Factors Influencing The Development of The Accounting Role In Society

Factors Influencing

The Development of The Accounting Role In Society

Indra Bastian

Gadjah Mada University

Abstract

T h e o b j e c t i v e o f t h e p a p e r is t o d i s c u s s f a c t o r s i n f l u e n c i n g 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 in s o c i e t y . T h e d i s c u s s i o n s focus on reasons why a study of the factors that influence 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 is n e e d e d . T h e p a p e r concludes that the factors influence the development of the

a c c o u n t i n g r o l e le d t o w a y s o f u n d e r s t a n d i n g i n d i v i d u a l s ’ 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.

Introduction

During reading many article on accounting histories, there are many pragmatical q u e s t i o n s r a i s e d , s u c h a s : w h y is t h e a c c o u n t i n g r o l e c h a n g i n g ? ; is it a n a t u r a l p r o c e s s o r h u m a n m a d e ? ; a n d , is it a d y n a m i c p r o c e s s o r a s t a t i c o n e ? T h e s e questions demand a discussion, specifically, about the factors that influence 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 in s o c i e t y . T h i s d e m a n d h a s a t e n d e n c y t o le a d t o a p r a c t i c a l , r a t h e r t h a n c o n c e p t u a l , a n a l y s i s .

However, the literature review could not distinguish between the impact of practical and conceptual

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 . A s a c c o u n t i n g p h e n o m e n a , these factors are associated with each other.

The discussion begins by outlining the reasons why a study of the 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 is n e e d e d ( S e c t i o n 1). This rationale for study

leads to consideration of The Factors that Influence the

D e v e l o p m e n t o f A c c o u n t i n g R o l e in S o c i e t y ( S e c t i o n 2 ) . T h i s s e c t i o n c o n t a i n s

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62 Factors Influencing the Development o f the Accounting R o le ...

several subsections, each focusing an a particular classification or main ideas related to the theme of Section 2.

S e c t i o n 3 , is a d i s c u s s i o n s e c t i o n w h i c h attempts to produce an integrated picture of the role of accounting and associated

f a c t o r s . F i n a l l y , t h e k e y p o i n t s o f t h i s p a p e r w i l l b e s u m m a r i s e d in S e c t i o n 4 .

1. The Rationale for Studying the Factors that Influence the

Development of The Accounting Role in Society

What do people want to know about the role of accounting? Early observations suggested that there are two issues that people always want to know about. The

f i r s t is t h e m e a n i n g o f t h e a c c o u n t i n g r o l e . Most individuals with whom discussion was held

a s k e d w h a t w a s m e a n t b y ‘t h e a c c o u n t i n g r o l e ’ . I f t h e discussion reached a serious level, they would then ask what factors influenced its d e v e l o p m e n t . H o w e v e r , it m u s t b e r e c o g n i s e d t h a t t h e i d e a o f t h e d e v e l o p m e n t

of the accounting role can not be isolated from the meaning of the accounting role itself.

T h u s , t h e m o t i v a t i o n f o r t h i s s e c t i o n is c l o s e l y r e l a t e d t o t h e r a t i o n a l e f o r s t u d y i n g t h e r o l e o f a c c o u n t i n g . A m a j o r r a t i o n a l e is t o o p t i m i s e a c c o u n t i n g ’s

f u n c t i o n s in s o c i e t y . S t u d y i n g t h e f a c t o r s t h a t 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 will support the objective of studying the accounting role.

T h e s t u d y o f t h e a c c o u n t i n g r o l e is c l o s e l y r e l a t e d t o t h e s t u d y o f a c c o u n t i n g p o l i c y . T o u n d e r s t a n d h o w a c c o u n t i n g f u n c t i o n s in s o c i e t y , it is n e c e s s a r y t o learn about how accounting policies regulate the way that accounting works at

the micro and macro levels of society.

A c c o u n t i n g p o l i c y is a b o u t h o w t h e

i m p l e m e n t a t i o n o f a c c o u n t i n g is m a n a g e d in t h e c o n t e x t o f o r g a n i s a t i o n s , industry and society (Hendriksen & Breda;l992,p.234-235). Therefore, the study o f t h e f a c t o r s t h a t 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 in s o c i e t y is the study of how to manage the role of accounting at the micro and macro levels of society. Since the role of accounting can be viewed differently depending on

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

or are capable of causing the role of accounting to change. Thus, a

c h a n g e m a n a g e m e n t p e r s p e c t i v e is t h e b a s i s f o r t h i s d i s c u s s i o n .

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

industry or society. If the influence of the factors can be characterised, they can

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b e i m p l e m e n t e d l o c o n t r o l t h e a c c o u n t i n g f u n c t i o n , i.e . t o p l a n a n d d i r e c t t h e implementation of accounting functions, and to evaluate the implementation. However, since the process of characterisation of each factor involves a qualitative assessment, subjective indicators are used. This means that a

j u d g e m e n t ’ is m a d e , in o r d e r t o e v a l u a t 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 le .

Figure 1 Change Management

The Accounting Role in Society

Prog* u m m e >

Control

objective

Resources N

A c c o u n t in g ,

development

skills experience

regulation behaviour

in d iv id u a l

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

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

p r o g r a m m e is a c t u a l l y a n e f f o r t t o c o n t r o l t h e d e v e l o p m e n t o f t h e accounting role by certain objectives, determined by the person who set the p r o g r a m m e . T h e s e c o n d is t h e C o n t r o l - U s e r s r e l a t i o n s h i p , w h i c h d e s c r i b e s h o w users control the role of accounting and vice versa. When the role of accounting

f o r t h e u s e r s is r e g u l a t e d , p o l i c y m a k e r s c a n n o t f o r c e u s e r s t o i m p l e m e n t t h e r o l e of accounting beyond their skills.

This means that the implementation of a p r o g r a m m e 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 is l i m i t e d b y t h e u s e r s -

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64 Factors Influencing the Development o f the Accounting Role .

s k i l l s ’ c o n d i t i o n . T h e t h i r d r e l a t i o n s h i p is ‘R e s o u r c e a n d U s e r s ’, w h i c h r e p r e s e n t s

h o w u s e r s e x a m i n e a c c o u n t i n g a s a r e s o u r c e in t h e i r w o r k . T h i s m e a n s t h a t th e users obtain

e x p e r i e n c e a n d , a d d i t i o n a l l y , t h r o u g h t h e i r b e h a v i o u r a f f e c t th e implementation of the accounting role.

The factors that influence 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 in s o c i e t y r e f l e c t t h e s e t h r e e r e l a t i o n s h i p s .

From the above discussion, the advantage of studying the factors that influence 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 is t o b e a b l e t o c o n t r o l t h e d e v e l o p m e n t o f the accounting role. In other words, the factors can be indicators for monitoring the development of the accounting role.

If the monitoring mechanism can be

i m p l e m e n t e d , t h e r e - e n g i n e e r i n g o f 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 is a possibility.

2. Factors that Influence the Development of the Accounting Role in Society

The discussion of Section 1 has explained the rationale for developing this

c h a p t e r . In t h i s s e c t i o n , t h e f a c t o r s t h a t 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 in s o c i e t y a r e p r e s e n t e d . S i n c e t h e r e a r e m a n y p o s s i b i l i t i e s f o r presenting this topic, a decision has to be made as to which presentation method should be adopted, according to the emphasis of the study. The presentation

c o u l d b e b a s e d o n a r t i c l e s , p e r i o d s , c o n t e x t s , a n d p e r s p e c t i v e s . H e r e , it h a s b e e n

d e c i d e d t o u s e a p e r i o d i c s e q u e n c e t o p r e s e n t t h e i d e a s o f t h i s c h a p t e r , in l in e w i t h t h e a r g u m e n t t h a t 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 is a b o u t c h a n g e s . This approach allows comparison between different periods to be undertaken .

T h u s , in t h i s s e c t i o n , t h e f a c t o r s i n f l u e n c i n g a c c o u n t i n g a r e c l a s s i f i e d i n t o t h r e e distinct time periods: the 1930s, the 1970s and the 1990s. This classification was suggested as a result of reviewing the relevant literature.

2.1 The 1930s

T h e p e r i o d a r o u n d t h e 1 9 3 0 ’s w a s a s i g n i f i c a n t o n e in w o r l d h i s t o r y . M a n y significant world events world occurred during this period: the crash of the New Y o r k S t o c k M a r k e t in 1 9 2 9 , t h e e c o n o m i c d e p r e s s i o n in 1 9 3 3 , t h e o u t b r e a k o f t h e S e c o n d W o r l d W a r in 1 9 3 9 .

This subsection will discuss how accounting academicians saw these events influencing the development of the accounting role.

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O n l y a f e w a c a d e m i c i a n s h a v e d i s c u s s e d t h e i n f l u e n c e o f t h e e v e n t s o f t h e 19 3 0 s the accounting role. Chen (1975) did some research into the origin of financial

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

a r o u n d t h e 1 9 3 0 s , e s p e c i a l l y in t h e U n i t e d S t a t e s . In p a r t i c u l a r , s h e r e f e r r e d t o w h a t s h e c a l l e d ‘t h e s t e w a r d s h i p c r i s i s o f 1 9 2 9 ’ ( C h e n , 1 9 7 5 , p . 5 3 8 ) , t h e i n i ti a l s t i m u l u s o f w h i c h w a s t h e c r a s h o f t h e N e w Y o r k S t o c k M a r k e t in 1 9 2 9 .

This crash left shock waves w hich reverberate 60 years later (Hendriksen & Breda, 1992,p.65). The depression started as the result of the ending of the First W o r l d W a r in 1 9 1 9 . D u r i n g t h e 1 9 2 0 s , t h e p s y c h o l o g i c a l i m p a c t o f t h e e n d o f t h e war created a demand for consumer goods, plants and equipment. This condition fuelled an investment boom. For example, there was a rapid expansion of new

industries making radios, telephones, motion pictures and, most markedly, the automobile. Car production, alone, by 1929 had increased eleven times since

1 9 1 3 a n d b y n e a r l y t h r e e t i m e s s i n c e 1 9 1 9 . T h e u n o f f i c i a l e m p l o y m e n t f i g u r e in

1 9 2 9 w a s a s l o w a s 3 .3 p e r c e n t a n d l a b o u r p r o d u c t i v i t y h a d m u l t i p l i e d significantly. This was one of the best ever periods for the American economy.

By 5 September 1929, conditions were changing.

A prediction from Roger

B a b s o n , a r e s p e c t e d f i n a n c i a l a d v i s o r , c r e a t e d f e a r in t h e p u b l i c ( i b i d . ) . One m o n t h a f t e r t h a t , o n 21 O c t o b e r , a n d a g a i n o n 2 4 O c t o b e r , t h e m a r k e t d r o p p e d

h u n d r e d s o f m i l l i o n s o f d o l l a r s in v a l u e . B y 2 9 O c t o b e r 1 9 2 9 , s t o c k h o l d e r s h a d l o s t $ 1 5 b i l l i o n a n d a g r e a t e c o n o m y w a s in t h e p r o c e s s o f b e i n g r u i n e d . T h e days after the crash of capital market were bad news. Private investment dropped

90 percent and production fell 56 percent (ibid.). Even though the causes of the crash and its effects remain controversial (ibid.,p.66), accountants could not escape severe criticism. Berle and Means (1932,p.182-183) stated ‘ accountants

them selves have as y e t fa ile d to w ork out a series o f standard rules They also

a t t a c k e d t h e c o n c e n t r a t i o n o f p o w e r in t h e h a n d s o f t h e f e w :

So long as accounting standards are not hardened and the law does not impose any specific canons, directors an d their accountants m ay fra m e their figures, within limits, m uch as they choose (ibid.).

In t h e f a c e o f s u c h c o m m e n t s , it w a s i m p e r a t i v e t h a t a c c o u n t a n t s i m p r o v e d t h e i r professionalism.

T h e r e is a n o t h e r w a y o f v i e w i n g t h e 1 9 2 9 s i t u a t i o n . S t a t i s t i c a l l y , t h e p r o p o r t i o n of corporate wealth

(other than banking) controlled by the 200 largest corporations was approximately 49.2%. Of these 200 big companies, 44%

in number

o r 5 6 % in w e a l t h , w e r e c o n t r o l l e d b y p r o f e s s i o n a l

managers

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(Chen, 1975,p.538). During that period, some of the management from these big companies considered themselves so professional that they did not hold t h e m s e l v e s a c c o u n t a b l e t o a n y p a r t y ( i b i d .) - I n o t h e r w o r d s , m a n a g e m e n t d e f i n e d their own responsibilities.

H i s t o r i c a l l y , b o t h t h e s e p h e n o m e n a , in t h e 1 9 2 0 a n d 3 0 s , b r o u g h t a p e r i o d o f stewardship crisis. The management (accountants) tended to assume no stewardship responsibility either to the owners or to the public, disregarded their

stewardship role.

T h e c r i s i s o f s t e w a r d s h i p p e r i o d e n d e d d u r i n g t h e 1 9 3 0 ’s d e p r e s s i o n ( i b i d . ) .

During the period of recovery of the economy, some changes had already taken place.

Business ideology had raised its base over social responsibility, this

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

situation by citing Bruce,(1916,p.l2): ...

a socially beneficial use has always been, and always should be, the one test a n d basis o f the so called pro p erty right; that no man in society has a natural a n d

unlim ited right to own a n d to do as he pleases, a n d that the p u blic welfare has always been, a n d always w ill be, the highest law a n d the test and the basis o f the only lasting title d eed

In t h i s q u o t a t i o n , s h e r e f l e c t e d t h e n e w c o n s c i o u s n e s s t h a t t h e e x e r c i s e o f a r i g h t might affect the right of others; that once people

socialised their pro p erty ’, t h e y

should be concerned about

'‘an involvem ent o f the interest o f the so c ie ty ’

(Chen, 1975,p.538).

O t h e r c h a n g e s , s u c h a s t h e g r o w t h in b u s i n e s s s i z e a n d t h e i n c r e a s e in m a n a g e r i a l

c o n t r o l , d e m o n s t r a t e d t h e i m p a c t o f t h e s t e w a r d s h i p c r i s i s in 1 9 2 9 . Chen ( 1 9 7 5 , p . 5 3 9 ) m e n t i o n e d a s h i f t in t h e o r i e n t a t i o n o f s t o c k h o l d e r s . S t o c k h o l d e r s no longer had full control of the company. Small stockholders lost their power of controlling management. They had to understand that their roles were different.

In t h e 1 9 3 0 s , i n v e s t o r s w e r e c o n c e r n e d t h a t w h e n t h e y i n v e s t e d c a p i t a l in a l a r g e corporation, they granted management full power to use and control their

resources. Since the other side of the power of management was responsibility, management automatically accepted a social responsibility.

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The events of the 1930s can be regarded as contributing t h e c h a n g e in t h e

c h a r a c t e r i s t i c s o f t h e b u s i n e s s o w n e r s h i p . In t h e p a s t , o w n e r s h i p h a d b e e n h i g h l y diffused.

People assumed business to be a collection of capital from investors. The larger the business size, the greater the amount of capital needed. As only a few people were able to contribute a certain amount of capital, ownership gained full control over the managerial process. From the 1930s,

the situation of ownership became different. The dispersed ownership had transferred the power of control to management. The shifting of control to management created other types of stewardship, e.g. towards employees, customers and society as a whole. In o t h e r w o r d s , m a n a g e m e n t h a v e a s t e w a r d s h i p o b l i g a t i o n t o t h e p u b l i c .

As the above discussion has shown, the impact of the crisis of stewardship led to

i n c r e a s e s o c i a l c o n s c i o u s n e s s in t h e c o n c e p t o f t h e a c c o u n t i n g r o l e , a n d a p r a c t i c a l r e s p o n s e in a c c o u n t i n g p r a c t i c e , a c h a r g e in t h e a c c o u n t i n g r o l e . Hoxsey, J.M.B., executive assistant of the Committee on Stock List of the New

Y o r k S t o c k E x c h a n g e , c r i t i c i s e d t h e l a c k o f u n i f o r m i t y in a c c o u n t i n g p r a c t i c e (Hendriksen & Breda, 1992,p.66). Even though this criticism was

a little u n fa ir (ibid.,p.67)',

t h e a c c o u n t i n g p r o f e s s i o n in t h e U S g a v e it s p e c i a l a t t e n t i o n b y suggesting that

t h e c e r t i f i c a t i o n o f a c c o u n t a n t s s h o u l d b e a n a t t r i b u t e in t h e

f i n a n c i a l s t a t e m e n t s o f l i s t e d c o m p a n i e s . B y c e r t i f i c a t i o n , it w a s m e a n t t h a t

a c c o u n t a n t s s h o u l d b e ‘q u a l i f i e d u n d e r t h e l a w s o f s o m e s t a t e s o r c o u n t r y ' . It s h o u l d b e n o t e d t h a t t h i s a c c o u n t i n g p r a c t i c e h a d a l r e a d y b e e n in e x i s t e n c e , in Britain, for 89 years.

The requirement that accountant who prepared financial statement be certificated was one way that accounting profession answered the demand for public stewardship.

The consciousness of the impact of financial statements upon p u b l i c w e l f a r e h a d s t i m u l a t e d t h e a c c o u n t i n g p r o f e s s i o n i n t o c o n s i d e r i n g its social responsibility. This consciousness on the past of the accounting profession w a s o n l y o n e o f v a r i o u s w a y s t h a t s o c i a l r e s p o n s i b i l i t y c o n s c i o u s n e s s g r e w in t h e

1930s. Alternatively, this response could be interpreted as one way the

a c c o u n t i n g p r o f e s s i o n s u r v i v e d in s o c i e t y . H o w e v e r , t h e r e s p o n s e l e f t o n e l a r g e question unanswered: ‘how to evaluate the accomplishment of social objectives?'’

A d e b a t e o n t h i s m a t t e r s t i l l c o n t i n u e s u p t o n o w , a n d is s o m e t i m e s c o n s i d e r e d t o indicate a

weakness of accounting relating to the objective of supporting the public welfare.

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 h o w f a c t o r s t h a t i n f l u e n c e d t h e development of the accounting role reflected the social conditions of the 1930s. This fact implied that the accounting role was

part of the social phenomena;

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furthermore, that these social events constituted the development of the

a c c o u n t i n g r o l e . In t h i s c a s e , t h e s t e w a r d s h i p c r i s i s e v e n t s a n d t h e g r o w t h o f social consciousness provided impetus for the development of the accounting role. Additionally, the development itself had a tendency to move toward social

objectives.

2.2 The 1970s

T h e g r o w t h o f s o c i a l c o n s c i o u s n e s s w h i c h b e g a n in t h e

continued. By the 1970s, this consciousness had become stronger and more solid.

1930s

Some academicians saw a need to understand accounting not only as a technical thing,

b u t a l s o a s a p a r t o f s o c i a l l if e . Scapens (1990,p. 107) indicated a shift from presenting accounting

as a set o f neutral , objective techniques available to m anagers to accounting as an integral element in a system o f domination.

F u r t h e r m o r e , in t h e c o n f e r e n c e o f R o l e o f A c c o u n t i n g in O r g a n i s a t i o n a n d S o c i e t y in U C L A , 1 9 8 0 , F r i c G F l a m h o l t z ( J 9 8 0 . p . 3 ) s t a t e d t h e m i s s i o n o f t h e conference as

to recognise the effects o f accounting on individuals, organisations and society. Both academicians delivered a message on the change of accounting orientation from a technical mean to an organisational and social mean.

Related to those phenomena, Burchcl et al. (1980,p.5) indicated that some changes had already taken place. For example: accounting had become general economic management; and, accounting had become a cohesive and influential mechanism for economic and social management.

They mentioned various factors that had caused these shifts, such as management of financial sources; the creation of particular patterns of organisational visibility; the articulation of

forms of management structure and organisational segmentation; and the reinforcement, and indeed the creation of particular patterns of power and

influence (ibid.). Each of these factors will be explored below.

2.2.1 The Management of Financial Sources

The comment made by Burchell et al. (1980) that

accounting developm ents now are seen as being increasingly associated not only with the m anagem ent o f

fin a n c ia l r e so u rc e s ..... (p. 5)

Implies that people had acknowledged this factor before. Indeed, Chen (1975) mentioned this factor. Although Burchell et al. did not explicitly refer to Chen

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(1975), we assume that they accepted that this factor originated a long time prior to their writing.

T h e m a n a g e m e n t o f f i n a n c i a l r e s o u r c e s is a s y m b o l f o r ownership and for the creditor (Brealey and Myers, 1991).

Both creditor and owner share the capital of the company.

They also obtain full control of the management. Ultimately, they expect to be the first to receive an allocation of the benefits.

Financial resources, then, have been a symbol of the power to control. Owners p r o v i d e d f u n d s f o r t h e c o m p a n y , in o r d e r t o g e t a f e e d b a c k s t o c k e a r n i n g in future.

The creditors lent their money for the purpose of getting interest and p r i n c i p a l . B o t h w e r e c o n c e r n e d t o i n c r e a s e t h e i r o w n w e l f a r e . In t h e p a s t , w h e n the size of business was relatively small\many people had a capability of

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

By the 1930s, the situation had altered. Since business size had increased, only a few people were capable of contributing funds.

So, m a n a g e m e n t in a n i n n o v a t i v e w a y s o l d c o m p a n y s h a r e s in t h e c a p i t a l m a r k e t , o r sold the company's obligation.

This condition created increasingly more complex procedures concerning the management of financial resources.

In t h e 1 9 3 0 s , t h e m a n a g e m e n t o f f i n a n c i a l r e s o u r c e s h a d c a u s e d a s h i f t in t h e

a c c o u n t i n g r o l e . In 1 9 7 0 , it d e m a n d e d m o r e c a r e f u l w o r k , w h i c h c a n b e c l a s s i f i e d into investment and fund management (ibid.). Many technique were adopted to

a i d p l a n n i n g in i n v e s t m e n t a n d f u n d m a n a g e m e n t , s u c h a s n e t p r e s e n t v a l u e , discounted cash flow and tree decision - making.

The existence of such t e c h n o l o g i e s in f i n a n c i a l r e s o u r c e s m a n a g e m e n t w a s c a u s e d b y t h e c o m p l e x i t y in calculation and a demand for a level of analysis.

S o , in t h e 1 9 7 0 s , t h e management of financial resources shifted the role of accounting from calculation to decision making.

Our conclusion above has presented the functions of financial resources m a n a g e m e n t in t e r m s o f t h e t e c h n o l o g y f o r d e c i s i o n m a k i n g a n d t h e s t e w a r d s h i p relationship.

As a feature of the stewardship relationship, financial resources management placed more emphasis upon legality. More stress was given to how management was able to fulfil their contract. On the other hand, as a technology

f o r d e c i s i o n m a k i n g , it g a v e m o r e e m p h a s e s t o t e c h n i c a l m a t t e r s . This means that financial resources management has had a tendency towards technological, instead of social, economic and legal development.

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2.2.2 The Creation of Particular Patterns of Organisational Visibility

In c o n t r a s t t o f i n a n c i a l r e s o u r c e s m a n a g e m e n t , B u r c h e l l e t a l . ( 1 9 8 0 , p . 5 ) m e n t i o n e d t h e n e x t t h r e e f a c t o r s a s n e w d e v e l o p m e n t s in t h e a c c o u n t i n g environment.

These three factors are related to the development of the organisational analysis of the 1970s.

This means that Burchell et al. (1980) codified the impact of those phenomena into the accounting role development perspective.

The development of organisational patterns grew rapidly from the 1950s (Thompson & Strickland, 1995:p.432). An organisation was initially based upon general management skills.

P e o p l e w e r e t r a p p e d in p o s t S e c o n d W o r l d W a r psychology. Consumption demand was high. Many countries were experiencing an economic recovery. This post-war attitude had a positive impact among the

population. Business grew. During the 1950s and 1960s, many conglomerates were established, focusing on mass production. However, the demand of business w a s s t i ll r e s t r i c t e d b y t h e g e n e r a l b a s i c s k i l l s o f m a n a g e m e n t .

T h i s d e m a n d c h a n g e d in t h e 1 9 7 0 s . T h e v a l u e a d d e d c o n c e p t s h i f t e d c o r p o r a t i o n to

the strategy concept and the portfolio planning techniques (ibid.,p.433). During this decade, business organisations started to diversify, though mass production

manufacturing companies. Technological information became a competitive advantage for companies. Business people focused their attention upon resource allocation problems and balanced portfolio management (ibid.).

In t h e t w o p r e v i o u s p a r a g r a p h s , t h e s e n s e o f a c h a n g i n g e n v i r o n m e n t h a s b e e n conveyed. This changing situation caused a challenge for organisational analysis,

in r e l a t i o n t o s e v e r a l a n a l y t i c a l p r o b l e m s , s u c h a s : a c t i o n , p o w e r , l e v e l s a n d process (Benson, 1977,p.5).

Work on the action problem emphasised the

g r o u n d i n g o f o r g a n i s a t i o n a l p a t t e r n s in t h e i n t e r a c t i o n s a n d p r a c t i c e s o f p e o p l e . P a t t e r n s h a v e a l s o b e e n s e e n in r e c e n t s t u d i e s a s t h e e x p r e s s i o n o f p o w e r relationships. The levels problem involved the analysis of inter-penetration and

interdependence between distinct sectors of the social structure. The concern with process involves the continuous transformation of organisational patterns. In s u b s e c t i o n 2 . 2 . 3 , t h e r e is a f u r t h e r

discussion about levels. In s u b s e c t i o n

2.2.4, a discussion about action and power will take place. First, however, let us consider process.

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continuous transformation of o r g a n i s a t i o n a l p a t t e r n s . T h e p u r p o s e o f s u c h t r a n s f o r m a t i o n is t o a d j u s t t o t h e

As indicated above,

process

concerns the

d e v e l o p m e n t o f b u s i n e s s c o m p e t i t i o n a n d t h e o r g a n i s a t i o n a l e n v i r o n m e n t . It is about how to improve organisations’

adaptive capabilities. The topic of organisations' capabilities can be classified into the implications of societal

e n v i r o n m e n t s f o r o r g a n i s a t i o n s ; a n d i n t e r a c t i o n s in i n t e r - o r g a n i s a t i o n a l n e t w o r k s ( N y s t r o m & S t a r b u c k , 1 9 8 1 ). In t h e f i r s t o f t h e s e a r e a s , c h a n g e s in t h e s o c i a l

e n v i r o n m e n t , f o r e x a m p l e in t e c h n o l o g y ( S h e n , 1 9 8 1 ) , in n o r m s ( M o c h & Seashore,

1) a n d in p o p u l a t i o n m o v e m e n t ( M o r r i l l , 1 9 8 1 ) , h a d t h e s i g n i f i c a n t contribution of improving organisations - making organisations more efficient, more humane, more rational, more fun, and more useful for societies (Starbuck &

\ \ M ro iii J

i .p.xiii). On the other hand, the second generated an opportunity for ■•n p n - v c m e n i . T h e d e v e l o p m e n t o f c o n g l o m e r a t e s m o t i v a t e d a r e d e f i n i t i o n in t h e

i n c a n i ’ig o f o r g a n i s a t i o n , w h i c h i n c l u d e d o r g a n i s a t i o n - s e t s , a c t i o n - s e t s a n d

Mct'Aork-; (Aldrich and Whetten,i 981 ,p.!85). This means that the study of organisations moved beyond single organisations to an examination of the populations of organisations relating to their environment.

The influence of the environmental developments and the potentials inside the o r g a n i s a t i o n l e d t o a n i n n o v a t i o n in t h e p a t t e r n s o f o r g a n i s a t i o n s . In t h e 1 9 7 0 s , divisionalisation and the matrix structure of organisation became the symbols of developing organisations. The idea of these types of organisation co-ordination structures concerned the contract between parties or network arrangements ( G o t t f r e d s o n & W h i t e , 19 8 1 , p . 4 7 1 ). T h e o t h e r p r a c t i c a l f o r m s o f t h e a r r a n g e m e n t were mergers and price - fixing agreements (ibid.). However, the innovation was not only for large corporate, but also for middle-sized and small businesses. The

c o n c e p t o f a p a r t n e r s h i p e i t h e r in t h e f o r m o f a j o i n t v e n t u r e o r c o l l e c t i v e bargaining (ibid) was becoming a usual practice for business.

An understanding of the development of the patterns of organisation led us to

i n v e s t i g a t e h o w a c c o u n t i n g w o r k e d in t h e 1 9 7 0 s . T h e r o l e o f a c c o u n t i n g in decision

Resource allocation problems and decisions over corporate strategy were the main concerns for management.

making dominated

organisational

activities.

Additionally, management were anxious to obtain accounting analysis

a tendency for an implementation of a decision making model within accounting data. The greater needs of accounting for decision making made the development of management

support for their decisions.

This showed

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

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In i n t e r - o r g a n i s a t i o n a i r e l a t i o n s h i p s , t h e f e a t y r e o f a n a c c o u n t i n g r o l e f o r t h e n e w stewardship was becoming visible. The inter-organisational networks were actually based upon contractual arrangements. Legal and economic responsibility w e r e i n h e r e n t in t h e c o n t r a c t s . T h i s m e a n t t h a t a f a i l u r e t o f u l f i l t h e c o n t r a c t s would have legal and economic impacts.

Since the measurement of the legal impact was in economic value, more attention was given to the economic than to the legal dimension. Additionally, the purpose of contracts should be in line with the public interest. As a result, contractual arrangements always tended toward

public welfare.

From the social perspective, the patterns of organisational visibility were concerned more with communicating reality. The development of organisational

patterns focused on how the organisations were able to achieve their objectives. In o t h e r w o r d s , it w a s a b o u t h o w m a n a g e m e n t w e r e a b l e t o o p t i m i s e t h e i r r e s o u r c e s . In m a n a g e m e n t t e r m i n o l o g y , t h e g u i d i n g q u e s t i o n f o r o r g a n i s a t i o n a l

activities was how to increase effectiveness and efficiency. Considering the objectives of the organisations, the role of accounting had a tendency to communicate reality, rather than constituting reality.

T h e d e v e l o p m e n t in t h e p a t t e r n s o f o r g a n i s a t i o n s ’ v i s i b i l i t y h a s b e e n s h o w n t o

h a v e h a d a p o s i t i v e i m p a c t o n t h e f u n c t i o n s o f a c c o u n t i n g in o r g a n i s a t i o n s a n d inter-organisations.

patterns had pushed accounting

The

dynamic

of organisational

practice. Within organisations, accounting came to function, not only as a calculation, but also as

into

more dynamic and applicable business

a p a r t o f t h e d e c i s i o n m a k i n g p r o c e s s . In i n t e r - o r g a n i s a t i o n r e l a t i o n s h i p s , accounting data provided a useful aid to decision-making, especially relating to contract arrangements, where economic interests were dominant.

The role of accounting, here, was to allocate economic resources. As a conclusion, the notion of the new stewardship role predominated.

2.2.3 Articulation of Forms of Management Structure and Organisational

Segmentation

A n o t h e r f a c t o r m e n t i o n e d b y B u r c h e l l e t a l . ( 1 9 8 0 ) is a n a r t i c u l a t i o n o f t h e f o r m s of management structure and organisations.

T h e w o r d ‘a r t i c u l a t e ’ m e a n s t o express something

( in t h i s c a s e , ‘o r g a n i s a t i o n ’) c l e a r l y in o u r o w n w o r d s . Chandler and Daems (1979,p.3) perceived

market economics organisations as having three main actors: markets, firms and interagency arrangements. They also articulated the views of organisations as a reflection of economic functions,

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A l l o c a t i o n is a b o u t r e s o u r c e s t o b e a l l o c a t e d . M o n i t o r i n g is a b o u t t h e p e r f o r m a n c e o f a n a c t i v i t y o n t h e p a r t o f t h e o r g a n i s a t i o n t o b e m o n i t o r e d . F i n a l l y , c o - o r d i n a t i o n is a b o u t t h e

meaning allocation, monitoring and co-ordination.(ibid.)

flow of materials, funds, services and information between activities of the part of the organisation to be co-ordinated.

N e x t is a f u r t h e r d i s c u s s i o n o n t h e v a r i e t i e s o f m a r k e t e c o n o m y o r g a n i s a t i o n s . In

a c o n t e x t o f e x c h a n g e e c o n o m i c s p r a c t i c e , t h e f u n d a m e n t a l e c o n o m i c s f u n c t i o n is interpreted as the price system.

T h e p r i c e is t h e s y m b o l o f a l l o c a t i o n o f

e c o n o m i c r e s o u r c e s . T h e d y n a m i c s o f p r i c e is a m e a n s o f m o n i t o r i n g e c o n o m i c conditions. The efforts to manage an economy can be co-ordinated by the manipulation of price determinants. However, Chandler and Daems (1979,p.4)

had a different interpretation. In e x c h a n g e e c o n o m i c s , m o n i t o r i n g m e a n s s e l f commitment of the units of activity to check the performance of the functioning

a n d t h e r e w a r d i n g o f t h e s e u n i t s t h e m s e l v e s . O n t h e o t h e r h a n d , c o - o r d i n a t i o n is the process of structuring and facilitating the flows and transactions between parts of the organisation.

This means that the price system has not been sufficient to reflect all the economics’ functions. Chandler and Daems (1979) proposed administration and interagency arrangements to complement the price system.

By administration, they meant a formal hierarchical organisation and

c o n t r o l s y s t e m , w h i l e i n t e r a g e n c y a r r a n g e m e n t is a r e f l e c t i o n o f f o r m a l a n d informal conventions. These suggestions were derived from the historical facts on types of productive activities undertaken by the firm (ibid.,p.5).

S o m e t y p e s o f p r o d u c t i v e a c t i v i t i e s c a n b e e x p l o r e d in t h e h i s t o r y , t h e f i r s t b e i n g from Adam Smith. Adam Smith laid the foundation for modem micro-economic theory with his discussion of specialisation of economic activity with

the co­ ordination and monitoring performed by the now famous, ‘invisible hand of the market’.

T h e s e c o n d is f r o m J o s e p h S c h u m p e t e r . J o s e p h S c h u m p e t e r p o i n t e d o u t h o w a n e n t r e p r e n e u r s h i p , is a w a y t o s t i m u l a t e a n i n n o v a t i o n a c t i v i t y , f a c i n g t h e c h a l l e n g e f r o m t h e b u r e a u c r a t i s a t i o n p r o c e s s in a l a r g e f i r m . T h e t h i r d , F r a n k Knight said that essential tasks of the firm were the bearing and sharing of risk and uncertainty. These three economists actually showed how to represent the production unit of the economic system.

Different types of productive activities affect the management structure and o r g a n i s a t i o n s , a n d , in t u m , t h e a c c o u n t i n g r o l e . T h e t r a d i t i o n a l m e a n i n g o f fundamental economic functions demanded a lower level of analysis. The price system was concerned with how to recognise costs and calculate numbers. On the other hand, Chandler and Daems (1979) put the fundamental economic

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s y s t e m in c o n t e x t o f t h e o r g a n i s a t i o n s . They inquired how organisations administer the co-ordination of the price system mechanism. Additionally, they argued that conventions among agencies stabilise the market price.

These situations required a higher level of analysis of the management structure and o r g a n i s a t i o n s , n o t o n l y in r e l a t i o n t o t h e c a l c u l a t i o n a n d r e c o r d i n g m e c h a n i s m ,

b u t a l s o in r e l a t i o n t o t h e p r o c e s s b e f o r e a n d a f t e r c a l c u l a t i o n a n d r e c o r d i n g . T h e different

necessitated innovation in o r g a n i s a t i o n a l a n a l y s i s ( B e n s o n , 1 9 7 7 ,p . 1 1 - 1 2 ) .

demands on

the

level

of analysis

The different articulation of fundamental economic functions has affected the

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