What is Accounting? Many accounting scholars have confronted this question, often paired with a rejection letter from an editor, or a dismissive criticism in a workshop. Don’t feel bad–as Anthony Hopwood noted, Ball and Brown (1968)—now a foundation of financial accounting research—was rejected by The Accounting Review, “the reason for the rejection being that it was not accounting.” Now, of course, it is one of the seminal works in accounting, simply for showing that stock markets react to earnings announcements.
For some reason, accountants keep letting their gatekeeping instinct overpower desires to make the most of what accounting could be.
This really came home to me in a JAE conference Q&A about Christiansen, Floyd, Yoa Lu and Maffett (2017). Their paper showed that mining safety incidents were reduced by a regulation requiring firms to disclose them in Form 10-K. Along with the usual concerns were multiple versions of: Is this really accounting? Why should we care?
Think about this for a minute. Here’s a paper literally showing that we can save lives with a minor addition to what is included in the most central accounting report in the US–a corporation’s annual report. And the pressing question is whether that’s should fall in our domain? Yikes!
One goal of my moral accounting project is to help my research colleagues set their aspirations a little higher. I do so by offering an expansive definition of accounting, and pair that with a guiding aspiration. Here’s how I define accounting, riffing off Hopwood’s observation that accounting is “a craft that has had no essence”:
Accounting is indeed a craft, which philosophers define as having three elements: (1) an articulable skill (2) dedicated to achieving a practical goal (3) by crafting something (Parry, 2020). He is also right that this craft changes dramatically over time. However, I argue that it does have an essence, because its basic goal and the thing that is crafted remain the same. Accounting’s practical goal is to improve performance. The thing that accountants craft is an accountability system: a web of reports, incentives and controls that shape performance. Reports provide information; incentives reward and punish; and controls make some behaviors easier and others harder.
The part I emphasized is step 1 in being aspirational. Accountants don’t just prepare and audit financial statements, or calculate costs, or design budgets, or (increasingly) devise standards for corporate social responsibility. We do all of those things to hold people accountable for their performance, thereby improving it. That’s a noble goal, and a very broad one. By helping people craft better accountability systems, we can improve just about any aspect of society. We can use incentives and controls to make peer-reviewed research more reliable, use peer pressure to get doctors to wash their hands, yes, apparently even save the lives of mine workers. The first step in raising our aspirations is to expand our definition of accounting to embrace the goal of improving behavior wherever we can.
But we need some guidance to make sure our aspirations are the right ones. “Improving performance” for an anti-hero like Tony Soprano or Walter White would probably mean extra death and misery for those around them. While there might be some very interesting research opportunities to study how accountants can help crime bosses, we can aspire to more.
Enter moral accounting. Quite simply, moral accounting requires that we (1) hold people accountable for their moral performance, and (2) do so in a moral way. The first part means that we can’t define good and bad performance based just on self-interest or some other narrow basis–we have to be improving performance in a way that counts as “moral”. The second part means that we have to accomplish (1) carefully. It is probably moral to reduce car accidents. It probably wouldn’t be moral to do so by telling everyone that if they drive unsafely the government will torture their puppy.
Defining morality is a topic for another day. For this post, I just want to encourage my colleagues to raise their aspirations–first by focusing on how we can improve behavior, and then by making sure our improvements and our accountability methods are moral ones.