The bottom line

Critical Perspectives on Accounting 17 (2006) 305–322

The bottom line Cheryl R. Lehman ∗ Hofstra University, Department of Accounting, Taxation, and Legal Studies, School of Business, 134 Hofstra University, Hempstead, NY 11549, USA Received 8 December 2002; received in revised form 20 April 2003; accepted 26 May 2003

Abstract The complex relationships unfolding as people flow across borders in the 20th and 21st centuries hold infinite possibilities for research. In this work, we consider one aspect of our contemporary global economy—US immigration policy and its relationship to accounting disclosure. We review the processes of social discourse and accounting myth making in general, and provide a context of immigration policies in the US. Our concern, that the accounting profession presents a particular reality, focuses on how it obscures significant relationships between immigrant employment and financial reports and thus our observed muddled meaning to profit—“the bottom line”. Conventional accounting rhetoric suggests that the bottom line represents appropriate business transactions, successful performance, and a basic “stewardship contract” fulfilled, and recent debates regarding “earnings management” lament the affront of these obligations. Yet, this conventional view obscures complex social relationships, one being the use of immigrant labor in achieving these results, and we provide evidence of some of those most deleterious effects. © 2005 Elsevier Ltd. All rights reserved.

1. Introduction Investigating the contemporary inter-relationships between the flow of people, labor relations, management, and profit has an important lineage (see, e.g., Aronowitz, 1978; Braverman, 1974; Hoogvelt, 1997; Mandel, 1975). These researchers illuminate the processes by which various forms of labor are empowered and manipulated and integrally intertwined with beliefs and ideas as capitalism develops. Complementing these researchers, ∗

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our work is concerned with the power of ideas and representation, and the power of the accounting profession to create reality regarding profit – “the bottom line” – in order that we better understand the meanings of financial reports. Our specific focus is the relationship between immigrant employment and financial reports. We contend that the accounting profession’s traditional suggestion to financial statement users that the bottom line represents appropriate business transactions and the success of an enterprise (e.g., Kieso and Weygandt, 1989, p. 119) also obscures controversial issues regarding immigrant labor in achieving these results. Naivete is not our operating framework; we do not propose that competitive firms operating in global capital markets will be naturally motivated to disclose instances of illegalities, discrimination, and exploitation that are manifest in employing immigrant labor. Our intent is to unpack the instances, the process, and re-present meanings. As critical accounting researchers, should we not scrutinize “the bottom line” for its social meanings? Have we adequately illustrated how annual reports, in celebrating the achievement of high profits, also celebrate the achievement of low wages for the most vulnerable immigrants? Currently, formal applications regarding immigration manifest in auditing practice. In conformance with US Generally Accepted Auditing Standards (GAAS), auditors should assess compliance with the Immigration and Control Reform Act of 1986 (IRCA) in order to evaluate significant effects on a firm’s financial position for non-compliance (Okcabol, 2002). Yet it has been shown that audit practices regarding these provisions are lax, and auditors are, perhaps unintentionally, contributing to employment discrimination (Lehman and Okcabol, 2002). The General Accounting Office (GAO) has noted that “illegal employment discrimination appeared to be primarily caused by employers’ lack of understanding of requirements, employers confusion about eligibility determination, and the prevalence of fraudulent documents.” (United States General Accounting Office, 1990). However, our linking of accounting to immigration policies is not primarily due to current auditing regulations, but instead because our framework looks at accounting as part of the broad fabric of our political economy. Within the socio-political-economic processes of regulation, governance, the construction of meaning, arbitration over immigration, issues of business ethics, etc., accounting is a participant, and these processes are worth linking and examining. Section 2 presents our views on the social construction of ideas and accounting’s participation in ideological persuasion and myth making. In Section 3 we provide the context of immigration policies, and Section 4 provides a brief history of US immigration practice, and the articulation of immigration in society over certain periods. In Section 5 we reveal employment trade-offs for immigrants, and the dramatic manifestations of profit pressures. Section 6 discusses the bottom line: the conventional role for accounting; the promoted meaning of profit; the “earnings management” controversy, and data in the literature related to immigration. We provide implications and conclusions in Section 7.

2. Creating meaning The power of the media, professional bodies, educational institutions, and the state to contribute to the creation of reality covers a vast terrain of research. Studying these phenom-

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ena in the US, Chomsky (1992) has examined its privatized systems, including privatized media establishments, its educated populace, and issues of control over educational apparatuses. Creating systems of beliefs undermining independent thought, these established groups might even be unaware of the social role of their activities. These “experts of legitimation” using a term by Gramsci (1971), are “the ones who labor to make what people in power do seem legitimate, [they] are mainly the privileged educated elites. The journalists, the academics, the teachers, the public relations specialists, this whole category of people have a kind of an institutional task, and that is to create the system of beliefs which will ensure the effective engineering of consent” (Chomsky, 1992, pp. 66–67). State power and the media have the same effect: to perceive issues, and to suppress, control and shape them in the interest of private ownership of the economy, and to discourage dissent, to silence the voices of the unempowered, and to privilege what is known. The power of the media and other institutions in constructing reality is referred to as “Manufacturing Consent” in Edward Herman’s book with Chomsky (Manufacturing Consent: The Political Economy of the Mass Media, 1988). Under conditions of inequality and concentrated power, including in democratic countries, the public must be convinced of the soundness of existing institutions. State policies must be seen as reasonable, rationale, preferable, and proper. The forces that insure control over the media where media organizations are under private control and where formal censorship is absent include: concentrated ownership and profit orientation of dominant mass media firms; advertising as the primary source of income of the mass media; dependence of the media on information provided by government, business, and experts funded by primary sources of power; and pressure placed on the media for negative positions regarding the state (Herman and Chomsky, 1988). The complex intersection between the state and the media appears in Hall, Critcher, Jefferson, Clarke, and Roberts, Policing the Crises: Mugging, the State, and Law and Order (1978). Although “mugging” in British society in the 1970s is the specific theme of their analysis, it is the notion of mugging as a social phenomena – as a social construction – that is their major contribution. They illustrate that how crime is portrayed, and reacted to, is an ideological conduit. “The media do not simply and transparently report events which are “naturally” newsworthy in themselves. “News” is the end-product of a complex process which begins with a systematic sorting and selecting of events and topics according to a socially constructed set of categories” (Hall et al., 1978, p. 53). How governments, professional bodies, and major organizations are actively engaged in creating reality and “policing knowledge” covers a wide range of processes (Althusser, 1971; Barsamian, 2000; Chomsky, 1989; Gilroy, 2000; Said, 1994; Tinker, 2001; Tinker and Puxty, 1995). Accounting’s allegiances are manifest in its own messages, discourses, and journal articles, i.e., in a range of discursive practices revealed to its supporters and critics alike. Accounting journals, articles and educational resources all re-present struggles over the distribution of wealth as part of the state’s symbolic, cultural and hegemonic force, as envisioned by Gramsci (1971). The state has a central role in organizing economic, social and political life by forming allegiances and alliances and replacing open conflict with a sense of order, or harmony, or authoritarianism, or unity. In other words, using a range of organizing ideologies the state responds to the contradictions and crises of a particular era. Accounting is a part of these state apparatuses of ideological persuasion, contrasting the conventional and expedient view of accounting as a passive data provider, dedicated

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to unbiased reporting. Rather, accounting contributes to the state’s organization of cultural hegemony as part of the state (but also unique) in creating social cohesion, allegiances, and forms of cooperation1 . Critiquing David Solomon’s quest for “faithful representation” in accounting, Tinker (1991) recognizes the subjectivity and partisanship of accounting, and that it is never neutral in issues of social justice. The diversity of conflicting social interests invested in accounting suggests it inevitably take sides in such conflicts. Numbers are informed by a choice; in seeking “faithful representation” one ignores the choice of sides: a choice that must be socially reflective and critically self-conscious (Tinker, 1991). Similarly, Everett et al. (2002) point to the “myth making” aspect of the accounting profession, an important and frequently under-developed aspect of accounting practice, teaching, and research. They provide an historical perspective on the development of ideas regarding independence and objectivity and its part in the “ethical discourse” in accountancy, focusing on the Canadian Chartered Accounting Profession, 1911–2000. Illustrating that terminology and discourse are a process of creating rationales and myths with no one “history” or “truth” they reveal how history is socially constructed and subjective. The notion of accounting objectivity is a characteristic used by the accounting profession to establish its legitimacy, ethical high ground, and unique contributions to society. We return to the many manifestations of how profit is presented in accounting textbooks, in professional literature and in the media shortly. But, as the social democratic state accomplishes its task of maintaining productive relationships through a variety of pursuits, including employment and immigration policies, we provide a framework for understanding these policies first.

3. Why immigration? “Long waves” – economic boom and slumps – appear as a natural tendency for capitalist countries (see, e.g., Wright, 1975 and Mandel, 1975). Such countries experience cycles of fissures and pressures on economic production, realization of profit, financial expansion, inflation, employment opportunities, and the management of state and federal budgets, to name a few. As these cycles portend and reflect economic crises and they manifest in complex conflicts and contradictions. The managing of these crises change and are always in flux. Periodic economic crises emerge from the contradictions inherent in the process of capital accumulation: in the process of extraction of profits; in the problem of realizing surplus value; in the falling rate of profit; in the contradictory role of the state; and in the competition between different “forms” of capital (e.g., financial, industrial, between industries, and between nation-states). Particularly relevant to immigration issues is what political1 See, for example, Arnold (1999), Arrington and Puxty (1991), Broadbent et al. (2001), Chua (1986), Cooper (1992), Cooper and Sherer (1984), Dillard (2002), Dillard and Nehmer (1990), Gallhofer et al. (2001), Hammond (2002), Hammond and Streeter (1994), Kirkham and Loft (1993), Lehman (1992), Lehman and Tinker (1987), Loft (1986), Merino and Neimark (1982), Neimark (1994), Neu (1992), Oakes and Hammond (1993), Okcabol (2002), Parker (1986), Tinker et al. (1982), Tinker and Okcabol (1991), and Williams (1980).

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economy analysis refers as a “reserve army of labor” in capitalist systems, a labor category that holds wage rates down. This refers to a class of insecure, less skilled, less educated (“schooled”), and frequently “racial/ethnic/religious minority” category of workers whose low wages significantly under-represent their “real” contribution to society. For the extraction of a surplus by “capital” (the category of owners of capital) low wages, such as those paid to newly arriving immigrants or “illegal aliens” are facilitating mechanisms. Within different periods, we can observe a precarious “balancing act” between the employment of legal immigrants, the employment of illegal (and extremely low paid) immigrants, preference treatment for highly skilled workers, preference for immigrants from certain regions of the world, etc. In other words, there are policies and rhetoric that maintain an “appropriate flow” of immigration. The contradictions in these balances and the inherent instabilities in them affect and reflect a variety of social conflicts, and responses to them have the potential to create other crises. For example, unemployment holds down wage rates as employees compete for scarce jobs, and thus holds the cost of production in check. Yet the lack of wage income can impede the business imperative of realization of profits because of a lack of a market – consumers – for the goods produced. As part of political rhetoric, one of the reasons America’s unemployment statistics are lower for the entire population is that immigrant labor is not considered part of the labor force. Often “invisible” people, the exclusion of immigrants creates a numerical mirage in which unemployment statistics are below the real unemployment level of the populace. The ebbs and flows of immigrant labor are parts of these contradictions, and have been one of the phenomena of the 20th century. As part of complicated economic and social polices, immigration is not fixed but changes as economic conditions, social priorities, racial tensions, and global dynamics change. We present some of these policies below.

4. Immigration—a brief U.S. history The Alien and Sedition Act of 1798, the Chinese Exclusion Act of 1882, and the back and forth reversals of U.S. immigration legislation in the 20th century reveal that much in the current debates about immigration are not new. ”Although the door has never been completely shut, it has been – in varying degrees – only partly open, as Americans continue to debate the costs and benefits of receiving and integrating immigrants, in both economic and social terms” (National Research Council [NRC] 1997, p. 14). Where should our brief history of US immigration begin? The National Research Council quote above implies that US immigration is the phenomena of the past few centuries. Yet, all persons other than the original inhabitants, i.e., the native, indigenous population, referred to as American Indians, Native Americans, or Native Indians, are “immigrants” to area of the US. Recognizing the destructive elements of European arrivals beginning in the 15th century has been a significant re-writing of “American History”. So too is the importance of revealing that the expansion of the US population also relied on the slave trade and kidnappings from Africa. In this paper we use “immigrant” to mean “new arrivals” from outside of the US in the past few centuries to conform to the generalized meaning in the current debates over immigration. As literature and debates regarding immigration are vast,

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our history is selective and brief, intended to provide a sense of the changes and instabilities regarding immigration. Legislation restricting immigrants were not formally codified prior to the 1870s in the US, but the following two decades saw barriers constructed to exclude those likely to be a public charge—in other words those likely to be financially unstable. The 1882 Chinese Exclusion Act was the first law passed banning people from a specific country to entry. A particularly heinous law, it suspended the rights of workers from China to come to the US, responding to the anger of white settlers fearing losses of jobs to cheaper labor. Only students, tourists, and business people were eligible to enter. The next decades marked bill after bill being introduced into Congress in order to limit flows of immigration, many of which made their way into law. In 1903, political radicals were excluded; in 1907 a “gentleman’s agreement” between the US and Japan barred Japanese immigration. And in 1917 a bill that had been introduced over and over to Congress for 20 years was passed over the veto of President Wilson, banning those who could not read or write. By 1917, there were 33 categories of people barred from entry into the US. There were competing interests and lobbies in these disputes. Between 1870 and 1922 anti-immigrant feelings manifested in 20 congressional bills passed in order to limit immigration. Yet “All of these were vetoed by the president, in response to companies’ labor needs” (Adetunji, 2002, p. 11). Corporate lobby’s influence on presidential offices symbolized promotion of immigration for lower wage rates. But exclusions continued through the next phase: the exclusion of poor immigrants from Southern and Eastern Europe, with anti-immigration forces suggesting quotas limiting the number of people from each country resulting in 1921 with the US passing its first quota law. The law, allowing more immigration from Western Europe because of the limited number coming from this region, severely restricted immigrants from Southern and Eastern Europe. For example, as many as 100,000 immigrants arrived from Italy in 1 year in the early 1900s in contrast to the quota of 5802 in 1924. While millions had arrived from Russia in the early 1900s, the 1924 National Origins Act restricted the number to 2784 per year. Over the next 40 years, these quotas were in effect while war, global depressions, and natural and human catastrophes had their own significant impacts. In 1965, the quota laws in effect for over four decades were repealed, abolishing the European-biased national origin quota. The new system granted permanent residence visas (known as “green cards”) on a first-come, first-served basis within several “preference categories” and exceptions for political refugees and people with immediate relatives in the U.S. A notable response to many of the continuing controversies regarding immigration came on November 6, 1986, when President Reagan signed into law the Immigration Reform and Control Act (IRCA). As of that date, employers hiring illegal immigrants would be penalized with fines and possible imprisonment (Sklar and Folinsky, 1991). Although immigration law always prohibited individuals without proper authorization from working in the U.S., prior to the 1986 IRCA there were no penalties imposed on employers who hired “unauthorized aliens”. The promoted intention of the IRCA was to eliminate illegal practices, support legal immigration, and require employers to hire only U.S. citizens and aliens with work autho-

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rizations. Its implementation was part of a complex political, social and economic process, heralded by some as “protecting the American Way”, seen by others as part of a discriminatory policies as part a backlash to earlier administrations. The complexity regarding who is “protected” is what we seek to illuminate in this paper, regarding some of the complex range of economic, humanitarian, and controversial issues regarding immigration including the precarious nature of how decisions are made regarding quotas, and thus how illegal and legal immigrants are treated. The 1990s heralded significant contemporary anti-immigration sentiments (since the tragedies of September 11, 2001, anti-immigration issues have taken on particular perspectives). The state of California spearheaded these sentiments in the enactment of Proposition 187 in 1994. A controversial proposition, the act established restrictive access to healthcare, public schooling, and welfare for illegal immigrants. In 1996 Congress extended these restrictions, approving measures denying welfare to even legal immigrants. Mounting political pressures against these measures, however, has led to restoration of a number of social security insurance and food stamps eligibility for elderly, disabled, and needy immigrant children (estimates are that three-fourths of legal aliens remain ineligible for such aid, see Adetunji, 2002; DeFreitas, 1999). What were the sentiments in the 1990s regarding immigrants during the times these propositions were enacted? They were, of course, varied, effected by the surrounding socioeconomic-political environment, complicated beliefs about history and identity, reflected and effected by the media, popular imagery, and so on. Harper’s magazine had observed, in 1914, “America’s attraction is not to the good or the bad, to the saint or to the sinner, but to the young, the aggressive, the restless, the ambitious” (in Huang, 1995, p. 3). Contrast this with Fireman’s 1993 observation that Americans referred to the nine million immigrants of the 1980s as “freeloaders and deadbeats” who owe a debt to society (Fireman, 1993, p. 76). In the same period, Nelan reported “The growth of illegal immigration and the government’s inability to stanch the flow are a constant irritant to Americans” (Nelan, 1993, p. 5). Commenting on a Louis Harris and Associates poll of 1,418 adults in June 1993, Nelan revealed that 62% of Americans agreed that immigrants take jobs away from Americans, and use more than their fair share of government services. The controversy over who is considered a “legal” or “illegal” immigrant, and the imposition of quotas (“appropriate” levels of migration from a particular country), are fundamental challenges in immigration debates. The fragility of rigid rules, the broad issues at stake, the precarious dependence upon economic crises and/or stability, and social and political influences are all manifestations of the complicated process of creating temporary balances and alleviation of conflicts. Illustrative of the mutability of rule making is the July 2001 suggestion that U.S. President Bush endorse a limited plan allowing some of the estimated three million Mexicans living in the U.S. –illegally – to apply for permanent legal status. Allowing illegal immigrants to change their status “would be a central component of a new, ambitious temporary-worker program that American and Mexican officials are discussing” (Schmitt, 2001a). While ruling out any blanket amnesty, Secretary of State, Colin L. Powell remarked, “We’re proud of the fact that we offer opportunities for people to come to this country and to make a living, some go back, some to ultimately become American citizens . . .We want to regularize this. We want to make it less dangerous, less threatening to become a citizen, if that is where your destiny takes you” (Schmitt, 2001a).

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The proposal is said to be an acknowledgment of the growing interdependence of the Mexican and American economies. But many other immigrants claimed “unfair” and that Mexico’s 2000-mile border and “special relationship with the United States should not allow Mexicans living illegally in this country to leapfrog an unyielding American bureaucracy that has been endured for years by those who have played by the rules”(Schmitt, 2001b). Speculation began that motives for the initiative included the president’s attempt to score a foreign-policy triumph with his geopolitical partner President Vincente Fox of Mexico, without alienating any particular group of Latino voters, crucial to his re-election bid in 2004. Bringing the scale of the situation into focus, one skeptic of the proposal stated, “In the global economy, this is just a small fix . . . The real fix is open borders” (Schmitt, 2001a).2 What happens when borders open—illegally? The vulnerability of those in the process is complex and frequently problematic.

5. The costs of profits Immigrants to the U.S. in the early part of the twentieth century would likely be employed in “sweatshops” notorious for long hours, low pay, and hazardous and dangerous working environments. Fast forward to New York in the late 1990s, and one finds scores of sweatshops where illegal immigrants, paid wages of $1 per hour, have been smuggled in droves from China where they now “live like pigs and eat like dogs” (described by 66-year-old Son Li, in Barnes, 1998, p. 72). One reason cited for New York turning into this magnet for Chinese illegals is the frantic attempt by the area’s garment industry to remain competitive with Third World rivals. The head of the Chinese Staff and Workers Association, Wing Lam, states the situation “has created a plantation system where bosses can do virtually anything to workers without fear of penalty” (Barnes, 1998, p. 73). Under this competitive environment “Garment shops will no longer hire documented workers because employers find they can pay undocumented workers less and not fear complaints . . . We may as well be slaves” says one worker (Barnes, 1998, p. 74). Government action has been minimal; in the past 5 years only a handful of sweatshop owners have been prosecuted for failing to pay workers. Illegal-immigrant smuggling itself has become an industry, “It’s a global business with the same patterns as narcotics trafficking” states Andrew Luberes, a spokesperson with the U.S. Department of Justice’s Immigration and Naturalization Service (Crispin, 1999, p. 26). “Desperation rises and profits beckon” observes Crispin (p. 26). In its extremity there is “human trafficking”, distinguished from “immigrant-smuggling” by the degree of coercion, deception and exploitation. The U.S. State Department estimates that about 50,000 people fall into this category, the vast majority women and children, who are forcibly trafficked into the U.S., “forced to work as virtual slaves, for the traffickers’ profit” including on farms and in factories (The Economist, 2002, p. 30). 2 On March 12, 2002, a bill was passed by the House of Representatives that would temporarily extend a provision for certain non-citizens to apply for immigration visas while residing in this country, without returning to their home country. Mexicans might be the largest beneficiary, but the provision was not a comprehensive new accord (Pear, 2002a).

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Miriam Ching Yoon Louie’s Sweatshop Warriors (2001) describes the lives of Mexican, Chinese and Korean women currently working in sweatshops of New York, Texas, and California, at the mercy of abusive employers. Revealing numerous examples of seeking to win back pay and to improve working conditions, Louie provides accounts of the oppressive nature of immigrants working under sub-contract; the multi-national corporate motivation for sweatshop employment; and the persistence of an uninformed public. The “David versus Goliath” nature of employee and employer is illustrated in many examples, providing accounts of racist hiring practices, police brutality, and reneging on basic wages and working conditions. The “creation of reality” and invisibility of exploitative relationships are among Louie’s themes. Rarely are the events she makes visible prominent in mainstream media, such as marches against restaurateurs, hunger strikes, or rallies against multi-nationals for workers rights. The myth making twist in Foner’s work (2000) is a comparison of the “two great waves” of New York City’s immigration, the first in 1880–1920, the second beginning in the mid-1960s. Of the first, there is much mythologizing of their hard work, their desire for assimilation, their Herculean efforts, and the idealization that they were what made America great. Using these previous heroes as a comparison to the more current arrivals, the latter, unfortunately often fail to measure up in the minds of many. Yet, as her account reveals, the folk hero nature of the early accounts contrast the reality of lives ensconced in racism, anti-immigrant sentiments, prejudice, and poverty. A case study of this circle of immigration – workers seeking a better life, desperation for employment, and desperation for corporate profits – is the recent indictment of Tyson Foods, Inc. Tyson, the nation’s largest meat producer and processor, was charged with conspiring to smuggle illegal immigrants across the Mexican border to work in its processing plants. The 36-count indictment, accusing Tyson of helping illegal immigrants to get counterfeit work papers, is said to be the largest case brought against a major company involving immigrantsmuggling (Barboza, 2001). Motives, according to the government, included cost cutting in order to meet production goals and maximize profits. In addition, there are charges that Tyson has a corporate culture condoning the illegal practices over many years and throughout the company. The 30-month investigation found that 15 Tyson plants in 9 states were involved from 1994 to 2001. “Never, ever, admit hiring illegals” Tyson human resource managers told human resource officials at a 1998 meeting at the company’s headquarters, claims the government, (Barboza, 2001). Labor organizations have been pressing the government to stop taking actions against undocumented workers and instead go after companies for recruiting and hiring them at low wages for work in hazardous jobs. “We have been saying for a long time that they induce workers to come here from Mexico and Central America with false promises,” said Greg Denier, a spokesman for the United Food and Commercial Workers. “Some are told they’ll be given papers. This is a cross-border trade in human-flesh” (Barboza, 2001). Some businesses such as the hotel and restaurant industry, find themselves particularly vulnerable, and critique the Immigration and Naturalization Service (INS) for not understanding the reality, good intentions, and strains, under which immigrants seek employment and under which businesses operate. “Watching your restaurant employees scurry out the back or the housekeeping staff evaporate because the INS is in town is indeed troubling . . . no matter how well-intentioned or thorough your background checks . . . you can get burned

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. . . Your reputation also can be tarnished as someone who hires illegal aliens” (Malley, 1998, p. 14). The restaurant and hotel industry “is facing the threat of many more new jobs than there are people to fill them . . . we should be embracing and welcoming people to this country—legally” suggests this spokesperson for the industry. And he contends that these jobs “offer real wages and a toe-hold to the new immigrant in the land of opportunity . . . America must create a system that promotes dignity for those seeking an opportunity here and peace of mind for the hotel operator” (Malley, 1998, p. 14). All this is part of the precarious act of balancing and managing the flows of people and wealth. As part of changing economic and social conditions and mutable social thinking, policies evolve over time. Ahmad noted that government policies and rhetoric must maintain for its population a modicum of safety, of security, of distributive justice and the stimulation of hope (Barsamian, 2000). So too accounting and audit practices: the profession must establish and legitimate its contribution, and as it does so, it has potential to affect public policy because of its regulatory and informational roles, which we review next.

6. The bottom line Accounting provides numbers used in national statistics (regarding corporate income and taxes, for example); accounting provides data in arenas of private consulting (e.g., assisting corporations in decisions to expand or contract in global operations); and as part of the US General Accounting Office, it provides data and recommendations on military policies, banking reform, and immigration policies. Accounting, as part of the political economy and within these social processes of regulation, employment, information, consulting, etc., is a participant. Other processes may or might replace accounting, but it is a contemporary contributor. Accounting legitimizes its contribution in creating cohesion and cooperation through many means. It promotes itself as a facilitator in lubricating the flows of capital; it illustrates its ability to provide useful information for investments; it asserts its unique position as an information provider that is effective and efficient; and it stresses its desire for reliability and relevancy. The recent US crises regarding accounting’s participation in improprieties, manifested in corporate behemoths such as Enron and World Com, has undermined these professional stances. The traditional view of accounting’s role is within markets, privileging the central role of the marketplace in facilitating the efficient allocation of resources and the distribution of goods and services. Even when cognizant that markets do not facilitate all economic transactions, this view holds that the marketplace’s efficient function improves society’s economic welfare. Allocation efficiency of scarce resources is important in maximizing the well being of stakeholders, including investors, creditors, employees, and consumers. Within these classical accounting and economic frameworks, it is recognized that market failure can lead to misallocation of scarce resources and reduced economic output and that market failure can lead to reduced opportunities for trade of goods and services, and also savings and investments. Market failure compels participants to engage in costly signaling of their quality or commitment to transactions and decisions that are reliable. Market failure can lead to regulation and other state-mandated restrictions imposing costs on all participants –

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violators and non-violators alike – generally thought to be more costly than without these regulations (i.e., more efficiency could be achieved without market failures). The causes of market failures include information asymmetry as managers and investors, insiders and non-insiders, do not possess equal sets of information upon which to make decisions. This is a significant contribution for accounting: “Reporting on management’s stewardship has long been recognized as a principal purpose of financial statements . . . Stewardship refers to the efficient administration of resources and the execution of plans for conserving and consuming them” (American Institute of Certified Public Accountants, 1973, p. 25). The provision and transparency of information enhances the stewardship and efficiency contributions of accounting. “Financial reporting is intended to provide information that is useful in making reasoned choices among alternative uses of scarce resources in the conduct of business activity” states the profession through the American Institute of Certified Public Accountants (1973, p. 26). Samuel DiPiazza Jr., CEO, Price WaterhouseCoopers suggests that “Many companies in the marketplace have been dedicated for many years to a spirit of transparency and openness” (DiPiazza and Eccles, 2002, p. 13). It has become standard to describe the purpose of the financial statements as “a means of communicating financial information to outside users. The importance of these documents is unquestionable and is considered fundamental in investment analysis . . . to predict a firm’s future performance . . . (earnings) is generally defined as a measure of entity performance during a period” (Bujnicki, 1999, p. 5–6). One indication of earnings or profit’s prime place in managers’, accountants’, and investors’ mind is Milton Friedman’s treatise that the social responsibility of corporations is to earn profits. As Estes (1996) states it, “Take the top banana of these (conventional wisdoms), perhaps articulated most famously by Milton Friedman: ’the business of business is to maximize profits”’ (Estes, 1996, p. 6). The following briefly exemplifies: • “In recent years, earnings have so dominated the financial conversation that it’s hard to remember that there are other ways to judge and compare corporate performance” (Collingwood, 2002, p. 70). • Net income (profit) “measures the success of (a company’s) operations over a particular period of time” (Pratt, 2000 p. 11). • The income statement “helps a reader evaluate the company’s performance during the period and make projections about future performance” (Haskins et al., 1997, p. 61). • “Net cash flows from operating activities and net income both provide a measure of the company’s operating performance for a period of time” (Pratt, 2000, p. 23). • The statement of income, or statement of earning as it is frequently called, is the report that summarizes the success of enterprise operations for a given period of time” (Kieso and Weygandt, 1989, p. 119). • Income is “Added value created in transforming resources into more desirable states” (Edmonds et al., 2003 p. 665). • “Earnings is an important measure of performance” (DiPiazza and Eccles, 2002, p. 35). • “Income is increases in economic benefits during the accounting period in the form of inflows or enhancements of assets . . . revenue arises in the course of ordinary activities of an enterprise” regarding the IASC framework (Epstein and Mirza, 1997, p. 55).

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• “Since at least the early 1960s, the income statement has been widely perceived by investors, creditors, management, and other interested parties as the most important of an enterprise’s basic financial statements. Investors consider the past income of a business as the most useful predictor of future earnings and performance” (Epstein and Mirza, 1997, p. 49). • “Net income and its components in the income statement measure a company’s performance” (Wygandt et al., 1999, p. 648). • “Earnings per share: A standardized measure of performance” (Haskins et al., 2000, p. 534). • Suggesting that countries other than in the US practice more income smoothing, Iqbal notes, “Clearly, in countries where income smoothing is practiced to a significant degree, the income statement of the firm are less meaningful for financial analysis” (Iqbal, 2002, p. 149). • When Daimler-Benz became in 1993 the first German company to seek listing on a major US stock exchange, reconciling to US Generally Accepted Accounting Principles, it was noted “German accounting techniques ha(d) effectively hidden Daimler’s inability to generate a profit” (Haskins et al., 2000, p. 173). • US GAAP is regarded for its conservative and high quality framework and as a model for regulatory statues in the world regarding transparency needed to assess accurately the fair value of a firm (Berenson, 2002). • “US generally accepted accounting principles unquestionably have the most comprehensive disclosure requirements” (Iqbal, 2002, p. 247). The importance of “the bottom line” in corporate America has become notoriously maligned as well, under the title of “earnings management”. Over the past decade, Securities and Exchange Commission (SEC) pronouncements to control abuses as to how earnings are misrepresented have abounded, and debates, lawsuits, and discredited careers have been part of the terrain of activity regarding how earnings is reported, and its significant effect and importance for financial statement users. While accounting irregularities may vary in the degree to which they misreport financial results, they have similar effects – “financial statements that serve as a foundation for important investment and credit decisions are incorrect, improper, and worse, misleading” (Mulford and Comiskey, 2002, p. vii). “Aware that the proper functioning of our capital markets is dependent on the reliability and transparency of financial statements, the Securities and Exchange Commission has taken important steps in recent years to rein in the problem” (ibid). As Chair of the Securities and Exchange Commission, Arthur Levitt was a notorious protagonist stating “While the problem of earnings management is not new, it has swelled in a market that is unforgiving of companies that miss their estimates. . .Therefore, I am calling for immediate and coordinated action . . . to improve the transparency of financial statements . . . and nothing less than a fundamental cultural change on the part of corporate management as well as the whole financial community” ((Levitt, 1998). Reported earnings have a powerful influence on the full range of a firm’s business activity and the decisions made by its management. “The preoccupation of companies with meeting Wall Street expectations reflects management concerns with potential negative

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consequences on the value of a company’s shares if it fails to meet those expectations” (Mulford and Comiskey, 2002, p. 57). Clearly, the profit figure promoted as a measure of performance, ability, signaling, and as a preoccupation has prevailed. At this point, it may be appropriate to step back from our critique of conventional statements and offer alternatives or recommendations for change. Perhaps there should be quantification in the financial statements regarding the “immigration issues” (such as net costs, benefits to profits, contribution to revenue, etc.). Yet numbers and quantification have inherently interesting and problematic characteristics, as they are socially constructed. An important aspect is that in quantifying complex relationships they are captured by the system, no longer provocative, but commodified within capitalism’s own system of meaning, myth making, and reality. We are not stating that the “answer” is, necessarily, to quantify, and we are cognizant of the works of accounting researchers who have appropriate concern with quantification, for example in the arena of social-environment concerns, gender, and race (e.g., Broadbent et al., 2001; Cooper, 1992; Hammond and Streeter, 1994; Williams, 1980). This is a challenge for critical researchers in accounting, operating in the arena of accounts, accountability and quantification. With this qualification, we briefly offer data that has appeared in the literature as an illustration of how numbers are part of the rhetoric, debates, and may give insight into issues left off conventional financial statements. The National Research Council of the National Academy of Sciences performed one of the more comprehensive studies, as part of the US Congress’s bipartisan Commission on Immigration Reform, in 1995. They summarize that “The New Americans actually make an average net fiscal contribution3 ” (National Research Council, 1997, p. 10). Their conclusion is that immigration contributes to the US economy overall and has little negative effect on the income and job opportunities of most “native-born” Americans. “Immigrants may be adding as much as $10 billion to the economy each year”, states James P. Smith, senior economist at RAND Corporation (National Academies, 1997). “The vast majority of Americans are enjoying a healthier economy as the result of the increased supply of labor and lower prices that result from immigration” (National Academies, 1997). The National Research Council suggests that immigrant labor allows many goods and services to be produced more cheaply, and provides the work force for some businesses that otherwise could not exist; for example, that immigration helped build and maintain America’s textile and agricultural industries. Other businesses – such as restaurants and domestic household services – would not exist on the same scale without immigrant workers. The panel contends that overall, job opportunities and wages for the “native-born” are not significantly affected by immigration. Immigrants and their children will bring long-term benefits for most US taxpayers because – like most Americans – immigrants use more publicly funded services in childhood and old age, but they make positive contributions 3 In summarizing the task before them, the panel suggests, “Economic theory points to possible effects on the employment and wages of domestic workers, U.S. trade with other countries, the growth rate of the economy, and the prices people pay for goods and services. To address these issues, the panel relied on both theoretical insights on what the likely effects would be, and on empirical estimates of the magnitude of the actual effects. Using a basic model, with plausible assumptions, we show that immigration produces net economic gains for domestic residents” (National Research Council, 1997, p. 4).

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as working adults. In addition, the majority of immigrants pay taxes and adds revenue for some services – such as national defense and interest on the federal debt – for which they do not impose costs. The Center for Immigration Studies illustrates the disputes over “the facts”. The Center was one of the first to challenge conventional wisdom “that immigrants in general were an economic boom to the host country . . . with a 1989 study of the costs of illegal immigrants” (our emphasis) (Simcox et al., 1994). That study, updated in 1991, estimated the annual outlay by taxpayers for 13 major federal and state services at $5.5 billion (Center for Immigration Studies, 2001). The Center suggests “there is little agreement on the cost issue. The General Accounting Office has thrown up its hands, asserting a lack of sufficient reliable data to do a comprehensive cost study” (Simcox et al., 1994), prompting the Center to analyze the contrasting findings. The Center finds that in 1992 immigrants produced a net national deficit of $29.1 billion. This is nearly $60 billion higher than the Urban Institute’s estimate of a net benefit of immigration of $ 28.7 billion (the Urban Institute is “long a supporter of large-scale immigration”) (Simcox et al., 1994). The National Immigration Forum summarizes some of their findings on their web site, reporting that “According to the most comprehensive study ever done on immigrants, the National Academy of Sciences (NAS) found that in all their combined roles, immigrants make indispensable contributions to our economy”. The Forum states, “Immigrants and their children bring long-term economic benefits to the United States as a whole”. Immigrants add about $10 billion each year to the US economy (bold in the original). This estimate does not include the impact of immigrant-owned businesses or the impact of highly skilled immigrants on overall productivity . . . “The windfall to the United States of obtaining this human capital at no expense to American taxpayers is roughly $1.43 trillion (bold in original). This makes immigrants a fiscal bargain for our country” (National Immigration Forum, 2001). The inconsistency regarding “the numbers” is due to different frameworks, perspectives, models, and assumptions. There are two “quantification” differences we point out briefly to explain some of the disparity. First, in the case of the National Research Council (NRC), projections relate to long-term assumptions – over the next decades, and sometimes up to the next 50 years; longitudinal studies differ in the number of years assumed. Second, important distinctions must be made between legal and illegal immigrants, and their costs and benefits. The Center for Immigration Studies (CIS) analysis in 1989 and 1991 do not reflect subsequent legislative changes, recognized in the National Research Council study. The 1996 Illegal Immigration Reform and Immigration Responsibility Act restricted most benefits from illegal immigrants, and made newly arrived immigrants ineligible for most welfare benefits. Thus, these costs, included in the CIS study have been eliminated in the NRC assessments. Apart from differences in assumption, a more critical concern is how does one interpret the numbers? Does the “net contribution of immigrants” as a result of the increased supply of labor and lower prices also imply immigrants are “underpaid”? In supporting public policies that welcome immigrants and are fair, the National Immigration Forum points out the windfall to the United States of obtaining “human capital” is $1.43 trillion; and thus immigration is “a fiscal bargain for our country” (National Immigration Forum,

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2001). Is there not a dark side implication that this bargain is due to low wages for immigrants? We would have to answer yes to both these questions, and thus cannot comprehensively provide “quantification” for the “contributions” of the processes of immigration, particularly given issues of quality of life, cultural values, economic constraints, and other immeasurables in our global world. As accounting information also reaches into global arenas, what we have sought to provide in this work, in an exploratory way, is the underside of the bottom line, particularly in regard to immigration.

7. Implications and conclusion Our concept is not new, and is summarized in a 1987 Business Week article. “The corporation, perhaps more than most institutions, is based on a series of myths. Managers serve owners . . . Shareholders elect representatives of the board of directors. The free market disciplines winners and losers. All the myths have a purpose: to make us believe the corporation is accountable and efficient. The truth of the matter is . . . managers have run the show. Shareholder meetings have been elaborate ceremonies. Proxy votes have been foreordained rituals. People who have served as directors on boards have usually been friends of the boss” (Nussbaum and Dobrzynski, 1987, p. 76). The ubiquity of corporate reach extends far in our global environment. “Boardrooms remain powerful advocates of immigration, and business groups such as the US Chamber of Commerce have lobbied Congress to increase the number of temporary workers programmes to alleviate a shortage of both skilled and unskilled labor” (Adetunji, 2002, p. 11). How have workers have fared in this process? In the U.S. the Census Report indicates that, “The proportion of Americans living in poverty rose significantly last year . . . the income of middle-class households fell for the first time since the last recession ended, in 1991 . . . The report also suggested that the gap between rich and poor continued to grow” (Pear, 2002b). Klugman reveals that over the past 30 years, the average real annual compensation of the top 100 CEO’s increased from 39 times the pay of an average worker to more than 1000 times the pay of ordinary workers (Klugman, 2002). For the world populace, since the 1990, the number of people living on less than $2 a day has risen by more than a hundred million, to three billion (Rosenberg, 2002). The gap between rich and poor countries has turned into a chasm says Stiglitz (2002), observing that globalization is not working many of the world’s poor (Stiglitz shared the 2001 Noble Prize in Economics). Symbolically and visually the “bottom line” appears other than in annual reports. Unemployment lines, welfare lines, soup-kitchen lines, and the line up of children at homeless shelters also comes to mind when contemplating the situation of the poor and for immigrants, the unfulfilled promise of the US. The role of immigrants is complex; for some their fate is to suffer the most and to be blamed for everything (Mallet, 2002; Beattie, 2002). Wage rates paid to immigrants, notoriously low, are part of the bottom line. In the extreme scenario the work of “illegals” do not appear as part of accounting data, and reported profits lacks any reflection of the input of this labor. Conventional accounting and audit practice

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rarely reflects on these complex issues, and thus, we consider it illuminating to ponder the hidden meanings of ubiquitous bottom line.

Acknowledgements The author thanks the inspirations from colleagues at the European Critical Accounting Studies Conference (2002) as well as the Editors, and acknowledges that this article was (in part) supported by a research grant from the Frank G. Zarb School of Business, Hofstra University.

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