What counts as accounting?

If I'm going to write about the roles of accounting in society, it is probably helpful to define what is and isn't accounting. In other words, if we want to explore accounting, it would be good to know when we've reached the edge.

"Edge," is it turns out, is not a very useful metaphor when we are talking about such a complex social practice. It suggests that accounting has nice tidy boundaries, like Saskatchewan, say. It's not so simple, though. When you look more closely, it starts to seem more like the coast of Norway.

Let's take the prototypical example of accounting: financial accounting. This is what we call the production of financial statements by a company that is traded on the stock market. These financial statements include the balance sheet and the income statement for the company, amongst other things. The balance sheet shows the assets, liabilities, and shareholders' equity of the company, as at the end of the year. The income statement shows all the revenue for the year and then subtracts all the expenses, leaving the net income.

I can't imagine anyone in the world questioning whether or not this counts as accounting. In fact, it is probably the first thing many people think of when (if!) they think of accounting.

Now, what if we relaxed some of the assumptions that go into financial accounting? What if, for instance, a set of financial statements were to show euros instead of dollars? Would this still be accounting? Of course. Every company in the European Union does their financial accounting in euros.

What if the contents of the financial statements were arranged differently? Well, that could still be accounting. The traditional way to arrange a balance sheet was to show current assets followed by long-term assets. Today, many companies show their assets the other way around. It may look upside down to some people, but it's still accounting.

Let's keep relaxing assumptions. What if, for instance, the audience for the statements wasn't stock market investors? What if they were for private audiences only? Well, this is happens all the time for private companies, which actually make up the majority of companies in Canada. We still count it as accounting.

What would happen if the statements didn't include a balance sheet or an income statement? Again, that could still be accounting. For instance, companies use cost accounting all the time so managers can make sure their projects are on budget. There is no balance sheet in cost accounting.

How far can we go with this? Suppose it's not for a company. Suppose it's for an individual. Would that still be accounting? Well, yes. We use accounting all the time to calculate our taxable income: we add up our income and deduct our eligible expenses.

In fact, we can keep going as far as we want. At some point, however, we will look up and realize we are no longer talking about accounting in any useful way. We may find we're now talking about football* for example. But even there, we will find accounting. Imagine running a football club without accounting. Impossible! You need to keep track of ticket revenue, and players salaries, and the value of your global brand.

But somewhere in the transition from producing financial statements to producing a football game we cross an imaginary line from "accounting" to "football." Does it matter where this line is, exactly, when there is still accounting on the other side?

I would argue no, it doesn't matter. Or rather, it's not worth the trouble trying to get everyone to agree on where the line is. Trying to convince other people that where we drew the line is is right, and where they drew the line is is wrong, is a big waste of energy. It just isn't useful to have such arguments. It isn't useful, in other words, to create a binary opposition between accounting and football.

What then, is a more useful way to proceed? I would argue that we should adopt what Richard Rorty calls a "anti-essentialist" definition. This is a definition that doesn't depend on any intrinsic, essential quality of the thing we are trying to define. It's just a working definition, a tentative one that suffices for our purposes and that we will be happy to improve if someone comes up with a better way of stating it.

Here is my attempt at an anti-essentialist, working definition of accounting:

Accounting is an assemblage of calculative practices used to produce periodic reports within a relationship of accountability, based on the capture, classification, measurement (typically in monetary terms), and aggregation of transactions.
— C. Graham, 2010

The beauty of this definition is that it allows us to recognize as accounting all kinds of "calculative practices" that are not related to balance sheets and income statements, but which still matter deeply in our economy-obsessed culture. It allows us to include management accounting. It allows us to include income taxation. It allows us to include government reports, like those of the Department of Indian Affairs. It even allows us to include tracking how many homeless people showed up at a shelter on a given night, compared to the amount of money we spent building the shelter.

The definition only works if we remain anti-essentialist about it. We need to be ready to let go of some parts of the definition if that helps us get at some interesting stuff. And we need to be ready to update the definition if someone comes along with a more useful way of expressing it.

The one thing we can never do is lose sight of the fact that accounting is about accountability, and therefore always -- always! -- about power.

See, power is essential to accounting.


* By "football" I quite obviously mean soccer! Seriously, any game played by carrying the ball in one's hands does not deserve the name "football." There are some things where I'm only too happy to draw a line!

Photo of Old Tolbooth Wynd in Edinburgh taken in 2014.

Image of Norway coastline poached without remorse from Google Maps.


For further reading:

Graham, C. (2010). Accounting and the construction of the retired person. Accounting, Organizations and Society, 35(1), 23–46. 

Rorty, R. (1990). Anti-essentialism in general: the number seventeen as a model for reality. Toronto: University of Toronto Faculty of Law.

Rorty, R. (1991). Science as solidarity. Objectivity, Relativism, and Truth: Philosophical Papers (Vol. 1, pp. 35-45). Cambridge, UK: Cambridge University Press.