Accounting Theory
Michelle_Michy
L5-PerceptionTruthRealityConstructionandtheScientifcMethod.pptxPerception, Truth, Reality Construction and the Scientific Method
Unit 5
ACC3135: Accounting Theory
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Lecture outcomes:
Identify the various sources of Knowledge
Critically evaluate the notion of reality construction
Identify Truth as a problematic concept
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What have we learnt so far?
1.Some philosophical debates and imagery;
2. Mentioned the importance of theories in ‘viewing’ and ‘interpreting’ accounting and its function in society;
3. Accounting is not so ‘concrete’ and ‘objective’ as we thought it to be;
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4. Accounting can be shaped by various views and interests in society and therefore can be considered to be socially constructed;
5. We mentioned the importance of the ‘true and fair view’, and despite its prominence in accounting people including accountants have difficulty in interpreting its meaning.
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Today, we will go back to attempt to explore where this notion of reality construction comes from in order to try and see how it is put together. In other words, we are going to look at how we obtain and gain access to knowledge, because it is knowledge which is used to construct reality.
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True and Fair: An intro, how do we know?
1. Knowledge and epistemology
Epistemology is concerned with the theory of knowledge, but what are the bases of knowledge?
Some background considerations:
How do we establish truth?
Perhaps that the truth corresponds to human nature or likeliness?
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Its real and not pretence?
It corresponds with reality?
Corresponds with fact (but how do you know that something is a fact? –perhaps you could look at statements and are they true statements?
A True statement is one which is factually correct. But a problem here, as true and fact are words which are used interchangeably.
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Sentences and Propositions:
A sentence has meaning (like words do)
But a proposition refers to what the sentence means.
e.g. Jane is bigger than Clare/Clare is smaller than Jane, are two sentences referring to the same underlying meaning-
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- or proposition- about some state of affairs.
It is meaning which is true or false, not the sentence, which is only a vehicle to convey meaning.
Truth is tenseless, in other words the truth doesn’t change, only our knowledge of it.
Statements maybe partly true/false, (can also be meaningless)
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Truth is independent of our knowledge of it.
(need to be clear that there are several ways of distinguishing the word know:)
1. Knowing How (e.g. how to swim)
Skills acquisition, maybe genetically programmed.
Knowledge the big question, ‘How do we know?’
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2. Acquaintance (e.g. seeing something for yourself).
Forming concepts from sensory perception.
3. Knowing that:
(understanding statements)
Criteria:
Statement must be true
You must believe that the statement is true
Good evidence is required
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But good is a matter of degree, how much will suffice?, Is sufficient good enough?
Is more or less justified?
Problem of always being sure – this raises the problem of knowing.
The completeness of evidence /certainty, and the further problem of reliance on sensory perception.
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What about common sense? This is sometimes limited.
For the weak sense of knowing: confirmation: evidence is given in favour.
For the strong sense of knowing: verification: complete evidence.
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(but we will always have to allow for unknown factors), and also here we would be relying on our senses and sensory perception.
One answer here could be probability.
Objections or problems with the standard account of knowing:
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1. Beliefs and perceptions may not be linked.
2. The belief maybe true, but the evidence maybe co-incidentally supportive.
3. Knowledge maybe true without adequate evidence (or may not have been articulated)
4. Being right maybe independent of belief
5. Being right must be trackable to a process of evidence.
6. Each belief depends on prior factors themselves being established.
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Perhaps knowledge can be better viewed as an achievement, in other words a process of enquiry.
BUT WHERE DO WE GET THIS KNOWLEDGE FROM?
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SOURCES OF KNOWLEDGE
1. Perception (through senses or sense data)
2. Introspection (find this within yourself when you search yourself)
Through feelings, interpretation, intention, occurrences, dispositions.
But problems, do we always describe accurately our feelings?
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3. Memory
4. Reason (figuring something out, using reasoning, calculation, understanding etc.)
5. Faith?
6. Intuition (minimal clues, prediction?)
7. Testimony (authority)
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All the above help to provide answers to how we obtain knowledge, but they are all problematic.
What about proof and evidence?
What about science, can science offer any help or way forward for finding out whether something has the status of knowledge?
Approaches to the development of accounting theory
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Science has historically been considered to be the basis of knowledge and furthermore that science only dealt with facts.
The ‘Naïve Scientist’ or ‘Naïve Inductivist’, believes that science starts with observation, which is unprejudiced and then the observation leads to the formulation of a THEORY or LAW.
Scientific Explanation and Purpose
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Observations are singular statements, e.g. Mr Brown passed his ACC3110 coursework.
A universal statement, e.g. students listen carefully in lectures.
In order to derive a theory or law, we must go from the single statements to the universal ones, but how can we do this?
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Well an ‘Inductivist’ Position is that it is legitimate to generalise from a finite list of singular observations to a universal law.
Conditions:
The number of observations statements must be large,
The observations must be repeated under a wide variety of conditions,
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3. No accepted observation statement should conflict with the derived law.
The above is called inductive reasoning:
‘If a large number of As have been observed under a wide variety of conditions, and if all observed As without exception possessed the property B, then all As have the property B’.
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Thus science for the inductivist is a body of knowledge built up systematically on observations, with laws and theories of generality emerging. In particular, the general laws enable EXPLANATION and PREDICTION (this is called deductive reasoning).
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Logic and Deductive Reasoning (for prediction)
Laws, once established have consequences which scientists can use to explain and predict via the reasoning power of deduction.
Facts through observation..induction..laws..and theories..deduction..prediction and explanation.
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Simple logic:
1. All students are clever
2. This person is a student
3. The person is clever
If 1 and 2 are true then 3 is true. I.e the statement are logically valid, but the truth of the conclusion depends on the truth of the premises.
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But with induction there are problems:
Science starts with observation. Therefore observation supplies a secure basis for scientific knowledge, and it is derived from observation statements by induction and this is the major problem.
Is all observation objective?
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Also, inductive arguments are distinct from deductive ones: they are logically valid. An inductive premise maybe true, but the conclusion false.
e.g. All observed ravens are black. Therefore all ravens are black.
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But the premises that ‘a large number of observations over time identified ravens as being black’.
This does not guarantee that the next raven is not blue. If so, then premise (that all ravens are black) falls.
The initial induction was really an inference, not a truth, a series of past observations
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Which logically do not exclude the possibility of a future pink raven. Induction does not lend itself to purely logical argument.
Bertrand Russell’s Inductivist Turkey:
The turkey got fed..observation..variety of conditions..series..observations..justification ...christmas eve..???
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True premises, false conclusion
Is any of the above useful for accounting?
Yes, how do we derive theories of stock valuation, making rules, predicting ratios etc,
How do we come up with accounting knowledge? How do we account for depreciation? How do we use the true and fair view?
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