A Need for Theorizing Corporation: An Accounting Perspective

Abstract

IntroductionAccounting practice has emerged without a theory guiding its development [1,2]. By quantifying humans and entities' commercial activities and measuring the economic effects of such activities, accounting has pragmatically responded to the needs of businesses and societies. Accounting practices evolved as a reaction to real problems [3]. Such an emergence may have affected the manner in which some early accounting writers viewed accounting. Vatter, for instance, contends that "the process of accounting is primarily narrative and analytical process" [4]. However, as societies continue advancing and progressing and new forms of businesses are being invented and introduced, accounting can "no longer be regarded as a mere collection of techniques..." [5].Theorizing and conceptualizing practiced accounting has become an urgent need since the emergence of "investors" as a segment of society [6]. Such a segment has a political weight causing governments to react when their capital markets display failures. The US government's recent action "represented by the Sarbanes-Oxley Act, to ensure confidence in the capital market" is only an example of governments' care to investors [7]. If the accounting profession does not serve them well, then governments act. The divorce between ownership and management contributes to the existence of members in society who own but do not control their invested wealth in a corporation. The attempt to serve two "masters" in a corporation, that is, shareholders and other stakeholders, remains a challenge in accounting [8]. Shareholders contribute a portion of their wealth and savings to create giant corporations. Following the creation of publicly held corporations, the task of accounting, specifically financial accounting, is to inform these shareholders. Property rights entitle shareholders the right to be aware of their invested wealth [9]. A way to communicate to them information on their investment interments, for example, their property in corporations, is through financial statements and reports that best address the needs of passive owners and finance-illiterate investors. Accounting theorists, academic accounting organizations, and professional accounting bodies vary in their position on a suitable approach to decide upon the content presented in such statements and reports. While some accounting theorists, for example, Sanders et al. [10] believe that theorization in accounting should be directed toward describing practiced accounting, others, such as Paton and Littleton, prescribe how accounting should be practiced [11].Practiced accounting cannot be entirely rationalized in theory. This especially holds true for corporate accounting as practiced accounting emerged in response to the needs of sole and partnership businesses. Contemporary corporate accounting is justifiable mostly in reference to accounting rules [12][13][14]. Double-entry bookkeeping is taken as an act of rule, not a theorized concept [15]. Rules cannot be integrated to form a theory [15] and some other ...

Perspective Chapter: Governing Corporations in Appearance but Not in Fact – A Possible Unintended Consequence of the Corporate Governance Movement

“…[7][8][9][10][11][12][13][14][15]), in economics [16,17] about what the corporation has not yet been settled to date. Such divergent views were extended to the accounting literature as well [4,14,18,19].…”

“…Defiant investors are weak in comparison to the executive management of their corporation [180,182]. Empowering shareholders is yet another myth [183] which is the myth of shareholder maximization value myth [184][185][186][187][188][189][190][191][192][193][194][195][196][197] 4 . Mutual funds directors who are supposed to be the agents of shareholders in the contractual relationship between executive management and shareholders do not participate in governing corporations [180].…”

“…Probably individuals who are serious about governing corporations may not be able to fill seats on the board of directors of some corporations. The corporate model has not been fully understood nor adequately theorized [4].…”

Understanding Professor Ross Watts by Applying Kuhnian Interpretation of Science Progress

“…Accounting research experienced a tradeoff between the two types (Al-Adeem [3]) creating a demand for a theoretical ground. Such a demand has been moved because to date, accounting has not developed its own theory [1][2][3]9,10,22,23,29,37,[42][43][44][45][46][47][48][49][50][51][52][53][54][55][56][57]. Virtually, a paradigm shift indicates a development in a science (Kuhn 1996).…”

Empirically Investigating the Disclosure of Nonfinancial Information: A Content Study on Corporations Listed in the Saudi Capital Market

“…The corporate model where ownership and management are separated (Berle and Means 1932) characterizes a long-lasting encounter to corporate accounting since the advent of a corporation as a model for dictating the conduct of business (Al-Adeem 2017aAl-Adeem and Fogarty 2010;Al-Hazzani and Al-Adeem 2020;Merino 1993;Previts and Merino 1998). What the contents of corporate reporting should be remains an open question to the present day.…”