Accounting, Organizations and Society, Vol. 1, No. 1, pp. 111-l 14. Pergamon Press, 1976.

Printed in Great Britain

THE CORPORATE REPORT: A DISCUSSION

NORTON M. BEDFORD

University of Illinois

To whom and for what are organizations
accountable? Every student of society
pondered the question and every thoughtful
accountant has considered the issue in both
philosophical and pragmatic terms. Increasingly,
the problem emerges as an area of concern as
sociological values and norms of members of
modern complex society tend to be in terms of
what is best for the iwhole society as an entity
rather than in terms of what is best for the
individual in society. Society as a whole dominates
and individual actions are good or bad depending
upon the extent to which they contribute to the
social entity.
As long as the philosophy prevailed that
individuals were responsible for themselves and
that the state existed only to assure fair conduct
among members of society, the motion prevailed
that a business enterprise was accountable only to
those individuals who created it or owned it. In
such a sociological structure, the business
organization was accountable to its shareholders
and accounting reports were so directed. But
sociological values have changed and the view
prevails that a business organization or any
organization exists only by the consent of the
total society in which it operates. Shareholders,
employees, customers, and suppliers are viewed as
a collection of people gathered together to pursue
a common goal which collectively they can better
attain than acting alone. Overriding this collective
notion of an organization is the total society point
of view which holds that no collective group may
be permitted to pursue their common goal if in
doing so, the total society is polluted or harmed in
some way.
This then is the problem faced by the
accounting profession:
1. Should accounting reports be developed in accordance
has with the philosophy that an organization is accountable
only to its investorsA
2. Should accounting reports be developed in accordance
with the philosophy that an organization is a group of
people associating together in order to attain objectives
better than they could acting alone? The implication is
that accounting reports should be directed to investors,
employees, suppliers, and customers.
3. Should accounting reports be developed in accordance
with the philosophy that an organization is merely a
sub-entity but an integral part of the total society entity.
Under this philosophy, accounting disclosures should be
directed to all members of society as a public report on
the contribution of the organization to total society.
The discussion paper to the Accounting
Standards Steering Committee of the Institute of
Chartered Accountants in England and Wales
accepted the intermediate position but called for
research on the topic of social accounting.
Conceptually, the special committee was tempted
to support disclosure of information which reveals
an organization’s endeavour to protect society but
abandoned the concept because it was not a
practical option. The lack of acceptable
measurement techniques was cited as the primary
barrier to a call for full social accounting.
One is tempted to observe that accounting may
be being used to provide means for implementing
the philosophy of a highly centralized government
planning function. If accountants accept this
responsibility or it is forced on them by society,
they will be contributing to the development of a
systematically controlled economic society where
efficiency will be measured in terms of an
organization’s performance for society rather than
for those who created the organization. It would
be most naive to assume that social accounting will
not motivate organization action either directly, as
managers of the organization would strive to

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112 NORTON M. BEDFORD

achieve high social accounting marks, or indirectly and other governmental agencies have become so
as governments used the social accounting great that only a public corporate report that
disclosures as a basis for legislation. evaluates the effectiveness of the politically-based
There is an inevitable tendency of man to organization can correct the situation. The public
consider that what he individually is doing is very right to know doctrine is fully operative because
important. In the case of a government employee, the politically based organizations were created by
concerned with the short-run performance of the public and as the creators, the public stands in
society, it seems so “logical” that the activities of the shoes of an owner, with all of his or her rights,
every organization in a society should be closely and should demand rather complete disclosure of
coordinated so that the entire society functions the effectiveness with which funds have been used,
well. On the other hand, to the individualist - the as well as evaluations of the efficiency and
artist, the self-motivated, and some philosophers - effectiveness of the organization. It is high time
the short-run efficient society objective may be that society recognize that no politically-based
ineffective in the long-run. To them, the need for organization has a right to everlasting life without
innovation in society is so great that considerable justification through disclosures in the corporate
freedom for individual action should be report.
encouraged and those creating organizations think The proposition that all types of organizations
they have a right to restrict accounting disclosures of significant size be required to render an annual
to their needs. corporate report is not particularly meaningful
Objectively, there is a great need for a mass unless some mention is made as to what should be
comprehensive cost-benefit analysis to determine disclosed. Since a monetary measure can be placed
the feasibility of complete social accounting and on almost any economic event, as witness the
many of the other disclosures proposed by the situation where a lease agreement may be
Institute Committee. There are trends in society capitalized and placed on the balance sheet as both
that suggest the costs of the information assets and liabilities without any direct financial
disclosures going on throughout the world far transaction, it must be evident that the disclosure
exceed the benefits. The amount of information in the corporate report cannot be confined to an
disclosures have increased approximately ambiguous notion like financial. There is ample
thirty-fold since World War II. Even large business reason to believe that the conventional notion of
organizations complain about auditing fees and financial is inadequate in that it does not
small business organizations look on government encompass a number of significant economic
reporting requirements as a bane upon their activities relevant to the corporate report. Overall,
existence. the feeling develops that the concept of economic
Out of this haze of conflicting philosophies of activity is probably the most meaningful notion of
right and wrong and confusion as to the costs and the appropriate content of the corporate report.
benefits of various types of information emerges User needs, of course, are the ultimate
the conviction that the content of the public determinants of what to disclose and this requires
accounting report will ever be a controversial issue. a selection of the users to whom the corporate
Philosophically, it is related to the tribal view of report should be directed. In classifying user
the world wherein everyone wants to know groups as equity investors, loan creditors,
everything going on in the entire world yet cannot employees, analyst-advisers, business contractors,
absorb it if it were given to them. Inevitably, a government, and the public, The Corporate Report
compromise solution is necessary if a viable will require disclosures to service a disparate group
corporate report is to be rendered. The report to of users. As a consequence, the inference that
the Accounting Standards Steering Committee corporate reports should aid users in the
must be viewed in this light. evaluation of performance, effectiveness,
The recommendation that all types of management, experience, stability, liquidity,
organizations of significant economic size, whether capacity, future prospects, the relation to society,
in the public or private sector, be required to compliance, ownership, and control of an
render an annual corporate report is in accord with organization is not logically derived. Rather by an
the prevailing philosophy that politicians, as well intuitive process, it was concluded that users
as business men, be held accountable for their would need this information. For an ingenious
actions. The fiscal irresponsibility of municipalities person, it should be not difficult to intuitively
 THE CORPORATE REPORT: A DISCUSSION 113

derive another set of aids to the selected users. But the purchasing power of the holders of monetary
the list selected is insightful and represents a resources. The accounting proposals, although not
desirable list of objectives for the corporate report, specified for this purpose, to deal with this
and they do permit the conclusion that: “The political development are :
fundamental objective of corporate reports is to
1. Report in a standard unit of measurement, which can
communicate economic measurements of and be accomplished by adjusting historical cost data by a
information about the resources and performance general purchasing power index.
of the reporting entity useful to those having 2. Report on the effectiveness and efficiency of
reasonable rights to such information.” Since a government organizations in economic terms rather- than
fund flow terms.
“measurement” is a bit of information and the
term “reasonable” is ambiguous, the fundamental There is a great deal of confusion between
objective will be questioned and debated for some adjusting accounting data to current values and
time. Nevertheless, it is a worthy proposal and adjusting it for general purchasing power of money
when the requirements of relevance, understanda- changes. The general purchasing power adjustment
bility, reliability, completeness, objectivity, aims to change the thinking of an entire society
timeliness, and comparability are proposed as from units of a monetary unit to units of
characteristics of the corporate report, an purchasing power. In terms of units of a monetary
appreciation for the objectives proposed by the unit, the 1939 pound is the same as the 1975
committee results. pound, but in terms of purchasing power, the
The scope and sweeping changes proposed for 1939 and 1975 pounds represent entirely different
corporate accounting by the committee of the things. Society needs to be freed from the fixation
Accounting Standards Steering Committee is of thinking in terms of monetary units but to do
apparent in the six additional statements - in so runs counter to the political development of
addition to the balance sheet, income statement, financing social objectives through the indirect tax
and funds statement - suggested: value added, of inflation. It must not be assumed that
employment, money exchanges with the governments can readily shift to direct taxation
government, foreign currency transactions, future methods for the advantage of the indirect inflation
prospects, and corporate objectives statements. processes of taxation gives the appearance of
Overall, The Corporate Report is merely one of increased government services being provided at no
a number of articles and reports in journals of monetary unit cost to individual members of
multiple disciplines and professions reflecting society. The accounting proposal for general price
social and political developments throughout the level accounting must then be compared in
world. In that context, the report is not nearly as desirability with the use of inflation as an indirect
radical a document as it appears at first inspection. taxation process not subject to overt control.
It reflects an attempt on the part of a profession The other competitive force with which
to respond to the challenge of a new concept of accounting must be concerned is the removal from
some popularity throughout the world - the the private section of certain functions, which are
concept of common social goals for a society. subject to accountability reports, to the public or
Viewed as a defense against an inroading social and government section. Unless these functions are
political philosophy, the various proposals for subject to accounting disclosure requirements,
expanding the scope of accounting practice and more and more of the economic activities of a
making its measurements and communications society escape the requirement of public
more precise, are much more palatable. But viewed evaluation in terms of effectiveness and efficiency.
in terms of traditional procedures and traditional It seems reasonable to propose that given this
knowledge, the expanded views of accounting do development, it is appropriate to recommend that
indeed appear radical, government agencies also be required to render a
Let us examine some of the political develop- corporate report on economic activities. The
ments and attempt to determine whether or not alternatives to expanding the corporate report to
the new accounting proposals are preferable. The all types of economic activities is greater freedom
most obvious political development in recent years by non-business entities in the use of economic
is for governments to spend more than their resources and this has varied political implications.
income. This has resulted in inflation, and The social phenomenon that seems to view
inflation is an indirect tax that effectively reduces business as anti-social needs to be dealt with in a
114 NORTONM.BEDFORD

direct fashion. There is little objective evidence to proposition must be submitted that further change
suggest that a business entity is any more is now needed for the alternative is less desirable.
anti-social than a non-business entity. Certainly The reluctance of accountants to support an
some of the activities of very powerful centralized expansion of the corporate report in the last forty
government have been adjudged anti-social. If the years is difficult to understand. As the senior
alternative to an anti-business atmosphere in partner of one of the “big 8” accounting firms
society is an extension of accounting disclosure asserted, “Accountancy has been plagued with
statements, the proposal for value added and leaders who will not face reality. The last 20 years
employment corporate reports, among others, may have been a period in which the improvement in
not appear so radical. accounting standards has not kept pace with the
Consideration of the alternatives to an vast changes that have occurred in business,
expansion of the corporate report given the financial and economic activities, and in the needs
changes in our social values and norms may not be of the users of financial statements.”
considered acceptable. Some may prefer that It seems appropriate to conclude this discussion
accountants change the social values and norms of The Corporate Report by accepting the fact
back to those prevailing when the current scope of that the Committee probably proposed too large a
accounting disclosures was appropriate. Such bite for the accounting profession and for society,
would be a most difficult undertaking. but the thrust of the proposal is in accord with a
Historically, accounting has adjusted to the great deal of progressive thinking throughout the
changes in the social environment. In fact, the world and the specific proposals of the report need
robustness of accepting has caused it to expand to be examined carefully and experiments with
and grow significantly as society has changed. The them need to be conducted.