Accounting Thought and Practice Reforms: Ray Chambers’ Odyssey

A blog by Graeme Dean, Martin Persson and Franke Clarke

This blog summarizes and celebrates the intellectual contributions of Raymond John Chambers (born 16 November 1917, died 13 September 1999). It was commissioned because the works of Chambers, described by Edwards (1994)as one the twentieth century’s greatest accounting thinkers, are only minimally known to present day students and younger academics. This overview canvasses the forces that fostered the development of Chambers’ ideas and also those that hindered their implementation.

More than fifty years have passed since Chambers’ first classic, Accounting, Evaluation and Economic Behavior (1966), was published, more than forty since Securities and Obscurities: Reform of the Law of Company Accounts (1973; republished in 1982a as Accounting in Disarray), and over twenty since the appearance of the unique An Accounting Thesaurus: 500 Years of Accounting (1995). They are drawn upon extensively in a recent biography of Chambers’ intellectual contributions (Clarke, Dean, & Persson, 2019), as are other of his published works. However, more importantly, the biography, some of which is summarized below, also analyses archival correspondence not previously examined.

Chambers sought to reform accounting in the late 1950s and throughout the 1960s and 1970s. During that period, many theories of accounting emerged—such as the ones produced by Chambers, Mattessich, Ijiri, Sterling and others.[1] Chambers’ purpose was to provide a more rigorous research basis for accounting practice, which up to that point had essentially been driven by dogma and custom. He referred on several occasions to the pragmatic, trial and error origins of accounting procedures, the absence of “integration and coordination” in accounting doctrine, and the general lack amongst accountants of a scientific approach to resolving accounting problems.

Chambers’ odyssey began by seeking to better understand Chambers’ thoughts, by identifying the contemporary accounting thinking of American and European scholars. He was in that regard truly an “internationalist” researcher and reformer—for over twenty years he corresponded widely and, importantly, travelled (often with his family), first to Europe in 1959 and then to the USA (for a total of 4.5 years out of those 20 years). He was an advocate for change, who dared to dream to rid accounting thought of its infelicities, its rationalizing practice and addiction to dogma; and to formulate a theoretically based system of accounting founded on principles drawn from the domain of commerce—his conceptual framework. He argued that the data produced should be the wellspring for economic action by managers and other interested parties.

The 1950s and 1960s was an age of accounting discovery. Described as the golden age of a priori accounting research (see Gaffikin, 2005; Nelson, 1973), it had all the excitement and experimentation of the participants of similar epochs in other areas, like the Impressionists and Modernist art movements with their influences from developments in cognate disciplines such as music, fashion, theatre, and cinema. In the case of accounting, those other disciplines included law, economics, mathematics, psychology, and communication. Experimentation and excitement flourished with the cross-fertilization of ideas. Chambers experimented with simplified frameworks (e.g., his “transactionless” firm, a different balance sheet notation and a penchant for eclecticism), and drew widely on contemporary developments in those disciplines, in particular metrology, communication, and psychology (e.g., see Chambers, 1991).

Chambers’ theory contributions—CoCoA

At a time when others were concentrating on accounting from an “earnings viewpoint”—especially having recourse to what is been described as the matching principle—Chambers adopted a “balance sheet” viewpoint in the calculation of income, and the need to articulate definitions of asset, liability, revenue, expense, distributions, and contributions—and of course the property of assets and liabilities to be measured. In this regard, he anticipated what is now widely known as the “conceptual framework” of accounting and the real (in an economics sense) exit price form of fair value accounting.

The forging of those theoretical ideas produced in the mid-1970s his Continuously Contemporary Accounting or, as it became known, CoCoA. It emerged over a decade or more from many attempts to solve simultaneously several recurring accounting problems—(i) asset valuation dilemmas generally, but specifically in takeovers with their related asset-stripping and related undervaluation sagas, and in unexpected company failures with associated overvaluations, (ii) how to account for both specific price and general price level changes, and (iii) legal anomalies in corporate financial reporting—rather than, as conventionally had been the case, treating them as isolated problems. Through trial and error elimination, his preference changed from an entry price measurement basis (i.e., replacement cost) to one based on exit prices. Augmenting this was an understanding by the early 1960s that an accounting system should have a mechanism to allow also for either an increase or decrease in the changes in the general level of prices.

In essence, CoCoA is founded on several legal, ethical, and mathematical principles as well as several economic propositions. It is a financial instrumentation producing data that are generally relevant and necessary for all uses by users interested in business decision-making. Importantly, the data produced are not sufficient for those uses. CoCoA reports factual (market price) data that are verifiable (what he described as “corroborable”). Being pertinent facts, they are potentially free from the biases of the managers responsible for preparing the accounts based on them.

Under CoCoA an entity’s wealth is measured by the unencumbered current general purchasing power it commands; and over some specified time period, income arises if there is an increase in the entity’s wealth; and a loss, when there is a decrease. Wealth is the aggregate of the face values of an entity’s cash and other liquid assets, plus the cash equivalents of its severable physical assets, less the contractual amount of its liabilities. The cash (or monetary) equivalent of its separable physical assets is best indicated by their current selling prices. Transactions are accounted for consistent with traditional double-entry bookkeeping procedures and the matching principle is used systematically.

The genesis of Chambers’ path-breaking decision usefulness-based thinking is evident in correspondence related to his early management and accounting teaching positions and related curricula that he developed. The impetus to develop new curricula came partly from necessity, as instructional material was scarce when Chambers assumed his first full-time position as a Lecturer at the School of Management at Sydney Technical College in 1945. It also came from a conviction that the instructional material available was insufficient in its ability to link accounting with management and neighboring business disciplines. Chambers’ effort to innovate and reform accounting and management education therefore continued through his appointment as a Senior Lecturer at the University of Sydney in 1953, and his affiliation with the Australian Institute of Management and the Australian Administrative Staff College (today a part of Melbourne Business School).

He was, even at an early stage, a visionary who viewed accounting as having significant economic and social impacts. His accounting system embodied mathematical and linguistic symbols ensuring trust amongst market participants—as noted above his market price-based theory sought to solve two enduring and related accounting puzzles—namely “the riddle of the money illusion” and why its solution (what he called “the ideal”) had not been demanded for centuries by those in business relying on accounting. He was adamant that: “There will be no disciplined accounting, and no effective disciplining of accountants (by their own professional bodies or otherwise) until [it] is recognized. Basically, financial statements are linguistic. If by the same basic words and numbers they do not mean the same thing, they are farcical. … when words and numbers can mean virtually anything, they convey no useful message .”(Clarke et al., 2019, p. 57)

Contributions to practice

Being a loner, a gadfly working on the fringe, Chambers’ independent thinking and integrity enabled the shackles of groupthink to be avoided. This is evident in his submissions to all the major government and professional inquiries into accounting in the 1960s and 1970s. Leading UK academic and 1970s–80s reformer Eddie Stamp observed: “What impressed me most about Chambers was a quality in his character. … Ray is his own man. His independence of mind makes him subservient to no one. I have never met or heard of any practitioner (in a profession that is supposed to place a premium on independence) who can match him” (Stamp, 1982, p. 182). Interestingly, many viewed Chambers as a theorist, but they failed to acknowledge or appreciate that his theoretical ideas had been forged from his immersion in practice and consideration of practical issues.

Contrary to the conventional wisdom, Chambers undertook contiguous academic and practitioner pathways. His observations of pressing practical commercial issues drew specifically on 1940s work experiences in business and the Australian government’s wartime Prices Commission, numerous managerial education roles, and, especially, varied consultancies for all interested parties in business. He undertook consultancies over many decades for major accounting and law firms, for private companies like BHP, CSR and Qantas, for public agencies like the Prices Justification Tribunal, the Commonwealth Crown Solicitor, the NSW Solicitor General, and the Australian Prime Minister’s Department. Consultancies covered many subject areas such as sugar cane, steel, oil and gas, stevedoring, construction, property—as well as in respect of myriad management (legal, financial and accounting) matters such as pricing, dividend constraints, revenue recognition, valuation of property, and auditor negligence issues. He was clearly an effective all-rounder.

Also little known, or certainly minimally acknowledged, are several personal qualities. He treated everyone as an equal, had strong religious beliefs (drawn from his Christadelphian faith) and his lay preaching role that informed his views about disclosing up-to-date market values to facilitate “fairness” in corporate dealings. Such mark-to-market disclosures, he argued, would assist in achieving commercial order—by producing a level playing field. Interestingly, not even his closest “Sydney School” colleagues were aware of those religious beliefs (for more about the ‘Sydney School’, see Clarke, Dean, & Wells, 2010, 2012).

Another important aspect of Chambers’ work is recourse to history in proposing solutions to the abovementioned accounting problems, many of which have recurred over the last 100 years. Some remain a problem. For example, surprisingly to some, the IASB is now revisiting the method of “Equity Accounting” as part of its standards setting agenda. Chambers’ group accounting proposals, based on what he believed to be a common-sense form of equity accounting, were regarded in the late 1960s by commentators as “novel and revolutionary”, as was his recourse to the centuries-old double account mechanism to disclose properly large infrastructure costs. Chambers’ knowledge, and use, of historical materials (drawn from his immense Archive of accounting documents, books, articles, press releases) to support those reform proposals was what was “novel”.[2] They reveal that Chambers looked outside the square, innovatively, in seeking ways to resolve recurring, and what many perceived to be insoluble, practical problems. 

Standards Setting

“New” correspondence evidence in the abovementioned biography contests the view that Chambers’ failure to achieve substantial reforms to practice was due to: (i) a focus naively on “ideas”, and especially his development of what were incorrectly viewed as “revolutionary” ideas, (ii) the fact that he did not understand “special interests” and how to achieve legislative reform; and (iii) that he was always seeking an unattainable “truth in accounting”.

What is little appreciated is that he regarded as “folly” the post-1960s (near universal) politicized “committee” approach to developing standards. An early discussion of his concerns about the flawed nature of such compromise-based standards appears in his 1972 article “Anguish of Accountants” in the Journal of Accountancy. There, and reiterated in several letters to colleagues, Chambers advocated a more “scientific” approach of deducing the relevant facts and to progress the discipline by providing reliable knowledge. His views on the weakness of the committee approach are highlighted in one such letter: “It is this plethora of ‘non-argument’ that forces me to the conclusion that standards must be specific, and specified. Financial dealings may be different as between firms; but their elements are all the same. There will be no disciplined accounting, and no effective disciplining of accountants (by their own professional bodies or otherwise) until that is recognized. Basically, financial statements are linguistic” (Clarke et al., 2019, p. 57).

Those beliefs led him to propose a code-based approach to setting accounting standards, evidenced clearly in the May 1978 Report of the NSW Accounting Standards Review Committee that he chaired. He was convinced that some form of legal override like a “true and fair view of financial position and performance”, or that professionally or legally prescribed accounting data “fairly presents ….”, was a prius of any effective standards of accounting. As already alluded to, this requires recognition by educators and others that accounting is an exemplar of instrumentation; it requires the satisfaction of a few economic propositions and adherence to measurement and mathematical principles. Were this to be done accounting would legitimately be seen as a vocation to be studied at university like other practicing disciplines.[3] He noted in many letters to colleagues that the search for facts resulting in a decision usefulness-based theory was a major differentiating feature of his work, and that of another theoretical iconoclast of the 1960s and 1970s, Robert Sterling.

Impediments to reforms

The above narrative discusses Chambers’ contributions to accounting thought and practice, but it is worth noting also that he faced substantial obstacles and there remains much unfinished business. Practitioners, standards setters, and educators are generally unconvinced about the net decision making benefits of the main features of Chambers’ reforms—namely, that providing market (exit price) information in respect of all of an entity’s assets and liabilities, albeit with estimation error, is preferable to supposedly less error in respect of the primarily less relevant, allocated cost-based information reported presently in accounts. Initial concerns have endured, namely resistance from inertia, antipathy to accounting innovation, a penchant for conservatism (sometimes called ‘prudence’), and it would seem that political forces have changed little since the 1950s when Chambers first proposed his reforms. Those running businesses generally still prefer secrecy to disclosure.

In summary

While Chambers provided several article-length bibliographical summaries of his work (see Chambers, 1982b; Chambers & Dean, 1986; Chambers & Dean, 2000), without the benefits of reviewing and interspersing what he has noted with insights from the correspondence materials in the recently launched University of Sydney Chambers Archive, there is a lack of appreciation of the impact of factors such as his early childhood and nuances related to his practical (including numerous consultancies) and academic experiences. The above summary of his intellectual contributions provides a basis, especially for current students and younger academics, to have an informed response to those critics who claim Chambers’ reforms were naive. They allow the inference that Chambers was a man of theory and practice whose theoretical ideas were solidly grounded on observations from varied interests and experiences. This and the new evidence in the first book-length biography of Chambers’ lifedifferentiates it from earlier analyses of Chambers’ contribution to the accounting literature. That evidence supports the continued push for Chambers’ reforms to accepted accounting thought and practice to ensure accounting is the serviceable technology so admired by Pacioli, Da Vinci, and many other Renaissance pioneers. Possibly his odyssey may ultimately result in accounting being accepted alongside other university applied disciplines—as Goethe quipped about accounting in Wilhelm Meister’s Years of Apprenticeship (1795–96), it is “one of the finest inventions of the human mind”.

26 January, 2019.

References

Accounting Standards Review Committee. (1978). Company Accounting Standards. Sydney: N.S.W. Government Printer.

Chambers, R. J. (1966). Accounting, Evaluation and Economic Behavior (1st ed.). Englewood Cliffs, NJ: Prentice-Hall.

Chambers, R. J. (1972). The Anguish of Accountants. Journal of Accountancy, 133(3), 68-74.

Chambers, R. J. (1973). Securities and Obscurities: A Case for Reform of the Law of Company Accounts. Melbourne: Gower Press.

Chambers, R. J. (1982a). Accounting in Disarray: A Case for Reform of the Law of Company Accounts. New York & London: Garland Publishing.

Chambers, R. J. (1982b). A Bibliography of Raymond J. Chambers. Abacus, 18(2), 185-201.

Chambers, R. J. (1991). Foundations of Accounting. Geelong: Deakin University Press.

Chambers, R. J. (1995). An Accounting Thesaurus: 500 Years of Accounting. Oxford: Pergamon.

Chambers, R. J., & Dean, G. W. (Eds.). (1986). Chambers on Accounting: Continuously Contemporary Accounting (Vol. 5). New York & London: Garland Publishing.

Chambers, R. J., & Dean, G. W. (Eds.). (2000). Chambers on Accounting: Logic, Law and Ethics (Vol. 6). London & New York: Routledge.

Clarke, F. L., Dean, G. W., & Persson, M. E. (2019). Accounting Thought and Practice Reform: Ray Chambers’ Odyssey. London & New York: Routledge.

Clarke, F. L., Dean, G. W., & Wells, M. C. (2010). The Sydney School of Accounting: The Chambers Years. Sydney: Sydney University Press.

Clarke, F. L., Dean, G. W., & Wells, M. C. (2012). The Sydney School of Accounting: The Chambers Years (R. Edition Ed.). Sydney: Sydney University Press.

Dean, G. W., Wolnizer, P. W., & Clarke, F. L. (2006). The R.J. Chambers Collection: An "Archivists's" Revelations of 20th Century Accounting Thought and Practice. Accounting Historians Journal, 33(2), 145-166.

Edwards, J. R. (Ed.) (1994). Twentieth Century Accounting Thinkers. London & New York: Routledge.

Gaffikin, M. J. R. (2005). The a Priori Wars: The Modernisation of Accounting Thought. Accounting Forum, 27(3), 291-311.

Goethe, J. W. (1959). Wilhelm Meister’s Years of Apprenticeship (T. Carlyle, Trans.). New York: Limited Editions Club.

Ijiri, Y. (1967). The Foundations of Accounting Measurement. Sarasota, FL: American Accounting Association.

Mattessich, R. V. (1964). Accounting and Analytical Methods: Measurement and Projection of Income and Wealth in the Micro- and Macro-Economy. Homewood, IL: Richard D. Irwin Publishing.

Nelson, C. (1973). A Priori Research in Accounting. In N. Dopuch & L. Revsine (Eds.), Accounting Research 1960-1970: A Critical Evaluation (pp. 3-19). Urbana-Champaign, IL: Center for International Education and Research in Accounting.

Stamp, E. (1982). R. J. Chambers: Laudatio Viri Veritati Studentis. Abacus, 18(2), 182-184.

Sterling, R. R. (1970). Theory of the Measurement of Enterprise Income. Lawrence, KS: University Press of Kansas.

Zeff, S. A., & Whittington, G. (2001). Mathews, Gynther and Chambers: Three Pioneering Australian Theorists.