Accountability, Representation and

Control – (MN7262)
Lecture (10)

Revision and Future

Recommendations in terms of
Accountability, Representation
and Control
Module Leader
Dr Sarah Gamal Mohamed
Email: sgam2@leicester.ac.uk
 Session’s Objectives
1. Review our module’s material
2. Discuss future issues to tackle in terms of Accountability,
Representation and Control

2
 Representation, Accountability and Control
1. LOOKING BACK

3
 Substituting events, places, people:
Remember: Representation Vs Reality…
Reception
(“users”)
-Remote control
-Displacement
-Abbreviation

Our Performance

$ in millions, except per share amounts 2015 2014 % Change

FOR THE YEAR

Wells Fargo net income $ 22,894 23,057 (1)
Wells Fargo net income applicable to common stock 21,470 21,821 (2)
Diluted earnings per common share 4.12 4.10 −
Profitability ratios:
Wells Fargo net income to average assets (ROA) 1.31% 1.45% (10)
Wells Fargo net income applicable to common stock to average
Wells Fargo common stockholders’ equity (ROE) 12.60 13.41 (6)
Efficiency ratio 1 58.1 58.1 −
Total revenue $ 86,057 84,347 2
Pre-tax pre-provision profit 2 36,083 35,310 2
Dividends declared per common share 1.475 1.350 9
Average common shares outstanding 5,136.5 5,237.2 (2)
Diluted average common shares outstanding 5,209.8 5,324.4 (2)
Average loans $ 885,432 834,432 6
Average assets 1,742,919 1,593,349 9
Average total deposits 1,194,073 1,114,144 7
Average consumer and small business banking deposits 3 680,221 639,196 6
Net interest margin 2.95% 3.11% (5)

AT YEAR-END
Investment securities $ 347,555 312,925 11
Loans 916,559 862,551 6
Allowance for loan losses 11,545 12,319 (6)
Goodwill 25,529 25,705 (1)
Assets 1,787,632 1,687,155 6
Deposits 1,223,312 1,168,310 5
Common stockholders’ equity 172,036 166,433 3
Wells Fargo stockholders’ equity 192,998 184,394 5
Total equity 193,891 185,262 5
Capital ratios 4:
Total equity to assets 10.85% 10.98% (1)
Risk-based capital:
Common Equity Tier 1 11.07 11.04 −
Tier 1 capital 12.63 12.45 1
Total capital 15.45 15.53 (1)
Tier 1 leverage 9.37 9.45 (1)
Common shares outstanding 5,092.1 5,170.3 (2)
Book value per common share 5 $ 33.78 32.19 5
Team members (active, full-time equivalent) 264,700 264,500 −

1
The efficiency ratio is noninterest expense divided by total revenue (net interest income and noninterest income).
2
Pre-tax pre-provision profit (PTPP) is total revenue less noninterest expense. Management believes that PTPP is a useful financial measure because it enables investors and others to assess the
Company’s ability to generate capital to cover credit losses through a credit cycle.
3
Consumer and small business banking deposits are total deposits excluding mortgage escrow and wholesale deposits.

Reference
4
See the “Financial Review — Capital Management” section and Note 26 (Regulatory and Agency Capital Requirements) to Financial Statements in this Report for additional information.
5
Book value per common share is common stockholders’ equity divided by common shares outstanding.

Production
6 | 2015 Annual Report

(accounting) (“reality”)

4
 Hines (1988): In Communicating reality, we
construct reality and….people act accordingly!
Building?
People?
River?
Trees?
Pollution?

5
 But what is the relationship between
reality and its representation..?
representation of reality
Our Performance “reality”
$ in millions, except per share amounts 2015 2014 % Change

FOR THE YEAR

Wells Fargo net income $ 22,894 23,057 (1)
Wells Fargo net income applicable to common stock 21,470 21,821 (2)
Diluted earnings per common share 4.12 4.10 −
Profitability ratios:
Wells Fargo net income to average assets (ROA) 1.31% 1.45% (10)
Wells Fargo net income applicable to common stock to average
Wells Fargo common stockholders’ equity (ROE) 12.60 13.41 (6)
Efficiency ratio 1 58.1 58.1 −
Total revenue $ 86,057 84,347 2
Pre-tax pre-provision profit 2 36,083 35,310 2
Dividends declared per common share 1.475 1.350 9
Average common shares outstanding 5,136.5 5,237.2 (2)
Diluted average common shares outstanding 5,209.8 5,324.4 (2)
Average loans $ 885,432 834,432 6
Average assets 1,742,919 1,593,349 9
Average total deposits 1,194,073 1,114,144 7
Average consumer and small business banking deposits 3 680,221 639,196 6
Net interest margin 2.95% 3.11% (5)

AT YEAR-END
Investment securities $ 347,555 312,925 11
Loans 916,559 862,551 6
Allowance for loan losses 11,545 12,319 (6)
Goodwill 25,529 25,705 (1)
Assets 1,787,632 1,687,155 6
Deposits 1,223,312 1,168,310 5
Common stockholders’ equity 172,036 166,433 3
Wells Fargo stockholders’ equity 192,998 184,394 5
Total equity 193,891 185,262 5
Capital ratios 4 :
Total equity to assets 10.85% 10.98% (1)
Risk-based capital:
Common Equity Tier 1 11.07 11.04 −
Tier 1 capital 12.63 12.45 1
Total capital 15.45 15.53 (1)
Tier 1 leverage 9.37 9.45 (1)
Common shares outstanding 5,092.1 5,170.3 (2)
Book value per common share 5 $ 33.78 32.19 5
Team members (active, full-time equivalent) 264,700 264,500 −

1
The efficiency ratio is noninterest expense divided by total revenue (net interest income and noninterest income).
2
Pre-tax pre-provision profit (PTPP) is total revenue less noninterest expense. Management believes that PTPP is a useful financial measure because it enables investors and others to assess the
Company’s ability to generate capital to cover credit losses through a credit cycle.
3
Consumer and small business banking deposits are total deposits excluding mortgage escrow and wholesale deposits.
4
See the “Financial Review — Capital Management” section and Note 26 (Regulatory and Agency Capital Requirements) to Financial Statements in this Report for additional information.
5
Book value per common share is common stockholders’ equity divided by common shares outstanding.

6 | 2015 Annual Report

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 Accounting Representations
ØWe discussed:
• The conventional definition and purpose of financial
accounting information
• Management accounting definition, some key practices
and historical vs recent view on the role of management
accounting calculations.
• The role of accounting conventions/ principles
(prudence, matching, going concern..etc) and IFRS in
standardising representations and keeping the
qualitative aspects of accounting information;
‘relevance and faithfulness’

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 Accounting Representations
ØWe discussed:
• How different ways of representing reality can covey
different stories (remember Husky’s passport photo vs
his FB photo..?)
• Think about accounting users and purpose of using
accounting information. Can this affect the way we
represent accounting information? Can accounting
representations be selective?
• Consider also the role of management accounting
calculations – an internal role – but does this have an
effect on future control practises?

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 Accounting Representations
Our Performance

For:
$ in millions, except per share amounts

FOR THE YEAR

2015 2014 % Change
Neutral?
Impartial?
Wells Fargo net income $ 22,894 23,057 (1)
21,470 21,821

shareholders/
Wells Fargo net income applicable to common stock (2)
Diluted earnings per common share 4.12 4.10 −
Profitability ratios:
Wells Fargo net income to average assets (ROA) 1.31% 1.45% (10)
Wells Fargo net income applicable to common stock to average

investors Wells Fargo common stockholders’ equity (ROE)

Efficiency ratio 1
Total revenue $
12.60
58.1
86,057
13.41
58.1
84,347
(6)
−
2

…How about
Pre-tax pre-provision profit 2 36,083 35,310 2
Dividends declared per common share 1.475 1.350 9
Average common shares outstanding 5,136.5 5,237.2 (2)
Diluted average common shares outstanding 5,209.8 5,324.4 (2)

other users? Average loans

Average assets
Average total deposits
$ 885,432
1,742,919
1,194,073
834,432
1,593,349
1,114,144
6
9
7
Objective?
Average consumer and small business banking deposits 3 680,221 639,196 6
Net interest margin 2.95% 3.11% (5)

AT YEAR-END
Investment securities $ 347,555 312,925 11
Loans 916,559 862,551 6
Allowance for loan losses 11,545 12,319 (6)
Goodwill 25,529 25,705 (1)
Assets 1,787,632 1,687,155 6

True and
Deposits 1,223,312 1,168,310 5
Common stockholders’ equity 172,036 166,433 3
Wells Fargo stockholders’ equity 192,998 184,394 5
Total equity 193,891 185,262 5
Capital ratios 4:
Total equity to assets
Risk-based capital:
Common Equity Tier 1
10.85%

11.07
10.98%

11.04
(1)

−
fair view?
Tier 1 capital 12.63 12.45 1
Total capital 15.45 15.53 (1)
Tier 1 leverage 9.37 9.45 (1)
Common shares outstanding 5,092.1 5,170.3 (2)
Book value per common share 5 $ 33.78 32.19 5
Team members (active, full-time equivalent) 264,700 264,500 −

Faithful
The efficiency ratio is noninterest expense divided by total revenue (net interest income and noninterest income).
representation?
Mirror of reality?
1

2
Pre-tax pre-provision profit (PTPP) is total revenue less noninterest expense. Management believes that PTPP is a useful financial measure because it enables investors and others to assess the
Company’s ability to generate capital to cover credit losses through a credit cycle.
3
Consumer and small business banking deposits are total deposits excluding mortgage escrow and wholesale deposits.
4
See the “Financial Review — Capital Management” section and Note 26 (Regulatory and Agency Capital Requirements) to Financial Statements in this Report for additional information.
5
Book value per common share is common stockholders’ equity divided by common shares outstanding.

6 | 2015 Annual Report

Ø Remember to always return to key Unambiguous?

readings discussed in both lectures and
seminars
9
 Accounting and Accountability –
Flexible budget based variance
Accountability from visibility
analysis of operating profit
Making accountable by
making visible: discipline and
self-discipline

Source: Bhimani et al. (2008), p. 513 16

Standard Costing /
Budgeting:
accountability system.
Visibility through
numbers.

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 Accounting and Accountability –
Accountability through Setting/ Defining the
‘Norm’/ the ‘Standards’

“a whole set of techniques and

institutions for measuring,
supervising and correcting the
abnormal” (Foucault 1979,
Discipline and Punish)

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 But How about Accountability relationships..?
- Democratic? Hierarchical?
Socializing?
- Effect of different forms of accountability
on employees..?

Uncontroversial, clear lines?

12
 III Types of Accountability
Public accountability comes in many guises. Public institutions are frequently
to account for their conduct to various forums in a variety of ways. Figure 1 i
Accounting and Accountability
the various elements contained within the concept of accountability.

• Who is accountable, to
Accountability
whom, for what?
Actor forum
• Organization and
the problem of
“many hands”….

Informing debating judging

about conduct
informal
- Is accountability a vague consequences
concept? formal
- Does it create - Is accountability
asymmetric organization Figureclear
1. and contested?
- Is it always easy to identify who is
relationships? accountable?
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There are four important questions to be asked in this connection. The first
in relation to accountability is always to whom is account to be rendered? This
 Accounting as a mode of Control
• Different modes of control in relation to different
organizational strategies (e.g. a standardized
production system driven by scientific management
vs. a more customer focused operating system)

• Effect of organizational strategies on the control

system in place (standard costing with scientific
management vs the move to a more cybernetic type
of management control systems)

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 9
Dave Ellis, Management Accountant

sis Accounting as a mode of Control

Robert Jordan recently joined Larkhill Products Limited as a product manager. The
company manufactures, distributes and sells a range of popular card games. At the end
of his first month in post, Robert received the following statement from the manage-
ment accountant.

BudgetaryLarkhill
control
Products Limited
Monthly variance report: January 2012 The ideal of management control
Original budget Flexed Actual Quantity Price Total
budget
(accounting)
variance variance variance
is cybernetic. But are
Per unit Units Units Units
organizations like machines? Can we
Sales volume 20 000 18 000 18 000 use accounting
Activity
2 000 (A) Basedlike a thermostat?
Costing (ABC)
Production volume 20 000 18 000 18 500 1 500 (A)
£ £000 £000 £000 £000 £000 £000
Sales 40 800 720 648 – 72(A) 72(A)
–– –––– –––– –––– –––––– –––––– ––––––
Direct material 18 360 324 360 45(F) 81(A) 36(A)
Direct costs
Direct labour 12* 240 216 270 90(F) 144(A) 54(A) Cost tracing
––– –––– –––– –––– –––––– –––––– ––––––
30 600 540 630 135(F) 225(A) 90(A)
–– –––– –––– –––– –––––– –––––– ––––––
Contribution 10 200 180 18 162(A) Cost pool Cost object
––
Fixed costs 150 150 140 10(F) (10)(F) A1
–––– –––– –––– –––––– –––––– ––––––
Indirect costs
Profit/(loss) 50 30 (122) 135(F) 287(A) 152(A)
––––
–––– ––––
–––– ––––
–––– ––––––
–––––– ––––––
–––––– ––––––
––––––
(overheads)
*3 DLH ! £4.
Cost pool
A2

Management uses general models of the

organization (e.g. ABC/ABM) to control – Cost pool
A3
regulate, direct, but also dominate Cost tracing Cost allocation

employees (degrading some types of 10

work) i.e. Have their limitations

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 Control and Enterprise Risk management

Can we achieve perfect accountability and

control through powerful visual
representations and excessive controls?

Good ERM models are needed, but are

they devoid of any limitations?
(remember the effects from employees,
organizations’ strategies, uncertainties
and individual biases)

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 Representation, Accountability and Control
2. LOOKING FORWARD

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Accounting Representations and the System
of Accountability
Ø Recall Cooper’s (1992) three aspects of representation..?

• Displacement – Bringing remote events near while keeping them at a

safe distance. Representation is always a substitution for an event
and never the event itself (ABC costs)

• Abbreviation – Simplifies the complex: as much as is needed is

condensed into as little as is needed. Enables easy perception and
action. (E.g. activity reduced to ROI %)

• Remote control – managers do not work directly on the environment

but on models, maps and numbers which represent that environment,
in this way they can control activities from a distance. (E.g. Factory
closure in a country decided at the global Headquarters based on
divisional performance metrics.)

Ø Accounting representations make things manageable

However; Accounting represents selected
parts of reality that match its objectives

• Reminder: accounting selectively captures the world

to be useful for making economic decisions (the FASB
criteria for “decision-usefulness”, discussed by Young,
2006)
• This goal affects what will be included in financial
reports and how things will be reported
 Chwastiak and Young (2003)
Accounting: a dominant discourse

• Accounting’s annual reports are

“dominant discourses” that
“silence” injustices

• Chwastiak and Young argue that

reality does not map onto the
categories of discourse provided in
annual reports
– e.g. profit is not a desirable measure
of success for humankind
“In this paper, we show how
annual reports rely upon the
silencing of injustices in order to
make profit appear to be an
unproblematic measure of
success. In particular, we examine
the ways in which corporations
silence the negative impact of their
activities upon the earth,.. the
spiritual, human and social
impoverishment arising from
excessive consumption, and the
dehumanization of workers.”
o (Chwastiak and Young 2003: 533)
Selective, instrumental representation
• Selective capture of events
• Kallinikos’ (1995) argument about contemporary
capitalism: representation is instrumental: created
to serve a purpose – what is the purpose here?
– e.g. “success” is defined as increasing profit
– Representations are created for a shareholder-based view
of the world
• As a result of this selection, how is the world
represented?
– People appear as “consumers”, sovereign decision-makers
– Workers are mentioned as “human resources”
– Nature appears as “natural resources”
 Accounting and the System of
Accountability
• An extreme focus on financialization may harm our efforts to
enhance accountability systems.

• Krippner’s technical definition (2011):

– financialization is: the increasing proportion of
financial “portfolio” incomes in the income of non-
financial companies (non-banks, etc.)
– Activities that serve the “provision…of capital in the
expectation of future…gains”. As opposed to “production
and trade of commodities” (p.35)

Ø US non-financial firms 1950s to 2000s: share of “portfolio

income” compared to corporate cash flow has multiplied 5
times
23
 Accounting and the System of
Accountability
• Fraud and accountability problems will not be solved
only by adding more governance

• Froud et al. (2004) on the Enron’s Fraud Case would

conclude that:
Sarbanes-Oxley Act was insufficient
§ Institutional (company) punishment in favour of singling out
individuals in the name of accountability.

§ Did not deal with a whole set of bigger issues;

The influence of capital markets for financing and business
success generally (financialization); elite power networks, and
the economic trends and expectations of a “new economy”
24
 Accounting as a mode of Control
• New customer focused operating systems (e.g. Just-in
Time JIT and lean management) promote the use of
more flexible set of organization controls (Tillema and
van der Steen, 2015). Controls driven by customer
defined value streams (Johnson 2006, Maskell and
Kennedy, 2007).

25
Functional vs Lateral views of Structuring
Organisations

Functional view

Customer focused
operations emphasize a
Lateral view of operations
26
 Implications for Accounting as a Mode of
Control: Suggestions for Possible Control
Systems…?

A more ‘lean’ – customer focused performance

framework as suggested by Baggaley (2006)

27
28 Maskell and Kennedy (2007)
Implications for Accounting as a Mode of
Control
• Perhaps we do not need more ‘contingency’ driven control
frameworks! (Otley, 2016).

– “…different elements of control system packages are developed

quasi independently by different actors at different times
and are only loosely co-ordinated. Full coordination is
precluded for several reasons, most notably the rapid pace of
change and the addition of new or amended systems at a faster
rate than the coordination process can develop.” (Otley 2016; p.
45)

29
Implications for Accounting as a Mode of
Control
• With respect to management accounting control systems;
more context-specific empirical research is called for (van
der Stede, 2015).
• How about the role of management accounting practices..?
– Their effect and relationship with innovation adopted,
– how they relate to different forms of employees
empowerment and
– mediate…. “multiple organizational, social and economic
interests” (Busco and Quattronne 2018, p. 15)

30
 Perhaps Thinking about Your Future too…
Here are the professions/
targets you wanted to secure
when you were asked last
week; what would you like to PhD degree/ Decent Job/ I
do when you finish your Teaching have No Idea
masters degree? J Career

Accounting and Start my

Finance position Own
in a Big Business Internship
Organisation Accountant/
Management
Accountant
Bank
Position/ An
Auditors
Security Investment
Exchange Consultancy Analyst
Firm
31
Perhaps Thinking about your Future too…
Ø Now; Do you know which professions were chosen by the
majority of you?
PhD degree/
Decent Job/ I
Teaching
have No Idea
Career
18%
10%

Accountant/ Start a
Management Internship
Accounting and Business
Accountant 2%
Finance position 3%
8%
in a Big
Organisation Bank
33% Auditors Position/ An
Consultancy 3% Investment
3% Analyst
Security
Exchange 15%
Firm
2%
32
Perhaps Thinking about your Future too…
Ø Now; Do you know which professions were chosen by the
majority of you?
PhD degree/
Decent Job/ I
Teaching
Earn Money/ have No Idea
Career
become wealthy 18%
10%
3%
Accountant/ Start a
Management Internship
Accounting and Business
Accountant 2%
Finance position 3%
8%
in a Big
Organisation Bank
33% Auditors Position/ An
Consultancy 3% Investment
3% Analyst
Security
Exchange 15%
Firm
2%
33
 Accountability, Representation and Control

THE END

Wishing you all the best in all your

future endeavors J

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