Accounting
Power of Accounting
Topic Takeaway
Case Study: Emissions Government & Greta say emissions have fallen 42% and 10% respectively since 1990 due to different
considerations regarding emissions: territorial (no shipping (5%) or aviation) vs consumption (harder to
measure)
Highlights the need for accounting practices
Origins of Accounting Ezzamel- Egyptian scribes were early accountants (worked with ledgers & balance carried forward) and was
considered a prestigious job
Quattrone (2014) discusses how accounting emerged in Venice due to a need to allocate and monitor
resources & how it allowed Venice to rebuild quickly after the 1571 siege by the Ottomans due to cost
identification, inventory calculations and salaried managers
Zambon & Zan (2007) says accounting emerged as a tool for understanding and changing operations
Tucci (1973) argues that accounting emerges to deal with coordination, control & accountability to
demonstrate trustworthiness of transactor- ‘Show me the books’
Kaplan (1984) talks about the development of accounting from textile mills & railroads which needed
information structuring for planning and how it developed with Clark’s (1923) introduction of avoidable costs,
differential costs, sunk costs, the separation of financial and cost accounting, GM & DuPont’s development of
ROI measurements as the true test for profitability.
Kaplan (1984) argues that a problematic focus on short-term financial goals has arisen now due to push for
short term profits, larger organisations which make the sacrifice of long goals for SR less noticeable, bonuses
linked to performance & managers who are unfamiliar with products
Willman (2014) argues that double-entry bookkeeping allowed for capitalism in that it provided form &
context as a rational calculation for managing industrial concerns
Accounting & Sustainable profit is where all activities are sustainable
Sustainability However, it is hard to capture economic reality in accounting due to inability to capture environmental costs
Accountants are not proactive revolutionaries but they are toolmakers for what they measure and account for
is what the organisations are held responsible for e.g. climate accountability demanded by society
Accountants have power as they are the official communicators of a certain reality
,Analysis of Accounting Caruthers & Espeland (1991) argue that accounting was useful for managers (efficiency & productivity),
Investors (ROI and for Joint Ventures to keep on trade) and government (tax sources). Investors also used it to
monitor managers (action at a distance) e.g. UK investors in US railroads
Power (2004)- there is a cultural acceptance of numbers as objective and precise but in reality they are
reductivist, just follow the accountant’s DM, and are a measure of control as measurements make a domain
on a fact for specific control purposes (tyranny)
Solution from Japan: talking cost rather than measuring
Robson (1992) argues that Accounting allows for action at a distance as a form of surveillance (control) which
is impersonal e.g. actions of workers shown as costs
Hines (1988) discusses how the ‘True & Fair’ view in accounting is subjective. Accounting must reflect the
preconceived notion of reality or people lose faith and there are hearings, lobbying, investigations, public
criticisms.
The power of accounting lies in how valuation changes lead to social changes e.g. Pollution awareness
Hines (1988) argues that accounting does not reflect reality: it is just one skewed version of it that shapes the
debate as people act on basis of picture that is created
o Self-fulfilling prophecy where becomes reality in consequences such as preparing account on basis of
liquidation values rather than costs
Ecotopia & Carbon Ecoptia- recycle & reuse, no synthetic fibres due to production costs, 20 hour work weeks
Diaries Insights o Society where all externalities are accounted for with 0 waste (blue economy) is worked out through
approximations and requires complex accounting practices (optimistic guesswork)
Carbon Diaries- allocation of carbon points- breakdown of society (anger, denial, functional chaos in
transition, changes in skillsets)
Performance Evaluation
Topic Takeaway
Control Systems Control systems used to serve the strategic objectives of firms (Kaplan) as they allow firms to achieve
, Introduction objectives more efficiently, foster strategic renewal and aids strategic execution
There has been a trend in management for mass reliance and confidence on quantitative performance
measurements
Decision Making DM depends on uncertainty in objectives and in cause & effect
o Clear Objective, Unclear Cause & Effect = DM tempered by Judgement
o Unclear Objectives, Clear Cause & Effect= DM made by Compromise
o Both Unclear- DM taken by intuition
The Ideal Performance Parsimony- few measures that carry a lot of information where it is easy to understand performance and
Measurement (Meyer performance measurement
2002) Predictive
Pervasive- can be applied throughout firm, only the case with financial measures
Stability for long-term goals
Reward for performance
The Balanced Scorecard Dials on a plane- gives complex information at a glance and allows firm to measure, monitor & correct actions.
Focus on financial (rapid growth (focus on sales) vs maintaining position (focus on margin, cost)), customer
(market share, satisfaction), process (identifying critical elements, big data helps) and learning & growth
variables (essential infrastructure).
Focus only on few measures that bring disparate elements together in one place so can see if improvement of
one is at expense of another
Example: Tesco Wheel includes customer, consumer, community, finance
Requires not finance experts but senior partners who have complete picture
Assumes that improving operational measures will lead financial to follow but this is not always the case e.g.
NYSE Electronic Company- quality improved but not finances
Good for benchmarking against competition
Both financial & non-financial metrics e.g. Analog Devices had customer quality, employee & manufacturing
metrics in BS as Senior management should see both financial and non-financial
Note: doesn’t specify employee action only outcome so doesn’t find winning strategy
Balanced Scorecard BS just an off-the-shelf checklist- better to choose PM based on Causal models but only 30% of firms do this
Limitations Links between PM and performance not validated just assumed to be self-evident e.g. IT forged alliances with
Vendors but no evidence that this will improve chances of getting new work- 70% of firms employ metrics that
Power of Accounting
Topic Takeaway
Case Study: Emissions Government & Greta say emissions have fallen 42% and 10% respectively since 1990 due to different
considerations regarding emissions: territorial (no shipping (5%) or aviation) vs consumption (harder to
measure)
Highlights the need for accounting practices
Origins of Accounting Ezzamel- Egyptian scribes were early accountants (worked with ledgers & balance carried forward) and was
considered a prestigious job
Quattrone (2014) discusses how accounting emerged in Venice due to a need to allocate and monitor
resources & how it allowed Venice to rebuild quickly after the 1571 siege by the Ottomans due to cost
identification, inventory calculations and salaried managers
Zambon & Zan (2007) says accounting emerged as a tool for understanding and changing operations
Tucci (1973) argues that accounting emerges to deal with coordination, control & accountability to
demonstrate trustworthiness of transactor- ‘Show me the books’
Kaplan (1984) talks about the development of accounting from textile mills & railroads which needed
information structuring for planning and how it developed with Clark’s (1923) introduction of avoidable costs,
differential costs, sunk costs, the separation of financial and cost accounting, GM & DuPont’s development of
ROI measurements as the true test for profitability.
Kaplan (1984) argues that a problematic focus on short-term financial goals has arisen now due to push for
short term profits, larger organisations which make the sacrifice of long goals for SR less noticeable, bonuses
linked to performance & managers who are unfamiliar with products
Willman (2014) argues that double-entry bookkeeping allowed for capitalism in that it provided form &
context as a rational calculation for managing industrial concerns
Accounting & Sustainable profit is where all activities are sustainable
Sustainability However, it is hard to capture economic reality in accounting due to inability to capture environmental costs
Accountants are not proactive revolutionaries but they are toolmakers for what they measure and account for
is what the organisations are held responsible for e.g. climate accountability demanded by society
Accountants have power as they are the official communicators of a certain reality
,Analysis of Accounting Caruthers & Espeland (1991) argue that accounting was useful for managers (efficiency & productivity),
Investors (ROI and for Joint Ventures to keep on trade) and government (tax sources). Investors also used it to
monitor managers (action at a distance) e.g. UK investors in US railroads
Power (2004)- there is a cultural acceptance of numbers as objective and precise but in reality they are
reductivist, just follow the accountant’s DM, and are a measure of control as measurements make a domain
on a fact for specific control purposes (tyranny)
Solution from Japan: talking cost rather than measuring
Robson (1992) argues that Accounting allows for action at a distance as a form of surveillance (control) which
is impersonal e.g. actions of workers shown as costs
Hines (1988) discusses how the ‘True & Fair’ view in accounting is subjective. Accounting must reflect the
preconceived notion of reality or people lose faith and there are hearings, lobbying, investigations, public
criticisms.
The power of accounting lies in how valuation changes lead to social changes e.g. Pollution awareness
Hines (1988) argues that accounting does not reflect reality: it is just one skewed version of it that shapes the
debate as people act on basis of picture that is created
o Self-fulfilling prophecy where becomes reality in consequences such as preparing account on basis of
liquidation values rather than costs
Ecotopia & Carbon Ecoptia- recycle & reuse, no synthetic fibres due to production costs, 20 hour work weeks
Diaries Insights o Society where all externalities are accounted for with 0 waste (blue economy) is worked out through
approximations and requires complex accounting practices (optimistic guesswork)
Carbon Diaries- allocation of carbon points- breakdown of society (anger, denial, functional chaos in
transition, changes in skillsets)
Performance Evaluation
Topic Takeaway
Control Systems Control systems used to serve the strategic objectives of firms (Kaplan) as they allow firms to achieve
, Introduction objectives more efficiently, foster strategic renewal and aids strategic execution
There has been a trend in management for mass reliance and confidence on quantitative performance
measurements
Decision Making DM depends on uncertainty in objectives and in cause & effect
o Clear Objective, Unclear Cause & Effect = DM tempered by Judgement
o Unclear Objectives, Clear Cause & Effect= DM made by Compromise
o Both Unclear- DM taken by intuition
The Ideal Performance Parsimony- few measures that carry a lot of information where it is easy to understand performance and
Measurement (Meyer performance measurement
2002) Predictive
Pervasive- can be applied throughout firm, only the case with financial measures
Stability for long-term goals
Reward for performance
The Balanced Scorecard Dials on a plane- gives complex information at a glance and allows firm to measure, monitor & correct actions.
Focus on financial (rapid growth (focus on sales) vs maintaining position (focus on margin, cost)), customer
(market share, satisfaction), process (identifying critical elements, big data helps) and learning & growth
variables (essential infrastructure).
Focus only on few measures that bring disparate elements together in one place so can see if improvement of
one is at expense of another
Example: Tesco Wheel includes customer, consumer, community, finance
Requires not finance experts but senior partners who have complete picture
Assumes that improving operational measures will lead financial to follow but this is not always the case e.g.
NYSE Electronic Company- quality improved but not finances
Good for benchmarking against competition
Both financial & non-financial metrics e.g. Analog Devices had customer quality, employee & manufacturing
metrics in BS as Senior management should see both financial and non-financial
Note: doesn’t specify employee action only outcome so doesn’t find winning strategy
Balanced Scorecard BS just an off-the-shelf checklist- better to choose PM based on Causal models but only 30% of firms do this
Limitations Links between PM and performance not validated just assumed to be self-evident e.g. IT forged alliances with
Vendors but no evidence that this will improve chances of getting new work- 70% of firms employ metrics that
