The Motivational Assumption for Accounting Theory

Author(s): Thomas R. Prince

Source: The Accounting Review , Jul., 1964, Vol. 39, No. 3 (Jul., 1964), pp. 553-562
Published by: American Accounting Association

Stable URL: http://www.jstor.com/stable/242447

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 THE MOTIVATIONAL ASSUMPTION FOR
ACCOUNTING THEORY
Thomas R. Prince*

INTRODUCTION economics "re-interpreted for the current

environment" still provides a useful ex-
described as the "driving force" of planation of economic relationships.
The described capitalistic
capitalistic profit
society,motive
and someas society,
of the the has "driving and frequently some force" of been the of The changes in the socio-economic en-
more ardent supporters of this belief hold vironment, since the concept of a profit
the profit motive in the same high esteem motive was first advanced, do not mean,
as their most sacred beliefs. The profit analogously, that the profit motive is no
motive is assumed to be the implicit ex- longer a reasonable assumption regarding
pression of society's goal for the firm. Fur- corporate management's goal. However,
thermore, the profit motive is ascribed as individuals may desire to assign new labels
being the objective of enterprise manage- to their own interpretation of the profit
ment, and this objective is assumed to be motive in modern society, as a means of
explicitly stated by the stockholders for showing that a modified concept is being
the corporate management. Some ac- implied in their discussions, rather4han
countants believe that the income state- the traditional definition.

ment is an attempt to measure and reportThis paper re-examines the "profit mo-
the progress of the management towardtive" in modern society and relates the
"modified profit motive" assumption to
this objective - the profit motive. But
accounting practice. Thus, the paper con-
what exactly is "the profit motive?" What
sists of two parts. The first part describes,
does the profit motive mean in the current
socio-economic environment? compares, and contrasts three viewpoints
Even our most cherished theoretical on how the motivational assumption for
assumptions must be periodicallyaccounting
re- theory can be re-interpreted in
the current socioeconomic environment.
examined and re-interpreted in view of the
changing social, political, and economic The second part suggests specific exten-
environment. It is unfair to our prede-sions, from the foregoing analysis, to ac-
counting
cessors, to ourselves, and to society for us practice.
to neglect to re-interpret our predecessors' the "profit motive": three
concepts in light of the changing socio- VIEWPOINTS
economic environment. Without re-inter-
pretation, we are, in effect, saying that Before consideration is given to de
scientific knowledge only begins with the ing each of the three viewpoints o
present and there is no past. As an analogy, "profit motive," it is necessary to p
Keynesian economics is frequently said to a frame of reference for viewing the
be completely irrelevant to modern society. cepts and their relation to accou
But, if an individual attempts to relate practice.
Keynesian economics to the socio-eco- Frame of reference . An entity, in business
nomic environment of the period in which
it was written, and then to modify the * Thomas R. Prince is Assistant Professor of Ac-
theories as required by the changing en- counting at Northwestern University, Evanston and
Chicago, Illinois. He is the author of a book on account-
vironment, he will find that Keynesian ing theory.
553

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554 The Accounting Review , July , 196k
vocabulary, is a unit of analysis for meas-
comparison with the legal frame of refer-
uring activity, and this unit is usually
ence), but consist of many gray areas. It
thought to be synonymous with the terms is necessary to divide the many activities
"the enterprise" or "the firm," in reference
of human beings between those activities
to published annual reports. Historically,that primarily relate to the entity and
this unit of analysis, the entity, has been
those activities that are not primarily re-
described only in a legal frame of refer- lated to this entity grouping.
ence, and therein, was only an intangible, In describing the entity as an organiza-
invisible being that exists in contemplation
tion of people united by a common series
of law, and as such cannot have feelings of goals, it is possible to talk figuratively
or motivation.1 of assigning a goal or objective to the en-
Furthermore, the accountant has used tity. Regardless of whether or not an indi-
definitions of assets, properties, and re- vidual desires to make this personified
sources of the firm that are compatible remark, an individual must, from an
with the legal frame of reference. The organization theory frame of reference,
stewardship function of accountability to ascribe socio-economic goals to the collec-
stockholders (that is, of reporting the use tive group of enterprise management. Or,
that corporate management has made of from another perspective, he must state
the resources entrusted to them) was his assumption regarding the motivation
clearly delineated as being a report, in of this collective group of management,
this same legal frame of reference, of the which in this paper is referred to as the
uses made of legally measured resources. motivational assumption of the organiza-
Therefore, the profit motive is really ex- tion or the entity.
ternal to a framework of accounting theory Once the motivational assumption of the
as viewed in the historical, legal frame of entity has been clarified, then the role of
reference. (The accountant does not have the public accountant is indicated. The
to assume the profit motive; the stock- public accountant attempts to measure
holders have specified this to be the goal and report the progress of management
of corporate management. The accountant toward the specified motivational assump-
merely measures and reports the progress tion. Thus, the accountant would report
toward this goal.) all economic activity in response to this
The entity, as a unit of analysis for assumed motivational goal subject to (1)
measuring activity, can be examined in the concept of objectivity, (2) the concept
many frames of reference, in addition to of full disclosure, and (3) the concept of
the legal: a social frame of reference, an useful information (the accountant must
economic frame of reference, and so forth. exclude reporting some economic activ-
Each perspective affords a different basis ity, that otherwise "qualifies" for report-
for describing the schematic unit of analy- ing, because this "data" is not classified
sis - the entity. as "useful information").
The three viewpoints presented in the
following discussion are viewed from an 1 Cf. Stephen Gilman, Accounting Concepts of Profit
(New York: Ronald Press, 1939), p. 52: "The entity is
organization theory frame of reference. as soulless and automatic as a slot machine. Its activities
The entity (enterprise) is an organization are in response to the demands of proprietorship either
direct or through appointed managers. An intangible
of people bound by (or united by) a com- and usually a complicated mechanism, the entity is
mon objective. The parameters of the operated by human beings for their own benefit. In and
of itself the entity makes no profits, suffers no losses, is
entity in the organization theory frame of incapable of enjoyment, sorrow, greed, or other human
reference are not clearly defined (in emotions which influence those who direct it."

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 The Motivational Assumption 555

institutional
The profit motive with institutional restric-restrictions. However, no at-
tempt is
tions. A large group of accountants made, in the income statement, to
share
the viewpoint that the profit differentiate
motive, as between these two types of
modified by the restrictions of expenditures.
society, is For example, no attempt is
made
the most reasonable assumption to divide
for ac- advertising expenditures
between
counting theory. The historical those expenditures to sell prod-
profit
ucts during
motive assumption, these accountants the current year and those ex-
feel,
is still valid; however, it is necessarypenditures tofor institutional advertising.
modify this assumption according With to the the
passing of time, items that were
dynamic social, political, and formerly economic considered to be of an institu-
environment. These modifications result tional nature, transcend the endogenous
in a body of "laws" called institutionalwall and become part of the profit motive
restrictions. For example, society may variable.
implicitly require a firm to contribute to aIn summary, the first viewpoint is
combined civic charity appeal, and if theillustrated by the following statement: the
profit motive, as modified by institutional
firm does not, the firm is penalized. Some
of society's implicit requirements are restrictions,
so is the most reasonable as-
sumption regarding motivation for ac-
important that the life of the enterprise
may be terminated if management violatescounting theory.
them.
Long term concept of income . Some ac-
If enterprise management adheres to
countants argue that the profit motive
each of the institutional restrictions, then
management is free to concentrate com-
assumption is an over-simplification be-
pletely on the one objective: maximization
cause this assumption fails to acknowledge
the time element.3 If a firm maximizes
of profit. This concept, expressed in model
form, would contain one dynamic factor profit in the short term, it does not follow
that this same short-term decision model
(endogenous variable) : the profit motive.
This dynamic factor or endogenous vari- in a long-term frame of reference would
able is surrounded by a series of givens necessarily
or be interpreted to state that
institutional restrictions (exogenous vari-
the firm had maximized its profits over
ables), which collectively constitute the
the long run. Instead, individuals who
parameters of the model.2 Therefore, the share this second viewpoint argue that the
long term concept of income is the most
circle is complete. When the firm is mind-
ful of the institutional restrictions, itreasonable
is assumption for accounting
theory. The motivational model for a
free to concentrate on profit maximization.
The institutional restrictions are the en-
given year can be pictured as a slice of
tity's only limitations, while difficulties
encountered within the firm in manage- 2 Endogenous and exogenous factors are two im-
ment's attempts to maximize profits portant
are labels that are typically used in a descriptive
still of an endogenous nature. model. For a lengthy discussion of these terms, see
James S. Duesenberry, Business Cycles and Economic
Individuals who share this first view- Growth (New York: McGraw-Hill Book Company,
1958),
point would argue that the items cur- pp. 184-192.
3 This writer is among the few accountants who sup-
rently included in the income statementport
(in the long term concept of income as being the most
reasonable assumption for accounting theory, and his
contrast with the same report in the
doctoral dissertation examines the supporting evidence
nineteenth century) reflect both expendi-
(from economics, psychology, sociology, biology, and so
forth) for this assumption. See, Extension of the Bound-
tures for the strict purpose of maximizing
aries of Accounting Theory (Cincinnati, Ohio: South-
profit and expenditures in response western
to Publishing Co., 1963).

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556 The Accounting Review , July ,
this long term concept of income. come,
This there are some exogenous factors in
"slice" would contain the intermediate
the motivational model depicting this
measures that must be accomplished ifconcept.
the It is assumed that the market
maximum long term concept is to be
structure, legal structure, religious struc-
realized. ture, governmental system, banking sys-
These intermediate measures include tem, community system, and educational
the following objectives: system will remain in totally non- variable
positions.5 However, any of these items
Profitability, market standing, technological
may change, and these changes will have
developments, innovations, research and develop-
ment, market position, productivity, physical and
repercussions on the many endogenous
financial resources, worker performance and
variables (intermediate measures) . (On the
attitude, manager performance and attitude, bus-
other hand, changes in the endogenous
iness climate, public responsibility, preservation
of industrial peace, price leadership (peacevariables
and cannot have any effect on the
exogenous variables.)
harmony), image of corporation (no price fixing
etc.), others, balance between short-term and The above statement on the non-con-
long-term objectives.4
stant nature of the exogenous variables
These intermediate measures of the provide
long for the unusual events. It is
term concept of income have a significant
generally assumed, however, that the exog-
restriction : each intermediate measure
enous variables are constant and that
must be related to the dominant goal ofvariables are included in the model
these
maximization of long term income. for Thethe purpose of specifying the socio-
long term goal is really an ideal, rather
economic environment to which the endog-
than a concrete event that can be com- enous variables apply.
pletely achieved and forgotten. The long
In summary, supporters of the second
term concept is infinite, being terminated
viewpoint argue that the most reasonable
only by the disappearance of the firm. In
assumption for accounting theory is the
spite of these abstract dilemmas, manage-
maximization of long term income. There
ment must relate each of the short-term,
are many intermediate measures of this
intermediate measures to longer rangelong
ob-term concept, but each intermediate
jectives with the hope of properly coordi-
goal is subordinate to the over-all domi-
nant element of the maximization of long
nating the aggregate short-range object
tives for the attainment of maximization term income.
of long term income. In other words,
Multigoal concept . Individuals holding the
management must plan a balance among
third viewpoint argue that the most
the intermediate measures that will per-
reasonable assumption of motivation for
mit the attainment of the long term objec-
tive. accounting theory is a multigoal concept.
In the multigoal concept, the profit mo-
The relative weight assigned to each
tive is not the single, all-encompassing
immediate goal will vary by the firm. For
goal of the firm, but is equated with fac-
example, if survival is a significant inter-
tors which in the first two viewpoints
mediate concern, then the relative weight
cited were factors bent to support profit
assigned to the other intermediate factors
maximization.6 Profitability, market stand-
will be of minor importance (unless some
of the other intermediate measures are
4 Extension of the Boundaries of Accounting Theory ,
sub-factors of survival, or indicationsp. of
175.
s IMd.} p. 168.
this concept). 6 For a more lengthy presentation of the multigoal
Even for the long range concept ofposition,
in- see Norton M. Bedford and Nicholas Dopuch,

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 The Motivational Assumption 557

ing, technological developments, motivational

public assumption for the entity i
an organizational
responsibility, and so forth are the equally theory frame of refer-
significant goals of the firm in ence. As stated in the introduction, gen
any time
span. eral statements will now be presented
Obviously, it is necessary to obtain acontrast and compare these positions i
balance between these goals, but who is togreater depth. Each of these viewpoints i
say (or to measure) that the balanceindicative of how certain accountants
selected will be for the maximization of
interpret the "profit motive" in the cur-
rent socio-economic environment.
long term income or for the maximization
of wealth. Does the mere statement by Supporters of the first viewpoint - the
management that an ideal balance profithas motive with institutional restrictions
been achieved between the intermediate - argue that the objective is the same for
any time span: the profit motive. How-
measures of market standing, profitability,
ever, it is necessary to picture this objec-
technological developments, and so forth,
tive within a framework of restrictions
really mean that the planned maximiza-
tion of long term income has been that
ac- are assumed to be imposed by society.
complished? Supporters of the second and third view-
In model form, the multigoal concept
points take exception to the first position.
would contain approximately the same
They argue that it is more realistic to
bring into the motivational model, focus
endogenous variables and exogenous vari-
ables presented for "the long term concepton other "outside" criteria. Moreover, the
of income" model. The major difference is
institutional restrictions have a dynamic
that in the multigoal model, these are significance for future time periods as well
neither intermediate measures subordinate as the present.
to the dominant objective of maximization Supporters of the long term concept of
of long term income, nor are there "re- income (the second viewpoint) argue that
a balance must be achieved between the
strictions" on the goal (in contrast with
the first viewpoint - the profit motiveinstitutional restrictions and the profit
with institutional restrictions). Under the
motive, and that the "proper" balance for
multigoal concept, each separate objectivea given year is not necessarily compatible
is equal and unique and can be identified with the "proper" balance for a long term
and evaluated on some frame of refer- perspective. In other words, a firm may
ence. (The word "evaluate" is used to
maximize profit within the institutional
encompass the most rudimentary attempts
restrictions for a given period of time only
to measure an item.7) to the detriment of achieving a similar ob-
In summary, supporters of thejective
thirdfor a longer period of time. There-
viewpoint argue that the firm has several
fore, because of the importance of the
equitable goals and that it is unrealistic
time span element in this motivational
not to recognize this "multiplicity of ob- the motivational assumption should
model,
jectives." The profit motive, alone, doesthe element of time.
indicate
not collectively express the multigoal ob-
"The Emerging Theoretical Structure of
jective, but is only one of the goals. Accountancy,"
Business Topics , IX (Autumn), 60-70.
7 Professor Coombs presents six levels of measure-
Differentiation between viewpoints .ment:
In thenominal scale, partially ordered scale, ordinal
scale, ordered metric scale, interval scale, and ratio
above discussion, some consideration
scale. was
Clyde H. Coombs, "Theory and Methods of
Social Measurement," Research Methods in the Be-
given to comparing and contrasting the
havioral Sciences , ed. Leon Festinger and Daniel Katz
positions of these three viewpoints (New
of the
York: Dryden Press, 1953), pp. 471-535.

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558 The Accounting Review , July , Í964

Supporters of the second viewpointsecond

also position is depicted by several
endogenous variables (intermediate meas-
differ with supporters of the first view-
point on another matter. Instead of theof the long term concept of income)
ures
surrounding a dominant endogenous vari-
negative effect of emphasizing institutional
able (to which the other variables are sub-
restrictions , as the first viewpoint does,
ordinate). This model also contains exog-
the motivational model should positively
enous variables which are more of the
indicate the various intermediate objec-
tives of the firm. These intermediate ob-
nature of descriptions of the socio-eco-
jectives should be more inclusive than
nomic environment to which the "long
what is normally envisioned by the termsterm concept of income" model is applica-
' í institutional restrictions." According to
ble than an attempt to present any other
this perspective, the accountant would befactors on which an individual needs to
concerned with "institutional restrictions,"report.
per se, when he is coping with the question, The third position is depicted by a
"What is to be reflected in the published model similar to the second position, ex-
annual report?" In the meanwhile, his cept that it does not contain the dominant
over-all model of accounting might indi- endogenous variable cited above of the
cate several intermediate measures that idea of a proper balance for maximization
might not be included in an external of re-
long term income, but includes it on an
port because of considerations of the con- equal basis with several endogenous goals.
cepts of (1) objectivity, (2) full disclosure,
IMPLICATIONS FOR ACCOUNTING PRACTICE
and (3) useful information.
The supporters of the multigoal view- The three interpretations of the "p
point argue that the distinction between motive" in the current socio-economic en-
the "profit motive" and the "institutional vironment differ in form, structure, and
restrictions" is an over-simplification.
content. Because of these unique differ-
Furthermore, there is no "master mind"
ences, attention is given to indicating the
to whom one can appeal for obtaining a
extensions and modifications suggested by
balance between the "intermediate meas-
each interpretation. However, before dis-
ures" and the "dominant long range objec-
cussing these implications on practice,
tive of maximizing long term income." brief consideration is given to connecting
These accountants advocate a simplified
motivational assumptions (accounting
version of the second position, which ends
theory) with accounting reports (account-
with identification of the many factors
ing practice) .
that corporate management must take
into consideration at any given pointMotivational
in assumptions and accounting
time - thus, the multigoal concept. practice . As previously stated, the public
accountant measures and reports the
The three positions differ in terms of the
progress of management toward their
degree of emphasis that is given to various
factors within the concept or within ascribed
the goal or goals. The public ac-
vision of the observer, and the previouscountant views, through a special filter
discussion suggested the difference, called
in the "concept of objectivity," the
model form, between the three motiva- economic activity in response to this
assumed
tional assumptions. The first position is motivational model. Therefore
depicted by one endogenous variable (thethe accountant only sees that data which
passes
profit motive) and several exogenous vari- through the filter. Furthermore,
the accountant must apply the concept of
ables (the institutional restrictions). The

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 The Motivational Assumption 559
full disclosure and useful information in data on the income statement between the
determining which objectively measured, activity in response to institutional re-
economic activity will be reported to striction
the versus the activity in response to
stockholders.8 profit maximization. As suggested above,
In the following discussion, the current some individuals might object to this sepa-
concept of objectivity is held constant, ration and say that the first interpretation
and emphasis is given to modifications in is indicative of current accounting prac-
accounting reports that are suggested by tice.9
the three interpretations of the "profit
Second interpretation . Individuals follow-
motive." Implicit in this discussion are
ing the maximization of the long term in-
assumptions that certain types of addi-
come concept would be concerned with
tional information would be compatible
reporting the progress made in the short
with the concept of useful information; term toward each intermediate measure.
however, no attempt is made to justify
The complete acceptance of this belief
explicitly each of the modifications. would mean that there would be a series
of reports, each report reflecting the
First interpretation. Individuals following
progress toward a specific intermediate
the concept of profit maximization within
the restraints of institutional restrictions goal. The income statement would be
only one of several reports, rather than
would argue that the income statement is
the all-inclusive report as it is in the first-
a report of the progress of the firm toward
interpretation.
this objective. This statement, in the
Income statement . - According to this
"pure form," should have two sections.
The first section would contain the results interpretation, the income statement
would be significantly modified both in
of transactions associated with the require-
ments of institutional restrictions. The sec- content and format. When a long term
ond section would contain the results of the perspective is viewed, more accruals and
deferrals would be reflected on the income
transactions associated with the maximiza-
statement than are reflected at present.
tion of profit.
Of course, many accountants might ob- 8 See, for example, Jacob G. Birnberg and Nicholas
Dopuch, "A Conceptual Approach to the Framework
ject to this separation of activity between or Disclosure," Journal of Accountancy , CXV (Febru-
"institutional restrictions" and "maxi- ary, 1963), 56-63.
9 This discussion of the first interpretation has been
mization of profit." The latter group
viewedoffrom the extreme position which could be de-
individuals might argue that this picted
sepa- as follows on a continuum:
Profit maximization Maximization of Multigoal
ration is more easily determined in theory
with institutional long-term income concept
than in practice. Moreover, these restrictions
indi-
viduals might argue that this distinction 1 2 3
between activity is not that useful; the Posit
expenditures in response to institutional belief
restrictions are necessary conditions for come
conce
the continuous opportunity of manage-
ure. The infinite number of locations between Position
1 and Position 2 would represent varying interpretations
ment being able to work toward profit
of the differences between "accounting income" as
maximization. reflected on the income statement and the "profit
motive" objective as viewed by the decision-maker.
In conclusion, the first interpretation of
But for purposes of this discussion, it is necessary to
the "profit motive" would require only
restrict attention to these three positions even though
slight modifications in current accounting many individuals may object to the exact description
presented for each position. Recognizing this limitation,
practice, specifically, the separation of the
Positions 2 and 3 are herewith examined.

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560 The Accounting Review , July, 1964
Ideally, the accountant should anticipateing
all practice does not use this interpreta-
cost and revenues for the long-term period,tion.
and The accountant would have to de-
then he would allocate these aggregates by time
period. Thus, unless something unexpectedvelopoc- appropriate reports that would
reflect the unique qualities of each inter-
curred, the allocation would be the same for each
time period; in other words, the long-term mediate
per- objective.
spective would tend to even out the peaks and Each of these reports would be included
valleys of reported business income.10
in the public accountant's certificate;
As an example of this procedure: therefore, the data in the report would
A five-year lease on property or equipment have to satisfy the certified public ac-
with payments on the lease being more in the countant's
first concept of objectivity. The
year than in the second is another situation.statement
The of growth13 and the statement
long-term perspective would require that theon the Use of natural resources are exam-
aggregate expenditures be estimated for the life of
the lease and this total allocated to the time
ples of this type of report on other inter-
period. Any excess of payments over the allocated
mediate objectives. The source and appli-
cation of funds statement and the cash
amount would be recognized as prepayments.11
funds statement could also be classified
In addition to having more accruals and this heading.
under
deferrals in determining business income, There is another group of reports that
the format of the income statement should
fall in the gray area of being intermediate
be changed. reports in one situation (evaluations of
In addition to the current format, there are at the progress of the firm toward some speci-
least two other possibilities of arrangement of the
income statement. The income statement could
fied intermediate objective) and of being
supplementary reports in another situa-
have two major parts. The first part would match
short-term revenue and short-term cost; the tion (statements reflecting interpretative
and analytical data without being a meas-
second part would match the allocated long-term
increments of revenue and cost. Ideally, theure
sec- of the progress toward any specific
ond part would be rather constant for different
intermediate measure) . This grouping
periods; the major fluctuations would occur in the
first part, short-term considerations.
would include (1) price-level-adjusted
Another arrangement of the data on the financial
in- statements, (2) financial state-
come statement would be to have three sections: ments prepared on the basis of current re-
economic, psychological, and sociological. The placement cost, and (3) analytical type re-
data would be separated into these three areasports encompassing numerical data, finan-
according to its nature or characteristics.12
cial data, and relationships that may not
Balance sheet. - The balance sheet would be apparent from other financial state-
be modified as required by the additionalments.
accruals and deferrals reflected on the in-
come statement.
Summary . - The content of the income
statement and the balance sheet would be
Reports on other intermediate measures . -
changed to include more deferrals and ac-
In the explanation of the second inter-
cruals, and the format of the income state-
pretation of the "profit motive," many ofwould be modified to reflect the
ment
the intermediate measures of the long
short-term and long-term aspects of the
term concept of income were identified.
An attempt would be made to report the 10 Extension of the Boundaries of Accounting Theory ,
p. 178.
progress made during the period toward11 Ibid. y p. 179.
each of these intermediate objectives.12 Of
Ibid. у pp. 180-181.
13 See, for example, R. K. Mautz, "Accounting for
course, there are no standard reports to
Enterprise Growth," Accounting Review, XXV
use for this purpose, since current account-
(January, 1950), 81-88.

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 The Motivational Assumption 561

"maximization of long term income" ing practice

con- under the existing conce
cept. Two other possible formats were also objectivity.
presented. The implicit justification, in this pa
Reports on other intermediate measures for changing the format and conte
of the long term concept of income would published annual reports was based on
also be prepared, not as supplementary premise of stewardship reporting to s
reports, but as major reports. The ac- holders on the progress of corporate
countant's intellectual abilities are chal- agement toward the socio-economic
lenged to develop appropriate reportsofon
the firm. It was submitted that the
these other intermediate measures which
first interpretation required only slight
modifications in the format of the income
can be objectively determined. It seems
likely that after accountants have ac-
statement and that this interpretation was
fairly compatible with current accounting
cepted this challenge, rather standard re-
ports might be agreed on for many of thepractice. The second and third interpreta-
intermediate measures. tions required extensive changes in the
content and format of traditional financial
Third interpretation . Most of the com- statements and also required that other
ments in the second interpretation are reports be prepared to reflect the progress
equally applicable to this interpretation.of the firm toward other intermediate ob-
The major difference, of course, is that jectives.
adherents to the multigoal concept would On a utilitarian basis, changes were
not show any preference between therecommended in terms of external reports.
various reports previously described asHowever, there are secondary bene-
reports on the intermediate objectives of fits which result from these proposed
the firm. For example, adherents to the changes in published annual reports, espe-
multigoal concept would equally empha- cially from the second or third interpreta-
size the statement of growth and the in- tions. First, economic studies by all types
come statement. of organizations will be greatly facilitated
Followers of the multigoal concept
by the availability of comparable data
other than the mere report of profit
would continuously encounter the restric-
tion of "objectivity." For example, how
maximization for a twelve month period
can the accountant objectively measure
(this comment is based on the assumption
that
the psychological aspects of consumer "generally accepted" supplementary
rela-
tions? reports are commonly included in annual
reports as evaluations of other intermedi-
CONCLUSION
ate measures or multigoals of the firm).
This paper has presented three Second,
modern prospective stockholders would
have more than one measure, in the
viewpoints on what is the most reasonable
"profit motive" assumption in accounting
short-term, for evaluating corporate man-
theory. Each viewpoint represents a re-
agement's performance and for evaluating
interpretation of the traditional profit return from investing in
the anticipated
motive in light of the changing socio- corporation. Third, full ad-
a particular
economic environment. After discussing,
herence to the second or third viewpoints
comparing, and contrasting these wouldthree
mean that supplementary reports
viewpoints, suggestions were made ofbe
could the
provided for various corpora-
inplications each of these three motiva-
tions that would serve as the basis for
tional positions have for currentsocial
account-
evaluations or "social audit." Fourth,

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562 The Accounting Review , July , Í96^
another possible benefit from the fullterm
ad- objective, it is submitted that the
entity concept must be analyzed from
herence to the second or third viewpoint
would mean that possible progress (or more
at frames of reference than the tradi-
least a first step) might be made intional,
the legal point of view. Furthermore,
the explanations of basic accounting con-
direction of the utopia, which Churchman14
cepts must accordingly possess an inter-
argues will occur when a science of ethics
and a science of values are achieved. disciplinary flavor rather than being mere
Consideration was not directly given legal
in expressions.
this paper to the implications that each of
14 Cf. С. West Churchman, Prediction and Optimal
these viewpoints has on the formulationDecision:
of Philosophical Issues of a Science of Values
(Englewood Cliffs, N. J.: Prentice-Hall, Inc., 1961),
a common body of knowledge for allp.of366: "... a science of ethics is possible if and only if
a science of science is possible, where a science of science
accounting; however, if any substantial is the study of the adequacy of scientific method as a
progress is to be achieved toward this long
goal-directed decision process."

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