices of social reproduction. In feudalism, place was dominant; it provided a knowable world in what was a confused external space of ‘‘mysterious cosmology’’ and ‘‘sinister figures of myth and imagination.’’ The Renaissance (approximately 1350 – 1650) represented a radical reconstruction of time and space. The accumulation of wealth, power, and capital became linked to personalize knowledge of, and individual command over, space, i.e. perspectivism. The Renaissance laid the foundations for the two ‘‘great surges’’ or great turns of the Enlightenment. The first, dominant up to the British (and world) depression of 1847 – 48, was centered around the following: the belief in command of the future through scientific prediction; the Newtonian absolutes of homogeneous time and space which formed limiting containers of thought and action (certainty); the linking of time to capital (i.e. the rate of interest, the hourly wage); and the buying and selling of space as a commodity. Following the mid-century depression was a second surge, with the new emphasis on money, tied to the transitory nature of life. The ‘‘mode of regulation8’’ of capital accumulation during this second surge was scientific management, regulation by means of separating conception and control from the execution of work through the detail division of labor. The process was first described by Andre Ure (1835), Charles Babbage (1833), and Marx (1847) and declared ‘‘scientific’’ and put into practice by Frederick W. Taylor and Frank Gilbreth at the turn of the century. During the early years of the flowering of modernism, Henry Ford fragmented space to accelerate the turnover time of capital in production. This, in turn, permitted time to be accelerated through the speedup of production timetables. As a model of regulation, Fordism involved mass production, mass fixed capital investment, mass consumption of product, the commodification of culture, and increased control of labor. This is supported by the Keynesian mechanism of state intervention by injections of government spending when the circular flow of income is disturbed. Postmodernism: Ephemerality without Essence On or about December, 1970, the world changed again—to a postmodern way of thought. Why choose such a precise time? Only to mimic one of Virginia Wolff’s most often quoted phrases about modernism: that ‘‘On or about December 1913 the world changed.’’ The birth of postmodernism could have just as easily been marked as May 1968, the month of student and worker uprisings in several countries, or to carry preciseness to its extreme, as Charles Jencks (1984) does, 15 July 1972, at 3:22 pm; when the Pruitt-Igoes public housing development in St. Louis, Missouri, billed as LeCorbusier’s

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‘‘machine for modern living,’’ was dynamited as an uninhabitable environment. What is certain is that sometime after midcentury a small but increasing number of artists, scholars and writers began to question the assumptions of modernism. There were attacks on the grand narratives of modernism, particularly by Jean-Francois Lyotard (1984). These underlying universals include a single set of irresistible and inevitable empirical tendencies which are the rationalization of the world and bureaucracy as the primary mechanisms of its achievement. There is the reduction of analysis to one identity, the rational economic individual, the market actor. The philosophy of progress is imposed to remake the world in one image (Clegg, 1990, pp. 4, 7, 30 – 31). Whereas modernity emphasizes the division of labor, or differentiation, postmodernity emphasizes decreased differentiation, or dedifferentiation (Clegg, 1990, p. 2). Whereas modernity upholds reason as part of an individual’s essence ‘‘by means of which he is able to intuit or otherwise discover and represent to himself the true ‘nature’ of things, i.e. the ‘truth’ ’’ (Madison, 1992, p. 68), postmodernity argues that there is no underlying reality to things, that what is ‘‘real’’ is what we socially define as real, that there are as many meanings to a text as there are interpretations of it, and therefore that all discourse is rhetorical. In short, postmodernism is the total acceptance of discontinuity, heterogeneity, and difference (but not differentiation) and the rejection of cultural universals. The mode of regulation in the postmodern era is flexible accumulation. It is characterized by: (1) Flexibility in production—using numerical control machines to enable the switch from one product to another, thus significantly reducing standardization, and small batch operations which reduce dependence on mass production; (2) Flexibility in the labor market—location switches of production units (made easier by new construction and transportation technology) in order to take advantage of cheap labor in secondary labor markets; (3) Flexible patterns of consumption achieved by producing disposable goods, a single world market for money and credit supply; and (4) Flexible capital—a global stock market and commodity futures market, instantaneous worldwide transmission of funds, interbank overnight lending, and availability of new pools of capital provided by pension and insurance company funds. We move from economies of scale (of modernism) to economies of scope (of postmodernism) (Harvey, 1989, pp. 147 – 165), i.e. from administrative centralization and hierarchy to functional decentralization and pluralism. The form that organization takes in this new era is that of the virtual organization, which has the following characteristics (Nohria & Berkley, 1994, p. 115): (1) The disappearance of Weber’s material ‘‘files’’—the very ontological stuff of organizations—and their reappearance in flexible and electronic form by means of information technology.

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(2) The replacement of face-to-face communication with computermediated communication as a means of conducting the primary activities of the organization, and a concomitant increase in the role of informal face-to-face communication for purposes of maintaining organizational coherence. (3) The transfer of issues of organizational structure from the realm of the organization of human beings to the organization of information and technology in such a way that, to an observer, the functioning of the organization appears spontaneous and paradoxically structure -less , while the functioning of information systems seems at once allpervasive and faintly magical. (4) The networking of individuals from technically separate firms (such as suppliers, customers, and even competitors) to the extent that clear external boundaries of the organization become difficult to establish in practice. (5) The implosion of bureaucratic specialization into ‘‘global,’’ crossfunctional, computer-mediated jobs, such that individual members of the organization may be considered holographically equivalent to the organization as a whole. The modern organization, with its rigid hierarchy of authority, extreme division of labor, management system of written rules, and impersonal roles (Weber, 1947) is reconfigured. The postmodern organization transforms social space and time; the organization no longer exists as a rational physical system (Nohria & Berkley, 1994, p. 114). Critique of Postmodernism and Countercritique One of the most frequent criticisms of postmodernism is that its emphasis on multiple realities is nihilistic. The individual does not know what is right, what is best, if all social constructions are equally true. Postmodernists ‘‘wallow in the mire of opinion,’’ there is a degeneration of morality as a never-ending cycle of re-evaluation ends in personal immobility in decision-making and a complete lack of social direction (Murphy, 1989, p. 62). Society is undermined. There is an acceptance of impulse instead of restraint. Everything is explored and anything permitted (Bell, 1976). Uncertainty and anarchy reign9. Madison (1991) posits that in fact there are two forms of postmodernism, poststructuralist and hermeneutical. The form criticized above is the poststructuralist variety. The hermeneutical form overcomes the problems and contradictions of the former. It recognizes that the world we live in is neither simply appearance nor simply reality. Reality is decentered—the subject is resituated within another space of ‘‘communicative praxis.’’ For example, the poststructuralists argue that private property is merely a fiction, it doesn’t exist in itself, it is unreal, it is hyperreality (Baudrillard, 1983, p. 2), in which the fiction has displaced reality. It is a world of simulacra, ‘‘of media images parodying one another.’’ However, hermeneutical postmodernism contends that because reason is intersubjective, because it is a rhetorical process, there exists the possibility of agreement, of mutual understanding, of at least some values having universal appeal and therefore we are not condemned to

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perpetual localism in a system of global communication. Madison uses the concept of freedom to explain that just as in the case of rationality, one cannot be free by oneself. ‘‘To desire freedom for onself is to desire freedom for all human kind’’ (Madison, 1991, p. 70). Thus, freedom is a universal value. This is the politics of plurality, heterogeneity, of difference, of particularity, of a decentered network of institutions and in which the idea of national sovereignty is losing its meaning. We are no longer bound up in oppositional thinking (binary thought), which is hierarchic in nature. We are free of ‘‘essence-bound homogeneity and modernistic uniformity.’’ Most importantly, the emphasis is on freedom—to be in cooperation with—and not power—as against—as the poststructuralists are (see especially Foucault, 1972). As Madison concludes, we can experience both individual initiative and self-determination and community and solidarity. They are no longer necessary polar opposites10. Clegg has argued that it is the modernists who have the problem of nihilism. Uncertainty both defined and limited freedom. It defined freedom through posing the existential and environmental conditions under which retional action was possible. It limited freedom by imposing an ethic of calculation, as a totally objective rationality, upon this freedom to act. (Clegg, 1990, p. 32)

This loss of freedom also was accompanied by a loss of faith—as dogmas were discarded there was no longer any authoritative basis for one’s life other than rationality itself. Ciltural spheres were liberated, but as rationality opened up and provided an emptying of the human condition, it confronted the problem of nihilism. It became the ‘‘unfreedom of the many’’ and the ‘‘freedom of action for the few’’ in the modern organization, achieved through vast public and private sector bureaucracies and the rise of the professional expert. There is a TINA (There Is No Alternative) tendency, i.e. the theory that there is no alternative to the increase in bureaucratization whenever there is increasing size of organization. Thus, it is not postmodernism that is nihilistic (at least not the hermeneutical or constructive form) but modernism. Another criticism commonly voiced is that the attempt to produce a theory to understand postmodernity is to produce a master narrative, an undertaking weighed down with all the baggage of modernist methodology and assumptions. The postmodern response is that this theory is only one of many possible explanations; it is not universalizing although it may appeal to the universal. With numerous, changing theories and ‘‘laws,’’ there is no final foundation. Modernism and Management Accounting Accounting, as a language of capitalism, is a child of the Enlightenment. Hines (1989, p. 55) has summarized the assumptions which underpin financial accounting research and which serve to describe the foundations of accounting thought: (1) Reality exists independently of thought, language, and social practices. (2) Accounting information is an economic good, the demand for which relates to the fact that it reflects reality.

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(3) Accounting functions in an environment of competititive markets. (4) Accounting information users and producers behave rationally. Early modern cost and management accounting is constructed on these foundations. The development of management accounting has been documented in a number of historically focused works which trace it back to its origins in the early 1800s. Hopper and Armstrong (1991, p. 419) explain how the development of scientific management was central to the development of management accounting and preceded the latter by several decades. Moreover, its first appearance was not at the Springfield (MA) Armory, as Chandler (1977) has reported, but at the U.S. Military Academy at West Point in the 1920s (Hoskin & Macve, 1988). Utilizing a Foucauldian approach, Hoskin and Macve (1986, p. 107) argue that ‘‘Examination, discipline, and accounting are historically bound together as related ways of writing the world (in texts, institutional arrangements, ultimately in persons) into new configurations of power.’’ It wasn’t until the early 1800s that the three came together at West Point. In 1819, the Academy’s Superintendent, George W. Whistler, organized and examinatorial system, a system of marks grading behavior, and a full set of files on each cadet. Surveillance was expanded by turning everything conceivable into writing, including job descriptions, and all were located within chains of command. [J]udgement is constantly exercised through written reports and Directives flowing up and down the chains of command—reports and directives which constantly demand and process information which is couched in numerical form. . . . It is a system of constant, alphanumerically grounded, written examination. . . . (Hoskin & Macve, 1986, p. 130)

The authors suggest that this ‘‘new grammatocentric examinatorial system’’ is an important influence on later developments in economic and financial organization. Many West Point graduates became the leaders of important U.S. railroads and were the developers of modern management. Miller and O’Leary (1990) document the influence of Frederick W. Taylor and his industrial experiments on the measurement of worker efficiency in the United States. They trace how Taylor’s (1911) emphasis on rationally organized work systems influenced people like Chester Barnard and Adoph Berle and Gardiner Means in the 1930s to call for the supplanting of the power of autocratic managers by a more democratic organization of neutral technical experts. These specialists created management accounting systems which were in large part responsible for providing ‘‘an internal quasi-capital market to monitor and discipline top managers of vertically integrated organizations’’ (Miller & O’Leary, 1990, p. 489). At about the same time, a number of social scientists, led by Elton Mayo, Wallace Dunham, Talcott Parsons, and others, defined the ‘‘new culture of individualism.’’ The democratic individual was the modern individual of bounded rationality. Because of the breakdown of traditional values and the ensuring uncertainty of life, few people were able to conduct their lives intelligently and independently, i.e. responsibly. Thus, Miller and O’Leary

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(1990, p. 492) conclude, ‘‘[T]he large-scale enterprise could assume a novel role in American life. The authority exercised through its hierarchies and accounting systems could be cast as an essential discipline on the lives of individuals, not unlike that exercised previously by the family, the community or the church.’’ The political and administrative debates of this culture of individualism were to become an integral part of the rationales of cost accounting after World War II, where the concept of decision-making (decisioning in areas of uncertainty11) continued to be the dominant rationale for management accounting which remains in place today. Management accounting is modern accounting because it is information used to manage and control the organization. It replicates the process of production in paper form. It provides a record translated into monetary terms (Loft, 1986, p. 139)12. There is a one-best-way of doing things in an organization and management accounting is the way we lock it into the organization. ‘‘[S]tandard cost systems produce variances which are systematically driven to zero’’ and uncertainty is eliminated (Elliott, 1991, p. 68). The large, bureaucratic, hierarchical system of organization is supported by this accounting structure. Miller and O’Leary (1990) emphasize that this rationale is so powerful that it continues to be a central component of technical managerial expertise even as there are appeals for reassessment of management accounting brought on by the increasing popularity of such flexible processes and techniques as total quality control, just-in-time inventory, longer-term planning rather than short-term profits, and nonfinancial indicators of firm performance. That is, the modernist rationale is faced with less easily measured organizational imperatives of a postmodernist character. By examining the social constructions in management accounting, the authors show that accounting is deeply involved in ‘‘the establishment of an economic language of organizational motive’’ because it is constructed in culturally specific ways which are in turn dependent on values and norms within which accounting is enmeshed. The types of accounting systems developed depend on the perceptions and needs of accountants, their corporate clients, and significant others and do not spring from neutral, objective, expert observation. The same can be said for the auditing function. In an examination of the audit planning process, which includes strategic planning, audit work planning, time scheduling, and personnel planning, Humphrey and Moizer (1990) found only loose adherence to the rules for audit planning. The ideological nature of audit practices was quite evident. The amount of audit work deemed necessary reflected closely the general view of the partner-in-charge and of a ‘‘free-form impression audit,’’ in which auditors would spend several days at the client’s firm attempting to gain a deeper understanding of the business. Thus, the formal audit planning process served to legitimate the audit by documenting and corroborating the auditors’ perceptions of the firm. In some cases audit plans were submitted for management’s approval—‘‘the very group whose fidelity and stewardship were being ‘‘independently examined’’ (Humphrey & Moizer, 1990, p. 232). This behavior is manifested on a grand scale in the huge number of S&L audit failures and the infamous ZZZZ Best case (Stevens, 1991).

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As auditors of their client’s internal accounting and related control systems, public accountants hold fast to the time-honored belief in methodological dualism, which calls for the separation of subject and object; one is neutral, separating one’s biases and commitments from one’s intelluctual judgments, which are based on objective measurements13. Buttressed by this belief and pressured by cost-conscious clients who do ‘‘opinion shopping,’’ i.e., consulting with several audit firms to see what position they would take14, auditors become salespersons, marketeers, and hawkers serving corporate management instead of the real client—the investor, the ‘‘public,’’ i.e. all those areas impinging on public space such as the environment, pollution, unemployment, welfare. Critical Accounting and Postmodernism These arguments represent a new approach in accounting research known as critical accounting 15 , which has been developing as a marginal movement in accounting since the mid-1970s. It is defined (by Moore, 1991, p. 770) as: ‘‘a set of discursive practices (more encompassing than ‘a body of writing’) embodying a radical epistemological (or political) stance which questions objectively in the first place, finds ‘accurate representation’ an impossible goal, and seeks alternative descriptions for what accountants do and the role accounting plays.’’

Important to most critical accountants, therefore, is the concept of the social construction of reality. Social reality is ‘‘reflectively constituted by accounts of reality’’ which are constantly being constructed, maintained, and reproduced (Lukka, 1990, p. 244). Thus, ‘‘[a]ccounting does not only reflect reality but it also creates it’’ (Lukka, 1990, p. 253). Accounting principles and standards are themselves the result of political bargaining. It is not possible to say that the concept of profit is objective when its definition and calculation are based on realized historical values (Lukka, 1990, p. 252). The hermeneutical strain in critical accountants’ discussions is apparent in a number of recent articles. For example, Arrington and Puxty (1991, p. 52) state: ‘‘. . . the very notion of an asset, or an organization, for a value, or wealth and our interests in those objects is constructed out of the communicative practice of accounting and the hermeneutical task of making sense of our world through interpreting accounting.’’

Roberts (1991) interjects Ju¨ rgen Habermas’ ‘‘colonization of the lifeworld,’’ in which the media of power and money, as represented by hierarchical accountability and the individualizing form of accounting (which is so successful at controlling the self and, for managers, controlling others) separates itself from the social integration of a lifeworld grounded in communication and reciprocal understanding. Critical accountants acknowledge the linkage of power to knowledge, that knowledge is therefore political and that decentering of knowledge systems and recognition of structures of self -determination together may provide a

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method for accounting that has no final closure, no Althusserian one -best way, no necessary binary opposites. A clear example of this is provided in the article by MacIntosh and Scapens (1990), who utilize Giddens’ structuration theory to examine a University of Wisconsin budget crisis during the late 1970s which shows that the accepted doctrine of current management accounting is but one interpretation of the situation16. Miller (1991) describes how management accounting is far from being a perfected system of measurement. In an analysis of the development of discounted cash flow procedures (DCF), he explains how its development in the 1950s and 1960s was an important innovation in management accounting. He takes to task the position of Johnson and Kaplan (1987) that cost accounting had developed through a gradual and steady accretion of knowledge and technique until about 1920, when innovations in it stopped. In fact, DCF was just such an innovation; it was not an abberation in an otherwise completed system of accounting. Nor was it constructed by academicians who were striving for relevance in the business world. Rather, it was a viable addition to cost and management accounting and had the active support and participation of practitioners and government groups, as well as academics. Calling it an ‘‘evolutionary model’’ of cost accounting development, Hopper and Armstrong (1991) also criticize Johnson and Kaplan’s approach from another prespective. They contend that accounting did not exist in fully competitive and self-equilibrating markets of harmony and balance. Cost and management accounting was not a measurement of and reflection of that system but of a system of dominance over and control of labor. Their labor process model17 shows how standard costing systems were used to support and defend the deskilling of carft labor rather than management’s frequently stated purpose of increasing worker efficiency. Their analysis helps to explain how accounting is institutionalized within and through corporations and how the professions, dependent on corporate patronage and the state, institutionalize knowledge through ideological processes consistent with the underlying relations of production. Technology and specialization, in the form of accounting systems and accounting experts, are a consequence of the class structure of production relations. The rise of dual organizations, one paper (cost and management accounting), the other physical (labor), was legitimated by the ability of accounting to control that labor for management. Accounting is, then, ‘‘a set of practices that are shaped by (and to a degree, shap[e]) the contradictions and conflicts that inhere within the wider society.’’ (Hopper, Storey, & Willmott, 1987, p. 448). As Cooper (1983) points out, management accounting can exercise authority in two ways: it can harness the creativity of labor by encouraging worker autonomy and social commitment, or it can impose strict hierarchical control with direct supervision and an all-encompassing set of rules. In the latter case, management accounting is part of management’s exercise of authority against the resistance of employees. Most management accounting research describes and designs systems geared to this perspective; rarely does it portray the values of workers or show how accounting is used to ‘‘persuade workers to behave ‘‘responsibly,’’ accepting layoffs and / or worsening work conditions’’ (Cooper, 1983, p. 273).

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Thus, focusing on a process within structures such as organization, community, region, class, etc., as an entry point, one can examine alternative interpretations. As Resnick and Wolff (1987) have described it, society is a complex totality of relationships which comprise a set of processes: economic, political, cultural, and natural. Each process is ‘‘the site of the interaction of the influences exerted by all the others,’’ i.e. overdetermination. Their entry point of the process of class is overdetermined by other economic processes and by political, cultural, and natural processes. Likewise, critical accountants are beginning to ask questions about the role of accounting in the set of processes comprising flexible accumulation (e.g. Arrington & Puxty, 1991, p. 53, on flexible capital and labor market flexibility; Dillard, 1991, p. 24). It is within this framework that the ‘‘local’’ level of analysis can proceed. Building, in part, from Foucault’s conception of discourse, Larson (1990) explains that the true discourse is in the ongoing development of a professional body of knowledge is determined by who has authorization and power. The core region of a profession is that area of ‘‘truer’’ discourse—the most epistemologically valid discourse. For managers (clients), the true discourse(s) produced at the core of the profession are only one argument in their ‘‘justificatory elaborations.’’ They are more interested in productivity than in discourse production. When challenged by management, professionals and experts ‘‘retrench behind the boundaries of their discursive fields and retreat towards the protected core’’ (Larson, 1990, p. 38). That core is now being challenged in accounting. Large-firm accountants are in the position of defending the normal discourse of the field. Yet, as administrators in their firms and as organizational experts they must deal with developments among their rapidly changing clientele. Many of these clients, voluntarily or otherwise, are beginning to embrace elements of a new worldview, renegotiating modernist management discourse in favor of discourse that represents and justifies lean, flexible, and, in some cases, even worker-friendly systems of operation.

Implications for the Profession Using a critical framework, new questions are posed and old questions are raised in different contexts. Armstrong (1985, p. 132) sees the profession as having to maintain a delicate balance between too much and too little indeterminacy, that is, the knowledge base needs to be sufficiently codifiable to be transmitted as a professional culture but it also needs to contain enough uncertainty to keep outsiders from encroaching on professional practice18. Historically, for engineers, this was a problem as the techniques of scientific management became common knowledge and unprotected by the profession. Presently, the same problem is occurring in management accounting, which feels the pressure of other professions also interested in annexing parts of new information technology and from specialists in operations research and managerial economics (Armstrong, 1985, p. 137). This balancing of professional knowledge operates within structural boundaries which themselves change over the long duration. Using the capitalist

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development model of Gordon et al. (1982) , Hopper and Armstrong (1991) examine the development of cost and management accounting during each of three overlapping long waves of capital accumulation, from 1820 to the present: proletarianization, homogenization, and segmentation. As the latest wave appears to be diminishing, some researchers are asking whether and what kind of new wave (or social structure of accumulation, as it is called by Gordon et al.) may be appearing. Spatialization seems to be the most appropriate term to describe this new structure, with employers’ increased use of plant relocation or the threat of relocation being the key labor control strategy since the early 1970s (Grant, 1995)19. Hopper and Armstrong (1991) mention the threat of relocation as an element in the redrawing of recent management-labor accords and suggest that agency theory and activity costing could be used as a ‘‘scientific’’ rationale for expanding flexible labor and flexible production20. These developments suggest that accounting is reaching a point where, in the history of capitalist relations, significant changes in its body of knowledge are required if it is to survive as a profession. Accountants must face the increasing disagreements about the modernist assumptions of the fixed meaning of accounts, of accurate representation of objective economic reality, and the critical perspectives of interpretive, reflexive knowledge in everchanging systems. However, accounting practitioners are not much concerned about these critical views. If one were to judge by the mainstream journals, books, and magazines of the profession, most are completely unaware or only vaguely aware of these arguments. Where opposition is recognized, it is seen as conflict between the art of the practitioner and the science of the academics. The complaint is of overemphasis on mathematical and statistical rigor among academics, which creates a schism between them and the practitioner community (for example, see Bricker & Previts, 1990). The seriousness of this schism can be ascertained from a survey reported in the same issue of the journal in which the Bricker and Previts article appeared, where academic journals held all the top spots in accounting faculty rankings of journal quality and the Journal of Accountancy, the official publication of the AICPA and leading practitioner journal, ranked only 32nd in quality (Hull & Wright, 1990). Most interesting was the sixth-place ranking of Accounting, Organizations & Society, an accounting journal that includes much critical work. It is clear that, agree or not, academic accountants are alerted to a radical movement in accounting, the first of its kind ever to appear in the profession. The implications of this new approach are just beginning to be recognized. For a modernist accounting, the questions raised are perceived as potentially harmful, even life-threatening. To adopt a critical framework would be to change the very nature of the profession. Speaking of the history of political revolution, Madison (1991, p. 55) argues that ‘‘if the goal of modernist revolutions was the seizure of power, the goal of postmodernist revolutions could be said to be the diffusion or dissemination of power.’’ Speaking of the history of the professions, that argument might be substituted by the statement that if the goal of modernist professions was the control of knowledge, the goal of postmodern professions could be said to be

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the diffusion or dissemination of knowledge. Like other professions, accounting attempts to mask its power by declaring that it has objective neutral knowledge. Like other scientific professions it will also not admit that it uses ‘‘social and rhetorical myths of persuasion’’ to colonize knowledge21. This reasoning permits a mode of rationalization that enables us to ignore questions of power and ethics. Certainly there has been no questioning of disastrous events in the business world that bear directly on accounting. Two recent reports, one of large accounting firms (Big Firm Survey, 1991) , and the other about the management of companies, markets, and industries for senior management of accounting clients (Landmark MIT Study, 1989) , both emphasize the need to keep abreast of technological changes. The latter study concludes that ‘‘the bottom line’’ is that companies must develop a full-blown information technology system to compete in the turbulent environment of the global marketplace. However, no reference was made to what the meaning of the financial debacles of the 1980s was for the 1990s. Even an attempt at a modest reform by the FASB in its conceptual foundation project to make financial representations in financial statements more reflexive was met by a counterreformation which has had the continued combined support of large-firm practitioners and business executives (Hines, 1991; Miller, 1990; Elliott, 1991, p. 75). This is a strange set of circumstances. Thr organizational structure of large accounting firms in some ways reflects aspects of postmodern organizational forms. They are characterized by overlapping and self-managed work teams, job rotation, and the quasi-democracy of colleagueship, all fostering a flexible, pluralist system of operations. Yet, accounting practice remains fully within the modernist tradition, with the emphasis on hierarchies of equal but separate functions (audit vs. MAS22), more impersonality and less trust as competition intensifies, and gendered labor market segmentation23. In 1991, KPMG Peat Marwick realigned its consulting teams by industry instead of geographic region. Instead of teams of different specialists operating together, there is more specialization by function. This reduces the tendency toward normative isomorphism, a dedifferentiation phenomenon in which professional networks span a range of organizations across industries with a pool of almost interchangeable individuals with similar values, dispositions, and orientations (DiMaggio & Powell, 1983). Conversely, the largest consulting firms (Booz Allen & Hamilton, McKinsey & Co., Arthur D. Little) have been quite successful by maintaining their policy of generalist management consulting whereas the Big Six, with their new emphasis of functional specialization, with the exception of Arthur Andersen and Price Waterhouse, have experienced a decline in consulting revenues (Bresnick, 1992). The management consulting firms’ success is certainly one indication—although short-term—that a healthy pluralism and profits may be linked. In a study of the 100 largest American law firms, Galanter and Palay (1991) foresee the ‘‘pluralization’’ of law firms in terms of size and function. The multidisciplinary isomorphic firm which incorporates the labor of other related professions such as management consulting, investment counseling, lobbying, etc., is likely to develop in law24. This diversification may be

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encouraged by the recent (1990) authorization to permit nonlawyers to become partners in law firms in the District of Columbia.

Conclusion A new way of thinking about the measurement of value has thrust itself into the field of accounting. Accounting transactions and auditing procedures are seen as cultural contacts25 in local, regional, and global markets. As such they represent the diversity of images, symbols, myths, and events of the world’s cultures. The homogenization of accounting principles and auditing standards worldwide does not preclude local interpretations of them, which reflect the variety of cultures and subcultures. Such efforts at homogenizing are an implicit recognition of this diversity. A major question for the accounting profession is whether alternative interpretations, including neither to unacknowledged social costs as opposed to market costs, are to be accepted as valid, measurable elements26. Even a modestly positive acceptance will impact heavily on all areas of the profession. It will have special significance for large professional service firms because it is there where the effects of flexible accumulation are being developed, measured, maintained, and modified, both for application amongst clients and within the firms. However, just as the prestigious accounting firms in Great Britain were not involved in the early development of cost accounting (Armstrong, 1987, p. 419), it may be that today’s prestigious global accounting firms will not be at the forefront of development of the new measures of value that could be the driving paradigm of accounting in the 21st century. At this point in time, it would be easy to ignore the critical noises emanating from the academy as unrealistic idealism. After all, the big firms are progressive in a number of areas. But to be progressive is not necessarily the same as being receptive to the measurement of social values at all levels of the system and from different system perspectives. The leaders of the profession may also consider critical accounting as an interesting, if somewhat misguided, movement which although temporarily disruptive, will be absorbed in to the system with little effect on it or, if ignored, will just disappear because it seems so impractical. Indeed, critical accounting is not presently a powerful or aggressive force in accounting, as Moore (1990) has concluded. But its potential is immense as the globalization of capital forces the recognition of the need for calculations of so-called nonobjective phenomena. As Max Weber documented so well early in this century, rational accounting was a key component in the development of modern bureaucratic society. The autonomy and power of professions was linked closely to that development. Perhaps some great social theorist of the early 21st century will document that an arational accounting was a key component in the development of postmodern society and that the new trust and freedom characteristic of its professional practice was linked closely to that development.

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Acknowledgements The author wishes to thank Wai Fong Chua, David Cooper, and an anonymous reviewer for their comments on an earlier version of this paper. An earlier draft was presented at a symposium, ‘‘Organization and Management of Professional Service Firms in a Changing Environment,’’ May, 1992, at the University of Alberta, Edmonton.

Notes 1. A recent theoretical statement of this position is Jensen’s (1983) agency theory: the firm is basically an equilibrium of contractual relationships entered into by individuals. It dismisses the notion that an organization is a meaningful entity. It assumes that individuals can be described in an objective manner independent of their social context because in a contractarian society consensual exchange occurs under conditions of equality, i.e. there is free and voluntary association of individuals with no interference from the state. For a critical review see Hunt and Hogler (1990). 2. The history of the ambivalence of the FASB in its Conceptual Framework statements on this matter is documented by Hines (1991). 3. In his book Philosophy and the Mirror of Nature, Richard Rorty (1979) uses the mirror metaphor to describe the mind/ truth duality of the realist position. In this instance, ‘‘. . . knowledge that cannot be encountered is posited to exist’’ (Murphy, 1989, p. 2). The realist position is defended by Searle (1990; 1995), who argues that social reality cannot exist without an independently verifiable world. 4. But not always. Combining Durkheim’s (1938, p. 14) social facts and Weber’s (1947, p. 101) subjective action, Berger and Luckmann (1966, pp. 33 – 34) argue that socially constructed reality is capable of ‘‘objectivation.’’ 5. Much of the discussion of modernism and postmodernism relies heavily on David Harvey’s The Condition of Postmodernity (1989). For an interesting introduction to modernity, see Frisby (1986) and Kolakowski (1990). 6. Since modernism is a period within the worldview of modernity, it would be appropriate to call the worldview following it postmodernity. However, to avoid confusion, this paper will follow established practice and use the term postmodernism. 7. These concepts have been utilized most dramitically in the work of social geographers, e.g. Harvey (1989), Soja (1988), and also in collaboration with sociologists, e.g. especially the collection of essays edited by Gregory and Urry (1985). An important philosophical work is Henri LeFebvre, whose book, Production de l ’espace (1974) , has now been translated into English (1991). 8. Harvey (1989, p. 121) introduces this concept to explain how the ‘‘regime of accumulation’’ (i.e. large owners of capital and their advisors and supporters) stabilizes the allocation of the net product between consumption and accumulation. 9. Frequently cited as an unregenerate nihilist, Richard Rorty’s position, especially in his Philosophy and the Mirror of Nature (1989) and Consequences of Pragmatism (1982) is that things are not outside the mind; culture is not guided by something that is eternal and unchanging. Instead, culture is not guided at all. The mind is not a mirror containing various representations of objective cognition. Things are true only by the culture of convention. ‘‘There is nothing deep down inside us except what we have put there ourselves.’’ Jacques Derrida (1978) argues that cultural life is a series of texts that interrelate to other texts and thus produce more texts. . . . Stanley Fish (1980) refers to interpretative communities made up of producers and consumers of knowledge, of texts, operating within particular organizations (the corporations, universities, hospitals) and particular work cultures (art, law, religion). Berman (1992, p. 44) calls this nihilism without tears, nothing but an aesthetic language game in which words, signifiers, and texts are used in place of praxis. 10. Griffin (1990) compares deconstructive postmodernism, which advocates pluralism to forestall totalitarianism but ends in relativism and nihilism, to constructive postmodernism — a creative synthesis of modern and premodern truths and values which involves a ‘‘new unit of scientific, ethical, aesthetic, and religious institutions,’’ and acceptance of nonsensory perception and, above all, a nondualistic spirtuality. Modernism asceticized spirituality as life-depriving (i.e. as depriving one of the rational life). Spirituality was emasculated and feminized, it became a ‘‘womanly thing,’’ rendering it passive and inert. 11. For a review of the literature on decision-making theory during this period, see Montagna

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12.

13. 14. 15.

16.

17. 18. 19.

20.

21. 22. 23.

24.

P. Montagna (1974), Chapter 6: ‘‘Power and the Dynamics of Organizational Change.’’ For its location and role in social science paradigms, see Montagna (1980). Over the past decade, risk analysis has dominated this discourse. For a critical review, see Humphrey and Moiser (1990, pp. 228 – 231). Management accounting systems monetize (i.e. ‘‘cost’’) basic financial actions and events and then ‘‘aggregate these costs by jobs, batches, processes or departments in order to apply costs to products and services’’ (Swieringa & Weick, 1987, p. 294). Management accounting ‘‘plays an active role in shaping and making senze of the organization. . . of particular patterns of organizational segmentation, organizational goals, the organization’s environment and of how well the organization is performing’’ (Chua, 1988, p. 66). Gouldner (1970, pp. 495 – 496) coined this term in his criticism of the Parsonian school of structural-functionalism. The problems associated with auditor switching are discussed by Francis (1990). McNair (1991) analyses the conflict between quality and profitability and the resulting ethical ambivalence. The term first began to appear in publications around 1990. The first journal to deal substantially with issues in critical accounting was Accounting, Organizations and Society, a British journal which began in 1976. Critical Perspectives on Accounting started publication in 1990. In his comprehensive analysis of critical accounting, Moore (1991) reviews in detail the various approaches taken by writers in the field. He lists and examines four approaches: archaeo-historical, epistemological, deconstructive, and contractual. But he later revises this typology (p. 779) to only two: archaeology and deconstruction. The epistemological is not listed presumably because it is to be found in both of these; the epistemological deals with the realist-relativist argument, the relativist representing the hermeneutic/ interpretative position. Therefore, Moore’s dichotomy would loosely parallel the two approaches in this paper: his deconstruction with poststructuralism and his archaeology (absent community and solidarity) with the hermeneutic (see pp. 129 – 130 above). Analysts who have typologized postmodernism generally follow this pattern. Rosenau (1992) names them the skeptical and affirmative types and adds that each exhibits an extreme and a moderate position. Archer (1990) talks of strong and weak postmodernists, following the strong and weak programmes represented by the sociology of knowledge. Hopper, Storey and Willmott (1987) define and outline a labor process perspective on management accounting and compare it to conventional management accounting. For earlier discussion of the balancing of professional knowledge, see Wilensky (1964) and Montagna (1968). The term locational switch is used by Scott and Storper (1987, p. 309). As long as labor is able to remain in a tightly knit community at the workplace and within the region, it can act in a class capacity to retain power over production. But locational switches allow management to escape from any entrapment (spatial mobility ). Additional management responses include financial restructuring, increased subcontracting beyond the local area, in situ substitution of immigrant labor for local labor, decentralization, and technical change. As elected officials become increasingly involved in competing for firms on the move globally, newly-established work communities become models for the older ones: usually nonunionized, lower-waged, and lesser-skilled. The historical period of a social structure of accumulation, although relatively long—about 50 years according to Kotz (1994)—is shorter than that of the worldviews. It is likely more than coincidence, however, that spatialization occurs at about the same time as postmodernism. The virtual organization characteristics described above by Nohria and Berkley would be important criteria in the development of core institutions in this new social structure of accumulation. Two critical political scientists, Raskin and Bernstein (1987), call for a ‘‘reconstructive political science,’’ which, because it recognizes that reality is socially constructed, eschews the reductionist view of itself as value-neutral. Elliott (1991) portrays the large firms as hierarchical (as opposed to networked) structures with functionally isolated operations and as fully supporting ‘‘Taylorist’’ management accounting. The accounting profession has its own peripheral labor force. Despite their increasing proportion (to men) in accounting in the UK, Australia, Canada, and the U.S., women are underrepresented in the higher ranks of the accounting profession (Ciancanelli et al., 1990). This is true even though women are at least equally as qualified (and are more qualified at entry level into training contracts in the UK) and have been entering accounting in equal numbers (42.8% in the UK; 50% in Canada). These are in some respects like departments in universities, which are highly isomorphic. See Clark (1987) for a discussion of isomorphism in academic institutions.

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25. As Featherstone (1991, p. 147) describes them, cultural contacts increase the range of conflicting definitions of the world. 26. The nature of social value accounting has been examined by Tinker, Merino and Neimark (1982) and Cooper and Sherer (1984).

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