Accounting as Codified Discourse

143 Pages·2007·1.675 MB·English

by  Sue Llewellyn,Markus J. Milne

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ISSN 0951-3574
Volume 20Number 6 2007
Celebrating 20 years1987-2007
Accounting,
Auditing &
Accountability
Journal
Accounting as codified discourse
Guest Editors: Sue Llewellyn and
Markus J. Milne
www.emeraldinsight.com
Accounting, Auditing & ISSN 0951-3574
Volume 20
Accountability Journal
Number 6
2007
Accounting as codified discourse
Guest Editors
Sue Llewellyn and Markus J. Milne
Access this journal online _______________________________ 803
CONTENTS
Editorial advisory board _________________________________ 804
INTRODUCTION
Accounting as codified discourse
Sue LlewellynandMarkus J. Milne_________________________________ 805
Discourse and audit change: transformations in
methodology in the professional audit field
RihabKhalifa, NinaSharma, Christopher HumphreyandKeithRobson___ 825
Social and environmental reporting and hegemonic
discourse
Crawford Spence________________________________________________ 855
Enrolling discourse consumers to affect material
intellectual capital practice
SureshCuganesan, ChristinaBoedkerand JamesGuthrie_______________ 883
Analysing accounting discourse: avoiding the ‘‘fallacy
of internalism’’
John Ferguson__________________________________________________ 912
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CONTENTS
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INTRODUCTION Introduction
Accounting as codified discourse
Sue Llewellyn
Manchester Business School, The University of Manchester, 805
Manchester, UK, and
Markus J. Milne ReceivedJuly2007
RevisedAugust2007
College of Business and Economics, University of Canterbury,
AcceptedAugust2007
Christchurch, New Zealand
Abstract
Purpose–This paper aims to introduce the AAAJ special issue on “Accounting as codified
discourse”,explicatetheideaofcodificationandlocatethenotionofa“codifieddiscourse”withinthe
broadertraditionofdiscoursestudiesinmanagement.
Design/methodology/approach–The approach is conceptual and discursive, and provides a
theoreticalframeworkforunderstandingcodificationandadiscursivecontextfortheacceptedpapers
inthisspecialissue.
Findings–Theoretically, consideration of the more determinate relationship between codified
discourse and practice can add to the general understanding of the discourse/practice dynamic in
organisationstudies.Severalissuesareidentifiedthatcallforfurtherempiricalinvestigation.First,
some of the broad-spectrum accounting codes (e.g. historic cost) are currently under review in the
expectationthatchangewillenableconstructiveaccountinginnovation.Second,theimpactofmore
codified accounting on management practice in organisations requires evaluation. Third, how far
“intangibles”and“externalities”canbecodifiedisapertinentcurrentagenda.Fourth,workisneeded
onwhetherandtowhatextentprofessionalpower iscurtailedwhenpoliticiansandpolicymakers
introducemorecodifieddiscourses.
Research limitations/implications–Currently “codification” is not well understood in the
literature.ThisAAAJspecialissueopensupthedebatebutthereremainsconsiderablescopeforfuture
worktotakethisagendaforward – toenablemoredetailedunderstandingofaccountingascodified
discourse.
Originality/value–Although “discourse studies” and “discourse analysis” are now firmly
embedded in the organisational/management literature, “codified discourses” have not featured in
the debate. This is a significant omission as codification is a key feature of many discourses –
especiallyinprofessionalfieldslikeaccounting,law,andmedicine.Moreover,codifieddiscoursesare
becomingmorewidespread.Thevalueofthispaperliesinitsexpositionofaccountingascodification
inrelationtodiscourse.
KeywordsAccounting,Accountingpolicy,Language
PapertypeGeneralreview
TheauthorsaregratefultoJamesGuthrieandLeeParkerfortheirguidanceandsupportinthe Accounting,Auditing&
editingofthisspecialissue.Theywouldalsoliketothankthemforarrangingtherefereeingof AccountabilityJournal
Vol.20No.6,2007
thispaper,andtherefereesforhelpfulremarks.Finally,theywouldalsoliketoextendthanksto pp.805-824
all the people who supported this AAAJ special issue by submitting papers or acting as qEmeraldGroupPublishingLimited
0951-3574
reviewersforthesepapers. DOI10.1108/09513570710830254
AAAJ Introduction
20,6 In this AAAJ special issue the distinctive character of accounting as a discourse is
explored[1]. The startingpoint is Fairclough’s (2005) understandingthat:
Adiscourseisaparticularwayofrepresentingthe(physical,social,psychological)world...[2].
Accounting represents the financial world. This world is differentiated; it consists of
806 differentrealities(Llewellyn,2007a),havingsomephysical,orperhapsbetterdescribed
as material, aspects (tangible assets like buildings, equipment and cash) but,
predominately, consisting of socially embedded elements (intangible assets such as
intellectualcapital,conceptslikevalueandactivitiessuchasexchange).Withregardto
thematerialaspectsofthefinancialworld,thesearerelativelyeasilycastintonumbers;
thesociallyembeddedsidepresentsmoredifficulties.Accountingas“thelanguageof
business” is a specialised form of discourse, in part, because it relies, primarily, on
numerical representationsbut also, and relatedly, because it is codified.
By “codified”[3] we mean that accounting is cast into systematic forms that
prescribe codes for practices. Like a recipe, rule, guideline, template, protocol or law,
accounting tells people how to do things. For example, “discounted cash flow” tells
managershowtomakeinvestmentdecisionsthroughaparticularwayofvaluingtheir
likelyreturns.Soaccountingprescribespracticeinthefinancialworld,butaccounting
itselfisalsotheresultofprescriptions.Forexample,abalancesheetistheoutcomeofa
particular way of accountants following codes to represent assets and liabilities.
Codification fixes financial realities. Once particular codified rules are adopted the
history of the underlying economic realities becomes “... legally and socially
irreversible ... ” (Suzuki, 2003) as the ability is “un-pick” the codes, to recover what
was represented, is lost. Accounting is professionalised, its “instruction codes” are
professionally constituted and regulated. Only the professional e´lite[4] can encode, in
thesenseofsettingoramendingthecodes.Anydecoding(e.g.decipheringthemeaning
of a balance sheet) takes placewithin the ambitof professionalaccounting practice.
Inthe domain of financial accounting, specific normative codes areadopted; these
are interpreted but they cannot be discarded. “Historic cost”, for example, is a
broad-spectrum code that is highly constraining vis-a´-vis potential accounting
innovations. Coding rules apply to the various accounting categories. For example,
detailed codes dictate what can count as an asset. Asset codes reflect aspects of
tangibility, property rights, future benefits and service potential (for a review, see
Williams, 2003).Within a nation state all companies follow the same set of codes.
Periodically, the aggregate results of any company converge in the nodal accounting
text – thefinancial“accounts”.Therepresentationsinthiscentraltextmustconform
tothe“correct”codes;moreover,thesecodesmustbeseentobeinterpretedandapplied
in the manner prescribed. This codification, albeit to an attenuated form, also “spills
over” into the narrative text of annual reports, enabling and constraining what can
written about and how it can be represented. Auditing is a codified procedure that
checksthe“correct”applicationofcodesinaccountingtexts.Thismonologicapproach
to the codes that dictate financial reporting is not without its critics. Macintosh and
Baker (2002), for example, argue for a more open method; they suggest heteroglossic
accountingreports[5].Suchaccountingtextswouldspeakwith“multiplevoices”thus
revealing various possible ways to code financial realities to the accounts[6]. In
managementaccountingtherehavealwaysbeen“multiplevoices”;asthisinformation
isforinternalcompanyuse,thereismoreflexibilityandlessprescription.Forexample, Introduction
company managers do not have to employ “discounted cash flow”, they can use
“payback”. But whatever technique they mobilise,managersrepresent their financial
decisions throughaccounting codes.
This AAAJ special issue is concerned to understand accounting as a written,
instructional, codified text but, dependent on the research agenda, we also wish to
explore how people mobilise accounting in organisational dialogue. So our 807
understanding of discourse encompasses both “talk and text”. Moreover, because
discourseanalysiswilloftenfocus onhow accountingiselaborated inorganisational
and social interaction, “... discourse studies are about talk and text in context” (van
Dijk, 1997, p. 3, emphasis in the original). It seems to us that accounting discourse
centres around three main agendas. First, there are professionalised instructional
discourses – practicecodes – foraccountants;forexample,therulesthatunderliethe
construction of a profit and loss account or the codified procedures that underpin an
audit. Second, there are the codified accounting texts that result from these
instructionalcodes;forexample,abalancesheetorafinancial audit. Third, thereare
the professional,organisational orsocietal discoursesthatelaborate,make claimsfor
or seek to change these practice codes and/or accounting texts; for example, the
“accruals”,“standardsetting”,and“creativeaccounting”discourses.Sowearepositing
a threefold schema for the analysis of accounting discourse: “practicecode”-”codified
text”-“codified discourse”. Clearly, in addition, accounting often features in
non-codified discourse, as a means of arguing for a specific organisational strategy,
for example.
But, as the papers in this AAAJ special issue reveal, this multi-level definition of
accounting discourse does raise some issues for research, as analytic textual
methodologiesarenotalwaysintegratedeasilywithwhatare,generally,ethnographic
approachestoempiricalworkinorganisations.Nor,forreasonswediscusslater,would
the “results” of textual analyses necessarily be supported by the ethnographic
“findings” of how these texts were received and mobilised in specific organisational
settings. AsIedema (2007, p. 932) remarks:
[...] tensions remain between discourse research defined as the application of a
conceptual-analytical procedure to “a text”, and discourse research defined as a way of
engagingwithaworkplace,itspoliticsandits(dis)organization.
Moreover, accounting discourse is not restricted to the organisational arena, as
accounting has a broad social function in protecting the public interest, so
ethnographic research in accounting can extend beyond organisational boundaries.
We now turn to consider the individual contributions of the papers in this AAAJ
SpecialEditioninsomedepth;theseareexaminedalongthe“practicecode”-“codified
text”-“codified discourse” categorisation. As we discuss the papers, we reflect upon
how this schema plays outin actual organisationaland societalcontext-thus raising
thetensionsthatIedemapointsoutontheuncertainrelationshipbetweenanalysinga
text and researching thepolitics of discoursein organisations.
Key issues in the papers
ThefirstpaperisthisissuebyRihabKhalifa,NinaSharma,ChrisHumphreyandKeith
Robson focuses on the professionalised instructional discourse of auditing over the
AAAJ past decade. By drawing on a wide range of interviews with auditors and close
20,6 discursive readings of two audit manuals from KPMG, Khalifa et al. (2007) illustrate
thediscursive shifts in bigfirm auditmethodologyfrom 1997 throughto 2005. They
showthatbackinthelate1990sthepracticecodesforauditwerebeingchanged.The
talk and texts of audit methodologies emphasised a broad-based focus on business
risk,strategicanalysis,benchmarking,andothervalueaddingactivitiesthatpermitted
808 audit firms to offer clients additional services in audit/consulting hybrids. Such
business risk auditing (BRA) practices were considered the justifiable response to
market and competitive pressures on audit fees. Moreover, and based on interview
evidence, BRA practices were judged by audit partners as methodologies that would
proveexcitingtograduaterecruits,andprovidethemeanstorecoverlostrevenuesand
lostesteemincomparisontootherbusinessadvisoryandservicelinesofferedbythe
audit firms. To deliver on BRA, Khalifa et al. (2007) note, for example, that KMPG
required hew forms of auditor expertise, which itself led to new training and
methodologytextsandprofessionalbodyinitiativesallreflectingthenewvocabulary
of businessrisk and valued added.
In contrast to the BRA discourse of the late 1990s, Khalifa et al. (2007) show
professionalauditinghasnowenteredanewphaseandnewauditdiscourseofmaking
auditingauditable.Largelyoutisthediscourseofbusinessriskandvalueaddingand
inisadiscourseof“auditquality”andenablingauditpracticesthemselvestobecome
auditable. Through a series of interview extracts from auditors, and references to
agenciessuchastheUK’sAuditInspectionUnit,andtheUS’sPublicOversightBoard,
Khalifa et al. (2007) evidence the growing attention to improving the monitoring of
audit quality through adequate documentation. Such changes in the discourse of
auditing are traced back to the Enron collapse, other associated events, and the
auditingregulatorsresponse.Theinterviewfindingsaresupplementedwithevidence
fromthetwoauditmethodologytextsandtheseshowtherelativefrequencyofterms
like “risk”, “quality”, “value”, “evidence”, “business” and “client”, for example, vary
dramaticallyacrossthetwotexts.Overall,oneisleftinnodoubtthattalkofauditing
practicehas changed significantly over the decade examined.
Interestingly,however,andofrelevancetoourdiscussionofdiscourseandpractice
below,quotesfromsomeauditpractitionerssuggestabeliefthatthepracticeofaudit
has not changed, well in so far as the conducting of “quality audits” – what has
changedtheyclaimisthedocumentationrequiredtodemonstrateonehasconducteda
qualityaudit.Ofcourse,asKhalifaetal.(2007)themselvesnote,evidenceofchanged
discourse is not necessarily evidence of changed practice. Likewise, however, audit
partnersmaybeunwillingtoadmitthatthequalityofauditpracticeshasnowchanged
(improved) at the same time implying previously they were inferior in a highly
competitivemarket.Aswediscussbelow,changedtalkandchangedpracticemayor
may notbe co-emergent.
ThesecondpaperbyCrawfordSpenceexplorestheroleofsocialandenvironmental
reporting (SER) within the wider context of organisational and societal discourses
concerning organisation-socio-environmental interactions. Drawing on the political
philosophy and discourse theory of Laclau and Mouffe, Spence (2007) analyses the
emergingandincreasinglycodifiedpracticeofsocialandenvironmentalreportingwithin
theconstraintsofabusinesscasediscourseforsustainabledevelopmentandcorporate
socialresponsibility.AsSpence(2007)shows,therecentemergenceofSERpracticesince
the 1990s is in part due to a capacity on the part of business to discursively align Introduction
extra-business interests with its conventional interests, namely profit, returns and
growth.Byarticulatinga“businesscase”discoursewithinthebroaderbusiness,social
and political community and articulating a more specific, and increasingly codified,
discourseforSERpractice,throughsuchguidelinesastheGRI(2000,2002)businesshas
been able to render its own version of SER. Spence’s concern is that current
business-basedSERdiscourseandpracticeisantitheticaltotheoriginalintentofearlier 809
proposals for reform, to a democratic and fair society, and to any requirements for
humanity to adapt to a pressing ecological crisis. By specifically analyzing a series of
interviewextractsfromcorporateexecutives,Spenceillustratesthehegemonicpotential
ofthisnewSERdiscourseasprojectedthroughcorporatereportingpractice.
WhilemuchSERpracticeremainsnon-codified,orperhapspre-codifiedinoursense
of the terms, rules and protocols, or standards for the conduct of SER practice are
beginning to emerge (see, for example, GRI, 2000, 2002; Milne and Gray, 2007;
UNEP/SustainAbility,2000,2002,2004).Similarly,codifiedtexts(i.e.SERs)donotyet
exist in the fashion described for the central texts of financial accounting. Instead,
general agreement on these and the practice codes for their production remain to be
worked out in the broader context (and contest) of professional, organisational and
societal discourses. Nonetheless, foreshadowing the increasing likelihood and
sedimentation of a fully codified form of SER practice in the future, for Spence
(2007), andothers with like concerns over thebusiness-casediscourse,this likelihood
suggestsaneedtochallengeandresistsuchformsofcodification.Indeed,akeypoint
to emerge from Spence’s analysis is how much of current SER practice is backed by
andprojectsabusiness-casediscoursethatconstrainscorporateaccountability,shapes
the thinking of organisational actors, and potentially imprisons them within an
ideological hegemony (see also Livesey, 2002; Milne et al., 2006; Tregidga and Milne,
2006). Moreover, by appearing to provide discursive “closure” under the illusion of
transparency,objectivenessandcompleteness,Spence(2007)claimsthebusiness-case
SER discoursefunctionsasmyth.
Historically the SER discourse as propounded by academics had remained
oppositionalto,andlargelyoutsideoftheconventionaldiscourseofbusiness.Itscalls
for business to discharge duties under a social contract, fulfil accountability
obligations,andinternaliseexternalitiesposedacounterpointtoconventionalmodesof
economic organisation and accounting. The SER discourse of the 1970s and 1980s
presentedobviousthreatsandchallenges,bothintermsofvestedinterestsinmaterial
relations, and in terms of fitting it within the existing codified discourse of
conventional accounting. The result was that few organisations attempted to
undertake such reporting, and professional initiatives like the AAA committees on
social costs (e.g., AAA, 1971, 1972, 1973, 1974, 1975, 1976) and the Corporate Report
(ASSC,1975)wereabandonedonsuchgroundsthatsocialandenvironmentalimpacts
couldnotbemeasuredandquantifiedfinancially,orsuchproceduresweredifficultor
impossible to audit. In effect, they could not be fitted into the existing codified
discourse of accounting. Spence’s concern is that the modern SER discourse as
propounded by business itself obscures fundamental conflicts between business,
societyandtheenvironment.Consequently,furthercodificationofSERpracticebased
onthebusinesscaseSERdiscoursemayproveasignificanthindranceandcontraryto
the emanicipatory aims of social accountants.