{"id":1500,"date":"2021-03-29T15:07:02","date_gmt":"2021-03-29T13:07:02","guid":{"rendered":"https:\/\/eaa-online.org\/arc\/blog\/blog\/accounting-theory-and-standard-setting-antecedents-fair-value-accounting\/"},"modified":"2022-10-19T08:34:42","modified_gmt":"2022-10-19T06:34:42","slug":"accounting-theory-and-standard-setting-antecedents-fair-value-accounting","status":"publish","type":"post","link":"https:\/\/eaa-online.org\/arc\/blog\/2021\/03\/29\/accounting-theory-and-standard-setting-antecedents-fair-value-accounting\/","title":{"rendered":"Accounting Theory and Standard-Setting \u2013 Antecedents of Fair Value Accounting?"},"content":{"rendered":"

This blog entry arose because, coincidentally, in mid-February and March 2021 \u00a0two articles appeared in\u00a0Accounting History<\/em>\u00a0and\u00a0Accounting Horizons\u00a0<\/em>respectively, discussing contributions to the literature of two members of the \u201cSydney School of Accounting\u201d. One relates to the founder, Ray Chambers, the other to one its members, Frank Clarke. Both provide an understanding of the School\u2019s focus, especially what is needed to reform accounting thought and practice. Reference to the Sydney School is attributed first to Murray Well\u2019s July 1976\u00a0Accounting Review<\/em>\u00a0article, \u2018A Revolution in Accounting Theory\u2019 (pp. 471-82), while Clarke, Dean and Wells\u2019\u00a0The Sydney School of Accounting: The Chambers Years<\/em>\u00a0(University of Sydney, 2012) provides a history of the School, especially its founder\u2019s involvement, its main research and teaching ideas and its output.<\/p>\n

The first article is Cambridge University\u2019s Geffrey Whittington review of a biography of the Ray Chambers (Accounting Thought and Practice Reform: Ray Chambers\u2019 Odyssey<\/em>). First published online in\u00a0Accounting History<\/em>\u00a0on 16 February 2021, it can be viewed at\u00a0https:\/\/journals.sagepub.com\/doi\/full\/10.1177\/1032373220981410<\/a>. Whittington notes that he is a \u2018critical\u2019, but certainly \u2018not hostile reviewer\u2019. Footnote 1 of the article shows that he provided comments on drafts of the biography. EAA members might recall that an account of the biography had appeared as a January 2019 entry on the EAA ARC Blog that received thousands of views.<\/p>\n

Whittington makes many useful points about Chambers and the School\u2019s ideas in a well-informed and beautifully written analysis. \u00a0Points made include: Research since the 1960s has \u00a0often been misguided in respect of normative v. positive theory issues, with related implications for standards setters. Whittington aptly captures the reason for Chambers\u2019 valuation preference (mentioning the need for \u201ceconomic opportunities\u201d in the form of his advocacy of a market (exit) price accounting appropriately adjusted for general price level changes) and he summarizes clearly why Chambers advocated the need for these data. Expectations, like forecast data, were rejected as being legitimate for inclusion in financial accounts by Chambers, hence there is a major difference between Chambers\u2019 preferred accounting and fair value accounting. Similarly, apt are comments by Whittington about the difficulties in operationalizing the decision usefulness perspective and the related information perspective. Regarding the former, the AAA\u2019s 1977\u00a0Statement on Accounting Theory and Theory Acceptance<\/em>\u00a0\u00a0monograph argued it \u00a0had its genesis in Chambers\u2019 1955 \u2018Blueprint for a Theory of Accounting\u2019 published in the UK\u2019s\u00a0Accounting Research<\/em>\u00a0journal (vol. 6:1).<\/p>\n

Further, Whittington presciently argues for the so-called \u201ctheoretical\u201d and \u201cempirical\u201d advocates to see worth in both approaches. He speculates why Chambers had failed to bring along other leading 1960s market price advocates (in their case advocating replace price without general price level adjustments that entail different capital maintenance notions) such as Mathews, Gynther and Edwards & Bell; this would prove to be another very important missed opportunity, especially around the time of the inflation accounting debates of the 1970s-\u201880s. Whittington observes Chambers\u2019 trenchant criticism and anathema of the use of committees evident in\u00a0the typical standard-setting process involving debate and compromise between stakeholders. An example is the International Accounting Standards Board\u2019s (IASB) due process intended to give standards legitimacy within their constituency. He explains: \u2018Chambers appears to have believed that logic (\u201cinvolved argument\u201d) applied to assumptions based on \u201cevidence\u201d should be enough to derive a unique set of good standards\u2019.<\/p>\n

The second article, \u2018Frank Lewis Clarke (1933-2020: An International journey in quest of a more serviceable accounting\u2019,\u00a0Accounting Horizons<\/em>\u00a0(March 2021; pp. 205-19;\u00a0https:\/\/doi.org\/10.2308\/acch-10763<\/a>), is a memorial to Frank Clarke who died in 1 January, 2020. Co-authored by\u00a0Graeme\u00a0Dean, Martin Persson and Massimo Sargiacomo, the memorial details Clarke\u2019s efforts in publishing widely, on myriad issues with a constant theme, namely that accounting has failed to produce serviceable data for the uses ordinarily involved in commerce.-\u00a0Much of his research examined accounting anomalies revealed in analyses of corporate financial dilemmas and unexpected corporate collapses.\u00a0During a career spanning several decades, Clarke published over 50 articles in scholarly journals, a dozen books, smaller pieces in professional outlets and popular press, and many submissions to professional and governmental inquiries. He often workshopped pieces, attending and presenting papers nearly every year at EAA Congresses from 1980 till 2012. He visited and presented papers at many European universities and acquired life-long friends on that journey, some of whom are noted in the memorial. Using historical methods Clarke shows in several works how the notion of fair value has mutated, highlighting its many forms — most notably: \u2018Inflation Accounting and the Accidents of History\u2019,\u00a0Abacu<\/em>s (1980, vol. 16:2: 79\u201399;\u00a0https:\/\/doi.org\/10.1111\/j.1467-6281.1980.tb00089.x<\/a>)\u00a0and \u2018Commentary: Business Black Swans and the Use and Abuse of a Notion\u2019,\u00a0Australian Accounting Review<\/em>\u00a0(2010, vol. 20: 2, p. 185-194<\/a>;\u00a0http:\/\/dx.doi.org\/10.1111\/j.1835-2561.2010.00091.x<\/a>)<\/p>\n

Common to the memorial and Whittington\u2019s review is a recognition that an academic should seek a better accounting, namely, one that is more serviceable in the context of the twin purposes of accounting \u2014 decision making and accountability. This entails professing false doctrines and seeking the truth. It also entails a broad notion of research, one that utilizes eclectic research methods.<\/p>\n

The blog concludes with an extract from the Wittington review, noting that many lessons are evident in the Ray Chambers\u2019 biography.<\/p>\n

\u201cTheoretical work and its application are still carried out in the world of accounting standard-setting and regulation. For example, the IASB has recently issued its revised Conceptual Framework, which has a direct lineage to Moonitz and, through him, to Chambers, whose correspondence is recorded in\u00a0The Odyssey<\/em>. Innovations in business and financial markets continue to generate new types of business transactions and new financial instruments, and these developments are likely to sustain the demand for analytical accounting theory to assist practitioners and regulators in devising appropriate accounting methods. This may encourage a revival of accounting theory research. If the revival occurs, Chambers should be recognised as one of the outstanding pioneers of accounting theory on whose work future scholars will build. This will include learning the context in which the ideas which we have inherited were developed: this is essential for understanding their relevance to the present and future. The Chambers Archive is a rich source for such studies, and we should be grateful to the authors of\u00a0The Odyssey<\/em>\u00a0for reminding us of this.\u201d<\/p>\n

<\/div>\n","protected":false},"excerpt":{"rendered":"

This blog entry arose because, coincidentally, in mid-February and March 2021 \u00a0two articles appeared in\u00a0Accounting History\u00a0and\u00a0Accounting Horizons\u00a0respectively, discussing contributions to the literature of two members of the \u201cSydney School of Accounting\u201d. One relates to the founder, Ray Chambers, the other to one its members, Frank Clarke. Both provide an understanding of the School\u2019s focus, especially […]<\/p>\n","protected":false},"author":90,"featured_media":1501,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"ngg_post_thumbnail":0},"categories":[127],"tags":[],"acf":[],"yoast_head":"\nAccounting Theory and Standard-Setting \u2013 Antecedents of Fair Value Accounting? - ARC<\/title>\n<meta name=\"robots\" content=\"noindex, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Accounting Theory and Standard-Setting \u2013 Antecedents of Fair Value Accounting? - ARC\" \/>\n<meta property=\"og:description\" content=\"This blog entry arose because, coincidentally, in mid-February and March 2021 \u00a0two articles appeared in\u00a0Accounting History\u00a0and\u00a0Accounting Horizons\u00a0respectively, discussing contributions to the literature of two members of the \u201cSydney School of Accounting\u201d. 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