Why Accounting is highly subjective

Why write up is gameyly infixedMany scholars and theorists establish supported the concept of subjectiveness in news storey and have as well used this concept has an logical argument against academics that have a varied perspective to this concept who considers be to be objective. Morgan argued that accountancy/accountants ar constructors of ingenuousness, subjective (Morgan, 1988, pg. 477) and they produce and represent situations in monetary statements with more or less degree of subjectivity and one-sided counsellings. This perspective or political orientation was further supported by Ruth Hines, a source to the improvement of accounting theory, who used the whimsy of humanity construction to justify her mass. She believed that in communicating reality, we construct it (Hines, 1988, pg. 251). Hence, accounting is soci all(prenominal)y constructed, which means it is concocted by pile, individuals or societies at large. However these were opinions that posit ivists, David Solomons and Rob Bryer did not support. Bryer used Marxs theory of proletariat do to argue that objective accounting lies at the core of capitalist control of modern business enterprises (Bryer, 2006, pg. 42). In addition, Solomons had a more mathematical group view by suggesting that accountants should be akin journalists (Solomons, 1991, pg. 287). He explains that accountants should be describe the news as it happens, not build it to be the reality or full picture of an tear downt just now do we know what reality is?, how and when do we know what the real and pleasure ground view of an event is without having an historic lynchpinground?, can we rely on it?. These be views that testament excessively be explored during the course of this rating.First of all, what is accounting? The American Accounting experience defines accounting as the process of identifying, measuring and communicating economic nurture to permit in underframeed judgements and decisi ons by users of the information (Porter Norton, 2009, pg. 11). The history of modern accounting dates back to 1494, when Luca Pacioli wrote a book on double entry bookkeeping. During the old age that followed, accounting and the accounting profession lacked theoretical knowledge backing them up(Kyriacou 2010, lecture3, slide8) to subside ambiguity. and then, due to the financial scandals in the 1920s that lead to the great slump at that period, generally accepted accounting principles (Generally Accepted Accounting Principles) was formed in the in the late 1930s to control and regulate the accounting. Years afterwards GAAP was formed, SSAP2 was formed in 1971 to serve as a directional ray for accounting and the accounting profession with the combination of various concepts and conventions Going, accruals, prudence and consistency, realisation, objectivity, materiality, funds measurement, entity and duality. However after the ASB review, SSAP2 reduced them to four which for med C.A.P.G (Going, accruals, consistency and prudence). SSAP2 also established more policies on stock, depreciation, assets etc. Despite SSAP2s effort to hold back meaning to accounting traditions, accounting was still done base on the duality concept because accountants did not know why accounting was skillful the route it was. As a essence, the notion of a conceptual manikin was introduced by the FASB (Federal Accounting Standards Board), to put together various ideas that arose years after the emergence of SSAP2, to fork out accounting a better understanding. In separate words, conceptual framework is basically a big accounting encyclopaedia, where you will find rules, theories, terms and principles that have been drawn together as the years go by, to shape the accounting profession and offer some chatterk of meaning to accounting, as a whole.These Ideas include The Corporate Report 1975, unbowed and fair view, SSAP2, accounting concepts, 1991 Statements of Principle , etc. (Mathews Perera, 1996, 23-30). From history, it is evident that accounting has been shaped by different ideas, images and views over the years by countries, scholars and the society at large. Ideas such(prenominal) as the True and Fair view which is a fundamental pick in accounting and all issued accounts, the suggestion of six additional statements in the Corporate Report 1975 and also the debate between UK and USA on whether it is possible to obtain a conceptual framework, or put theories on events that has already happened hence conceptual framework, which was the suggestion from the UK by professor Macvae. However, these ideas still provide us with diverse standpoints of accounting practices as a whole. make up so, it is palpable that accounting is socially constructed and subjective just like an operative is obliged to produce a conk outial view of the reality he or she wishes to represent (Morgan, 1988, pg. 477). All these views, debates and ideologies were all c onstructed by people for people i.e. accounting bodies to accountants, hence socially constructed. For guinea pig, financial statements are constructed by a financial accountant based on his or her view of a company, to an audience that are external. However, the views of such accountant might not be the full picture of the company financial position. As a result of the un line up representation of the financial statements, the outcome becomes highly subjective and comparatively a biased observation of reality because accountants arbitrarily combine and define, and add, and compute involvements in a different way to the everyday way (Hines, 1988 pg. 254) spell positivists such has Solomons suggests that the conception of neutrality ,impartiality, should be fundamental to accounting and that accountants should be unbiased and reporting reality as they see it, it begs the question whether reality can be verified or proved? And as users, should we bet on it without astute why it is done in such way? That is the reason why unanswered questions like the above make phenomenologists like tinker disagree with the ideas of positivism approach to accounting. They believe that people i.e. accountants are not entirely independent about their opinions and how they view reality as a whole. In addition, Hines said that in communicating reality, we construct it (Hines, 1988, pg.257) and give meaning to it. Consequently, humanity to accountants or in accounting is interpreted differently to non accountants. This is like the relationship between a farmer and a yellowish. Reality to a farmer is to kill the wimp for Christmas celebration moreover for the red jungle fowl reality is growing up in the farm and laying eggs. This example thus shows that reality is interpreted in different ways unless due to the item that accountants are a group with power in the society like the farmer, their construct and make their reality legitimate which we whence have to believe a nd absorb into our own general conception, because they basically shouted the loudest. However, in my opinion, I think reality is out there but because we are limited to following the views and opinions posed in accounting, we wont be able to find reality but instead wait until something naughtiness has happened in the accounting profession just like the financial crisis and failures that took limit in big organizations like Lehman Brothers (Swedberg, 2010, 71-114), and question objectivity in accounting. This brings us back to the farmer and chicken illustration. Since the chicken is used to doing the same thing wakeup, eat, walk around, lay eggs and sleep everyday during the year, such chicken would not know what reality is because the chicken is used to the same way of living but when Christmas comes the chicken gets killed. Then, questions will be asked whether the way the chicken has been living since the beginning of the year is reality or being killed during Christmas? li beral of my chicken illustration and back to my evaluation. In addition financial failures in big organizations have made non-accountants more aware of the significant jar of accounting in their lives and the roles they play to shape accounting.Subsequently, due to the problems in the accounting profession, there have been theoretical frameworks created to provide solutions and discipline in the profession. So what is theory? Theory can be defined as a set of interrelated constructs, definitions and propositions that present a systematic view of a phenomenawith the purpose of explaining and predicting the phenomena (Kerlinger, 1964, p.11). However, since accounting is a practice based profession unconnected science, we can argue that applying theory based system into accounting could be problematic even subjective. This is because acquiring knowledge needed to form theories, comes from different sources, such as introspecting, ones perception, memory, faith, intuition etc. All of which are all subjective sources. To be able to acquire knowledge, the process of induction is used. The process starts from observation, which is the inductive approach to develop a legal philosophy or theory. at once the law has been passed, it would then go done the deductive approach were it would be tested. However there have been debates about how theories are generated. Furthermore, some scholars suggested that it is through the inductive approach and others say it is through the deductive approach but because fundamental accounting theories such as fair value and depreciation have all been developed through the inductive reasoning process, it is safe and sound to say that these theories are very subjective. Reason being, not all situations, events or circumstances observed are objective instead they are invidious and give an inaccurate picture of what the observer sees. This therefore reiterates Hiness perception that when we express reality, we create it (Hines, 1988, p.g 251).Over the years, the observable fact of ambiguity and uncertainty in accounting concepts has been the topic of debate between accounting researchers. Apart from the notion of reality construction and accounting theory formation, these debates have been centred around the back bone of financial statements the true and fair view concept. Firstly, what is the meaning of true and fair? , what is the definition of the true and fair view concept in accounting? Websters Reference Library (2010) defines true as conforming with fact correct, accurate perfectly in tune (Webster, 2010, pg. (349)). Fair is defined in the concise Oxford Thesaurus (2002) as fair-minded, just, impartial, unbiased, unprejudiced, and honest (Kirkpatrick, 2002, pg. (273)). However, the concept of true and fair view in the accounting profession is releasing all clutch materials that are consistent with the acceptable accounting principles. However, non-accountants construe the meaning of true and fair to be 100% truth and correct, so whenever statements are gestural off with the famous sentence this statements has been produced with a true and fair view, users of financial statements immediately believe that the accounts produced is the 100% reflection of the companies financial state which has been produced truthfully and correctly. Regretfully, this assumption is not always right because not all companies report their financial state truthfully and correctly which was the case of Enron, were the company had leveraged some it if debts constantly and did not reflect it on their balance sheet before and after it was signed off by the companys auditor, Anderson, under the accounting rules and principles (Thakur, kalra karkun, 2002, pg. 1-5). Therefore this shows that the true and fair view concept was used as a safety net and a pepper spray to blind the users from knowing the full-picture and also used as an excuse for non-compliance. For that reason, I think the vagueness and high sub jectivity level involved in the true and fair view concept makes it difficult to have a definitive explanation when the accounting definition is unclear even to the professionals themselves, who make sure they avoid explaining the meaning.It is therefore based on ones perspective/interpretation of what true and fair view is thus making accounting very subjective as suggested by Tinker. He said it is impossible to represent financial events without any form of subjectivity in it and ignoring some facts because financial statements are produced based on the accountants opinion or due to influences from different factors (Tinker, 1991, pg. 297-298), for example the Lehman Brothers collapse.In conclusion, even though accounting is regarded or said to be objective and as much as accountants perceive themselves to be positivists, it is evident the profession as a whole is not as objective as we would hope. Furthermore, this evaluation has used various notions to give an explanation the is sue of subjectivity in accounting. Firstly, the formulation of the conceptual framework plays a huge part in shaping accounting either through theories or debates, all of which provided accountants with the rules they have to follow. Nonetheless, it is evident that the framework is socially-constructed because it was developed by people for other people i.e. by accountants to the external users.Additionally, the notion of reality construction shows that accounting is subjective because accountants make their reality known by giving it meaning based on their opinion and, everyone else has to follow these common conception. We can also see that knowledge gathering is important when making or formulating accounting theories. It however becomes problematic because the sources used to acquire knowledge during the inductive reasoning approach could sometimes be biased and prejudiced and as phenomenologists suggested, we are part of what is being observed. Whats more, the true and fair vie w concept in accounting is highly fundamental to published accounts. However, inability to give the concept a definition within the accounting profession and in company law makes it harder to understand even to the professionals themselves. This therefore makes it highly subjective because we as users are left to give the concept a meaning based on our judgement.