To Tell The Truth A Discussion of Issues Concerning Truth and Ethics

Accounting, Organizations and Society 36 (2011) 109124
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Accounting, Organizations and Society

journal homepage: www.elsevier.com/locate/aos
To tell the truth: A discussion of issues concerning truth and ethics

in accounting
Mohamed E. Bayou a,1, Alan Reinstein b,2, Paul F. Williams c,
a
School of Management, University of Michigan-Dearborn, Dearborn, MI 48126-2638, United States

School of Business, Wayne State University, Detroit, MI 48202, United States
c
College of Management, North Carolina State University, Raleigh, Box 8113, NC 27695-8113, United States
b
a b s t r a c t
Such major scandals as the savings and loan failures in the late 1980s and 1990s, the Enron,
Global Crossing, WorldCom and Tyco corporate scandals, Arthur Andersens demise, and
the current crisis of the nancial system have all been linked directly or indirectly to false,
misleading, or untruthful accounting. Thus, in a pragmatic sense the question of the veracity of accounting or what it could mean for accounting to be true seems to exist. The assertion of a false or misleading nancial report implies some belief that there could exist a
true or not-misleading report. Accounting-standard setters have nessed this issue by
agreeing that decision usefulness, not truth, is nancial reportings ultimate objective.
Over time they have gravitated to a coherence notion of truth to provide rationales for
accounting policy. The result has been a serious conict between the content of nancial
accounting and the auditing of that content. In this paper we describe this conict and
its consequences and, relying on John McCumbers work, provide an argument about
how accounting scholars and practitioners might begin to think more cogently about what
a truthful type of corporate reporting might be. We suggest that accounting-standard setters have too narrowly construed what accountings role in democratic society is and how
the contradictions of current standard-setting jeopardize the essential professional franchise of accountants, the audit function.
2011 Elsevier Ltd. All rights reserved.
Introduction
The accounting profession continues to struggle with
the problem of the veracity of accounting reports, in light
of the different needs of various nancial statement readers
for truthful reports. The savings and loan failures in the late
1980s and 1990s, the Enron, Global Crossing and Tyco
corporate scandals, Andersens demise, and the sub-prime
mortgage crisis all relate to deception. All such scandals
Corresponding author. Tel.: +1 919 515 4436.

E-mail addresses: mbayou@umd.umich.edu (M.E. Bayou), a.reinstein@wayne.edu (A. Reinstein), paul_williams@ncsu.edu (P.F. Williams).
1
Tel.: +1 313 593 9962.
2
Tel.: +1 313 577 4530/248 368 8841.
0361-3682/$ - see front matter 2011 Elsevier Ltd. All rights reserved.
doi:10.1016/j.aos.2011.02.001
involved to varying degrees the telling of accounting untruths, which raises the question: what possible meaning(s)
can be given to accounting being true? West (2003, p. 172)
trenchantly enunciates why accountants should be concerned with the truth: It is on grounds of its claimed
expertise that the accounting profession has been granted
an exclusive responsibility for independently pronouncing
on the truth and fairness of nancial reports. Responsibility
to dene true and fair runs parallel to this privilege.3 All
3
Frankfurt (2006, p. 34) notes the importance of truth for all of us:
Civilizations have never [all emphasis in original] gotten along healthily,
and cannot get along healthily, without large quantities of reliable factual
information. They also cannot ourish if they are beset with troublesome
infections of mistaken beliefs. MacIntosh (2006) provides an entertaining
and insightful discussion of accounting truthiness via Frankfurts earlier
treatise On Bullshit (Frankfurt, 2005).
110
M.E. Bayou et al. / Accounting, Organizations and Society 36 (2011) 109124
50 US states give CPAs a monopoly to fulll the publics

expectations by assuring that nancial reports are not misleading or fraudulent. But to claim something is misleading
presumes that some idea exists about what is a truthful versus untruthful nancial report. Accounting-standard setters
have nessed this issue by asserting in SFAC #1 (FASB,
1978) that only decision usefulness, not truth, is nancial
reportings ultimate objective.4 The question of true accounting creates a problem that the profession couches largely as a
technical, economic measurement matter, wholly ignoring
the problems profoundly ethical ramications. Using
McCumbers (2005) work on the question of truth, we provide some perspective on the inter-relatedness of truth and
ethics in accounting by arguing that: (1) truth represents a
genuine problem for the profession and for nancial statement preparers and users; (2) the apparent inadequacy of
the current nancial reporting system arises partially from
misconstruing the nature of the term truth; (3) accounting
truth inescapably has a signicant ethical dimension; and
(4) understanding all this implies a different perspective to
decide public policy on corporate reporting issues especially
including what are the reporting issues.
The section following this introduction examines everyday language usage to illustrate the presence of peoples
expectation that accounting reports convey something
truthful. The third section discusses the dilemma of truth
in accounting created by standard-setters reliance on the
decision usefulness criterion to justify accounting
standards. The fourth section describes the essentially
ideological origins of decision usefulness. The fth section
discusses truth to provide a more pragmatic way to consider truth in the context of accounting reports. It describes
an alternative formulation of the concept of truth and discusses the essentially ethical nature of accounting as a
practice whose function is to relate particularly important
narratives (accounts) about social relationships. We also
present a summary and conclusions.
The expectations for a true accounting

Accountants have long used normative terms to describe essential features of accounting practice. Several
western countries use the term truth in their auditors
reports. The United Kingdom (UK) accounting profession
has used the expression true and fair view since the
1947 issuance of the UK Companies Act.5 From 1879 to
1947, the UK Companies Act of 1879 (Myddelton, 1995)
used true and correct. The Australian auditing profession
has used true and fair since issuance of the Financial
Corporation Act of 1974 (Chastney, 1975). Since 1998,
4
The joint concepts project between FASB and IASB asserts that decision
usefulness is the only criterion necessary for deciding accounting
standards.
5
Sunder (2009) recently argued for True and Fair as the Moral Compass
of Financial Reporting. His argument is predicated on his assertion (Sunder, 2005) that accounting is better as a matter of social norms rather than
an expanding list of more-and-more complex rules. To perform their
regulatory purpose, social norms invariably carry ethical force even if based
on merely technical considerations.
under the International Accounting Standards Committees

(IASC) auspices, the European Union (EU) requires fair presentation and disclosure of compliance with International
Accounting Standards and a limited true and fair view
override if compliance is misleading ( Ofcial Journal of
the EU, 1998, 1978). However, after a detailed comparison
of accounting practice in Spain, Sweden and Australia,
Blake, Amat, and Gowthorpe (1998) report many problems
in implementing this term, and ascertaining whether
countries should use the term fairly present (the US
standard) or true and correct. Feige (1997) reached a
similar conclusion in studying the German accounting
practice.
The US accounting profession uses several mechanisms
to promote truthfulness, such as harsh penalties for violating the AICPA code of ethics, certication, a conservative
culture of professionalism, professional skepticism, Securities and Exchange Commissions (SEC) rules, and such laws
and regulations as SarbanesOxley (SOX). But such attempts apparently have not eliminated the belief that
there is still considerable deceptiveness in nancial
reporting.
The adjectives used to describe recent accounting scandals indicate the pervasiveness of belief that some kind of
veracity inheres in accounting reports.6 The press has lately
described nancial statements as false, misleading and even
fraudulent. For example, Akerloff and Shiller (2009, p. 29),
two prominent economists, one of whom is a Nobel laureate,
opine on recent nancial corruption, There are a large number of ways to take this money out, including salaries, bonuses, sweetheart deals, nepotism, high dividends, and
options (which themselves will have kited values because
the accounting makes it appear that the rm is doing better
than its true performance (emphasis added)). Shaub and
Fischer (2008, p. 319) argued for three values central to
accounting ethics education, one of which is to tell the truth,
i.e., The second common value that should be readily embraced by the accounting profession is a commitment to tell
the truth (emphasis added). The US Government Accounting Standards Board (GASB) Concepts Statement No. 1 states
that: Public accountability is based on the belief that the
taxpayer has a right to know, a right to receive openly declared facts (emphasis added) that may lead to public debate
by the citizens and their elected representatives (GASB,
1987, p. 1).
Firms often must restate reports, implying that the
prior ones were less correct (untrue). A major, recent
accounting scandal involved nding the head of Kmart
guilty of misleading investors. A news report on the case
quoted the jury verdict: The jury, however, found that
6
Ijiris (1975) classic analysis of the axioms of historical cost accounting
emphasized the essential factual quality required of representations that
affect accountability relationships. He coined the term hardness to
emphasize the central importance of accounting numbers being fact-like
with respect to the actions taken by accountable parties. Income theorists
Edwards and Bell (1961), Sterling (1970), and Chambers (1966) argued for
the inherent objectivity of business income measurement, emphasizing the
centrality of factuality with respect to value rather than the factuality of
actions.
he acted with intent to defraud or with reckless disregard for the truth (emphasis added) (Smartpros, 2009).
Regardless of whether accounting is true, many laypersons (even very nancially sophisticated ones) and
practitioners perceive that accounting should not mislead, i.e., it should faithfully represent some economic
reality (FASB, 1980). Of course false implies not false;
misleading implies not misleading; and fraudulent implies not fraudulent. And not false, not misleading and
not fraudulent all connote being somehow true.7 SFAS
#2 clearly connotes truthfulness by its qualitative characteristics of reliability, neutrality, and, most particularly,
representational faithfulness.
The centrality of truth to accounting is most evident in
the exclusive franchise that comprises the why of
accounting professional certication, i.e., the audit function.8 Auditing, recently also called assurance, is a verication process. Auditors assurance of adherence to
generally accepted accounting principles (GAAP) attests
that managements assertion that the offered narrative
about the entity is, in some sense, true. Even if we limit
attestation to that of merely prepared in accordance with
GAAP, the underlying process contains some desire to provide an assurance of truth. If GAAP were constructed to
provide nonsense accounts then an audit conrming
merely GAAP compliance would hardly seem necessary.
Implied in auditing is the belief that adherence to GAAP
produces more truthful accounts than non-adherence. The
only other sensible reason for an audit would be if GAAP
actually produced decision useful information in which
case the audit attests to the decision usefulness of the
information. But the standard verbiage of an auditors opinion says absolutely nothing to the effect that the auditor is
providing assurance that the nancial statements are providing assuredly decision useful information. The verication process presumes that the issue of factualness is at
stake. Without the idea of something being true, verication is a vacuous activity.9 Establishing something as being
true may be complex and problematic, but doing so conveys something basic about it that all participants can
comprehend.
7
The Quality of Earnings Project initiated a few years back would have
been an absurd undertaking were it not for the presumption that there is
some prospect of being more-or-less correct or truthful about what are
earnings.
8
During NBCs broadcast of the 2008 Players Championship, Price
Waterhouse Coopers ran a commercial that claimed emphatically, using the
imagery of nested Russian dolls that the purpose of an audit was to nd the
truth.
9
We assert mutuality between truth and verication described in
counter-form by McCumber: And without the possibility of verication,
the notion of truth makes, as far as I can see, no sense (2005, p. 19). Thus, if
we have created a profession to verify accounting reports, then those
accounting reports are meant to contain factual data, true data, otherwise
auditing would not be a meaningful activity. Verication through replication is the central ethic of the methods of the sciences, i.e., all scientists
have other scientists audit their claims via the process of replicating the
scientists work.
111
The dilemma of truth in accounting

Many nancial statement users, in their ordinary discourse, consistently use truth or its synonyms to describe
a desired quality of accounting reports. That is, reports
should contain something factual, something condently
to believe about the specic entities issuing the reports.
Briloff (1972, 1981, 1990, 2001) has long chastised the
accounting profession for not acknowledging seriously this
expectation of veracity, i.e.,
I am alluding to the pervasive fakes produced in the
corporate accountability environment where the
unsophisticated public has been led to believe that an
effective system of checks and balances assure the
accountability by the professional managers, the stewards of the wondrous pools of resources concentrated
in our major publicly owned corporations. Those
knowledgeable of the corporate accountability process
know that there is a gap between the myth and the reality of the independent audit function (Briloff, 1981, p.
1).
MacIntosh (2002, p. 118) labels the above myth and
reality as an expectations gap:
This [expectations gap] is the difference between the
publics beliefs about the nature of accounting reports
and the claim that accountants and professional bodies
are wont to make to the effect that all that is guaranteed
is that the reports are prepared in accordance with the
currently prevailing generally accepted accounting
principles and standards.
This gap between the FASBs nancial accounting standards and AICPAs auditing standards has recently become
dramatically visible during the wide debate over the markto-market rule or fair-value accounting. For example, Forbes (2009) argues that President Obama resumes his predecessors worst market mistakes by allowing the
continuation of the most destructive policies of the Bush
administration. This policy has led to the death spiral
for banks, insurance companies and other nancial institutions. Forbes (2009, p. A13) explains that mark-to-market
accounting is the principal reason why our nancial system is in a meltdown. Every time banks make a loan or
an investment there is a risk of a book write-down, even
if the loan is unimpaired. He recommends that regulators
distinguish between short run distress prices and long-run
normal values, i.e., ignore short-term uctuations of
investments and take the long-run view of their values to
help these nancial institutions survive and grow.
Forbes reasoning vividly illustrates the gap. Standardsetters justify mark-to-market (now fair value) rules via
the premise that an accounting datum pertaining to nancial assets or liabilities to be decision useful must represent
the nancial items value as of an (arbitrarily selected) moment in time. The holders intentions for the nancial item
are irrelevant. Forbes claims that intentions are important
and implies a more traditional notion of recognition, i.e.,
when exchanges occur and the initiating events are nally
culminated. It is not certain that subjective (fair) value at
112
COHERENCE AND CORRESPONDENCE: STANDARD SETTING VS. AUDITING
STANDARD SETTERS
AUDIT PROFESSION
(FASB)
(AICPA, PCAOB)
DECISION USEFULNESS*
JUSTIFICATION
TRUTHFULNESS
JUSTIFICATION
*Specifically, useful for predicting the timing, amount and uncertainty of cash flows.
Fig. 1. Coherence and correspondence: standard setting versus auditing.
an arbitrary point in time is decidedly any more decision

relevant than the original cost. Whether Forbes or the
standard-setters position is more credible from a decision
usefulness perspective remains unclear.10 In Forbes favor is
that the representations he presumes are preferable are at
least more truthful in that they can be veried with reasonably reliable evidence available to an auditor.
Fig. 1 depicts schematically the gap between Briloffs
myth and reality contending that one reason for the gap
is the difference between the justication of nancial reporting standards and professional auditors standards. Auditing
standards are contrived to provide guidance on how to verify
that nancial statements fairly (in the US), or truthfully
and fairly, represent the consequences of a particular entitys economic actions for the time period that the reports
cover. Standard-setters, however, contrive rules to produce
nancial statements useful for economic decision making.
The dilemma of truth in accounting is the incompatibility
between justication of standard setting and justication
of auditing,11 which arises from implicitly using different conceptualizations of truth on either side of Fig. 1.
The bureaucratic standard-setting process for nancial
reporting of publicly traded companies replaced the social
process of norm formation through general acceptance
10
Allowing for the irrationality of investors (Ariely, 2008) it could
plausibly be the case that fair value would be less useful to some investors.
Fair value at an arbitrary point in time may say no more about what the
relevant future will hold (particularly if the horizon that denes the future
is more than a day or two) than cost. Fair valuation may induce as many
regrettable choices among investors as the position argued by Forbes.
Moore (2009) adopts a similar perspective arguing that net income is a
myth and that standard setters pursuit of it via adherence to some
coherent framework is a fruitless exercise. Bryer (1999) presents another
interesting dilemma. He compares the FASB conceptual framework with
Marxs theory of surplus value regarding the denition of prot. The FASB
denes prot as increases or decreases in assets or liabilities excluding
owners contributions and withdrawals. Since assets and liabilities are
dened in terms of the marginalist theory as probable future economic
benets or sacrices, the FASB framework is subjective. Hence, there will
never be a generally accepted theory of accounting within capitalism (p.
551). In contrast, Marxists view of prot as unpaid productive labor yields
more objective measure of the reality accountants face. Thus, accounting
truth is lost between a subjective-politically acceptable theory (the FASB
framework) and the objective-unacceptable theory (Marxs circuits of
capital).
11
West (2003) received the 2008 AAAs Notable Contribution to the
Accounting Literature Award for showing the incompatibility between
professionalism (auditing) and standard-setters proliferation of accounting
rules.
arising as a consequence of the historical events associated

with The Great Depression. Rather than a private process of
evolutionary, social norm formation, a public, regulatory
process now produces GAAP under SEC aegis who seeks
to regulate nancial markets and protect investors, particularly those with small equity stakes in the market. For
standard-setters the overriding criterion of decision usefulness, which FASB and IASB narrowly dene as helping
to predict cash ows, has replaced veracity in nancial
reporting as an end in itself. The ascension of decision usefulness as a public rationale for FASB actions has produced
for the profession the situation shown in Fig. 1, i.e., simultaneous committing to two, often conicting ideas of truth,
one characterized as a xation on coherence, the other
concerned with correspondence.
The FASBs Concepts Project seeks to construct a conceptual framework, a constitution: A conceptual framework is a constitution, a coherent (emphasis added)
system of interrelated objectives and fundamentals that
can lead to consistent standards and that prescribes the
nature, function, and limits of nancial accounting and
nancial statements (FASB, 1977 [1976], p. 2). This constitution emphasizes coherence among the goals, qualities,
and denitions that delimits the FASBs scope of responsibility and comprises the discursive boundaries within
which to justify accounting standards. SFAC #1 (FASB,
1978) asserts that decision usefulness is standard-settings
ultimate goal. Decision usefulness is dened very specically as providing data useful for facilitating prediction,
i.e., to help assess the timing, amount and uncertainty of
future cash ows. To achieve such decision usefulness
FASB seeks to measure comprehensive income. It justies reporting standards by whether they cohere with this
concept of income which FASB sets as the primary object
that accounting reports should faithfully represent. Ancillary to this goal is adopting an asset/liability approach to
income representation and that assets and liabilities cohere to the concepts of assets and liabilities advocated
by FASB.
Others also putatively apply a coherence notion to policy making. MacIntosh (2002, p. 118) explains that conventional accounting holds to a coherence notion, i.e.,
For example, the coherence theory acknowledges that
different accounting representations of key accounting
information, such as income and capital, can result from
the same data base depending on which rules and pro-
cedures are followed. In the oil and gas, successful

efforts, full costing, and discovery value each produce
quite different accounts of income and capital. Yet each
version is coherent within its own rules and standards.
Archer and McLeay (1990) argue that the coherence

theorys applicability is evident across nations where each
country has its own set of rules and principles for nancial
statement preparation. Thus, nancial statements prepared under one set of rules would be true in the country
which adopted the rules, but not true in another country
with different rules.
Coherence refers to the property of beliefs tting together or agreeing with one another (Sosa, 1991). Kirkham
(1997, p. 54) adds that this theory makes truth a matter of a
truth bearers relations to other truth bearers rather than its
relations to reality, i.e., truth is based on relations among
beliefs rather than between beliefs and reality. In philosophy, the truth-bearer concept is problematic, especially in
identifying what things can have truth value, i.e., what sorts
of things can be true or false, e.g., beliefs, propositions,
judgments, assertions, statements, theories, remarks, ideas,
acts of thought, utterances, semantic tokens, sentence
types, sentences, and speech acts (Kirkham, 1997, p. 4). A
similar problematic exists when considering truth-bearer
in accounting, e.g., total current assets, net income, or the
entire 10-K. FASB implicitly acknowledges this in SFAC #2
(par. 68): [w]ithout a denition of the quality [the truthbearer] to be measured, the validity of . . .[testing this quality] cannot be assessed.
The accounting literature currently contains some
rather substantive critiques of the FASB/IASB notion of
what is the objective of nancial reporting. Moore (2009)
characterized the economic reality the FASB sets out to
faithfully represent a myth, noting how no progress on
developing a theoretical framework for accounting has occurred, If basic elements of the economic realty are in fact
indeterminate and paradoxical in nature, perhaps it is
understandable that a consistent theoretical framework is
elusive (Moore, 2009, p. 327). The crux of her argument
is the elusiveness of net income as an object for representation. Income is a concept, a mere idea with no identiable
referent. Due to its mythical character we cannot verify it
besides verify that the mandated rituals necessary to perpetuate the myth were followed.12
Williams (2003) traces the history of the concept of an
asset from when assets were . . .effects and property. . .(Williams, 2003, p. 135), i.e., tangible, separable
things that could be used to settle legal debts to the current
FASB denition as anything with probable future economic
benets. This contemporary notion of assets as anything
(tangible or intangible) with probable future economic
benets coheres with the decision usefulness objective
with its emphasis on prediction assets are bundles of po12
A recent white paper authored by two individuals engaged in providing
the product of nancial analysis noted: In practice, people in the business
use old standbys. The most commonly used is the price-earnings ratio (P/E),
Another, less common, is the price-dividends ratio (P/D). The appeal of the
latter is that dividends are actually paid whereas earnings are an increasingly
esoteric accounting concept (emphasis added)(Shojai & Feiger, 2010, p. 6).
113
tential future economic benets, but verifying that future is

highly problematic.13
Williams and Ravenscroft (2010) argue that decision
usefulness as dened by FASB is a vacuous notion since
there is no way to demonstrate that any standard actually
improves the prediction of cash ows. That is, no empirical
means is available to standard-setters to prove predictive
ability either for any individual decision makers or for
any mechanical method of economic prediction (Flyvbjerg,
2001; Orrell, 2007; Shapiro, 2005).
Unlike standard-setting, auditing is the act of attesting
to the veracity of something, an evidentiary process analogous to the legal process of gathering evidence to establish
the facts of the case. Because decision usefulness has no
reliable foundation for being determined (no prospect of
there being an audit trail), nor can the myth of net income
be veried, auditing cannot be a process of attesting to the
decision usefulness (predictive ability) of accounting information.14 The audit function plausibly can provide only
assurance that nancial data correspond to certain specied
events that have actually occurred. West (2003, p. 1) states
emphatically accountings professional status:
The essential criterion of quality in accounting abides in
the very meaning of the word itself. To provide an
account of an event or circumstance is to describe that
event or circumstance. A reliable and objectively useful
account will be characterized by a correspondence
(emphasis added) between the description and the
event or circumstance it purports to describe. Correspondence with commercial phenomena is the determinant of the serviceability of nancial reports.
Compliance with accounting rules is only functional to
the extent that it enables such correspondence.
The FASBs constitution refers to accounting data being
important to the extent it corresponds to some real world
referent. SFAC #2 refers often to qualities that relate to correspondence. Representational faithfulness is the . . .correspondence or agreement between a measure or description
and the phenomenon it purports to represent (par. 63).
Accounting information, for example, purports to reect
the activities of a particular enterprise (par. 54). The
nancial statements of a business enterprise can be
thought of as a representation of the resources and obligations of an enterprise and the nancial ows into, out of,
and within the enterprise as a model of the enterprise,
where a model is no more than a representation of certain
aspects of the real world (par. 76). But this correspon13
Williams describes the arrival at the FASB denition of asset as reality
lost (Williams (2003), p. 134.) The current denition of assets certainly
presents a paradox since presumably one would need some sort of
information to predict whether probable future economic benets exist.
So, deciding whether something is an asset requires further decision useful
information. If this decision useful information must come from an
accounting information system, then we have the makings of an innite
regress.
14
West (2009, p. 19) puts the matter bluntly: An accounting system
that has expectations as its centerpiece does not and cannot provide
observational accounts of entities, assets, liabilities and such that are in the
world, Instead, its subject is the (unveriable) creations of the minds of
particular actors.
114
dence between accounting data and some real phenomenon is not the end of nancial reporting. Decision usefulness and correspondence are merely a means, and not
necessarily the most signicant means, to accomplish that
end. Coherence with a particular model of the enterprise is
the primary criterion employed for setting standards and
the nature of this model contributes to the incoherence
of standard setting depicted in Fig. 1. The next section discusses what it is that is to cohere for justifying accounting
standards.
accountability [emphasis in original] has clearly been

the social and organizational backbone of accounting
[emphasis in original] for centuries. Modern society
and organizations depend upon intricate networks of
accountability which are based on the recording and
reporting of these activities. This process of accounting
is essential to the proper functioning of society [emphasis
added] and organizations. Accounting, therefore, starts
with the recording and reporting of activities and their
consequences, and ends with the discharging of
accountability (Ijiri, 1975, p. 32).16
The neo-liberal revolution and decision usefulness

SFAC #1s (FASB, 1978) enunciates the FASBs usefulness objective, i.e., nancial reporting should provide
information useful to economic decision makers. Since
passage of the Securities Acts, accountants have sought
to justify their essentially regulatory function in society
while de-emphasizing that regulatory role. This is reected
as Beaver (1998) describes the results of the nancial
reporting revolution, ushered in by nancial economics
ascendance in the 1960s, which changed accountings
root metaphor (Brown, 1989; Ravenscroft & Williams,
2009). Accountings historical focus shifted from examining accountability (the giving of an account with a focus
on facts) to that of information (Mattessich, 2007; Ravenscroft & Williams, 2009). Ijiri (1975) commented on the
unusual nature of the information revolution:
Though the fundamental principle of accounting has
not changed, we are now interpreting [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, p. 31).
Of course, over 30 years later, accountings fundamental
substance has changed, most evident in moving to the often subjective fair-value accounting, i.e., a hypothetical
present value.
The preeminence of usefulness is evident in SFAC #1.
The rst nancial reporting objective is (where objectives
are presented in lexical order), Financial reporting should
provide information that is useful to present and potential
investors and creditors and other users in making rational
investment, credit, and similar decisions (FASB, 1978, p.
viii).15 The FASB added that usefulness of information lies
primarily in its predictive ability, i.e., Since the cash ows
of investors and creditors are related to enterprise cash
ows, nancial reporting should provide information to help
investors, creditors, and others assess the amounts, timing,
and uncertainty of prospective net cash inows to the related enterprise (FASB, 1978).
In specifying these two primary objectives, standardsetters have radically transformed nancial reporting
and, thus, the very nature of truth in accounting. Ijiri again
noted that:
15
Decision useful does not imply truthful or factual, i.e., . . .that which is
useful may be false and that which is false may be useful (Rorty and Engle,
2007, p. 7). Reliability of data alleged to be measurements would seem to
imply factuality, e.g., the numbers are true.
Providing information to predict cash ows differs radically from Ijiris centuries-long objective to consummate
accountability relationships. Accountings centrality to
mediate relationships between institutions and institutions,
and individuals and institutions, makes ethics central to
accounting where consequences for the parties are of major
concern. Accountability thus evokes consideration of relative social power and the justness of social relations, which
are decidedly ethical in nature. Providing predictive information, however, makes accounting a mere technology
where representations are justied only by whether they
relate to future cash ows or are useful to a select group
within society whose selection as a preferred group necessarily involves a value judgment. Accounting representations are true if they predict, or true if they abet the
privileged group to pursue its objectives, a quite different
notion of true than implied by the popular usage in the
examples previously given.
Ravenscroft and Williams (2009) suggest this radical
transformation in the discourse of nancial reporting was
not a cognitive revolution as, for example, was Watson
and Cricks unlocking the double helix structure of DNA,
but a US and UK ideological revolution affected by the
increasing hegemony of neo-liberal ideology over issues
of public policy and regulation ushered in by Reagan and
Thatcher, respectively. Well documented is the growing
dominance of the social sciences and of business education
by neoclassical economic ideas (Ferraro, Pfeffer, & Sutton,
2005), which form the intellectual foundation of neo-liberal morality and politics. In accounting, this is evident by
capital market and principal/agent theory dominance of
academic discourse, accompanied by disappearing discourses from history, philosophy (including ethics), law
and the other social sciences (Rodgers & Williams, 1996;
Williams, Jenkins, & Ingraham, 2006; Williams & Rodgers,
1995). Transforming accounting in the academy into a neoclassical economics sub-discipline (Reiter & Williams,
2002), which the nancial reporting revolution accomplished, has impoverished accounting discourse as a moral
discourse (Reiter, 1998; Williams, 2000) and led to the
understanding of accounting as a practice whose purpose
is to cohere with a world made natural by the discourse
of neoclassical economics.
Sen (1987, p. 3) relates problematic effects of accounting with neoclassical economics: It is, in fact, arguable
that economics has had two rather different origins, both
16
Ijiris term hardness emphasizes why accounting facts must be
especially easy to verify.
related to politics, but related in rather different ways, concerned respectively with ethics on the one hand, and with
what may be called engineering, on the other. He adds
that economics ethical origin goes back to Aristotle who
argued that, (E)conomics relates ultimately to the study
of ethics and that of politics, and this point of view is further developed in Aristotles Politics (Sen, 1987, p. 3). He
views economic origins as political economy. Sen (1987,
p. 4) characterizes economics other origin and the one
now dominating accounting discourse as the engineering
approach, which he distinguishes as . . .concerned with
primarily logistic issues rather than with ultimate ends
and such questions as what may foster the good of man
or how should one live. Sen labels this engineering approach to economics as the familiar positive economics,
which is the economics that underlies modern nancial
reporting and constitutes the essence of what decision usefulness means to accounting standard-setters. He (p. 7)
continues, I would argue that the nature of modern economics has been substantially impoverished by the distance that has grown between economics and ethics. As
accounting academics, practitioners, and standard-setters
have developed a discourse to explain and justify themselves that increasingly must cohere to the discourse of
neoclassical economics they, too, have distanced themselves from concern with ethics and have become impoverished. The consequence of this political and ethical
transformation of accounting that is the concern of this paper is the complete muddle created for accounting in what
it could possible mean for accounting to be the truth.
This transformation creates problems for the widely accepted view of accounting as a neutral information, valuefree practice that is keen on the representational faithfulness objective. Chua (1986, p. 610) explains that Society
may be capitalist, social, or mixed, and markets may be
monopolistic or rms exploitative. The accountant, however, is said to take a neutral value position by not evaluating these end-states. His/her task is simply the provision of
relevant nancial information on the means to achieve
these states.17
The nature of truth: a closer look
Even brief surveys of writings about truth reveal significant disputes about the nature of truths philosophical
problem (Kirkham, 1997, p. 1). The concept of truth is so
17
A related, interesting debate ensued between Solomons (1991) and
Tinker (1985), Tinker (1991). Solomons (1991, p. 287) argues that
accounting should be neutral, as without neutrality the credibility of
accounting is endangered. Tinker (1985, p. 28; 1991), on the other hand,
sees accounting as unneutral since Accounting theory, like any social
belief, is not merely a passive representation of reality, it is an agent in
changing (or perpetuating) a reality. Tinker, Merino, and Neimark (1982)
regard accounting as participating actively in the social conict among
different classes of people, so that accounting truth is far from being neutral
and independent of social struggles among these classes. In this debate, we
argue that accounting cannot be totally neutral because two conditions
constrain neutrality: (1) the general goals of society that grants the
franchise monopoly to become a profession, and (2) the adoption of the
edge of ethics (McCumber 2005), as discussed below, where accountants
have responsibilities to respect all levels of society instead of acting on
them separately.
115
elusive to dene that some philosophers, e.g., Horwich

(1998), advise not to ask what is truth? Rescher (2007)
denes the concept truthfulness as an understanding
of truth instead of truth per se. In this sense, truthfulness approaches Kirkhams (1997) and Rortys (1979) concept of truth-as-justication. Kirkham (1997, p. 48)
explains that the concept of justication presupposes
the concept of truth. This is a traditional way to view the
relationship between truth and justication. Kirkham
concludes (p. 51): hence, we really do not need a theory
of truth, distinct from a theory of justication. He adds
that sometimes the truth-as-justication thesis is meant
only to express the claim that truth is a vacuous concept
while justication is not. Accounting rules, standards, theories, conventions and their applications are justications
for inferring the unobservable truth. The strength of the
connection between these justications and truth is judgmental, therefore, problematic, as explained below.
Financial accounting standards setters emphasize the
coherence of their standards, i.e., standards should not
contradict each other regarding a presumed model of the
economic world. As Fig. 1 illustrates the FASB conceptual
framework (1976) resorts to a coherence notion of truth
as a justication for their accounting standards. However,
auditing is inherently a process to determine whether the
data presented in nancial statements corresponds to
something they purport to represent. But if standards are
created to be coherent with a concept (comprehensive
income ? prediction of cash ows) that is represented
only via the standards, i.e., no referent exists outside the
minds of standard-setters, auditing becomes merely
afrming the presence of compliance with standards.
Auditing provides no assurances that the statements are
factual, but only that management more-or-less complied
with the set of coherent rules made up to produce some
particular concept of net income.
The philosophical arguments over truth have been replicated nearly verbatim in the accounting academy with
the same lack of agreement. Some accounting researchers
consider the problem of truth complex but solvable. For
example, Briloff (1972, 1981, 1990, 2001) and Macintosh
and Shearer (2000, p. 603) lament that such accounting
signs as income and capital no longer represent transparently any objective or profound reality. Briloff urges the
profession to purge and then revive a moral order where
accountants engender truth to provide the world with true
and fair presentations of corporate performance. MacNeal
(1939, p. vii) argues that for over 500 years since the advent of Paciolis 1494 book on the double entry system,
accounting methods and reports have been based on
expediency rather than on truth.
Other accountants doubt that any mechanism can solve
the issue of truth in nancial reporting. McKernan and
ODonnell (2002) refuse to engage in any search for the
meaning of truth in accounting. Shapiro (1997, p. 172)
concludes that no scientic method permits anyone to
discover or observe absolute accounting truth. Macintosh (2002, p. 126) explains that accounting today is in
the grip of a crisis of representation, and that it has lost
the Enlightenment view of a world in which it is possible
to represent the truths of some out-there things-in-them-
116
selves [emphasis in original]. These debates mirror the debates in philosophy between an analytical tradition that
takes truth as timeless and Continentals who appear to
abandon truth altogether.18
McCumber (2005, p. 5) labels this situation an aporia,
. . .a situation in which two sides disagree but cannot resolve their dispute because it presupposes a hidden, but
mistaken, agreement. While addressing the eld of philosophy, by analogy the aporia of which he speaks can be
observed in the social sciences (Abbott, 2001) and, because
of accountings increasing dependence on various human
sciences or disciplines for its frames, this aporia is observable in accounting as well. McCumber (McCumber, 2005)
describes the two sides as Fantasy Island, the belief that
truth resides in an unchangeable, a-temporal realm, and
the Subversive Struggle, the abandoning of the old way
because it no longer works accompanied by the belief
. . .that no new way is going to come along and that their
confusion is permanent (McCumber, 2005, p. 7).19
Yet, this aporia over truth in philosophy may be irrelevant to truth in accounting issues. As Hopwood (2007) declared, accounting is a practice, not a social science.
Academic debates over truth in the academic accounting
literature are merely incomplete distillations of philosophical arguments over realism/anti-realism, truth as a norm
of inquiry or merely an adjective of approval, or the privileging of scientic method as a discourse uniquely tted to
speaking true. These arguments do not speak with great
relevance to accountings problem with truth as implied
in such statements as true and fair view or in assertions
in the press and elsewhere that accounting representations
are false or misleading. Each day and in many situations
we ask persons who make assertions, Is that true? In
many areas of discourse, e.g., journalism, medicine, physics, or romance, while expectations may vary as to what
proof must be offered, it is not generally regarded as inept
to challenge assertions by asking, Is that true?
For example, for hundreds of years, accounting information systems used double-entry bookkeepings basic structure and logic. Central to bookkeeping are concepts like
recognition and documentation that focus on identifying
if and when actions have affected the entitys resources
and obligations (itself another crucial concept). The authorization and control aspects of bookkeeping are self-evident. SOX Section 404 requirements explicitly reinforce
how controlling behavior is the essential function of
accounting systems (accounting for governments and
not-for-prots is nearly exclusively for control). The notion
of true that underlies bookkeeping is rudimentary and
practical, embedded in ordinary language usage derived
from the mores and practices associated with mundane,
18
Of course they do not abandon truth because without the potential for
true sentences no argument can be made in the rst place. Without true
sentences the very means language to make an argument is impossible.
19
One obvious Fantasy Island and Subversive Struggle analog in
accounting is evidenced by the substantially different content of academic
journals notably between US mainstream journals (Fantasy Island) and
alternative journals where Subversive Struggle analyses of accounting
appear. Each group holds conferences that the other group does not attend.
Past AAA president Rayburns diversity initiative was prompted by this
accounting aporia.
day-to-day business activity. Bookkeeping was designed

to answer mundane, but critical questions (and still is so)
such as, Is it true that:
There are 64 automobiles on this dealers lot for which
the dealer holds title?
Linda spent $800 for a laptop computer; she was authorized to do so; the laptop exists, and is on the companys
premises?
Taxpayers provided $6,000,000 for road maintenance
during this scal period?
This buildings full cost to construct is $8364297.17?
Stock option compensation expense is $436,500,000
this year?
Many typical questions asked of bookkeeping have relatively straightforward answers determined by its logical
structure, the essential action of counting within a context
created through social conventions and laws. We counted
the automobiles (language conventions tell us, more-orless, what counts as an automobile) on the lot (another
convention based on our concepts of owned, bounded
space) and we both came up with 64. We asked the dealer
to document ownership for all 64 cars he did so, so it is
true that 64 automobiles belong to the dealer on the lot.
Other questions of truth are more difcult to answer, e.g.,
did it cost $8364297.17 to construct this building? In such
cases the best that we can do is to say its truish, i.e., closer to that than $6947516.83. Presently, some questions,
(e.g., stock option compensation expense), standard-setters believe accounting must answer are literally impossible to answer since they involve the future, i.e., what will
be the circumstance? As previously discussed, even the
denitions of the elements of nancial statements are
now predicated on beliefs about the future.
The examples provided above illustrate Wests (2009)
distinction between accounting as and accounting is.
West describes the current proclivity to speak about
accounting exclusively in terms of . . .what it is used for
(West, 2009, p. 3), rather than in terms of what accounting is. According to West (West, 2009, p. 16),
. . .accounting is concerned with providing an account
(emphasis added), and an account is characterized
exclusively by a representation of an event or circumstance. Such an account will necessarily derive from
observation of the relevant event or circumstance.
Thus, the prospect of providing an account of the automobiles in a car dealers possession is signicantly better
than providing an account of stock option compensation,
which, under current rules, requires predicting the unpredictable (Ravenscroft & Williams, 2009).
McSweeney (1997, p. 692) provides an elegant argument
that . . .one cannot understand the general production of
accounting representations outside of the appeal of the possibility of objectivity (emphasis added). FASBs concept of
representational faithfulness is predicated on the commitment to objectivity as a regulative ideal (McSweeney,
1997, p. 706). According to McSweeney, objectivity is but
a regulative ideal because accounting is unavoidably lled
with ambiguity manifested as the myriad of assumptions
117
McCumbers Six-way Interplay of Situating

IN ITSELF
PAST
USABLE
Everything that has happened inherently unknowable
The personal history which

is used to situate oneself what is remembered
PRESENTABLE
PRESENT
Everything that is happeningalso unknowable
FUTURE
The one about which we know

nothing
Set of things about which

one actually becomes aware
PREDICTABLE
One that is predictable
by virtue of its resemblance
to the past and present
Source: Adapted from McCumber, 2005.

Fig. 2. McCumbers six-way interplay of situating.
accountants are compelled to make in order to represent

those things accounting claims to represent.
The 13 year gap between Wests and McSweeneys generally sympathetic arguments raises the issue of from
whence does the alleged inherent ambiguity of accounting
arise? To the extent that ambiguity arises from accounting
as rather than accounting is, the ambiguity is not inherent to accounting, per se, but is induced by accounting trying to represent inherently ambiguous things. If the
possibility of objectivity is a regulative ideal as McSweeney
argues, then that ideal should govern not only how accounting represents, but, also, what accounting represents.
Things with no prospect of objective representation should
not be embraced as the things accounting will represent.
For example, comprehensive income, which we discussed
earlier, is inherently ambiguous since it is merely an idea
(an ideology or myth) that current accounting rules must
cohere to represent. The possibility of objectivity for such
a thing is exceedingly remote and, thus, the possibility of
verifying it is remote. Is it true there are 64 automobiles
owned by the particular car dealer is a question that has a
possible objective answer. The question is it true that the
dealers comprehensive income for this period is $X precludes the very possibility of an objective answer.
On the matter of truth Richard Rorty noted in a debate
shortly before his passing . . .since Plato the meanings of
normative terms like good, just and true have been problems only for philosophers. Everybody else knows how to
use them and needs no explanation of what they mean
(Rorty and Engle, 2007, p. 45). Accounting textbooks covering every sub-discipline tax, managerial, nancial, and
auditing allegedly contain things that accounting educators believe are true.20 Otherwise, it would say much about
the profession. But none of those truths are scientic nor do
they depend on one or other theory of truth being true.
Some are quite likely not true when viewed through the
prism of another discipline (e.g., psychology, law, ethics).
20
The left hand side of a T-account is called the debit side is a statement
accounting teachers have uttered to millions of accounting students. No
one has raised a serious objection that that statement is a lie. It is still true
even though what makes it true is far removed from anything resembling a
scientic truth.
The linguist and philosopher McCumber (2005) provides a reformulation of the philosophical problem of truth
that is more simpatico with accounting practices traditional role. Thus, understanding accountings possibilities
of objectivity may prove more useful and may prove to
be a better regulative ideal of truth than the current standard-setters xation on coherence to an ideological construct. It may add clarity to thinking about truth in
accounting to avoid the problems described earlier that
were brought about by accounting becoming yet another
forum for philosophical debates over privileging or deconstructing methods to produce The Truth. McCumber teases
from the philosophic debates about truth that truth is a
radically temporal thing, a temporality derived from a
necessity for verication that can only occur now:
. . .the evidence, argument, or testimony must be produced now [emphasis in original]. For without some
sort of contemporaneous availability of sentence and
evidence, the notion of verication makes no sense.
And without the possibility of verication, the notion
of truth makes, as far as I can see, no sense (McCumber,
2005, pp. 1819).
According to McCumber, the present that each of us
experiences . . .is the product of a six-way interplay between our pasts and our futures (McCumber, 2005, p.
38). The interplay is six-way because each aspect of temporality past, present, and future has two states.
McCumbers characterizations of these pasts, presents,
and futures are described in Fig. 2.
We are ignorant of the past, present and future as themselves. We cannot know everything that has occurred in
the past or will in the future, nor can we possibly know
everything that is presently occurring even though all that
exists in these tenses affect us.21 The past that we can use to
make our way in the world is what can be recalled about the
21
McCumber uses the term causal delta to describe the many plausible
explanations for something to have occurred depending on where in time
the explanation begins. For example, a person had oatmeal for breakfast on
May 26, 2010. Many different tales can explain why she had oatmeal for
breakfast, depending on whether we start our explanation at 10:00 P.M. on
May 25, 2010 or at the moment of the Big Bang. Of course, that she had
oatmeal for breakfast is still true no matter where we start to explain it.
118
past that is constructed in memory; it is constructed because

what we remember is never a recalling of what actually happened. The presentable present is simply what we are aware
of that is happening now and the predictable future is the
limited aspects of tomorrow that are repetitions of the past
and present.22
One important implication of the temporality of truth
characterized in Fig. 2 is
The world we live in does not mirror some given natural
reality, but is constructed out of it by various principles
of selection and ordering [emphasis added]; these principles fall under the overall heading not of faithful replication of the givens or truth, but of the regulated
construction I call situating (McCumber, 2005, p. 39).
Thus, true or false should become matters of degree like
tall and short . . .matters of somethings position on a
continuum (McCumber, 2005, p. 41).23
The signicance of situating for accounting is how it
helps to situate accounting as a human activity. Currently,
accounting is synonymous with the institutionalized profession and is constrained in its possibilities to a commodity that can be sold by the profession (Williams, 2004). But
long before the emergence of the institutionalized profession, accounting has functioned as a structured narrative
(a codied discourse (Llewellyn & Milne, 2007)) that constitutes the principles of selection and ordering to provide
a particular rendering of an entitys circumstances, be it a
business rm, a government, an NGO or a citizen/taxpayer.
The importance of time to the structured narrative of
accounting is obvious. All nancial statements are conditioned by time, either as of this moment in time or for
this period of time. Accounting information systems
(bookkeeping) basic foundational structure is essentially
the chronological situating of the facts of the occurrences
of specied events to be remembered over a time line proceeding from the past up to the present.24 As indicated
above, the organizing theme of this structured narrative
has throughout history been accountability, the giving of
an account of ones actions. Thus, the narrative of accounting
is focused on responsibilities fullled or not fullled; it is a
narrative that has historically been intended to provide the
reliable memory about the important events that occurred
in the past in order to determine what are the consequences
up to now, whether they be for purposes of levying a tax,
rewarding performance, ending someones employment, or,
22
Despite some optimistic pronouncements to the contrary, the social
sciences have accomplished very little as predictive sciences. Though we
might feel condent in predicting that the darkness of tonight will be
followed shortly by the sunlight of tomorrow, no such condence attaches
to any pronouncement about life and death, war and peace, or the price of a
loaf of bread.
23
McCumber denes truth in the following way: As with the past and
the future, the present in itself and the presentable present are radically
different from one another, and the index of that radicality is truth
(emphasis added) (McCumber, 2005, p. 38).
24
The recent efforts of standard setters to require that the future be
situated in the present (fair-value accounting) do signicant violence to the
basic foundational logic of accounting. Current nancial statements are
now increasingly misleading with respect to their time labeling. Financial
statements no longer situate a rm anywhere because past, present, and
future are all muddled together.
perhaps, determining criminal behavior.25 In McCumbers

terms accounting has traditionally become the formal memory for providing a usable past for an entity. Indeed, the
muddle that is nancial reporting is attributable to standard-setters attempting to move accounting from the
upper-right corner of Fig. 2, to the bottom left corner, a point
made exceptionally well by MacIntosh and Shearer (2000) in
their analysis of the history of the accounting function.
Perhaps accountings most critical and important social
function is situating public corporations. Books of account
represent substantially what corporate businesses remember about how their pasts became their presents, i.e.,
accounting data correspond to prior events bringing them
to their present condition. They do this partly for their
own purposes (managerial accounting) and partly to depose to tax authorities, regulators, various capital providers, and the citizens with whom they share certain rights.
These corporations are now the most dominant and powerful institutions in most peoples lives. Unlike esh-andblood humans, corporations are beings whose motives
and purposes, whose very raison detre, are provided by
law. A corporation has no conscience or memory besides
the ones society gives it. Accounting serves a critical role
in providing that which situates the corporate entity because it is a primary means of regulating corporate behavior. Financial statements epitomize the purposes of the
corporation; audits are to assure that the corporations
memory is not faulty.
As McCumber (2005, p. 79) notes . . .truth however
we understand it is the main norm by which we evaluate
assertions about states of affairs. Thus, despite auditors
protestations to the contrary, we expect the persistent resort to adjectives like false, misleading or fraudulent
to describe nancial statements. Prepared in accordance
with GAAP is a meaningless norm that provides a comprehensible description of a state of affairs to only those persons (auditors) who have the exclusive privilege of
assuring a true state of affairs. Corporate nancial reporting would be a rather empty exercise if it provides only
what is true (or truish) via reports whose only virtue is
being prepared in accordance with GAAP. Surely GAAP
are not an end themselves.
As nancial reporting, accounting provides the narrative links putting together the facts of a corporation which
situates that corporation in the present. According to
McCumber, The more important and relevant the omitted
facts, the more defective is the narrative (McCumber,
2005, p. 81). A good narrative is one that includes all of
the relevant facts. McCumber coins the adjective Nobility
to describe what constitutes narrative quality, i.e.,
Narrative links are thus validated not by correspondence to reality (whatever that may be), but by the fact
25
The current interest in fraud detection illustrates further the incoherence of standard-setters discourse. Fraud is a crime and evidence that a
crime has been committed (at least in the US) must meet some standard of
factuality other than whether it was useful for predicting the timing,
amount, and uncertainty of cash ows. Obviously, the accounting information utilized as evidence to convict someone of fraud must address itself
specically to determining Is it true a fraud was committed? Whether
that information is useful for prediction is quite irrelevant.
that they can order a diversity of material. They are

organizing devices. What a narrative so organized
claims is twofold: to be comprehensive [emphasis
added] and to be ordered [emphasis added]. These
together constitute what I call, though somewhat
unhappily, Nobility, and Nobility constitutes the excellence of communal narratives (McCumber, 2005, p. 82).
Accounting reports will never faithfully represent a
mythical economic reality (Moore, 2009), nor will they
ever be demonstrably useful for predicting the timing,
amount, and uncertainty of cash ows.26 Macintosh and
Shearer (2000) argue that accounting signs no longer refer
to real objects and events and accounting no longer functions according to the logic of transparent representation,
stewardship or information economics. Instead, accounting
increasingly models only that which is itself a model. However, this pessimistic assessment of the current situation
does not preclude forever the possibility that accounting reports might one day become Nobler.27
The relationship between truthfulness and ethics in
accounting
The accounting literature contains little discussion of
how to interrelate ethics and truth; the few available
sources have common vagueness. To relate ethics and
truth, we use McCumbers (2005) reformulation of the
problem of truth in philosophy discussed in the prior section. McCumber (p. 161) argues that the current focus on
ethicson the rightness and wrongness of actionsis narrow and misleading. The emphasis on the rightness or
wrongness of individual actions has been the focus of
accounting ethics; it is certainly true regarding the American Institute of CPAs Code of Professional Conduct (2010).
Right and wrong actions face only individuals, who, in turn,
must choose the right action. Morality is the domain of
only individuals, morality is only about their choices and
convictions.
McCumbers position on viewing ethics arises from his
arguments about the temporality of truth and the importance of situating:
26
Uncertainty, by denition, is indeterminate, thus, uncertainty cannot
be predicted. Risk is determinate in that an event has a known probability
distribution; such known and regular distributions do not exist for
uncertainty.
27
Even if one is a strict social constructionist there are still many things
that can be said about that constructed reality that are true and thus an
account of that reality may well be less Noble than some other account.
Hines, in her classic paper on constructing reality noted this seeming
paradox, i.e., As I said, there is no truth as such, but there is such a thing as
stretching it too far that is when you get caught out (Hines, 1988, p. 256).
Of course this is a Subversive Struggler referring to the Fantasy Island truth.
The statement is not paradoxical at all; even strict social constructionists
would not deny that it is still legitimate in a constructed world to
occasionally ask, Is that true? After all the title of Hines paper contains a
declarative statement, in communicating reality, we construct reality.
The purpose of the paper seems to be an exercise in persuading us that that
is true. Drawing on anthropology, Hines (1991) examined further this
assumption of the existence of a concrete, objective social reality and
concludes that this assumption emanates from a process of commonsense
reasoning in that it is a product of everyday reasoning such as that of the
FASB members (p. 313).
119
My claim is that in order to act ethically, we must have

dened the situation we are in; we must have satised
ourselves that we know what sort of thing is happening
and what sort of thing needs to happen. Only then can
we formulate and decide upon concrete actions and
courses of action. What action oriented views of ethics
tend to leave out is that dening our situation is also an
ethical undertaking [emphasis added], one which does
not impose the clear-cut responsibilities that traditional
ethics seeks but is more like a peripheral, edgewise
envisioning of such responsibilities (McCumber, 2005,
p. 164).
Thus, a proper scope of ethics responds to the ancient
Greek question, How is it necessary to live? The response
has a vertical and a horizontal dimension. In the vertical
sense, the response pertains to relationships among the
multi-levels of the human world: individual, community,
society and biosphere. We are all nested within communities (e.g., many folks spend most of their waking time in
corporate communities), which are nested within societies,
and societies are nested within the natural world.
The levels are analogous to nested Russian dolls: individuals reside within institutions; which reside within
societies; and which reside within the natural world.
McCumber states that ethics reside in these connected
edges. The nancial accounting professions code of conduct prescribes the proper behavior within the doll containing the profession, which is only a horizontal view.
But that doll is nested within a larger entity (all of the dolls
together). Without attention to the edges, a profession
could prescribe a code that its members could regard as
perfectly ethical within the connes of the profession,
but when that behavior is enacted at the edges might create genuine evils (Adams & Balfour, 1998). This is particularly problematic for auditing since the auditor is an
employee of the one whom must be kept honest, despite
the auditor and auditee often having varying interests. Unlike law where another attorney representing an opposing
interest countervails the attorneys client interests or medicine where the client and patient both have the identical
interest (the clients health), auditors services pertain to
a relationship which is adversarial but absent the professional on the other side. Moreover, unlike law and medicine, the client may not realize for many years the effect
of an unethical or incompetent auditing professional.
These levels are the shared-responsibilities as May
(1992) and Shearer (2002) explain.
Thus, how it is necessary to live becomes a question
that extends beyond single persons, upward through the
nests in which any person is situated. It extends beyond
the traditional narrow preoccupation of ethics with individual action to include social and political philosophies.
Ethics then comprises the general principles by which life
should be navigated, and in particular how individuals and
communities should make their way through the human
world (McCumber, 2005, 162). This is particularly critical
for corporate persons since they cannot themselves
make their way through the human world nor engage in
a process of contemplating how it is necessary to live. They
are moral agents without morality other than that which
120
society and its laws provide them. Schweiker (1993, p.

232) observed that, The discursive act of giving an account is one activity in which moral identity is enacted
through time (emphasis added). Corporate accounts are
not their own accounts since they possess no moral equipment nor have any discursive abilities other than those
that are provided to them. Accounting provides one of
the most signicant of those discursive forms. Thus, if corporations have a moral identity (i.e., have moral agency
and behave morally), accounting would seem to be a crucial (but not exclusive) element in enabling that to occur.
Horizontally, the proper answer to the key question of
how to live transcends the sphere of action. Embedded in
communities and societies, all individuals are somewhat
homogenized in what they value since any societys survival depends on a degree of homogenization of its members. No individual action can be evaluated out of some
historical and cultural context. Thus, the exchanges among
the levels, i.e., at the edges, are the most ethically signicant. Exchanges among these levels are ethically more signicant than actions occurring on each level separately
(McCumber, 2005 p. 164). These exchanges happen at the
edge of ethics, which McCumber denes as the place
where I have to respect things and people instead of act
on or with them i.e., where I must situate myself with respect to them. At the edge of ethics, individual actions are
channeled by relationships, which can harden into institutions. It is at the edges that we are required to most seriously examine the goodness of our ends.
A profession is a more-or-less hardened institution. At
the edge between a profession and society is the question
not just of its individual practitioners, but the ethicality of
the profession itself and whether the role it plays in society
is generally an ethical one. May (1992) describes the notion of professional responsibility that focuses on these
edges in terms of sharing responsibility. According to
May (1992, p. 38):
. . .shared responsibility calls attention to the way in
which the actions or attitudes of a group of people
resulted in a harm; that is, attention is focused on the
way in which each of us interacts with others, rather
than on the individual person as an isolated agent.
Professionals are not merely individual agents isolated
from others accountable for only their individual acts.
May elaborates as follows (1992, p. 131):
Professional status carries with it role responsibilities
that change the normal moral relations existing among
members of society. Role responsibilities are responsibilities one has to take on a certain set of tasks in society,
or perhaps by virtue of having been thrust not unwillingly into the position of assuming various tasks. . .. That
is, professionals are expected to carry out their tasks in
ways that cause minimal harm to others.
This concept emphasizes professional accountants
responsibility to society and its constituents and its need
to be attuned to the generalized Other (Shearer, 2002).
Carey (1978, p. 89) similarly notes a tendency to associate
the word ethics with philosophical disputation about
good and evil. Practical men feel that they have no time
for these luxuries. He (p. 89) laments that the public

accounting profession ethics is a pragmatic concept
because
Nobody ever sat down and wrote what he thought would
be an ideal code of behavior for certied public accountants. On the contrary, most of the rules were developed
as a result of incidents which came before the governing
bodies of the accounting societies, and which they feared
might impair public condence in the profession if repetition were not prevented in the future.
That is, professional ethics has focused main on proscribing the acts of individual accountants that might jeopardize the privileges of other accountants.
The edge of ethics concept directs behavior and suggests an order of exchange among constituents of the human worlds vertical and horizontal levels. It provides the
basis to develop a posture toward professional ethics as
an ongoing process of steering the professions members
behavior to better comprehend the implications of
accounting as a social institution, rather than simply a
vested economic interest.28 Accounting plays a critical role
in situating the corporation in the human world and provides the means to give a moral account; it makes such comprehension even more vital. According to Bunge (1996, p.
234), norms for professional and academic accountants generally assert: Thou shalt search for the truth, pursue it
wherever it may lead, and communicate it to whoever
may be interested in it. In other words, strive for Nobility.
Bunge (1996, p. 235) adds that in the social practice of
accounting truth and depth, not practical usefulness,
power, or consensus, have the last word. For example,
the Institute of Chartered Accountants of Scotlands motto
suggests that the discovery of truth is a central concern of
its members (Arthur, 2004, p. 369). The US Institute of
Management Accountants (IMA) four standards of conductcompetence, condentiality, integrity and credibility, relating to its core ethical principles of honesty,
fairness, objectivity and responsibilityrepresent IMA professional
member
norms
(http://www.imanet.org/
about_ethics_statement.asp.; Verschoor, 2005). The AICPAs Code of Professional Conduct (2010) mandates CPA
independence in fact and appearance conducting audits.
The Government Accountability Ofces (GAO) core values
are accountability, integrity, and reliability.
Ultimately, truthfulness, as opposed to deceitfulness, is
a critical virtue underlying all of these norms. The issue of
truthfulness in accounting is not analyzable in the same
sense as scientic truth. It is a truthfulness about the edge
of ethics, a truthfulness about social relationships, a truthfulness helpful to the mediation of human affairs.29 We
28
West (2003, p. 113) succinctly summarizes the professions distinct
role, i.e., [P]rofessions are relied upon to supply knowledge relevant to the
conduct of human affairs and which can be applied to mediate the
administration of those affairs. Human affairs certainly entertains a more
expansive realm of concerns than the informational interests of stock
traders.
29
If it is the latter, Cheffers and Pakaluk (2005, p. 3) argue, a virtuebased approach to ethics is best suited to the study of accounting ethics
since accounting ethics simply applies general ethics (Mautz & Sharaf,
1978).
suggest how it is sensible to associate accounting with

truthfulness in the preceding section. The mundane practices of accounting, epitomized by the bookkeeping cycle,
indicate that accounting truth lies in the integrity of the account of an entity that is veried by an auditor. Because the
account provided by accountants is not of a natural reality
but one constructed by institutions and the value judgments inherent within them, accountants must deal less
with true and false and more with more-or-less true, in
other words materiality. As a narrative about the past of
an entity, true pertains to comprehensiveness and sensibility (McCumber, 2005, p. 81). The ethical aspect of this
truth-telling, we reiterate, McCumber describes as follows,
The more important and relevant the omitted facts, the
more defective the narrative (McCumber, 2005). What
salient facts are omitted by accountants in the narratives
they provide about entities will depend on how much
attention accountants devote to focusing on the edges of
ethics.30
Adapting Williams (2010) illustration, we can adumbrate the implications for accounting of focusing on the
edge of ethics. A fundamental accounting identity is that
Net Income = Revenues Expenses. As previously discussed, the FASBs principal focus is to promulgate coherent
rules that, when followed, will produce a representation of
net income for a corporation that will be useful to investors
and creditors for assessing the timing, amount and uncertainty of cash ows. Williams (2010) expands this basic income equation to reect more explicitly the complex of
relationships that this simple equation represents (Williams, 2010, p. 27):
Gross income of shareholders = Revenues
Gross income of labor

Gross income of
suppliers
Gross income of
creditors
Gross income of
government
Net externalities
Adapting this equation to our purposes, we produce an

equivalent expression:
Gross income of shareholders = Revenues Payments to labor

Payments to suppliers
Payments to creditors
Payments to
governments
Net externalities
Net ambiguities created
by standard-setters
Since net externalities are largely ignored as an issue for

standard setting, the rst of the two income equations
illustrates how limited is the truth standard-setters cur30
Striking about the Enron scandal have been the post-collapse revelations about the corruption, cynicism, and deceit that pervaded that
community. Certainly the accounting narrative about Enron omitted
important facts and was, as was the organization itself, ignoble.
121
rently seek to communicate. For standard-setters the corporation is situated solely to create shareholder income,
which standard-setters presume they are uniquely qualied to determine. This essentially value judgment is justied via the neo-liberal argument that the only purpose of a
corporation is to concern itself with shareholder income
(Friedman, 1970). Indeed, due to this standard-setter focus,
we added the last term in the second, modied equation.
The induced ambiguity created by standard-setters seeking
a recipe for representing an exceedingly ambiguous thing
called net income makes the truth told about a corporation
via nancial reporting exceedingly limited.
However, modifying the income equation exemplies a
much more expansive truth that may be told about any
corporation. Corporations have the privilege of eternal life,
immunity from incarceration or execution for crimes, with
limited liability for its owners, and, in the US, the status of
personhood affording the corporation the same rights as
those of a real human being. While theorists have long
noted the problems of externalities (e.g., Gambling, 1974)
neither standard-setters nor accounting researchers have
paid much attention to the problem of representing more
comprehensively the corporations relationships at the
edge of ethics.31
Greeneld (2006) calls corporations the great externality machines (risk shifters in Hackers (2006) term). For
example, various US state governments often compete for
the favor of corporations by offering them generous nancial incentives (e.g., donated assets, tax credits, tax forgiveness and lower tax rates) to encourage them to relocate
operations in the state. These incentives are actually state
citizens investments in these rms in anticipation of benets, which are mainly more well-paying jobs for state citizens and attendant multiplier benets. Citizens should
evaluate whether this corporate relationship is paying
off, but current accounting practice makes this relationship
invisible. The provided subsidies ow through as a form of
income and become owners equity. Is it true that it is
owners equity or is it more true to say that there is an
equity stake by the citizens of the state?32 Citizens have assumed some risks of the corporation, but current standards
generally misrepresent key facts about the status of this
relationship. The narrative currently being told about corporations by conformance to FASB/IASB rules is so circumscribed as to hardly meet McCumbers criterion of Nobility.
31
A concrete, recent example is the recent US Supreme Court decision in
the Citizens United versus Federal Election Commission case in which the
Court struck down a provision of the McCain-Feingold Act prohibiting
corporations from broadcasting electioneering communications. Now corporations have no limits on how much money they can spend in
communications designed to inuence elections. Situating American
corporations for the citizens of the US would seem to require some kind of
nancial reporting that indicated how much a corporation spent on such
communications.
32
A salient example of this is provided by Johnston (2007). Citing studies
by Neil deMause and by Forbes magazine, Johnson concludes that . . .the
entire operating prot of the commercial sports industry comes from the
taxpayers (Johnston, 2007, p. 63). This means that the protability of the
National Football League, the National Basketball Association, Major League
Baseball, and the National Hockey League depends on the subsidies that are
provided to them primarily in the form of stadia and arenas and the land
upon which they sit.
122
Decision usefulness has been and continues to be applied in accounting to justify its activities, a singular
emphasis on an accounting discourse which we view as
highly problematic and seriously impairing accounting as
an ethical practice. Neimark (1994, p. 102) argues that
the accounting profession hides its bias (partisanship) behind claims of objectivity, independence and representational faithfulness, and insists that its only social function
is to provide information that is useful for decision making to difdent information users. This pretence has culminated in imposing such blunt governmental actions as
SOX, which profoundly restructured the entire US accounting profession. Mautz and Sharaf (1978) asserted that society grants a profession the exclusive right, a monopoly, to
perform certain tasks and practice self-regulation. As SOX
shows, if this monopoly is abused, society can revoke the
privilege of self-regulation.
Summary and conclusions
Truth poses a genuine problem for accounting, one that
cannot be so easily nessed by appeals to decision usefulness. McCumbers (2005) reformulating the concept of
truth helps explain how truth and ethics are interrelated.
Accountings effort to provide the structured narrative to
situate us vis--vis the public corporation is regulative,
implying that the accountants relationship to management is not as an enabler but that of persons engaged in
conict. Independent auditor/Corporate-management conict involves two powers: the pecuniary temptation of
management to induce the auditor to sanction Ignobility
versus the integrity of auditors to resist such temptation.
To escape (rather than solve) this dilemma, accountingstandard setters have replaced a responsibility for truth
with decision usefulness, which, given the ambiguity of
decision usefulness, effectively absolves them of responsibility for the consequences of their actions.
Major corporate scandals such as the savings and loan
failures over the last 30 years have raised public disappointment so much that the SOX Act of 2002 sought to limit corporate managements power over the auditor and
strengthen the latters weakening will-power to oppose
corporate malfeasance. Because decision usefulness power
to guide ethical conduct is so weak the law has stepped
into protect society from the monopoly granted to the
profession.
We seek to provide fresh perspectives on how to think
appropriately about truth and accounting. Popularly, people
still refer to false, misleading, or fraudulent nancial statements as if there could exist true, not misleading, and not
fraudulent ones. Yet the current regime for producing nancial statements, with its decision usefulness justication,
virtually guarantees nancial reports will be a hodge-podge
of ersatz representations unconnected to any correspondence to a genuine story being told about an entity (West,
2003). We used McCumbers (2005) temporality of truth
to argue that the truthfulness that inheres in accounting is
the comprehensiveness and reliability of the narrative it
provides about any entitys past. Historically, accountings
claim to be truthful has lain in the narrative structure it provides for giving a veriable account of historical, remem-
bered acts taken to bring an entity from its past to its now.
We also argue that the increasing hegemony that neoclassical economic ideology has gained over accounting thought
has led to the decision usefulness discourse that has made
standard-setting increasingly incoherent and, thus, the act
of verication (the CPAs claim to professional status) nearly
impossible (Williams & Ravenscroft, 2010). Finally, we
introduce the notion of the edge-of-ethics as the sites
where accounting needs to situate its ethical focus.
Accounting is an institution, not merely an industry selfcontained by its own economic interests. The accounting
profession is deemed to perform an important social function by providing assurance that what powerful institutions
say about themselves is true. Harkening to McSweeneys
possibility of objectivity, the philosopher Michael Lynch
notes the importance of truth as a political value:
Just having the concept of objective truth opens up a
certain possibility. It allows us to think that something
might be correct even if those in power disagree. Without it, we wouldnt be able to distinguish between what
those in power say is the case and what is the case
(Lynch, 2004, p. 3).
The important social function of accounting, particularly in democracies, is informing on the affairs of powerful
institutions, i.e., situating them in the present so that decisions may be made about them. As the current owners of
the accounting function, professional accountantsauditors should consider whether the goal of more Noble narratives is not a more ethically defensible one for a
profession than providing dubiously predictive data only
to creditors and investors.
Acknowledgments
We appreciate the helpful comments from David Stout
(Youngstown State University), Mohammad Abdolomohammadi (Bentley College), Philip Beaulieu (University of
Calgary), Tom Tyson (St. Johns Fischer College), Phil Meyer
(Boston University, Retired), Martin Leibowitz (Yeshiva
University), Pamela Roush (University of Central Florida),
Abe Akresh (Government Accountability Ofce), two anonymous reviewers, and Lianna Cecil (Wayne State University Masters Student) for their help on earlier drafts of
this manuscript.
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Accounting, Organizations and Society

To tell the truth: A discussion of issues concerning truth and ethics

School of Management, University of Michigan-Dearborn, Dearborn, MI 48126-2638, United States

Corresponding author. Tel.: +1 919 515 4436.

M.E. Bayou et al. / Accounting, Organizations and Society 36 (2011) 109124

50 US states give CPAs a monopoly to fulll the publics

The expectations for a true accounting

under the International Accounting Standards Committees

M.E. Bayou et al. / Accounting, Organizations and Society 36 (2011) 109124

The dilemma of truth in accounting

M.E. Bayou et al. / Accounting, Organizations and Society 36 (2011) 109124

COHERENCE AND CORRESPONDENCE: STANDARD SETTING VS. AUDITING

an arbitrary point in time is decidedly any more decision

arising as a consequence of the historical events associated

M.E. Bayou et al. / Accounting, Organizations and Society 36 (2011) 109124

cedures are followed. In the oil and gas, successful

Archer and McLeay (1990) argue that the coherence

tential future economic benets, but verifying that future is

M.E. Bayou et al. / Accounting, Organizations and Society 36 (2011) 109124

accountability [emphasis in original] has clearly been

The neo-liberal revolution and decision usefulness

M.E. Bayou et al. / Accounting, Organizations and Society 36 (2011) 109124

elusive to dene that some philosophers, e.g., Horwich

M.E. Bayou et al. / Accounting, Organizations and Society 36 (2011) 109124

day-to-day business activity. Bookkeeping was designed

M.E. Bayou et al. / Accounting, Organizations and Society 36 (2011) 109124

McCumbers Six-way Interplay of Situating

Everything that has happened inherently unknowable

The personal history which

Everything that is happeningalso unknowable

The one about which we know

Set of things about which

Source: Adapted from McCumber, 2005.

accountants are compelled to make in order to represent

M.E. Bayou et al. / Accounting, Organizations and Society 36 (2011) 109124

past that is constructed in memory; it is constructed because

perhaps, determining criminal behavior.25 In McCumbers

M.E. Bayou et al. / Accounting, Organizations and Society 36 (2011) 109124

that they can order a diversity of material. They are

My claim is that in order to act ethically, we must have

M.E. Bayou et al. / Accounting, Organizations and Society 36 (2011) 109124

society and its laws provide them. Schweiker (1993, p.

for these luxuries. He (p. 89) laments that the public

M.E. Bayou et al. / Accounting, Organizations and Society 36 (2011) 109124

suggest how it is sensible to associate accounting with

Gross income of shareholders = Revenues

Gross income of labor

Adapting this equation to our purposes, we produce an

Gross income of shareholders = Revenues Payments to labor

Since net externalities are largely ignored as an issue for

M.E. Bayou et al. / Accounting, Organizations and Society 36 (2011) 109124

M.E. Bayou et al. / Accounting, Organizations and Society 36 (2011) 109124

Ijiri, Y. (1975). Theory of accounting measurement: Studies in accounting

M.E. Bayou et al. / Accounting, Organizations and Society 36 (2011) 109124

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