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.


A flight of practices

When you go to a craft brewery (he says, to get this off to the most hipster start possible), you can order a flight of beers. Small glasses of four or five different beers, to let you appreciate the "craft" as much as the "beer."

This initial posting in the Practices section offers you a flight of the kinds of practices we'll examine on this website. I've drawn them pretty much on a first come, first served basis from the research articles I have written over the years. They focus on accounting because that's the theme of this website: that accounting practices don't just document the economic part of the world we live in, but shape the world, transforming it into something it would not have otherwise become.

Of course, there is no "otherwise." If we didn't have accounting as we know it, we would have had to invent it. But it's the particular way we did invent it, the specific forms of representation and reporting that are embedded in accounting, that deserve our attention. The devil is in the details.

Here are four examples, then, drawn from academic articles that I have either published already or am currently working on.



In our study of microfinance in Sri Lanka, which is not a charitable activity but a highly profitable product rolled out by the country's commercial banks, Danture Wickramasinghe, Chandana Alawattage and I are looking at how the banks ensured that village women repay their loans. We have found three mechanisms are used. The first is coercive. It involves a man on a motorcycle, dressed almost like a cop, wheeling up to the woman's store and marching in with his boots and helmet and sunglasses.

He walks straight to the cash register as if he owns the place, opens the drawer, counts the cash, checks the record of sales, and peels of enough cash to satisfy the bank. He gets the woman to sign a piece of paper and then jumps back on his bike to head to the next microbusiness. The attitude of the woman, shown in the photograph, is one of fear and resentment.

The second mechanism is what is called "barefoot banking." The bank employs a gentle, kindly man to walk from microbusiness to microbusiness, encouraging the women and collecting loan repayments along the way.

The third mechanism is much more effective. The bank doesn't employ anyone to check on the women. It gets them to check on each other. Very effective. Very cost effective, too.


Social Impact Bonds

With Christine Cooper and Darlene Himick, I have been studying the advent of social impact bonds in the UK. These financial instruments are being used by the government to make the nonprofit sector more competitive, more efficient, more innovative. The idea is that the private sector provides the capital to start up a new homelessness program, for instance. The program has to come up with social impact measurements. If they hit their targets on these measurements, they get paid more by the government, and the bondholders get a better rate of return on their investment. The bondholder is supposed to keep an eye on the service providers to make sure they are living up to their end of the bargain, which will help ensure the rate of return reaches the highest possible level.

We found that the social impact measurements adopted by the program, and agreed to by the bondholders and the government, were highly problematic. One of the measurements was "Reduce A&E admissions." This means that if fewer homeless people show up at the emergency ward of the local hospital, the program must be working. The problem is, after all the work to set up the bond, they found that the hospital was not legally allowed to disclose patient records, so the didn't know what the impact was.

Another measurement was "Return to country of origin." That's right. If we could just get these "foreigners" who are sleeping on the sidewalk to go back to Estonia or wherever they came from, the government would pay the program more. You'd almost think that UKIP was in power.


The Old Age Pension Program of 1927

The OAP program was instituted in Canada to deal with the very poor. In the 1920s, it was politically impossible to help the poor unless they really, really needed it. The elderly poor were clearly in need of help, as the breakdown of the extended family and the advent of wage labour as a result of industrialization was leaving some elderly persons without means of support.

It was important, however, that money only be given to those who really needed it. Those who had a bit of income would receive a lower pension than those who had nothing. One potential source of income was the house itself, if the pensioner happened to own her own home. The value of the house was assessed and a deemed income was calculated, based on what the value would return if invested properly. This income was tallied up during the time the pensioner received the pension, and a claim was filed against the estate to recover that portion of the pension when the person died.

(The fact that this claim was rarely enforced is just another interesting wrinkle. Having the claim in place was politically necessary in order to make the program look more fiscally responsible, and to make it look like pensioners were being held accountable for their situation.)

Another potential source of income was family members. Adult children of the pensioner were responsible for providing what they could to support their parent. The problem is, the government had very little idea of what the pensioner's adult children could afford by way of support. In BC, they solved this problem by delegating the question to the courts. So, in a Kafkaesque scenario, applicants for an Old Age Pension in BC had to sue their adult children for support before they could receive a pension.

Our systems for holding people accountable for their retirement income are a bit more nuanced today. We'll look at those some other day.


The World Bank

I was involved in a research project with Dean Neu, Elizabeth Ocampo Gomez, and Monica Heincke when I was doing my PhD. We looked at the activities of the World Bank in Latin America, where the WB was trying to promote education reform. The funding mechanisms for this program required local program officers to show receipts for all their expenditures.

This is normal, right? Well, it's normal in Toronto or Calgary. It's not normal in places where there is a cash economy.

In one of the places we researched, we found that a bright entrepreneur had realized that people needed receipts for all the expenditures related to the World Bank education program. As money came into the villages and changed hands, people were needing to document where the money had gone. So, the entrepreneur started up a receipt business. For a small fee, he would print you a receipt. How much? What date? Who was paid? Print.

Needs must.

Photograph of microentrepreneur in Sri Lanka, taken in 2007 by Danture Wickramasinghe.

The photograph in the header section of this posting shows a street-level advertisement for payday loans, taken in Glasgow in 2012 by the author. Payday loans target the working poor. The implicit interest rate for this loan is 622.8%.