Factors Influencing

76 Factors Influencing the Development o f the Accounting Role ...

social paradigms, such as Marxism, Foucauldian and Critical Theory, became

c o m m o n in a n a l y s i n g o r g a n i s a t i o n a l r e a l i t i e s . T h e s e p a r a d i g m s r e q u i r e d a t t e n t i o n to the processes through particular organisational patterns.

It w a s n e c e s s a r y t o pay attention to history, to the sequence of events and contexts through which the present arrangements have been manufactured (ibid.,p.8). This increased interest in u n d e r s t a n d i n g o r g a n i s a t i o n a l p h e n o m e n a . In o t h e r w o r d s , t h e n e e d f o r a perspective to see organisational phenomena became more important.

F r o m t h e a b o v e d i s c u s s i o n , t h e i n f l u e n c e o f p e r s p e c t i v e s a n d p o w e r in organisational analysis can be seen. Organisational analysis became more r e s p o n s i v e t o r e a l i t y . In t h e o r g a n i s a t i o n a l a n d i n t e r - o r g a n i s a t i o n a l p e r s p e c t i v e s ,

a c c o u n t i n g f u n c t i o n s in t h e d e c i s i o n m a k i n g r o l e a n d t h e n e w s t e w a r d s h i p r o l e . M o s t s t u d i e s a r e l o o k i n g a t a c c o u n t i n g in r e l a t i o n t o t h e d i s c u s s i o n o f t h e

a c c o u n t i n g r o l e in t h e d e c i s i o n m a k i n g c o n t e x t o f t h e o r g a n i s a t i o n . They also

c o n s i d e r e d t h e r o l e in e c o n o m i c t e r m s . T h e r e w a s a n a s s u m p t i o n is t h a t o r g a n i s a t i o n is a s o c i a l s y s t e m a n d a c t u a l c o n s i d e r a t i o n o f t h e d y n a m i c s o f t h a t s y s t e m , m e a n i n g t h a t t h e p r o b a b i l i t y is t h a t a c c o u n t i n g h a s i n f l u e n c e d t h e s o c i a l system. In a further exploration of this factor, the accounting role would be to

c o n s t i t u t e r e a l i t y . H o w e v e r , in t h e 1 9 7 0 s , u n d e r s t a n d i n g o f t h e a c c o u n t i n g r o l e in constituting reality was still limited to organisational phenomena. As mentioned

b y B a r i f f a n d G a l b r a i t h ( 1 9 7 8 ) , t h e i n f o r m a t i o n s y s t e m d e s i g n i n g p r o c e s s is u s e f u l in r e i n f o r c i n g a n d m o d i f y i n g m a n a g e m e n t p o l i c i e s ( i b i d . , p . 2 5 ) .

An understanding of the factors outlined by Burchell et al. (1980) provides an insight into how to manage the functions of accounting in the organisation.

H o w e v e r , t w o o t h e r i n f l u e n t i a l t h e o r i e s m u s t a l s o b e c o n s i d e r e d : B e l l ’s S o c i a l Structure and Agency Theory. They are discussed below,

B e ll's S o c ia l S tr u c tu r e T h e p r e v i o u s s u b s e c t i o n p r e s e n t e d a n a n a l y s i s o f t h e r e a s o n i n g o f B u r c h e l l e t a l. (1980), based on organisational development.

In t h i s s u b s e c t i o n , a n o t h e r p e r s p e c t i v e is o f f e r e d f o r t h e d e v e l o p m e n t o f t h e a c c o u n t i n g r o l e . G a n d h i ( 1 9 7 6 )

a d a p t e d B e l l ’s s o c i a l s t r u c t u r e a s a t o o l t o u n d e r s t a n d t h e i n t e r t w i n i n g o f s o c i e t y ’s d e v e l o p m e n t a n d t h e d e v e l o p m e n t o f a c c o u n t i n g .

He assumed accounting to be a message mechanism which creates a precondition to individual or collective behaviour (ibid.,p.34).

The messages constitute a knowledge structure in the form of language, symbols and information. Gandhi

c o n c l u d e d t h a t t h i s p r o c e s s w a s t h e w a y s o c i e t y a d j u s t e d t o its l a r g e r e c o l o g i c a l environment.

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it s e e m s t h a t w h a t G a n d h i c a i l e d a ‘m e s s a g e m e c h a n i s m ’ i s a f u n c t i o n o f accounting as an information system. Gandhi implicitly assumed accounting to

be an entity, sensitive to social norms and cultural values. Accounting has the

c a p a b i l i t y t o i n f l u e n c e s o c i e t y a n d is a i s o a f f e c t e d b y s o c i e t a l d e v e l o p m e n t . B e l l ( 1 9 7 1 ) h a d d e s c r i b e d t h e s e p h e n o m e n a in t h e c o n t e x t o f p o s t - i n d u s t r i a l s o c i e t y , in w h i c h h e r e c o g n i s e d a c c o u n t i n g a s a d e v e l o p e d f o r m o f t e c h n o l o g y a n d

k n o w l e d g e . T h i s m e a n s t h a t a c c o u n t i n g w a s a c t u a l l y a p a r t o f s o c i e t y ’s development. Consequently, the factors that influence the development of post­

industrial society also influence the development of accounting as a technology in that society.

■ c o n c e p t o f p o s t - i n d u s t r i a l s o e i e t v is c o n c e r n e d w i t h i o n g - t e r m c h a n g e s in > uci a! s t r u c t u r e . B e l l ( 1 9 7 ! ) e x p l a i n e d t h e c h a n g e s by p o i n t i n g o u t t h e d i f f e r e n c e neiween

pre-industrial, industrial and post-industrial society. He classified the .nanges

into factors that influence the development of society. The first of these is economy.

Pre-industrial economic activities were primarily extractive of

a g r i c u l t u r e a n d m i n i n g . In i n d u s t r i a l s o c i e t i e s , t h e m a i n e c o n o m i c a c t i v i t i e s w e r e manufacturing,

a n d in p o s t - i n d u s t r i a l s o c i e t y , e c o n o m i c a c t i v i t y is c e n t r e d o n s e r v i c e a c t i v i t i e s . T h e s e c o n d f a c t o r is t h e o c c u p a t i o n a l s l o p e . W o r k in i n d u s t r i a l s o c i e t y w a s d o m i n a t e d b y u n s k i l l e d w o r k e r s , s u c h a s f a r m e r s a n d f i s h e r m e n . In

industrial societies, semi-skilled personal, such as engineers, predominated. In post-industrial societies, the type of work was emphasises the professional and t e c h n i c a l c l a s s e s , s u c h a s e x p e r t s a n d t e c h n o c r a t s . T h e t h i r d f a c t o r is t e c h n o l o g y .

In p r e - i n d u s t r i a l s o c i e t i e s , p e o p l e o n l y u s e d r a w m a t e r i a l in t h e i r w o r k . In industrial societies, people started exploring energy as the main support of their work.

In p o s t - i n d u s t r i a l s o c i e t i e s , p e o p l e h a v e b e e n a b l e t o d e v e l o p s e l f - sustaining

technological growth. This development was due to the new devices for

productivity7 and expansion,

technological

forecasting and the need to maintain

so, at this stage, people developed information technology. The

f o u r t h f a c t o r is a b o u t t h e d e v e l o p m e n t o f m e t h o d o l o g y . In p r e - i n d u s t r i a l s o c i e t y , p e o p l e m a i n l y l e a r n e d f r o m e x p e r i e n c e . T h e y u s e d ‘c o m m o n s e n s e ’ t o s o l v e t h e i r problems. In industrial societies, people started formulating their experiences into

a n e x p e r i m e n t a l f r a m e w o r k . In p o s t - i n d u s t r i a l s o c i e t i e s , p e o p l e s u c c e e d e d in formulating their theoretical knowledge as a central source of modern innovation

a n d p o l i c y - f o r m a t i o n in t h e s o c i e t y . T h e y a l r e a d y h a d t h e c a p a b i l i t y t o a b s t r a c t their experience into certain theoretical frameworks. The product of this methodological process was models, simulation, decision theory and system analysis.

T h e f i f t h f a c t o r is a b o u t a x i a l p r i n c i p l e s . I n p r e - i n d u s t r i a l s o c i e t y , people saw their environment in the traditional way such as the limitation of land and resources.

In i n d u s t r i a l s o c i e t y , p e o p l e s a w t h e d e v e l o p m e n t o f t h e i r

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e n v i r o n m e n t in t e r m s o f e c o n o m i c g r o w t h a n d i n d u s t r i a l i n v e s t m e n t . In p o s t ­ industrial society, people have created an ‘intellectual technology’ to explore their environment, as a result of a codification of theoretical knowledge.

Burchell et al. (1980) #ated that the analysis of the post-industrial concept will give an understanding of how

a c c o u n tin g is in tr o d u c e d in to m o r e s e c to r s o f s o c ie ty (p .6 ). R e l a t e d t o t h i s n o t i o n , G a n d h i ( 1 9 7 6 ) s a i d t h a t , in p o s t - i n d u s t r i a l society, the existence of accounting started from the accountability phenomenon. P e o p l e in s o c i e t y d e v e l o p e d t h e m a r k e t e c o n o m y m e c h a n i s m w h i c h h a s s e r v e d s o c i e t y w e l l b u t is i n a d e q u a t e in a n a r e n a w h e r e p u b l i c g o o d s a n d s e r v i c e s h a v e increased so rapidly.

Public goods and services here are indivisible, so, they must be provided collectively.

This condition requires

a r e o r ie n ta tio n o f

a c c o u n tin g fu n c t i o n (ibid.,p. 40), b e c a u s e c o n t r o l a s a b a s i c i s s u e in a n i n t e g r a t e d society concerns public goods and services.

In a m a r k e t w e l f a r e e c o n o m y , t h e d i s t r i b u t i o n o f p u b l i c g o o d s a n d s e r v i c e s r e l i e s on the invisible hand mechanism (ibid.,p.41).

This mechanism aggregates multiple choice for individuals and simultaneously distributes the responsibility

f o r t h e a g g r e g a t e d c o l l e c t i v e d e c i s i o n s . I f t h e m e c h a n i s m s is p u b l i c a n d r e a l , it w i l l g u i d e s o c i e t y ’s r e s o u r c e a l l o c a t i o n . H o w e v e r , t h e m e c h a n i s m in p r a c t i c e sometimes deviates from perfect work standards. This condition has to be

c o n s i d e r e d a s t h e a l t e r n a t i v e s y s t e m , t h e n o n - m a r k e t w e l f a r e e c o n o m y ( i b i d . ) . In this system, decisions concerning the acquisition and allocation of public goods, services and resources are generally made through collective mechanisms, such as planning and arbitration.

Accounting developed during the growth of the non-market welfare economy. When a planning and arbitration mechanism was established, there was a need for a supporting mechanism to supply data for planning and for evaluation of the p l a n n i n g . In t h i s c a s e , a c c o u n t i n g , a s a n i n f o r m a t i o n s y s t e m , w o r k e d a s a s e r v i c e economy activity. Accounting people developed themselves into a professional

c l a s s in s o c i e t y , a n d b e c a u s e o f t h e p r e s t i g e a t t a c h e d t o t h i s c l a s s , r e q u i r e m e n t s were set up

t o e n t e r t h e a c c o u n t i n g p r o f e s s i o n ‘c l u b ’ . These requirements concerned

‘intellectual technology’ into accounting work.

the capability

of implementing

Their purpose was actually to declare the existence of a t h e o r e t i c a l k n o w l e d g e o f a c c o u n t i n g . T h i s o b j e c t i v e w a s i m p o r t a n t in p r o m o t i n g accounting into one of the central sources of modem innovation and policy

formation of society.

I n o t h e r w o r d s , a c c o u n t i n g e s t a b l i s h e d in t h e p o s t ­ industrial society developed as a form of methodology and technology. This

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conclusion implies that, with a lack of environmental support, accounting could n o t d e v e l o p in t h e p r e - i n d u s t r i a l a n d i n d u s t r i a l s t a g e s o f s o c i e t y .

I n p o s t - i n d u s t r i a l s o c i e t y , t h e r o l e s o f a c c o u n t i n g w i t h i n in t h e o r g a n i s a t i o n a l a n d financial economics perspectives are implemented.

At this stage of societal development,

i n d i v i d u a l s a n d s o c i e t y . In t h i s s e n s e , a c c o u n t i n g a c q u i r e d i t s n e w s t e w a r d s h i p function.

A gency Theory

In p r e v i o u s s u b s e c t i o n s , t h e f o c u s w a s o n h o w t h e s t a g e o f o r g a n i s a t i o n development and social structure influenced the development of the accounting r o l e . In t h i s s u b s e c t i o n , t h e r e a s o n i n g b e h i n d t h e d e v e l o p m e n t o f t h e a c c o u n t i n g r o l e w i l l b e e x p l o r e d in t e r m s o f t h e c o n t e m p o r a r y a p p r o a c h , a g e n c y t h e o r y . T h e

a c c o u n t i n g r o l e u n d e r a g e n c y t h e o r y is a c o m b i n a t i o n o f t h e o l d a n d n e w stewardship roles (Ronen,1979). This means that the development of the accounting role can be classified into development of the old stewardship and development from the old stewardship into the new stewardship roles.

In t h e f i r s t d e v e l o p m e n t , t h e e s t a b l i s h m e n t o f t h e o l d s t e w a r d s h i p f u n c t i o n w a s closely related to the accountability of management. As an agent of the owners, m a n a g e m e n t h a s r e s p o n s i b i l i t y t o s a f e g u a r d a n d u s e t h e o w n e r s ’ r e s o u r c e s , in such a way as to increase their

v a l u e . T h i s m e c h a n i s m e x i s t e d in c o n d i t i o n s where management was separated from ownership.

For Ronen (1979), this separation of management from ownership of the business entity was the primary factor that raised the stewardship function of the accounting role.

(1979,p.433) based on his o b s e r v a t i o n s o n b u s i n e s s e n v i r o n m e n t s in s o m e d e v e l o p e d c o u n t r i e s .

Regarding the second

development,

Ronen

His first finding from his observations concerned increasing complexity of the business

e n v i r o n m e n t in d e v e l o p e d c o u n t r i e s . T h i s f i n d i n g d e m a n d e d a r e - o r i e n t a t i o n o f the accounting role. In this case, the type of relationship was not only between

e n t i t i e s , b u t a l s o b e t w e e n e n t i t y a n d s o c i e t y . D u r i n g t h e 1 9 7 0 s , s o c i e t y in t h e U S asked business people to pay attention to environmental, ethical and other social issues. Since society represented the customers, management could not neglect

this request, and began to concern itself with social responsibility. Management t o o k t h e i r c o n t r i b u t i o n t o s o c i a l w e l f a r e i n t o a c c o u n t in c o r p o r a t e p l a n n i n g . In

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other words, management shifted their main interest from increasing the companies’ value to optimising the society’s welfare.

The second factor

of interdependencies between

c o r p o r a t i o n s in t h e U S . This factor arose from the quality demanded of a companies’ product.

Society, as customers, demanded high quality goods and services. However, the components of goods and services were products of other companies, which meant that the quality of goods and services was a result of cumulative quality production processes from many companies. To respond to this kind of condition, management developed the principle of serving society. T h i s d i r e c t e d m a n a g e m e n t t o w a r d s s o c i e t y ’s i n t e r e s t s .

The third factor concerned the increasing diffusion of ownership. With large n u m b e r s o f o w n e r s in a c o m p a n y , a g e n c y c o s t s a f f e c t a g r e a t e r n u m b e r o f

i n d i v i d u a l s in t h e e c o n o m y . A t t h e s a m e t i m e , t h e c h a n g i n g o f t h e a c c o u n t i n g policy

in c e r t a i n c o m p a n i e s a f f e c t s n o t o n l y its s t o c k h o l d e r s , but also

c o n s u m p t i o n a n d i n v e s t m e n t d e c i s i o n s in o t h e r c o m p a n i e s . This phenomenon gave rise to the idea of an interdependency relationship between internal and

e x t e r n a l m a n a g e m e n t . In o t h e r w o r d s , m a n a g e m e n t p u t a c o n c e r n f o r s o c i a l interests into their decision making processes. So, management reduced agency

c o s t s , in o r d e r t o i n c r e a s e t h e e f f i c i e n c y o f r e s o u r c e a l l o c a t i o n .

The fourth factor concerned the effect of advances in t e c h n o l o g y a n d communication. These advances have magnified the consciousness of the social impact of corporations and the need for information on such impact. This means t h a t t h e s o c i a l w e l f a r e a r g u m e n t w a s m o r e l i k e l y t o h a v e b e e n r o o t e d in b u s i n e s s

e n v i r o n m e n t a l c h a n g e s t h a n in i n c e n t i v e s t o s a t i s f y t h e d e m a n d f o r ‘e x c u s e s ’ . In this case, the choice among productive alternatives can be affected by financial information. Further, financial information influences the efficiency of resource

a l l o c a t i o n in s o c i e t y .

T h i s f o u r t h f a c t o r in t h e d e v e l o p m e n t o f t h e o l d t o t h e n e w s t e w a r d s h i p s i g n i f i e s the importance of the

i n f l u e n c e o f c h a n g e s in t h e b u s i n e s s e n v i r o n m e n t in o p t i m i s i n g s o c i a l o b j e c t i v e s . R e l a t e d t o t h e w h o l e s t u d y , c h a n g e s in t h e b u s i n e s s environment caused a shift from trend away from legal

towards economic accountability, which means that the economic relationship was a major concern of the business relationship. In other words, the business orientation has a tendency to a notion of ‘growth’.

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F r o m t h e a b o v e d i s c u s s i o n , it c a n b e s e e n t h a t t h e f a c t o r s i n f l u e n c i n g t h e development of the accounting role reflected the development of the accounting environment up to the

1 9 7 0 s . C h a n g e s in t h e e n v i r o n m e n t , m a i n l y in t h e organisation and business environment, influenced the development of the accounting role

perspective and from the organisational perspective. However, the influence on the accounting role from a social perspective was limited. This means that the focus of attention until the

1970s was still on the development of the organisation and the relationship between entities.

2.3 The 1990s

T h e W o r l d in t h e 1 9 9 0 s is v e r y d i f f e r e n t f r o m t h a t o f t h e 1 9 7 0 s a n d 1 9 8 0 s .

B u s i n e s s c h a n g e s v e r y f a s t , t e c h n o l o g i c a l g r o w t h is e v e r y w h e r e , t h e i n f o r m a t i o n n e t w o r k h a s b e c o m e w o r l d w i d e , a n d t h e r e is i n c r e a s i n g i n t e r d e p e n d e n c y b e t w e e n p e o p l e , e n t i t i e s a n d c o u n t r i e s . T h e w o r l d is e x p e r i e n c i n g a n e w e r a , g l o b a l i s a t i o n .

In t h i s e r a , L e h m a n ( 1 9 9 2 ) c l a i m e d t h a t a c c o u n t i n g ’s i n f l u e n c e e x t e n d s a c r o s s t h e range of our life experience,

fr o m the m undane to the globally consequential (p .l). She emphasised the vast array of accounting data, encompassing such diverse activities as estimating the productivity of robots and

planning playgrounds for inner city schools. However, she still questioned the awareness of accountants of the social implications of

the data. Most accountants are u n f a m i l i a r w i t h c r i t i c a l t h i n k i n g a n d l a c k i n g in p o l i t i c a l a n d s o c i a l d i s c r i m i n a t i o n (ibid.,p.2).

Based on this interpretation, Lehman (1992) tried to promote the

i m p o r t a n c e o f s o c i a l a n a l y s i s , e s p e c i a l l y s o c i a l c o n f l i c t , in a c c o u n t i n g w o r k s .

In L e h m a n ’ s v i e w , t h e f a c t o r s t h a t c u r r e n t l y i n f l u e n c e t h e d e v e l o p m e n t o f t h e accounting role are global debt, the cost of the international debt crises, and,

b o o m a n d b u s t o f m e r g e r s . B e l o w , e a c h o f t h e s e f a c t o r s is d i s c u s s e d in t u r n .

2.3.1 Global Debt to Pay

T h e g l o b a l d e b t c r i s i s w a s r a i s e d in t h e U S C o n g r e s s in 1 9 8 6 . T h e c l a i m s f o r bank failure and bailout ranged from $60 billion to $1.4 trillion, three times the

U S F e d e r a l G o v e r n m e n t ’ s d e f i c i t . T o m a k e m a t t e r s w o r s e , $1 trillion of the

c l a i m is f r o m s o m e d e v e l o p i n g c o u n t r i e s , m o s t o f t h e m L a t i n A m e r i c a n . M o s t o f these countries face negative or minimal growth, rising fiscal deficits and t r e m e n d o u s c u t s in s o c i a l p r o g r a m m e . S i n c e a m a j o r i t y o f g l o b a l l o a n s a r e n o w owed to private commercial banks, default by any one or combination of these developing countries will lead to bankruptcy of the US money centre banks.

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T h e b a c k g r o u n d o f t h i s g l o b a l d e b t is s t i l l a m a t t e r f o r d e b a t e . L e h m a n ( 1 9 9 2 ) highlighted the role of banking accounting practices and misuse of debt. The banking accounting practices can be classified into disclosure practice and r e c o g n i t i o n o f t h e l o a n a s s e t s . W i t h r e g a r d t o d i s c l o s u r e p r a c t i c e , m a n y b a n k s in t h e U S w e r e r e l u c t a n t t o d i s c l o s e t h e i r d e b t . In m a n y c a s e s , b a n k s d i d n o t w a n t t o write

off debts, because their assets actually would not absorb them. Additionally, they tried to deny the deteriorating economic condition of the

d e b t o r s . T h i s p r a c t i c e h a s b e e n in u s e f o r m a n y y e a r s , s o c u m u l a t i v e d e b t h a s

b e c o m e c o m m o n in b a n k i n g . H o w e v e r , t h e b a n k s c a n n o t c o n t i n u e t h i s p r a c t i c e , if their debtors are governments from developing countries which have bull debt. T h e y s h o u l d d e c l a r e t h a t t h e y a r e in a n e a r l y b a n k r u p t c o n d i t i o n .

T h e s e c o n d b a n k i n g p r a c t i c e h i g h l i g h t e d b y L e h m a n is a b o u t r e c o g n i t i o n o f lo a n

a s s e t s . B a n k s h a v e n o t b e e n c o n s i s t e n t in i m p l e m e n t i n g t h e L o w e r o f C o s t o r Market Rule (LCOM).

In p r a c t i c e , t h e y h a v e c o n s i s t e n t l y i g n o r e d t h e s p i r i t o f LCOM and treated the exchange rates differently for different countries; for

i n s t a n c e , in N o v e m b e r 1 9 8 7 , f i v e c e n t s p e r d o l l a r f o r P e r u v i a n d e b t , t h i r t y - f i v e cents for Argentinean and thirty nine cents for Brazilian. Banks actually rated the exchange rate based on risk premiums for each country."

T h e m i s u s e o f d e b t w a s c o m m o n in b a n k i n g p r a c t i c e s . T h e r e a l i t y in 1 9 8 0 brought a shift from the old assumption that

all debtor countries should be treated alike.

The case of Marcos (Philippines) and Duvalier (Haiti) taught the banking community that these countries misused their debts for private consumption (ibid.,p.6).

So, banking should investigate the ‘real’ value of the lo a n a n d t h e c r e d i t - w o r t h i n e s s o f t h e d e b t o r .

T h e g l o b a l d e b t p h e n o m e n o n h a s l e d t o d i f f e r e n c e in a c c o u n t i n g t r e a t m e n t . In this respect,

the accounting role functions as a communicating role and constitutes reality. The global debt events became an example of how accounting constitutes

reality. It c a n b e c o n c l u d e d t h a t g l o b a l i s a t i o n h a s h a d a p o s i t i v e impact on accounting.

2.3.2 Cost of the International Debt Crisis

T h e c h a n g e in U S e c o n o m i c c o n d i t i o n s h a s b e e n r e c o g n i s e d a s a n i m p o r t a n t

f a c t o r in t h e w o r l d e c o n o m y . T h e g l o b a l d e b t c r e a t e d a s e q u e n c e o f n e g a t i v e impacts on the economy.

400,000 jobs were lost as a result of declining merchandise exports to Latin America, the poor and the working class failed to increase their standards of living,

v i o l e n c e in s o m e d e v e l o p i n g c o u n t r i e s

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The International Journal o f Accounting and Business Society 83

increased, and finally, the democratic process has fallen behind. Global debt has

caused an international debt crisis.

The international debt crisis became more complicated by the economic and political situation of developing countries. This situation was a result of the

i m p a c t o f t h e f u n d a m e n t a l p r o b l e m o f t r a n s n a t i o n a l r e l a t i o n s h i p s '" , t h a t o f t h e fundamental disparity between rich and poor nations. People have debated the problems of the international debt. Some experts say that the international debt crisis reflects how developing countries’ debts boomerang on

developed countries (George, 1992). Financial assistance from developed countries was o s t e n s i b l y p r o v i d e d t o a i d d e v e l o p m e n t p r o g r a m m e s in t h e d e v e l o p i n g c o u n t r i e s .

However, the fact is that the public in the developed countries transferred their funds as disguised subsidies to commercial banks. Other experts say that the

i n t e r n a t i o n a l d e b t c r i s i s is t h e r e s u l t o f ‘t r i c k y ’ r e q u i r e m e n t s f r o m d e v e l o p e d

c o u n t r i e s ( S j a h r i r , 1 9 9 4 , p . 3 1 2 - 3 1 4 ) , in t h a t , in t h e c r e d i t a g r e e m e n t s , t h e c r e d i t o r restricted the purchase of technology, goods and services to developed countries. Such agreements caused an outflow of capital resources from developing to

developed countries. The international debt crisis exists because of the cumulative real debt in the creditor countries. In other words, the international debt crisis is a problem for developed countries, not developing ones.

In t h e a b o v e d i s c u s s i o n , it w a s s h o w n t h a t a c c o u n t i n g h a s h a d a t e n d e n c y t o communicate reality.

Accounting, as an information system, should tell the ‘t r u t h ’ . I f it is n e c e s s a r y , a c c o u n t i n g d i s c l o s e s t h e h i s t o r y o f t h e i n f o r m a t i o n t o u s e r s . A n i m p l e m e n t a t i o n o f t h e c o n s e r v a t i s m p r i n c i p l e in a c c o u n t i n g f o r a s s e t s , loans and other accounts would also inform banking and governments about the financial conditions of companies, governments and other international monetary

i n s t i t u t i o n s . H e r e , a c c o u n t i n g , in o r d e r t o c r e a t e b e t t e r c o n d i t i o n s , f u n c t i o n s t o communicate reality and, also, constitutes reality.

2.3.3 Boom and Bust of Mergers

In t h e 1 9 8 0 s , U S b u s i n e s s e x p e r i e n c e d ‘m e r g e r m a n i a ’ . B e n s t o n ( 1 9 8 0 , p . 7 ) explained the popularity of mergers as follows: (1) accounting procedures misled investors, thus motivating promoters and managers to effect mergers; (2) growth

a n d c h a n g e s in e n t e r p r i s e s b r o u g h t t h e s e e n t e r p r i s e s t o a s t a g e in t h e i r development at which mergers were rational; and, (3) mergers were attractive investments for acquiring companies, owing to the economic condition and tax climate. He stated that merger practices made capital markets efficient. Mergers also meant the growth of companies.

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The impact of mergers was not all positive, however, during the merger mania of

the 1980s, negative impacts of mergers were felt (Lehman,!992,p.8).

The practice of junk bonds as a main financial resource put mergers into difficult situations. The starting point of the junk bond phenomenon was about how

management bought the other company’s

in order to merge their companies. When management bought those bonds, they were concerned with

bonds,

the price of the bond.

However, there are obligations related to any financial

claims.

Thus, management acquired not only the bonds, but also the claims and

debts associated with

merger often

caused

bankruptcy.

The junk bond phenomenon is an example of how business people innovated opportunities around accounting procedures, especially disclosures. Accounting procedures required disclosure of any event that may effect decisions relating to

financial reporting.

Accountants faced difficulties when they found prospects of claims to be unclear. Accountants could not disclose these claims in the financial

reporting.

The practice of junk bonds was really a negative feature in merger mania trends in the 1980s. A lot of companies suffered a loss (Fortune, May 20,1991). Many

accounting firms were involved in litigation relating to audit reports concerning

the financial performance of previous mergers.

The only people who received

any benefits ftx>m the junk bond practice were tbe bidders (Lehman, 1992, p.9).

It is clear that the boom and bust merger phenomenon gave rise to an emphasis

on accounting’s ability

to constitute

reality, reality here being the junk bond

practice, litigation culture and other areas.

This means that in modem society,

the accounting culture of the 1990s has become more solid.

Accounting has become not only a tool to analyse business, but also a framework to run business, for instance: to investigate un-disclosed information in the case of merger,

especially related to junk bond practice.

An analysis of the accounting role up to the 1990s has emphasised the social perspective. The globalisation era has brought accounting closer to the social perspective. In other words, accounting has become more closely aligned to the culture of society, it has been seen that the influential factors in the 1990s have so far been U.S dominated, but it seems likely that similar trends will spread to other

countries in different forms.

3.0 Discussions

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Our discussion about the factors that influence the development of the accounting role leads to ways of understanding individuals’ perceptions of the accounting role over time. Related to these factors, the development of the accounting role can be classified into three periods: 1930s, 1970s, and 1990s.

Figure 2 below s h o w s t h e i n t e r t w i n i n g o f t h e a c c o u n t i n g r o l e a n d its f a c t o r s .

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86 Factors Influencing the Development o f the Accounting Role ...

Figure 2 The Role of Accounting and Its Factors

A Review

Accounting / Economi

/ Factors Old

Communi Const Steward

cation itutiv ship

Steward

lation

e 1930s •

Growth of

s o c ia l consciousness

1970s •

Management

o f fin a n c i a l resources

• O r g a n i s a t io n a

1 v i s i b il i t y •

Forms of

* management

it

structure and organisational segmentation

• power and

ie in f l u e n c e

it

it

it

it

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• separation of

ownership fr o m

management •

rising

complexity of the business

environment •

extent of

interdependen cies among corporations

i n c r e a s i n g in

the diffusion of ownership

• advanced of

•k

technology and communicati on

1990s •

global debt to * * pay •

boom and

* bust of

mergers

In t h e 1930s, social phenomena greatly influenced the perception of the accounting role. The stewardship crisis and the growth of social consciousness became the motivation for

the shifting of the accounting role from the old stewardship to the new stewardship functions. This shift was a result of a change in s o c i e t y ’s p e r c e p t i o n a b o u t t h e u s e o f a c c o u n t i n g in s o c i e t i e s . In o t h e r w o r d s , consciousness of

e x i s t e n c e o f t h e a c c o u n t i n g w a s r a i s e d . In 1970s, the development of science and knowledge influenced how people saw the

d e v e l o p m e n t o f t h e a c c o u n t i n g r o l e . T h e c h a n g e s in e n v i r o n m e n t w e r e a n a l y s e d

by implementing an

business attitudes,

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organisation and environment were observed. Then, through a process of abstraction, those phenomena were categorised into factors that influenced the development of the accounting role. Burchell et al. (1980) summarised the

c h a n g e s in o r g a n i s a t i o n a l b e h a v i o u r , f o r m and structure as the organisational factors that influence the development of the accounting role. Gandhi (1976)

i m p l e m e n t e d B e l l ’s P o s t - i n d u s t r i a l C o n c e p t t o i d e n t i f y t h e i n f l u e n c e o f s o c i a l s t r u c t u r e r e l a t e d f a c t o r s in t h e d e v e l o p m e n t o f t h e a c c o u n t i n g r o l e . R o n e n ( 1 9 7 9 ) o b s e r v e d a c h a n g e in t h e b u s i n e s s e n v i r o n m e n t . H e i m p l e m e n t e d a n a g e n c y

a p p r o a c h in o r d e r t o i n f e r t h e f a c t o r s in t h e b u s i n e s s e n v i r o n m e n t a f f e c t i n g development of the accounting role.

In t h e 1 9 9 0 s , t h e g l o b a l i s a t i o n t r e n d h a s influenced people’s perception about their environment.

People think globally, s o t h e y s e e b u s i n e s s e v e n t s in t h e c o n t e x t o f g l o b a l e v e n t s . R e l a t e d t o b u s i n e s s , t h r e e e v e n t s in p a r t i c u l a r h a v e i n f l u e n c e d t h e d e v e l o p m e n t o f t h e a c c o u n t i n g r o l e :

global debt, the international debt crisis, and mergers.

From figure 2, we found that the analysis of the development of the accounting r o l e h a s a t e n d e n c y t o m o v e c l o s e l y t o w a r d s t h e s o c i a l p e r s p e c t i v e . In t h e 1 9 3 0 s , the function of accounting was accountability.

In t h e 1 9 7 0 s , t h e p e r c e p t i o n

c h a n g e d a s t o h o w a c c o u n t i n g w o r k e d in o r g a n i s a t i o n a l a c t i v i t i e s , t h o u g h t h e analyses of Burchell et al. (1980), Gandhi (1976) and Ronen (1979) were still restricted by the assumption that accounting was part of the organisational elements. Even though Burchell et al. (1980) tried to promote the power and influence factors, we suspect that the implementation was still restricted by the organisational boundary. This means that most of the studies based upon factors p r e v a i l i n g in t h e 1 9 7 0 s ’ w i l l s h o w h o w a c c o u n t i n g w o r k s a s a d e c i s i o n m a k i n g t o o l a n d h o w t h i s a f f e c t s p e o p l e i n s i d e o r g a n i s a t i o n s . In t h e 1 9 9 0 s , t h i s l i m i t a t i o n has been overcome by thinking globally. Global events are seen as factors that

i n f l u e n c e t h e d e v e l o p m e n t o f t h e a c c o u n t i n g r o l e . A s a r e s u l t , in t h e 1 9 9 0 s , t h e

a c c o u n t i n g r o l e is v i e w e d m o r e a s b e i n g t o c o n s t i t u t e r e a l i t y r a t h e r t h a n o n l y t o communicate reality.

T h e r e w a s a t e n d e n c y in t h e l i t e r a t u r e c o n c e r n i n g t h e d e v e l o p m e n t o f t h e accounting role to raise the question: how are the financial economic perspective

a n d o r g a n i s a t i o n a l p e r s p e c t i v e g o i n g t o b e in t h e f u t u r e ? . T h i s q u e s t i o n is a n attempt to see the future of the legal-economic aspect of accounting and

a c c o u n t i n g a s a t e c h n o l o g y . T h e k e y p h r a s e n e e d e d t o a n s w e r t h i s q u e s t i o n is 4 a r e o r i e n t a t i o n o f a c c o u n t i n g ’s f u n c t i o n s . ’

The integration of the old and new stewardship concepts into the global context will produce the new features of the legal-economic concept.

The relationship between entities has become

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complex, since such relationships can be between regions and countries. On the other hand, the social welfare definition has shifted to a broader area. The public is n o l o n g e r l i m i t e d t o a c e r t a i n r e g i o n o r c o u n t r y , b u t h a s b e c o m e g l o b a l . F r o m the organisation perspective, the exploration of technology for decision making will act globally through the internet and other global communication facilities. It c a n b e c o n c l u d e d t h a t t h e f i n a n c i a l e c o n o m i c , o r g a n i s a t i o n a l a n d s o c i a l perspectives will survive if they always adapt to the contemporary context.

Related this study as a whole, the factors that influence the development of the accounting role will provide a guide for classifying our empirical data. Additionally, they can be a tool by which to analyse the development of

a c c o u n t i n g in t h e t e l e c o m m u n i c a t i o n i n d u s t r y in I n d o n e s i a .

The study of the factors that influence the development of the accounting role has opened up some questions for future studies.

Do social events influence the accounting role?

W h a t is t h e i n f l u e n c e o f c o m m u n i c a t i o n t e c h n o l o g y o n t h e s t e w a r d s h i p c o n c e p t a n d h o w d o e s it o p e r a t e ? Is t h e i n t e r n e t m a k i n g a c c o u n t i n g more sociable?

Do environmental cases like Chernobyl influence people’s perception of accounting? These questions are only a few of the ones that we can raise for future research.

Our study will have the opportunity to contribute to accounting literature by intertwining the accounting role and its factors into an empirical analysis.

In

a d d i t i o n , t h e r e is a n o t h e r o p p o r t u n i t y w h i c h is t h e l o c a t i o n o f t h e a n a l y s i s o f t h e accounting role into the context of the study’s perspective. These opportunities p r e s e n t a c h a l l e n g e t o p r o d u c e , f r o m t h e e m p i r i c a l a n a l y s i s , a n e w i n s i g h t in t o the accounting role.

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94 Factors Influencing the Development o f the Accounting Role ...

Endnotes

' The criticism of accountants was unfair, because several years earlier the AIA (the predecessor of the AICPA) had attempted ineffectively to draw the New

York Stock Exchange (NYSE) into conversation. Also, the NYSE itself had been r e l a t i v e l y l o o s e in its l i s t i n g r e q u i r e m e n t s .

" R i s k P r e m i u m is a r a t e t o m e a s u r e t h e c a p a b i l i t y o f t h e d e b t o r s t o r e p a y t h e i r debt.

T h e t r a n s n a t i o n a l r e l a t i o n s h i p is r e c o g n i s e d a s a N o r t h - S o u t h r e l a t i o n s h i p . North, here, represents the industrial (developed) countries. South represents third world (developing) countries.

Vol. 15, No. /, August 2007

Centre fo r Indonesian Accounting anti Management Research Postgraduate Program , Brawijaya University