Accountability, Representation and Control

Accountability, Representation and Control

Must accounting representations be partial in order to achieve organizational control? Critically discuss, making use of the course materials.

Answer

Accounting scholarship is undergoing a reconceptualization, in part due to the empirical failure of efficient market theory, agency theory and contingency theory to provide rationales for developing accounting techniques and systems (Richardson, 1987). As a result, accounting scholars are being asked to refocus their efforts toward the better understanding of how accounting influences, and is influenced by a “multiplicity of agents, agencies, institutions and processes” (Miller, 1994, p. 1). We propose to move towards this objective by incorporating both the institutional and structuration theories to develop a theoretical framework useful for the better understanding of institutions, accounting practices and change processes.

Institutional theory (DiMaggio and Powell, 1983, 1991; Meyer and Rowan, 1977; Meyer and Scott, 1983; Zucker, 1977) grounded in social theory (Hughes, 1936; Parson, 1951; Selznick, 1949), concerns the development of the taken for granted assumptions beliefs and values underlying organizational characteristics and practices and is becoming a dominant theoretical perspective in organization theory research (Lemke et al., 2001). The institutional framework has also provided useful insights into the practice of accounting in organizations. The extant accounting literature contains institutional theory based studies addressing various accounting practices. These studies provide evidence suggesting the importance of social culture and environment on the practice of accounting; the use of accounting practices as rationalizations in order to maintain appearances of legitimacy; and the possibility of decoupling these rationalizing accounting practices from the actual technical and administrative processes.

However, such work is not without its limitations (Abernethy and Chua, 1996; Covaleski et al., 1993; DiMaggio, 1988). Relatively little theoretical consideration is given either to the processes whereby institutional practices are established, transposed and decomposed or the socio-economic and political context that constitutes the framework for these organizational processes. By looking at organizations and practices solely as outcomes and examining them at a given point of time, the emphasis is on the constraining and limiting nature of institutionalized beliefs and values, and not on the dynamics associated with change or the role of human agency. The accounting research generally focuses on the stability of the system and its ability to manage incremental, evolutionary change (Bealing et al., 1996; Carpenter and Feroz, 2001; Fogarty, 1996; Hunt and Hogler, 1993) with relatively few studies (Abernethy and Chua, 1996; Burns, 2000; Collier, 2001) addressing significant change in organizational practices. Another limitation of institutional theory based research concerns the role played by power, special interests and the political nature of organizations. Further, an emphasis on the symbolic nature of most organizational actions and the related decoupling of internal operations from external operations tends to limit the applicability to organizational accounting systems because the focus of the analysis is exclusively on the organizational field level (Carruthers, 1995; Chua, 1995; Mouritsen, 1994).

Institutional theory

The purpose of this section is to recognize and articulate the institutional dynamics associated with organizational practices. Institutional theory is a way of thinking about ...