Accounting As Codified Discourse

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INTRODUCTION

Introduction

Accounting as codified discourse Sue Llewellyn Manchester Business School, The University of Manchester, Manchester, UK, and

Markus J. Milne College of Business and Economics, University of Canterbury, Christchurch, New Zealand

805 Received July 2007 Revised August 2007 Accepted August 2007

Abstract Purpose – This paper aims to introduce the AAAJ special issue on “Accounting as codified discourse”, explicate the idea of codification and locate the notion of a “codified discourse” within the broader tradition of discourse studies in management. Design/methodology/approach – The approach is conceptual and discursive, and provides a theoretical framework for understanding codification and a discursive context for the accepted papers in this special issue. Findings – Theoretically, consideration of the more determinate relationship between codified discourse and practice can add to the general understanding of the discourse/practice dynamic in organisation studies. Several issues are identified that call for further empirical investigation. First, some of the broad-spectrum accounting codes (e.g. historic cost) are currently under review in the expectation that change will enable constructive accounting innovation. Second, the impact of more codified accounting on management practice in organisations requires evaluation. Third, how far “intangibles” and “externalities” can be codified is a pertinent current agenda. Fourth, work is needed on whether and to what extent professional power is curtailed when politicians and policy makers introduce more codified discourses. Research limitations/implications – Currently “codification” is not well understood in the literature. This AAAJ special issue opens up the debate but there remains considerable scope for future work to take this agenda forward – to enable more detailed understanding of accounting as codified discourse. Originality/value – Although “discourse studies” and “discourse analysis” are now firmly embedded in the organisational/management literature, “codified discourses” have not featured in the debate. This is a significant omission as codification is a key feature of many discourses – especially in professional fields like accounting, law, and medicine. Moreover, codified discourses are becoming more widespread. The value of this paper lies in its exposition of accounting as codification in relation to discourse. Keywords Accounting, Accounting policy, Language Paper type General review

The authors are grateful to James Guthrie and Lee Parker for their guidance and support in the editing of this special issue. They would also like to thank them for arranging the refereeing of this paper, and the referees for helpful remarks. Finally, they would also like to extend thanks to all the people who supported this AAAJ special issue by submitting papers or acting as reviewers for these papers.

Accounting, Auditing & Accountability Journal Vol. 20 No. 6, 2007 pp. 805-824 q Emerald Group Publishing Limited 0951-3574 DOI 10.1108/09513570710830254

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Introduction In this AAAJ special issue the distinctive character of accounting as a discourse is explored[1]. The starting point is Fairclough’s (2005) understanding that: A discourse is a particular way of representing the (physical, social, psychological) world . . .[2].

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Accounting represents the financial world. This world is differentiated; it consists of different realities (Llewellyn, 2007a), having some physical, or perhaps better described as material, aspects (tangible assets like buildings, equipment and cash) but, predominately, consisting of socially embedded elements (intangible assets such as intellectual capital, concepts like value and activities such as exchange). With regard to the material aspects of the financial world, these are relatively easily cast into numbers; the socially embedded side presents more difficulties. Accounting as “the language of business” is a specialised form of discourse, in part, because it relies, primarily, on numerical representations but also, and relatedly, because it is codified. By “codified”[3] we mean that accounting is cast into systematic forms that prescribe codes for practices. Like a recipe, rule, guideline, template, protocol or law, accounting tells people how to do things. For example, “discounted cash flow” tells managers how to make investment decisions through a particular way of valuing their likely returns. So accounting prescribes practice in the financial world, but accounting itself is also the result of prescriptions. For example, a balance sheet is the outcome of a particular way of accountants following codes to represent assets and liabilities. Codification fixes financial realities. Once particular codified rules are adopted the history of the underlying economic realities becomes “. . . legally and socially irreversible . . . ” (Suzuki, 2003) as the ability is “un-pick” the codes, to recover what was represented, is lost. Accounting is professionalised, its “instruction codes” are professionally constituted and regulated. Only the professional e´lite[4] can encode, in the sense of setting or amending the codes. Any decoding (e.g. deciphering the meaning of a balance sheet) takes place within the ambit of professional accounting practice. In the domain of financial accounting, specific normative codes are adopted; these are interpreted but they cannot be discarded. “Historic cost”, for example, is a broad-spectrum code that is highly constraining vis-a´-vis potential accounting innovations. Coding rules apply to the various accounting categories. For example, detailed codes dictate what can count as an asset. Asset codes reflect aspects of tangibility, property rights, future benefits and service potential (for a review, see Williams, 2003).Within a nation state all companies follow the same set of codes. Periodically, the aggregate results of any company converge in the nodal accounting text – the financial “accounts”. The representations in this central text must conform to the “correct” codes; moreover, these codes must be seen to be interpreted and applied in the manner prescribed. This codification, albeit to an attenuated form, also “spills over” into the narrative text of annual reports, enabling and constraining what can written about and how it can be represented. Auditing is a codified procedure that checks the “correct” application of codes in accounting texts. This monologic approach to the codes that dictate financial reporting is not without its critics. Macintosh and Baker (2002), for example, argue for a more open method; they suggest heteroglossic accounting reports[5]. Such accounting texts would speak with “multiple voices” thus revealing various possible ways to code financial realities to the accounts[6]. In management accounting there have always been “multiple voices”; as this information

is for internal company use, there is more flexibility and less prescription. For example, company managers do not have to employ “discounted cash flow”, they can use “payback”. But whatever technique they mobilise, managers represent their financial decisions through accounting codes. This AAAJ special issue is concerned to understand accounting as a written, instructional, codified text but, dependent on the research agenda, we also wish to explore how people mobilise accounting in organisational dialogue. So our understanding of discourse encompasses both “talk and text”. Moreover, because discourse analysis will often focus on how accounting is elaborated in organisational and social interaction, “. . . discourse studies are about talk and text in context” (van Dijk, 1997, p. 3, emphasis in the original). It seems to us that accounting discourse centres around three main agendas. First, there are professionalised instructional discourses – practice codes – for accountants; for example, the rules that underlie the construction of a profit and loss account or the codified procedures that underpin an audit. Second, there are the codified accounting texts that result from these instructional codes; for example, a balance sheet or a financial audit. Third, there are the professional, organisational or societal discourses that elaborate, make claims for or seek to change these practice codes and/or accounting texts; for example, the “accruals”, “standard setting”, and “creative accounting” discourses. So we are positing a threefold schema for the analysis of accounting discourse: “practice code”-”codified text”-“codified discourse”. Clearly, in addition, accounting often features in non-codified discourse, as a means of arguing for a specific organisational strategy, for example. But, as the papers in this AAAJ special issue reveal, this multi-level definition of accounting discourse does raise some issues for research, as analytic textual methodologies are not always integrated easily with what are, generally, ethnographic approaches to empirical work in organisations. Nor, for reasons we discuss later, would the “results” of textual analyses necessarily be supported by the ethnographic “findings” of how these texts were received and mobilised in specific organisational settings. As Iedema (2007, p. 932) remarks: [. . .] tensions remain between discourse research defined as the application of a conceptual-analytical procedure to “a text”, and discourse research defined as a way of engaging with a workplace, its politics and its (dis)organization.

Moreover, accounting discourse is not restricted to the organisational arena, as accounting has a broad social function in protecting the public interest, so ethnographic research in accounting can extend beyond organisational boundaries. We now turn to consider the individual contributions of the papers in this AAAJ Special Edition in some depth; these are examined along the “practice code”-“codified text”-“codified discourse” categorisation. As we discuss the papers, we reflect upon how this schema plays out in actual organisational and societal context- thus raising the tensions that Iedema points out on the uncertain relationship between analysing a text and researching the politics of discourse in organisations. Key issues in the papers The first paper is this issue by Rihab Khalifa, Nina Sharma, Chris Humphrey and Keith Robson focuses on the professionalised instructional discourse of auditing over the

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past decade. By drawing on a wide range of interviews with auditors and close discursive readings of two audit manuals from KPMG, Khalifa et al. (2007) illustrate the discursive shifts in big firm audit methodology from 1997 through to 2005. They show that back in the late 1990s the practice codes for audit were being changed. The talk and texts of audit methodologies emphasised a broad-based focus on business risk, strategic analysis, benchmarking, and other value adding activities that permitted audit firms to offer clients additional services in audit/consulting hybrids. Such business risk auditing (BRA) practices were considered the justifiable response to market and competitive pressures on audit fees. Moreover, and based on interview evidence, BRA practices were judged by audit partners as methodologies that would prove exciting to graduate recruits, and provide the means to recover lost revenues and lost esteem in comparison to other business advisory and service lines offered by the audit firms. To deliver on BRA, Khalifa et al. (2007) note, for example, that KMPG required hew forms of auditor expertise, which itself led to new training and methodology texts and professional body initiatives all reflecting the new vocabulary of business risk and valued added. In contrast to the BRA discourse of the late 1990s, Khalifa et al. (2007) show professional auditing has now entered a new phase and new audit discourse of making auditing auditable. Largely out is the discourse of business risk and value adding and in is a discourse of “audit quality” and enabling audit practices themselves to become auditable. Through a series of interview extracts from auditors, and references to agencies such as the UK’s Audit Inspection Unit, and the US’s Public Oversight Board, Khalifa et al. (2007) evidence the growing attention to improving the monitoring of audit quality through adequate documentation. Such changes in the discourse of auditing are traced back to the Enron collapse, other associated events, and the auditing regulators response. The interview findings are supplemented with evidence from the two audit methodology texts and these show the relative frequency of terms like “risk”, “quality”, “value”, “evidence”, “business” and “client”, for example, vary dramatically across the two texts. Overall, one is left in no doubt that talk of auditing practice has changed significantly over the decade examined. Interestingly, however, and of relevance to our discussion of discourse and practice below, quotes from some audit practitioners suggest a belief that the practice of audit has not changed, well in so far as the conducting of “quality audits” – what has changed they claim is the documentation required to demonstrate one has conducted a quality audit. Of course, as Khalifa et al. (2007) themselves note, evidence of changed discourse is not necessarily evidence of changed practice. Likewise, however, audit partners may be unwilling to admit that the quality of audit practices has now changed (improved) at the same time implying previously they were inferior in a highly competitive market. As we discuss below, changed talk and changed practice may or may not be co-emergent. The second paper by Crawford Spence explores the role of social and environmental reporting (SER) within the wider context of organisational and societal discourses concerning organisation-socio-environmental interactions. Drawing on the political philosophy and discourse theory of Laclau and Mouffe, Spence (2007) analyses the emerging and increasingly codified practice of social and environmental reporting within the constraints of a business case discourse for sustainable development and corporate social responsibility. As Spence (2007) shows, the recent emergence of SER practice since

the 1990s is in part due to a capacity on the part of business to discursively align extra-business interests with its conventional interests, namely profit, returns and growth. By articulating a “business case” discourse within the broader business, social and political community and articulating a more specific, and increasingly codified, discourse for SER practice, through such guidelines as the GRI (2000, 2002) business has been able to render its own version of SER. Spence’s concern is that current business-based SER discourse and practice is antithetical to the original intent of earlier proposals for reform, to a democratic and fair society, and to any requirements for humanity to adapt to a pressing ecological crisis. By specifically analyzing a series of interview extracts from corporate executives, Spence illustrates the hegemonic potential of this new SER discourse as projected through corporate reporting practice. While much SER practice remains non-codified, or perhaps pre-codified in our sense of the terms, rules and protocols, or standards for the conduct of SER practice are beginning to emerge (see, for example, GRI, 2000, 2002; Milne and Gray, 2007; UNEP/SustainAbility, 2000, 2002, 2004). Similarly, codified texts (i.e. SERs) do not yet exist in the fashion described for the central texts of financial accounting. Instead, general agreement on these and the practice codes for their production remain to be worked out in the broader context (and contest) of professional, organisational and societal discourses. Nonetheless, foreshadowing the increasing likelihood and sedimentation of a fully codified form of SER practice in the future, for Spence (2007), and others with like concerns over the business-case discourse, this likelihood suggests a need to challenge and resist such forms of codification. Indeed, a key point to emerge from Spence’s analysis is how much of current SER practice is backed by and projects a business-case discourse that constrains corporate accountability, shapes the thinking of organisational actors, and potentially imprisons them within an ideological hegemony (see also Livesey, 2002; Milne et al., 2006; Tregidga and Milne, 2006). Moreover, by appearing to provide discursive “closure” under the illusion of transparency, objectiveness and completeness, Spence (2007) claims the business-case SER discourse functions as myth. Historically the SER discourse as propounded by academics had remained oppositional to, and largely outside of the conventional discourse of business. Its calls for business to discharge duties under a social contract, fulfil accountability obligations, and internalise externalities posed a counterpoint to conventional modes of economic organisation and accounting. The SER discourse of the 1970s and 1980s presented obvious threats and challenges, both in terms of vested interests in material relations, and in terms of fitting it within the existing codified discourse of conventional accounting. The result was that few organisations attempted to undertake such reporting, and professional initiatives like the AAA committees on social costs (e.g., AAA, 1971, 1972, 1973, 1974, 1975, 1976) and the Corporate Report (ASSC, 1975) were abandoned on such grounds that social and environmental impacts could not be measured and quantified financially, or such procedures were difficult or impossible to audit. In effect, they could not be fitted into the existing codified discourse of accounting. Spence’s concern is that the modern SER discourse as propounded by business itself obscures fundamental conflicts between business, society and the environment. Consequently, further codification of SER practice based on the business case SER discourse may prove a significant hindrance and contrary to the emanicipatory aims of social accountants.

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Like Spence, Suresh Cuganesan, Christina Boedker and James Guthrie (Cuganesan et al., 2007) concern themselves with an emerging and pre-codified discourse: intellectual capital accounting. Based on an ethnographic case study of an Australian public agency, Cuganesan et al. (2007) provide an empirical account of how a largely new and vaguely understood discourse takes hold in organisational dialogue. Moreover, they argue and illustrate that the pre-codified discourse of intellectual capital accounting, because it remains vague and ambiguous, has helped members of the agency – discourse consumers – connect an otherwise alien discourse to their interests and concerns and thus shape material practice. By proving sufficiently flexible and pliable, the intellectual capital discourse introduced into the public lands agency has enabled a series of changed subject positions in relation to its interpretation and adaptation without apparent contradiction on the part of organisational agents. While the adaptability of the management and the flexibility of the discourse have been important, Cuganesan et al. (2007) also illustrate the importance of other factors in the emergence of changed talk and practice. Of significance appears to be a climate primed for changed talk and practice, and in this case study the need to cope with an ageing workforce and secure continuing funding for long-term organisational survival appears to have been particularly critical. Also important, and particularly as an initiator, was the principal internal champion for changed talk, the agency’s CEO. Nonetheless, while these factors were important in getting the discourse launched, it is clear that managers were initially reticent and perhaps even hostile to the notion of intellectual capital accounting. What is of most interest in the case study, however, is how managers subsequently changed their minds and practices, and through the flexible discourse of 1C sought to reconnect solutions with the pre-existing management problems of an aging workforce and funding needs. A further point to emerge from Cuganesan et al.’s (2007) paper is the tension between codification and ambiguity in discourse, and particularly how this may aid or inhibit changed practice. A point they note in their study is that the lack of codification in the IC discourse ultimately contributed to its wider take up as potential discourse consumers were able to find ways to (re)connect it with their interests and concerns. While codified discourses reduce the need for sense making and make clear the changed practices required - that is they prescribe what is to be done - they may also alienate those agents from whom change is sought by narrowly or “over” prescribing what is to be done. The final two papers in this special issue by John Ferguson (Ferguson, 2007) and Sonja Gallhofer, Jim Haslam and Juliet Roper (Gallhofer et al., 2007) relate to concerns of how researchers should go about analysing accounting discourse. Based on a critical review of an earlier paper by Gallhofer et al. (2001), and more general observations of accounting research examining accounting “texts”, Ferguson (2007) is keen to ensure discourse researchers avoid the “fallacy of internalism” – a concern based on Thompson (1990) that suggests researchers often overemphasise the internal characteristics of texts and neglect their context, while at the same time drawing inferences about or speculating on such contexts. As we have noted in this introduction, our focus is on accounting as a codified discourse; that is, a focus on talk and text in context as it relates to the practice codes for accountants and accounting, the codified “accounting texts” that result, and the contextual discourses within which

these occur. Ferguson’s (2007) concerns, then, while directed more towards broader contextual discourses than ours, potentially have important lessons for researchers interested in accounting as codified discourse. And we now touch on several of these drawing on both his critique of Gallhofer et al. (2001), and their reply (Gallhofer et al., 2007). Following Thompson (1990), a key point Ferguson (2007) makes is that texts should not be treated in isolation, but that researchers also need to consider the social-historical contexts of their production, transmission and reception. Quoting Thompson, and drawing on a series of critiques of Fairclough’s “critical discourse analysis” – the approach adopted in Gallhofer et al. (2001) – Ferguson (2007) emphasises a traditional concern of hermeneutics to study interpretive processes directly, and to recognise that texts are produced, transmitted and received within a series of existing power relations. Similarly, and echoing Barthes (1999), uncovering authorial intent is also deeply problematic, but a point Ferguson (2007) makes is that in much (critical) discourse analysis, including Gallhofer et al. (2001), “producers and consumers of texts are never consulted [and] no attempt is ever made to establish empirically what writers might have intended by their texts” (Widdowson, 1998, p. 143 quoted in Ferguson, 2007). By equating accounting discourse and more particularly “accounting texts” with mass communication, a further point Ferguson (2007) takes from Thompson is a need to consider the “structured break” between message producer and recipient, and the consequent institutional mechanisms of message production and diffusion. In short, then, Ferguson (2007) is keen to ensure discourse researchers treat context seriously, and his suggested solution is to advise the would-be researcher to follow Thompson’s (1990) tripartite approach. Such advice results in calls for researchers to (first) consider the opinions, beliefs, and understandings held and shared by the individuals who produce the symbolic forms (practice codes, codified texts, and codified discourse) of interest. By ethnographic means (interviews, participant observation, etc.) we may come to elucidate the understandings of those who produce and transmit messages. Such means also permit us to (second) treat audiences seriously – to consider how message recipients receive and appropriate such messages. And (third and) finally, in turning to the symbolic forms themselves – the texts – emphasis is given to a variety of linguistic methods such as semiotic analysis, conversation analysis, syntactic analysis, narrative analysis and rhetorical analysis. In replying to Ferguson (2007), Gallhofer et al. (2007) ask whether it is reasonable or practical to attend to all parts of Thompson’s tripartite approach in one study or one paper. They also ask whether Thompson’s framework, which was developed in the context of mass communication, is universally applicable to accounting texts and context. And finally, they are moved to carefully draw a distinction between the political and linguistic motives of researchers using critical discourse analysis[7]. As Gallhofer et al. (2007) point out, both Fairclough and Thompson do not seek to prescribe or proscribe particular methods of research but outline broad methodological frameworks. In part, then, while Ferguson’s (2007) advice might be seen as comprehensive, or perhaps idealistic, it should not be taken as implying (partial) studies are necessarily deficient. Indeed, both Spence (2007) and Cuganesan et al. (2007) in this issue illustrate the insights that can be obtained by partial analyses of discourse producers and consumers. Cuganesan et al.’s (2007) paper also illustrates the

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complexities involved with concepts like the production and consumption of texts. They note that much discourse literature seems to privilege analysis of discourse producers and texts, and like Ferguson (2007) they suggest a focus on discourse consumers. Cuganesan et al. (2007) however, illustrate that discourse “consumers” are contextually relative. Ordinarily, we might conceive of managers involved in the production of intellectual capital statements as discourse producers, but clearly they are also consumers of the talk and texts that precede such reports, and most likely of the reports they themselves produce. The strength of Ferguson’s (2007) work lies with those instances where accounting is used rhetorically. Where there is evidence that accounting is being used to persuade the public to see a company in a favourable light, then a “mass communication” context is appropriate. For example, glossy annual reports that present favourable comment on the social and environmental impact of companies’ activities can be considered as part of the media industry. However, most instances of accounting discourse are produced and understood in a specialised context. Any implementation of Thompson’s tripartite approach as Ferguson (2007) urges, then, requires careful consideration in the light of the research focus taken and questions asked[8]. Locating codified and non-codified discourses What can an exposition of accounting as a discourse add to the work that has already been undertaken in management/organisation studies? The papers in this AAAJ special edition illustrate concerns with the impact of discourse on practice and the power of codified texts. In the sections below we discuss the potential further contribution of studying accounting as a codified discourse. We structure the discussion into three sections “discourse and practice”; “reading codified texts and participating in codified discourse”; and “the spread of codified discourses”. Discourse and practice One key aspect in “discourse debate” is the relationship between discourse and practice. Texts do not just sit on shelves or lie in wait for the computer to be switched on. The practices of talking and writing use (and produce) texts, so, in one sense, discourse is a practice. As Fairclough (1995, p. 7) puts it: My view is that “discourse” is use of language seen as a form of social practice, and discourse analysis is analysis of how texts work within sociocultural practice.

But clearly practice is more than discourse; just as people may talk without acting, they may also explore or intervene in the world without discourse. Moreover, discourse and practice may not be aligned. Various positions have been taken on the impact of discourse on practice. First, Iedema (2007), for example, asserts that discourse and practice are usually “co-emergent” so new ways of talking (or writing) tend to accompany new ways of acting. As Khalifa et al. (2007) narrate, while business risk audit was being written up by KPMG, audit practitioners were paying more attention to the key business risks of the companies whose books they audited. Hatherly (1998) argues that auditors were beginning to see “risk” less as a prime auditing concept and more through the eyes of management. Audit practice was changing as audit discourse took a new turn-they were co-emergent.

However, new discourses and any associated new practices do not emerge into a vacuum. Discourses represent the world and, hence, they tell us what the world means. “Meaningfulness” is embedded in human practice, so discourse and practice are normally aligned or “reciprocally confirming” (Williams, 1962, cited in Sayer, 2000, p. 44). A new way of talking (or arguing) is usually expounded primarily in relation to a project[9], so as Hardy et al. (2000, p. 1232) remark: [. . .] people engage in discursive activity to pursue their plans . . . [and] with particular intentions in mind . . . but they do so against a backdrop of multiple discourses that have complex, far reaching effects that are beyond the control of single individuals.

This makes it clear why new discourses may struggle to prevail and often fail, not least because the current discourse/practice may serve powerful interests (Grant and Hardy, 2003). An emergent discourse may be valuable and convincing but if it challenges hegemonic discourse/practice, it may, ultimately, have no impact. This implies that a new way of talking precedes a new way of acting and that a change in practice is by no means guaranteed consequent on a change in “talk”. So the second position on the relationship between discourse and practice is that, rather than being co-emergent, changes in discourse precede any changes in practice. The third position is that changes in practice precede discursive change. This is most likely when the agents of practice transformation are powerful enough to change “how things are done” without open talk about what their change strategies mean. It is often easier, quicker and, strategically, more effective to act first and let those affected work out later what the new agenda implies – when it is often too late for effective counterattack. The executive branch of government, through dictatorial powers or a strong mandate, is sometimes able to act without discursive debate. Or it can even be the case, as Brunsson (2002, p. xiii) points out, that discourse and practice point in different directions, “. . . organizations may talk in one way, decide in another and act in a third.” This situation may, as Brunsson (2002) argues, reflect a “hypocrisy” that arises because of the complexity of the demands placed on an organisation (along with the difficulty in satisfying all involved) or it may signal a deliberate manoeuvre practiced to pre-empt any opposition. In sum, discourse and practice are usually reciprocally confirming but, during social and organisational change, they may co-emerge, one may precede the other or they may even be mis-aligned, for reasons of exigency or duplicity. Codification makes this complex relationship between discourse and practice more determinate; indeed this is one, if not the main, purpose of codification. Clearly it would not be in the public interest if company management could talk about shareholder value or portray their profitability in whatever way they chose. Practice codes dictate how accounting is carried out in organisations and accounting texts embed these practice codes. Moreover, as discussed earlier, only the professional accounting elite can change the instructional practice codes and their prescriptions are mandatory. This implies that changes in practice cannot occur without discursive change because practice is in accordance with explicit codes. So where there is codification, new practices cannot precede discourse. Accounting discourse (as other codified discourses) should have a stringent hold over practice; when new codes are introduced practice should change more or less immediately. Unlike the case of non-codified discourses, whose protagonists may struggle to be heard, the privileged proponents of codified

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discourses should expect a guaranteed response in terms of practice change. Where there is codification, one would anticipate the strongest evidence of the “reciprocally confirming” nature of discourse and practice. In particular, accounting codification should prevent management “talking, deciding and acting” in inconsistent and arbitrary ways vis-a´-vis the financial status of their companies. However, codification turns out to be a less than perfect solution. Indeed, currently, companies can stray across the boundary between legal and illegal practice without their “excursions” being readily apparent in the accounts, as scandals of the likes of Enron, Worldcom and Parmalat demonstrate. Because accounting is codified, the lay public are apt to imagine that accounting texts represent financial realities through a single, non-negotiable, one to one mapping but, as Khalifa et al. (2007) make clear, this is not the case. Accounting can be manipulated, in large part this is due to the complexity of practice codes; the realisation that accounting can be “creative” has engendered public dismay and fuelled the so-called “expectations gap” over the legitimacy of accounting and audit. One function of audit is to leverage transparency and strengthen one-to-one mapping. Despite code complexity being at the root of the “creative accounting” problem, more transparency is frequently equated with yet more codification. With respect to companies, there are demands for a more prescriptive audit (see Khalifa et al., 2007) with many stakeholders arguing that a more codified audit will close the “expectations gap”. Reading codified texts and participating in codified discourses The complexity of the codes embedded in accounting prescriptions renders them opaque to the uninitiated. Not all readings of accounting texts are equal. Indeed, an uninformed reading would be simply wrong. The production and reception of codified accounting texts takes place within the professional accounting jurisdiction. But, sometimes, dependent on the basis of the codification, accounting jurisdictions become contested. For example, the project to codify (and then audit) environmental reports has led to a contest between scientists, engineers and accountants over whose expertise should prevail (Power, 1997). Unequal discursive rights is also a feature of non-codified discourses, as Hardy et al. (2000, p. 1236) comment, “. . . the subject position of the enunciator [of a discourse] must warrant voice, otherwise other individuals will simply ignore his or her statements . . . ”; this “warranted voice” is a particularly strong feature of discursive positioning with respect to codified discourses. The technical nature of codified discourses is such that most non-professional voices are simply ruled out- as they lack the expertise to speak. There are arguments that codification can diminish professional power; being committed any kind of codified text reduces the judgemental elements of practitioners’ decision making as practice becomes more standardised (Edwards et al., 1999; Doolin, 2002; Llewellyn and Northcott, 2005). Wherever a codified discourse dictates practice, practice will become more uniform. Codification (like classification[10]) reduces judgement and flexibility whilst increasing standardisation and transparency; so it can be a driver in reducing professional discretion and, hence, professional power. But, as argued above, because only professionals can encode and decode, their power is not necessarily diminished with the advent of codification. What may occur is that the power of the professional e´lite is advanced whilst professional power “on the ground” is more circumscribed.

This raises a more general issue: that of active/passive discursive positioning. On the one hand as Doolin (2002, p. 375) points out: “Discourses...provide ways in which individuals come to know themselves as subjects.” On the other hand, Hardy et al. (2000) portray discourse as a strategic resource that people mobilise to achieve their preferred outcomes. In the case of codified discourses, only those who possess requisite and recognised expertise are able to elaborate the discourse in pursuit of their aims. In contrast, those who lack expertise will frequently find themselves positioned as subjects “bamboozled” by technical jargon. This remains likely even when the discourse in question is actually in pursuit of a general organisational aim, a specific strategy, for example. The spread of codified discourses Despite the frequent failures of codified discourses to “deliver” their practice recommendations, in business, and in organisations more generally, the popularity of codified forms is increasing. In consequence, they are spreading. There is pressure on companies to produce accounts that codify areas of their activities that – if they were represented at all – were discussed in a non-codified way. For example, the social and environmental movement have called for the “triple bottom line” report; this will give codified information on the impact of companies in areas which used to be considered as “external” to their profit-making agenda. As a result of this activity, there is now a growing set of companies that produce a “stand-alone” report on their social and environmental impact. As discussed in the Spence (2007) paper, there is also pressure for an audit of such environmental reports, with developments on guidelines for best practice reporting and auditing. Another example of codification “spread” is the plea for “intangible” assets, such as intellectual capital, to be coded for inclusion in the accounts (see Cuganesan et al., 2007). The agendas around both environmental accounting and intellectual capital demonstrate that thought is required on how far “externalities” and “intangibles” have the materiality that allows instructional codification, numerical representation and verifiability. Indeed, there is now quite a debate over whether broad-spectrum codes (such as historic cost) should change to allow more accounting innovation. Amongst US academics, Ross Watts argues that accounting should remain as traditionally and conservatively conceived (based on historic cost and transactions oriented) while the FASB and others propose fair value and mark-to-market accounting in the belief that modern accounts should incorporate value-based estimates (see, for example, Barth et al., 2001; FASB, 2005a, b, 2006; Holthausen and Watts, 2001; Schipper, 2005; Watts, 2003a, b, 2005). Meanwhile proposals to codify new areas without fundamental changes to the basic coding formulae are resulting in equivocal results. Parker (2005) reports that traditional accounting and accountants were “. . . barely engaged . . . ” with social and environmental accountability. Chiang (2007) found that although auditors were ostensibly following a new practice code for environmental matters, this code had not had a discernable impact on their audits; the key consideration for auditors was whether the environmental matter had a financial effect that they could quantify. This “quantification proviso” clearly limits the scope of any environmental audit. Currently, Ball et al. (2000) described the verification reports on environmental accounting as of very little value.

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Nevertheless, outside of business, and again in the hope that they will constrain practice, codified discourses are also gaining ground. Politicians have decreed that simple forms of cash accounting give too much margin to public sector providers; the more rule-bound accruals concept has been enforced (see, for example, HM Treasury, 2005). In this respect, the advent of accruals accounting converges with the introduction of protocols and guidelines for clinical practice in the health care domain, for example. As in the private sector, this is intended to simultaneously reduce the flexibility and increase the transparency (as compliance with codes can be checked) of those with the power to access and commit organisational resources. The events portrayed in Cuganesan et al. (2007) can be seen as a reaction to such government strategies. The introduction of accruals accounting was the background to managers at LandsNSW taking forward a project to codify intellectual capital for inclusion in the accounts- as such an accounting would result in a “better” representation of their financial position. Although codified discourses, through the analogy with recipes and rules, seem to imply straightforward procedures that can promptly be translated into practice, in complex professionalised domains characterised by specialised expertise, the production of simple codes is unlikely. For example, the accruals discourse is more complicated and more abstruse than the cash accounting it replaced. Ezzamel et al. (2005) report that, although politicians pressed for accruals accounting in the public sector, most of them cannot understand it! However, this does not prevent politicians making discursive claims about how accruals accounting can enhance the performance of public sector bodies by providing more codified information on such aspects as efficiency (Guthrie, 1998). In sum, issues associated with the increasing prevalence of codified discourses foster a rich research agenda. Theoretically, consideration of the more determinate relationship between codified discourse and practice can add to the general understanding of the discourse/practice dynamic. Charting the spread of codification and investigating its success in circumscribing practice is an agenda that requires ethnographic research. Some examples of such work are: the impact of more codified accounting on management practice in companies; how far “intangibles” and “externalities” can be codified; and whether and to what extent professional power is curtailed when politicians and policy-makers introduce more codified discourses. Finally, textual analyses are called for that show how accounting represents the financial world through codified forms. Concluding issues on researching codified discourse Although we are convinced of the value of work on accounting as a codified discourse, at this point we return to some of the issues raised by research on discourse. As we discussed in the introduction, Iedema (2007) speaks of the tensions between textual analyses and ethnographic research on discourse in organisations. Here we expand on what we believe are some of those tensions. Ferguson (2007), using Thompson’s work on mass communication, argues that any accounting research that does not cover the entirety of the discourse “process” (i.e. both the production and reception of the text, along with the text itself) is essentially limited, and may even be misleading. As discussed above, we believe that the strength of his case lies where accounting is being used rhetorically, for example, in research that

studies how companies use social and environmental reporting to create a “halo” effect around their activities and whether such propaganda efforts are successful. In other areas it is not so clear that such an encompassing approach, even if feasible, is necessarily productive. Bhasker (1975) argues that research in social science grapples with three dimensions: the real, the actual and the empirical. In the study of discourse, as any other area of research, these three dimensions do not necessarily accord. One can be a “realist” in the sense of believing that there are real causal powers embedded in a situation but these powers may not be activated and, hence, not actualised. As Archer (2003, p. 2) argues, causal powers are mediated through social agency, so whether causal powers are activated and the extent to which they are actualised depends on agents reproducing these powers. Agents generally do reproduce social powers, whether through constraint, habit, tradition, proclivity or desire. But they do not always, and the extent to which they do is variable. For example, accounting has real causal powers; accountants cannot prepare (and auditors cannot audit) financial statements in whatever way they choose. But auditors can sometimes “turn a blind eye” and, hence, powers are not activated in a particular instance or they may begin to see situations “through the eyes of management” and, so, the powers of audit are partially thwarted. As Khalifa et al. (2007) make clear, the power of both the “business risk” and “audit quality” discourse were diffused “on the ground” with variable “take-up” amongst different auditors. So agents have real powers too. At the extreme of some postmodern thought, agency is dismissed for discourse, as Archer (2000, p. 2) remarks: “. . . strident voices would dissolve the human being into discursive structures and humankind into disembodied textualism.” Although we are promoting the study of accounting as a discourse, this is not our position. Agents do not just mitigate the effects of discursive structures they also instigate projects. An agent, by definition, has the capacity to carry out a project (Llewellyn, 2007b). As the Cuganesan et al. (2007) paper shows managers started to push for “intellectual capital” to be included in the accounts. In instigating this move they were actively seeking to counteract some of the effects of accruals discourse/practice – in other words, there were agents with projects at LandsNSW. So another reason that the real structural powers embedded in any situation may not be actualised, is that agents may be pursuing projects that challenge those powers. Or the unintended consequences of agents’ actions may attenuate or magnify real powers. Hence, the “real” is not coterminous with the “actual” or, in other words, what “actually” happens is not entirely predictable through knowledge of the “real” powers embedded in the situation – because what agents will do is not entirely knowable. The empirical (or what we discern as researchers in any situation) is not necessarily congruent with either the “real” or the “actual”. Our respondents may not know of the real powers embedded in the situation being researched. Moreover, they may not correctly identify what is actually going on. Some respondents are more knowledgeable and/or more perceptive than others or they may be in more privileged positions vis-a`-vis the issues being researched (Llewellyn and Northcott, in press). Similarly, if we are conducting observational research, our perceptions as researchers, are fallible regarding the real and the actual.

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Hence any research that attempts to integrate ethnographic research on discursive production and reception with textual analyses may come up with equivocal results. For example, the real powers embedded in an accruals text will have a variable impact on the practice of managers dependent upon whether they accept, attempt to evade or work to challenge the accruals discourse. This actual response does not deny the real power of accruals – as disclosed by a textual analysis. Similarly, the real powers of a text are not negated by the failure of some to comprehend it. Ethnographic work may reveal that many managers do not grasp the import of accruals but again this empirical finding does not demonstrate that an accruals discourse has no power. Moreover, if a discourse becomes naturalised/institutionalised within an empirical setting respondents may not discern its impact. Once again this does not deny discursive power – rather it can point to the magnitude of its effects. In a similar manner, production can be disengaged from both the text and its impact; the producers of the accruals code are unlikely to have been intending, for example, to reduce professional power. Producers’ intentions, the powers embedded in texts and the effects of a discourse may be aligned or at variance with one another. We are advocating a variety of research approaches but because of “real-actual-empirical” distinctions we do not expect that the findings of ethnographic work will necessarily be in accordance with textual analyses on the power of a discourse. Both are valuable but their findings will not always “add up” or “triangulate”. Research questions can be limited to textual analyses or matters concerning the production and/or impact of texts without fear that such work is somehow incomplete. So although we are arguing that codified discourses have a more determinate effect on practice than do non-codified ones, this does not imply that their impact is determined[11]. As we argued earlier, accounting tells people how to do things and makes them act in particular ways but it cannot completely encode their actions. Overall, we posit that the significance of codified discourse is increasing and further work is called for to investigate its multifarious dimensions. Accounting is an important example of a codified discourse as it has a profound impact on both organisational and social practice. As discussed above, there is much current debate aimed at re-casting the broad spectrum codes applied in accounting; now is a thought-provoking time to pursue research on accounting as a codified discourse. Notes 1. There has already been work on the discursive aspects of accounting and corporate reports in the general tradition of the ideological power of language (see, for example, Hines, 1988; Arrington and Francis, 1989; Burchall et al., 1980, 1985; Cooper and Shearer, 1984; Tinker and Neimark, 1987; Collison, 2003). There is also work on accounting representations or (mis)-representations (see, for example Baker and Hayes (2004); Ezzamel et al. (2004); Lilley et al. (2004); Porter (1995); Robson (1992); and Sikka (2001)). We do not demur from either of these bodies of work but we are aiming to do something rather different- to identify the general characteristics of accounting as a discourse (i.e. the type of representational discourse accounting is). 2. Interest in discourse analysis has mushroomed consequent upon our contemporary reliance on representational “texts” (the internet, television, news media) to understand the world. We now know the world less and less through our immediate encounters and more and more through representations (see, for, example Wittgenstein, 1953; Austin, 1962; van Dijk, 1977;

3.

4.

5.

6.

7.

8. 9.

10. 11.

Foucault, 1972, 1980; Bakhtin, 1986). Societal reliance on representation emphasises the increasing contemporary significance of signs and symbols (see, for example, Burke, 1966; Baudrillard, 1981; Lyotard, 1984). “Codified” has also been used in a weaker sense to indicate explicit (as opposed to tacit) knowledge mat can be managed and transferred (see, for example, Hall, 2006; Mathiassen and Pourkomeylian, 2003). Clearly, our sense of “codified” encompasses this understanding (albeit that knowledge is only an aspect of discourse) but also extends it- as we focus on links between codification and practice. By “professional e´lite” we refer to entities such as the Financial Reporting Council (UK), the Accounting Standards Board (UK), the Auditing Practices Board (UK), the Financial Accounting Standards Board (US), the Accounting Standards Review Board (NZ), and the International Accounting Standards Board see www.irc.org.uk, www.fasb.org, www.asrb. co.nz or www.iasb.org for more details (accessed 15 July 2007). Macintosh and Baker (2002) illustrate their argument with reference to the oil and gas industry where they argue that four different methods of accounting have been used: immediate write off of all costs; full cost; successful efforts; and reserve recognition, Each of these ways of coding the financial reality of the oil and gas industry has advantages and disadvantages. Macintosh and Baker (2002) suggest that the public’s understanding of accounting would be enhanced, if they were allowed to see how multiple ways of accounting result in varied representations of the “success” of any oil and gas company. An example where multiple approaches were permitted, albeit briefly, was over how to cope with inflation where SSAP 16 allowed supplementary inflation accounts alongside historic cost. A particular interpretation that might be taken here is that Thompson’s (1990) tripartite approach may be insufficiently critical and overly linguistically oriented to provide researchers sufficient space to provide politically motivated discourse critiques. Thompson’s (1984) earlier work on theories of ideology, discourse analysis, and his “depth-hermeneutics”, however, suggest a broad-based framework much in common with that of Fairclough. See Barry et al. (2006) for further discussion on the tensions between discourse analysts’ capacities to research text and/or context using singular, multiple or combined methods. Exceptions are some academic/intellectual discourses that aim only to shift how people think (and argue) rather than also change what they do. For example, the debate as to whether “structure” and “agency” are only analytically distinct or whether they actually reflect separate ontological slrata does not appear to have implications for practice. See, Bowker and Star (1999), for similar arguments as applied to classification. As was implicit in our earlier discussion on the relationship between discourse and practice, we reject “strong versions” of social constructivism that conflate discourse and its material effects (for examples of such “strong” constructivism see Gergen, 1985; Edwards et al., 1995; Potter, 1996, 1998). Such positions imply that discourse determines practice. Some writers in the management area appear to have been influenced by such views. Hardy (2001, p. 26, emphasis added) speaks of “. . . practices of talking and writing, which bring objects into being through the production, dissemination and consumption of texts.” This statement portrays discourse as straightforwardly performing material effects, i.e. producing objects. Indeed, as Sayer (2000, p. 45) points out, ”Conflating discourses with their effects [assumes] that performativity involves producing not only effects but the exact effects intended or stated . . . ”. Clearly, although we are arguing that codified discourses are produced with the intention of having effects of practice, such intentions are not always realised and are certainly not simply produced.

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