ad y el orden moral

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Volume Two

2002

Accounting and the Moral Order:

Justice, Accounting, andLegitimate Moral Authority

Paul F. Williams

ABSTRACT: Relying upon the manner in which accountants speak about their practice,this paper provides an argument that accounting discourse suffers from incoherence. Argu-

ing that accountants speak as if the institution of accounting is part of a moral order, it followsthat for accounting to have moral standing it must be capable of providing good reasons for

people to conform to accounting directives. Through the work of Baier (1995) and Habermas(1990), the paper describes the nature of a moral order and develops the conclusion that

good reasons for accounting rules must be society anchored ones.Two examples are provided that illustrate why considerations of accounting as a deeply

moral discourse are important. The first example is the iron law of accountabilitywhichacts to subject people to accounting intrusions that may be unnecessary. The second example

is the case of SFAS No. 106. The post-retirement benefits standard is a recent example ofthe FASB establishing a supra-legal definition of liability by assuming technical capabilities

that simply do not exist. The paper concludes with a discussion of how a view of accountingas a system of moral rules may lead to the consideration that the appropriate solution to an

accounting problem may not always be to extend the technical scope of accounting.

Keywords: accounting ethics; justice; accounting policy; SFAS No. 106.

INTRODUCTIONPerhaps the most signal development in accounting in the last 30 to 40 years has been the

emergence to prominence of the usefulness criterion and its associated metaphor for accounting

practice and research: informationspecifically, information regarded as germane input to eco-nomic agents making optimal economic decisions. Accounting understood as an activity producing

economicinformation has led accounting scholars and practitioners, at least in the U.S., to regardthe accounting problem largely in binary terms involving just two protagonists: managers and pro-

viders of capital (agents and principals or preparers and users) (see, e.g., Gaa 1986; Scott 1997).The information metaphor has demonstrated its own usefulness by providing professionals with atechnical rationale for their privileged position and many academics with a scientific rationale foracquiring academic reputations.

Accounting conceived as information in the sense described above appears to be based onthe premise that accounting standards, rules, or procedures are essentially instructions for per-

Paul F. Williams is a Professor at North Carolina State University.


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Accounting and the Public Interest Volume 2, 2002

forming technical, economic measurements. That is, accounting consists primarily of proceduresfor revealing economic facts. This seems further to be based on a belief that a technical expertise

exists or, at least, can exist that is grounded and legitimated by a body of technical knowledge thatallows for the objective determination of economic facts. For example, the qualitative characteris-

tics enumerated in SFAC No. 2 (FASB 1980), predictive value, feedback value, representa-

tional faithfulness, and neutrality imply a knowable connection between accounting proceduresand an economic world understood as a natural (not socially constructed) one. However, even asaccountants speak of (and market) their field as a collection of techniques and expertise that en-

able the production of economic information, they also characterize the accounting standards,rules, and procedures that comprise that expertise as moral directives. These directives inform

persons what they ought to do not simply in a prudential sense, but in an ethical one. These ethicalconnotations of accounting discourse reveal the additional supposition that accounting is also re-

garded as inherently about the moral, that is, accounting is a moral discourse.1 For example, in asignificant number of the cases that are currently being used for ethics instruction, failure to comply

with an accounting directive is labeled as unethical behavior. In addition, in the popular businesspress, managers who fail to follow accounting directives are portrayed as engaging in some kind of

unethical behavior. Unless accounting rules, standards, and procedures are regarded as moraldirectives or norms, it is incoherent to label as unethical someone who does not comply with them.

But to speak of accounting as merely a body of technical knowledge that, when applied, is capableof producing moral directives exposes accounting to accusations of intellectual incoherence.2 Moral

directives cannot be justified solely on technical grounds, especially when the technical expertisecomprising those grounds may not exist.

The objective of this paper is to provide an exposition of the intellectual problem for accountingin its assertion that there is a normative quality to accounting procedures when explicit justifications

are only on technical grounds. A learned discipline like accounting should be concerned with thecoherence of its public discourse. As a group granted licenses by the states, accountants should

think more seriously than they do now about what are their obligations to those who grant thatlicense. Accounting is an institution that, by its own description, is part of a moral order and, as

such, to have moral standing it must be capable of providing good reasons for why allpersonsshould accept being subjected to accounting directives. Considerations of how those good reasons

might be determined will unavoidably require considerations of justice and injustice.The remainder of this paper is divided into four sections. The first section contains a brief

review of the ascendance of the information metaphor in accounting and a discussion of how thismetaphor can be shown to serve as a gloss of the inherently moral substance of accounting.

Accounting procedures are explicitly regarded by the profession as moral directives or norms andare not merely techniques for revealing economic facts, as the information perspective alone would

imply. The second section of the paper develops the argument that since accounting is part of a

1 The terms ethics and morals will be used to signify the same thing since these terms are not used for distinctly differentreferents in the accounting literature. Habermas (1990) does make a distinction: morals pertain to right action, i.e., questionsabout justified norms to regulate conflicting interests, while ethics pertain to the ends people pursue, i.e., questions pertainingto the goodness of human ends.

2 The accusation of being incoherent was recently made by the late Raymond Chambers. In an article published just prior to hisdeath he remarked, The standards authorities which over the past dozen years have emerged as rule-makers, continue topropagate the illogicalities and inconsistencies of the rules they inherited, filling vast tomes with detailed rules as if for aprofession of morons (Chambers 1999, 250).


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moral order, good reasons for accounting practice are those consistent with a process of decidingmoral norms. This section is followed by two examples selected as illustrative of the importance of

understanding accounting as a moral, rather than merely a technical, practice. The final section isa brief conclusion.

THE NATURE OF ACCOUNTING RULESBeaver (1989) provides an account of the transition (characterized as a revolution) from a

stewardship perspective on financial reporting to an informational one. This transition, which sig-

naled a different way of talking about accounting, began during the 1960s, corresponding to theperiod when academic accounting, like the other business disciplines, proclaimed its autonomy

from accounting practice (Whitley 1986).3 Though accounting has always been about informa-tionsince it provides a structured account of what people have donethe revolution Beaver

speaks of is in understanding information to be input into rational economic decision-making mod-els. The decision maker is an idealized economic actor whose purposes and prerogatives are

those provided exclusively by positive economic science. This new informational perspective hasshifted the preoccupations of accountants to concerns with the putative objectives and behaviors of

users who, in the explicit discussions on user perspectives, are confined to investors.4 This transi-tion was accomplished in the accounting academy by the rather wholesale imposition of neo-clas-

sical economic discourses to describe accounting and its problems (Reiter 1998; Devine 1999).Over time this originally academic discourse has had a quite substantial effect on practitioner dis-

course as well (e.g., Elliott and Jacobson 1998).The new informational perspective is now certainly dominant in North America and, increas-

ingly, worldwide. For example, in a recently published theory text, Scott (1997, 4) characterized thefundamental problem of financial accounting theory as follows:

Managers interests are best served by information that is highly correlated with their effortin running the firm. But information that is relevant for investors, such as market values of

assets and liabilities, may be very volatile in its impact on reported net income. Also theextent that reliable market values are not available, value-oriented information may be

more subject to bias and manipulation than historical-cost-based information. Both of theseeffects reduce correlation with effort.

Given that there is only one bottom line, the fundamental problem of financial accounting

theory is how to reconcile these different roles for accounting information. (emphasis added)

Note that accounting is only about information (its output), not about the process by which the informa-

tion is constructed, and the world is populated by only two kinds of people: investors and managers.Everyone else is excluded. For example, one significant group excluded from consideration is the vast

majority of people who comprise the managed, i.e., those who are under the direction ofmanagement. Information systems most certainly have consequences for the managed, but those

3 The transition to an exclusively economic way of talking about accounting created a differentroot metaphorfor accounting (seeBrown 1989; Longino 1990). Root metaphors, once adopted, limit the conclusions of research and exclude from considerationother perspectives that might add insights impossible to observe through the lens of the root metaphor.

4 The term accountant will be used throughout this paper to refer to persons engaged in deploying the body of rules, regula-tions, techniques, and procedures that are the basis of the CPA, CMA, CIA, etc., examinations even though these persons mayno longer refer to themselves as accountants.


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consequences are apparently not phenomena embraced by any theory of financial accounting.Through such accounting theory, the managed are made invisible. Only consequences pertaining

to the wealth of providers of capital are of concern. No other consequences for anyone or anythingelse are seriously entertained as phenomena about which a theory of accounting should pertain.

Practice has officially embraced the informational perspective as well. The Financial Account-

ing Standards Board (FASB), in Statement of Financial Accounting Concepts (SFAC) No. 1, em-phasizes information in specifying the purpose of financial reporting:

The role of financial reporting in the economy is to provide information that is useful in

making business and economic decisions, not to determine what those decisions shouldbe. (FASB 1978, 15) (emphasis added)

The role of financial reporting requires it to provide evenhanded, neutral, or unbiased

information.(FASB 1978, 15) (emphasis added)

Financial reporting should provide information to help present and potential investors and

creditors and other users in assessing the amounts, timing, and uncertainty of prospectivecash receipts from dividends or interest and the proceeds from the sale, redemption, ormaturity of securities or loans. (FASB 1978, 17) (emphasis added)

In SFAC No. 2, the FASB notes that accounting information is the product of accounting meth-

ods, i.e., To maximize the usefulness of accounting information, subject to considerations of thecost of providing it, entails choices between alternative accounting methods (FASB 1980, 2). When

choosing methods, certain qualities are a set of criteria for making those choices (FASB 1980, 3).The primary qualities of predictive value, feedback value, timeliness, verifiability, and representa-

tional faithfulness all suggest that accounting methods are analogous to instruments for scientificmeasurements. Their neutrality presumably contributes to producing, to the best of technological

limits, some kind ofnaturalmeasurements that are factual and, thus, useful for making ones wayin a natural economic world.

Accounting rules and procedures, seen from the information perspective are mainly instruc-tions for performing measurements to reveal only selected economic facts. These facts are infor-

mation, which is important for assessing outcomes so that certain economic objectives of certainpersons can be accomplished. Accountants seem to believe that such economic facts are acces-

sible and, further, that they possess the expertise to access them. Ijiri (1975, 29) contends thataccounting measurement...is the central function of accounting systems. Devine (1985) charac-

terized accounting as A System of Measurement Rules and the income theorists (e.g., Sterling1970; Chambers 1974; Edwards and Bell 1961) viewed accounting as a process of measurement.

Even within the contemporary information perspective, which jettisons the notion of any kind of

privileged measurer, accountants are still privileged since their methods are viewed as producingsomething that conveys better or worse understandings of the conditions of selected economicstates (Watts and Zimmerman 1986).

However, the information perspective provides a gloss on the aspect of accounting methodsimportant for the ethics and practice of accounting. Early in the transition to an exclusively informa-

tion perspective, Ijiri (1975, 31) intimated at this gloss:

Though the fundamental principles of accounting have not changed, we are now interpret-


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ing(emphasis in original) the same principles from a more user-oriented viewpoint. Thus,what has changed is our interpretation of accounting methods and not the fundamental

substance of accounting.

Ijiri (1975, 31) notes that the fundamental substance of accounting is accountability, i.e., We may,

therefore, say that accountability is what distinguishes accounting from other information systems

in an organization or in a society.5 Thus, accountings substance is fundamentally ethical.The transition of accounting discourse from a language of accountability to one of economic

information has led to accounting being understood primarily as a technical means of rational

administration for all organizations. With the creation of GASB, this includes public as well asprivate ones. Further, it seems that most academics and practitioners regard the technical charac-

terization of contemporary accounting as either a good thing or at least a historical necessity.However, an exclusively technical understanding of accounting masks the inherently ethical nature

of accounting practice that is explicit in accountability. Accountability always permits making explicitwho is accountable to whom and for what. Those held accountable may always challenge the claim

that they are accountable and demand good reasons be provided. People may also challenge for

what each other will be held accountable. But how does one challenge information? Shifting therationale of accounting from that of accountability to that of an information technology is a shift inthe burden of proof from the accountor to the accountee. It is also a shifting of the nature of proof

from claims that normally may be asserted by a free citizen by challenges to the technical compe-tence of those who exclusively define what their technical competence is. A strictly technicist view

can inhibit accounting scholars and immunize practitioners from ever having to contemplate theends being served by their technology. This is particularly problematic for accountants because, as

will be discussed later, the real technical competence of accountants is very suspect. In the ex-treme, according to Adams and Balfour (1998, p. xx):

the culture of technical rationality also has introduced a new and frightening form of evil

that we call administrative evil(emphasis in original). What is different about administra-tive evil...is that its appearance is masked(emphasis in original).

Further:

Even worse, under conditions of what we call moral inversion (emphasis in original), inwhich something evil has been redefined convincingly as good, ordinary people can all

too easily engage in acts of administrative evil while believing that what they are doing isonly correct but, in fact, good.

Exclusive use of a discourse of information, though it may subsume and consequently suppressthe ethical nature of accounting, cannot make accounting a purely neutral technology immune from

the dangers of moral inversion.Accountings ethical pretensions are everywhere evident. They are rather vividly illustrated by

5 Indeed, it is obvious, for example, that the managed are integral to the accounting measurement process; they are the oneswho are accountable and, thus, they are part of the measurement technology itself. The managed are required by the account-ing measurement system to comport themselves in particular ways in order that certain outcomes and the measurements ofthose outcomes are produced simultaneously. Analogously, accounting is not like a thermometer, which is simply a measure-ment device to register temperature; accounting is more like a thermostat, albeit not a completely effective one, which mea-sures temperature and simultaneously controls the behavior of the heat source to insure that a certain measurement will occur.


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the residue of older habits of speech that remain in the conventional discussions of accountingethics that have reemerged since the AAA ethics project was initiated (Beaver 1988).6 The ac-

counting approach to ethics research and instruction spawned by this initiative has focused exclu-sively on the decision processes of individuals. Cases for research purposes and for instructional

purposes are virtually all constructed as ethical dilemmas in which individuals are placed by cir-

cumstances that are apparently beyond ethical analyses and collective action. The methodology ofethics is one of individual decision making (May 1987; Langenderfer and Rockness 1989). Thisframing of the ethical problem is consistent with the individualism presumed in the economic deci-

sion-making perspective of the information characterization of accounting. Adams and Balfour (1998,169) note the same is the case with administrative ethics in general:

Why is the individual conscience primarily responsible for ethical behavior, when it ispolitical and managerial authority that are responsible for public policy and organizations?

The answer is that operationally (theory in use), the central value is the primacy of legiti-mated authority. This is buttressed by the focus on the utility-maximizing individual as the

locus of ethical decision making. In short, the ethical problem is construed as one of

individual conformance to legitimate authority as a function of self-interest.Accounting ethical dilemmas are constructed mainly along this same line. What is particularly

instructive in the nature of these constructions is what they reveal about the ethical nature of ac-counting standards, rules, procedures, etc., and what, in accounting contexts, is the legitimate

authority that is taken-for-granted.For example, in one of the more widely used intermediate accounting texts (Kieso and Weygandt

1995), every chapter includes at least one ethics case as part of the end-of-chapter study materi-als.7 The texts first ethics case (Kieso and Weygandt 1995a, 32) involves the issue of early adop-

tion of a FASB standard. The controller claims that the early adoption of the standard will lead to afairer presentation of financial results, while the financial VP claims early implementation will

cause reported earnings to be lower. The VP prefers that the controller postpone implementation.One of the questions asked of students is whether the financial VP ...is acting improperly or immor-

ally (Kieso and Weygandt 1995a, 32) and the rather startling answer provided in the solutionsmanual is Yes (Kieso and Weygandt 1995b, 134). Throughout the text this method of construct-

ing ethical dilemmas for students to consider is repeated. There are two salient characteristics ofthese discursions on accounting ethics that are important to note: accounting procedures are as-

sumed to be truth-revealing, i.e., they are privileged ways of representation, and violation of anaccounting procedure is always deemed to have some ethical implication.8 These two characteristicsalso form the basis for the popular medias conclusions about management impropriety with re-

6 Today accounting discourse is comprised of language from at least two language traditionsthat of traditional practice and thatof positive economic science. The result is like mixing two vocabularies from different languages and trying to construct coher-ent sentences with the resulting lexicon.

7 The selection of this text is of no special significance. Ethics materials in other texts aimed at undergraduate accountingstudents are of the same form.

8 Of course, there is a paradox in such cases where a new standard is alleged to provide a fairer presentation. To decide thatthe standard is fairer presumes the existence of a knowledge structure that permits such judgments to be made. If the controllermade such a judgment, then it must be that he possesses such a knowledge structure and, therefore, could have known themethod advocated in the new standard was fairer prior to the new standard being issued. This paradox illustrates the fact thatstandards are negotiated, i.e., fairness comes into existence through a process of negotiation and cannot be determinedahead of time. Much of the authority of accounting standards comes not from an underlying knowledge structure (as in, e.g.,engineering), but from an accounting authority.


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spect to financial reporting. For example, major articles aboutpro forma reporting in the Wall StreetJournaland Business Week (Weil [2001] and Henry [2001a], respectively) build their narrativesaround the presumption that GAAP is a real representation and that management is guilty of badbehavior for creating their own representations of income.

This role, played by accounting procedures in ethical discourse, reveals what is obscured by

the exclusive use of an information metaphor to characterize accounting. If a person employed atechnical procedure to achieve some outcome, e.g., followed a recipe to produce a pie, and failedto conform to the procedure, e.g., used cement instead of flour, then that person might be accusedof many thingsimprudence, carelessness, impishness, eccentricity, stupiditybut not of beingunethical.Which adjective one might use to describe the person would depend simply on knowingother factual things such as the persons purposes for making the pie and the conditions underwhich it was made. But to conclude the person was unethical requires more. Some ethical proposi-tion must be introduced, e.g., because it is wrong to harm others, when baking a pie for theirconsumption it is required that this recipe be followed in order to prevent harm to them. Thus, allaccounting standards imply some presumed ethical proposition holds.

Therefore, construing accounting procedures as merely operations for revealing economic

facts cannot alone account for the role they play in ethics discourse as a principal basis for attribut-ing immorality. The discursive practice of describing accounting ethically and also merely as atechnology is, as Chambers (1999) alleged, incoherent speech. As the speech habits of accountingethics discursions reveal, accounting rules, standards, and procedures are considered not merelya collection of instructions for revealing economic facts, they are also regarded as moral directives .

The status of accounting directives as moral ones, which virtually everyone in modern societ-ies is expected to obey, directly or indirectly, makes accounting part of some moral order. As, ineffect, an instrument of governance, it would seem that for accounting to have moral (and intellec-tual) standing it must somehow take seriously the question of what good reasons can be given foranyone to obey.9 These reasons cannot be simply technical, but must necessarily involve issues of

justice. The next section of this paper is aimed at describing what the characteristics of these

reasons might be through the application of modern moral theory.

ACCOUNTING IN A MORAL ORDERThe preceding discussion of the ethical nature of accounting discourse led to the conclusion

that accounting standards, rules, and procedures are regarded by accountants as not simply tech-nical procedures for revealing economic facts, but moral directives, i.e., prescriptions commandingpeople to behave in certain ways. The philosopher Baier (1995, 293) notes that the directive use ofany expression has three features:

(1) the expression must represent or depict a possible action by an agent somehow identified;(2) the point of offering this action representation or depiction is not, like that of a descriptive,

to enable the addressee or anyone else to have a correct representation of some aspect ofthe world, but is, rather, to spell out for him what behavior on his part would constitutecompliance with (emphasis in original) the directive, namely, his performing the action rep-resented in the remark; and

(3) understanding that a sentence is or is intended to be used as a directive is to understandthat the excellence peculiar to this use lies, not in the accordance between the way the

9 By good reasons we mean ethically defensible ones. As Williams (1987) argued accounting is based on ethical premises thataccountants prefer remain tacit. Accountings reasons, thus, cannot be purely instrumental since accounting technology restson a foundation of more-or-less defensible ethical premises.


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world is and how the sentence represents it as being, hence not its having been compliedwith by its subject...but rather in what makes it desirable for its principle (the issuer of

the directive) to have issued it, and for its subjects (those to whom it applies) to befollowing it.10

Certainly, by this definition, a FASB standard is a directive expression. A good deal of the language

of accounting is directive. Accounting practitioners, thus, act to embody and express, legitimatelyor not, at least some part of societys moral code.11

Directive statements, however, are always suspicious.12 When made by a social institution

such as accounting, they comprise part of the more or less coercive pressure exerted on us bysocial institutions (Baier 1995, 156), which acts to restrict, to various degrees, everyones choices.

Reiman (1990, 14) states the problem of moral directives succinctly and forcefully:

Every moral assertion is potentially an alteration of the relative power of individuals to

execute their judgments, an attempt at governing ones fellows. A true morality spells outthe conditions under which human beings may rightly govern other human beings.

Underlying every moral assertion is a political one and the suspicion attaches to any moral asser-tion that it is really an attempt at subjugation (Reiman 1990, 8). Indeed, accounting standards andprocedures are in the nature of sociopolitical norms. Thus, a most crucial issue is how moral au-

thority is justified, i.e., what is the nature of reasons for complying.A starting proposition is that humans are capable of reason (they are decision makers) and

that they have interests, both self and collective. Interests are not to be construed here in thenarrow economic sense, which is so prevalent in most theories that currently inform accounting

academics and practitioners. Instead, a persons interest is involvement in a life well lived or asBaier (1996, 173) describes it:

the point of view of practical reason is not that of the agents own greatest good or best

interest or maximization of revealed preference-satisfaction, but what I have called hisown point of view, that is, that of his own sound conception of a good life for himself.(emphasis added)

Life is lived in the first person by everyone; this is the essence of human subjectivity, and this

10 Much of the moral force of accounting expressions comes from their alleged ability to be truth-revealing (representationallyfaithful) if complied with. Noncompliance then implies an inclination toward deceit. Whether accounting technology actuallyexists that is demonstrably capable at revealing certain truths and thus deserving of obedience is doubtful and will be dis-cussed in a subsequent part of the paper.

11 Some might construe feature (2) of the directive statements to mean accounting is not moral discourse since accounting isnothing but descriptive. This construal would be incorrect. To use an information analogy, the National Weather Service pro-

vides information about all types of weather conditions. During 1999, three hurricanes came ashore in North Carolina. Continu-ous information was addressed to the people living in the state describing the hurricanes: location, speed, size, sustainedwinds, direction, etc. None of the statements describing the storms contained an expectation about how each citizen of NorthCarolina should behave; the system for gathering weather data is a pure information system in that the system does not shapethe behavior of storms; its output consists entirely of descriptive statements. Obviously accounting systems are not pureinformation systems. Accounting systems are purposely constructed to affect the behavior of the phenomena about which theyprovide information. The whole purpose of an auditis to determine whether or not someone has compliedwith accountingstandards, etc. Hurricanes will do what they will; the managed cannot.

12 Cognitive statements are suspicious, too. The ascendance of science derives from its apparent success at providing justifica-tion for accepting its statements about the state of the natural world. Accountings applications of scientific method have beenmuch less successful.


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universality, according to Reiman (1990, 49), leads to a natural equality among persons, i.e.:

Because subjectivity is a universal trait, we reach here the natural equality of human

beings. All human beings are equal in living their lives as their one and only chance ineternity to live the life they want to live.All human beings are equal in being persons.

This equality is a natural fact about human beings.

Since each persons life is the living of it, each person is his or her own sovereign and ones ownjudgment about how to act is the highest authority for oneself (Reiman 1990, 43). Thus, according

to Reiman, in this natural state of personal sovereignty, moral directives aimed at persons aresuspect as attempts at subjugation; moral authority is doubted.13

Personal sovereignty directs practical reason toward choosing actions that contribute to eachpersons living his or her life well. My reasons for doing a certain thing justify my doing it, but were

I to direct you to do something, my reasons would not necessarily be persuasive. Such self-referen-tial reasoning is the essence of economic models of rational decision making and is the type of

activity that accounting now claims it serves. My reasons for doing what I do are what Baier (1995,129) characterize as self-anchored practical reasons, which are self-centered in four ways:

(1) their ground is some agent-favoring property of the action for which they are reasons;(2) they are independent of other peoples actions;

(3) they are independent of others following the same reasons in the same circumstances; and,(4) the motivating force of the constituent of such reasons normally is not and should not be

reinforced by certain sorts of social sanctions.

Perhaps by some radical libertarian accounts, self-anchored reasons are the only reasons for

reasonable behavior, in which case any moral directive authored by another would be subjugat-ing; the very existence of ethicality would be problematic. In addition, were self-anchored reasons

alone always compelling, accounting would likely not exist.14

If self-anchored reasons are not always alone sufficient, then what makes that the case?

15

What limits self-interested reasoning, if anything? Reimans (1990, 113) answer is the fact of otherpersons, i.e., humans are social animals:

I contend that this fact makes reason take the distinctive shape of morality, and that rea-son necessarily and naturally accepts this charge. By necessarily(emphasis in original) I

mean both that morality is necessarily imposed on reason by the fact of other peoplesexistence and that it is an inner necessity of reason that it respond to this fact by taking the

shape of morality. The shape into which reason is brought by the fact of other personsis called respect, and I maintain that respect is a cognitive attitude required by reason in

a world in which some of the objects are human subjects.

13 Normative nihilism holds that allmoral directives are merely attempts at subjugation and, contrary to what people may believe,nothing is right or wrong for any reason (see, Nietzsche 1886). It is beyond the scope of this paper to engage in disputationsover this doctrine. Suffice it to say, it is not one I hold.

14A dominant root metaphor for contemporary accounting is that provided by principal/agent theory, which speaks not of mea-surement hazard or ignorance hazard, but moral hazard. The theory is predicated on the assumption that self-anchored rea-sons are not enough.

15 This is the question of why be moral? What moral directives are not subjugating, i.e., which are binding because they aresupported by reasons that override self-anchored ones?


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The reason respect is a cognitive attitude stems from the realities of social life. To performeven the simplest tasks of everyday life, e.g., walking on a sidewalk, getting on a train, paying for a

newspaper, would be inconceivable if we did not naturally and unthinkingly view our world from thestandpoint of the others in it (Reiman 1990, 116). Only by such identification are we able to

acquire the necessary knowledge to make our way in a world that consists in a plurality of persons

(Reiman 1990, 115). Identification limits the authority of each persons ends in light of the existenceof those of other persons and to respect being a moral imperative.16,17

Societies, more or less, limit the ways by which persons may pursue their chosen ends. Sanc-

tions, up to and including deprivation of life, are imposed on persons who behave in certain ways,who disobey certain moral directives: stop for stopped school buses; do not pass on a yellow line;

do not lie under oath; do not rob banks. Accounting is constituted of such behavior limiting direc-tives.18 Indeed, Reiman (1990, 213) equates the structure of every society with the existence of

such behavior-limiting directives:

I contend that a social structure is a pattern of behavior by means of which all or virtually

all the members of a society effectively force their fellows to limit their actions to a range of

acceptable alternatives.A social structure, viewed as a system of moral directives, is suspect of being subjugating. The

reality of being in a plurality of people and the imperative of respect counsels most people toaccept societal restraints because they are dependent on each other for living their lives well. Baier

(1995, 189) characterizes these constraints as guidelines. He claims that:

Since...these guidelines are developed, promulgated, and sanctioned by a society, we

can think of the reasons based on them as society-anchored.

Society-anchored reasons are practical reasons that, independent of the sanctions upon whichthey rest, are capable of overriding self-anchored reasons.

The difficulty with Baiers notion of society-anchored reasons lies in their utopian character.Baier (1995, 191) describes the conditions in which society-anchored reasons would defeat self-

anchored ones:

It would seem, therefore, that the best self-anchored reason anyone (emphasis in origi-

nal) can in reason demand (emphasis in original) for wanting the social requirementsgenerally regarded as paramount reasons (that is, the best self-anchored reason every-

one [emphasis in original] can have [emphasis in original])is that the social order be notsimply for the good of everyone (almost any social order might achieve that) but for the

good ofeveryone alike (emphasis in original)that, in other words, it be equitable (em-phasis in original).

16 This is consistent with the Kantian proposition of the equal worth of all rational beings, i.e., that humans are ends in themselvesand are never to be regarded solely as means (Kant 1969; see also Wood 1999, particularly pages 132155). Reiman (1990,125) defines evil in such Kantian terms: Evil is a kind of blindness to the reality of other persons, a deafness to their pleas,implicit or expressed. This is why we often think of evil people as treating others as things. Accounting is particularly vulnerableto being regarded as merely a necessary evil because, e.g., the managed, rather than remaining persons, are translated intoa bad thinglabor cost.

17 Habermas (1990) discourse ethics (to be discussed later) is predicated on equal respect among persons, which Habermasargues is inherent in the very structure of argumentation.

18 Though it may be stretching a point, accounting in its entirety may be a set of moral guidelines designed to ensure thateveryone behaves prudently.


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Further:

Everyone who is to have adequate reason to regard these social rules as society-based

reasons must have adequate self-anchored reasons to want these rules recognized asparamount over self-anchored ones with which they conflict. But no one has reason to

accept any such reason as adequate unless it is as good as anyone can have without

thereby making someone elses reason less good than his.

The idea of this condition would seem to be captured in the familiar generally accepted

accountants use to rationalize the standards, rules, and procedures with which society is expectedto comply, but as stated it is simply fantastic when viewed from the context of practical ethics. Such

an idealization as society-anchored reasons is not particularly instructive for considerations aboutthe status of accounting directives as valid moral norms. Of particular use here may be Habermas

(1990) theory of discourse ethics since it elaborates the process by which valid moral norms areestablished and thus can serve as a standard by which to test the legitimacy of norms, accounting

as well as others.19

Habermas Discourse Ethics

I intend here to provide but a cryptic rendering of Habermas (1990) theory of discourse ethics

to illustrate what one is intellectually obligated to consider when contending that accounting stan-dards, procedures, etc., are moral norms. According to Habermas (1990), what gives a norm moral

authority is its claim to general validity. Baiers (1995) society-anchored reasons have this charac-teristic of general validity, i.e., they are publicly defendable, or universal. Habermas (1990, 65)

states this universalization principle as follows:

All(emphasis in original) affected can accept the consequences and the side effects itsgeneral(emphasis in original) observance can be anticipated to have for the satisfaction

ofeveryones (emphasis in original) interests (and these consequences are preferred tothose of known alternative possibilities for regulation).

Habermas (1990, 86) justifies this principle of universalization by demonstrating that this prin-ciple acts as a rule of argumentation and that it is implied by the presupposition of argumentation

in general (1990, p. 86). That is:

Every person who accepts the universal and necessary communication presuppositionsof argumentative speech and who knows what it means to justify a norm of action implic-

itly presupposes as valid the principle of universalization, whether in the form I gave itabove or in an equivalent form. (Habermas 1990, 86)

Some of these presuppositions are enumerated in Exhibit 1.

19 Though not a contract theory, Habermas (1990) theory is, like Rawls (1973) and other contract theories, within a Kantiantradition. This puts it in the universalistic tradition of ethics construed as justice. This is itself problematic and subject toconsiderable criticism from those who subscribe to a communitarian tradition (e.g., MacIntyre 1984) or from those who advo-cate an ethics of care (e.g., Gilligan 1982). It is beyond the scope of this paper to consider all of these debates (see Rasmussen[1990] for a collection of essays devoted to this debate). Justice may be taken always as a minimal condition. Following Smith(1976, 86): Society may subsist, though not in the most comfortable state, without beneficence; but the prevalence of injusticemust utterly destroy it.


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The validity of moral norms (the anchoring of reasons in society) is thus established inter-subjectively by persons reaching consensus on those norms through the process of argumentative

speech. Moral norms are not established intra-subjectively via a monologue behind a veil of igno-rance a la Rawls (1973), but by discourse involving everyone with an interest in the norm. This

leads to the principle of discourse ethics (Habermas 1990, 66):

Only those norms can claim to be valid that meet (or could meet) with the approval of all

affected in their capacity as participants in a practical discourse (emphasis in original).20

It is easy to point out the practical impossibility of conducting an argument where all affectedpresent their cases. Rehg (1994) discusses this problem by attempting to situate discourse ethics

within political and legal procedures. In democratic societies argumentative procedures have beeninstitutionalized primarily via voting procedures, rules of court, etc. What is required ultimately is

trust in decision-making procedures and systems (Rehg 1994, 238) and in the ability of those who

EXHIBIT 1

Presuppositions of Argumentation

Adapted from Habermas (1990, 8789)

1. Legal/Semantic Level

1.1 No speaker may contradict himself

1.2 Every speaker who applies predicate F to object A must be prepared to apply F to all other objects

resembling A in all relevant respects.

1.3 Different speakers may not use the same expression with different meanings

2. Rules for Regulating Themes for Discussion

2.1 Every speaker may assert only what he really believes

2.2 A person who disputes a proposition or norm not under discussion must provide a reason for

wanting to do so

3. Rules for Establishing the Force of the Better Argument3.1 Every subject with the competence to speak and act is allowed to take part in the discourse

3.2 a. Everyone is allowed to question any assertion whatever

b. Everyone is allowed to introduce any assertion whatever into the discourse

c. Everyone is allowed to express his attitudes, desires, and needs

3.3 No speaker may be prevented, by internal or external coercion, from exercising his rights as laid

down in (3.1) and (3.2)

20 Cohen (1991, 91) provides the following implication of discourse ethics:Discourse ethics implies that the justice of justice, that the obligatory normative force of law, derives from democraticwill formation and the articulation of a general interest in the norm. From the point of view of morality, a law imposed,e.g., by an enlighteneddespot, might well be moral, and it might even articulate a general interest (the common good);yet even so, it would not be just. For even if it happened by chance that what the enlightened despot decided is thecommon interest were to coincide with what the community would have agreed upon, given the chance, justice wouldstill be violated because it requires that those potentially affected by a norm determine it for themselves, in a processof collective will formation. (emphasis in original)


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represent to consider thoughtfully a variety of viewpoints (Rehg 1994, 237). To take a prominentexample from accounting, consider how short of this type of process is the FASBs due process

procedure.The FASB due-process procedure is described as an open decision-making process whose

evenhandedness the FASB asserts is essential (FASB 2001c, 1). But the structure of this process

is not particularly conducive for trusting that a thoughtful consideration of a genuine variety of view-points will result. In the FASBs mission statement there is no acknowledgement that the nature ofwhat the FASB does is to issue moral directives, i.e.:

The mission of the Financial Accounting Standards Board is to establish and improvestandards of financial accounting and Reporting for the guidance and education of the

public, including issuers, auditors, and users of financial information.

Accounting standards are essential to the efficient functioning of the economy becausedecisions about the allocation of resources rely heavily on credible, concise, and under-

standable financial information. (FASB 2001a, 1).21

The FASB mission is driven by the familiar information metaphor, i.e., the FASB is to devise thebest recipes for revealing economic facts.

Further, when the Board discusses the most rigorous due-process procedure that applies tomajor projects it refers to those projects as being on its technicalagenda (FASB 2001c, 1) (em-

phasis added). Standards are clearly not viewed as moral directives, but as solutions derived by anapplication of some knowledge system believed to be a technology.

The Board itself is aprivate organization whose members (as well as those of the GovernmentAccounting Standards Board) are selected by anotherprivate, nonprofit organization, the Financial

Accounting Foundation. The Financial Accounting Foundation finances its activities, including theFASB, from contributions, half of which are from the accounting profession, and the other half from

industry and the financial community (FASB 2001b, 1). The majority of the Board of Trustees of theFoundation is selected not by a body representative of the public, but by eight special interest

groups or trade associations.The Boards agenda is influenced by the Financial Accounting Standards Advisory Council,

also selected by the Foundation, which currently has more than 30 members who are broadlyrepresentative of preparers, auditors, and users of financial information (FASB 2001b, 2), i.e., the

same constituencies that fund the FASB. The current chair of the Council is the CFO of Interna-tional Paper Company. When an issue makes it to the Boards agenda:

the Board appoints an advisory task force of outside experts, studies existing literature onthe subject and conducts or commissions such additional research as may be necessary,

publishes a discussion document setting forth the issues and possible solutions as thebasis for public comment, conducts a public hearing, and gives broad distribution to an

Exposure Draft of the proposed Statement for public comment. (FASB 2001c, 1)

21 We do not really know if standards are essential to the efficient functioning of the economy because the introduction ofstandards changes the nature of the economy and, thus, the notion of what it means practically speaking for that new economyto function efficiently. Andrew Abbott, speaking about the reparametizat ion of moral systems notes the following incongruity:

Just so we see it on the right in the use of the phrase free market to describe the most elaborately constructed andregulated social structure in the history of humankind. (Abbott 2001, 217)

Standards arent about the economy; they are an integral part of what that economy is.


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Public hearings are held and oral and written comments are considered. Based on all the informationthat is assembled, the Board prepares an Exposure Draft of a proposed standard and further written

and oral comments are received. When the Board is satisfied that all reasonable alternatives havebeen considered, a vote is taken on the final Statement (FASB 2001c, 3). But who decides what is

reasonable? The members of the Board determine what is reasonable and they are residents of a

closed, technicist discursive community. What the FASB due-process procedure represents is not aprocess designed to consider thoughtfully a variety of viewpoints (Rehg 1994, 237), but rather anexample of a widespread problem in modern societies, which Brown (1987, 169) describes as follows:

With the increased specialization of modern society and knowledge, the actions of privatecitizens are increasingly cut off from the public realm, which is more and more dominated

by technicist discourse. By contrast, narrative public discourse is radically democraticbecause it is available to every socialized member of the community. But when mastery of

the language of specialists becomes the admission ticket to participate in public debate,moral argument gets submerged under ideological discourse concerning expertise, tech-

nical discourse concerning facts, and bureaucratic discourse concerning feasibility. All

such discourses denude public life of ethical consideration, turning moral-political con-cerns into policy issues to be considered only by experts.

Imposing a particular morality on the public under the guise of technical reasoning raises seriousquestions about the legitimacy of those who would presume to do so.

Processes, both deliberative and research, where considerations concerning the validity of account-ing rules as moral norms would seem to be in order if accountants are to think rigorously about accounting

as a practice. The following section explores through examples the relevance of such considerations.

The Morality of Accounting: From Bookkeeping to Management Technology?

Accounting, by its nature, is particularly vulnerable to suspicions of being subjugating. As Baier(1995, 323) observes about on aspect of accountability:

Becoming accountable to someone is a little like being bound over or out on parole, closeto converting the burden of proof from that of guilt to that of innocence, and shifting it from

the accuser to the accused.

A good deal of the implicit moral force behind the particular kind of accountability that is repre-sented by the moral directives that comprise accounting is the right of property. Contemporaryfinancial reporting is largely erected on the sanctity of property. Though lip service is paid to others,users are mainly understood to be property owners whose property is to be protected; the moraldirectives of accounting are largely about the appropriate use of property. Thus, accounting playsan instrumental role in the system of exclusive property and, since that system is a system offorced labor (Reiman 1990, 237), and thus coercive, accounting is implicated in the justness orunjustness of that property system.22

22 The morality of exclusive property systems is grounded in Lockean arguments of just use and entitlement, but the Lockean provisomakes a strict libertarian position untenable in the modern era when there is enough and as good left in common for others (Locke1952, section 27) no longer holds. Williams (1987) discusses these implicit value judgments that lie at the heart of accountingsinformational perspective. Reiman (1990, 237) states the test of the justness of any property system in terms of good reasons:

Too limited rights of ownership may subjugate owners, but too extensive rights may subjugate nonowners. Accord-ingly, a property system must prove its justice by proving that it is a system that it would be reasonable for everyoneto agree to whether or not she owned property.


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Accountings role has changed and expanded quite significantly, particularly in the modern era.What Pacioli penned was a treatise on bookkeeping, i.e., I have compiled it for this purpose only, i.e.,

that they (the subjects) may whenever necessary find in it everything with regard to accounts and theirkeeping (see Geijsbeek 1974, 33). Bookkeeping is a guide to prudence for the individual merchant.

The metaphor of bookkeeping has crept through the centuries and by today has come to encompass

the knowing of every aspect of organizational life, the characteristics of which affect literally everyonein modern societies. As bookkeeping technology has been transformed into economic measure-ment by the infusion of decision science and economic theory, accounting has taken on the charac-

ter of a master metaphor in its own rightthat of a metaphor for effective management.23 However,unlike the merchant of Paciolis time, management entertains consequences for others on a scale

unimaginable by the early designers of double-entry accounting (see, e.g., Wolfe 1989). The logic ofbookkeeping has been extended into a comprehensive technology of control whereby primarily the

interests of property are translated into outcome measures imposed on persons who are monitoredto insure compliance. Reports on this compliance are the substance of accounting information. In a

sense, bookkeeping works because it is an arithmetic technique internally so designed, but it doesnot necessarily work as a system of moral directives disguised as merely an information technology.

Two examples follow, which illustrate why accounting needs to include in its intellectual agenda con-cern about the characteristics of ethical justifications.

The Iron Law of Accountability

Recently, in my local paper, a story headlined County worker accused of theft reported theembezzlement of $4,215 by an employee of the City County Bureau of Identification; according to

officials this will lead to stricter guidelines for Wake employees who handle the countys money(Nelson 1999). The Wall Street Journalran a front page article titled Insurers Make Life for Their

Lawyers Tougher with Audits; remarked one lawyer: These auditing companies come in with a

stereotypeall lawyers cheat (Geyelin 1999). The U.S. professorate, in many states, is now in theearly stages of implementing legislatively mandated post-tenure reviews. Tenured professors mustnow periodically produce a portfolio crammed with prescribed measures of their performance, which

are periodically reviewed (frequently by other tenured professors) to determine whether remedialaction is necessary.

These three anecdotes are illustrative of what I have labeled the iron law of accountability,i.e., the imposition of even more accounting technology as the response to the failure of accountingtechnology. In each instance, accounting technology or even more accounting technology is thesolution to problems with the managed: theft, avarice, and sloth. But this type of solution is alwaystoo much solution. Only one county worker stole, not every lawyer gouges, and not every tenuredprofessor is a slothful wastrel. Yet accounting, as a moral system presumes everyone is the worst

possible case; to be effective as an information technology it must be so. Accounting technologyis not explicitly construed as a solution to an exclusively moral problem, but as a technology thatproduces reliable information. Because all persons in any organization are the source of thatinformation, every county employee is subject to the same stricter guidelines. Likewise, every attor-ney must now provide detailed documentation, and every professor has time taken away fromteaching and research in order to produce the information useful for managing the academy.Every county worker, lawyer, and professor is transformed into a suspect, whose moral self is

23 Note that the Big 5 accounting firms are no longer accounting firms, but management consulting firms.


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devalued.24 As a technology, accounting appears excessively self-righteous and disrespectful. Thereal danger is that accounting solutions to immorality dont work very well. The next county worker

to embezzle (and one inevitably will) will prompt even stricter guidelines that, in turn, also will notwork, which in turn, etc.25

This raises the question of what is the limit to which accounting directives may extend before

they are rightly regarded as invalid? Are technical reasons alone sufficient to justify the growingscope of application of those directives? We dont know because accounting researchers havepaid woefully little attention to the ethicality of accounting itself. Do accounting systems devalue or

even destroy trust? What is the full cost of accounting when cost is understood to include socialand psychological externalities produced by accounting systems? Who bears the cost and who

receives the benefit? Is the cost of increasing trust in organizations the loss of trust within them? Bydevaluing honesty, do accounting systems encourage dishonesty? How much accounting is too

much from an ethical point of view? Is the process of promulgating accounting rules one thatreduces the suspicion of subjugation? The work that has been done thus far on individual ethicality

has been valuable work, but for the ethics research agenda to be complete it would seem thatinstitution level issues are of equal importance.

The Case of SFAS No. 106

In another widely used intermediate accounting text, the end-of-chapter material for Chapter 1contains the following case:

FASB Statement No. 106 requires companies to recognize a liability for their obligation to

pay for retirees health care. Prior to this rule, most companies recognized no liability fortheir health care promises to employees, although an economic liability certainly existed.

Many companies used the adoption of the FASB rule as an excuse to cut retiree healthbenefits, claiming that the FASB has suddenly created this liability. Thus, it seems that

FASB Statement No. 106 had an economic impact on retirees. Recognizing that account-ing rules can have economic consequences, sometimes unintended and undesirable,

should the impact on society be an important consideration for the FASB in setting ac-counting standards? (Skousen et. al. 1998, 35)

A version of this same scenario appeared in the Kieso and Weygandt (1995a) text from which theethics case used as an illustration earlier in this paper was taken. In this scenario, a CEO is con-

templating eliminating medical and dental coverage for current and future retirees. One of thequestions asked of students is: In your opinion, how did FASBs Statement No. 106 influence the

commitment of many organizations to its employees (Kieso and Weygandt 1995a, 1119).What is revealing about the treatment of SFAS No. 106 by the authors of these textbooks is the

acknowledgement that the issue with SFAS No. 106 is its legitimacy. The cases are explicitquestionings of the moral authority underlying an accounting rule. Both sets of authors have suspi-cions of subjugation and are asking accounting students to think aboutrather than ofthe sanctity of24Accounting creates a moral paradox. If all are deemed suspect, then the value ofa moral person is demeaned. Possession of

morality by any person is irrelevant to how that person is treated by accountingmoral persons are not valued. Since in theview of accounting only persons are the repositories of morality, if moral persons are not valued, then morality is not valued.Accounting is a moral system that does not value morality.

25 Powers (1997, 142) observations about auditing suggest why this might be the case: audit has put itself beyond empiricalknowledge about its own effects in favor of a constant programmatic affirmation of its potential.


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accounting directives. SFAS No. 106 is particularly egregious because it epitomizes the interces-sion into agreements between corporations (which are legally separate from their owners) and their

employees to alter the terms of these agreements to the potential detriment of employees and thebenefit of users. It may have acted to encourage the breaking of promises.

SFAS No. 106 is a vivid example of what Amsterdam and Bruner (2000, 49) have argued are

the hazards of categorization in argumentation:Once we put a creature, thing, or situation in a category, we will attribute to it the featuresof that category and fail to see the features of it that dont fit. We will miss the opportunities

that might have existed in all the alternative categories we did not use.

The FASB justified the accrual of post-retirement health benefits by an appeal to similarity(Amsterdam and Bruner 2000, 49), that is, a promise is similar to a liability, therefore, a promise topay post-retirement benefits is a liability that must be accrued. But a promise is not the same thingas a liability, either semantically, connotatively, practically, or legally. Societys legal system defineswhat is a financial liability. The FASB has rather radically redefined what liability means and itsreasoning in doing so seems rooted solely in a technical discourse of its own creation. Whether the

standard is appropriate or not, the reasons for it seem hardly society-anchored ones and, thus,largely inadequate given the moral directive nature of an accounting standard.26

The FASB decision in SFAS No. 106 also vividly reveals the peril of a purely technical under-standing of accounting. Jonas and Young (1998), then employees of Arthur Andersen, illustratethis peril in their recent commentary inAccounting Horizons. In the commentary they advocate auser focus for financial reporting and use SFAS No. 106 as a good example:

No constituent loses with a user focus. Users win because a user focus will better insure thatthe information provided by business reporting is truly valuable. Companies win becauseuser-based standards produce relevant information that lowers the average cost of capitaland helps management manage their business. An example of a standard that provides

valuable information to management is FASB Statement No. 106, Employers Accountingfor Postretirement (sic) Benefits Other Than Pensions. By quantifying the cost of promisesto provide post-retirement benefits (OPEB) to employees, Statement No. 106 allows man-agers to recognize the true costof these promises. In turn, managers can search for meansof controlling OPEB costs by implementing employee cost sharing programs and managedcare alternatives. The result is that managers better understand, and can thus better man-age, total employee costs. (Jonas and Young 1998, 155) (emphasis added)

According to the textbook authors, some constituents did lose outthe people to whom the prom-ises were made, i.e., the managed. Incredibly, we are to believe that before SFAS No. 106, manag-

ers were oblivious to the cost of these promises, but were set right when the recipe for determiningthe true cost of these promises was provided by 106.27

26Amsterdam and Bruners (2000) conclusions about Supreme Court Justice Antonin Scalias opinion in the case ofMichael H.v. Gerald D. resonate harmoniously with the FASBs reasoning in SFAS No. 106:

His entire opinion is a demonstration of the limitless license that judges acquire to reify or deify their predilections whenthey pretend to themselves or others that their job involves no interpretive work but consists simply in sorting theobjective (emphasis in original) facts of cases into the objective (emphasis in original) categories ofobjective (empha-sis in original) rules. (Amsterdam and Bruner 2000, 108)

27 Shapiro (1998, 650) makes a similar claim: To summarize, the curtailments of promises to pay postretirement benefits may bedirectly attributed to the superior information made available by SFAS No. 106. However, no way exists to know if it is superiorinformation because its confirmation depends on unpredictable future events.


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That recipe is indeed complex. Following are some of the things one must be able to do toderive a true cost:

Para. 128: For pay-related plans, assumed compensation levels shall reflect the bestestimate of the actual future compensation levels of the individual employees involved,

including future changes attributed to general price levels, productivity, seniority, promo-

tion, and other factors. All assumptions shall be consistent to the extent that each reflectsexpectations about the same future economic conditions, such as future rates of inflation.(FASB 1996, P40.124)

Para. 134: Past and current health care cost trends shall be used in developing an

employers assumed health care cost trend rates, which implicitly consider estimates ofhealth care inflation, changes in health care utilization or delivery patterns, technological

advances, and changes in the health status of plan participants. (FASB 1996, P40.135)

The technology to predict general inflation, productivity changes, health care cost inflation, healthcare technology, etc., are not well developed, to say the least. Only by chance would a calculation

based on this recipe produce a measure of the present value of the cash outlays that will actuallyoccur in the future. This seems to be a good example of what Hines (1988) explained as creating

an economic reality.The Wall Street Journal (Schultz 2000) ran a front page story about the consequences of

SFAS No. 106 under the headline Companies Transform Retiree Medical Plans Into Source ofProfits. The article documents the consequences of requiring people to do what is technically

impossible. Initial estimates were significantly in error given subsequent events and revisions inestimates (which given subsequent events will also be wildly wrong) enabled some firms (e.g.,

Sears) to turn these liabilities into profits.28 According to the Journal, the standard afforded manyfirms an opportunity to break their promises to retirees:

Whats more, many companies actually had incentives to err on the side of taking overlylarge initial charges under the new rule. One incentive was that excessively pessimistic

estimates of future health-care liability provided a rationalization for reducing retiree ben-efits. (Schultz 2000, A1).

SFAS No. 106 is an illustration of the incoherence that increasingly bedevils accounting discourse.

In the same issue of Accounting Horizons that included the Jonas and Young (1998) commentary,Smith (1998) made the following comment about the decision-usefulness of financial information:

The most important factor to consider in deciding whether financial information is deci-sion-useful is the extent to which it reliably depicts the economics of transactions. It is

understood that financial accounting is not designed to measure directly the economicvalue of a business, so the accounting and the economics will not necessarily follow each

other. (Smith 1998, 165) (emphasis added)

28 The same phenomenon has recently emerged in conjunction with pension accounting (Henry 2001b). Standards like SFAS No.106 raise some troublesome issues about the risks of actuarial error. For insurance underwriters, actuarial error is borne bythem. If actuarial calculations are in error, then the cost (or gain) from that error accrues to them. But who is exposed to the riskof such errors in the case of SFAS No. 106 measurements? Is it current or future shareholders? Is it current or future employ-ees? Fortunately (so far) for the members of the FASB, it is not they.


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The absurdity of this comment is symptomatic of the kind of reasoning that justifies rules like SFASNo. 106. Current financial accounting is not designed to measure economic value. It is comprised

mainly of directive statements, i.e., statements that inform people about what they must do. Butthese directives are increasingly justified as if they were cognitive statements enabled by an exper-

tise that simply does not exist.29 Accountants are no better equipped to forecast the economic

future than anyone else. Pretension that they can is another case of what McCloskey (1990, 3)calls economic snake oil. Potentially, SFAS No. 106 affected the lives of thousands of the man-aged. It helped to deprive them of something they had earned and the reasons offered to the

managed for accepting this state of affairs have no empirical basis; there is little prospect that thesereasons could meet the test of society-anchored reasons.30 Such standards are without coherent

justification because the nature of the reasons is not appropriate to the nature of the statement thatcomprises the standard.

CONCLUSIONAccountants regard their procedures not as simply recipes for revealing economic facts, but as

moral directives. As moral directives, accounting standards, rules, and procedures are thus sus-

pect of being attempts at subjugation. Removing that suspicion requires providing reasons that are,in general, acceptable to everyone. Accountants enjoy a special status. Accountants are granted a

license by the public, which gives them an exclusive right to profit from their activities. That wouldseem to impose some responsibility to the public that grants it. As promulgators of many of societys

moral rules, accountants should be concerned about justifying their moral authority, which cancome only from the habit of providing persuasive reasons (and doing a bit more diverse research)

as to why everyone benefits from accounting procedures.31

The current dominant discourse of accounting is one of a technical, economic expertise that is

more alleged than real. It masks the substantially ethical nature of accounting and often leads toobscuring the essentially moral nature of most accounting problems. It is a serious case of mixed

metaphors. By issuing moral directives without understanding that that is what they are producesan incoherence that is embarrassingly evident. In his last volume of essays, the eminent account-

ing scholar Carl Devine expressed his concern about the profession:

A system that neglects all values not related to scarcity is badly in need of help from both

humanists and religious leaders. The judgment that only financial equity holders can be-come acceptable host groups is monstrous. Unbridled concern with the accountants bot-

tom line is simply obscene. (Devine 1999, 42)

Understanding accounting problems as ethical ones may alleviate some of the incoherence of

29 Chambers (1999, 249) emphatically notes the absurdity of much accounting discourse, the whole of the professional dicta andof the enforceable utterances of accounting standards authorities, proceed by edicts to the effect that whatcannotbe doneshallnevertheless be done (emphasis in original).

30 McCloskey (1990, 162) puts it as follows: What we need from our experts is less pretended omniscience and more realwisdom.

31Another option is to simply acknowledge that accounting standards, etc., have no moral status but are merely regulations ofcommerce and that the output of the FASB and other accounting rule-making bodies is like that of any other regulatory body,but lacking scientific foundation.


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current accounting discourse and also encourage more imaginative and creative research in un-derstanding better the problems accounting is currently alleged to solve. Indeed, it may be the case

that the solution to many accounting problems is not to extend the scope of accounting, but to drawit back. Most professionals, e.g., physicians, are expected to know their expertise and to also know

its limits. After all, the first ethical norm of the physician is to do no harm.

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