Review of Hines (1988)

“Hines (1988) and other accounting theorists pose the foolish notion that accounting constructs reality, rather than merely report the pre-existing reality of accounting transactions. Financial accounting theory and practice aren’t socially constructed, as everything we do in accounting is derived from an undisputable, unchanging, and unbiased, scientific conceptual framework.”

There are several incorrect assumptions in the above quote. From the outside looking in, it is easy to assume that accounting is a science; that it is factual, concrete, and certain. Numbers cannot lie, right? While numbers may not necessarily be able to lie, they can certainly paint different pictures that can be perceived in different ways. Perception is powerful, and unique to each individual. Two people can experience the exact same event but perceive completely different experiences. Similarly with accounting, the way in which financial reports are presented can influence the way in which users of these reports interpret and perceive them. And because US GAAP and IFRS principles can often be vague and do not always provide clear and concise guidance, there is almost always room for interpretation or even creativity in their application. Therefore, financial accounting theory and practice are not undisputable, unchanging, or unbiased, and are very much socially constructed.

Ruth Hines discusses the power of perception in creating our reality in her journal article, “Financial Accounting: In Communicating Reality, We Construct Reality.” In the article, a sage teaches a boy about the construction of reality in the practice of accounting by philosophically relating it to biological cycles and relationships within nature. Expressed through the sage’s wisdom, Hines discusses the importance of having the full picture when forming an idea or judgment and states, “[h]aving the full picture – a true, fair view of something – depends on people deciding that they have the full picture.” (1988, p. 252). The images depicted within financial statements often highlight only those aspects that the preparer wishes to highlight, which is not always the full picture. It is at the preparer’s discretion how to interpret and apply the guidance, but it is also up to the user to decide whether they have the full picture.

Hines goes on to discuss the construction of reality through the lens of one’s unique and individual perception, suggesting that “…people only think of you as communicating reality, but in communicating reality, you construct reality.” (1988, p. 257). The boy and the sage consider this by examining how the act of realizing something makes it real. Until something is realized, it does not truly exist. Further, when something is suggested or inferred, people tend to believe it and therefore manifest it into reality. This applies not only in our everyday life experiences but also within the practice of accounting. Thus accountants, in a sense, have the ability to construct reality.

Because accounting guidance allows so much room for interpretation, it is important not to take everything at face value, to ask questions, and to consider alternative realities. Hines explains that “[b]y taking for granted, and rigorously studying, things as they are, one merely builds on lay conceptions, becoming an expert of description, and a collector of ‘facts.’ But too close attention to the ‘facts’ leaves unquestioned how the ‘facts’ arise – it leaves us bereft of deep explanation.” (1988, p. 257). As we learned from our class discussion about the definition of an asset, there can be many ways to interpret and explain the so-called “facts” presented in accounting. Moreover, our interpretations will continually evolve as people evolve, and new ways of understanding will continually surface. Perhaps then, it is the duty of the accountant to create change through their construction of reality. Hines points out that “[i]t is necessary to breach a way of seeing or worldview, in order to create a new way of seeing.” (1988, p. 258). How might the realities of accounting change if accountants used this superpower of sorts, to create positive change in the world rather than manipulation as has so often been repeated in history?

References

Hines, R. D. (1988). Financial accounting: In communicating reality, we construct reality. Accounting, Organizations and Society, 13(3), 251–261. https://doi.org/10.1016/0361-3682(88)90003-7