Description
The International Accounting Standards Board (IASB) and the Financial Accounting Standards
Board (FASB) recently published the final version of Chapter 1 of their joint Conceptual
Framework for Financial Reporting (IASB/FASB, 2010). In this article, we focus on two
of the key issues addressed in Chapter 1: stewardship and the definition of the primary
user groups of financial statements. To address the discourses surrounding the evolution
of Chapter 1, we introduce the concept of ‘‘living law’’ from sociological jurisprudence into
accounting scholarship. We first trace the role of stewardship/accountability in the evolution—from
antiquity to the present day—of the living law of accounting. We then explore
the origin, nature, and implications—from a living law perspective—of the moral traditions
associated with stewardship/accountability. Our analysis suggests that stewardship has
been, and continues to be, embedded in the living law of accounting—notwithstanding
the formal pronouncements of standard setters. We also examine the social accounting
project from a living law perspective and we suggest that such an analysis provides new
possibilities for addressing core social accounting concerns.
Discourses surrounding the evolution of the IASB/FASB Conceptual
Framework: What they reveal about the ‘‘living law’’ of accounting
Tim Murphy
a,1,2
, Vincent O’Connell
b,?,1
, Ciarán Ó hÓgartaigh
c,3
a
School of Law, College of Law, Government and International Studies, Universiti Utara Malaysia (University of North Malaysia), 06010 UUM Sintok,
Kedah, Malaysia
b
Amsterdam Business School, University of Amsterdam, Plantage Muidergracht 12, 1018 TV Amsterdam, The Netherlands.
c
UCD College of Business and Law, University College Dublin, Bel?eld, Dublin 4, Ireland
a b s t r a c t
The International Accounting Standards Board (IASB) and the Financial Accounting Stan-
dards Board (FASB) recently published the ?nal version of Chapter 1 of their joint Concep-
tual Framework for Financial Reporting (IASB/FASB, 2010). In this article, we focus on two
of the key issues addressed in Chapter 1: stewardship and the de?nition of the primary
user groups of ?nancial statements. To address the discourses surrounding the evolution
of Chapter 1, we introduce the concept of ‘‘living law’’ from sociological jurisprudence into
accounting scholarship. We ?rst trace the role of stewardship/accountability in the evolu-
tion—from antiquity to the present day—of the living law of accounting. We then explore
the origin, nature, and implications—from a living law perspective—of the moral traditions
associated with stewardship/accountability. Our analysis suggests that stewardship has
been, and continues to be, embedded in the living law of accounting—notwithstanding
the formal pronouncements of standard setters. We also examine the social accounting
project from a living law perspective and we suggest that such an analysis provides new
possibilities for addressing core social accounting concerns. We conclude by arguing that,
particularly in light of the far reaching impact of the neoliberal agenda, there is an urgent
need for scholars in both contemporary ‘‘social’’ and ‘‘mainstream’’ accounting to recognize
and build upon their shared living law heritage rooted in the age-old traditions of steward-
ship/accountability.
Ó 2012 Elsevier Ltd. All rights reserved.
Introduction
The origins of stewardship (i.e., accountability) in
accounting may be traced back several millennia (Basu &
Waymire, 2006; Schmandt-Besserat, 1992).
4
Notwithstand-
ing its historical role as the ‘‘root metaphor’’ of accounting
(Ravenscroft & Williams, 2009, p. 770), in 2006, both the
International Accounting Standards Board (IASB) and the
Financial Accounting Standards Board (FASB) proposed drop-
ping stewardship as a primary ?nancial reporting objective.
The background to this proposal was that, in October 2004,
IASB/FASB embarked on an ambitious joint project to devel-
op a common Conceptual Framework for Financial Reporting.
The ?rst part of the task that the Boards set for themselves
was to de?ne the objective(s) of ?nancial reporting. This is-
sue was to be addressed in Chapter 1 of the Conceptual
Framework and, at different points in the development
process (speci?cally in 2006 and 2008), the Boards issued
Exposure Drafts of Chapter 1 for discussion. The ?nal
version—Conceptual Framework for Financial Reporting.
Chapter 1: The Objective of General Purpose Financial Reporting
0361-3682/$ - see front matter Ó 2012 Elsevier Ltd. All rights reserved.http://dx.doi.org/10.1016/j.aos.2012.07.003
?
Corresponding author. Tel.: +31 20 525 4171; fax: +31 20 525 5092.
E-mail addresses: [email protected] (T. Murphy), v.r.oconnell@
uva.nl (V. O’Connell), [email protected] (C. Ó hÓgartaigh).
1
These authors contributed equally to this project.
2
Tel.: +60 13 202 1842; fax: +60 4 928 4205.
3
Tel.: +353 1 716 4856; fax: +353 1 716 4767.
4
We interpret ‘‘stewardship,’’ ‘‘accountability,’’ and ‘‘stewardship/
accountability’’ as synonymous terms and we use them interchangeably
throughout this article.
Accounting, Organizations and Society 38 (2013) 72–91
Contents lists available at SciVerse ScienceDirect
Accounting, Organizations and Society
j our nal homepage: www. el sevi er. com/ l ocat e/ aos
(IASB/FASB, 2010)—was released in September 2010;
although other aspects of the Conceptual Framework are
currently undergoing continuing development, the Boards
do not intend to revisit the issues addressed in Chapter 1 of
the Conceptual Framework (hereafter, ‘‘Chapter 1’’).
The proposed abandonment of stewardship as a pri-
mary ?nancial reporting objective was, in many ways,
not surprising, given that recent decades have shown that
the status of accountability generally, including the status
of stewardship/accountability as a primary objective of
?nancial reporting, has come under sustained attack (Rav-
enscroft & Williams, 2009, 2011). However, perhaps be-
cause of the historical entrenchment of stewardship in
accounting, the initial proposal—when it was ?rst pub-
lished in the 2006 Exposure Draft—drew a strong negative
response from a variety of interested parties, and at least
some aspects of this feedback in?uenced the subsequent
evolution of Chapter 1. The controversy surrounding its
proposed demotion and the changes incorporated in the ?-
nal version of Chapter 1 suggest that stewardship/account-
ability has an enduring quality that accounting standard-
setters cannot easily ‘‘shake off.’’
In the same 2006 Exposure Draft, IASB/FASB identi?ed
seven primary user groups of ?nancial reporting: equity
investors, creditors, suppliers, employees, customers, gov-
ernment and their agencies and regulatory bodies, and
members of the public. However, in the ?nal version of
Chapter 1, the user groups are simply speci?ed as the pro-
viders of capital (i.e., equity investors and creditors). This
narrowing of the de?nition of user groups has obvious
and profound implications for the social accounting project
in a ?nancial reporting context. In particular, if groups
other than the providers of capital cease to be seen as pri-
mary user groups by the standard setting bodies, then the
nature of the interaction between ?nancial reporting and
the social accounting project is fundamentally altered.
However, in contrast to the controversy surrounding stew-
ardship, there has been no noticeable reaction from the so-
cial accounting community, or indeed any part of the
accounting community more generally, to the de?nition
of user groups in Chapter 1 and the preceding exposure
drafts.
In this article, we explore discourses surrounding the
evolution of Chapter 1 with particular reference to the
aforementioned issues: the role of stewardship and the
de?nition of the users of ?nancial statements. We believe
that Chapter 1 is worthy of study as the IASB/FASB Concep-
tual Framework is now meant to be the guiding light for
determining the current and future evolution of account-
ing standards in over 100 countries. As the Boards them-
selves point out (IASB/FASB, 2004, p. 4), decisions with
respect to ?nancial reporting objective(s) and user groups
can have crucial and far-reaching ?nancial reporting impli-
cations. Moreover, as we shall argue in this article, these
decisions can have profound consequences for accounting
that far transcend the conventional ‘‘borders’’ of contem-
porary ?nancial reporting.
In order to better understand the presences (and ab-
sences) in the discourses surrounding Chapter 1 relating
to both stewardship/accountability and the social account-
ing project, we wish to introduce into accounting scholar-
ship the concept of ‘‘living law’’ from the discipline of
jurisprudence. Jurisprudence, broadly de?ned, is the philo-
sophical pursuit of wisdom about law, legal systems, and
justice (Murphy, 2004a, pp. 1–2, cf 2012, pp. 196–197);
jurisprudential writings ‘‘are not concerned with exposi-
tions of law, but with disquisitions about law [emphases
in original]’’ (Dias, 1985, p. 7). The ‘‘living law’’ approach
derives from that branch of jurisprudence known as
‘‘sociological jurisprudence,’’ which, generally speaking,
views legal norms as but one of many sets of social norms
and, moreover, as norms that can be understood meaning-
fully only in their broader social context (Walsh, 2004, p.
169).
The concept of living law has been current since the
seminal work of the Austro-Hungarian jurist, Eugen Ehrlich
(1862–1922). Ehrlich’s Grundlegung der Soziologie des Rec-
hts (Ehrlich, 1913) was ?rst published in English in 1936
as Fundamental Principles of the Sociology of Law (Ehrlich,
2002). Different authors have since developed the living
law approach that originated in Ehrlich, and in this article
we rely also on the recent elaboration of the living law ap-
proach by Garrett Barden and Tim Murphy in their book,
Law and Justice in Community (2010). The living law ap-
proach proposes that societies generally, as well as social
groups and professional associations within societies, have
a ‘‘law’’ that preexists—and continues on an ongoing basis
to exist separately from—both formal self-regulatory
schemes (also often understood as ‘‘laws’’) and state law.
The particular sociological understanding of ‘‘law’’ in the
living law approach is not of law as posited or laid down
in the way a constitution, statute, code, or other set of rules
are posited or laid down; nor does it refer to any set of uni-
versal principles or axioms in the manner of many modern
understandings of ‘‘natural law.’’ Instead, as we shall ex-
plain in further detail in the next section, the ‘‘law’’ in ‘‘liv-
ing law’’ denotes ‘‘the way things are done’’ or ‘‘what is
generally accepted and approved’’ and implies that these
emerge and develop from the social practice in question.
Although no universally accepted de?nition of ‘‘living
law’’ exists, we will use the term in this article to refer to
‘‘the moral or customary tradition of a particular
community.’’
5
By introducing ‘‘living law’’ into accounting, we are
building upon a longstanding tradition of interdisciplinary
research. There are many ‘‘social and institutional paral-
lels’’ (Moore, 1991) between law and accounting, and it is
therefore not surprising that there exists a substantial
body of interdisciplinary ‘‘law and accounting’’ scholar-
ship. Moore observed, for example, that the institution of
law and the institution of accounting are both ‘‘tools of so-
cial and organizational control, prescribing or proscribing
in often spectacular detail types of individual behavior,
terms of economic relationships, and degrees of govern-
ment power’’ (Moore, 1991, p. 765). Other studies in this
tradition discuss ways in which the law ‘‘impacts on exter-
nal accounting and on private sector accounting policy
5
The literature on living law is extensive, and an exhaustive bibliogra-
phy is beyond the scope of this article. A good introduction to the literature,
which features many of the scholars engaged currently in living law
discourse, is Hertogh’s (2009) edited collection.
T. Murphy et al. / Accounting, Organizations and Society 38 (2013) 72–91 73
making’’ (Bromwich & Hopwood, 1992, p. 1), and reveal
that accounting, far from being an autonomous practice,
is deeply implicated in its wider socio-political context
(Gilmore & Willmott, 1992), including that of the law (Ber-
le, 1938; Miller & Power, 1992; Napier & Noke, 1992). Sur-
veys of judicial in?uences on the development of
accounting (de Kerviller & Standish, 1992; Hadden & Boyd,
1992; Patient, 1992; Reid, 1986, 1989) and discussions of
the statutory regulation of accounting (Bromwich, 1992a;
Hadden & Boyd, 1992; McBarnet & Whelan, 1992a) are
the most common forms of interdisciplinary law and
accounting research, but other themes include: legal anal-
yses of speci?c accounting concepts, such as the ‘‘true and
fair view’’ (Baxt, 1968; McGee, 1991), which have been in
turn assessed from the accounting side (e.g., Ram, 2002);
analyses of territorial battles between the two professions
(e.g., Dezalay, 1991; Dezalay, 1995); jurisprudential analy-
ses of accounting issues (e.g., Archer, 1992, 1993; McBar-
net & Whelan, 1992b); the implications of Habermas’s
theory of law in an accounting context (Power & Laughlin,
1996); and debates about ethics in professional accounting
(e.g., Bayou, Reinstein, & Williams, 2011; Parker, 1994;
Preston, Cooper, Scarbrough, & Chilton, 1995), which are
ripe for comparison with equivalent debates regarding
professional lawyering (e.g., Markovits, 2008).
In this article, we seek to make three distinct contribu-
tions to the literature. First, we evaluate the nature of
stewardship/accountability—from antiquity to the present
day—through the lens of the living law. We believe that
this analysis offers potentially crucial insights in terms of
obtaining a deeper understanding of the contemporary
nature—and future direction—of accounting in its broadest
sense. Second, we apply a living law analysis in order to
better comprehend the evolution and trajectory of the so-
cial accounting project. Third, by introducing the concept
of living law into the accounting literature, we extend re-
search at the interface of law and accounting while simul-
taneously demonstrating the potential bene?ts of living
law analysis in accounting research.
The article consists of ?ve further sections. The next
section introduces the concept of living law in detail. In
the following section, we discuss the role of stewardship/
accountability and social accounting in conceptual frame-
works with particular reference to Chapter 1. In the fourth
and ?fth sections, we build upon the preceding discussions
in order to apply a living law analysis to our central con-
cerns with respect to Chapter 1: stewardship/accountabil-
ity and social accounting. Concluding comments are
offered in the ?nal section of the article.
The living law approach in jurisprudence
In this section, we ?rst consider the nature of the living
law approach in some detail, principally by setting out key
features of the living law approach as it was originally
developed in the work of Eugen Ehrlich (1913/2002) and
in the restatement of living law theory set out in Barden
and Murphy (2010). We discuss the connection between
the living law approach and the idea of ‘‘legal pluralism,’’
and we also distinguish the meaning of ‘‘law’’ in ‘‘living
law’’ from its meaning in other, better known jurispruden-
tial approaches, speci?cally legal positivism and modern
natural law theory. Throughout the section, we provide
examples and further analysis of ‘‘living law.’’
Ehrlich famously summarized his thesis in the Fore-
word to Fundamental Principles of the Sociology of Law:
‘‘the centre of gravity of legal development lies not in leg-
islation, nor in juristic science, nor in judicial decision, but
in society itself [emphasis added]’’ (2002, p. xv). For Ehrlich,
society is ‘‘the sum total of the [very heterogeneous] hu-
man associations that have mutual relations with one an-
other’’ (2002, p. 26), and the ‘‘living law’’ is ‘‘the law
which dominates life itself even though it has not been
posited in legal propositions’’ (2002, p. 493): it is the law
made and maintained by people in their associations and
in the broader community. In Ehrlich’s view, the primary
function of ‘‘law’’ is to maintain social order, that is, order
in and between the heterogeneous social or human associ-
ations that constitute society: ‘‘Just as we ?nd everywhere
the ordered community’’, he wrote, ‘‘wherever we follow
its traces, so we also ?nd the law everywhere, ordering
and upholding every human association’’ (2002, p. 25).
In Barden and Murphy’s elaboration of living law, any
human community (or human or social ‘‘association’’) does
a whole host of things in particular ways, including the
customs, practices, well-known and accepted procedures,
and mutual expectations that establish the jural relation-
ships and entitlements particular to that community. In
Barden and Murphy’s account, the ‘‘living law’’ represents
‘‘what is generally accepted as what constitutes the com-
munity as a community’’; it is a moral tradition comprising
‘‘the set of those ways of acting that, in a particular com-
munity, are admired and thought appropriate to common
types of situations’’ (Barden & Murphy, 2010, p. 4). On this
view, the living law is ‘‘customary law’’ or ‘‘communal
moral law’’ in that it constitutes the commonly accepted
moral rules of a community, some of which, but rarely if
ever all of which, may be written down or even formulated
in speech. The socio-cultural concept of tradition is one
way of understanding how living law is handed down in
communities: just as children learn language so too they
learn the morality—the customs or living law—of their par-
ticular community.
It is crucially important to note that the references to
human or social ‘‘communities’’ or ‘‘associations’’ in the
living law approach are not exclusively references to mod-
ern states or polities. Both Ehrlich’s and Barden and Mur-
phy’s theories of living law hold that all human
communities or groups—ranging from the global commu-
nity to a community of two castaways on a desert is-
land—have a ‘‘living law.’’ In Ehrlich’s terms, a human or
social ‘‘association’’ is any plurality of human beings
‘‘who, in their relations with one another, recognize certain
rules of conduct as binding, and, generally at least, actually
regulate their conduct according to them’’ (Ehrlich, 2002, p.
39). Ehrlich instances various forms of clan, family, and
house community as early forms of such associations and
refers to the state, the religious communion, the political
party, the social coterie, the cooperative society, and ‘‘the
association of the members of a calling’’ as examples of
associations found in advanced societies; on this basis,
74 T. Murphy et al. / Accounting, Organizations and Society 38 (2013) 72–91
modern man ‘‘becomes the member of an almost incalcu-
lable number of associations of the most diverse kinds’’
(Ehrlich 2002, pp. 27–28). We are all, in other words, mem-
bers of multiple ‘‘associations’’ and we are all therefore sit-
uated in relation to multiple ‘‘living laws.’’ An accountant
in London, for example, is situated in relation to the living
law—to name some of the more obvious but certainly not
to provide an exhaustive list—of his or her: family, social
circle(s), social club(s), employer(s), profession, local com-
munity, regional community, England, the UK, and indeed
the human race.
Within the context of this article, the living law of the
accounting profession is obviously worthy of further elab-
oration. Any profession—including the accounting profes-
sion—constitutes an ‘‘association’’: in relations between
accountants, there are rules or norms of conduct, not all
of which are commands that come from state law or ‘‘of?-
cial’’ sets of professional standards, that generally have a
regulatory effect. There is a ‘‘living law’’ of the accounting
profession that preexists, and exists now separately from,
state law and systems of professional self-regulation. In
Barden and Murphy’s (2010) terms, the living law of the
contemporary accounting profession refers to the set of
those ways of acting in the accounting community that
are thought appropriate to common types of situations.
This living law is constituted in part by the empirical real-
ities of the accounting profession as opposed to the formal
rules that purport to de?ne those ‘‘realities.’’ Cooper and
Robson (2006), for example, observe that commercialized
and bureaucratized understandings of professionalism per-
vade major accounting ?rms rather than any understand-
ing that considers the public interest, and they note that
studying accounting ?rms ‘‘is likely to provide consider-
able insight into how the profession operates, and how
both its own understandings, and those of its clients, are
changing’’ (p. 433). In their discussion of the links between
accounting ?rms and the production of professional iden-
tity, Cooper and Robson further observe that the meaning
of being a professional ‘‘is seen primarily as a way of
behaving: accountants view the idea of ‘professional’ as
referring to ways of acting, particularly in front of clients’’
(2006, p. 432). This description is consonant with the def-
inition of the ‘‘law’’ in ‘‘living law’’ as ‘‘the way things are
done’’ or ‘‘what is generally accepted and approved.’’ More-
over, the same can be said for that part of Cooper and Rob-
son’s survey which shows that the production of
professional identity incorporates several other speci?c
features, including gender, class, social ethnicity, profes-
sional af?liation, ways of talking and writing, time man-
agement, matters of appearance, dress sense, personal
grooming, and eagerness and other forms of overt commit-
ment. The survey further points out that there are relevant
differences in these contexts within accounting such as
those between partners, junior accountants, middle man-
agers, accounting clerks, and technicians.
Another, related, feature of the living law approach is its
connection with the jurisprudential idea of ‘‘legal plural-
ism’’ (see, e.g., Grif?ths, 1986; Merry, 1988; Murphy,
2012; Twining, 2010; von Benda-Beckmann, 2002). One
of the key assumptions of legal pluralism is that there is
a multiplicity of law in any sphere of human behavior or
social practice. Multiple legal forms—of which state law
is but one—operate in an internormative fashion, whereby
they overlap and interact with one another. Moreover, in
this internormative context, state law or other ‘‘of?cial’’
law has no special status on account of its provenance
and is often the less important normative regime affecting
a particular area of social life (Anderson, 2005). On this
view, the living law represents one type of normative re-
gime among many. Ehrlich lived and worked at the out-
skirts of the Austro-Hungarian Empire, where many
different ethno-cultural groups lived side by side, includ-
ing Armenians, Germans, Jews, Ukrainians, Russians, Slo-
vaks, Hungarians, and Gypsies, and he developed his
alternative perspective on law through observation and
empirical study of the habits and customs of these and
other groups. He focused on the rules of conduct that peo-
ple in actual fact obeyed, and concluded that most people
did not follow state law, but rather lived according to their
own social norms. In his discussion of the German peas-
antry, for example, Ehrlich noted that the matrimonial re-
gime of community goods according to which they lived,
‘‘which is the prevailing, freely chosen property regime of
the German peasantry in Austria, has nothing in common
with the community of goods provided for in the Austrian
Civil Code, and the provisions of the Civil Code are never
being applied’’ (Ehrlich, 2002, p. 489). This ‘‘prevailing,
freely chosen property regime’’—one of several, ‘‘plural,’’
normative regimes—was the living law of this particular
group or ‘‘social association’’ in matters pertaining to
property.
In Law and Justice in Community, Barden and Murphy
place their theories of living law and legal pluralism in
the context of an evolutionary conception of society. In
their account, humans evolve within a social order, and in
that order there emerge patterns of interrelations that
are expressed linguistically in ‘‘laws.’’ The social order
inevitably gives rise to such ‘‘laws’’ as ‘‘Thou shalt not kill,’’
‘‘Thou shalt not steal,’’ and ‘‘Promises ought to be kept’’
(pacta sunt servanda), or some linguistic equivalent of
these. These ‘‘laws’’ or norms emerge as laws because they
are absolutely necessary to the survival of any society and
are therefore a part of the living law of all communities or
associations of people. The source of much ‘‘law’’—in fact,
the source of the most fundamental laws, those necessary
to the survival of society—is not any authoritative or legis-
lative command but rather the spontaneous ordering of the
practice of communal life. This point is very signi?cant in
terms of understanding the living law approach because
it emphasizes the need to distinguish the meaning of
‘‘law’’ in ‘‘living law’’ from its meaning in other jurispru-
dential approaches, speci?cally legal positivism and mod-
ern natural law theory.
One of the most enduring traditions in jurisprudence,
‘‘legal positivism,’’ proposes, albeit under many different
guises (e.g., Austin, 1998; Bentham, 1945, 1970; Hart
1994; Kelsen, 1967), two broad theses: a ‘‘social thesis’’—
that what counts as law in any particular society is
fundamentally a matter of social fact; and a ‘‘separability
thesis’’—that what the law is and what the law ought to
be are separate questions (Leiter, 1999, pp. 1141–1142;
cf. Pavlakos, 2004, p. 226). Underlying these theses is a
T. Murphy et al. / Accounting, Organizations and Society 38 (2013) 72–91 75
theory that af?rms the dominant understanding or image
of a ‘‘law,’’ that is, as an enforceable command or rule pos-
ited or laid down by an appropriate authority of some kind.
In the contemporary global context of sovereign nation
states, the ‘‘appropriate authority’’ generally tends to be
the state; and ‘‘law’’ is understood as including constitu-
tional law (whether written or unwritten), enacted legisla-
tion (for example, law contained in a common law statute
or civil law code), law arising from or associated with the
courts (common law, case law, or, sometimes, ‘‘judge-
made law’’), and elements of public and private interna-
tional law.
The dominance of this understanding or image of law is
not to be under-estimated. It is present even in the natural
law tradition, commonly considered as the tradition dia-
metrically opposed to legal positivism. In modern jurispru-
dence, one of two meanings—a revealed divine law or a set
of infallible axioms or provisions from which appropriate
moral or legal rules may be deduced—is usually what is
meant when reference is made to ‘‘natural law.’’ Both of
these meanings suggest a superior, ?xed, and universal
set of norms or provisions that, for whatever reason, may
not be part of the law of a particular jurisdiction, but
against which a subordinate positive law may be tested
and, depending on how it is interpreted, perhaps found
wanting. Natural law, in other words, is conceived of as
structurally similar to posited law, but as existing at a
superior or ‘‘higher’’ level; it retains the understanding or
image of ‘‘law’’ as an authoritative command or rule that,
like positive law, is subject to interpretation (Barden &
Murphy, 2010; Murphy, 2004b, chap. 8).
‘‘Living law’’ cannot be thought of as existing on a con-
tinuum with state law or natural law because it is a differ-
ent type of law. As we pointed out in the introductory
section, the living law approach derives from sociological
jurisprudence—its central focus is neither on descriptive
accounts of what posited law is (legal positivism) nor on
the claim, however it may be understood, that posited
law is referable to a higher set of norms (the modern nat-
ural law tradition). However, despite the strong differ-
ences—made explicit by Ehrlich (1922, pp. 130–131,
2002, pp. 15–16) and by Barden and Murphy (2010, pp.
71–72, 189)
6
—between ‘‘living law’’ and the modern ‘‘natu-
ral law’’ tradition, there are nonetheless ‘‘universal’’ and
‘‘natural’’ element in the living law.
As we have said, the source of the most fundamental
laws, those necessary to the survival of society, is the spon-
taneous ordering of the practice of communal life. All hu-
man communities – including the global community – do
have ‘‘universal’’ or common rules and norms because hu-
mans are social beings whose lives together are in very ba-
sic and important ways similar in different societies.
Barden and Murphy (2010) point out that the Roman law
concept of ius gentium refers to the norms that are com-
mon to all communities. These norms – for example, that
killing, stealing, and the making of ‘‘false promises’’ must
be prohibited – are common to all communities because,
without them, no ‘‘community’’ could exist or be main-
tained; in other words, before these norms are discovered
to be common, they are in fact common, and are similar re-
sponses to similar exigencies (Barden & Murphy, 2010,
chap. 2; Murphy, 2012, pp. 192–196). This commonality
means that speci?c mutual entitlements and expectations
are discovered to be in fact ‘‘natural’’ to speci?c human
practices; but it is very important to be clear that what is
meant by this is that these entitlements and expectations
are discovered to be intrinsic to successful communal life
and thus discovered prior to any type of posited law.
The idea that what is ‘‘natural’’ is ‘‘that which is intrin-
sic’’ is an idea far removed from the modern natural law
tradition but it is present in classical philosophy as well
as in some strands of modern philosophy. A good example
from the accounting literature is Shapiro’s (2002) critique
of the SFAS 106 (Employers’ Accounting for Postretirement
Bene?ts other than Pensions, Financial Accounting Stan-
dards Board (FASB), 1990) presumption that both employ-
ers and employees mutually understand postretirement
bene?t plans. Shapiro used Searle’s (1969) speech act anal-
ysis of promises and, in particular, Searle’s account of the
conditions for expressing sincere and non-defective prom-
ises (Searle, 1969, pp. 57–61, 1979, p. 44) to argue that
while certain clauses in written health plans did not con-
stitute full-blown and socially enforceable promises, they
could nevertheless mislead active workers and retirees
into believing that management would continue providing
the bene?ts inde?nitely. Searle’s conditions for expressing
sincere and non-defective promises—which include a ‘‘sin-
cerity condition’’ (that the promisor intends to do what is
promised) and an ‘‘essential condition’’ (that the promisor
intends that the utterance of the promise will place him
under an obligation to do what is promised)—are grounded
in a philosophical approach that holds that the adage pacta
sunt servanda is an ‘‘operative presupposition of the prac-
tice of promising prior to any theoretical re?ection on
the practice and to any attempt to justify the presupposi-
tion’’ (Barden & Murphy, 2010, p. 56). An operative presup-
position is a principle intrinsic to an act in the absence of
which the act fails to be what it seems to be; as Shapiro ob-
serves in the context of the SFAS 106 presumption, ‘‘the
point of a promise is to commit the speaker to perform a
future act for the hearer’’ (2002, pp. 70–71, citing Austin,
1962; Searle, 1979, pp. 12–17). In other words, someone
who ‘‘promises’’ with no intention of keeping his promise
has not promised but has only pretended to do so.
7
For Barden and Murphy, the fundamental mutual enti-
tlements and expectations of communities—for example,
6
Barden and Murphy (2010) draw on the work of Villey (1962, 1968,
1969, 1976, 1983) to advance accounts of natural law and natural justice
developed from the classical rather than the modern tradition.
7
However, even when there is no intention to deceive, communication
processes are still fraught with potential problems. Shapiro (2002) also
utilizes Habermas’s theory of communicative action (Habermas, 1984,
1991, 1996) to argue that, setting the question of intention aside, it was still
dif?cult for employees to accurately analyze the extent to which the
communication exchanges with respect to postretirement bene?t plans
met Habermas’s validity claims of truth, legitimacy, and sincerity—validity
claims which characterize Habermas’s concept of the ‘‘ideal speech
situation’’ (Power & Laughlin, 1996, p. 461). While accounting could have
played a crucial role in this context, Shapiro suggests this responsibility
was shirked because of a range of factors ‘‘including accountants’ general
lack of moral courage to intervene on behalf of labour’’ (2002, p. 65).
76 T. Murphy et al. / Accounting, Organizations and Society 38 (2013) 72–91
that killing, stealing, and the making of ‘‘false promises’’
must be prohibited—are natural to human communities
in the sense of being intrinsic and necessary to the survival
of those communities. All communities, however, also
have a distinct set of conventional rules or norms, that is,
rules or norms that are settled legally or by agreement
and which may therefore be of the positive law or living
law variety.
8
The conventional rules of a community that
are settled legally include generally the written formulation
or expression of parts of the living law of that community in
constitutions, legislation, case law, and so on.
9
Within com-
munities, conventional rules of different types are drawn up
or agreed upon: different jurisdictions will have different
speci?c laws relating to murder, to theft, to the formation
of contracts, and so on; and there will also be conventional
rules about things that are speci?c to particular communi-
ties. In many countries, for example, there are state laws
relating to the dominant religion or religions, while in other
countries state law tends to avoid issues relating to
organized religion—these re?ect multifarious living laws
regarding religious belief and church-state relations. But
conventional forms of living law will also exist that are not
at all the subject of positive law; different customs and
norms regarding basic etiquette, for example, again re?ect
different living laws but are nowhere found in state law.
The fact that the living law of a community or social
association is the moral or customary tradition of the com-
munity or social association means, of course, that the ‘‘liv-
ing law’’ of a group or association can be ‘‘good’’ or ‘‘bad.’’ A
criminal gang will have a living law in the same way that a
modern polity or a modern profession has a living law.
Hertogh (2010) has described how the living law of the
Dutch construction industry included an illegal clearing
system in which all of the major Dutch construction com-
panies colluded in price offers for public works. While
many of those involved in the clearing system thought that
their actions were not morally wrong the practice came to
public attention in 2001 and was subsequently subjected
to parliamentary scrutiny and further legal prohibition.
Corporate scandals generally indicate a negative living
law, that is, they suggest bad corporate moral traditions;
it has been remarked, to give a highly publicized example,
that what has been striking about the Enron scandal ‘‘have
been the post-collapse revelations about the corruption,
cynicism, and deceit that pervaded that community’’
(Bayou et al., 2011, p. 121). However, for communities
and associations to survive and ?ourish—and for smaller
communities to survive and ?ourish in the midst of larger
ones—the tendency will be for the community or associa-
tion to develop a living law that serves that end. The
unwritten rule that obliges sailors to go to the rescue of
someone in trouble—which, even though there is no posi-
tive law or formal rule to that effect, is deeply entrenched
as part of the living law of sailing culture—is likely to re-
main constant because it reinforces the existence and iden-
tity of the sailing community (Barden & Murphy, 2010, pp.
56–59). Unwritten rules such as this one, which are not
legislated, emerge from the intelligent and responsible
practice of those who constitute the relevant community
or association. For communities and associations to survive
and ?ourish, and for the global community to survive and
?ourish, practices tend to emerge that, for the most part,
are consonant with the ‘‘golden rule’’ that one should treat
others as one would wish to be treated by them. ‘‘Good’’
living law inevitably tends to include the principle that
one should act taking the interests of others into account
or, to put this in general social context, that one should
support rather than subvert society (Barden & Murphy,
2010, pp. 27–29, 58–59; cf. Buber, 1987; Lévinas, 1982, p.
91).
Stewardship/accountability, social accounting, and
conceptual frameworks
In the subsequent two sections, we will return to the
living law in order to address the two central concerns of
this article: the application of a living law analysis to,
respectively, stewardship/accountability and social
accounting, with speci?c reference in each case to the dis-
courses surrounding Chapter 1 of the IASB/FASB Concep-
tual Framework. Before proceeding to those analyses, we
?rst address the historical context of, and the actual treat-
ment of, stewardship/accountability and social accounting
within Chapter 1.
Young (2006) explains that one of the earliest contribu-
tions to the development of contemporary conceptual
frameworks was the 1966 American Accounting Associa-
tion document entitled A Statement of Basic Accounting The-
ory. The intense debate sparked by the publication of this
document subsequently led to the American Institute of
Certi?ed Public Accountants (AICPA) commissioning a se-
lect group in the spring of 1971 to study the objectives of
?nancial statements. In October 1973, this group published
Objectives of Financial Statements (American Institute of
Certi?ed Public Accountants (AICPA), 1973, also known as
the ‘‘Trueblood Report’’), a document that is considered
to be the origin of contemporary re?ection on ?nancial
accounting standards (Archer, 1992, p. 201). The Trueblood
Report contained implicit recognition of both the steward-
ship role and the social role of accounting. The Report’s
objectives refer to ?nancial statements primarily serving
‘‘those users with limited authority, ability, or resources
to obtain information’’ (American Institute of Certi?ed
Public Accountants (AICPA), 1973, Objective #2) and sup-
plying ‘‘information useful in judging management’s abil-
ity to utilize enterprise resources effectively in achieving
the primary enterprise goal’’ (AICPA, 1973, Objective #5).
8
The fundamental mutual entitlements and expectations of communi-
ties give rise to the ius gentium norms common to all communities that we
mentioned above; the Roman jurists referred to the conventional laws and
norms particular to each community as the ius civile of the community. The
living law of a community ‘‘is in part the ius gentium norms that are natural
and common to all human communities . . . The other part of the living law
of a community is made up of the customs, practices, well-known and
accepted procedures, and mutual expectations that establish the jural
relationships—the conventional entitlements—particular to that commu-
nity’’ (Murphy, 2012, p. 193).
9
Positive state law also includes legislation that concerns the relation of
people or institutions to particular types of state. State law, therefore, is not
exclusively a selection of provisions expressing parts of the preexisting
customary, living law of a particular community (Barden & Murphy, 2010,
pp. 23–24).
T. Murphy et al. / Accounting, Organizations and Society 38 (2013) 72–91 77
In the UK, at around the same time, the Accounting Stan-
dards Steering Committee (ASSC) published The Corporate
Report (Accounting Standards Steering Committee (ASSC),
1975). This discussion paper also included stewardship as
an important aspect of the ‘‘public accountability’’ (1975,
p. 15) of organizations, and it stated also that corporate re-
ports ‘‘[a]re the primary means by which the management
of an entity is able to ful?l its reporting responsibility by
demonstrating how resources with which it has been en-
trusted have been used’’ (1975, p. 16).
However, by the time the Trueblood Report was trans-
mogri?ed in the US by the Financial Accounting Standards
Board (FASB) into Statement of Financial Accounting Stan-
dards No. 1: Objectives of ?nancial reporting by business
enterprises, stewardship was included in a secondary role
as a ‘‘type of information’’ (Financial Accounting Standards
Board (FASB), 1978, para. 50) which would ‘‘ful?ll’’ users’
needs in making investment, credit, and similar decisions
(Pacter, 1983, p. 78). Solomons commented that while
the Trueblood report recognized that business enterprises
had a responsibility to society and not just to stockholders,
the FASB’s 1978 statement on objectives ‘‘substantially
con?nes its attention to the needs of investors and credi-
tors’’ and ‘‘barely recognizes the needs of managers’’
(1986, p. 119).
While the 1978 FASB report was a landmark in the his-
torical rise of decision-useful information—a landmark that
‘‘institutionalized [emphasis added] information useful-
ness’’ (Ravenscroft & Williams, 2009, p. 776)—it could be
argued that the Trueblood Report (AICPA, 1971) and The
Corporate Report (ASSC, 1973) were high watermarks in
the retreating tide of stewardship recognition by account-
ing policy makers. During the latter half of the twentieth
century, the established, primary status of stewardship
and accountability in ?nancial reporting was challenged
and rejected ideologically. The rise of an alternative objec-
tive of ?nancial reporting, namely the provision of deci-
sion-useful information, was part of the displacement of
accounting’s centuries-old root metaphor of accountability
by the metaphor of decision-usefulness by means of what
Ravenscroft and Williams describe as an ‘‘effective rheto-
ric’’ that exploited historical circumstances to establish
its hegemony (2009, p. 774). Tracing the metaphor shift
from accountability to information usefulness as part of a
process that began in the aftermath of World War II, these
authors show how accounting and accounting research
were transformed, in line with the rise of neoliberal polit-
ical and economic ideology, ‘‘from an autonomous disci-
pline into a sub-discipline of neoclassical economics’’
(Ravenscroft & Williams, 2009, p. 775; cf. Whitley, 1986).
This radical repositioning of accounting ‘‘did not signify
transformations of technique, principles, or knowledge,
but rather a conceptual shift in the focus, assumptions,
and discursive practices used to characterize, explain, and
speak about accounting practice’’ (Ravenscroft & Williams,
2009, p. 775).
While Ravenscroft and Williams’s (2009) analysis dis-
cusses accounting for executive stock options, we can sit-
uate the displacement of stewardship by decision-
usefulness as the primary objective of ?nancial reporting
in Chapter 1 against the same neoliberal backdrop. In fact,
postwar political and economic developments are also
central to the historical context of the stewardship de-
bate. It might be said that the metaphor shift and its rela-
tion to the hegemony of neoliberal economics has been
implicit in the discourse surrounding stewardship; but
one of the values of the contribution by Ravenscroft and
Williams is that it allows accounting research to place
that discourse—and, indeed, other debates—explicitly in
this broader context. We suggest that this explicitness is
absolutely essential to informed scholarship in this
domain.
It was in the neoliberal context of the metaphor shift
described by Ravenscroft and Williams (2009) that the
IASB/FASB proposal to designate ‘‘decision-usefulness’’ as
the sole ?nancial reporting objective became one of the
more controversial aspects of Chapter 1. While the 2006
Exposure Draft (IASB/FASB, 2006) makes a number of refer-
ences to ‘‘stewardship,’’ the concept of stewardship that it
employs focuses exclusively on management’s responsibil-
ities to the providers of capital. This implies that steward-
ship/accountability should no longer be considered to be of
equal status to decision-usefulness, and that any debates
on the future direction of ?nancial reporting should be pre-
mised on the primacy of the decision-usefulness criterion.
Although stewardship was mentioned in the Exposure
Draft, it was ‘‘subsumed by the ?nancial reporting goal of
providing decision-useful information’’ (O’Connell, 2007,
p. 216) and thus the ‘‘needs of stewardship are assumed
to be met within the decision-usefulness objective’’ (Whit-
tington, 2008, pp. 498–499).
The potential implications of the demotion of steward-
ship during the Conceptual Framework development pro-
cess can hardly be overstated, particularly since the IASB
and FASB expected the joint Conceptual Framework
project to result in a common Conceptual Framework to
promote the convergence of the Generally Accepted
Accounting Principles (GAAP) and the International Finan-
cial Reporting Standards (IFRS), ‘‘ultimately leading to a
single set of high-quality global accounting standards’’
(Gore & Zimmerman, 2007, p. 30). Gore and Zimmerman
refer speci?cally to the question of whether stewardship
should be retained as a separate objective of ?nancial
reporting as concerning ‘‘the very nature of accounting
and ?nancial reporting’’ (2007, p. 32). It was therefore
not surprising that the proposed demotion of stewardship
drew a strong negative response from accounting aca-
demics and practitioners. When the IASB/FASB issued
the 2006 Exposure Draft, the preponderance of responses
focused on the stewardship question. Gore and Zimmer-
man reported that ‘‘more than 86% of the letters received
on this issue disagreed with the opinion expressed in the
[Exposure Draft] and argued that stewardship should be
retained as a separate objective of ?nancial reporting’’
(2007, p. 31). Although decision-usefulness remained the
sole ?nancial reporting objective, at least some aspects
of this feedback were incorporated into the subsequent
Exposure Draft on the Conceptual Framework issued by
IASB/FASB in May 2008 (IASB/FASB, 2008). In particular,
the 2008 Exposure Draft added a more speci?c commen-
tary on the usefulness of ?nancial reporting in assessing
stewardship:
78 T. Murphy et al. / Accounting, Organizations and Society 38 (2013) 72–91
Management is accountable to the entity’s capital pro-
viders for the custody and safekeeping of the entity’s
economic resources and for their ef?cient and pro?table
use. Management’s responsibilities include, to the
extent possible, protecting the entity’s economic
resources from unfavorable effects of economic factors
such as price changes and technological and social
changes. Management also is accountable for ensuring
that the entity complies with applicable laws, regula-
tions, and contractual provisions.
Management’s performance in discharging its responsi-
bilities, often referred to as stewardship responsibili-
ties, particularly is important to existing equity
investors when making decisions in their capacity as
owners about whether to replace or reappoint manage-
ment, how to compensate management, and how to
vote on shareholder proposals about management’s
policies and other matters. Because management’s per-
formance in discharging its stewardship responsibilities
usually affects an entity’s ability to generate net cash
in?ows, management’s performance also is of interest
to potential capital providers who are interested in pro-
viding capital to the entity (IASB/FASB, 2008, para.
OB12).
In its Subsequent summary of the responses to the 2008
Exposure Draft, the IASB/FASB commented that ‘‘[m]ost
respondents . . . supported the proposals in Chapter 1[,]
and noted that the Exposure Draft had improved, particu-
larly on the proposed objective that now explicitly dis-
cusses that users use ?nancial reports for stewardship
purposes’’ (Financial Accounting Standards Board (FASB),
2008, para. 8). The stewardship element of the responses
to the Exposure Draft is the only one regarding the objec-
tives of ?nancial statements commented on in any detail
by the IASB/FASB, re?ecting the weight of opinion of the
accounting community in this regard.
The ?nal version of Chapter 1 states that the objective of
general purpose ?nancial reporting ‘‘is to provide ?nancial
information about the reporting entity that is useful to
existing and potential investors, lenders, and other credi-
tors in making decisions about providing resources to the
entity’’ and that those decisions ‘‘involve buying, selling,
or holding equity and debt instruments and providing or
settling loans and other forms of credit’’ (IASB/FASB,
2010, para. OB2). However, Chapter 1 couches stewardship
in the following terms:
To assess an entity’s prospects for future net cash
in?ows, existing and potential investors, lenders, and
other creditors need information about the resources
of the entity, claims against the entity, and how ef?-
ciently and effectively the entity’s management and
governing board have discharged their responsibilities
to use the entity’s resources. Examples of such respon-
sibilities include protecting the entity’s resources from
unfavorable effects of economic factors such as price
and technological changes and ensuring that the entity
complies with applicable laws, regulations, and con-
tractual provisions. Information about management’s
discharge of its responsibilities also is useful for deci-
sions by existing investors, lenders, and other creditors
who have the right to vote on or otherwise in?uence
management’s actions (IASB/FASB, 2010, para. OB4).
In its ‘‘Basis for Conclusions,’’ Chapter 1 continues:
The Exposure Draft discussed the Objective of Financial
Reporting and Decision Usefulness in separate sections.
The Board combined those two sections in this chapter
because usefulness in making decisions is the objective
of ?nancial reporting. Consequently, both sections
addressed the same points and provided more detail
than was necessary. Combining those two sections
resulted in eliminating the separate subsections on use-
fulness in assessing cash ?ow prospects and usefulness
in assessing stewardship. The Board did not intend to
imply that assessing prospects for future cash ?ow or
assessing the quality of management’s stewardship is
more important than the other. Both are important for
making decisions about providing resources to an
entity, and information about stewardship also is
important for resource providers who have the ability
to vote on, or otherwise in?uence, management’s
actions (IASB/FASB, 2010, paras. BC1.27 and BC1.28).
In explaining their choice of nomenclature, the Boards
elaborate that they decided not to use the term ‘‘steward-
ship’’ in Chapter 1 ‘‘because there would be dif?culties in
translating it into other languages’’; instead, they chose
to describe ‘‘what stewardship encapsulates’’ and state
accordingly that ‘‘the objective of ?nancial reporting
acknowledges that users make resource allocation deci-
sions as well as decisions as to whether management has
made ef?cient and effective use of the resources provided’’
(IASB/FASB, 2010, paras. BC1.27 and BC1.28).
While not using the term ‘‘stewardship’’ and instead
claiming to describe ‘‘what stewardship encapsulates,’’
the 2010 version of the Chapter 1 nonetheless echoes
clearly—but more narrowly—traditional conceptualiza-
tions of stewardship in, for example, the Trueblood Report
(AICPA, 1973) and The Corporate Report (Accounting Stan-
dards Steering Committee (ASSC), 1975). The Conceptual
Framework talks about ‘‘how ef?ciently and effectively
the entity’s management and governing board have dis-
charged their responsibilities to use the entity’s resources’’
(IASB/FASB, 2010, para. OB4); the Trueblood Report dis-
cussed accounting information as ‘‘information useful in
judging management’s ability to utilize enterprise re-
sources effectively in achieving the primary enterprise
goal’’ (AICPA, 1973, p. 62); and The Corporate Report used
stewardship terminology in relation to ‘‘demonstrating
how resources with which [management] has been en-
trusted have been used’’ (ASSC, 1975, p. 16). These are all
versions of what Birnberg (1980) characterizes as ‘‘asset
utilization’’ articulations of stewardship, i.e., the primary
focus is on assessing managerial ef?ciency and effective-
ness with respect to the management of corporate
resources.
Notwithstanding the views of IASB/FASB as articulated
in Chapter 1, the notion that decision-usefulness and stew-
ardship/accountability ful?ll separate and distinct reporting
objectives has a long history in academic accounting
T. Murphy et al. / Accounting, Organizations and Society 38 (2013) 72–91 79
research. In Table 1 we present quotations from a sample
of representative studies from different strands of the
accounting literature by way of illustration. However,
while the general consensus in the literature is that two
separate reporting objectives exist, this does not imply
uniformity with respect to de?nitions of each objective:
O’Connell (2007, p. 220) points out that ‘‘no commonly ac-
cepted de?nition of stewardship exists in the literature,
and the concept itself appears subject to a variety of alter-
native interpretations’’—and the quotations in Table 1 fur-
ther demonstrate that this observation also applies to
‘‘decision-usefulness.’’
Commencing with Gjesdal (1981), scholars in the ana-
lytical agency tradition have long assumed that the overall
demand for accounting information arises because of the
separation between ownership and control of business
enterprises.
10
This separation gives rise to both decision-
making and stewardship information needs and, consistent
with the traditions of agency research, Gjesdal offers some-
what narrow de?nitions of both objectives (Table 1-i). In
executive compensation and capital markets research, deci-
sion-usefulness and stewardship/accountability are also
viewed as two separate and distinct reporting objectives
but there are some differences between the precise de?ni-
tions employed by researchers in this strand of the litera-
ture. ‘‘Decision-usefulness’’ is conceptualized in terms of
both performance evaluation (Kothari, Ramanna, & Skinner,
2010; Table 1-ii) and valuation roles (Beyer, Cohen, Lys, &
Walther, 2010; Table 1-iii), while ‘‘stewardship’’ is viewed
as synonymous with both ef?cient contracting (Kothari
et al., 2010; Table 1-ii) and ex-post monitoring (Beyer
et al., 2010; Table 1-iii).
Turning to different strands of the accounting literature,
we ?nd that other scholars adopt a broader perspective on
stewardship. Ijiri’s focus on ef?ciency, effectiveness, and
future plans (Ijiri, 1975; Table 1-iv) is synonymous with
the notion of ‘‘strategic stewardship’’ discussed by Birn-
berg (1980). ‘‘Strategic stewardship’’ is broader than the
‘‘asset utilization’’ perspective, which we mentioned
above, because it incorporates an enhanced focus on stra-
tegic planning and control. Similarly, Bromwich remarks
that stewardship/accountability ‘‘arises from a wish to
know the actions taken by an enterprise and to control
them’’ (1992b, p. 310). This broader conception naturally
takes stewardship into the domain of social and environ-
mental issues (Chen, 1975; Table 1-v). Hopwood (2009;
Table 1-vi) acknowledges the importance of this aspect of
accountability and speculates that some form of it will play
an increasingly important role in the future.
Other work on stewardship/accountability and deci-
sion-usefulness has explored aspects of the overlaps, as
Table 1
Some conceptualizations of stewardship/accountability and decision-usefulness.
(i) Gjesdal (1981, p. 208) ‘‘What is meant by the objectives of an economic activity like ?nancial reporting? One possibility is to de?ne
objectives as the reasons that the output of the activity is demanded.. .. Two apparently different answers may
be suggested to this question. (1) Financial statements may be of value to investors (in a broad sense) making
investment decisions. I shall call this decision-making demand [emphasis in original]. (2) Investors usually
delegate decision-making to managers. Then there may be a demand for information about the actions that are
taken for the purpose of controlling them. This I shall call stewardship demand [emphasis in original].’’
(ii) Kothari et al. (2010, p. 248) ‘‘Our analysis. .. concludes that starting with the objective of GAAP as facilitating the ef?cient allocation of
capital, the demand and supply of accounting information are as if [emphasis in original] the primary objective
of audited ?nancial reporting is to serve as a ‘control’ system for the ?rm (and the economy) i.e. to provide
information useful for performance evaluation and stewardship, which is also referred to as ef?cient
contracting. . . .. Information for performance evaluation is primarily generated through longstanding practices
in GAAP that de?ne ‘income’ for a given period; while information about stewardship results from well-
established GAAP practices that capture the status of capital employed through a detailed accounting for the
?rm’s assets and liabilities. Stewardship is de?ned as the role of the accounting system in ensuring that a ?rm’s
invested capital is maintained in such a way as to preserve the economic interests of stockholders and
bondholders’’
(iii) Beyer et al. (2010, p. 296) ‘‘Accounting information plays two important roles in market-based economies. First, it allows capital providers
(shareholders and creditors) to evaluate the return potential of investment opportunities (the ex-ante or
valuation role of accounting information). Second, accounting information allows capital providers to monitor
the use of their capital once committed (the ex-post or stewardship role of accounting information)’’
(iv) Ijiri (1975, p. ix) ‘‘The accountability approach. . . . includes not only the traditional stewardship issues centred on the
compliance with established rules but also the modern performance issues oriented toward the ef?ciency and
effectiveness notions. Furthermore, the accountability approach may be extended to include information about
the accountor’s future activities where the accountor is held accountable for his plans’’
(v) Chen (1975, p. 542) ‘‘As a steward, management’s performance should be evaluated in terms of both pro?t and the accomplishment
of social objectives. The latter aspect has long been neglected by the accounting profession. It is the
responsibility of the accountant, therefore, to measure, report, and audit management’s social performance’’
(vi) Hopwood (2009, p. 433) ‘‘Accounting has already started to be implicated in the consideration of environmental issues, and the
probability is that its involvement will develop further over the coming years. . . . . . As changes occur in our
concepts and focus of accountability for the environment, the demands for different ?ows of information,
accounting and otherwise, are also likely to grow’’
(vii) Ravenscroft and Williams
(2011, p. 46)
‘‘The ?nancial reporting revolution (rooted in economic science) brought about the root metaphor of ‘decision
usefulness’ and the expurgation of ‘accountability’ from the discourse of policy makers and researchers. As
social sciences have come up short as predictive scientists, so has ‘decision usefulness’ come up short as a
justi?able basis for policy and research’’
10
Analytical agency modeling refers to mathematical models of the
relationship between owners and managers under restrictive assumptions
consistent with both parties being fully rational and motivated exclusively
by self-interest.
80 T. Murphy et al. / Accounting, Organizations and Society 38 (2013) 72–91
well as the tensions and trade-offs between the two
objectives (Indjejikian, 1999; Heinle & Hofmann, 2011).
For example, in the analytical agency tradition, Heinle
and Hofmann (2011) conclude that stewardship and
decision-usefulness are ‘‘potentially con?icting objectives
of ?nancial accounting’’ and suggest that ‘‘abandoning
stewardship as a separate objective of ?nancial accounting
and mandating further disclosure of soft information by
standard setters and regulators can result in lower produc-
tivity and reduced ?rm value’’ (p. 354). However, there is a
surprising dearth of equivalent capital market research on
the nature of, and the relationship between, stewardship
and decision-usefulness. In terms of what capital markets
research does exist, Gassen (2008) applies an innovative
and carefully crafted research design to a large sample of
US ?rms for the period 1990–2005 and concludes that,
‘‘valuation usefulness and stewardship are alternative
objectives of ?nancial accounting’’ (Gassen, 2008, p. 39);
Wu and Zhang (2009) demonstrate that the stewardship
demand for information has a signi?cant in?uence on
?rms’ accounting choices; and archival work by Bushman,
Engel, and Smith (2006) also suggests that stewardship
relevance is not subsumed by valuation relevance.
11
Ulti-
mately, as the fundamental conceptual problems concerning
decision-usefulness are beginning to garner increased
attention (Ravenscroft & Williams, 2011; Table 1-vi), it
would appear that there is an urgent need for additional
work—from a variety of research perspectives—focusing on
the nature of the overlap and interaction between the two
objectives.
Stewardship/accountability and the living law of
accounting
As discussed above, Chapter 1 seeks to reregulate
accounting practice in that it seeks to recon?gure the rela-
tionship in ?nancial reporting between stewardship on the
one hand and decision-usefulness on the other hand. Nev-
ertheless, despite successive attempts by standard-setters
to ‘‘shake off’’ stewardship, it is manifest in iterations of
Chapter 1 that stewardship continues as part of a ‘‘moral
tradition’’ in ?nancial reporting which has endured in the
terminology and consciousness—if not in the formal prior-
ities—of the Conceptual Framework, irrespective of the de-
sires of standard-setters. Conceptualizations of
stewardship remain strongly implicit—even if one might
say grudgingly so—in the IASB/FASB’s Conceptual Frame-
work project. In this section, we argue that accountabil-
ity/stewardship remains part of the ‘‘living law of
accounting,’’ or, in other words, part of the ‘‘law that dom-
inates [accounting] even though it has not been posited [in
the same way as in the past] in legal propositions’’ (Ehrlich,
2002, p. 493). The Conceptual Framework is one of the
‘‘legal propositions’’ relating to accounting, but let us
now examine how and why the notion of stewardship—
however de?ned—persists in the living law of accounting.
The origins of accounting as an articulation of forms of
stewardship/accountability have been the subject of a
range of studies in accounting and other literature. This
work is signi?cant here as it places accounting in its histor-
ical context and recognizes that the discipline has a long
preprofessional history, a centuries-long life in society,
the essence—or living law—of which is not necessarily cap-
tured or altered by relatively recent professional pro-
nouncements on the nature and objectives of accounting.
It is important in this context to make a clear distinction
between ‘‘accounting’’ as a social function and accounting
as being synonymous with what is currently the jurisdic-
tion of the organized accounting ‘‘profession.’’
12
If we take
a historical view, focusing on accounting’s roles and func-
tions since its ancient origins, we ?nd that stewardship/
accountability is central to understanding both how and
why accounting emerged in the ?rst instance, and that
accountability/stewardship is an intrinsic or ‘‘natural’’ ele-
ment of the living law of accounting.
One recent survey of the history of writing reminds us
that the ‘‘earliest uses of writing were list-making and ac-
count-keeping’’ (Shields, 2010, p. 7), but the archaeological
research of Schmandt-Besserat (1992, 1996, 1999) goes
further and argues that accounting lies at the origin of
writing. In his comprehensive review of Schmandt-
Besserat’s work, Mattessich explains that early forms of
counting and accounting were at their heart a form of
accountability, and that ‘‘record keeping for commodities
(including labour and metals) and related accountability
purposes [emphasis added] preceded writing as well as
abstract counting’’ (1994, p. 6). Accounting was therefore
a form of ‘‘monetary control’’ (Mattessich, 1994, p. 17)
where physical objects such as clay tokens and pictograms
ascribed values that could be recorded and compared.
13
Moreover, Schmandt-Besserat’s work con?rms that, con-
trary to many mainstream accounting perspectives, writing
did not emerge to keep commercial accounts, but rather to
keep accounts of civic responsibility. Tribute had to be paid
to the temple, which was the central administrative pillar
of society, and the tokens that became the origins of writing
were a mechanism for accountability with respect to that
obligation. In this way, accounting, as Schmandt-Besserat’s
analysis shows, played a key role in facilitating accountability
relationships between institutions and citizens.
In examining the role of accounting in Ancient Egypt,
for example, Ezzamel (2009, p. 378) argues that accounting
served to maintain the status quo by visualizing ‘‘the activ-
ities and achievements of various sectors of society’’ and
providing ‘‘an incentive for individuals to demonstrate that
their actions were consistent with the requisite qualities of
social and economic order.’’ Meyer (1986) argues that
accounting evolved in a ‘‘macrosociological’’ (p. 348)
11
Although stewardship and decision-usefulness are generally viewed as
separate ?nancial reporting objectives, Bushman et al.’s (2006) work also
demonstrates that there are important overlaps so that information which
is useful in ful?lling one objective may simultaneously be useful with
respect to the other (see Bushman & Indjejikian, 1993a, 1993b; Bushman &
Smith, 2001; Givoly, Hayn, & Katz, 2010; Narayanan & Davila, 1998;
O’Connell, 2001, 2006, 2007).
12
For reference to aspects of the living law of the accounting profession,
see Section ‘‘The living law approach in jurisprudence’’ of this article.
13
Several other authors (e.g. Carmona & Ezzamel, 2009; Hallo, 1992;
Mattessich, 1994) also emphasize the evolutionary nature of accounting
from counting to pictograms to writing.
T. Murphy et al. / Accounting, Organizations and Society 38 (2013) 72–91 81
context: ‘‘orgies of accounting’’ emerge when society ‘‘is in
control of its own de?nitions of reality, and is organized
around social control and authority’’ (p. 351). This sense
of order as the context of accounting constitutes a particu-
larly strong element in the literature relating to the origins
of accounting. From its very beginnings, accounting consti-
tuted a ritual and a technology that constructed and sus-
tained ‘‘order in organizations and society’’ (Ezzamel,
2009, p. 348).
14
This characterization of accounting is a common theme
in several works relating to the later development of
accounting. Thompson (1991, p. 584), for example, argues
that part of Pacioli’s double-entry bookkeeping project in-
cluded implicit reference to the idea of a ‘‘divine order.’’
Accounting as a form of ordered accountability, it may be
argued, was also at the heart of many of the social theori-
zations of the early-nineteenth century. Bentham concep-
tualized accounting as a means of disciplining and
controlling the poor (Gallhofer & Haslam, 1994a, 1994b);
and Walker (1998, p. 485) continues this theme in his
study of household accounting in the nineteenth century
by suggesting that ‘‘domestic accounting systems were
founded on stewardship and hierarchical accountability.’’
Accounting therefore created and sustained ‘‘order’’ and
‘‘accountability’’ since its inception. This essence of
accounting, it is argued throughout the literature, explains
the origins and the persistence of stewardship/account-
ability. In this way, the living law of some of the earliest
human communities may be said to include—and the liv-
ing law of accounting may be said to be founded upon—
the very fundamental idea that people may be, and ought
to be, made accountable. In other words, as Ijiri (1975) ar-
gued nearly 40 years ago, what accountants do makes no
sense if accountability is not assumed to be accounting’s
primary function. In line with this analysis, Ravenscroft
and Williams observe that, historically, ‘‘the notion of
accountability or stewardship, i.e., the responsibility or
obligation owed to someone who has entrusted another
with possessions to manage on their behalf, was the root
metaphor and the dominant purpose of accounting’’
(2009, p. 772). Central to this notion is the concept that hu-
mans are somehow accountable to one another. But why,
we may now ask, did this expectation of stewardship/
accountability arise? And where do notions of steward-
ship/accountability ?t within the broader framework of
the living law of accounting?
As discussed in the previous section of this article, the
conventional view of the demand for stewardship/account-
ability information is that it is a derived demand attribut-
able to developments in business and society, such as the
emergence of the separation between ownership and con-
trol (e.g., Gjesdal, 1981). Basu and Waymire (2006), how-
ever, challenge this perception, and their innovative work
reverses this causality by suggesting that:
modern organizations and markets would not be possi-
ble if humans had not devised the systematic record-
keeping technology that lies at the core of modern
accounting. In other words, the core record-keeping tech-
nology of accounting is necessary for the emergence of
complex exchange and the sophisticated markets and eco-
nomic organizations that presently characterize advanced
human economies [emphasis in original]. Even though
modern accounting is more complicated, systematic
records promote bilateral trust by providing account-
ability in exchange (Basu & Waymire, 2006, p. 213).
Research by Basu, Kirk, and Waymire (2009) based on
transactional records in ancient Mesopotamian societies
provides evidence demonstrating the core importance of
record keeping in sustaining trust and encouraging reci-
procity. In a similar vein, Dickhaut and McCabe suggest
that:
Stewardship accounting extends a long history of eco-
nomic and social exchange in small groups that
includes many activities such as the care and raising
of children. . . . Stewardship accounting increases trust
by extending the steward’s (accountor’s) and entru-
stor’s (accountee’s) message space in order to promote
trusting and trustworthy behaviour (1997, p. 62).
In linking stewardship/accountability with ‘‘trust,’’ Basu
and Waymire (2006), Basu et al. (2009), and Dickhaut and
McCabe (1997) are implicitly appealing to a conception of
man as homo reciprocans. This model, which places signif-
icant emphasis on notions such as ‘‘trust,’’ ‘‘cooperation,’’
‘‘reciprocity,’’ and ‘‘truth,’’ stands in direct contrast to the
conventional agency perspectives of man as homo econom-
icus—a perspective which has had a profound in?uence on
a number of streams of accounting research (Watts & Zim-
merman, 1986).
15
Interestingly, the concept of homo reciprocans ?nds sig-
ni?cant support in the psychology literature. For example,
from their extensive review of behavioral research in the
?eld, Bowles and Gintis (2011, p. 37) conclude that, ‘‘peo-
ple think that cooperating is the right thing to do and enjoy
doing it, and . . . they dislike unfair treatment and enjoy
punishing those who violate norms of fairness’’ such as
‘‘free riders.’’ Shermer (2004) argues that the concept of
‘‘morality’’ emerged as part of evolution as a ‘‘form of social
control’’ (p. 64) designed to ensure the survival of entire
groups as well as individuals within those groups; in fact,
14
Ezzamel (2009, p. 374) ?nds that ‘‘at the genesis of ancient Egyptian
history, accounting was part of a primordial world. . . . Accounting
functioned as a mediating institution between gods and humans.’’ Devel-
oping this argument to illustrate the pervasiveness of counting and
accounting, he suggests that where there is ‘‘a highly codi?ed system of
beliefs, strong social control, and a powerful central authority, we witness a
proliferation of . . . accounting through state institutions [cf. Ezzamel,
2002a, 2002c], the temple [cf. Ezzamel, 2005], private exchange [cf.
Ezzamel & Hoskin, 2002], business and the household [cf. Ezzamel,
2002b]’’ (Ezzamel, 2009, p. 376). A common theme of such manifestations
of accounting is that it is a technology that imposes order and control—a
form of accountability in this world or the next.
15
The view of man as homo economicus is central to the emergence of
‘‘agency theory’’, to which we referred in the previous section. Although in
typical agency models there is no room for any more complex understand-
ings of human motivation other than rational self-interest, Stevens and
Thevaranjan (2010) offer a potentially groundbreaking new dimension by
introducing the concept of morality to agency theory. In any case,
in?uential behavioral economists such as Shiller (2005) and Ariely (2008)
have long questioned the fundamental tenet of agency theory—that
economic actors are fully rational.
82 T. Murphy et al. / Accounting, Organizations and Society 38 (2013) 72–91
with speci?c reference to stewardship/accountability, Silk
(2003) provides evidence that human language and inter-
action and the nature of reciprocal arrangements are chan-
ged by the existence of formal accountability mechanisms.
An intriguing aspect of Bowles and Gintis’s (2011) work
is that they also argue that cooperative behavior is inextri-
cably linked with human biology. They suggest that ‘‘re-
cent studies of brain functioning provide some support
for this hedonic view of cooperative behaviour’’ (p. 37).
Similarly, Hauser’s (2006) study argues that there are de-
?ned linkages between biology and ‘‘morality.’’ The accom-
plished neurophilosopher Churchland (2011) encapsulates
this idea in her suggestion that what we commonly refer to
as ‘‘morality’’ actually originates in the brain. Neurology—
and neuroaccounting in particular—offer interesting ave-
nues for research on a range of accounting questions (Birn-
berg & Ganguly, 2012; Dickhaut, Basu, McCabe, &
Waymire, 2010), and one of the earliest insights to emerge
is Dickhaut and McCabe’s (1997) experimental evidence
which suggests ‘‘that the simple act of recording a stew-
ard’s exchanges creates accountability by causing him/
her to modify his/her behavior in light of this accounting’’
(p. 61); such behavioral modi?cations, according to Dick-
haut and McCabe, ‘‘systematically occur in the absence of
enforceable contracts de?ned on output and can occur in
the absence of repeat interactions’’ (1997, p. 60).
Darwall (2006) offers an alternative—albeit comple-
mentary—philosophical perspective by arguing that no-
tions of morality and accountability can best be
understood by conceptualizing moral obligations from a
‘‘second person’’ perspective. Darwall observes that it
‘‘seems incoherent to judge that someone (whether oneself
or someone else) is to blame for something that one thinks
she has or had conclusive reasons for doing’’ and that,
‘‘[w]hen, consequently, a free and rational deliberating
agent acknowledges she would be to blame for doing
something, she thereby acknowledges conclusive reasons
not to do it and, in a sense, holds herself accountable’’
(2006, p. 113). Thus, ‘‘recognizing moral reasons is itself
part of moral agents’ active participation in a scheme of
accountabilty [emphasis added], part of their holding them-
selves accountable for guidance by the relevant norms’’
(2006, p. 113).
These relevant norms will most likely include the no-
tion of ‘‘truth’’ which is another essential element of the
stewardship/accountability aspect of the living law of
accounting associated with homo reciprocans. If ?fteen cat-
tle are to be accounted for, and, in a spirit of mendacity, ten
or twenty are accounted for, stewardship/accountability
has not taken place; something else has. This intrinsic ele-
ment of stewardship—veracity—re?ects an intrinsic ele-
ment of communication more generally. Humans
communicate with one another, and there are features
spontaneously, intrinsically, and naturally present in hu-
man communication upon which communication depends.
Such features are the ‘‘intrinsic’’ or ‘‘natural’’ laws of com-
munication. One such feature, as Barden and Murphy
(2010) point out,
is that most speakers most of the time tell what they
hold to be true; if no one at any time could rely on their
interlocutors to tell what they held to be true, commu-
nication would collapse. . . . Hence the injunction that
for the most part and most of the time one ought to tell
the truth (p. xv).
Crucially, the injunction does not come into being as an
edict emanating from an external source commanding
that, ‘‘communication shall be truthful.’’ This is not to deny
that, historically, commands or edicts such as this have
been issued by external sources and in many cultures
and traditions the external source has been of a religious
or supernatural type; moreover, the performative force of
such commands or edicts has often derived, at least in part,
from the authority attributed, in speci?c cultural tradi-
tions, to these external sources. But the argument ad-
vanced by Barden and Murphy is that the injunction to
be truthful is a feature that is an ‘‘intrinsic’’ or ‘‘natural’’
law of communication prior to, and irrespective of, any
such command or edict.
16
The intrinsic nature of truthfulness to communication
does not of course mean that issues of truthfulness in com-
municative contexts are not problematic, and the commu-
nicative context of accounting is no exception.
17
Bayou
et al. (2011) observe, ‘‘the accounting profession continues
to struggle with the problem of the veracity of accounting
reports, in light of the different needs of various ?nancial
statement users for truthful reports’’ (p. 109). The same
authors also note that, ‘‘truth poses a genuine problem for
accounting, one that cannot be so easily ?nessed by appeals
to decision-usefulness’’ (2011, p. 122). This ‘‘crisis of truth’’
in contemporary accounting—which appears to have grown
stronger as the attempts to de-emphasize stewardship/
accountability by standard setters have become more pro-
nounced—has, perhaps inevitably, led to the emergence of
new types of formal regulation such as the Sarbanes–Oxley
Act (hereafter SOX) introduced in 2002 in the United States.
It is interesting to note that in direct contrast to the FASB/
IASB stance, SOX has in fact returned to the core concepts
of stewardship/accountability discussed above. In particular,
Section 404 of SOX emphasizes the perennial importance of
basic principles of recordkeeping (e.g., double entry book-
keeping). Recordkeeping and accountability, as we have dis-
cussed, are fundamental components of the living law of
accounting and were instrumental in—and indeed essential
to—the development of contemporary society and, by exten-
sion, the contemporary business environment. This return to
fundamental concepts such as ‘‘trust’’ and ‘‘truth’’ may be
understood in the following terms:
For hundreds of years, accounting information systems
used double-entry bookkeeping’s basic structure and
16
One of the philosophical issues at stake here derives from what is
known, after the Platonic dialogue, as ‘‘the Euthyphro dilemma.’’ The
question in Euthyphro was whether an act was good because the gods
commanded it—the act being, therefore, intrinsically or naturally neutral—
or whether the gods commanded an act because it was good. Barden and
Murphy, with whom we agree fully, take the latter view (Barden & Murphy,
2010, pp. 194–204; cf. Murphy, 2004b).
17
As Bayou et al. (2011, pp. 115–116) point out, scholars have offered
alternate and sometimes divergent views on concepts of truth in account-
ing (e.g., Briloff, 1990; McKernan and O’Donnell, 2002; Shapiro, 1997), and
these differences often re?ect equivalent debates in philosophy.
T. Murphy et al. / Accounting, Organizations and Society 38 (2013) 72–91 83
logic. Central to bookkeeping are concepts like recogni-
tion and documentation that focus on identifying if and
when actions have affected the entity’s resources and
obligations. . . . The notion of truth that underlies book-
keeping is rudimentary and practical, embedded in
ordinary language usage derived from the mores and
practices associated with mundane, day-to-day busi-
ness activities (Bayou et al., 2011, p. 116)
Hence, with the introduction of Section 404 of SOX, it
seems that the US Government is seeking to re-emphasize
the primacy of truth in the written law of corporate
accounting, and it is noteworthy that the traditional ‘‘tools’’
of stewardship/accountability are central to the Govern-
ment’s efforts in this regard. This development is not sur-
prising as stewardship/accountability has always been
centered upon notions of trust, cooperation, reciprocity,
and truth. Given that the efforts of the neoliberal agenda
to promote decision-usefulness as the single primary
reporting objective appear to have ultimately resulted in
US government intervention to protect stewardship/
accountability,
18
it may be timely for the members of
accounting community—including scholars, standard setters,
and the organizedprofession—to re?ect on the history, mean-
ing, and signi?cance of the living law of their discipline.
19
Social accounting and the living law of accounting
In this section, we address the second aspect of Chapter
1 of the Conceptual Framework with which we are con-
cerned: the constituency of the primary user groups. As
we discussed above, the inexorable rise of decision-useful-
ness is an important element in the displacement of
accounting’s centuries-old root metaphor of stewardship/
accountability. This displacement has been explicitly
traced (Ravenscroft & Williams, 2009) to the impact of
the ‘‘neoliberal revolution’’ of the 1970s on shaping the
radical rhetorical shift to decision-usefulness by standard
setters. If this neoliberal revolution attempted to obscure
the fundamental stewardship/accountability structure—
the essential living law—of accounting, we must also ad-
dress its potential impact on social accounting. In particu-
lar, we apply a living law analysis in order to better
understand the contemporary role, concerns and potential
of social accounting.
20
In June 1962, Rachel Carson published the ?rst of three
installments of Silent Spring in The New Yorker, a work that
was subsequently acknowledged as the major catalyst for
the emergence of the contemporary environmental activ-
ism movement (Lytle, 2007). Carson’s book and subse-
quent studies—in particular, The Limits to Growth
(Meadows, Meadows, Randers, & Behrens, 1972) commis-
sioned by ‘‘The Club of Rome’’—led to the widespread rec-
ognition that externalities were a serious problem
associated with business generally, and the rationales for
social responsibility—including forms of social account-
ing—that were provided during the 1970s were predicated
on arguments concerning the ‘‘living law’’ of the global
community. Governments and legislators began to react
to this movement by introducing formal environmental
protection laws and the concept of Corporate Social
Responsibility (CSR) gained considerable momentum.
The role of accounting in the environmental debate also
began to garner greater attention—perhaps inspired in part
by Carson’s own reference to the discipline.
21
Discourses
surrounding social and environmental accounting began to
gain prominence in the academic (Chen, 1975) and profes-
sional literatures (American Institute of Certi?ed Public
Accountants (AICPA), 1977). Gray points out that the period
up to the late 1970s ‘‘laid the foundation for a seemingly
unprecedented increase in new laws requiring, inter alia, dis-
closure about aspects of the organization’s social, labor and
environmental intentions and performance,’’ and that ‘‘the
accounting profession was, by the mid-1970s, taking sur-
prisingly positive attitudes, positions, even steps about these
developments’’ (2002, p. 690).
The accounting standard setters of the 1970s, in stark
contrast to contemporary trends, were taking a proactive
role in the domain of ‘‘social accounting.’’ For example,
Objective #12 of the Trueblood Report (AICPA, 1973)
speaks explicitly to the role of social accounting: ‘‘An
objective of ?nancial statements is to report on those activ-
ities of the enterprise affecting society which can be deter-
mined and described or measured and which are
important to the role of the enterprise in its social environ-
ment.’’ Gray describes developments in accounting during
the 1970s in the following terms:
The UK Accounting Standards Steering Committee (as
was) had produced what remains the most radical
18
One potential outcome of coercive rules (e.g., SOX 404) is that they may
have the unintended consequence of de-emphasizing what Bauman (1993)
refers to as the ‘‘moral impulse’’ and may ultimately undermine the
development of genuine trust and co-operation. It should be noted,
therefore, that the long-term effects of the endeavor in SOX 404 to ?ll
the vacuum arising from the neoliberal attempt to de-emphasize steward-
ship/accountability are as yet unknown.
19
A number of questions–which are potentially central to this re?ection
process–are raised in Sunder’s commentaries on the role of social norms in
accounting. For example, Sunder (2005a, p. 367) asks: ‘‘How and why did
?nancial reporting get caught in the standardization project, replacing
social norms of corporate and professional behavior by written rules and
standards? What are the consequences of this transformation? What
alternative courses are available to accounting and corporate governance?’’
In response to these questions, Sunder argues ‘‘that heavy reliance on the
codi?cation of ?nancial reporting has been a wrong path’’ and that a shift
from rules towards norms of behavior ‘‘may yet help accounting and
corporate governance recover a better balance’’ (Sunder, 2005a, p. 367; cf.
2005b). Given that social, corporate, and professional norms are a central
element of the living law of accounting, Sunder’s analysis provides further
evidence of the value of a living law perspective.
20
Gray’s understanding of social accounting—which we endorse fully—is
that it is ‘‘a generic term for convenience to cover all forms of ‘accounts
which go beyond the economic’ and for all the different labels under which
it appears—social responsibility accounting, social audits, corporate social
reporting, employee and employment reporting, stakeholder dialogue
reporting, as well as environmental accounting and reporting’’ (2002, p.
687). Historically, the origins of contemporary social accounting can be
traced back to at least the early twentieth century (Adams, 2002).
21
When criticizing certain US states for their failure to apply proven
methods of mitigating the negative impact of pesticide programs because
of cost considerations, Carson (1962, p. 98) wrote: ‘‘[A]nd by what sort of
accounting was the ‘too expensive’ judgement reached? Certainly not by
any that assessed the true costs of the total destruction wrought by such
programs.’’
84 T. Murphy et al. / Accounting, Organizations and Society 38 (2013) 72–91
re-statement, from the accounting profession, of how
organizational disclosure needed to be enhanced by
social and environmental accounting. . . . At the same
time, the US profession was actively commissioning
and publishing texts supportive of social accounting.
. . . The 1970s also saw the emergence of the value
added statement . . . and it was the zenith of both inter-
est in and practice of employee and employment
reporting. This interest was re?ected in the professional
accountancy journals which were demonstrating a
quite remarkable appetite (by the standards of the
1990s) for polemic and experimental writing on social
accounting (2002, p. 690).
Not surprisingly then, it appears that in the period lead-
ing up to the publication of the FASB Conceptual Frame-
work (1978), the living law of accounting was not only
predicated, as we discussed in the preceding section, on
the broad notion of stewardship/accountability, it was also
coming to be in?uenced by the speci?c living law of social
accounting. Furthermore, as Young (2006) points out,
prominent academics of the time, such as Moonitz
(1961), seemed to be aware of the risks of awarding pri-
macy to a single user group, such as stockholders. Moonitz
referred to the ‘‘danger’’ of de?ning accounting and formu-
lating its postulates, principles, and rules ‘‘in terms of some
special interest,’’ and he argued vehemently against pro-
ceeding ‘‘on the premise that accounting is the monopoly
of any one group whether that group is concerned mainly
with the development of the accounting process or with its
end product in the form of ?nancial reports’’ (Moonitz,
1961, p. 4).
But as Young (2006) chronicles, in a relatively short
time the burgeoning role of social accounting as part of
the living law of accounting was supplanted by a narrow
focus on investors and creditors. Young explains that this
change was not a ‘‘natural’’ and inevitable progression in
the development of accounting practice and thought:
Other purposes for accounting could have been selected
and/or other users for accounting could have been
emphasized. By making other choices, we might explore
more fully how accounting could contribute to report-
ing on an economic accountability that is more broadly
de?ned to encompass the moral dimensions of eco-
nomic life. Other purposes for accounting can be
de?ned/other models of a ?nancial statement user con-
structed—models in which reporting on the ‘‘health’’ of
relationships between economic entities, employees,
communities and the environment are given as much
or more emphasis than are the measurement of cash
?ows, pro?ts and ?nancial position (2006, p. 597).
Viewed from this standpoint, the evolution of Chapter 1
of the Conceptual Framework is revealing. As mentioned in
the introductory section of this article, the 2006 IASB/FASB
Exposure Draft listed a wide range of user groups: equity
investors, creditors, suppliers, employees, customers, gov-
ernment and their agencies and regulatory bodies, and
members of the public. However, in the ?nal version of
Chapter 1, IASB/FASB state:
Many existing and potential investors, lenders and
other creditors cannot require reporting entities to pro-
vide information directly to them and must rely on gen-
eral purpose ?nancial reports for much of the ?nancial
information they need. Consequently, they are the pri-
mary users to whom general purpose ?nancial reports
are directed (IASB/FASB, 2010, para. OB2).
IASB/FASB subsequently elaborate:
Other parties, such as regulators and members of the
public other than investors, lenders and other creditors,
also may ?nd general purpose ?nancial reports useful.
However, those reports are not primarily directed to
these other groups (IASB/FASB, 2010, para. OB10).
Clearly, any notion that ?nancial reporting has a
responsibility to users other than investors and creditors
is severely undermined by Chapter 1. This outcome mirrors
exactly prior experience in the US. For example, Young
(2006) commenting on the Financial Accounting Standards
Board (FASB) (1978) conceptual framework observed that
the statement detailed ‘‘a veritable laundry list of possible
users of these reports’’ but that ‘‘the list was almost imme-
diately shortened to emphasize the information needs of
investors and creditors’’ (2006, p. 588). The stakes in this
debate are certainly not trivial; Green?eld (2006, p. 129)
observes that, ‘‘if public policy required corporations to
make a more extensive accounting of their activities, cor-
porate decision makers would likely take a broader view
of their responsibilities.’’
22
Green?eld’s observation—which highlights the partially
endogenous nature of the social accounting-social respon-
sibility nexus—is an important contribution. It has long
been recognized that corporations are frequently in a very
strong position to aid and assist human development, but
there is no consensus as to whether they should be permit-
ted to do so when there is no clear bene?t for their share-
holders. Indeed, as Avi-Yonah notes (2005, p. 767), a
different consensus altogether—that ‘‘the social responsi-
bility of business is to increase its pro?ts’’—has emerged
from the writings of Levitt (1958), Friedman (1970), and
Jensen (2002), among others. The reasons given in support
of this view are ‘‘?rst, that since management are deploy-
ing the shareholders money, they should not be permitted
to do so in ways that do not directly bene?t the sharehold-
ers; and second, that permitting more than one measure of
managerial success would enhance the agency cost prob-
lem and make it impossible to evaluate managers with
any reasonable degree of objectivity’’ (Avi-Yonah, 2005,
p. 767).
Obviously, the legal constraints—or otherwise—on cor-
porations to engage in CSR is close to the heart of any de-
bate on the issue. Green?eld (2006) makes this point
explicit in his account of US corporate law when he ob-
serves that ‘‘managers of most large ‘public’ companies
22
For example, focusing speci?cally on labor’s information needs—which,
as a form of employee and employment reporting, is an instance of social
accounting (Gray, 2002, p. 687; see note 20 above)—Shapiro (2002, p. 65)
points out ‘‘there is no logical reason why the argument that information
transparency promotes the interests of equity capital should not also apply
to labour.’’
T. Murphy et al. / Accounting, Organizations and Society 38 (2013) 72–91 85
are prohibited by law [emphasis in original] from taking
into account the interests of the public when making deci-
sions if in so doing those of the company’s shareholders are
harmed’’ (p. 1). However, he also notes, this was not always
the case: ‘‘For much of the history of the United States
‘public’ corporations were deemed to have important civic
responsibilities. At the beginning of the twenty-?rst cen-
tury however, ‘public’ corporation is one of the most mis-
leading terms in law or business’’ (2006, p. 1).
Green?eld offers many positive suggestions for the re-
formof corporate law, suggestions which have been widely
debated in legal circles (e.g., Page, 2009; Wolpert, 2008).
However, we believe that a living law analysis has a poten-
tially important, albeit overlooked, contribution to make to
this debate. In particular, while public corporations are
subject only to the corporate law prevailing at a given time,
any corporate actions which are ‘‘within the rules of the
game’’ are justi?able if such actions boost shareholder
wealth regardless of broader social consequences. An alter-
native approach would be to view corporations in the con-
text of the broader, global, living law, that is, to view their
activities in the same way as the activities of ‘‘?esh and
blood’’ citizens are viewed. ‘‘Flesh and blood’’ citizens
operate in the context of the global living law, which inev-
itably tends to include, as we discussed in the second sec-
tion of this article, the principle that one should act taking
the interests of others into account or, in general terms,
that one should support rather than subvert society. In
the context of our present discussion, there is no valid rel-
evant reason why modern corporations, considered by
state laws as possessing ‘‘legal’’ or ‘‘juridical’’ personality
(Cooke, 1950; Hallis, 1930; Raymond, 1906), should not
be considered in every possible way—including in the con-
text of the living law, the moral tradition of the global com-
munity—as similar to living or ‘‘natural’’ persons. This
would represent a sea-change in conceputalizations of cor-
porate law but a change which may be long overdue.
A movement to bring corporate activity within the am-
bit of the living law is already under way and gaining
momentum with the emergence of the ‘‘Bene?t Corpora-
tions’’ phenomenon. Raskin describes how Bene?t Corpo-
rations are enabled by laws that ‘‘permit companies to
join the pro?t motive with the purpose of making a ‘posi-
tive impact on society and the environment,’’’ and how, in
a political sense, ‘‘the surging popularity of Bene?t Corpo-
rations will change the way people think about business’’
(2011, p. 1). Although the Bene?t Corporation movement
may be viewed as a response to the failure of conventional
corporate law highlighted by Green?eld (2006), it also
demonstrates the potential for living law analyses in a cor-
porate legal context.
23
The social accounting project had its own living law, the
moral tradition surrounding its practice, and the scholars
and professionals involved in the social accounting project
operated in part according to that project’s living law and
in part according to the broader living law of accounting.
24
All living law theorists, including Ehrlich and Barden and
Murphy, acknowledge that living law, of whatever kind
and whether of society at large or of smaller communities
and associations, is constantly evolving, and the aim of the
social accounting project, evidently, was to make an impact
on the living law of the mainstream accounting tradition.
One effect of the apparently seismic shift in the living law
of social accounting is that in the context of the reporting
vacuum that has come about as a result of the relatively re-
cent dominance of decision-usefulness, corporations have
responded, inter alia, by issuing their own sustainability re-
ports. However, as Gray observes:
It is increasingly well-established in the literature that
most business reporting on sustainability and much
business representative activity around sustainability
actually have little or anything to do with sustainability.
. . . Indeed these accounts might more easily be inter-
preted as how organizations would like to understand
sustainability and how, in turn, it would convenience
them if the body politic would accede to such a view
(2010, p. 48).
Many scholars appear to be experiencing a sense of dis-
illusionment with conventional CSR that mirrors Gray’s
frustration with social accounting in the sense that CSR
may have simply become a route to ‘‘simultaneously in-
crease shareholder value whilst thwarting any attempts
by civil society to rede?ne corporate power’’ (Archel, Husil-
los, & Spense, 2011, p. 328).
The growing disquiet among some accounting scholars
with respect to the corporate hijacking of the sustainability
agenda appears to coexist simultaneously with a lack of
engagement by social accounting scholars with the Con-
ceptual Framework project. Most strikingly, it seems to
be the case that many of those concerned with social
accounting do not fully realize the potentially fundamental
contribution that they could make to such debates. In ef-
fect, the rapid and unrelenting rise of decision-usefulness
appears to have ‘‘successfully’’ ousted social accounting
from its earlier position close to the center of the reporting
process—to the extent that social accounting scholars have
not engaged in any meaningful way with the evolution of
Chapter 1.
25
It seems then that there is an urgent need for a reap-
praisal of the living law of social accounting within the
broader reporting framework. After all, in the history of
23
Contemporary developments such as the emergence of the Bene?t
Corporation pose interesting questions from a Habermasian standpoint.
Power and Laughlin (1996, p. 460) point out that ‘‘The modern company is a
juridical product of a number of external forces (cf. Deetz, 1992). . . . But if
we . . . follow Habermas, the question arises as to the extent to which the
modern corporation derives its legitimacy from substantive justi?cation
rooted in the lifeworld or from a conformity to legal processes (cf. Sitkin &
Bies, 1994)—a conformity in which accounting expertise plays a key role (cf.
Puxty, 1990).’’
24
Related perspectives on social accounting are offered in studies such as
Chen (1975), Hines (1988, 1991a, 1991b), and Parker (2007).
25
For example, the pages of academic accounting journals reveal a dearth
of meaningful debate about the rami?cations—or otherwise—of these
developments from a social accounting standpoint. (One exception is
Whittington (2008) who addresses inter alia the primary users/social
accounting issue from a stewardship perspective.) Similarly, an analysis of
the many submissions to IASB/FASB concerning Chapter 1 reveals the
virtual absence of any comments or feedback on the proposal from a social
accounting standpoint.
86 T. Murphy et al. / Accounting, Organizations and Society 38 (2013) 72–91
accounting, the rise of ‘‘decision-usefulness’’ is a very re-
cent phenomenon and, for that matter, one that may not
stand the test of time. Nonetheless, it is important to
acknowledge that reestablishing social accounting con-
cerns at the core of corporate reporting is not a simple task.
Young (2006, p. 597) cautions that:
The dif?culty of changing the purpose(s) we assign to
accounting within the existing political and economic
environment cannot be overestimated. However,
change certainly cannot occur if decision usefulness
remains taken for granted as the primary purpose of
accounting with its assumptions that ?nancial state-
ment users desire only information of the type outlined
in the conceptual framework.
However, if attempts to establish the dominance of
decision-usefulness are allowed to prevail unchallenged,
the implications of our living law analysis are clear: social
accounting is likely to face further decline as accounting
becomes more and more entrenched as a vehicle for spe-
cial interests—in effect, the worst case scenario which
Moonitz (1961) warned about so many years ago. Hop-
wood (2009, p. 434) acknowledges this dilemma when
he states that ‘‘although in many areas conventional ap-
proaches to accounting stand in stark contrast to emerging
environmental considerations, the potential con?icts have
also started to be recognized, albeit slowly.’’ Hence, we be-
lieve that a living law analysis provides a useful lens for
the broader academy—independent of the activities of
standard setters—to urgently reassess the true nature
and role of social accounting, and in particular the living
law expectations and entitlements of parties, other than
investors, lenders, and other creditors. In this way, the
living law can help provide an alternative conceptual
foundation for scholars adopting innovative research
perspectives (e.g., Unerman, Bebbington, & O’Dwyer,
2007).
Conclusion
In this article we employed a living law approach to ex-
plore the discourses surrounding Chapter 1 of the Concep-
tual Framework for Financial Reporting drawn up by the
IASB/FASB. While we focused speci?cally on the evolution
of Chapter 1 of the Conceptual Framework project, we sug-
gest that the analysis of other issues within the broader do-
main of accounting is likely to be signi?cantly enhanced by
adopting a living law perspective. In particular, we propose
that a living law analysis can provide a door of possibility
for accounting research to incorporate ‘‘new perspectives,
new insights, and new interdisciplinary involvements’’
(Hopwood, 2007, p. 1370).
After setting out an account of the living law approach
in jurisprudence, we traced the role of stewardship/
accountability in the evolution—from antiquity to the pres-
ent day—of the living law of accounting. We then explored
the origin, nature, and implications—from a living law
perspective—of the moral traditions associated with
stewardship/accountability. Our analysis suggests that
stewardship/accountability has always been a part of the
living law of accounting. This explains the strong adverse
reaction—on the part of a diverse range of actors and agen-
das—to the demotion of stewardship that was expressed in
the discourses surrounding the evolution of Chapter 1 of
the Conceptual Framework. However, in light of the efforts
by standard setters and others to de-emphasize the formal
role of stewardship/accountability, there is certainly no
scope for complacency. The neoliberal agenda—which has
attempted to install ‘‘decision-usefulness,’’ from an inves-
tor/creditor perspective, as the sole accounting objec-
tive—is a powerful force that has the potential to lead
contemporary accounting into realms far removed from
its stewardship/accountability origins (Ravenscroft & Wil-
liams, 2009; Young, 2006).
Our analysis of the living law of social accounting
emphasizes this point very clearly. While social accounting
was once part of ‘‘mainstream’’ accounting, it now appears
that—to a large extent—the two areas ‘‘stand in stark con-
trast’’ (Hopwood, 2009, p. 434). It is not surprising, then,
that many scholars in social accounting seem to be both
disengaged from, and frustrated with, mainstream
accounting. Yet, an often ignored insight—but one which
should be abundantly clear in light of our analysis of the
living law of accounting—is that the frustration which
many social accounting scholars feel with respect to the
corporate hijacking of their ?eld mirrors exactly the frus-
tration felt by many ‘‘mainstream’’ accounting scholars
with respect to contemporary attempts to de-emphasize
stewardship/accountability. When commenting on the lit-
erature critiquing social accounting, Gray (2010) suggests
that ‘‘one convergent theme in that critique has been a
challenge that much of the realist and procedural baggage
associated with conventional accounting is no longer
apposite when seeking to account for sustainability’’ (p.
47). However, what social accounting scholars may not
fully appreciate is that the ‘‘baggage’’ which has become
prevalent in contemporary conventional accounting may
no longer be apposite in the context of any type of account-
ing, social or otherwise. In other words, ‘‘the current re-
gime for producing ?nancial statements, with its decision
usefulness justi?cation, virtually guarantees ?nancial re-
ports will be a hodge-podge of ersatz representations
unconnected to any correspondence to a genuine story
being told about an entity (cf. West, 2003)’’ (Bayou et al.,
2011, p. 122).
The basic concern unifying the perspectives generated
by our living law analysis of, ?rst, stewardship/account-
ability and, second, social accounting, is a concern that
contemporary accounting has become at least partially dis-
connected from its original ‘‘moral or customary tradi-
tion’’—in other words, from its living law. A renewed
recognition of the fact that the living law of accounting is
primarily about stewardship/accountability—and that
stewardship/accountability is fundamentally concerned
with the societal relationships between accountor and
accountee in the broadest sense—has the potential to be-
come a powerful unifying (or perhaps more accurately,
reunifying) theme across scholarly boundaries. When ap-
plied to social accounting concerns, a living law analysis
can play an important role in ‘‘providing a more informed
and systematic knowledge base in an area of human
T. Murphy et al. / Accounting, Organizations and Society 38 (2013) 72–91 87
endeavor that is likely to have profound consequences for
the human race’’ (Hopwood, 2009, p.439).
To conclude, the analysis of the living law of accounting
presented in this article suggests strongly that, with stew-
ardship/accountability at its center, accounting had a pre-
dominantly bene?cent impact on the evolution of society.
Whether coincidental or otherwise, the apparently endless
stream of recent crises in accounting—across a number of
countries (Jones, 2011; Markham, 2006)—is occurring at
precisely the same time as the age-old role of steward-
ship/accountability as the root metaphor of accounting is
coming under unprecedented attack. Because the living
law of a community or association is continuously evolving
(Barden & Murphy, 2010; Ehrlich, 2002), an important
challenge for members of the accounting community
would appear to be to ensure that the ‘‘covenant’’ (Briloff,
1990) between accounting and society is both restored
and reinvigorated as part of the living law of accounting.
The analysis presented here suggests that a renewed
emphasis on stewardship/accountability is central to this
process, if restoring society’s trust in accounting is part of
a shared vision of the future living law of the accounting
community.
Acknowledgements
The authors would like to express their gratitude to Da-
vid Cooper and two anonymous reviewers for their extre-
mely insightful comments and suggestions during the
development of this article, and we would also like to
thank Ela Kotkowska and Don O’Sullivan for their com-
ments and suggestions on a draft of the article. Vincent
O’Connell wishes to acknowledge the ?nancial support re-
ceived from the Thomas J. Moran Research Fellowship
awarded by UCD School of Business.
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doc_602987533.pdf
The International Accounting Standards Board (IASB) and the Financial Accounting Standards
Board (FASB) recently published the final version of Chapter 1 of their joint Conceptual
Framework for Financial Reporting (IASB/FASB, 2010). In this article, we focus on two
of the key issues addressed in Chapter 1: stewardship and the definition of the primary
user groups of financial statements. To address the discourses surrounding the evolution
of Chapter 1, we introduce the concept of ‘‘living law’’ from sociological jurisprudence into
accounting scholarship. We first trace the role of stewardship/accountability in the evolution—from
antiquity to the present day—of the living law of accounting. We then explore
the origin, nature, and implications—from a living law perspective—of the moral traditions
associated with stewardship/accountability. Our analysis suggests that stewardship has
been, and continues to be, embedded in the living law of accounting—notwithstanding
the formal pronouncements of standard setters. We also examine the social accounting
project from a living law perspective and we suggest that such an analysis provides new
possibilities for addressing core social accounting concerns.
Discourses surrounding the evolution of the IASB/FASB Conceptual
Framework: What they reveal about the ‘‘living law’’ of accounting
Tim Murphy
a,1,2
, Vincent O’Connell
b,?,1
, Ciarán Ó hÓgartaigh
c,3
a
School of Law, College of Law, Government and International Studies, Universiti Utara Malaysia (University of North Malaysia), 06010 UUM Sintok,
Kedah, Malaysia
b
Amsterdam Business School, University of Amsterdam, Plantage Muidergracht 12, 1018 TV Amsterdam, The Netherlands.
c
UCD College of Business and Law, University College Dublin, Bel?eld, Dublin 4, Ireland
a b s t r a c t
The International Accounting Standards Board (IASB) and the Financial Accounting Stan-
dards Board (FASB) recently published the ?nal version of Chapter 1 of their joint Concep-
tual Framework for Financial Reporting (IASB/FASB, 2010). In this article, we focus on two
of the key issues addressed in Chapter 1: stewardship and the de?nition of the primary
user groups of ?nancial statements. To address the discourses surrounding the evolution
of Chapter 1, we introduce the concept of ‘‘living law’’ from sociological jurisprudence into
accounting scholarship. We ?rst trace the role of stewardship/accountability in the evolu-
tion—from antiquity to the present day—of the living law of accounting. We then explore
the origin, nature, and implications—from a living law perspective—of the moral traditions
associated with stewardship/accountability. Our analysis suggests that stewardship has
been, and continues to be, embedded in the living law of accounting—notwithstanding
the formal pronouncements of standard setters. We also examine the social accounting
project from a living law perspective and we suggest that such an analysis provides new
possibilities for addressing core social accounting concerns. We conclude by arguing that,
particularly in light of the far reaching impact of the neoliberal agenda, there is an urgent
need for scholars in both contemporary ‘‘social’’ and ‘‘mainstream’’ accounting to recognize
and build upon their shared living law heritage rooted in the age-old traditions of steward-
ship/accountability.
Ó 2012 Elsevier Ltd. All rights reserved.
Introduction
The origins of stewardship (i.e., accountability) in
accounting may be traced back several millennia (Basu &
Waymire, 2006; Schmandt-Besserat, 1992).
4
Notwithstand-
ing its historical role as the ‘‘root metaphor’’ of accounting
(Ravenscroft & Williams, 2009, p. 770), in 2006, both the
International Accounting Standards Board (IASB) and the
Financial Accounting Standards Board (FASB) proposed drop-
ping stewardship as a primary ?nancial reporting objective.
The background to this proposal was that, in October 2004,
IASB/FASB embarked on an ambitious joint project to devel-
op a common Conceptual Framework for Financial Reporting.
The ?rst part of the task that the Boards set for themselves
was to de?ne the objective(s) of ?nancial reporting. This is-
sue was to be addressed in Chapter 1 of the Conceptual
Framework and, at different points in the development
process (speci?cally in 2006 and 2008), the Boards issued
Exposure Drafts of Chapter 1 for discussion. The ?nal
version—Conceptual Framework for Financial Reporting.
Chapter 1: The Objective of General Purpose Financial Reporting
0361-3682/$ - see front matter Ó 2012 Elsevier Ltd. All rights reserved.http://dx.doi.org/10.1016/j.aos.2012.07.003
?
Corresponding author. Tel.: +31 20 525 4171; fax: +31 20 525 5092.
E-mail addresses: [email protected] (T. Murphy), v.r.oconnell@
uva.nl (V. O’Connell), [email protected] (C. Ó hÓgartaigh).
1
These authors contributed equally to this project.
2
Tel.: +60 13 202 1842; fax: +60 4 928 4205.
3
Tel.: +353 1 716 4856; fax: +353 1 716 4767.
4
We interpret ‘‘stewardship,’’ ‘‘accountability,’’ and ‘‘stewardship/
accountability’’ as synonymous terms and we use them interchangeably
throughout this article.
Accounting, Organizations and Society 38 (2013) 72–91
Contents lists available at SciVerse ScienceDirect
Accounting, Organizations and Society
j our nal homepage: www. el sevi er. com/ l ocat e/ aos
(IASB/FASB, 2010)—was released in September 2010;
although other aspects of the Conceptual Framework are
currently undergoing continuing development, the Boards
do not intend to revisit the issues addressed in Chapter 1 of
the Conceptual Framework (hereafter, ‘‘Chapter 1’’).
The proposed abandonment of stewardship as a pri-
mary ?nancial reporting objective was, in many ways,
not surprising, given that recent decades have shown that
the status of accountability generally, including the status
of stewardship/accountability as a primary objective of
?nancial reporting, has come under sustained attack (Rav-
enscroft & Williams, 2009, 2011). However, perhaps be-
cause of the historical entrenchment of stewardship in
accounting, the initial proposal—when it was ?rst pub-
lished in the 2006 Exposure Draft—drew a strong negative
response from a variety of interested parties, and at least
some aspects of this feedback in?uenced the subsequent
evolution of Chapter 1. The controversy surrounding its
proposed demotion and the changes incorporated in the ?-
nal version of Chapter 1 suggest that stewardship/account-
ability has an enduring quality that accounting standard-
setters cannot easily ‘‘shake off.’’
In the same 2006 Exposure Draft, IASB/FASB identi?ed
seven primary user groups of ?nancial reporting: equity
investors, creditors, suppliers, employees, customers, gov-
ernment and their agencies and regulatory bodies, and
members of the public. However, in the ?nal version of
Chapter 1, the user groups are simply speci?ed as the pro-
viders of capital (i.e., equity investors and creditors). This
narrowing of the de?nition of user groups has obvious
and profound implications for the social accounting project
in a ?nancial reporting context. In particular, if groups
other than the providers of capital cease to be seen as pri-
mary user groups by the standard setting bodies, then the
nature of the interaction between ?nancial reporting and
the social accounting project is fundamentally altered.
However, in contrast to the controversy surrounding stew-
ardship, there has been no noticeable reaction from the so-
cial accounting community, or indeed any part of the
accounting community more generally, to the de?nition
of user groups in Chapter 1 and the preceding exposure
drafts.
In this article, we explore discourses surrounding the
evolution of Chapter 1 with particular reference to the
aforementioned issues: the role of stewardship and the
de?nition of the users of ?nancial statements. We believe
that Chapter 1 is worthy of study as the IASB/FASB Concep-
tual Framework is now meant to be the guiding light for
determining the current and future evolution of account-
ing standards in over 100 countries. As the Boards them-
selves point out (IASB/FASB, 2004, p. 4), decisions with
respect to ?nancial reporting objective(s) and user groups
can have crucial and far-reaching ?nancial reporting impli-
cations. Moreover, as we shall argue in this article, these
decisions can have profound consequences for accounting
that far transcend the conventional ‘‘borders’’ of contem-
porary ?nancial reporting.
In order to better understand the presences (and ab-
sences) in the discourses surrounding Chapter 1 relating
to both stewardship/accountability and the social account-
ing project, we wish to introduce into accounting scholar-
ship the concept of ‘‘living law’’ from the discipline of
jurisprudence. Jurisprudence, broadly de?ned, is the philo-
sophical pursuit of wisdom about law, legal systems, and
justice (Murphy, 2004a, pp. 1–2, cf 2012, pp. 196–197);
jurisprudential writings ‘‘are not concerned with exposi-
tions of law, but with disquisitions about law [emphases
in original]’’ (Dias, 1985, p. 7). The ‘‘living law’’ approach
derives from that branch of jurisprudence known as
‘‘sociological jurisprudence,’’ which, generally speaking,
views legal norms as but one of many sets of social norms
and, moreover, as norms that can be understood meaning-
fully only in their broader social context (Walsh, 2004, p.
169).
The concept of living law has been current since the
seminal work of the Austro-Hungarian jurist, Eugen Ehrlich
(1862–1922). Ehrlich’s Grundlegung der Soziologie des Rec-
hts (Ehrlich, 1913) was ?rst published in English in 1936
as Fundamental Principles of the Sociology of Law (Ehrlich,
2002). Different authors have since developed the living
law approach that originated in Ehrlich, and in this article
we rely also on the recent elaboration of the living law ap-
proach by Garrett Barden and Tim Murphy in their book,
Law and Justice in Community (2010). The living law ap-
proach proposes that societies generally, as well as social
groups and professional associations within societies, have
a ‘‘law’’ that preexists—and continues on an ongoing basis
to exist separately from—both formal self-regulatory
schemes (also often understood as ‘‘laws’’) and state law.
The particular sociological understanding of ‘‘law’’ in the
living law approach is not of law as posited or laid down
in the way a constitution, statute, code, or other set of rules
are posited or laid down; nor does it refer to any set of uni-
versal principles or axioms in the manner of many modern
understandings of ‘‘natural law.’’ Instead, as we shall ex-
plain in further detail in the next section, the ‘‘law’’ in ‘‘liv-
ing law’’ denotes ‘‘the way things are done’’ or ‘‘what is
generally accepted and approved’’ and implies that these
emerge and develop from the social practice in question.
Although no universally accepted de?nition of ‘‘living
law’’ exists, we will use the term in this article to refer to
‘‘the moral or customary tradition of a particular
community.’’
5
By introducing ‘‘living law’’ into accounting, we are
building upon a longstanding tradition of interdisciplinary
research. There are many ‘‘social and institutional paral-
lels’’ (Moore, 1991) between law and accounting, and it is
therefore not surprising that there exists a substantial
body of interdisciplinary ‘‘law and accounting’’ scholar-
ship. Moore observed, for example, that the institution of
law and the institution of accounting are both ‘‘tools of so-
cial and organizational control, prescribing or proscribing
in often spectacular detail types of individual behavior,
terms of economic relationships, and degrees of govern-
ment power’’ (Moore, 1991, p. 765). Other studies in this
tradition discuss ways in which the law ‘‘impacts on exter-
nal accounting and on private sector accounting policy
5
The literature on living law is extensive, and an exhaustive bibliogra-
phy is beyond the scope of this article. A good introduction to the literature,
which features many of the scholars engaged currently in living law
discourse, is Hertogh’s (2009) edited collection.
T. Murphy et al. / Accounting, Organizations and Society 38 (2013) 72–91 73
making’’ (Bromwich & Hopwood, 1992, p. 1), and reveal
that accounting, far from being an autonomous practice,
is deeply implicated in its wider socio-political context
(Gilmore & Willmott, 1992), including that of the law (Ber-
le, 1938; Miller & Power, 1992; Napier & Noke, 1992). Sur-
veys of judicial in?uences on the development of
accounting (de Kerviller & Standish, 1992; Hadden & Boyd,
1992; Patient, 1992; Reid, 1986, 1989) and discussions of
the statutory regulation of accounting (Bromwich, 1992a;
Hadden & Boyd, 1992; McBarnet & Whelan, 1992a) are
the most common forms of interdisciplinary law and
accounting research, but other themes include: legal anal-
yses of speci?c accounting concepts, such as the ‘‘true and
fair view’’ (Baxt, 1968; McGee, 1991), which have been in
turn assessed from the accounting side (e.g., Ram, 2002);
analyses of territorial battles between the two professions
(e.g., Dezalay, 1991; Dezalay, 1995); jurisprudential analy-
ses of accounting issues (e.g., Archer, 1992, 1993; McBar-
net & Whelan, 1992b); the implications of Habermas’s
theory of law in an accounting context (Power & Laughlin,
1996); and debates about ethics in professional accounting
(e.g., Bayou, Reinstein, & Williams, 2011; Parker, 1994;
Preston, Cooper, Scarbrough, & Chilton, 1995), which are
ripe for comparison with equivalent debates regarding
professional lawyering (e.g., Markovits, 2008).
In this article, we seek to make three distinct contribu-
tions to the literature. First, we evaluate the nature of
stewardship/accountability—from antiquity to the present
day—through the lens of the living law. We believe that
this analysis offers potentially crucial insights in terms of
obtaining a deeper understanding of the contemporary
nature—and future direction—of accounting in its broadest
sense. Second, we apply a living law analysis in order to
better comprehend the evolution and trajectory of the so-
cial accounting project. Third, by introducing the concept
of living law into the accounting literature, we extend re-
search at the interface of law and accounting while simul-
taneously demonstrating the potential bene?ts of living
law analysis in accounting research.
The article consists of ?ve further sections. The next
section introduces the concept of living law in detail. In
the following section, we discuss the role of stewardship/
accountability and social accounting in conceptual frame-
works with particular reference to Chapter 1. In the fourth
and ?fth sections, we build upon the preceding discussions
in order to apply a living law analysis to our central con-
cerns with respect to Chapter 1: stewardship/accountabil-
ity and social accounting. Concluding comments are
offered in the ?nal section of the article.
The living law approach in jurisprudence
In this section, we ?rst consider the nature of the living
law approach in some detail, principally by setting out key
features of the living law approach as it was originally
developed in the work of Eugen Ehrlich (1913/2002) and
in the restatement of living law theory set out in Barden
and Murphy (2010). We discuss the connection between
the living law approach and the idea of ‘‘legal pluralism,’’
and we also distinguish the meaning of ‘‘law’’ in ‘‘living
law’’ from its meaning in other, better known jurispruden-
tial approaches, speci?cally legal positivism and modern
natural law theory. Throughout the section, we provide
examples and further analysis of ‘‘living law.’’
Ehrlich famously summarized his thesis in the Fore-
word to Fundamental Principles of the Sociology of Law:
‘‘the centre of gravity of legal development lies not in leg-
islation, nor in juristic science, nor in judicial decision, but
in society itself [emphasis added]’’ (2002, p. xv). For Ehrlich,
society is ‘‘the sum total of the [very heterogeneous] hu-
man associations that have mutual relations with one an-
other’’ (2002, p. 26), and the ‘‘living law’’ is ‘‘the law
which dominates life itself even though it has not been
posited in legal propositions’’ (2002, p. 493): it is the law
made and maintained by people in their associations and
in the broader community. In Ehrlich’s view, the primary
function of ‘‘law’’ is to maintain social order, that is, order
in and between the heterogeneous social or human associ-
ations that constitute society: ‘‘Just as we ?nd everywhere
the ordered community’’, he wrote, ‘‘wherever we follow
its traces, so we also ?nd the law everywhere, ordering
and upholding every human association’’ (2002, p. 25).
In Barden and Murphy’s elaboration of living law, any
human community (or human or social ‘‘association’’) does
a whole host of things in particular ways, including the
customs, practices, well-known and accepted procedures,
and mutual expectations that establish the jural relation-
ships and entitlements particular to that community. In
Barden and Murphy’s account, the ‘‘living law’’ represents
‘‘what is generally accepted as what constitutes the com-
munity as a community’’; it is a moral tradition comprising
‘‘the set of those ways of acting that, in a particular com-
munity, are admired and thought appropriate to common
types of situations’’ (Barden & Murphy, 2010, p. 4). On this
view, the living law is ‘‘customary law’’ or ‘‘communal
moral law’’ in that it constitutes the commonly accepted
moral rules of a community, some of which, but rarely if
ever all of which, may be written down or even formulated
in speech. The socio-cultural concept of tradition is one
way of understanding how living law is handed down in
communities: just as children learn language so too they
learn the morality—the customs or living law—of their par-
ticular community.
It is crucially important to note that the references to
human or social ‘‘communities’’ or ‘‘associations’’ in the
living law approach are not exclusively references to mod-
ern states or polities. Both Ehrlich’s and Barden and Mur-
phy’s theories of living law hold that all human
communities or groups—ranging from the global commu-
nity to a community of two castaways on a desert is-
land—have a ‘‘living law.’’ In Ehrlich’s terms, a human or
social ‘‘association’’ is any plurality of human beings
‘‘who, in their relations with one another, recognize certain
rules of conduct as binding, and, generally at least, actually
regulate their conduct according to them’’ (Ehrlich, 2002, p.
39). Ehrlich instances various forms of clan, family, and
house community as early forms of such associations and
refers to the state, the religious communion, the political
party, the social coterie, the cooperative society, and ‘‘the
association of the members of a calling’’ as examples of
associations found in advanced societies; on this basis,
74 T. Murphy et al. / Accounting, Organizations and Society 38 (2013) 72–91
modern man ‘‘becomes the member of an almost incalcu-
lable number of associations of the most diverse kinds’’
(Ehrlich 2002, pp. 27–28). We are all, in other words, mem-
bers of multiple ‘‘associations’’ and we are all therefore sit-
uated in relation to multiple ‘‘living laws.’’ An accountant
in London, for example, is situated in relation to the living
law—to name some of the more obvious but certainly not
to provide an exhaustive list—of his or her: family, social
circle(s), social club(s), employer(s), profession, local com-
munity, regional community, England, the UK, and indeed
the human race.
Within the context of this article, the living law of the
accounting profession is obviously worthy of further elab-
oration. Any profession—including the accounting profes-
sion—constitutes an ‘‘association’’: in relations between
accountants, there are rules or norms of conduct, not all
of which are commands that come from state law or ‘‘of?-
cial’’ sets of professional standards, that generally have a
regulatory effect. There is a ‘‘living law’’ of the accounting
profession that preexists, and exists now separately from,
state law and systems of professional self-regulation. In
Barden and Murphy’s (2010) terms, the living law of the
contemporary accounting profession refers to the set of
those ways of acting in the accounting community that
are thought appropriate to common types of situations.
This living law is constituted in part by the empirical real-
ities of the accounting profession as opposed to the formal
rules that purport to de?ne those ‘‘realities.’’ Cooper and
Robson (2006), for example, observe that commercialized
and bureaucratized understandings of professionalism per-
vade major accounting ?rms rather than any understand-
ing that considers the public interest, and they note that
studying accounting ?rms ‘‘is likely to provide consider-
able insight into how the profession operates, and how
both its own understandings, and those of its clients, are
changing’’ (p. 433). In their discussion of the links between
accounting ?rms and the production of professional iden-
tity, Cooper and Robson further observe that the meaning
of being a professional ‘‘is seen primarily as a way of
behaving: accountants view the idea of ‘professional’ as
referring to ways of acting, particularly in front of clients’’
(2006, p. 432). This description is consonant with the def-
inition of the ‘‘law’’ in ‘‘living law’’ as ‘‘the way things are
done’’ or ‘‘what is generally accepted and approved.’’ More-
over, the same can be said for that part of Cooper and Rob-
son’s survey which shows that the production of
professional identity incorporates several other speci?c
features, including gender, class, social ethnicity, profes-
sional af?liation, ways of talking and writing, time man-
agement, matters of appearance, dress sense, personal
grooming, and eagerness and other forms of overt commit-
ment. The survey further points out that there are relevant
differences in these contexts within accounting such as
those between partners, junior accountants, middle man-
agers, accounting clerks, and technicians.
Another, related, feature of the living law approach is its
connection with the jurisprudential idea of ‘‘legal plural-
ism’’ (see, e.g., Grif?ths, 1986; Merry, 1988; Murphy,
2012; Twining, 2010; von Benda-Beckmann, 2002). One
of the key assumptions of legal pluralism is that there is
a multiplicity of law in any sphere of human behavior or
social practice. Multiple legal forms—of which state law
is but one—operate in an internormative fashion, whereby
they overlap and interact with one another. Moreover, in
this internormative context, state law or other ‘‘of?cial’’
law has no special status on account of its provenance
and is often the less important normative regime affecting
a particular area of social life (Anderson, 2005). On this
view, the living law represents one type of normative re-
gime among many. Ehrlich lived and worked at the out-
skirts of the Austro-Hungarian Empire, where many
different ethno-cultural groups lived side by side, includ-
ing Armenians, Germans, Jews, Ukrainians, Russians, Slo-
vaks, Hungarians, and Gypsies, and he developed his
alternative perspective on law through observation and
empirical study of the habits and customs of these and
other groups. He focused on the rules of conduct that peo-
ple in actual fact obeyed, and concluded that most people
did not follow state law, but rather lived according to their
own social norms. In his discussion of the German peas-
antry, for example, Ehrlich noted that the matrimonial re-
gime of community goods according to which they lived,
‘‘which is the prevailing, freely chosen property regime of
the German peasantry in Austria, has nothing in common
with the community of goods provided for in the Austrian
Civil Code, and the provisions of the Civil Code are never
being applied’’ (Ehrlich, 2002, p. 489). This ‘‘prevailing,
freely chosen property regime’’—one of several, ‘‘plural,’’
normative regimes—was the living law of this particular
group or ‘‘social association’’ in matters pertaining to
property.
In Law and Justice in Community, Barden and Murphy
place their theories of living law and legal pluralism in
the context of an evolutionary conception of society. In
their account, humans evolve within a social order, and in
that order there emerge patterns of interrelations that
are expressed linguistically in ‘‘laws.’’ The social order
inevitably gives rise to such ‘‘laws’’ as ‘‘Thou shalt not kill,’’
‘‘Thou shalt not steal,’’ and ‘‘Promises ought to be kept’’
(pacta sunt servanda), or some linguistic equivalent of
these. These ‘‘laws’’ or norms emerge as laws because they
are absolutely necessary to the survival of any society and
are therefore a part of the living law of all communities or
associations of people. The source of much ‘‘law’’—in fact,
the source of the most fundamental laws, those necessary
to the survival of society—is not any authoritative or legis-
lative command but rather the spontaneous ordering of the
practice of communal life. This point is very signi?cant in
terms of understanding the living law approach because
it emphasizes the need to distinguish the meaning of
‘‘law’’ in ‘‘living law’’ from its meaning in other jurispru-
dential approaches, speci?cally legal positivism and mod-
ern natural law theory.
One of the most enduring traditions in jurisprudence,
‘‘legal positivism,’’ proposes, albeit under many different
guises (e.g., Austin, 1998; Bentham, 1945, 1970; Hart
1994; Kelsen, 1967), two broad theses: a ‘‘social thesis’’—
that what counts as law in any particular society is
fundamentally a matter of social fact; and a ‘‘separability
thesis’’—that what the law is and what the law ought to
be are separate questions (Leiter, 1999, pp. 1141–1142;
cf. Pavlakos, 2004, p. 226). Underlying these theses is a
T. Murphy et al. / Accounting, Organizations and Society 38 (2013) 72–91 75
theory that af?rms the dominant understanding or image
of a ‘‘law,’’ that is, as an enforceable command or rule pos-
ited or laid down by an appropriate authority of some kind.
In the contemporary global context of sovereign nation
states, the ‘‘appropriate authority’’ generally tends to be
the state; and ‘‘law’’ is understood as including constitu-
tional law (whether written or unwritten), enacted legisla-
tion (for example, law contained in a common law statute
or civil law code), law arising from or associated with the
courts (common law, case law, or, sometimes, ‘‘judge-
made law’’), and elements of public and private interna-
tional law.
The dominance of this understanding or image of law is
not to be under-estimated. It is present even in the natural
law tradition, commonly considered as the tradition dia-
metrically opposed to legal positivism. In modern jurispru-
dence, one of two meanings—a revealed divine law or a set
of infallible axioms or provisions from which appropriate
moral or legal rules may be deduced—is usually what is
meant when reference is made to ‘‘natural law.’’ Both of
these meanings suggest a superior, ?xed, and universal
set of norms or provisions that, for whatever reason, may
not be part of the law of a particular jurisdiction, but
against which a subordinate positive law may be tested
and, depending on how it is interpreted, perhaps found
wanting. Natural law, in other words, is conceived of as
structurally similar to posited law, but as existing at a
superior or ‘‘higher’’ level; it retains the understanding or
image of ‘‘law’’ as an authoritative command or rule that,
like positive law, is subject to interpretation (Barden &
Murphy, 2010; Murphy, 2004b, chap. 8).
‘‘Living law’’ cannot be thought of as existing on a con-
tinuum with state law or natural law because it is a differ-
ent type of law. As we pointed out in the introductory
section, the living law approach derives from sociological
jurisprudence—its central focus is neither on descriptive
accounts of what posited law is (legal positivism) nor on
the claim, however it may be understood, that posited
law is referable to a higher set of norms (the modern nat-
ural law tradition). However, despite the strong differ-
ences—made explicit by Ehrlich (1922, pp. 130–131,
2002, pp. 15–16) and by Barden and Murphy (2010, pp.
71–72, 189)
6
—between ‘‘living law’’ and the modern ‘‘natu-
ral law’’ tradition, there are nonetheless ‘‘universal’’ and
‘‘natural’’ element in the living law.
As we have said, the source of the most fundamental
laws, those necessary to the survival of society, is the spon-
taneous ordering of the practice of communal life. All hu-
man communities – including the global community – do
have ‘‘universal’’ or common rules and norms because hu-
mans are social beings whose lives together are in very ba-
sic and important ways similar in different societies.
Barden and Murphy (2010) point out that the Roman law
concept of ius gentium refers to the norms that are com-
mon to all communities. These norms – for example, that
killing, stealing, and the making of ‘‘false promises’’ must
be prohibited – are common to all communities because,
without them, no ‘‘community’’ could exist or be main-
tained; in other words, before these norms are discovered
to be common, they are in fact common, and are similar re-
sponses to similar exigencies (Barden & Murphy, 2010,
chap. 2; Murphy, 2012, pp. 192–196). This commonality
means that speci?c mutual entitlements and expectations
are discovered to be in fact ‘‘natural’’ to speci?c human
practices; but it is very important to be clear that what is
meant by this is that these entitlements and expectations
are discovered to be intrinsic to successful communal life
and thus discovered prior to any type of posited law.
The idea that what is ‘‘natural’’ is ‘‘that which is intrin-
sic’’ is an idea far removed from the modern natural law
tradition but it is present in classical philosophy as well
as in some strands of modern philosophy. A good example
from the accounting literature is Shapiro’s (2002) critique
of the SFAS 106 (Employers’ Accounting for Postretirement
Bene?ts other than Pensions, Financial Accounting Stan-
dards Board (FASB), 1990) presumption that both employ-
ers and employees mutually understand postretirement
bene?t plans. Shapiro used Searle’s (1969) speech act anal-
ysis of promises and, in particular, Searle’s account of the
conditions for expressing sincere and non-defective prom-
ises (Searle, 1969, pp. 57–61, 1979, p. 44) to argue that
while certain clauses in written health plans did not con-
stitute full-blown and socially enforceable promises, they
could nevertheless mislead active workers and retirees
into believing that management would continue providing
the bene?ts inde?nitely. Searle’s conditions for expressing
sincere and non-defective promises—which include a ‘‘sin-
cerity condition’’ (that the promisor intends to do what is
promised) and an ‘‘essential condition’’ (that the promisor
intends that the utterance of the promise will place him
under an obligation to do what is promised)—are grounded
in a philosophical approach that holds that the adage pacta
sunt servanda is an ‘‘operative presupposition of the prac-
tice of promising prior to any theoretical re?ection on
the practice and to any attempt to justify the presupposi-
tion’’ (Barden & Murphy, 2010, p. 56). An operative presup-
position is a principle intrinsic to an act in the absence of
which the act fails to be what it seems to be; as Shapiro ob-
serves in the context of the SFAS 106 presumption, ‘‘the
point of a promise is to commit the speaker to perform a
future act for the hearer’’ (2002, pp. 70–71, citing Austin,
1962; Searle, 1979, pp. 12–17). In other words, someone
who ‘‘promises’’ with no intention of keeping his promise
has not promised but has only pretended to do so.
7
For Barden and Murphy, the fundamental mutual enti-
tlements and expectations of communities—for example,
6
Barden and Murphy (2010) draw on the work of Villey (1962, 1968,
1969, 1976, 1983) to advance accounts of natural law and natural justice
developed from the classical rather than the modern tradition.
7
However, even when there is no intention to deceive, communication
processes are still fraught with potential problems. Shapiro (2002) also
utilizes Habermas’s theory of communicative action (Habermas, 1984,
1991, 1996) to argue that, setting the question of intention aside, it was still
dif?cult for employees to accurately analyze the extent to which the
communication exchanges with respect to postretirement bene?t plans
met Habermas’s validity claims of truth, legitimacy, and sincerity—validity
claims which characterize Habermas’s concept of the ‘‘ideal speech
situation’’ (Power & Laughlin, 1996, p. 461). While accounting could have
played a crucial role in this context, Shapiro suggests this responsibility
was shirked because of a range of factors ‘‘including accountants’ general
lack of moral courage to intervene on behalf of labour’’ (2002, p. 65).
76 T. Murphy et al. / Accounting, Organizations and Society 38 (2013) 72–91
that killing, stealing, and the making of ‘‘false promises’’
must be prohibited—are natural to human communities
in the sense of being intrinsic and necessary to the survival
of those communities. All communities, however, also
have a distinct set of conventional rules or norms, that is,
rules or norms that are settled legally or by agreement
and which may therefore be of the positive law or living
law variety.
8
The conventional rules of a community that
are settled legally include generally the written formulation
or expression of parts of the living law of that community in
constitutions, legislation, case law, and so on.
9
Within com-
munities, conventional rules of different types are drawn up
or agreed upon: different jurisdictions will have different
speci?c laws relating to murder, to theft, to the formation
of contracts, and so on; and there will also be conventional
rules about things that are speci?c to particular communi-
ties. In many countries, for example, there are state laws
relating to the dominant religion or religions, while in other
countries state law tends to avoid issues relating to
organized religion—these re?ect multifarious living laws
regarding religious belief and church-state relations. But
conventional forms of living law will also exist that are not
at all the subject of positive law; different customs and
norms regarding basic etiquette, for example, again re?ect
different living laws but are nowhere found in state law.
The fact that the living law of a community or social
association is the moral or customary tradition of the com-
munity or social association means, of course, that the ‘‘liv-
ing law’’ of a group or association can be ‘‘good’’ or ‘‘bad.’’ A
criminal gang will have a living law in the same way that a
modern polity or a modern profession has a living law.
Hertogh (2010) has described how the living law of the
Dutch construction industry included an illegal clearing
system in which all of the major Dutch construction com-
panies colluded in price offers for public works. While
many of those involved in the clearing system thought that
their actions were not morally wrong the practice came to
public attention in 2001 and was subsequently subjected
to parliamentary scrutiny and further legal prohibition.
Corporate scandals generally indicate a negative living
law, that is, they suggest bad corporate moral traditions;
it has been remarked, to give a highly publicized example,
that what has been striking about the Enron scandal ‘‘have
been the post-collapse revelations about the corruption,
cynicism, and deceit that pervaded that community’’
(Bayou et al., 2011, p. 121). However, for communities
and associations to survive and ?ourish—and for smaller
communities to survive and ?ourish in the midst of larger
ones—the tendency will be for the community or associa-
tion to develop a living law that serves that end. The
unwritten rule that obliges sailors to go to the rescue of
someone in trouble—which, even though there is no posi-
tive law or formal rule to that effect, is deeply entrenched
as part of the living law of sailing culture—is likely to re-
main constant because it reinforces the existence and iden-
tity of the sailing community (Barden & Murphy, 2010, pp.
56–59). Unwritten rules such as this one, which are not
legislated, emerge from the intelligent and responsible
practice of those who constitute the relevant community
or association. For communities and associations to survive
and ?ourish, and for the global community to survive and
?ourish, practices tend to emerge that, for the most part,
are consonant with the ‘‘golden rule’’ that one should treat
others as one would wish to be treated by them. ‘‘Good’’
living law inevitably tends to include the principle that
one should act taking the interests of others into account
or, to put this in general social context, that one should
support rather than subvert society (Barden & Murphy,
2010, pp. 27–29, 58–59; cf. Buber, 1987; Lévinas, 1982, p.
91).
Stewardship/accountability, social accounting, and
conceptual frameworks
In the subsequent two sections, we will return to the
living law in order to address the two central concerns of
this article: the application of a living law analysis to,
respectively, stewardship/accountability and social
accounting, with speci?c reference in each case to the dis-
courses surrounding Chapter 1 of the IASB/FASB Concep-
tual Framework. Before proceeding to those analyses, we
?rst address the historical context of, and the actual treat-
ment of, stewardship/accountability and social accounting
within Chapter 1.
Young (2006) explains that one of the earliest contribu-
tions to the development of contemporary conceptual
frameworks was the 1966 American Accounting Associa-
tion document entitled A Statement of Basic Accounting The-
ory. The intense debate sparked by the publication of this
document subsequently led to the American Institute of
Certi?ed Public Accountants (AICPA) commissioning a se-
lect group in the spring of 1971 to study the objectives of
?nancial statements. In October 1973, this group published
Objectives of Financial Statements (American Institute of
Certi?ed Public Accountants (AICPA), 1973, also known as
the ‘‘Trueblood Report’’), a document that is considered
to be the origin of contemporary re?ection on ?nancial
accounting standards (Archer, 1992, p. 201). The Trueblood
Report contained implicit recognition of both the steward-
ship role and the social role of accounting. The Report’s
objectives refer to ?nancial statements primarily serving
‘‘those users with limited authority, ability, or resources
to obtain information’’ (American Institute of Certi?ed
Public Accountants (AICPA), 1973, Objective #2) and sup-
plying ‘‘information useful in judging management’s abil-
ity to utilize enterprise resources effectively in achieving
the primary enterprise goal’’ (AICPA, 1973, Objective #5).
8
The fundamental mutual entitlements and expectations of communi-
ties give rise to the ius gentium norms common to all communities that we
mentioned above; the Roman jurists referred to the conventional laws and
norms particular to each community as the ius civile of the community. The
living law of a community ‘‘is in part the ius gentium norms that are natural
and common to all human communities . . . The other part of the living law
of a community is made up of the customs, practices, well-known and
accepted procedures, and mutual expectations that establish the jural
relationships—the conventional entitlements—particular to that commu-
nity’’ (Murphy, 2012, p. 193).
9
Positive state law also includes legislation that concerns the relation of
people or institutions to particular types of state. State law, therefore, is not
exclusively a selection of provisions expressing parts of the preexisting
customary, living law of a particular community (Barden & Murphy, 2010,
pp. 23–24).
T. Murphy et al. / Accounting, Organizations and Society 38 (2013) 72–91 77
In the UK, at around the same time, the Accounting Stan-
dards Steering Committee (ASSC) published The Corporate
Report (Accounting Standards Steering Committee (ASSC),
1975). This discussion paper also included stewardship as
an important aspect of the ‘‘public accountability’’ (1975,
p. 15) of organizations, and it stated also that corporate re-
ports ‘‘[a]re the primary means by which the management
of an entity is able to ful?l its reporting responsibility by
demonstrating how resources with which it has been en-
trusted have been used’’ (1975, p. 16).
However, by the time the Trueblood Report was trans-
mogri?ed in the US by the Financial Accounting Standards
Board (FASB) into Statement of Financial Accounting Stan-
dards No. 1: Objectives of ?nancial reporting by business
enterprises, stewardship was included in a secondary role
as a ‘‘type of information’’ (Financial Accounting Standards
Board (FASB), 1978, para. 50) which would ‘‘ful?ll’’ users’
needs in making investment, credit, and similar decisions
(Pacter, 1983, p. 78). Solomons commented that while
the Trueblood report recognized that business enterprises
had a responsibility to society and not just to stockholders,
the FASB’s 1978 statement on objectives ‘‘substantially
con?nes its attention to the needs of investors and credi-
tors’’ and ‘‘barely recognizes the needs of managers’’
(1986, p. 119).
While the 1978 FASB report was a landmark in the his-
torical rise of decision-useful information—a landmark that
‘‘institutionalized [emphasis added] information useful-
ness’’ (Ravenscroft & Williams, 2009, p. 776)—it could be
argued that the Trueblood Report (AICPA, 1971) and The
Corporate Report (ASSC, 1973) were high watermarks in
the retreating tide of stewardship recognition by account-
ing policy makers. During the latter half of the twentieth
century, the established, primary status of stewardship
and accountability in ?nancial reporting was challenged
and rejected ideologically. The rise of an alternative objec-
tive of ?nancial reporting, namely the provision of deci-
sion-useful information, was part of the displacement of
accounting’s centuries-old root metaphor of accountability
by the metaphor of decision-usefulness by means of what
Ravenscroft and Williams describe as an ‘‘effective rheto-
ric’’ that exploited historical circumstances to establish
its hegemony (2009, p. 774). Tracing the metaphor shift
from accountability to information usefulness as part of a
process that began in the aftermath of World War II, these
authors show how accounting and accounting research
were transformed, in line with the rise of neoliberal polit-
ical and economic ideology, ‘‘from an autonomous disci-
pline into a sub-discipline of neoclassical economics’’
(Ravenscroft & Williams, 2009, p. 775; cf. Whitley, 1986).
This radical repositioning of accounting ‘‘did not signify
transformations of technique, principles, or knowledge,
but rather a conceptual shift in the focus, assumptions,
and discursive practices used to characterize, explain, and
speak about accounting practice’’ (Ravenscroft & Williams,
2009, p. 775).
While Ravenscroft and Williams’s (2009) analysis dis-
cusses accounting for executive stock options, we can sit-
uate the displacement of stewardship by decision-
usefulness as the primary objective of ?nancial reporting
in Chapter 1 against the same neoliberal backdrop. In fact,
postwar political and economic developments are also
central to the historical context of the stewardship de-
bate. It might be said that the metaphor shift and its rela-
tion to the hegemony of neoliberal economics has been
implicit in the discourse surrounding stewardship; but
one of the values of the contribution by Ravenscroft and
Williams is that it allows accounting research to place
that discourse—and, indeed, other debates—explicitly in
this broader context. We suggest that this explicitness is
absolutely essential to informed scholarship in this
domain.
It was in the neoliberal context of the metaphor shift
described by Ravenscroft and Williams (2009) that the
IASB/FASB proposal to designate ‘‘decision-usefulness’’ as
the sole ?nancial reporting objective became one of the
more controversial aspects of Chapter 1. While the 2006
Exposure Draft (IASB/FASB, 2006) makes a number of refer-
ences to ‘‘stewardship,’’ the concept of stewardship that it
employs focuses exclusively on management’s responsibil-
ities to the providers of capital. This implies that steward-
ship/accountability should no longer be considered to be of
equal status to decision-usefulness, and that any debates
on the future direction of ?nancial reporting should be pre-
mised on the primacy of the decision-usefulness criterion.
Although stewardship was mentioned in the Exposure
Draft, it was ‘‘subsumed by the ?nancial reporting goal of
providing decision-useful information’’ (O’Connell, 2007,
p. 216) and thus the ‘‘needs of stewardship are assumed
to be met within the decision-usefulness objective’’ (Whit-
tington, 2008, pp. 498–499).
The potential implications of the demotion of steward-
ship during the Conceptual Framework development pro-
cess can hardly be overstated, particularly since the IASB
and FASB expected the joint Conceptual Framework
project to result in a common Conceptual Framework to
promote the convergence of the Generally Accepted
Accounting Principles (GAAP) and the International Finan-
cial Reporting Standards (IFRS), ‘‘ultimately leading to a
single set of high-quality global accounting standards’’
(Gore & Zimmerman, 2007, p. 30). Gore and Zimmerman
refer speci?cally to the question of whether stewardship
should be retained as a separate objective of ?nancial
reporting as concerning ‘‘the very nature of accounting
and ?nancial reporting’’ (2007, p. 32). It was therefore
not surprising that the proposed demotion of stewardship
drew a strong negative response from accounting aca-
demics and practitioners. When the IASB/FASB issued
the 2006 Exposure Draft, the preponderance of responses
focused on the stewardship question. Gore and Zimmer-
man reported that ‘‘more than 86% of the letters received
on this issue disagreed with the opinion expressed in the
[Exposure Draft] and argued that stewardship should be
retained as a separate objective of ?nancial reporting’’
(2007, p. 31). Although decision-usefulness remained the
sole ?nancial reporting objective, at least some aspects
of this feedback were incorporated into the subsequent
Exposure Draft on the Conceptual Framework issued by
IASB/FASB in May 2008 (IASB/FASB, 2008). In particular,
the 2008 Exposure Draft added a more speci?c commen-
tary on the usefulness of ?nancial reporting in assessing
stewardship:
78 T. Murphy et al. / Accounting, Organizations and Society 38 (2013) 72–91
Management is accountable to the entity’s capital pro-
viders for the custody and safekeeping of the entity’s
economic resources and for their ef?cient and pro?table
use. Management’s responsibilities include, to the
extent possible, protecting the entity’s economic
resources from unfavorable effects of economic factors
such as price changes and technological and social
changes. Management also is accountable for ensuring
that the entity complies with applicable laws, regula-
tions, and contractual provisions.
Management’s performance in discharging its responsi-
bilities, often referred to as stewardship responsibili-
ties, particularly is important to existing equity
investors when making decisions in their capacity as
owners about whether to replace or reappoint manage-
ment, how to compensate management, and how to
vote on shareholder proposals about management’s
policies and other matters. Because management’s per-
formance in discharging its stewardship responsibilities
usually affects an entity’s ability to generate net cash
in?ows, management’s performance also is of interest
to potential capital providers who are interested in pro-
viding capital to the entity (IASB/FASB, 2008, para.
OB12).
In its Subsequent summary of the responses to the 2008
Exposure Draft, the IASB/FASB commented that ‘‘[m]ost
respondents . . . supported the proposals in Chapter 1[,]
and noted that the Exposure Draft had improved, particu-
larly on the proposed objective that now explicitly dis-
cusses that users use ?nancial reports for stewardship
purposes’’ (Financial Accounting Standards Board (FASB),
2008, para. 8). The stewardship element of the responses
to the Exposure Draft is the only one regarding the objec-
tives of ?nancial statements commented on in any detail
by the IASB/FASB, re?ecting the weight of opinion of the
accounting community in this regard.
The ?nal version of Chapter 1 states that the objective of
general purpose ?nancial reporting ‘‘is to provide ?nancial
information about the reporting entity that is useful to
existing and potential investors, lenders, and other credi-
tors in making decisions about providing resources to the
entity’’ and that those decisions ‘‘involve buying, selling,
or holding equity and debt instruments and providing or
settling loans and other forms of credit’’ (IASB/FASB,
2010, para. OB2). However, Chapter 1 couches stewardship
in the following terms:
To assess an entity’s prospects for future net cash
in?ows, existing and potential investors, lenders, and
other creditors need information about the resources
of the entity, claims against the entity, and how ef?-
ciently and effectively the entity’s management and
governing board have discharged their responsibilities
to use the entity’s resources. Examples of such respon-
sibilities include protecting the entity’s resources from
unfavorable effects of economic factors such as price
and technological changes and ensuring that the entity
complies with applicable laws, regulations, and con-
tractual provisions. Information about management’s
discharge of its responsibilities also is useful for deci-
sions by existing investors, lenders, and other creditors
who have the right to vote on or otherwise in?uence
management’s actions (IASB/FASB, 2010, para. OB4).
In its ‘‘Basis for Conclusions,’’ Chapter 1 continues:
The Exposure Draft discussed the Objective of Financial
Reporting and Decision Usefulness in separate sections.
The Board combined those two sections in this chapter
because usefulness in making decisions is the objective
of ?nancial reporting. Consequently, both sections
addressed the same points and provided more detail
than was necessary. Combining those two sections
resulted in eliminating the separate subsections on use-
fulness in assessing cash ?ow prospects and usefulness
in assessing stewardship. The Board did not intend to
imply that assessing prospects for future cash ?ow or
assessing the quality of management’s stewardship is
more important than the other. Both are important for
making decisions about providing resources to an
entity, and information about stewardship also is
important for resource providers who have the ability
to vote on, or otherwise in?uence, management’s
actions (IASB/FASB, 2010, paras. BC1.27 and BC1.28).
In explaining their choice of nomenclature, the Boards
elaborate that they decided not to use the term ‘‘steward-
ship’’ in Chapter 1 ‘‘because there would be dif?culties in
translating it into other languages’’; instead, they chose
to describe ‘‘what stewardship encapsulates’’ and state
accordingly that ‘‘the objective of ?nancial reporting
acknowledges that users make resource allocation deci-
sions as well as decisions as to whether management has
made ef?cient and effective use of the resources provided’’
(IASB/FASB, 2010, paras. BC1.27 and BC1.28).
While not using the term ‘‘stewardship’’ and instead
claiming to describe ‘‘what stewardship encapsulates,’’
the 2010 version of the Chapter 1 nonetheless echoes
clearly—but more narrowly—traditional conceptualiza-
tions of stewardship in, for example, the Trueblood Report
(AICPA, 1973) and The Corporate Report (Accounting Stan-
dards Steering Committee (ASSC), 1975). The Conceptual
Framework talks about ‘‘how ef?ciently and effectively
the entity’s management and governing board have dis-
charged their responsibilities to use the entity’s resources’’
(IASB/FASB, 2010, para. OB4); the Trueblood Report dis-
cussed accounting information as ‘‘information useful in
judging management’s ability to utilize enterprise re-
sources effectively in achieving the primary enterprise
goal’’ (AICPA, 1973, p. 62); and The Corporate Report used
stewardship terminology in relation to ‘‘demonstrating
how resources with which [management] has been en-
trusted have been used’’ (ASSC, 1975, p. 16). These are all
versions of what Birnberg (1980) characterizes as ‘‘asset
utilization’’ articulations of stewardship, i.e., the primary
focus is on assessing managerial ef?ciency and effective-
ness with respect to the management of corporate
resources.
Notwithstanding the views of IASB/FASB as articulated
in Chapter 1, the notion that decision-usefulness and stew-
ardship/accountability ful?ll separate and distinct reporting
objectives has a long history in academic accounting
T. Murphy et al. / Accounting, Organizations and Society 38 (2013) 72–91 79
research. In Table 1 we present quotations from a sample
of representative studies from different strands of the
accounting literature by way of illustration. However,
while the general consensus in the literature is that two
separate reporting objectives exist, this does not imply
uniformity with respect to de?nitions of each objective:
O’Connell (2007, p. 220) points out that ‘‘no commonly ac-
cepted de?nition of stewardship exists in the literature,
and the concept itself appears subject to a variety of alter-
native interpretations’’—and the quotations in Table 1 fur-
ther demonstrate that this observation also applies to
‘‘decision-usefulness.’’
Commencing with Gjesdal (1981), scholars in the ana-
lytical agency tradition have long assumed that the overall
demand for accounting information arises because of the
separation between ownership and control of business
enterprises.
10
This separation gives rise to both decision-
making and stewardship information needs and, consistent
with the traditions of agency research, Gjesdal offers some-
what narrow de?nitions of both objectives (Table 1-i). In
executive compensation and capital markets research, deci-
sion-usefulness and stewardship/accountability are also
viewed as two separate and distinct reporting objectives
but there are some differences between the precise de?ni-
tions employed by researchers in this strand of the litera-
ture. ‘‘Decision-usefulness’’ is conceptualized in terms of
both performance evaluation (Kothari, Ramanna, & Skinner,
2010; Table 1-ii) and valuation roles (Beyer, Cohen, Lys, &
Walther, 2010; Table 1-iii), while ‘‘stewardship’’ is viewed
as synonymous with both ef?cient contracting (Kothari
et al., 2010; Table 1-ii) and ex-post monitoring (Beyer
et al., 2010; Table 1-iii).
Turning to different strands of the accounting literature,
we ?nd that other scholars adopt a broader perspective on
stewardship. Ijiri’s focus on ef?ciency, effectiveness, and
future plans (Ijiri, 1975; Table 1-iv) is synonymous with
the notion of ‘‘strategic stewardship’’ discussed by Birn-
berg (1980). ‘‘Strategic stewardship’’ is broader than the
‘‘asset utilization’’ perspective, which we mentioned
above, because it incorporates an enhanced focus on stra-
tegic planning and control. Similarly, Bromwich remarks
that stewardship/accountability ‘‘arises from a wish to
know the actions taken by an enterprise and to control
them’’ (1992b, p. 310). This broader conception naturally
takes stewardship into the domain of social and environ-
mental issues (Chen, 1975; Table 1-v). Hopwood (2009;
Table 1-vi) acknowledges the importance of this aspect of
accountability and speculates that some form of it will play
an increasingly important role in the future.
Other work on stewardship/accountability and deci-
sion-usefulness has explored aspects of the overlaps, as
Table 1
Some conceptualizations of stewardship/accountability and decision-usefulness.
(i) Gjesdal (1981, p. 208) ‘‘What is meant by the objectives of an economic activity like ?nancial reporting? One possibility is to de?ne
objectives as the reasons that the output of the activity is demanded.. .. Two apparently different answers may
be suggested to this question. (1) Financial statements may be of value to investors (in a broad sense) making
investment decisions. I shall call this decision-making demand [emphasis in original]. (2) Investors usually
delegate decision-making to managers. Then there may be a demand for information about the actions that are
taken for the purpose of controlling them. This I shall call stewardship demand [emphasis in original].’’
(ii) Kothari et al. (2010, p. 248) ‘‘Our analysis. .. concludes that starting with the objective of GAAP as facilitating the ef?cient allocation of
capital, the demand and supply of accounting information are as if [emphasis in original] the primary objective
of audited ?nancial reporting is to serve as a ‘control’ system for the ?rm (and the economy) i.e. to provide
information useful for performance evaluation and stewardship, which is also referred to as ef?cient
contracting. . . .. Information for performance evaluation is primarily generated through longstanding practices
in GAAP that de?ne ‘income’ for a given period; while information about stewardship results from well-
established GAAP practices that capture the status of capital employed through a detailed accounting for the
?rm’s assets and liabilities. Stewardship is de?ned as the role of the accounting system in ensuring that a ?rm’s
invested capital is maintained in such a way as to preserve the economic interests of stockholders and
bondholders’’
(iii) Beyer et al. (2010, p. 296) ‘‘Accounting information plays two important roles in market-based economies. First, it allows capital providers
(shareholders and creditors) to evaluate the return potential of investment opportunities (the ex-ante or
valuation role of accounting information). Second, accounting information allows capital providers to monitor
the use of their capital once committed (the ex-post or stewardship role of accounting information)’’
(iv) Ijiri (1975, p. ix) ‘‘The accountability approach. . . . includes not only the traditional stewardship issues centred on the
compliance with established rules but also the modern performance issues oriented toward the ef?ciency and
effectiveness notions. Furthermore, the accountability approach may be extended to include information about
the accountor’s future activities where the accountor is held accountable for his plans’’
(v) Chen (1975, p. 542) ‘‘As a steward, management’s performance should be evaluated in terms of both pro?t and the accomplishment
of social objectives. The latter aspect has long been neglected by the accounting profession. It is the
responsibility of the accountant, therefore, to measure, report, and audit management’s social performance’’
(vi) Hopwood (2009, p. 433) ‘‘Accounting has already started to be implicated in the consideration of environmental issues, and the
probability is that its involvement will develop further over the coming years. . . . . . As changes occur in our
concepts and focus of accountability for the environment, the demands for different ?ows of information,
accounting and otherwise, are also likely to grow’’
(vii) Ravenscroft and Williams
(2011, p. 46)
‘‘The ?nancial reporting revolution (rooted in economic science) brought about the root metaphor of ‘decision
usefulness’ and the expurgation of ‘accountability’ from the discourse of policy makers and researchers. As
social sciences have come up short as predictive scientists, so has ‘decision usefulness’ come up short as a
justi?able basis for policy and research’’
10
Analytical agency modeling refers to mathematical models of the
relationship between owners and managers under restrictive assumptions
consistent with both parties being fully rational and motivated exclusively
by self-interest.
80 T. Murphy et al. / Accounting, Organizations and Society 38 (2013) 72–91
well as the tensions and trade-offs between the two
objectives (Indjejikian, 1999; Heinle & Hofmann, 2011).
For example, in the analytical agency tradition, Heinle
and Hofmann (2011) conclude that stewardship and
decision-usefulness are ‘‘potentially con?icting objectives
of ?nancial accounting’’ and suggest that ‘‘abandoning
stewardship as a separate objective of ?nancial accounting
and mandating further disclosure of soft information by
standard setters and regulators can result in lower produc-
tivity and reduced ?rm value’’ (p. 354). However, there is a
surprising dearth of equivalent capital market research on
the nature of, and the relationship between, stewardship
and decision-usefulness. In terms of what capital markets
research does exist, Gassen (2008) applies an innovative
and carefully crafted research design to a large sample of
US ?rms for the period 1990–2005 and concludes that,
‘‘valuation usefulness and stewardship are alternative
objectives of ?nancial accounting’’ (Gassen, 2008, p. 39);
Wu and Zhang (2009) demonstrate that the stewardship
demand for information has a signi?cant in?uence on
?rms’ accounting choices; and archival work by Bushman,
Engel, and Smith (2006) also suggests that stewardship
relevance is not subsumed by valuation relevance.
11
Ulti-
mately, as the fundamental conceptual problems concerning
decision-usefulness are beginning to garner increased
attention (Ravenscroft & Williams, 2011; Table 1-vi), it
would appear that there is an urgent need for additional
work—from a variety of research perspectives—focusing on
the nature of the overlap and interaction between the two
objectives.
Stewardship/accountability and the living law of
accounting
As discussed above, Chapter 1 seeks to reregulate
accounting practice in that it seeks to recon?gure the rela-
tionship in ?nancial reporting between stewardship on the
one hand and decision-usefulness on the other hand. Nev-
ertheless, despite successive attempts by standard-setters
to ‘‘shake off’’ stewardship, it is manifest in iterations of
Chapter 1 that stewardship continues as part of a ‘‘moral
tradition’’ in ?nancial reporting which has endured in the
terminology and consciousness—if not in the formal prior-
ities—of the Conceptual Framework, irrespective of the de-
sires of standard-setters. Conceptualizations of
stewardship remain strongly implicit—even if one might
say grudgingly so—in the IASB/FASB’s Conceptual Frame-
work project. In this section, we argue that accountabil-
ity/stewardship remains part of the ‘‘living law of
accounting,’’ or, in other words, part of the ‘‘law that dom-
inates [accounting] even though it has not been posited [in
the same way as in the past] in legal propositions’’ (Ehrlich,
2002, p. 493). The Conceptual Framework is one of the
‘‘legal propositions’’ relating to accounting, but let us
now examine how and why the notion of stewardship—
however de?ned—persists in the living law of accounting.
The origins of accounting as an articulation of forms of
stewardship/accountability have been the subject of a
range of studies in accounting and other literature. This
work is signi?cant here as it places accounting in its histor-
ical context and recognizes that the discipline has a long
preprofessional history, a centuries-long life in society,
the essence—or living law—of which is not necessarily cap-
tured or altered by relatively recent professional pro-
nouncements on the nature and objectives of accounting.
It is important in this context to make a clear distinction
between ‘‘accounting’’ as a social function and accounting
as being synonymous with what is currently the jurisdic-
tion of the organized accounting ‘‘profession.’’
12
If we take
a historical view, focusing on accounting’s roles and func-
tions since its ancient origins, we ?nd that stewardship/
accountability is central to understanding both how and
why accounting emerged in the ?rst instance, and that
accountability/stewardship is an intrinsic or ‘‘natural’’ ele-
ment of the living law of accounting.
One recent survey of the history of writing reminds us
that the ‘‘earliest uses of writing were list-making and ac-
count-keeping’’ (Shields, 2010, p. 7), but the archaeological
research of Schmandt-Besserat (1992, 1996, 1999) goes
further and argues that accounting lies at the origin of
writing. In his comprehensive review of Schmandt-
Besserat’s work, Mattessich explains that early forms of
counting and accounting were at their heart a form of
accountability, and that ‘‘record keeping for commodities
(including labour and metals) and related accountability
purposes [emphasis added] preceded writing as well as
abstract counting’’ (1994, p. 6). Accounting was therefore
a form of ‘‘monetary control’’ (Mattessich, 1994, p. 17)
where physical objects such as clay tokens and pictograms
ascribed values that could be recorded and compared.
13
Moreover, Schmandt-Besserat’s work con?rms that, con-
trary to many mainstream accounting perspectives, writing
did not emerge to keep commercial accounts, but rather to
keep accounts of civic responsibility. Tribute had to be paid
to the temple, which was the central administrative pillar
of society, and the tokens that became the origins of writing
were a mechanism for accountability with respect to that
obligation. In this way, accounting, as Schmandt-Besserat’s
analysis shows, played a key role in facilitating accountability
relationships between institutions and citizens.
In examining the role of accounting in Ancient Egypt,
for example, Ezzamel (2009, p. 378) argues that accounting
served to maintain the status quo by visualizing ‘‘the activ-
ities and achievements of various sectors of society’’ and
providing ‘‘an incentive for individuals to demonstrate that
their actions were consistent with the requisite qualities of
social and economic order.’’ Meyer (1986) argues that
accounting evolved in a ‘‘macrosociological’’ (p. 348)
11
Although stewardship and decision-usefulness are generally viewed as
separate ?nancial reporting objectives, Bushman et al.’s (2006) work also
demonstrates that there are important overlaps so that information which
is useful in ful?lling one objective may simultaneously be useful with
respect to the other (see Bushman & Indjejikian, 1993a, 1993b; Bushman &
Smith, 2001; Givoly, Hayn, & Katz, 2010; Narayanan & Davila, 1998;
O’Connell, 2001, 2006, 2007).
12
For reference to aspects of the living law of the accounting profession,
see Section ‘‘The living law approach in jurisprudence’’ of this article.
13
Several other authors (e.g. Carmona & Ezzamel, 2009; Hallo, 1992;
Mattessich, 1994) also emphasize the evolutionary nature of accounting
from counting to pictograms to writing.
T. Murphy et al. / Accounting, Organizations and Society 38 (2013) 72–91 81
context: ‘‘orgies of accounting’’ emerge when society ‘‘is in
control of its own de?nitions of reality, and is organized
around social control and authority’’ (p. 351). This sense
of order as the context of accounting constitutes a particu-
larly strong element in the literature relating to the origins
of accounting. From its very beginnings, accounting consti-
tuted a ritual and a technology that constructed and sus-
tained ‘‘order in organizations and society’’ (Ezzamel,
2009, p. 348).
14
This characterization of accounting is a common theme
in several works relating to the later development of
accounting. Thompson (1991, p. 584), for example, argues
that part of Pacioli’s double-entry bookkeeping project in-
cluded implicit reference to the idea of a ‘‘divine order.’’
Accounting as a form of ordered accountability, it may be
argued, was also at the heart of many of the social theori-
zations of the early-nineteenth century. Bentham concep-
tualized accounting as a means of disciplining and
controlling the poor (Gallhofer & Haslam, 1994a, 1994b);
and Walker (1998, p. 485) continues this theme in his
study of household accounting in the nineteenth century
by suggesting that ‘‘domestic accounting systems were
founded on stewardship and hierarchical accountability.’’
Accounting therefore created and sustained ‘‘order’’ and
‘‘accountability’’ since its inception. This essence of
accounting, it is argued throughout the literature, explains
the origins and the persistence of stewardship/account-
ability. In this way, the living law of some of the earliest
human communities may be said to include—and the liv-
ing law of accounting may be said to be founded upon—
the very fundamental idea that people may be, and ought
to be, made accountable. In other words, as Ijiri (1975) ar-
gued nearly 40 years ago, what accountants do makes no
sense if accountability is not assumed to be accounting’s
primary function. In line with this analysis, Ravenscroft
and Williams observe that, historically, ‘‘the notion of
accountability or stewardship, i.e., the responsibility or
obligation owed to someone who has entrusted another
with possessions to manage on their behalf, was the root
metaphor and the dominant purpose of accounting’’
(2009, p. 772). Central to this notion is the concept that hu-
mans are somehow accountable to one another. But why,
we may now ask, did this expectation of stewardship/
accountability arise? And where do notions of steward-
ship/accountability ?t within the broader framework of
the living law of accounting?
As discussed in the previous section of this article, the
conventional view of the demand for stewardship/account-
ability information is that it is a derived demand attribut-
able to developments in business and society, such as the
emergence of the separation between ownership and con-
trol (e.g., Gjesdal, 1981). Basu and Waymire (2006), how-
ever, challenge this perception, and their innovative work
reverses this causality by suggesting that:
modern organizations and markets would not be possi-
ble if humans had not devised the systematic record-
keeping technology that lies at the core of modern
accounting. In other words, the core record-keeping tech-
nology of accounting is necessary for the emergence of
complex exchange and the sophisticated markets and eco-
nomic organizations that presently characterize advanced
human economies [emphasis in original]. Even though
modern accounting is more complicated, systematic
records promote bilateral trust by providing account-
ability in exchange (Basu & Waymire, 2006, p. 213).
Research by Basu, Kirk, and Waymire (2009) based on
transactional records in ancient Mesopotamian societies
provides evidence demonstrating the core importance of
record keeping in sustaining trust and encouraging reci-
procity. In a similar vein, Dickhaut and McCabe suggest
that:
Stewardship accounting extends a long history of eco-
nomic and social exchange in small groups that
includes many activities such as the care and raising
of children. . . . Stewardship accounting increases trust
by extending the steward’s (accountor’s) and entru-
stor’s (accountee’s) message space in order to promote
trusting and trustworthy behaviour (1997, p. 62).
In linking stewardship/accountability with ‘‘trust,’’ Basu
and Waymire (2006), Basu et al. (2009), and Dickhaut and
McCabe (1997) are implicitly appealing to a conception of
man as homo reciprocans. This model, which places signif-
icant emphasis on notions such as ‘‘trust,’’ ‘‘cooperation,’’
‘‘reciprocity,’’ and ‘‘truth,’’ stands in direct contrast to the
conventional agency perspectives of man as homo econom-
icus—a perspective which has had a profound in?uence on
a number of streams of accounting research (Watts & Zim-
merman, 1986).
15
Interestingly, the concept of homo reciprocans ?nds sig-
ni?cant support in the psychology literature. For example,
from their extensive review of behavioral research in the
?eld, Bowles and Gintis (2011, p. 37) conclude that, ‘‘peo-
ple think that cooperating is the right thing to do and enjoy
doing it, and . . . they dislike unfair treatment and enjoy
punishing those who violate norms of fairness’’ such as
‘‘free riders.’’ Shermer (2004) argues that the concept of
‘‘morality’’ emerged as part of evolution as a ‘‘form of social
control’’ (p. 64) designed to ensure the survival of entire
groups as well as individuals within those groups; in fact,
14
Ezzamel (2009, p. 374) ?nds that ‘‘at the genesis of ancient Egyptian
history, accounting was part of a primordial world. . . . Accounting
functioned as a mediating institution between gods and humans.’’ Devel-
oping this argument to illustrate the pervasiveness of counting and
accounting, he suggests that where there is ‘‘a highly codi?ed system of
beliefs, strong social control, and a powerful central authority, we witness a
proliferation of . . . accounting through state institutions [cf. Ezzamel,
2002a, 2002c], the temple [cf. Ezzamel, 2005], private exchange [cf.
Ezzamel & Hoskin, 2002], business and the household [cf. Ezzamel,
2002b]’’ (Ezzamel, 2009, p. 376). A common theme of such manifestations
of accounting is that it is a technology that imposes order and control—a
form of accountability in this world or the next.
15
The view of man as homo economicus is central to the emergence of
‘‘agency theory’’, to which we referred in the previous section. Although in
typical agency models there is no room for any more complex understand-
ings of human motivation other than rational self-interest, Stevens and
Thevaranjan (2010) offer a potentially groundbreaking new dimension by
introducing the concept of morality to agency theory. In any case,
in?uential behavioral economists such as Shiller (2005) and Ariely (2008)
have long questioned the fundamental tenet of agency theory—that
economic actors are fully rational.
82 T. Murphy et al. / Accounting, Organizations and Society 38 (2013) 72–91
with speci?c reference to stewardship/accountability, Silk
(2003) provides evidence that human language and inter-
action and the nature of reciprocal arrangements are chan-
ged by the existence of formal accountability mechanisms.
An intriguing aspect of Bowles and Gintis’s (2011) work
is that they also argue that cooperative behavior is inextri-
cably linked with human biology. They suggest that ‘‘re-
cent studies of brain functioning provide some support
for this hedonic view of cooperative behaviour’’ (p. 37).
Similarly, Hauser’s (2006) study argues that there are de-
?ned linkages between biology and ‘‘morality.’’ The accom-
plished neurophilosopher Churchland (2011) encapsulates
this idea in her suggestion that what we commonly refer to
as ‘‘morality’’ actually originates in the brain. Neurology—
and neuroaccounting in particular—offer interesting ave-
nues for research on a range of accounting questions (Birn-
berg & Ganguly, 2012; Dickhaut, Basu, McCabe, &
Waymire, 2010), and one of the earliest insights to emerge
is Dickhaut and McCabe’s (1997) experimental evidence
which suggests ‘‘that the simple act of recording a stew-
ard’s exchanges creates accountability by causing him/
her to modify his/her behavior in light of this accounting’’
(p. 61); such behavioral modi?cations, according to Dick-
haut and McCabe, ‘‘systematically occur in the absence of
enforceable contracts de?ned on output and can occur in
the absence of repeat interactions’’ (1997, p. 60).
Darwall (2006) offers an alternative—albeit comple-
mentary—philosophical perspective by arguing that no-
tions of morality and accountability can best be
understood by conceptualizing moral obligations from a
‘‘second person’’ perspective. Darwall observes that it
‘‘seems incoherent to judge that someone (whether oneself
or someone else) is to blame for something that one thinks
she has or had conclusive reasons for doing’’ and that,
‘‘[w]hen, consequently, a free and rational deliberating
agent acknowledges she would be to blame for doing
something, she thereby acknowledges conclusive reasons
not to do it and, in a sense, holds herself accountable’’
(2006, p. 113). Thus, ‘‘recognizing moral reasons is itself
part of moral agents’ active participation in a scheme of
accountabilty [emphasis added], part of their holding them-
selves accountable for guidance by the relevant norms’’
(2006, p. 113).
These relevant norms will most likely include the no-
tion of ‘‘truth’’ which is another essential element of the
stewardship/accountability aspect of the living law of
accounting associated with homo reciprocans. If ?fteen cat-
tle are to be accounted for, and, in a spirit of mendacity, ten
or twenty are accounted for, stewardship/accountability
has not taken place; something else has. This intrinsic ele-
ment of stewardship—veracity—re?ects an intrinsic ele-
ment of communication more generally. Humans
communicate with one another, and there are features
spontaneously, intrinsically, and naturally present in hu-
man communication upon which communication depends.
Such features are the ‘‘intrinsic’’ or ‘‘natural’’ laws of com-
munication. One such feature, as Barden and Murphy
(2010) point out,
is that most speakers most of the time tell what they
hold to be true; if no one at any time could rely on their
interlocutors to tell what they held to be true, commu-
nication would collapse. . . . Hence the injunction that
for the most part and most of the time one ought to tell
the truth (p. xv).
Crucially, the injunction does not come into being as an
edict emanating from an external source commanding
that, ‘‘communication shall be truthful.’’ This is not to deny
that, historically, commands or edicts such as this have
been issued by external sources and in many cultures
and traditions the external source has been of a religious
or supernatural type; moreover, the performative force of
such commands or edicts has often derived, at least in part,
from the authority attributed, in speci?c cultural tradi-
tions, to these external sources. But the argument ad-
vanced by Barden and Murphy is that the injunction to
be truthful is a feature that is an ‘‘intrinsic’’ or ‘‘natural’’
law of communication prior to, and irrespective of, any
such command or edict.
16
The intrinsic nature of truthfulness to communication
does not of course mean that issues of truthfulness in com-
municative contexts are not problematic, and the commu-
nicative context of accounting is no exception.
17
Bayou
et al. (2011) observe, ‘‘the accounting profession continues
to struggle with the problem of the veracity of accounting
reports, in light of the different needs of various ?nancial
statement users for truthful reports’’ (p. 109). The same
authors also note that, ‘‘truth poses a genuine problem for
accounting, one that cannot be so easily ?nessed by appeals
to decision-usefulness’’ (2011, p. 122). This ‘‘crisis of truth’’
in contemporary accounting—which appears to have grown
stronger as the attempts to de-emphasize stewardship/
accountability by standard setters have become more pro-
nounced—has, perhaps inevitably, led to the emergence of
new types of formal regulation such as the Sarbanes–Oxley
Act (hereafter SOX) introduced in 2002 in the United States.
It is interesting to note that in direct contrast to the FASB/
IASB stance, SOX has in fact returned to the core concepts
of stewardship/accountability discussed above. In particular,
Section 404 of SOX emphasizes the perennial importance of
basic principles of recordkeeping (e.g., double entry book-
keeping). Recordkeeping and accountability, as we have dis-
cussed, are fundamental components of the living law of
accounting and were instrumental in—and indeed essential
to—the development of contemporary society and, by exten-
sion, the contemporary business environment. This return to
fundamental concepts such as ‘‘trust’’ and ‘‘truth’’ may be
understood in the following terms:
For hundreds of years, accounting information systems
used double-entry bookkeeping’s basic structure and
16
One of the philosophical issues at stake here derives from what is
known, after the Platonic dialogue, as ‘‘the Euthyphro dilemma.’’ The
question in Euthyphro was whether an act was good because the gods
commanded it—the act being, therefore, intrinsically or naturally neutral—
or whether the gods commanded an act because it was good. Barden and
Murphy, with whom we agree fully, take the latter view (Barden & Murphy,
2010, pp. 194–204; cf. Murphy, 2004b).
17
As Bayou et al. (2011, pp. 115–116) point out, scholars have offered
alternate and sometimes divergent views on concepts of truth in account-
ing (e.g., Briloff, 1990; McKernan and O’Donnell, 2002; Shapiro, 1997), and
these differences often re?ect equivalent debates in philosophy.
T. Murphy et al. / Accounting, Organizations and Society 38 (2013) 72–91 83
logic. Central to bookkeeping are concepts like recogni-
tion and documentation that focus on identifying if and
when actions have affected the entity’s resources and
obligations. . . . The notion of truth that underlies book-
keeping is rudimentary and practical, embedded in
ordinary language usage derived from the mores and
practices associated with mundane, day-to-day busi-
ness activities (Bayou et al., 2011, p. 116)
Hence, with the introduction of Section 404 of SOX, it
seems that the US Government is seeking to re-emphasize
the primacy of truth in the written law of corporate
accounting, and it is noteworthy that the traditional ‘‘tools’’
of stewardship/accountability are central to the Govern-
ment’s efforts in this regard. This development is not sur-
prising as stewardship/accountability has always been
centered upon notions of trust, cooperation, reciprocity,
and truth. Given that the efforts of the neoliberal agenda
to promote decision-usefulness as the single primary
reporting objective appear to have ultimately resulted in
US government intervention to protect stewardship/
accountability,
18
it may be timely for the members of
accounting community—including scholars, standard setters,
and the organizedprofession—to re?ect on the history, mean-
ing, and signi?cance of the living law of their discipline.
19
Social accounting and the living law of accounting
In this section, we address the second aspect of Chapter
1 of the Conceptual Framework with which we are con-
cerned: the constituency of the primary user groups. As
we discussed above, the inexorable rise of decision-useful-
ness is an important element in the displacement of
accounting’s centuries-old root metaphor of stewardship/
accountability. This displacement has been explicitly
traced (Ravenscroft & Williams, 2009) to the impact of
the ‘‘neoliberal revolution’’ of the 1970s on shaping the
radical rhetorical shift to decision-usefulness by standard
setters. If this neoliberal revolution attempted to obscure
the fundamental stewardship/accountability structure—
the essential living law—of accounting, we must also ad-
dress its potential impact on social accounting. In particu-
lar, we apply a living law analysis in order to better
understand the contemporary role, concerns and potential
of social accounting.
20
In June 1962, Rachel Carson published the ?rst of three
installments of Silent Spring in The New Yorker, a work that
was subsequently acknowledged as the major catalyst for
the emergence of the contemporary environmental activ-
ism movement (Lytle, 2007). Carson’s book and subse-
quent studies—in particular, The Limits to Growth
(Meadows, Meadows, Randers, & Behrens, 1972) commis-
sioned by ‘‘The Club of Rome’’—led to the widespread rec-
ognition that externalities were a serious problem
associated with business generally, and the rationales for
social responsibility—including forms of social account-
ing—that were provided during the 1970s were predicated
on arguments concerning the ‘‘living law’’ of the global
community. Governments and legislators began to react
to this movement by introducing formal environmental
protection laws and the concept of Corporate Social
Responsibility (CSR) gained considerable momentum.
The role of accounting in the environmental debate also
began to garner greater attention—perhaps inspired in part
by Carson’s own reference to the discipline.
21
Discourses
surrounding social and environmental accounting began to
gain prominence in the academic (Chen, 1975) and profes-
sional literatures (American Institute of Certi?ed Public
Accountants (AICPA), 1977). Gray points out that the period
up to the late 1970s ‘‘laid the foundation for a seemingly
unprecedented increase in new laws requiring, inter alia, dis-
closure about aspects of the organization’s social, labor and
environmental intentions and performance,’’ and that ‘‘the
accounting profession was, by the mid-1970s, taking sur-
prisingly positive attitudes, positions, even steps about these
developments’’ (2002, p. 690).
The accounting standard setters of the 1970s, in stark
contrast to contemporary trends, were taking a proactive
role in the domain of ‘‘social accounting.’’ For example,
Objective #12 of the Trueblood Report (AICPA, 1973)
speaks explicitly to the role of social accounting: ‘‘An
objective of ?nancial statements is to report on those activ-
ities of the enterprise affecting society which can be deter-
mined and described or measured and which are
important to the role of the enterprise in its social environ-
ment.’’ Gray describes developments in accounting during
the 1970s in the following terms:
The UK Accounting Standards Steering Committee (as
was) had produced what remains the most radical
18
One potential outcome of coercive rules (e.g., SOX 404) is that they may
have the unintended consequence of de-emphasizing what Bauman (1993)
refers to as the ‘‘moral impulse’’ and may ultimately undermine the
development of genuine trust and co-operation. It should be noted,
therefore, that the long-term effects of the endeavor in SOX 404 to ?ll
the vacuum arising from the neoliberal attempt to de-emphasize steward-
ship/accountability are as yet unknown.
19
A number of questions–which are potentially central to this re?ection
process–are raised in Sunder’s commentaries on the role of social norms in
accounting. For example, Sunder (2005a, p. 367) asks: ‘‘How and why did
?nancial reporting get caught in the standardization project, replacing
social norms of corporate and professional behavior by written rules and
standards? What are the consequences of this transformation? What
alternative courses are available to accounting and corporate governance?’’
In response to these questions, Sunder argues ‘‘that heavy reliance on the
codi?cation of ?nancial reporting has been a wrong path’’ and that a shift
from rules towards norms of behavior ‘‘may yet help accounting and
corporate governance recover a better balance’’ (Sunder, 2005a, p. 367; cf.
2005b). Given that social, corporate, and professional norms are a central
element of the living law of accounting, Sunder’s analysis provides further
evidence of the value of a living law perspective.
20
Gray’s understanding of social accounting—which we endorse fully—is
that it is ‘‘a generic term for convenience to cover all forms of ‘accounts
which go beyond the economic’ and for all the different labels under which
it appears—social responsibility accounting, social audits, corporate social
reporting, employee and employment reporting, stakeholder dialogue
reporting, as well as environmental accounting and reporting’’ (2002, p.
687). Historically, the origins of contemporary social accounting can be
traced back to at least the early twentieth century (Adams, 2002).
21
When criticizing certain US states for their failure to apply proven
methods of mitigating the negative impact of pesticide programs because
of cost considerations, Carson (1962, p. 98) wrote: ‘‘[A]nd by what sort of
accounting was the ‘too expensive’ judgement reached? Certainly not by
any that assessed the true costs of the total destruction wrought by such
programs.’’
84 T. Murphy et al. / Accounting, Organizations and Society 38 (2013) 72–91
re-statement, from the accounting profession, of how
organizational disclosure needed to be enhanced by
social and environmental accounting. . . . At the same
time, the US profession was actively commissioning
and publishing texts supportive of social accounting.
. . . The 1970s also saw the emergence of the value
added statement . . . and it was the zenith of both inter-
est in and practice of employee and employment
reporting. This interest was re?ected in the professional
accountancy journals which were demonstrating a
quite remarkable appetite (by the standards of the
1990s) for polemic and experimental writing on social
accounting (2002, p. 690).
Not surprisingly then, it appears that in the period lead-
ing up to the publication of the FASB Conceptual Frame-
work (1978), the living law of accounting was not only
predicated, as we discussed in the preceding section, on
the broad notion of stewardship/accountability, it was also
coming to be in?uenced by the speci?c living law of social
accounting. Furthermore, as Young (2006) points out,
prominent academics of the time, such as Moonitz
(1961), seemed to be aware of the risks of awarding pri-
macy to a single user group, such as stockholders. Moonitz
referred to the ‘‘danger’’ of de?ning accounting and formu-
lating its postulates, principles, and rules ‘‘in terms of some
special interest,’’ and he argued vehemently against pro-
ceeding ‘‘on the premise that accounting is the monopoly
of any one group whether that group is concerned mainly
with the development of the accounting process or with its
end product in the form of ?nancial reports’’ (Moonitz,
1961, p. 4).
But as Young (2006) chronicles, in a relatively short
time the burgeoning role of social accounting as part of
the living law of accounting was supplanted by a narrow
focus on investors and creditors. Young explains that this
change was not a ‘‘natural’’ and inevitable progression in
the development of accounting practice and thought:
Other purposes for accounting could have been selected
and/or other users for accounting could have been
emphasized. By making other choices, we might explore
more fully how accounting could contribute to report-
ing on an economic accountability that is more broadly
de?ned to encompass the moral dimensions of eco-
nomic life. Other purposes for accounting can be
de?ned/other models of a ?nancial statement user con-
structed—models in which reporting on the ‘‘health’’ of
relationships between economic entities, employees,
communities and the environment are given as much
or more emphasis than are the measurement of cash
?ows, pro?ts and ?nancial position (2006, p. 597).
Viewed from this standpoint, the evolution of Chapter 1
of the Conceptual Framework is revealing. As mentioned in
the introductory section of this article, the 2006 IASB/FASB
Exposure Draft listed a wide range of user groups: equity
investors, creditors, suppliers, employees, customers, gov-
ernment and their agencies and regulatory bodies, and
members of the public. However, in the ?nal version of
Chapter 1, IASB/FASB state:
Many existing and potential investors, lenders and
other creditors cannot require reporting entities to pro-
vide information directly to them and must rely on gen-
eral purpose ?nancial reports for much of the ?nancial
information they need. Consequently, they are the pri-
mary users to whom general purpose ?nancial reports
are directed (IASB/FASB, 2010, para. OB2).
IASB/FASB subsequently elaborate:
Other parties, such as regulators and members of the
public other than investors, lenders and other creditors,
also may ?nd general purpose ?nancial reports useful.
However, those reports are not primarily directed to
these other groups (IASB/FASB, 2010, para. OB10).
Clearly, any notion that ?nancial reporting has a
responsibility to users other than investors and creditors
is severely undermined by Chapter 1. This outcome mirrors
exactly prior experience in the US. For example, Young
(2006) commenting on the Financial Accounting Standards
Board (FASB) (1978) conceptual framework observed that
the statement detailed ‘‘a veritable laundry list of possible
users of these reports’’ but that ‘‘the list was almost imme-
diately shortened to emphasize the information needs of
investors and creditors’’ (2006, p. 588). The stakes in this
debate are certainly not trivial; Green?eld (2006, p. 129)
observes that, ‘‘if public policy required corporations to
make a more extensive accounting of their activities, cor-
porate decision makers would likely take a broader view
of their responsibilities.’’
22
Green?eld’s observation—which highlights the partially
endogenous nature of the social accounting-social respon-
sibility nexus—is an important contribution. It has long
been recognized that corporations are frequently in a very
strong position to aid and assist human development, but
there is no consensus as to whether they should be permit-
ted to do so when there is no clear bene?t for their share-
holders. Indeed, as Avi-Yonah notes (2005, p. 767), a
different consensus altogether—that ‘‘the social responsi-
bility of business is to increase its pro?ts’’—has emerged
from the writings of Levitt (1958), Friedman (1970), and
Jensen (2002), among others. The reasons given in support
of this view are ‘‘?rst, that since management are deploy-
ing the shareholders money, they should not be permitted
to do so in ways that do not directly bene?t the sharehold-
ers; and second, that permitting more than one measure of
managerial success would enhance the agency cost prob-
lem and make it impossible to evaluate managers with
any reasonable degree of objectivity’’ (Avi-Yonah, 2005,
p. 767).
Obviously, the legal constraints—or otherwise—on cor-
porations to engage in CSR is close to the heart of any de-
bate on the issue. Green?eld (2006) makes this point
explicit in his account of US corporate law when he ob-
serves that ‘‘managers of most large ‘public’ companies
22
For example, focusing speci?cally on labor’s information needs—which,
as a form of employee and employment reporting, is an instance of social
accounting (Gray, 2002, p. 687; see note 20 above)—Shapiro (2002, p. 65)
points out ‘‘there is no logical reason why the argument that information
transparency promotes the interests of equity capital should not also apply
to labour.’’
T. Murphy et al. / Accounting, Organizations and Society 38 (2013) 72–91 85
are prohibited by law [emphasis in original] from taking
into account the interests of the public when making deci-
sions if in so doing those of the company’s shareholders are
harmed’’ (p. 1). However, he also notes, this was not always
the case: ‘‘For much of the history of the United States
‘public’ corporations were deemed to have important civic
responsibilities. At the beginning of the twenty-?rst cen-
tury however, ‘public’ corporation is one of the most mis-
leading terms in law or business’’ (2006, p. 1).
Green?eld offers many positive suggestions for the re-
formof corporate law, suggestions which have been widely
debated in legal circles (e.g., Page, 2009; Wolpert, 2008).
However, we believe that a living law analysis has a poten-
tially important, albeit overlooked, contribution to make to
this debate. In particular, while public corporations are
subject only to the corporate law prevailing at a given time,
any corporate actions which are ‘‘within the rules of the
game’’ are justi?able if such actions boost shareholder
wealth regardless of broader social consequences. An alter-
native approach would be to view corporations in the con-
text of the broader, global, living law, that is, to view their
activities in the same way as the activities of ‘‘?esh and
blood’’ citizens are viewed. ‘‘Flesh and blood’’ citizens
operate in the context of the global living law, which inev-
itably tends to include, as we discussed in the second sec-
tion of this article, the principle that one should act taking
the interests of others into account or, in general terms,
that one should support rather than subvert society. In
the context of our present discussion, there is no valid rel-
evant reason why modern corporations, considered by
state laws as possessing ‘‘legal’’ or ‘‘juridical’’ personality
(Cooke, 1950; Hallis, 1930; Raymond, 1906), should not
be considered in every possible way—including in the con-
text of the living law, the moral tradition of the global com-
munity—as similar to living or ‘‘natural’’ persons. This
would represent a sea-change in conceputalizations of cor-
porate law but a change which may be long overdue.
A movement to bring corporate activity within the am-
bit of the living law is already under way and gaining
momentum with the emergence of the ‘‘Bene?t Corpora-
tions’’ phenomenon. Raskin describes how Bene?t Corpo-
rations are enabled by laws that ‘‘permit companies to
join the pro?t motive with the purpose of making a ‘posi-
tive impact on society and the environment,’’’ and how, in
a political sense, ‘‘the surging popularity of Bene?t Corpo-
rations will change the way people think about business’’
(2011, p. 1). Although the Bene?t Corporation movement
may be viewed as a response to the failure of conventional
corporate law highlighted by Green?eld (2006), it also
demonstrates the potential for living law analyses in a cor-
porate legal context.
23
The social accounting project had its own living law, the
moral tradition surrounding its practice, and the scholars
and professionals involved in the social accounting project
operated in part according to that project’s living law and
in part according to the broader living law of accounting.
24
All living law theorists, including Ehrlich and Barden and
Murphy, acknowledge that living law, of whatever kind
and whether of society at large or of smaller communities
and associations, is constantly evolving, and the aim of the
social accounting project, evidently, was to make an impact
on the living law of the mainstream accounting tradition.
One effect of the apparently seismic shift in the living law
of social accounting is that in the context of the reporting
vacuum that has come about as a result of the relatively re-
cent dominance of decision-usefulness, corporations have
responded, inter alia, by issuing their own sustainability re-
ports. However, as Gray observes:
It is increasingly well-established in the literature that
most business reporting on sustainability and much
business representative activity around sustainability
actually have little or anything to do with sustainability.
. . . Indeed these accounts might more easily be inter-
preted as how organizations would like to understand
sustainability and how, in turn, it would convenience
them if the body politic would accede to such a view
(2010, p. 48).
Many scholars appear to be experiencing a sense of dis-
illusionment with conventional CSR that mirrors Gray’s
frustration with social accounting in the sense that CSR
may have simply become a route to ‘‘simultaneously in-
crease shareholder value whilst thwarting any attempts
by civil society to rede?ne corporate power’’ (Archel, Husil-
los, & Spense, 2011, p. 328).
The growing disquiet among some accounting scholars
with respect to the corporate hijacking of the sustainability
agenda appears to coexist simultaneously with a lack of
engagement by social accounting scholars with the Con-
ceptual Framework project. Most strikingly, it seems to
be the case that many of those concerned with social
accounting do not fully realize the potentially fundamental
contribution that they could make to such debates. In ef-
fect, the rapid and unrelenting rise of decision-usefulness
appears to have ‘‘successfully’’ ousted social accounting
from its earlier position close to the center of the reporting
process—to the extent that social accounting scholars have
not engaged in any meaningful way with the evolution of
Chapter 1.
25
It seems then that there is an urgent need for a reap-
praisal of the living law of social accounting within the
broader reporting framework. After all, in the history of
23
Contemporary developments such as the emergence of the Bene?t
Corporation pose interesting questions from a Habermasian standpoint.
Power and Laughlin (1996, p. 460) point out that ‘‘The modern company is a
juridical product of a number of external forces (cf. Deetz, 1992). . . . But if
we . . . follow Habermas, the question arises as to the extent to which the
modern corporation derives its legitimacy from substantive justi?cation
rooted in the lifeworld or from a conformity to legal processes (cf. Sitkin &
Bies, 1994)—a conformity in which accounting expertise plays a key role (cf.
Puxty, 1990).’’
24
Related perspectives on social accounting are offered in studies such as
Chen (1975), Hines (1988, 1991a, 1991b), and Parker (2007).
25
For example, the pages of academic accounting journals reveal a dearth
of meaningful debate about the rami?cations—or otherwise—of these
developments from a social accounting standpoint. (One exception is
Whittington (2008) who addresses inter alia the primary users/social
accounting issue from a stewardship perspective.) Similarly, an analysis of
the many submissions to IASB/FASB concerning Chapter 1 reveals the
virtual absence of any comments or feedback on the proposal from a social
accounting standpoint.
86 T. Murphy et al. / Accounting, Organizations and Society 38 (2013) 72–91
accounting, the rise of ‘‘decision-usefulness’’ is a very re-
cent phenomenon and, for that matter, one that may not
stand the test of time. Nonetheless, it is important to
acknowledge that reestablishing social accounting con-
cerns at the core of corporate reporting is not a simple task.
Young (2006, p. 597) cautions that:
The dif?culty of changing the purpose(s) we assign to
accounting within the existing political and economic
environment cannot be overestimated. However,
change certainly cannot occur if decision usefulness
remains taken for granted as the primary purpose of
accounting with its assumptions that ?nancial state-
ment users desire only information of the type outlined
in the conceptual framework.
However, if attempts to establish the dominance of
decision-usefulness are allowed to prevail unchallenged,
the implications of our living law analysis are clear: social
accounting is likely to face further decline as accounting
becomes more and more entrenched as a vehicle for spe-
cial interests—in effect, the worst case scenario which
Moonitz (1961) warned about so many years ago. Hop-
wood (2009, p. 434) acknowledges this dilemma when
he states that ‘‘although in many areas conventional ap-
proaches to accounting stand in stark contrast to emerging
environmental considerations, the potential con?icts have
also started to be recognized, albeit slowly.’’ Hence, we be-
lieve that a living law analysis provides a useful lens for
the broader academy—independent of the activities of
standard setters—to urgently reassess the true nature
and role of social accounting, and in particular the living
law expectations and entitlements of parties, other than
investors, lenders, and other creditors. In this way, the
living law can help provide an alternative conceptual
foundation for scholars adopting innovative research
perspectives (e.g., Unerman, Bebbington, & O’Dwyer,
2007).
Conclusion
In this article we employed a living law approach to ex-
plore the discourses surrounding Chapter 1 of the Concep-
tual Framework for Financial Reporting drawn up by the
IASB/FASB. While we focused speci?cally on the evolution
of Chapter 1 of the Conceptual Framework project, we sug-
gest that the analysis of other issues within the broader do-
main of accounting is likely to be signi?cantly enhanced by
adopting a living law perspective. In particular, we propose
that a living law analysis can provide a door of possibility
for accounting research to incorporate ‘‘new perspectives,
new insights, and new interdisciplinary involvements’’
(Hopwood, 2007, p. 1370).
After setting out an account of the living law approach
in jurisprudence, we traced the role of stewardship/
accountability in the evolution—from antiquity to the pres-
ent day—of the living law of accounting. We then explored
the origin, nature, and implications—from a living law
perspective—of the moral traditions associated with
stewardship/accountability. Our analysis suggests that
stewardship/accountability has always been a part of the
living law of accounting. This explains the strong adverse
reaction—on the part of a diverse range of actors and agen-
das—to the demotion of stewardship that was expressed in
the discourses surrounding the evolution of Chapter 1 of
the Conceptual Framework. However, in light of the efforts
by standard setters and others to de-emphasize the formal
role of stewardship/accountability, there is certainly no
scope for complacency. The neoliberal agenda—which has
attempted to install ‘‘decision-usefulness,’’ from an inves-
tor/creditor perspective, as the sole accounting objec-
tive—is a powerful force that has the potential to lead
contemporary accounting into realms far removed from
its stewardship/accountability origins (Ravenscroft & Wil-
liams, 2009; Young, 2006).
Our analysis of the living law of social accounting
emphasizes this point very clearly. While social accounting
was once part of ‘‘mainstream’’ accounting, it now appears
that—to a large extent—the two areas ‘‘stand in stark con-
trast’’ (Hopwood, 2009, p. 434). It is not surprising, then,
that many scholars in social accounting seem to be both
disengaged from, and frustrated with, mainstream
accounting. Yet, an often ignored insight—but one which
should be abundantly clear in light of our analysis of the
living law of accounting—is that the frustration which
many social accounting scholars feel with respect to the
corporate hijacking of their ?eld mirrors exactly the frus-
tration felt by many ‘‘mainstream’’ accounting scholars
with respect to contemporary attempts to de-emphasize
stewardship/accountability. When commenting on the lit-
erature critiquing social accounting, Gray (2010) suggests
that ‘‘one convergent theme in that critique has been a
challenge that much of the realist and procedural baggage
associated with conventional accounting is no longer
apposite when seeking to account for sustainability’’ (p.
47). However, what social accounting scholars may not
fully appreciate is that the ‘‘baggage’’ which has become
prevalent in contemporary conventional accounting may
no longer be apposite in the context of any type of account-
ing, social or otherwise. In other words, ‘‘the current re-
gime for producing ?nancial statements, with its decision
usefulness justi?cation, virtually guarantees ?nancial re-
ports will be a hodge-podge of ersatz representations
unconnected to any correspondence to a genuine story
being told about an entity (cf. West, 2003)’’ (Bayou et al.,
2011, p. 122).
The basic concern unifying the perspectives generated
by our living law analysis of, ?rst, stewardship/account-
ability and, second, social accounting, is a concern that
contemporary accounting has become at least partially dis-
connected from its original ‘‘moral or customary tradi-
tion’’—in other words, from its living law. A renewed
recognition of the fact that the living law of accounting is
primarily about stewardship/accountability—and that
stewardship/accountability is fundamentally concerned
with the societal relationships between accountor and
accountee in the broadest sense—has the potential to be-
come a powerful unifying (or perhaps more accurately,
reunifying) theme across scholarly boundaries. When ap-
plied to social accounting concerns, a living law analysis
can play an important role in ‘‘providing a more informed
and systematic knowledge base in an area of human
T. Murphy et al. / Accounting, Organizations and Society 38 (2013) 72–91 87
endeavor that is likely to have profound consequences for
the human race’’ (Hopwood, 2009, p.439).
To conclude, the analysis of the living law of accounting
presented in this article suggests strongly that, with stew-
ardship/accountability at its center, accounting had a pre-
dominantly bene?cent impact on the evolution of society.
Whether coincidental or otherwise, the apparently endless
stream of recent crises in accounting—across a number of
countries (Jones, 2011; Markham, 2006)—is occurring at
precisely the same time as the age-old role of steward-
ship/accountability as the root metaphor of accounting is
coming under unprecedented attack. Because the living
law of a community or association is continuously evolving
(Barden & Murphy, 2010; Ehrlich, 2002), an important
challenge for members of the accounting community
would appear to be to ensure that the ‘‘covenant’’ (Briloff,
1990) between accounting and society is both restored
and reinvigorated as part of the living law of accounting.
The analysis presented here suggests that a renewed
emphasis on stewardship/accountability is central to this
process, if restoring society’s trust in accounting is part of
a shared vision of the future living law of the accounting
community.
Acknowledgements
The authors would like to express their gratitude to Da-
vid Cooper and two anonymous reviewers for their extre-
mely insightful comments and suggestions during the
development of this article, and we would also like to
thank Ela Kotkowska and Don O’Sullivan for their com-
ments and suggestions on a draft of the article. Vincent
O’Connell wishes to acknowledge the ?nancial support re-
ceived from the Thomas J. Moran Research Fellowship
awarded by UCD School of Business.
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