Accounting techniques, numbers, and discourses support and assist in subsidizing surplus-value in core and marginal countries. Accounting reflects and supports unequal social relations by analyzing the terms of exchange between social and political constituencies. Economist has been dominated by economical accounting theories; Classical political economy and the neo-economic economics of marginalist. Accounting practices depend on marginalism in formulating their theoretical foundations but the foundations set are incorrect.
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Profit gained after trading only indicates the firm’s market viability and social efficiency resources. The profits reflected on the statements represent the social power of capital. So actually we don’t get to understand the figure represented at the bottom of an income statement. The expenses presented in income statements before profit calculations only indicate social, institutional, and monopolistic power either than presenting social efficiency and productivity. Income statements show conflicting explanations when two theories of classical political economy and neoclassical marginalist economics are applied in determining the significance of income statements (Tinker, p. 1).
Classical political economy and neoclassical marginalist economics not only differ on the meaning of profit but also on how the rate of profit is determined. For instance, marginal productivity deals with physical resources the same way physical productivity resources are reported. Inputs are changed into outputs and profit is reflected as an efficiency criterion. Political economy, on the other hand, divides its income in such a way that it reports profits accruing to capital to that of distribution of power in society and the social-political and institutional structure that reflects that of distribution of power. The marginal economist relies on forces of production while in economic analysis the forces are brought together in production function analysis. The functional analyses include the technology of the input and output quantities in conjunction with transformation coefficients. Contrary, political economy concentrates on the social relations of productivity that include the division of power between groups in society and the institutional process in which interests may advance at any given time. An example of a company that shows the disparity in income statements is that of UK based multinational (Delco) in Africa. The company concentrated on extracting iron in Sierra Leone for about 46 years but the researchers failed to trace the firm’s accounting history in the criteria of analysis social and political history (Tinker, p. 2).
The periodical analysis of Delco’s historical data was divided between social-political and accounting variables. The history of the company was divided into early colonial, late colonial, and post-colonial. An income statement was prepared for each period that summed up the distribution of the company income at that reporting period. The three income statements showed changes in figures social and political aspects. Delco’s expenses were shown in monetary terms and also as a percentage of sales revenue. Income statements do not also indicate returns to investors, labor, and government in its marginal production. Delco for example did not report the 43 million pounds it earned from investors for the 46 years efficiently. It becomes confusing where earnings accrued to investors solicited capital and employed it in the states where it was profitable. Wage rates did not indicate the value of labor in production as well. Each factor of production gets rewards earnings that do not commensurate with the value of inputs it gets (Tinker, p. 2) (Keynes, 1936).
Accounting numbers in National Coal Board statements were justified to favor NBC’s position. The numbers also defended account for the need for expenditures reductions in Alberta. There were also reports of loss of figures associated with the Cortonwood colliery that caused 55,000 Yorkshire miners to strike. Deficit and debts were growing in the Alberta government that led to it reducing its expenditure. The government treasurer revealed the debt of $29B and provincial debts associated with bond raters. In this incident, accounting numbers were deployed to attest and rationalize the government’s position in dealing with the problem. Ammunition machines were employed to justify the figures, the results of these complex accounting translated figures into single and simpler numbers. This translation signified that interpreting pairing between accounting signifier and underlying economic reality was a problem. Accounting numbers steered to a more problematic situation that could not solve the underlying economic reality (Nude et al , p.11).
The ammunition machines also erased the assumption and complexity of calculations that would have arrived as the “bottom-line numbers. As we recall, the cost per ton of coal was hinting at a single, simpler number represented in averages across a diversity of colliery sites and grades of coals used that employed different accounting techniques. A single number cannot signify current economic reality because the totaling of costs coal types and pits may also mean the average of apples and oranges. Since accounting has been using numbers to legitimate particular executions of events and dispossesses competing interpretation was balanced by appeals to the “commonsense” of these numbers (Nude et al, p. 11).
Conventional definitions of accounting are not satisfactory in understanding and evaluating social and political significance because the simple accounting numbers employed by the government to justify its position, use repetition to foreclose other interpretations to hide its shortcomings that end up fooling accounting literacy and audience attention span. For instance, bottom-line numbers used do not represent the underlying economic reality, the single accounting numbers only. It does not appeal to the notion of “a true income”. While the other method of repetition used signifier-shows that pairing erases other possible interpretations is not well understood by audiences (Nude et al , p.14).
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Accounting bodies have been experiencing difficulties in setting up their accounting committees. In 1959, Committee on Accounting Procedure was replaced by AICPA with new standard settings known as the Accounting Principles Board (APB). The new set body embarked on setting standards and research programs that developed accounting standards to provide a meaningful foundation of principles and development of accounting rules. Despite all the changes made to the new AICPA, it still adopted the old methods of the CAP that had a slow process in resolving accounting issues and doing away with accounting alternatives that would bring the figures to the bottom line. If these accounting bodies were as effective to provide standard accounting principles, the problems faced by differences in social and political economy would not be experienced (Young, p. 6).
Political economy refers to the physical instrument of production or man’s relationship to man in a social setting of an organization. The physical instrument represents economic forces of production and man’s relationship represents social relations in production. Social relations relate to social institutions such as legal, state, educational, religious, law and order, and political administration. All these institutions have property rights that can be pursued and enforced. All these bodies co-relate with each other which may result in misrepresenting accounting statements. In a recent analysis of the Japanese postwar economy, it was evident that the Japanese economy was aligned to social and political interests. The Liberal Democratic Party, government bureaucracy, and business leaders were closely working together in regulating the capital market where the Bank of Japan was in charge of controlling the money supply by lending through other 13 central banks. Weak monopoly laws were applied regarding imports. The research shows that market values are determined by the institutional, military, and colonial government that may not favor average citizens. The political convention does not adequately satisfy accounting theories because competition and marginal productivity provided are inadequate for computing accounting data (Tinker, p. 7).
The interpretation of accounting statements does not adequately provide information concerning an enterprise’s “efficiency”, they rather either neglected the state of the social-political foundations that underlie the market forces. For instance, Delco Company demonstrated this by reporting inefficiency in the market and social stability. The two forces are not independent realms, the two coordinate with each other to shape the destiny of enterprise as we have seen in Delco. Accountants on the other hand are also making efforts to understand the economic realm concerning political and social realms because political and social problems are integrated into common sense status that does not deserve scientific investigations in solving accounting problems. According to Cambridge Controversies, political and social conditions in any economic analysis for this case accounting results are as good as their political and social precepts. To understand the process of price formation and the process of income distribution, the capital dimension needs to be put in mind as it states social relations (Tinker, p. 7).
In conclusion, the Delco case teaches we should trust the free play of market forces to work out the social-economic problems. However Cambridge Controversies does not agree with this fact, he emphasizes that market forces are not free but formulated in such a way that discerns the structure of income distribution. All in all, what needs to be done in political economy to come up with a theory that will explain income distribution and market conditions.
- Keynes, J. M. The General Theory of Employment, Interest and Money. London: Macmillan, 1936
- Nude, Dean., Cooper, David, J., & Everett J. “Critical Accounting Interventions”. Critical Perspective on Accounting, 12 (2001): 1-28
- Tinker, Anthony M. “Towards A Political Economy of Accounting: An Empirical Illustration of The Cambridge Controversies. Accounting, Organization and Society, 5 no.1 (1980): 1-14
- Young, Joni J. “Making up users”. Accounting, Organizations and Society, 31 (2006): 1-22.