Accounting: Is There Life Beyond the General Ledger



What’s wrong with our introductory accounting text books?:

A teaching note

Paul Wells[1]

Rowena Sinclair

School of Business

Auckland University of Technology

Auckland

New Zealand

7 September 2012

Abstract

Many researchers have found that the accounting education contributes to the narrow and stereotypical perceptions students have of accounting. This teaching note examines the contribution that introductory accounting textbooks might make to these stereotypical perceptions. We believe that the changing role of the accountant and the influence of technological change on the duties performed by accountants has been ignored by the authors of the introductory accounting textbooks currently adopted by New Zealand Universities. This finding provides one possible explanation for the continuing narrow and stereotypical perceptions our students have of accounting. Given that most of the textbooks adopted, are adaptations of American textbooks, these findings will have implications for teachers and authors beyond New Zealand.

Keywords: education, introductory accounting, accounting curriculum

Introduction

Reviews of the accounting curriculum in the United States (Accounting Education Change Commission, 1990; American Accounting Association, 1986; Arthur Andersen et al., 1989) concluded that the accounting curriculum created a perception of accounting as a routine, predictable, and procedural activity. The reviewers have argued that this perception has created a misunderstanding of, what accounting is and, the duties performed by accountants. These reviewers further suggested that a decline in the number and quality of accounting students choosing to major in accounting is a direct consequence of these perceptions.

These concerns led to recommendations from the Accounting Education Change Commission (1992), in the United States of America, to liberalise the introductory accounting courses to better reflect the aptitudes and skills needed for a successful career in accounting.

Specific responses to this perceived problem included:

1) the recommendation to design more conceptual and less procedural accounting courses in Australia (Mathews, Brown, & Jackson, 1990),

2) the release of Issues Statement Number Two – Decoupling of Academic Studies and Professional Accounting Examination Preparation (Accounting Education Change Commission, 1991) which sought to enhance the educational experience of students,

3) the issue of Position Statement Number Two – The First Course in Accounting (Accounting Education Change Commission, 1992) which acknowledged that “this course shapes the (1)perceptions of the profession, (2) the aptitudes and skills needed for a successful career in accounting, and (3) the nature of career opportunities in accounting.”

Despite these efforts, the results from these initiatives appear to have been rather disappointing. Garner and Dombrowski, (1997, p. 307) found that the narrow focus on scorekeeping in tertiary level accounting courses continued to be a major factor “….in turning off potential accounting majors”. Meanwhile, Sundem (1999) concluded that pedagogy had changed more than content, which endorsed the findings of Albrecht & Sack (2000) who found that there had been little change to the content of introductory accounting courses in the United States.

Smith David, MacCracken, and Reckers (2003) suggest the impediments to changing this focus in introductory accounting courses are: first the lack of ‘technology’ savvy instructors; and second the lack of technology integration in the textbooks. These authors further suggest that publishers are conservative and hence are unwilling to accommodate changes as they would be costly and success could not be guaranteed.

This teaching note examines how introductory accounting textbooks have ignored the changing role of accountants and the influence of technology on the design and operation of a modern day accounting system thus contributing to the perpetuation of the stereotypical perceptions people have of accounting.

The Changing Role of Accounting and Accountants

The changing role of accounting and accountants was acknowledged by Hopwood who suggested that:

Accounting is increasingly seen as a pervasive and highly generalized technology that can contribute to the functioning of a very wide range of organizations and socio-economic processes. (Hopwood, 1994, p. 299)

This statement highlights the changing role of accounting during the twentieth century and is now evident in many aspects of everyday life. As such, accounting involves the preparation and use of information to facilitate economic decision making which inescapably influences the actions of every individual and organisation. Hopwood claims the significance of this transformation is in part due to the reciprocal relationship between the roles and contexts of accounting and that each influences and assists in shaping the other.

Parker (2001) suggested that these changing roles were influenced by the following contextual changes: internationalisation and globalisation of business, growth of non-accounting competitors and alliances, the rise of information technology, the development of the knowledge-based economy, empowered and discriminating product and service consumers, broader scope accountability pressures and changing work patterns and attitudes. The effect of these influences has been to extend the role of accounting from scorekeeping and audit work to include financial planning, assurance services, strategic, risk, knowledge and change management and management advisory services. Eight years on, Warren and Parker (2009) note that despite the changing role of accountants, the bean-counting stereotype persists in the public and student conception of accounting.

The changing role of accounting has also been reflected in the American Accounting Association (AAA) (1966) definition of accounting:

“the process of identifying, measuring and communicating economic information to permit informed judgements and decisions by users of the information”.

The authors emphasised that accounting was not merely a process of recording and manipulating economic information and thus did not seek to limit the scope of accounting. They further concluded that accounting: should not be based solely on transaction data; was not limited to the measurement of assets and periodic earnings; and should not be limited to those entities, for which periodic earnings was a primary objective.

Contributing to this changing role were technological developments relating to the capture, processing, storage and retrieval of accounting data and reporting of accounting information. Specific technological developments have included: the increasing capacity and declining cost of digital storage media accompanied with the development of database software to facilitate the efficient and effective storage and retrieval of data; the development of computer networks facilitating the capture of data from, and transmission of information to, multiple locations; the development of the internet to provide a platform to facilitate the transfer of data and information between entities; and finally the evolution of modern computerised accounting systems which enable the preparer to: aggregate data; disaggregate information; specify user defined time horizons; establish multiple relationships between data items; and generate reports on any data item from any perspective.

These developments have had a significant influence on the structure and operation of accounting systems and their relationship to other information systems both within and external to the entity under consideration. Specifically, the accounting system is now a subset of a much larger information system and most accounting data is now sourced from other sub-systems where the primary focus is on the capture and storage of data about business processes. In addition transaction data is not necessarily captured on paper and is now stored electronically in databases. As a consequence data is no longer summarised in specialist journals and reported in summary form in the general ledger – all original transaction data is stored in its original form in a database and individual transaction details are listed separately in the general ledger. Thus the resulting ledger account has become merely a report listing transactions by account and the posting of data from journals to ledgers, the balancing of ledger accounts and the preparation of a trial balance, are no longer pre-requisites to the production of the income statement and balance sheet.

How have textbooks neglected these developments?

A website search of New Zealand Universities was used to identify introductory accounting course structures. The first course for all business students typically examines accounting from a user perspective. This type of course is consistent with the recommendations of Accounting Education Change Commission Position Statement No 2. (1992). This is followed by a second course for students intending major in accounting, but with the emphasis in this course being from a preparer perspective.

A further search of these university and university bookstore websites confirmed that the seven of the eight universities between them prescribe the textbooks listed in Table 1.

Table 1: Textbooks adopted by NZ Universities

|Code |Authors |Title |Publisher |

|DHL |Davey H., Hopkins L., Ling A,, Low M. & Sharma,|Accounting Principles and Practice |Thomson |

| |U. |for New Zealand Students, 2007 | |

|CMP |Carlon, S., Mladenovic-McAlpine, R., Palm, C., |Accounting: Building Business Skills,|John Wiley & Sons |

| |Kimmel, P., Kieso, D., & Weygandt, J. |4th edition | |

|CMY |Chalmers, K., Mitrione, L., Yuen, S., Fyfe, M.,|Principles of Accounting, 2nd edition|John Wiley & Sons |

| |Weygandt, J., Kieso, D. & Kimmel, P. | | |

|HHB | Horngren, C., Harrison, W., Best, P., Fraser,|Accounting, 6th edition |Pearson |

| |D., and Willett, R. | | |

A preliminary examination of the textbooks revealed a common theme.

1. The first chapter provides an introduction to accounting often embracing the AAA definition or an adaptation thereof while the scope of this definition is not reflected in the content of the textbook.

2. The next 10 chapters examine the components and structure of the income statement and balance sheet and the processes involved in collecting, recording and processing this data to produce these financial statements. These chapters further demonstrate a bias to financial accounting by describing the requirements of Financial Reporting Standards rather than general accounting principles.

3. The remaining 6-7 chapters provide supplementary information on management accounting topics, most of which source data from the general ledger thus giving the appearance of being an extension of financial accounting.

4. The authors claim that most “businesses” use computerised accounting systems and they suggest the manual and computerised systems are based on the same principles. They further claim that manual systems are easier to illustrate. However, these claims ignore the very different processes adopted by each approach.

5. The accounting system is treated independently of all other information systems thus ignoring the integrated nature of modern day information systems which primarily focus on the capture and processing of data about business processes and the production of financial information is a by-produce of these processes.

6. Special journals are described as vehicles for summarising accounting data when, summarised transaction data is no longer stored in computerised systems

7. The general ledger is described as a vehicle for storing summarised accounting data when, the ledger is now merely a report listing transactions by account code, i.e. it explains the composition of the figures appearing in the financial report. In addition the ledger accounts are illustrated as “T” accounts when it is unlikely students will ever see a “T” account in practice.

8. The accounts receivable, accounts payable, inventory and payroll systems are described as sub-ledgers of the general ledger when they are instead, specific components of business processes and instead generate data for the preparation of financial reports.

An analysis of these themes by textbook is presented in table 2.

Table 2: Textbook Themes

|Theme |DHL |CMP |CMY |HHB |

|Adaptation of AAA definition |( |( |( |( |

|First ten chapters on structure and preparation of income statement and |( |( |( |( |

|balance sheet | | | | |

|Integrate financial reporting standards into the first 10 chapters |( |( |( |( |

|Remaining chapters on supplementary management accounting topics (* no |* |( |( |( |

|management accounting) | | | | |

|Computerised accounting systems follow the same principles as manual systems |( |( |( |( |

|implying that the process is the same | | | | |

|Accounting system represented as independent of other information systems |( |( |( |( |

|Special journals are used to summarise transactions |( |( |( |( |

|The general ledger is used to accumulate and store data by account |( |( |( |( |

|Accounts receivable, accounts payable and inventory are sub ledgers of the |( |( |( |( |

|general ledger | | | | |

|Ledger accounts are represented as T accounts |x |( |( |( |

|Acknowledge computerised accounting processes only after the first 5 chapters|( |( |( |( |

The consequences of adopting the approach outlined above, is that the textbooks fail to correctly represent current day accounting practice or clearly differentiate between financial and management accounting. Specifically the textbooks fail to:

1. Acknowledge the capture and processing of data relates to business processes and, the transmission of accounting data for financial reporting is a secondary function.

2. Explain the integrated nature of information systems and how a vast amount of accounting data is sourced from other systems.

3. Acknowledge that management accounting data is not solely sourced from data reported in the general ledger but is instead sourced from a database where a much wider range of business transaction data is stored.

4. Acknowledge the role and consequences of using database technology to produce a greater range and complexity of accounting information beyond the income statement and balance sheet.

5. Highlight the benefits and limitations of information presented in the income statement and balance sheet.

6. In addition to emphasising financial accounting processes, the system is considered independently of its context. These are closed systems which in the curriculum do not interact with the environment thus removing the richness of accounting practice. This absence of a contextual consideration leads to an oversimplification of the accounting process.

These failings are identified in the textbooks reviewed in table 3.

Table 3: Textbook failings

|Failings |DHL |CMP |CMY |HHB |

|To examine the accounting system as a part of a larger information system |( |( |( |( |

|To examine alternative data sources for accounting data |( |( |( |( |

|To examine the relationship between accounting systems and business processes |( |( |( |( |

|To consider the implications of database technology on reporting possibilities |( |( |( |( |

The shortcomings outlined above, are of concern in that they limit both the scope and purpose of accounting and fail to adequately reflect the definition provided at the commencement of the textbook. This results in an over-representation of the perceived usefulness of the income statement and balance sheet. In addition, the presentation of a disjointed and incomplete view of management accounting marginalises this sub-discipline and implies that it is subservient to financial accounting thus contributing to the perpetuation of the accounting stereotype.

Mackie, Hamilton, Susskind, and Rosselli (1996) suggest that there are four key features of a stereotype. The first is that the stereotype is a cognitive structure that resides inside the head of individuals. Second, the terms “knowledge, beliefs and expectations” are inclusive terms in that they are not limited to traits but instead include attitudes, roles and behaviours of the group. Third, they relate to the target which consists of two or more people who share the said characteristics, with the number of groups limited only by the number of identifiable group characteristics. The fourth feature affect is the mental stimulus which activates the stereotype in memory and is key to understanding the formation and functioning of stereotypes (Mackie et al., 1996).

It has been shown that the positive attributes of stereotypes are underestimated and their negative attributes overestimated or vice versa. They have often been assumed to be overgeneralisations, which implies inaccuracy in the perceived dispersion of group members. That is, members are more or less dispersed around the central tendency of the group than is the case (Park & Judd, 1990).

We suggest that students have been exposed to accounting processes which do not reflect current day practice and that the mental stimulus resulting from repeated exposure to the income statement and balance sheet activates an affective mechanism which causes students to overgeneralise this experience to represent their understanding of accounting around which in turn contributes to their very narrow perception of accounting. It is therefore argued that if the textbook contained a more contextually and broad based approach to accounting, there would be greater awareness of a much more diverse range of accounting outcomes and outputs and, a greater diversity of input data, data sources and processing activities. We believe that this will only occur when the design of an accounting system commences with a vision and plan for the future of the entity within a specific context so that the information needs of the interested parties is better understood. A possible explanation for the suggested bias towards financial accounting is that it being much more structured and regulated it is easier to define while management accounting is less structured and more user defined within a specific context.

Conclusion

We have examined the approach taken by the authors of introductory accounting textbooks and suggest that this in part contributes to the negative perceptions that students have of accounting. To what extent the influence of the curriculum is instructor or textbook driven is unclear, however the consistency of approach among the textbooks would suggest an element of influence by the textbooks and their authors.

This teaching note provides a call to authors and publishers to de-emphasise the excessive focus on financial accounting to the detriment of management accounting and to better reflect the influence of technology on the accounting process as currently practised.

References

Accounting Education Change Commission. (1990). Objectives of education for accountants: Position statement number one. Issues in Accounting Education, 5(2), 307.

Accounting Education Change Commission. (1991). Issues statement number two: Decoupling of academic studies and professional accounting examination preparation.

Accounting Education Change Commission. (1992). The first course in accounting: position statement no. 2. Issues in Accounting Education, 7(2), 249-251.

Albrecht, W. S., & Sack, R. J. (2000). Accounting Education: Charting the course though a perilous future (Vol. 16). Sarasota, FL: American Accounting Association.

American Accounting Association. (1966). A statement of basic accounting theory. Sarasota, FL: AAA.

American Accounting Association. (1986). Future accounting education: Preparing for the expanding profession (The Bedford Report). Issues in Accounting Education, 1(1), 168-195.

Arthur Andersen, Arthur Young, Coopers & Lybrand, Deloitte Haskins & Sells, Ernst & Whinney, Peat Marwick Main & Co, Price Waterhouse, & Touche Ross. (1989). Perspectives on education: Capabilities for success in the accounting profession. New York.

Garner, R. M., & Dombrowski, R. F. (1997). Recruiting the best and the brightest: The role of university accounting programs and state CPA societies. Issues in Accounting Education, 12(2), 299-314.

Hopwood, A. G. (1994). Accounting and everyday life: An introduction. Accounting, Organizations and Society, 19(3), 299-301.

Mackie, D. M., Hamilton, D. L., Susskind, J., & Rosselli, F. (1996). Social psychological foundations of stereotype formation. In C. N. Macrae, C. Stangor & M. Hewstone (Eds.), Stereotypes and stereotyping. New York: Guilford Press.

Mathews, R., Brown, P., & Jackson, M. (1990). Accounting in higher education - Report of the review of the accounting discipline in higher education. Canberra, Australia: Department of Education Employment and Training.

Park, B., & Judd, C. M. (1990). Measures and models of perceived group variability. Journal of Personality and Social Psychology, 59, 173-191.

Parker, L. D. (2001). Back to the future: the broadening accounting trajectory. The British Accounting Review, 33(4), 421-453.

Smith David, J., Maccracken, H., & Reckers, P. M. J. (2003). Integrating technology and business process analysis into introductory accounting courses. Issues in Accounting Education, 18(4), 417-425.

Sundem, G. L. (1999). The Accounting Education Change Commission: Its history and impact, (Vol. 15). Sarasota, Fl: American Accounting Association.

Warren, S., & Parker, L. (2009). Bean counters or bright young things? Towards the visual study of identity construction among professional accountants. Qualitative Research in Accounting and Management, 6(4), 205-223.

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[1] Corresponding author. Paul Wells, School of Business, Auckland University of Technology, Private Bag 92006, Auckland, New Zealand., Phone: 64 9 9219999 x5750, E-mail: paul.wells@aut.ac.nz.

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