Redefining accounting for tomorrow

Toby York, Accounting Cafe

Thanks very much, everybody, for making the time to come and listen and take part in this conversation about accounting and the future of accounting – whether or not we’ve got the definition of accounting right. I know this is quite a controversial area, and Garry’s promised me that he’s not going to shy away from that.

Before we get going with Garry, I do just want to give Accounting Cafe a small plug. if you’re not familiar with Accounting Cafe, it’s a platform for accounting educators. So we provide an opportunity for accounting educators from across the world to share their articles, their innovations, their teaching practices. Maybe you’ve got an interview or a podcast within you, then, please do get in touch with Accounting Cafe

through our website. And if you’re willing to contribute anything, then we’d be very open to hearing what it is that you would like to contribute. Please don’t think that what you’re doing isn’t big enough.

Good education is made up of lots of small, different pieces. So if you’ve got a small contribution to make, then that also is very, very welcome.

I’m going to introduce Garry Carnegie from RMIT Melbourne (RMIT), who’s going to talk to us about how we might prepare for a better definition of accounting for tomorrow.

Garry’s going to speak for about 35 minutes. I haven’t actually set this up beforehand, but I’m then going to invite somebody from Accounting Streams. I’m looking at Susan Smith. No, you don’t have to, Susan. It’s a voluntary thing, but maybe just 2 or 3 minutes after Garry’s spoken. Just to explain how you’re using the definition in the context of Accounting Streams.

And I think this is also a very good opportunity to just sort of explain to the audience that we have here what you’re up to with Accounting Streams. So, don’t get too excited. I’m limiting you to less than five minutes, preferably three. But, you know, we’ll see how it goes. And then we’ll open it up for questions for about 20 minutes.

So, Garry, please, over to you. Thank you very much.

Garry Carnegie, RMIT University

Well, thank you, Toby. And, hello to everybody. I can recognize quite a few faces.

So we’re off and running, and this presentation is titled Redefining Accounting for Tomorrow. It’s not the the first time I’ve presented this,

but I think the first presentation I made on this topic was exactly this title.

And look, this is really what we’re on about today. Some of you might think about this daily.

Some of you might wake up every morning wondering what it is,

but what is accounting today? And, I wonder whether we’ve got to the point where we’ve become even blasé about this question.

We say, what is accounting? And we say, well, we all know that. So we don’t have to use any words.

It’s just sort of everywhere. But this is really what is the core essence of the word accounting. and you could call it a subject as well. And there’s three things that I’d like to point out upfront, which are general things.

And I won’t read these, but you can see there the first one says definitions that we use are well passed their use-by dates.

So they’re passed the use-by dates. Now, Toby, when he put out some marketing material for this, seminar gave me a great sentence here.

And Toby, with your great permission,, I’ll just read it. Toby said, “They’re stuck in a narrow technical mindset, and the profession risks becoming irrelevant and even harmful in a world facing existential crisis.” So Toby has summed that up brilliantly. Well done to Toby. So, I think that point’s been made. They’re stuck.

This is the “what is” question.

But to be frank, it’s a very important point to answer. Because if we, each one of us, around this webinar, can’t define accounting in ways that the students actually think make sense based on their interpretations of what they see, then how are we going to persuade them what they’re going to be taught, and what will they learn?

Now they might just walk in saying, “Oh, accounting’s numbers, so, I’m good at maths. So as long as I can do accounting from a numbers point of view, that’s great.” And I say, what a waste of talent. What a waste of opportunity that is.

And never forget, when you’re teaching or when you’re talking to students, or just talking generally in society, today’s students of accounting will be tomorrow’s future leaders of the profession. There’s no doubt about that. That’s just the way it works. So when you teach online or face to face or out in the parkland, whatever it is, you are actually creating or helping to develop future accounting – not just professionals – but leaders.

So that’s very important.

I think we’ll go straight to the definition. And some of you may have come across this before –will know it well. Some of you might even teach this definition, but there were three of us come together.

There’s Lee Parker, one of the joint foundation editors of AAAJ, and Eva Tsahuridu, a former colleague at RMIT.

We came together and thought, look, let’s try to rock – rock accounting. Let’s try to get accounting on the go – on the move. Not stuck in the ditch. So accounting is a technical, social and moral practice concerned with the sustainable utilization of resources and proper accountability to stakeholders, not just shareholders or market participants, to enable the flourishing of organizations, people and nature.

And I say, why not? Why wouldn’t accountants be concerned with that sort of aspiration?

I see no reason for them to shy away from that. The first publication appeared in the Australian Accounting Review. And then we decided to hit IFAC with it because it’s not much good just talking to academics.

So far, so good. We haven’t had too many suggestions to change this definition. I have to say, and where we do, we just argue against them. You know, you’ve got to be a bit definite about some things, but we’re not saying this is the only definition of accounting.

And if there’s a better one, well, let’s get into it.

Now, Toby also gave me another sentence. So thanks very much, Toby. This is what he said, and I think you all read it. “Accounting is a practice of technical rigour, social responsibility, and moral purpose.”

I say, “Here, here,Toby.” That’s exactly what it is. And why we don’t speak of it and define it in this way, I really have no idea. It’s stuck in the ditch. And the other thing I’d like to say is, what do we have in accounting? And this might be controversial, which I’m very sorry for, but I don’t think I need to apologize.

I think the accounting profession, when you think about it, particularly if you know all about accounting standards and accounting concept statements. It is obsessed by comparability.

Accounting is now harmonisation. Accounting is now standardisation. We even have this silly, if not stupid concept of sector neutrality. Everyone does the same thing. How we got to this point, I’ll never know.

Because what we tend to have is accounting, not just telling people how to do the accounting. Accounting is actually changing the organisational and social context in which our entities operate. It doesn’t have permission to do that.

It doesn’t. It’s never asked for it. But it’s landed in this position.

And although I could read these, I might just say to you this PowerPoint in a nutshell is just trying to quickly go through what is technical practice? What is social practice? And what is moral practice? And I won’t read them, except I might focus a little bit on social practice. But accounting underlies and enables organizational action and human activity guiding and influencing our behaviours and organisational culture, which means how we think.

And it orders our lives or governs us, or even directs us by means of KPIs or metrics which are out of control in the world. In fact, I was talking to a colleague today at a university who was feeling a little bit under the weather about a lot of hard work being done and not perhaps much appreciation, and it came up that our bosses are more interested in KPIs and how we can get more out of us, than about our health and our well-being.

Now, I’m not going to just blame accounting for that, but accounting is part of this change in society. Accounting is also a moral practice. And, I don’t think anyone could really dispute this. A practice whose actions and inactions influence others now and in the future. It does help shape it indeed, shapes the moral order of organizations and society.

And I have to say, disappointingly, that the Big 4 in Australia have been rather naughty. I think many of them have disgraced themselves with scandals. They’re not showing a very good example for young people to join an upright profession where the concern is with accounting as technical, social and moral practice.

Now. I’m saying this because I think I have to, but there’s been a lot of research in accounting. In the area of sociological, critical, interpretative research. It’s been published for at least 45 or more years. There are a lot of journals publishing this, more and more, in fact. Probably the three main ones are AOS, CPA and AAAJ. There’s Meditari, there’s Financial Accountability and Management. There’s a whole stack of other journals that are actually looking at accounting more about its impacts.

So in other words, accounting just doesn’t get put on the ground and you wind it up, like a toy. And then it just walks around knocking things. Accounting is actually changing things.

So there’s been a lot of research done, which is focused on accounting less as an object of study as technical practice, but rather as a social phenomenon, as a pervasive, enabling and disabling social phenomenon. Being a social practice. And earlier on, when I was making these presentations, there was a professor in the audience, or on the screen, if you like, and she was saying, oh, look, excuse me, Garry, I really dig what you’re doing here.

And I thought, oh, that’s nice. I’ll tune up. I’ll turn up the ears. And, she said, you’re trying to work out the effects of accounting in the world, aren’t you? I said, yeah, that’s it. I wrote it down just so I didn’t forget. And now it appears in these PowerPoints. These PowerPoints have a history in their own right.

Now, does anyone ever say to you, any students ever ask you, “Excuse me? What are the effects of accounting in the world? Or what are the impacts of accounting? If we adopt this accounting, which I understand is really controversial, what will that do?” Sometimes we can’t answer that because we don’t think about.

So what’s this social practice? Accounting is increasingly being recognized for its effects on and reflections of people’s behaviours and their actions, both in organizations and society, with ramifications for organizational and social functioning and development. Accounting is, in every context. It is not necessarily fit for every context.

I’d just like to give a couple of examples. I think sometimes you just need to give one example to really get across the sort of point you’re making. And this is about accounting as social practice – an illustration. Now, I happen to have been involved in this case study, because I got involved with this issue back in the early to mid 1990s.

And I must be pretty boring because I’m still working on this issue, trying to stir the pot on this, but it’s the, National Library of New Zealand, which is its current name. the government said, oh, listen, you haven’t valued your heritage collections. And they said, yeah, well, you can’t, you know, it’s irreplaceable stuff.

You know, there’s no market for it, blah, blah, blah. And the government said nope, there’s new accounting standards out. It’s called New Public Management. I don’t know why it’s still called new.

Anyway, the library didn’t want to do this, but they were forced by the government in the interests of accountability, to place a valuation on their collection in the balance sheet.

So they come up with, NZ$522 million, which might not sound a big deal today, but this is as at the 30th of June, 1994. And then the government had a bright idea because this is new public management. And so these organizations really have to be driven, driven.

Some of you will be thinking, I haven’t heard that word before in the context of public sector accounting. So the New Zealand government introduced a capital charge per annum, which is not just 1 or 2%, but they started out at about 9.8 or 9.6% in New Zealand. So I’ve just rounded that, to 10% on the reported assets of government departments.

Now really bad luck for the National Library of New Zealand because it is and was a government department and the custodians are tricked and they were told, well, you have to pay 10% of the, of your assets to us as a finance charge per annum. And they all said you’ve got to be joking. No, this is the way it is.

And they said, you’ll just have to sell parts of the collection. Now, I’m not joking. This is a serious case study. And so the library started to pull together the Milton collection and tried to sell it. There’s one Milton collection, I understand, in New Zealand. So it was about to be sold. And then this got to the press in New Zealand, in the newspapers, etc..

And people said, what’s . . . excuse me? Accounting. What’s going on? What’s what are you doing here? And they said, oh no, it’s just New Public Management. You know, we got to, you know, make these entities efficient and they’re all fat cats, you know, they’ve got stacks of assets. They don’t use them well. They put them in warehouses at the end of piers.

They don’t even know what they’ve got. They’ve probably got, you know, not just 100 BS, but, you know, 20,000 bees, who needs 20,000 bees and so on. And so forth. Anyway, believe it or not, the public of New Zealand, arched up and they said, look, this is stupid, you know, what are we doing here? Like, this is crazy.

And so the government said, oh yeah, you’re right. You know, what we’ll do here is we’ll just say that the trustees are only custodians of the collection. They have no power to buy and sell, and so, therefore, it is a bit misleading, isn’t it? So what they did is they moved the asset out of the books of the National Library of New Zealand and moved it up to the National Government Accounts.

So the asset still existed as an asset of the New Zealand government, but it was no longer an asset of the National Library of New Zealand.

Now, I can say to you, that an accounting standard has just been issued by the International Public Sector Accounting Standards Board, where this is required to be done of all these organizations around the world. Now, what if a government, I don’t know, the British government or the Australian government or the Portuguese government decided to say, oh, look at these assets.

Oh, look at the wealth here and impose a capital charge per annum. Well, if they do and they could if they wanted to, you can blame accountants for not thinking.

You know, you might be saying, oh that’s unlikely to happen. Well public sector assets all around the world have been valued haven’t they? In financial terms. It’s not hard, eventually, for all governments to apply these sorts of charges. And if they do, then everyone will know exactly what a social practice accounting is.

So this is what we know today.

Accounting is not independent of, or disconnected from, morality. Morality is at accounting’s core. Now, anyone in accounting that claims this is not true probably ought to leave the profession. Because this is what we envisage when we think of accounting, through auditing and assurance, which fall within the jurisdiction of professional accounting, as we know, or even professional accounting and auditing. You can’t have accounting without accounting being concerned with morality.

I won’t go on, but I could. So what’s the centrality of morality? Does anyone know this? Do any students ask you this? Well, it’s sort of made up of the following and others. External audit. Internal audit. Audit committees. Code of ethics for professional accountants. Boards of directors with independent directors to keep an eye on things so that, your organization’s not regarded as dodgy or, losing its social contract.

So, accounting and audit simply must be trusted by the public. It must. But what if it’s not? It seems to me it loses the reason it exists. So again, accounting is not just a technical issue. It’s a moral practice.

Now here’s another one. Now some of you are thinking, oh, he’s hard up for examples, these date back to the 1990s. Well, these examples could occur anywhere, anytime right now. It’s just that I’ve lived through these examples so I know a bit about it. The State Film Centre of Victoria, again it had to put a financial valuation on its collection, and they came up with a novel financial valuation approach.

Now, this is, archival heritage film centre, black and white movies, silent movies. You know, there was no movie of Captain Cook apparently arriving in Sydney, so no one’s got the vision of that. But if we had it, it would be in a place like this. Okay. And so what they said is, well, we’ve got no idea how to value these.

They’ve got no value at all. And then some bright spark – could have been an auditor – said, oh, look, there’s a way of doing this, you know that? You measure the length of each film. You probably know that anyway. So that movie there, that’s only a little one. That’s 12m. this one here, that’s 280m.

Yeah, work it all out and then add up the total length of all your films. So this is a lot of film. And then they said, go to a place like Kodak, which it was. And ask them for the cost of replacing those films with blank film. So in other words, if we had to buy, I don’t know, 10 million metres of film with blank film, that is, nothing on it.

What would it cost? And they thought, you must be a wizard, because that’s just brilliant. Absolutely brilliant.

And they worked out a monetary valuation. They took the total length of all films multiplied by – I don’t know, I’ll say $8.40. And then it was subject to audit, and the auditors were happy with that. Which I still can’t believe.

So, I had to tone down this language a bit because this was very annoying to me. But this illuminates a purported lack of morality, as it involves misrepresenting the heritage collections by a measure which has nothing to do with the heritage resources held.

I’ll call it a device, but I’s prefer to call it dodgy. But you can make up your own mind what you would call this. Because these are non-financial resources, anyway. And I won’t go through why, but these organizations are set up by Acts of Parliament, and they can only dispose of their resources through a formal process of deaccessioning, which means the board has to sign off on removing anything from these collections.

And then, the Governor of the state in Australia has the power of veto to say, we’re not doing that. So if you like, the royal family makes the final decision.

These are not financial resources readily available to be realized into cash. Okay. So moving on.

We ended up applying the proposed definition of accounting to this very issue dealing with accounting is technical, social and moral practice. And this is the title of the paper which Lee Parker would tell me is too long, Garry. You’ve got to get a shorter, title on that. But anyway, that’s what it is because we couldn’t say that these were heritage assets because they’re not.

But this is what standard setters call them. But these are public collections, of cultural heritage and scientific resources.

Now, this has been a highly controversial issue for over three decades. I must say, I’ve been there for all that time, and I’m quite happy for it to remain controversial, because I think accounting has let itself down with this incredibly bizarre example of full accrual accounting in the public sector under New Public Management, which has the effects, in my view, substance over form, of actually changing these entities into something they are not.

And if you want to know what they are, read their mission statements and read the Acts of Parliament that govern these organizations. And you’ll find this accounting is not on.

This is what we said in the paper, critically examine blah, blah, blah. Accounting is technical, social and moral practice as proposed by . . .

And we say this article is intended to challenge accounting to enhance self-awareness in reaching its full potential. In other words, this is just not a technical issue. This is, “Excuse me. What are you doing? Do you know the implications of this? Do you know the effects of this?” Oh, no, no, no, it’s just a conceptual framework in action here. Well you can drive a truck through conceptual frameworks.

If that’s an accountability document, I’ll go “He”!. Or maybe she. But, I don’t regard a concept statement as an accountability framework.

So to recap, I won’t, read that definition again. But, Carnegie, Gomes and McBride. Now, Karen [McBride] is here. I don’t know about Delfina [Gomes]. Hello, Karen. But these are the questions we came up with a couple of years later. If you’re talking about technical practice, these are the questions you have to ask. How do we do accounting? Big question. It’s important. We need to teach it. But it’s not what accounting is, only.

And what conventions drive what accounting fails to do. We have assumptions and conventions and postulates and whatever they are that have been around for decades, if not centuries. We can’t seem to change them in accounting. We can’t seem to change them. The accounting entity concept. My God, why can’t we chuck that out? It’s not working.

Look what’s happening to our environment. Look what’s happening to nature. Think of the whales. Can we check out this old fashioned dodgy – now dodgy – postulate? The assumption of accounting. When it comes to social practice, what does accounting do? That’s what I want to know. Excuse me. Thanks for telling me that this is the new rule. What does that do? Well, it’s the best accounting we can apply, and it’s in line with the conceptual framework, and it’s reliable and relevant and so on.

Next question. What are the impacts of this new accounting in the world? Have you done the evaluation? Ah no, no, just better use of resources, greater efficiency. Give me some numbers. Aren’t you the accountants?

And the moral practice. Why don’t we ask, what should accounting do? The accountants tell us what to do. I mean, the standard setters. We should be asking what should accounting do? Well, apparently we’re good at environmental disclosures. Big deal. You know, like that’s just playing with marbles when you need to get a big basketball out. And what should accounting not do?

Has anyone ever asked you that? Has a student ever come up to you and said, “Er, Susan Smith, what should accounting not do? I’ve heard a bit about this accounting. What shouldn’t it be doing at the moment?”

If you get that question, I’d be a little bit amazed.

Now, this is my big question. I really want to know – I’d be greatly excited if a student has ever come up to you, or even a client or a friend and said, excuse me, I know you’re an accountant, do you think accounting is achieving its full potential?

Because if not, why not? Why isn’t accounting challenged? Why isn’t the accountability of accounting challenged through the posing of this question? Is accounting achieving its full potential?

My God, if you’ve got curious students, this is what you’re going to talk about.

And what is accounting for a better world? It’s when accounting is conducted and deployed for the betterment of society. The natural environment, which means for the benefit of all of us, humans and non-humans alike, to enable the flourishing of organizations, people and nature.

So accounting comprises both ends and means. The means that we teach are hyper-developed. We seem to be obsessed with the doing of accounting. We seem to think that accounting is just doing stuff. You don’t have to think about it. Just do it.

And yet, the ends of accounting seem to be under articulated, indeed hazy, if not very hazy or opaque.

This is the three of us back in 2021. I wouldn’t change anything that’s been written in that article. To me, that’s the way it is. Accounting is to be undertaken with full regard for, and adequate understanding of the organizational and social context in which it is to operate.

Think of our public museums. Imagine how you would feel if, in The Times tomorrow, you read that the UK government is a bit starved for cash and wants to impose a 5% charge on the assets of public museums, art galleries, film centres and so on.

What would the public say? It would be the death of these institutions. In my view, they are not for that purpose.

And Anthony Hopwood needs to be read. His article in AOS on trying to study accounting in the context in which it operates, and accounting has indeed yet to reach its full potential. I don’t have any doubt about that. And we must all keep remembering that we gain our sustenance and joys from planet Earth, not from Netflix or not from any other device, not from the AFL footy. That’s just trivia.

Now, I’m not going to spend much time here, and these PowerPoints will be available to all of you. But these are definitions that I think are pretty useless. They’re way passed their use-by date. The first one is pathetic. If you read that. I don’t know if anyone could teach it, but this is the most popular definition on the web. Because I’ve checked this out over time.

Then we have the American Institute of Accountants. It’s all about decision making.

Next one. I went to Wikipedia. I thought we might get a broader scope definition there. Nope, sorry, they focus on businesses and corporations. My God, that would be pretty narrow world, isn’t it? Maybe it is a narrow world.

And then Craig Deegan had a crack. I used to work with Craig at RMIT. He’s now at UTAS. I’ll put it up because he tried something different. I think it’s okay, but it’s just not hitting the mark, with due respect to Craig and anyone else that’s written a definition like this.

Okay, so we want a new game-changing definition. Why? Because accounting is not a mere neutral, benign technical practice. We have to shake that off. That is why accounting is not going anywhere fast and why it’s not serving the world in the way it needs to be served. Which means all of us, humans and non-humans alike. We need to teach more about the nature, roles, uses, and impacts of accounting – impacts.

We argue, will help to shape a better world, which is indeed consistent with a more balanced perspective on people, profit and planet. Just to go back into the past a little bit.

We want to move accounting to its future. Accounting is stuck in the past. Toby’s told us that – Toby’s correct.

And accounting’s main agenda and its contributions need to be purposely extended in the public and planet’s interest. You know, a year or two back, I decided I wasn’t going to refer to public interest anymore on its own.

So when I write stuff now, I write in the public and planet’s interests because you cannot separate them. Yet the accounting profession still hammers the fact that it acts in the public interest. My God, can you shake it up a bit? Can you think of the planet as well? I know we’ve got some disclosure standards for that.

So, I think we need to also be open and instill interdisciplinary and multidisciplinary approaches in what accounting does. We need to talk to engineers, architects, environmentalists, I don’t know, you name it. We have to actually understand what we’re doing, and, and how accounting affects the world, which means everyone in it. Now, you might be thinking,

Oh, hey, is he speaking to me? What can I do? How do I get involved? Well, you have to get involved because we have to, like, we just have to. Accounting is a bit like a loose missile not on the target. You couldn’t rely upon it. So you can get involved in conversations on Academia.

I’ve done quite a few of these, and, I don’t know, I seem to like doing it, and people seem to like contributing, so why not? There’s one on Redefining Accounting for Tomorrow, which is basically, a list of articles that I’ve written with other colleagues, mates, friends, whatever. It’s a whole list of resources there.

And, that’s still getting quite a lot of looks. Anyway, that’s how you can start to get involved. at least tune into some of these sites and check out what’s being said.

And to be frank, there’s a lot to be done. We’ve got to work together, all of us. So the fact that we’ve got over 50 here tonight is wonderful. And if you speak to ten people each about this and share the PowerPoints, just imagine how many people will will be engaged then. That’s great. This is what it’s about.

But what we want absolutely is greater understanding in the accounting profession of the effects of accounting in the world. This has to be what I would call the accountability of accounting at work, the accountability of accounting at work. Come on, accounting. Be accountable. Why not? And we need heightened awareness in organizations and society of the effects of accounting and how “it”, which means “us”.

So, don’t, you know, duck your head. You can help to shape a better world. These are a couple notes.

Many voices can be heard. But silence is not platinum.

Words are soft. Actions yell.

We’re getting there. I’d like you to just read this. I won’t read this out. But do you think this is helpful? Well, I was excited because I found the word “multi-dimensional” there – a multi-dimensional picture. So I was a bit excited, but maybe I was just being a bit silly. So let’s hope this is what we’re all thinking about.

What’s the take home? Now if you only remember one thing about this presentation, so, this is what I’d like you to remember.

Don’t ask what accounting can do for you. Ask yourself what you can do for accounting in shaping a better world. That’s all I ask.

And then you’ll see on the next PowerPoints, which Toby will flick through, there’s quite a lot of references. Unfortunately, there’s a lot with Carnegie in them, so I apologize for that. I think that’s just sort of like overdoing it, probably. But anyway, there are other references there as well. So, on that note, I probably overshot time, but I’ll shut up and leave it to you.