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MEDAR
27,3 Metaphysics, methodology
and theory in classical
accounting thought
416 Brian A. Rutherford
Kent Business School, University of Kent, Canterbury, Kent, UK

Abstract
Purpose – The received wisdom on classical accounting thought is that its early stages were
methodologically vacuous, while, in its “golden” age, it espoused the methods and philosophical commitments
of received-view hypothetico-deductivism but actually remained methodologically incoherent. The purpose of
this paper is to argue, to the contrary, that classical accounting thought possesses a coherent constitutional
structure that qualifies as a methodology and unifies it as a body of argument.
Design/methodology/approach – The paper draws on Cartwright’s metaphysical nomological
pluralism, which holds that we should attend to the actual practices of successful inquiry and the
methodologies and metaphysical presuppositions that support it.
Findings – The paper argues that accounting does achieve disciplinary success and that classical accounting
thought, using the methodology of defeasible postulationism, provides the theoretical infrastructure that
supports that success. The accounting domain is a world of “dappled realism”, in which theories are useful in the
construction of reporting schemes and inform our understanding of the nature of the domain.
Research limitations/implications – Applying metaphysical nomological pluralism rescues classical
accounting thought from the charge of methodological incoherence and metaphysical naivety.
Originality/value – The paper justifies a place for classical accounting theorising in the endeavours of
modern accounting scholarship and moves the analysis of classical accounting thought within a philosophy
of science framework towards an approach with a contemporary resonance.
Keywords Metaphysics, Methodology, Accounting theory, Classical accounting thought,
Defeasible postulationism, Metaphysical nomological pluralism
Paper type Research paper

Meditari Accountancy Research
Vol. 27 No. 3, 2019
pp. 416-447
© Emerald Publishing Limited
2049-372X
DOI 10.1108/MEDAR-06-2018-0358
Introduction
According to received wisdom, the early stages of classical accounting thought were
methodologically vacuous, while, in its “golden” age, it aspired to meet the precepts of
rigorous science but fell so far short that it remained methodologically incoherent, a
condition that precipitated its demise within academia. By espousing the scientific method,
golden-age theorists revealed their attachment to a foundationalist, positivist metaphysics,
thus, ironically, playing a part in ushering in neo-empiricism, the first of the new, social
scientific, approaches to accounting theory that replaced classical thought.
Classical theorists see their subject as standing in a direct relationship to the procedures
of accounting practice and, thus, take the methods of accounting practice to be part of their
disciplinary armoury[1]. In the early period, this meant they felt that little needed to be said
about theory or methodology. The golden age saw theorists drawing on other disciplines,
such as economics, and on approaches to theory building, including natural language
The author is very grateful for the helpful comments of the reviewers and associate editor.
argumentation, moderately sophisticated empiricism and historical contextualisation Classical
(Beattie, 2002, 2005; Zeff, 1989), but still largely eschewing the extensive metaphysical and accounting
methodological debates that accompanied scholarly accounting’s post-classical turn to
social science. I want to argue, however, that contrary to the received wisdom sketched
thought
above, classical accounting thought possesses a coherent, cohesive constitutional structure
that qualifies as a methodology and unifies it as a body of argument. Thus considered, it
reveals a more nuanced metaphysical position than the positivism ascribed to the golden
age, a position with a modern resonance which justifies a place for classical theory in 417
contemporary scholarship.
To keep the paper of manageable length, it is restricted to the Anglophone literature. It is
structured as follows. I first delineate the range of work I take to constitute classical thought
and sketch out the received wisdom against which I am arguing. I then explore the nature of,
and relationship between, metaphysics, methodology and theory, using Nancy Cartwright’s
metaphysical nomological pluralism, a contemporary approach to the philosophy of science
which underpins the arguments of the paper. This holds that we should attend carefully to
the actual practices of successful inquiry, the methodologies which yield success and the
metaphysical presuppositions that support it, rather than attempting to derive methodology
from metaphysics. Applying this approach within the context of accounting requires the
identification of successful practices and I argue that notwithstanding academic and
professional criticism of various kinds, the ordinary procedures of accounting practitioners
do achieve a sufficient measure of disciplinary success, of the sort envisaged by Cartwright,
to justify our attending to its methodology and metaphysics and that it is classical
accounting thought that provides the theoretical infrastructure that supports that success.
Thus armed, I set out the methodological structure I see as underpinning classical
accounting thought, which I call defeasible postulationism. I make no claims for the
originality of the structure I describe but only for the argument that it does qualify as a
methodology and one that underpins, and thereby unifies, classical accounting thought
generally. I defend these claims by examining aspects of the historical development of
classical thought. Thereafter, I look in more detail at the writings of the methodologists of
the golden age, defending them from the charge that they espoused full-blooded, exact-
sciences hypothetico-deductivism or foundationalist positivism. Finally, I draw together the
implications of the paper for the metaphysics of the accounting domain.

Definition and scope of classical accounting thought

An early attempt to taxonomize accounting theory in a 1977 report for the American
Accounting Association (AAA) identified two categories representing “classical approaches
to theory development” (p. 5), a normative-deductive and an inductive school. Historians of
accounting such as Chatfield (1977), Macve (1996) and Lee (2008) have identified theorization
occurring well before the earliest works cited by the AAA report and I accept their
judgement[2], not least because I am able to show that these early theorists share the
methodology of classical accounting thought.
The AAA report identified a further pair of approaches, falling under the general
heading of decision usefulness, that it regarded as following the classical period. The first of
these, decision modelling, encompasses many of the thinkers associated with what has come
to be called “the golden age” of accounting theorization in the 1960s (Gaffikin, 1988) as well
as various attempts, some sketchier than others, to establish a conceptual framework for
financial reporting. The second was the, then newly emerging, literature studying the
behaviour of decision-makers. Subsequent events have shown that the division between the
two approaches actually constitutes a major gulf in accounting theorization – a gulf
MEDAR separating efforts to propound “theories of accounting” (or accounting theory) from those to
27,3 uncover “theories about accounting” (Kinney, 1989, p. 121, emphasis in original, quoted by
Napier, 2014, p. 93). It is now common to include decision-modellers with the rest of classical
thought (see, for example, Lee’s, 2008 survey) and I do so here on the grounds that though
they may not themselves have acknowledged it, they actually share a methodology with
their predecessors.
418 An important feature of all classical accounting thought is the way in which theory and
the procedures of accounting practice are intimately bound together – in marked contrast to
work in later streams of research (Baker, 2011; Jeanjean and Ramirez, 2009; Kinney, 1989;
Sterling, 1990). The closeness of the relationship meant both that historically, theory “aimed
to shape the demands emerging from practice and guide practice in order to supply an
effective response to those demands” (Jeanjean and Ramirez, 2009, p. 111) and that
accountants who would ordinarily be regarded as practitioners, and who certainly did not
hold academic posts, were in fact contributing to the development of theory (Most, 1982,
p. 71). Indeed, arguably, accounting theory first emerged from the efforts of practitioners: as
Lee (2008, p. 143) points out, all the early works his survey identifies are “the writings of
practitioners and teachers” and only in the early 1900s did debates begin to include
academics. Histories of accounting standard-setting such as Zeff’s (1972) document how
conceptual advances have emerged from time to time from studies undertaken by individual
practitioners and professional firms. Further, as Lee (2008) also points out, the demise of
classical thought in scholarly accounting has seen practitioners, in the shape of standard-
setters, take on the task of further developing classical accounting theory via the conceptual
framework project. One consequence of the intimate relationship between classical
accounting thought and accounting practice is that it is impossible to evaluate the success of
classical thought independently of practice or by looking only at the work of academics.

The received wisdom on metaphysics and methodology in classical accounting

thought
A newcomer to accounting scholarship seeking advice on the relationship between theory,
methodology and philosophy might consult Van Mourik’s (2014b) recent guidance, which
explains that:
The interpretative filter of a theory stems partly from the methodology or “the logic of scientific
procedure”. This logic depends on the philosophical assumptions regarding the nature of social
reality, knowledge and the role of the researcher in relation to the phenomenon to which the
theory pertains (p. 36, citing Merton, 1967, p. 140).
The areas of philosophy alluded to here are, of course, ontology and epistemology; a little
later, Van Mourik (2014b, p. 40) further emphasizes “the importance of the ontological and
epistemological assumptions for the formulation of theories”. A similar approach is to be
found in, for example, Riahi-Belkaoui (2004, Sections 9.2 and 9.5) and Ryan et al. (2002,
Chapter 1). In essence, “methodology is derived from epistemology which is in turn
determined by ontology” (Gaffikin, 1988, p. 31).
Before the dawning of the golden age, theorists said almost nothing about their
metaphysics or methodology and most subsequent commentators have responded to
this lacuna by themselves eschewing discussion of these topics. Thus, Gaffikin’s (1987)
paper on the methodology of theorists from the first half of the twentieth century was
able to point out that although three-quarters of a century had passed since the
appearance of the earliest works examined, there had been no previous attempt at an
evaluation; no further full-length article devoted entirely to the topic has been
published. Commentators who have addressed methodology in the period have Classical
generally been dismissive (Mouck, 1989). Gaffikin (1987, p. 17) himself used language accounting
like “unrefined” and “primitive” and suggested that the works he had analysed could be
regarded as engaging in “pattern modelling[3]” , an approach which can yield only “low
thought
level” theories, concluding that:
It does appear that an examination of the methodological development of accounting [. . .] leads to
the conclusion that (in the period under consideration) the arguments of the authors of major 419
theoretical works were philosophically unsophisticated. None of the works considered [. . .]
demonstrated tight methodological development (p. 28).
The golden age saw the emergence not only of a rich variety of new theories but also of a
significant literature devoted to methodological themes: as Gaffikin (2003, p. 291) puts it, “an
intellectual awakening in accounting”. The authors of the two “seminal works” on
methodology (Gaffikin, 2003, p. 292) were Raymond Chambers and Richard Mattessich:
There is little doubt that Mattessich was well-read in methodological-philosophical matters [. . .]
Chambers was equally well-read in methodological and philosophical matters. He too developed
his theory with a fully conscious methodology, and like Mattessich, one which he perceived as
being the true method of science. It, too, is the hypothetico-deductivism of the Received View
(Gaffikin, 1988, pp. 20-21, emphasis in original).
Other contributors to the methodological debate included Carl Devine and Robert Sterling,
both of whom were “aligned with writers such as Chambers [and] Mattessich” (Gaffikin,
1988, p. 23), so that “there seemed to be general agreement that [. . .] [t]he prospect of the
further development of accounting ideas was seen to lie in the application of the rigour of
scientific method”. Other commentators have largely agreed that golden-age methodologists
aspired to make accounting scientific: Mouck (1993, p. 34) reports that “the 1960s ushered in
a wholesale concern with scientific accounting research”, while Cushing (1989, p. 26) finds
that “a commitment on the part of many accounting scholars to a more scientific approach
[. . .] gathered momentum in the 1960s and early 1970s”.
According to Gaffikin (1988, p. 23), the “rigour of the scientific method” that the golden
age theorists sought “was found in the various guises of logical empiricism/positivism”;
golden-age research is “steeped in positivist methodology” (p. 30). Hence, golden-age
theorists “share a realist ontology and a foundationalist epistemology” (p. 31) – indeed, a
positivist epistemology (Gaffikin, 2003, p. 306). These judgements are echoed by recent
commentators: for example, Napier (2014, p. 101) holds that, “to Chambers, an effective
theory of accounting had to be ‘scientific’ in the sense that it was grounded in sound
assumptions and principle from which hypotheses about the real world could be derived and
tested”.
But, in the words of the recent guide to philosophy in accounting quoted earlier, under a
positivist epistemology, the task of researchers is to “seek to discover empirical regularities
in order to explain and predict phenomena” (Van Mourik, 2014b, p. 38) and by this standard,
as Nelson (1973, p. 4) famously pointed out, while awarding them their title, the golden-age
theorists simply failed in their aspiration to be scientific. His attack describes “a golden age
in the history of a priori research in accounting”, by which he means “the statement of
hypotheses on how accounting should be done, without the testing of these hypotheses” (see
also Gonedes and Dopuch, 1974). Again, Gaffikin (1988, p. 18) says of Chambers’
seminal article that “while alluding to a theory of scientific rigour, the argument can only be
admitted as a set of tentative hypotheses based on a priori assumptions”; and of a study
by another author, he says that “like the others [. . .] it relies on certain assumptions (axioms)
from which conclusions are deduced” (p. 21).
MEDAR As to the theories themselves, one of the earliest attempts to conduct a systematic review
27,3 was the AAA survey mentioned earlier (American Accounting Association, 1977, p. 1). It
reports that “the accounting community has been unable to achieve theoretical closure”, so
that its authors can only “attempt to explore the problem that characterizes theoretical
debate at this stage of accounting development: virtually endless argumentation and
inability to resolve issues that are raised”. Or, as Gaffikin (2003, p. 301) puts it, “open
420 warfare”. Although the AAA report did at least manage a taxonomy, Gaffikin (1987, p. 28)
argues that as far as the early period is concerned, its “classification only seems to reinforce
the claim that, methodologically, accounting is unrefined, even primitive”, while the addition
of golden age work adds to the impression of divergence.
The AAA report’s interpretation of the situation was framed in terms of an approach
that had recently become popular in the philosophy of science, Thomas Kuhn’s argument
that science is punctuated by occasional revolutions, when one way of seeing the world, or
“paradigm”, breaks down as a result of the accumulation of anomalies within it, resulting in
a “shift” to a new paradigm, whose theories are fundamentally incommensurable with its
predecessor (Vickers, 2011). The report’s conclusion was that the “expanding array of
accounting theories and/or theoretical approaches” it had identified “suggests the existence
of several competing paradigms” (American Accounting Association, 1977, p. 48), although
Kuhn’s own analysis did not envisage that several paradigms could co-exist in the long
term. Some modern textbook writers, for example Riahi-Belkaoui (2004), seeking to keep
classical accounting thought alive for undergraduates – who, of course, continue to receive
instruction in accounting practice and, thus, the conceptual framework project which draws
on classical thought – but to accommodate it alongside post-classical streams of research,
have drawn on Ritzer’s (1975) radical reworking of Kuhn’s ideas. This sees accounting
characterized as a “multiple-paradigm science” (Riahi-Belkaoui, 2004, p. 336). While this
approach leaves the impression of unresolved multiplicity and divergence, it does at least
embrace classical thought within accounting’s intellectual firmament.
By contrast, contemporary commentary addressed to a more sophisticated audience
essentially consigns classical thought to the dustbin of intellectual history. Lee’s historical
survey of financial accounting theory (2008, p. 141) is divided into three periods, the second,
lasting “from 1941 to 1970 includes a classical or golden age of normative accounting
theory”, while the third, which extends to “the present day is one in which [. . .] academic
researchers abandoned the normative approach to financial accounting theory in favour of
apparently more scientific research”. In describing the “end of classical theorising”, Lee
(p. 152) reports that “by the late 1960s, financial accounting theory had a chaotic flavour”
and refers to “the incoherence of this situation”. Napier’s (2014, p. 102) survey records that
“by the end of the 1960s, a wide range of theories of accounting existed [. . .]. [T]hey offered a
wide range of remedies, which were often inconsistent with those of rival theories”. In a
section devoted to “the rejection of grand [that is, golden age] theories”, he reports one critic
as providing “a denunciation of grand theory, suggesting that theories of accounting could
not be assessed independently of their own assumptions” (p. 103, emphasis in original).
Consistent with the view of its fate offered by these surveys, Van Mourik’s (2014b)
discussion of methodology in financial accounting theory largely ignores classical
accounting thought, mentioning a few studies very briefly but offering as the goals of theory
(p. 45) only those of post-classical streams and reporting “methodological debates” only
from “the social sciences” (p. 40).
The espousal of the scientific method by golden-age theorists is seen as leading not only
to the demise of classical theory because of its manifest failure to live up to the method’s
precepts, rendering it “unscientific” (Van Mourik, 2014a, p. 55)[4], but also as implicated in
making classical theorists “slow to respond to the new empiricism” that supplanted classical Classical
thought because they saw it “not as rejecting their general methodological approach but accounting
rather as putting it into practice” (Napier, 2014, p. 105) and, indeed, in the emergence of this
new empiricism: “the legacy of the golden age seems to have been the enshrinement of a
thought
dogmatic reverence for a positivistic/empiricist research methodology” (Mouck, 1989,
p. 104).

The relationship between metaphysics, methodology and theory

421
Metaphysics, the nature of methodology and theory, and the relationship between them are,
of course, far from uncontentious. The approach I adopt in this paper is drawn from the
work of Nancy Cartwright, a leading member of an influential movement within the
philosophy of science originally referred to, after its first institutional base, as the Stanford
School, and now generally known as scientific pluralism. The school’s position springs from
its determination to attend carefully – indeed, give primacy – to the actual practices of
successful scientific inquiry. It embraces an openness to a variety of localized accounts of
scientific endeavour and scepticism about the reality of fundamental laws, universal,
comprehensive forms and unified science (Cat, 2012; Fuller, 2012; Kellert et al., 2006).
Cartwright’s “metaphysical nomological pluralism” (Cartwright, 1999, p. 31) is
“concerned with how actual science achieves the successes it does, and what sort of
metaphysical and epistemological presuppositions are needed to understand that success”
(Hoefer, 2008, p. 1); in other words, metaphysics emerges from methodology and not the
other way round. On Cartwright’s view, we live in:
A world rich in different things, with different natures, behaving in different ways. The laws that
describe this world are a patchwork, not a pyramid. They do not take after the simple, elegant and
abstract structure of a system of axioms and theorems. Rather they look like – and steadfastly
stick to looking like – science as we know it: apportioned into disciplines, apparently arbitrarily
grown up; governing different sets of properties at different levels of abstraction; pockets of great
precision; large parcels of qualitative maxims resisting precise formulation; erratic overlaps; here
and there, once in a while, corners that line up, but mostly ragged edges; and always the cover of a
law just loosely attached to the jumbled world of material things (Cartwright, 1999, p. 1).
She describes this as a dappled world: “the dappled world is what, for the most part, comes
naturally: regimented behaviour results from good engineering” (p. 1). This is to be
contrasted with “fundamentalism [. . .] a tendency to think that all facts must belong to one
grand scheme” (pp. 24-25). In the volume in which she first examined the philosophical
consequences of this world (Cartwright, 1999), she draws her examples equally from physics
and economics and makes it clear that she regards her ideas as applying to the social as well
as the natural world.
An important step in understanding Cartwright’s dappled world, distinguishing it from
traditional positions in the philosophy of science, is to appreciate that “models, not theories,
are the carriers of knowledge about the empirical world” (Bailer-Jones, 2008, p. 17). She
points out that theories, so far from exposing law-like and universal regularities across the
empirical world, frequently do not encapsulate actual behaviour in concrete situations at all,
as when classical mechanics cannot account for the movement of a five-pound note swept
about by the wind in Trafalgar Square. The laws of classical mechanics may well be
successful when it comes to predicting the path of a pound coin dropped from Nelson’s
column on a balmy day, thereby making them a useful component of a model designed to
operate in specific circumstances; equally, the theory of fluid dynamics may make for a
reasonably successful model designed to deal with the system of which the five-pound note
is part – though probably one that will be less successful in its context than the former
MEDAR model in its. The value and point of theories is that, in general, they will be useful in
27,3 constructing more than one model. Models combine several components including theories
but also other items such as scientific instruments and mathematical techniques.
A model can also serve as a blueprint for a “nomological machine”, that is, “a fixed
(enough) arrangement of components, or factors, with stable (enough) capacities that in the
right sort of stable (enough) environment will, with repeated operation, give rise to the kind
422 of regular behaviour that we represent in our scientific laws” (Cartwright, 1999, p. 50). Such
a machine works by controlling the variables in the model so as to prevent anything
interfering with the emergence of the relationship captured by the theory and, thus,
prescribes the ceteris paribus conditions under which the theory will apply. It is because, in a
dappled world, even theories about the natural world apply subject to ceteris paribus
conditions, that Cartwright’s approach is able to treat economic and physical theories in
parallel (Cartwright, 1999, pp. 137-151).
The status of theories in a dappled world means that, “our most wide-ranging scientific
knowledge is not knowledge of laws but knowledge of the natures of things, knowledge that
allows us to build new nomological machines never before seen giving rise to new laws
never before dreamt of” (Cartwright, 1999, p. 4, emphasis in original). How, then do we use
theories to understand and manipulate physical or social systems? If Cartwright is right:
What should be put in place of the usual deductive-nomological story [. . .]? Surely there is no
single account [. . ..] Unfortunately, the special kinds of circumstances that fit the models of a
single theory turn out to be hard to find and difficult to construct. More often we must combine
both knowledge and technical know-how from a large number of different fields to produce a
model that will agree well enough on the matters we are looking to predict, with the method of
combination justified at best very locally (Cartwright, 1999, p. 10).
In her teasing out of the metaphysical presuppositions necessary to understand the success
of science in a dappled world, “Cartwright, like many working scientists themselves, takes a
rather pragmatic/realist stance” (Hoefer, 2008, p. 1), a stance that follows because she wants
to “take seriously the realists’ insistence that where we can use our science to make very
precise predications or to engineer very unnatural outcomes, there must be ‘something right’
about the claims and practices we employ” (Cartwright, 1999, p. 9). But it is a “local realism
about a variety of different kinds of knowledge in a variety of different domains across a
range of highly differentiated situations” (p. 23).

The achievements of classical accounting thought

Cartwright’s starting point is the successful employment of a discipline’s methodologies, so
we must consider the degree of success classical accounting thought has achieved, a
consideration involving recognition, as argued earlier, that classical thought is the very kind
of theorising actually embodied in the discipline and practice of accountancy. Now it is easy
enough to find crushing academic critique of accountancy as failing to secure the best
outcome for society as a whole – and equally easy to find practitioner criticism calling for
incremental change. But these assaults simply do not bear on the question at the level
required – natural science, after all, can be attacked as catering predominantly for a
Westernized and prosperous elite and as missing opportunities to progress faster. What
counts for Cartwright is success in the actual endeavours undertaken by a discipline,
considered in the round.
Assessing the success of accountancy in achieving the endeavours, it sets out to
undertake raises a substantial number of complex and challenging issues, including
counterfactual questions about the potential of alternative schemes not actually used. The
difficulties of tackling all these issues simultaneously to arrive at an overall evaluation have Classical
been well-documented over many years and are discussed in the next section. One way of accounting
addressing the question is to attend to the judgements of expert users actually using
financial reports in the endeavours for which they are actually intended. Such an approach
thought
is consistent with the philosophical pragmatism held by Shaw (2016) and others to underlie
scientific pluralism, a pragmatism that focuses on “the perplexities that confront us in the
course of experience” (Smith, 1999, p. 5) and holds that “efficacy in practical application –
‘what works out most effectively in practice’ – somehow provides a standard for the
423
determination of truth in the case of statements, rightness in the case of actions, and value in
the case of appraisals” (Rescher, 2005, p. 747).
It would seem that considered in the round, expert users do find that financial reporting
is successful in the actual endeavours it undertakes. Three recent investigations offer
evidence to this effect: a survey of the representative body of Chartered Financial Analysts
(CFA Society of the UK, 2016) found that 85 per cent of respondents thought financial
statements were very useful (the highest category available); a joint European Financial
Reporting Advisory Group and Institute of Chartered Accountants of Scotland study
(Cascino et al., 2016, p. 28) found that “professional investors consider financial reporting
data to be both relevant and faithfully represented overall”; and the Financial Reporting
Council’s (2016, p. 12), 2015/16 survey (the most recent to survey users’ views on the
question) found that “73 per cent of investors have high levels of confidence in the quality of
[both] corporate governance and reporting in the UK”.
A good example of the kind of practitioner demands for incremental reform alluded to
above is Fisher’s (2016, p. 36) three-page tour d’horizon headlined “Fixing the broken
model”, which opens with the claim that “there’s a growing agreement that corporate
reporting isn’t giving investors the information they need” and goes on:
[T]here is a general view that corporate reports have become too long, that financial information
is too complex, that disclosures in particular have reached an unmanageable volume, and that the
amount of non-financial information provided by companies is making comparison between
companies and across sectors increasingly difficult.
Important as all these issues no doubt are, none has any bearing on the definition,
recognition or measurement of any of the elements of financial statements.
Of course, contemporary financial reporting has evolved historically by incremental
changes, many devised from within the classical theoretical perspective (see, for example,
Most, 1982, pp. 493-524; Zeff, 1972, pp. 183-204) [5], including contributions to the standard-
setters’ conceptual framework project (Baker, 2017). Equally, individual classical
theoreticians have advocated changes in financial reporting practice that have not been
taken up, suggesting that the expert users now expressing satisfaction with the state of
accounting would not have regarded such changes as likely to promote its endeavours. This
does not invalidate classical theory itself or all of the theory of any classicist – after all, Isaac
Newton famously pursued alchemical enquiries as well as physical and mathematical
research (Figala, 2004).
One common line of attack on the success of classical thought argues that the golden-age
theorists’ work on the case for alternatives to historical cost manifestly failed because
historical cost has endured. But, at a minimum, we should recognize that golden-age
theorists, and later scholars using classical methods, played a major part in the efforts to
prepare a response to significant levels of price change in the 1960s and 1970s, producing a
system which was adopted briefly, could well have rescued financial reporting had inflation
remained high, and remains available should it be needed in future (Pong and Whittington,
MEDAR 1996; Tweedie and Whittington, 1984). As it happens, in recent decades, price levels have
27,3 remained largely stable in Anglophone accounting’s most influential economies, limiting the
need for an alternative to historical cost. Golden-age theorists’ work on alternatives to
historical cost can be regarded in Cartwrightian terms as modelling in a dappled world for
systems and environments with a variety of properties, one of which, persistent substantial
inflation, has not, as it happens, manifested itself in the world of financial reporting in recent
424 times[6].

The structure of classical accounting methodology

The everyday practice of financial accounting is not itself concerned with uncovering
underlying empirical regularities in the behaviour of the commercial world or with the
business of prediction (Laughlin, 1981; Peasnell, 1978). I nonetheless want to argue that
classical accounting thought provides accounting practice with a firm and tested connection
to its empirical domain. I also want to argue that there is a stable and coherent structure to
classical accounting theorising, one that applies across the field (though not, of course, to
every single theorist) and that qualifies as a methodology in the proper sense of the term,
that is as a “logic of scientific procedure” (Merton, 1967, p. 140, quoted by Van Mourik,
2014b, p. 36) or “the procedures to be used in the generation and/or in the testing of
propositions by those wishing to obtain valid knowledge” (Gaffikin, 1988, p. 31). This
structure provides the framework for the construction of individual theories, but because
theories function in practice by the way in which they fit into models, the structure is also
reflected in these models. In the case of financial accounting, we can think of models as
reporting schemes.
I should say at once that most of the content of this section is far from original – indeed, if
it were, it would be implausible that it could describe what classical thinkers were up to.
Elements of the structure are alluded to explicitly by golden-age methodologists, though, of
course, I am arguing that the structure pre-dates the golden age even if the thinkers of that
age did not necessarily recognize this. I mention later in the section ways in which I see the
approach set out here as innovative.
The structure is illustrated in Figure 1 and can be divided into two phases. The first,
constructive, phase is the stage on which attention is usually focused and similar depictions
can be found in, for example, Riahi-Belkaoui (2004, p. 210)7. Classical accounting thought
springs from accountancy’s social role as a service function (Accounting Principles Board,
1970, paragraph 40; Chambers, 1955; Mattessich, 1995b, pp. 191-193; Milburn, 1994;
Peasnell, 1978) and accepts that, as Devine (1960, p. 399, emphasis in original) puts it, “the
first order of business in constructing a theoretical system for a service function is to
establish the purpose and objectives of the function”. These objectives derive from the
functioning of the domain in which accounting operates and their specification involves
identifying users of financial reports and the uses to which such users do, or might, put
them.
A great deal has been written about users and uses of financial reports over the years
(Zeff, 2013) and the various issues involved do not need to be resolved here. At the simplest,
we might establish who currently uses reports and how they use them – straightforwardly
empirical questions, at least for those who consider that the accounting domain permits
empirical investigation. Further exploration might establish other uses existing users might
make of reports and others who might use reports and what uses they might put them to.
These possibilities rapidly introduce complexity: they might involve proposing new content
and, clearly, there are also ethical issues at stake, including potential conflicts of interest.
 OBJECTIVES POSTULATES Classical
accounting
thought
PROCEDURES

425
OUTPUTS

OUTCOMES

EVALUATION

KEY Figure 1.
Methodological
First phase - constructive
structure of classical
Second phase - evaluative accounting thought

The ways in which users and user needs might be identified include informal “armchair”
observation by theorists (perhaps carrying over their experience as practitioners); formal
investigation by a range of empirical methods; empathetic intuition; inference from cognate
disciplines such as economics; inference from appropriate authoritative sources such as
legislation; and speculative propositions to be tested later. User needs might be identified in
different ways from users and the results may not be consistent; for example, users might
express a need for one type of information while modelling their needs indicates a different
type (Sterling, 1970a). A range of methods may be used to deal with ethical issues. It is
possible to take a variety of views on the likely effectiveness and ethical status of the
different methods available, and on ways of resolving conflicts, but the crucial point is that
they can all be incorporated within the structure of classical accounting methodology.
The second leg of the constructive phase is the specification of accounting postulates, by
which I mean statements describing features of the accounting domain relevant to a
particular theory or scheme, including the commercial, legal, economic and social
environments, the nature of accounting entities and the properties of items falling within the
scope of the theory or scheme. The set of postulates needed by any theory or scheme will be
likely to embrace propositions of various characters: for example, some may relate directly
to the nature of the environment while some may be derived from others in the system. A
good deal of energy has been expended historically on discussing how many kinds of
conceptual statements are needed, how they relate to each other and how they should be
described (Zeff, 1982), but these issues need not be resolved here. Methods for identifying
postulates and addressing second-order issues, such as conflicts between them, include
those available for the first leg as well as logical deduction (for example where one postulate
is derived from another) and adopting a convenient arbitrary assumption (the accounting
period postulate may fall in this category). There is a further source of postulates which I
MEDAR shall come to shortly. Again, the crucial point is that postulates from all these sources can be
27,3 incorporated within the structure of classical accounting methodology.
The third leg is the identification of procedures for the generation of accounting reports
which will meet the specified objectives, by applying the specified framework of postulates.
The term “procedures” here covers all aspects of practice standing between, on the one hand,
objectives and postulates and, on the other, outputs (financial reports). The direction of
426 argument as I have so far described it involves the determination of accounting procedures
from objectives and postulates by a combination of logical deduction and the specialist
methods of the discipline of accountancy. There is, however, another way in which the
structure can be applied. This involves identifying the actual accounting procedures used to
produce reports and “reverse engineering” or inferring the accounting postulates that would
be entailed by those procedures given the specified objectives. Depending on what emerges
from this process, some or all of the postulates may also be able to be tested directly against
the accounting domain, with further iterations to yield a structure which is consistent with
that domain in all three legs. The ultimate test of this way of working requires that the
arguments function correctly in the “top down” direction, that is, that procedures can be
deduced from objectives and postulates.
Clearly, what I have so far described does not conform to the tenets of hypothetico-
deductivism. However, as Nelson (1973, p. 15) saw, where accounting procedures have
actually been implemented, it is possible to further process the outputs from those
procedures to form predictions, deduced from the hypothesis that, if users act on the basis of
the outputs as envisaged in the specification of user needs, they will achieve their objectives,
or at least get nearer to achieving them than they would employing other reporting schemes.
Such predictions can then, in principle, be tested in the manner required under hypothetico-
deductivism. It may also be possible, in principle, to apply this approach to outputs from
procedures that have not been implemented within an official reporting scheme, for example
by trialling a procedure with cooperative preparers or perhaps even employing some sort of
simulation exercise[8]. In practice, however, as has been frequently pointed out (American
Accounting Association, 1977, Chapter 3; Archer, 1998, pp. 311-14; Chambers, 1960,
pp. 38-39, Chambers, 1973a; Hakansson, 1973, pp. 156-58; Holthausen and Watts, 2001;
Mattessich, 1978, 1980, p. 168), the problems involved in testing accounting outputs as
predictions in this manner are legion, including: difficulty in conceptualising,
operationalising and measuring the target effects; bounded knowledge of means-ends
relations; highly complex interactions between the factors involved; the need to specify
counterfactuals or manage control groups; reflexivity; and the need to examine outcomes in
aggregate rather than individually (for example in addressing cost-benefit considerations
and the riskiness of portfolios). Indeed, most writers discuss this sort of testing only to point
to the strict impossibility of achieving it to scientific standards, the better to draw attention
to the allegedly unscientific nature of classical accounting thought.
But just because accounting procedures cannot, in general, be assessed with the rigour
applied to hypothesis testing in natural – or even positivistic social – science does not mean
that they are immune from any kind of functional appraisal. The second, evaluative, phase
of the structure depicted in Figure 1 is not normally made explicit in representations of
classical accounting thought (for example in the diagram, already referred to, in Riahi-
Belkaoui, 2004, p. 210). Nonetheless, accounting procedures are linked to the accounting
domain via the objectives and postulates from which they are, or can be, derived and the
outputs – and, hence, outcomes – that they yield; thus, reporting schemes incorporating
objectives, postulates and procedures, and the theories that serve to bind them together,
must stand in some appropriate relationship to that domain. For example, if it is an objective
of a reporting scheme to provide shareholders with information to assist them in making Classical
investment decisions, then the outputs of the scheme will yield as outcomes better or worse accounting
investment decisions than other schemes, and though there will almost certainly be
substantial practical difficulties in so doing, these can in principle feature in an evaluation of
thought
the scheme and, thus, of theories included as components within it.
This means that results from the methodology outlined here are defeasible, that is, in
principle, open to revision or defeat. Evaluation might involve empirical testing but is more
likely to emerge from other routes such as, and in particular, the informed judgements of the 427
many sophisticated users of accounting reports who have both considerable expertise in the
area and the incentive to seek out the best schemes. These judgements may be directly
polled, as, for example, where standard-setters seek to incorporate financial analysts in their
decision-making, but they are also reflected in the survival or otherwise of elements of
reporting schemes (Napier, 2014, p. 100).
The structure I describe here might be termed defeasible postulationism, the second term,
and in a rather broad way the conception itself, being derived from the work of Mattessich
(1980; Gaffikin, 1988, p. 21). Defeasible postulationism is a very catholic approach, open to
variety in both the methods used and the direction of the derivative flow through the
structure. What marks the structure out as a methodology is the way in which it supports
the ultimate emergence of an integrated, systematic and coherent set of relationships
furthering the discipline of accountancy as a service function. Evaluation will rarely, if ever,
carry the force of social scientific hypothesis-testing, but the methodology is defeasible and
the limitations in its robustness follow from the circumstances it must address and not from
a failure of will, imagination or intellect on the part of classical accounting theorists.
I pointed out earlier that the structure I set out here is hardly innovative. Indeed,
something quite similar, identified specifically as a methodology, was outlined as long ago
as 1968 by Buckley et al. (1968), though they offered it only in a deductive version alongside
six other possible approaches (including inductive, axiomatic and behavioural) for which no
methodology was prescribed. Although their terminology differs a little, the structure
involved objectives “abstracted from the environment” and used to design procedures
yielding reports:
In working within a general framework a researcher could follow the conceptual process to the
point where his [sic] suggestions were put into practice, and, through feedback, test the results of
the process. This would or would not establish the validity of his [objectives, postulates and
procedures] (p. 281).
Others who have made suggestions resembling what is proposed here to a greater or lesser
degree include the AAA (1977) and Mattessich (1980) [9][10]. However, the use I make of the
structure differs from much of the prior literature in that I include, and combine, an open
approach embracing variety in method and derivative flow and a role for an evaluative
phase in the structure and argue that it qualifies as a methodology in itself rather than, as
for commentators like Riahi-Belkaoui (2004), merely a kind of skeleton argument to be
addressed by other methodologies.

The development of classical accounting thought

This section offers some comments about the way in which, in the Cartwrightian dappled
world of financial accounting, the methodology accountants have devised and developed
over time underpins a subject discipline that has yielded a variety of reporting schemes
modelling that world. I use the term model here in the sense in which it is used by
Cartwright: individual reporting schemes model particular systems within their particular
MEDAR local environments and draw on a range of resources, including theories which, in general,
27,3 apply across a number of schemes but not necessarily across them all[11]. A reporting
scheme is identified by the broad outlines of its structure and content; Cartwright does not
attach any great significance to the distinction between a single model constructed widely
enough to accommodate two or more moderately different systems and more specific
models unique to one system (see, for example, Cartwright, 1999, pp. 192-93) and neither
428 shall I. Limitations of space prevent an extensive analysis of the evolution of classical
thought and I focus on drawing out points of significance to my arguments.

Early classical accounting thought and the proprietorial environment

Some historians of accounting thought, such as Macve (1996) and Lee (2008), date the
emergence of theorising from the move by accountants to embrace double-entry
bookkeeping as a core body of professional knowledge in the past decades of the nineteenth
century. Others, such as Chatfield (1977, p. 220), discern “the beginnings of accounting
theory” a century and a half earlier, in efforts to improve the explication double-entry
bookkeeping. There is general agreement (see, for example, Chatfield, 1977, pp. 220-25; Lee,
2008) that an important influence throughout the period was the structure of business
enterprise at the time: a small number of proprietors closely engaged with operations and
management. The role of accounting was taken to be to serve the interests of these
proprietors and specifications of user needs emerged from this role. One of the earliest
theoretical works cited by Chatfield (1977, p. 221) is Italian Book-keeping Reduced into an Art
(1735) by Hustcraft Stephens, while the first book-length work cited by Lee (2008) is George
Lisle’s Accounting in Theory and Practice, which appeared in 1900; because they pre-date the
discussion in many commentaries, such as the AAA’s (1977) report, it is worth looking at
them at some length.
Chatfield explains that Stephens, like Alexander Malcomb, his contemporary and
another leading thinker, took it that accounting’s role in supporting proprietors’ interests
entailed the measurement of their capital and changes therein. Accounting thus records
assets and liabilities, and movements in assets and liabilities, to yield these aggregates and
not merely to control underlying resources. At the very beginning of his text, Stephens
(1735, p. 1) describes how a proprietor would use the information thereby obtained. With the
emergence of commercial activity:
Even those who had the largest possessions were nonetheless highly concerned thus to examine
them, that, being forewarned, they might the more wisely regulate their expenses within the
bounds of their abilities, for none could have so much, but mismanagement might impair, if not
totally destroy and confound it.
Those “of inferior ranks” would behave similarly, “that by good conduct they might in some
measure supply the defects of their scantier portions”.
Lee’s (2008, p. 142) description of Lisle’s work parallels Chatfield’s of Stephens’,
indicating that Lisle begins with “a theoretical section on double-entry bookkeeping to
facilitate a permanent record of business transactions and their impact on the wealth of the
business owner”. But again, before this material, Lisle examines how the information
thereby obtained can be used:
The accountant [. . .] devises the method by which a set of financial transactions is to be recorded
[. . .] It is his [sic] province to enable men [sic] by the benefit of his advice to make businesses
which are already profitable even more remunerative, and to render profitable businesses which
are being conducted at a loss (1909, p. 2).
In accordance with this objective, Lisle goes on to argue that, although the amount of profit Classical
for a year may be ascertained from books kept by single entry, “it is better also to know accounting
exactly how the profit has arisen, so that the turnover and charges of one year may be
compared with those of another year, and the business made even more profitable” (p. 49).
thought
He also proposes that the balance sheet “should be so classified and arranged as to give the
clearest and fullest idea of the financial condition of the concern” (p. 69) and provides a form
of profit and loss account designed to be:
429
Of great advantage in preparing percentage statements, and in comparing the accounts of
different years. A merchant using such divisions is enabled to determine what must be his
minimum turnover in order to meet his fixed charges, and may localize any leakage or
extravagance in management. He can also ascertain in what direction economies may be effected
(p. 55).
Furthermore, Lisle, unlike Stephens, goes on to provide substantial discussion of how
information might be used, for example in sections on investigations (pp. 329-34), percentage
statements (pp. 335-44) and graphical methods (pp. 344-45).
The earliest US contributions discussed by Lee (2008) are Charles E. Sprague’s The
Philosophy of Accounts (1907) and Henry Rand Hatfield’s Modern Accounting, revised and
re-issued as Accounting: Its Principles and Problems in 1927. Hatfield was one of the earliest
professors of accounting (Napier, 2014, p. 96), so we may take his theorising as emanating
from academia. As Lee points out, Sprague’s text follows Lisle’s approach. The similarities
include attention to management as well as measurement:
The whole purpose of the business struggle is increase of wealth, that is increase of proprietorship
[. . .] The all-important purpose of the proprietary accounts is to measure the success or failure in
increasing wealth, and to analyse that success or failure so as to ascertain its causes, as a guide
for future conduct (Sprague, 1907, p. 67).
In Hatfield (1927, p. 1), we begin to see categories of users being developed in greater detail:
Accounting [. . .] is essentially an attempt to present [. . .] aspects of business affairs concerning
which every business man [sic] needs to be informed. This is true whether the person concerned is
the owner of the business, a creditor of the business, a prospective investor, or the public
interested in regulating prices and profits.
As with the previous cases, Hatfield tells us what use will be made of accounting
information. For example, in the case of the profit and loss account:
The proprietor has more than a mere curious interest in learning how much profits he has made
through his business operations. It determines the direction of future business and which line of
activity should be extended because it is relatively more profitable, and which should be reduced
or cut off entirely. It furnishes the information which the investor should have when considering
the desirability of entering into a partnership or purchasing shares of stock in a corporation
(p. 240).
A chapter on trading, manufacturing and income accounts (pp. 345-67) discusses the
advantages of structuring accounts to yield relevant detail and there is a further chapter
(pp. 383-99) on cost accounts.
Thus, from the very beginnings of its theoretical development in the middle of the
eighteenth century, accountancy was framed as a response to identified objectives.
Although the theory is designed to measure proprietor’s capital, this is not its objective but
merely a stage in the delivery of the stated objective, which, in turn, yields an outcome
available for evaluation. By the turn of the nineteenth century, authors were providing a
MEDAR significant number of tools to enable information from their scheme to be used in pursuit of
27,3 the identified objective. The texts sold well: Lisle’s (1909) work, having first appeared in
Edinburgh in 1899, was republished in London and Edinburgh in 1906 and then in a new,
enlarged, edition and became a classic text (Institute of Chartered Accountants in England
and Wales, 1975; Lee, 1977; Mitchell and Mepham, 1976), while Sprague’s went through five
editions in 15 years (Gaffikin, 2005, p. 5). This suggests that users were able to employ them
430 to achieve their goals, offering a degree of evaluation. Even at this early stage in classical
thought, then, there was a degree of methodological sophistication and it is surely incorrect
to write it off as pattern modelling (see the section discussing received wisdom) which, as
Gaffikin (1987, p. 26) himself points out, contains no role for prediction, in contrast to the
evaluative stage of defeasible postulationism.
The writers discussed here are often grouped under the heading of “proprietary theory”:
Chatfield (1977, pp. 220-23) uses this as his section heading and subsequent commentators
frequently use similar language (see, for example, Lee, 2008, p. 142 and 145; Napier, 2014,
p. 95; Van Mourik, 2014a, p. 59). Riahi-Belkaoui (2004, p. 215, citing Coughlan, 1965, p. 155)
defines the term as follows: “according to proprietary theory, the [accounting] entity is the
‘agent, representative or arrangement through which the individual entrepreneurs or
shareholders operate’” (Most, 1982, p. 50). Lee (2008) describes Lisle as “implicitly
emphasising the proprietary theory of accounting” (p. 142) and says that “the preference of
early theorists was for [. . .] proprietary [. . .] theory” (p. 149; emphasis added). But language
like this should not be taken to imply that proprietary theory was a matter of choice for
theorists, perhaps entailing a postulate unrelated to the system being modelled or even an ex
post attempt to justify a reporting scheme. On the contrary, proprietary theory can be seen
in Cartwrightian terms as contributing to a successful attempt to model contemporaneous
systems and environments focused largely on proprietary interests and the user needs that
flow from them. Indeed, the reporting scheme can be seen as a nomological machine for
testing proprietary theory.

The separation of corporations and capital providers

In the early decades of the twentieth century, attention turned to the increasing scale, scope
and complexity of the largest business corporations and to the consequences of this,
including the separation of ownership and control; perhaps the most famous study is that by
Berle and Means (1932). It is important to understand that this was a slow development
rather than a sudden shift: as Hilt (2008) points out, while some degree of separation can be
discerned among New York’s corporations in the early decades of the nineteenth century,
Berle and Mean’s own data shows that, over a hundred years later, fewer than half of the
very largest firms they examined exhibited full separation of proprietorship and
governance.
Separation of ownership and control undermines proprietary theory. The first
accounting thinker to work through a full response to this was William A. Paton, who
thereby “revolutionized financial accounting theory” (Lee, 2008, p. 144; see also Napier, 2014;
Previts and Robinson, 1994). The principal vehicle of his revolution was a work published in
1922 and generally known as Accounting Theory although its full title, Accounting Theory
with Special Reference to the Corporate Enterprise, gives a better indication of Paton’s big
idea. His language in describing users (“managers, investors, et al.”, Paton, 1922, p. 5) and
uses of accounting information (“it is the function of accounting to record values, classify
values, and to organize and present value data in such a fashion that the owners and their
representatives may utilize wisely the capital at their disposal”, p. 7) reflects the newly-
emerging type of business corporation but clearly continues to conform to the methodology
set out above. He is quite specific (Paton, 1922, p. xiii, actually the first page of his Preface) Classical
that his theory is a response to the inadequacies of the proprietary accounting of the likes of accounting
Sprague and Hatfield, whom he names, but he is also quite specific that his revisions
respond to “the conditions of modern business organization” (p. xiii) and not to any
thought
inadequacy in proprietary accounting as it previously prevailed, which, indeed, he
emphasizes may well remain appropriate for the context for which it was designed.
The very first features that he alludes to in setting out his proposals, ones to which he
devotes a good deal of attention, are a revision in the structure of the accounting equation 431
and the analysis of revenue and expense (pp. xiv-xv). The hall-mark of Paton’s approach is
that “the theory of the accounting system is presented in terms of the two fundamental
dimensions, properties [assets] and equities” (p. xiv, emphasis in original), the latter
embracing both owners’ stock and liabilities. To show the implications of this, he supplies a
specimen balance sheet (p. 43) indicating clearly that no distinction is to be made between
the various categories of equities, so that there is no subheading, subtotal or even additional
spacing between categories that represent, in traditional terms, stock and those that
represent liabilities. On his second point, Paton’s principal criticism of thinkers such as
Sprague and Hatfield was that their “interpretation of expense and revenue [. . .] items and
accounts as direct accessories of proprietorship” (1922, p. 52) meant that “labour and
materials [. . .] consumed [. . .] becomes a charge of the same general significance as the net
return on all capital invested by other interests than the proprietary”, so that “the average
income sheet is a hodge-podge of illogical, non-illuminating classifications” (p. 53).
Paton’s postulation of the business entity itself as the focus for accounting, and the
emphasis on the income statement to facilitate effective management, has come to be known
as entity theory (Lee, 2008, p. 144) and Paton became “the best known advocate of the entity
concept” (Chatfield, 1977, p. 224). Yet we have seen that both Sprague and Hatfield, like
some of their British counterparts, did give attention to structuring the profit and loss
account to yield information useful in managing the business; indeed, Paton (1922, note 5,
p. 53) explicitly endorses the format prescribed by the Interstate Commerce Commission,
which is actually one of the examples cited by Hatfield (1927, pp. 357-59). Further, actually-
implemented reporting schemes, for example International GAAP, have not gone as far as to
abolish the distinction between equity and liabilities and, indeed, continue to devote a good
deal of attention to drawing that distinction[12]. This is, in part, of course, because of what
Paton himself conceded was the “peculiar importance” (p. 84) of owners’ capital as residual
equity, both in double-entry bookkeeping and in determining the ultimate bearer of business
risk. In addition, in many reporting regimes, ordinary shareholders are the user group
recognized as having primacy (Zeff, 2013) and smaller enterprises often remain
proprietorial. So far from it being the case that “entity theory was developed as a potential
counterbalance to proprietary theory” (Napier, 2014, p. 97), actually used reporting schemes
can best be thought of in directly Cartwrightian terms as including among their components
both entity and proprietary theory, drawn on as necessary to model the underlying systems
and environments. Paton’s thinking is better regarded as evolutionary rather than
revolutionary, a position underlined by historical analyses like those of Littleton (1933,
pp. 193-94) and Chatfield (1977, pp. 223-24), showing that precursors to entity theory can be
traced to the mid-nineteenth century, if not to medieval times.

Income modelling
The adoption of some of Paton’s ideas by other theorists and into actually used reporting
schemes is often now described in terms such as Lee’s explanation that “gradually, however,
financial accounting theory was influenced by economic thinking” (2008, p. 149) – indeed,
MEDAR Napier’s (2014, p. 97) discussion takes place under the heading “applying economics to
27,3 accounting”. The 1977 AAA report suggests that it may have come about because the small
number of accounting academics receiving doctoral training would thereby have received “a
strong dose of economic theory” (p. 6) and some were submitting their theses for a degree in
economics or were actually economists. While both the characterization as a translation of
ideas from an adjacent discipline and the specific mechanisms identified by the AAA are no
432 doubt accurate, it could equally well be said that accounting thought was developing in
Cartwrightian terms by adapting its modelling to slowly-evolving changes in the systems
and environments being modelled, as described in the previous sub-section.
The AAA report summarizes seven works it classifies within the group discussed here
(1977, p. 7), identifying user groups and user needs in each case. Although some posited user
needs are essentially circular (for example, profit is reported to inform owners of their
profit), others refer outwards to the system (for example to facilitate management and
control) and, thus, conform to the methodology suggested in this paper.
The primary focus of this group was the measurement of income. Because most
advocated a single income measurement, they are sometimes characterized as “true-income”
theorists, for example by Riahi-Belkaoui (2004, p. 339), as if they were simply disputing
among themselves which solution correctly responds to identical user needs and system
characteristics. Further, because of the central importance of valuation in their modelling,
the positions of members of the group tend to be described in terms of the value
measurements they advocated (see, for example, Riahi-Belkaoui, 2004, pp. 340-41), again as
if they were advancing different solutions to the same problem. In fact, as more nuanced
commentaries such as those of Lee (2008) and Napier (2014) make clear, the various thinkers
were addressing different predicated users and user needs (including, for example, different
appetites for relevance versus reliability) and different environments (for example
commodities in actively-traded markets versus other resources and stable versus unstable
price levels). The theories of the school can thus be seen in Cartwrightian terms, not as
competing for the prize of being the one true income, but rather as all available for
incorporation in reporting schemes according to the nature of the system being modelled
and its environment.

Rationalization of practice
Commentators who treat the theorists discussed in the previous sub-section as an
identifiable group generally label them giving equal (Riahi-Belkaoui, 2004) or greater
(American Accounting Association, 1977) weight to their mode of argumentation than to
their focus on income modelling, specifying that their theorization was deductive and
normative[13]. This nomenclature contrasts them with another group, who are held to
engage in inductive argumentation to offer an anthropology of existing practice by
uncovering the postulates or principles it can be shown to follow; it also, of course, serves to
emphasize the difference between the two groups and the apparent incompatibility between
different classical thinkers. Lee (2008) and Napier (2014) employ the nomenclature of
inductivism and deductivism without necessarily suggesting that they form watertight
categories.
It is true that the thinkers generally labelled inductivists took current practice as their
starting point and also that they considered that the fact that particular procedures had
survived for considerable periods and continued to attract the support of a sophisticated and
demanding commercial community constituted a point in their favour of some strength
(Napier, 2014, p. 100). However, in the main, they set out to rationalize current practice not
only in the sense of providing a rationale for procedures but also with the aim of improving Classical
their effectiveness by removing incoherence and inconsistency. accounting
In undertaking the first of these tasks, the so-called inductivists generally used the same
methodological structure as other classical thinkers: their works actually consist, not of a
thought
catalogue of accounting procedures but rather of explication of the way in which these
procedures meet specified user needs by the application of identified accounting postulates.
Although this involves starting from accounting procedures and inferring a set of postulates
fitting together with specified user needs so as to entail employment of those procedures, as 433
explained in discussing the structure of classical methodology, the test of success is, first to
demonstrate by deduction that those particular procedures are indeed what is required to
satisfy the specified user needs given the identified postulates and, second, to show that the
user needs and postulates identified are generally recognisable to practitioners as reflecting
the domain in which they operate. Hence, the thinkers addressed in this section were
combining inductive and deductive logic and using observations of users, user needs and
the conditions of the accounting domain as well as of accounting procedures. In arguing that
accountancy should continue to satisfy the needs, they identified they were adopting a
normative rather than a purely descriptive stance and, in the main, they were not seeking
merely to provide a rationale for existing procedures but also to improve them, an extension
of their normativity. There is, thus, much less to distinguish those referred to as deductivist
normativists and inductivists than these labels imply.
Aside from mere “annotators of the literature” (1977, p. 9), the AAA report classified
three works as falling within the inductive school. The first was Ananias Littleton’s
Structure of Accounting Theory (1953). The objective it articulates for accounting shows that
the work adopts the user-needs structure and actually has a distinctly progressive ring:
It serves society well when business management, out of an improved knowledge of the details
about the production and distribution of wealth, is able to make a better product cheaper while
paying good wages, suitable dividends, and taxes. Much of this socially beneficial “improved
knowledge of the details” comes from accounting.

But accounting confers other benefits. It has become in part a social instrument “to make moral
principles practical”. Managers and accountants are in direct contact with a business enterprise,
but there are many third parties that are not in direct contact, in spite of their clear interest in the
affairs of the business. The latter have a need to understand the enterprise, and cannot gain that
understanding directly by observation. They must rely upon indirect but dependable information,
accounting information (Littleton, 1953, pp. 14-15).
The AAA report acknowledges that Littleton’s arguments sometimes “partake of normative
deductive logic” (1977, p. 9) and refers to a “Littletonian alloy of deduction and induction”
(p. 28). Although it is true that Littleton was instinctively conservative – he “defended rather
than challenged the status quo” (Napier, 2014, p. 100) – he was prepared to envisage that his
work might be used to ask, for example, “are the means suited to the attached ends?”
(Littleton, 1953, p. 208).
The second work identified by the AAA report is by two authors we have already come
across, Paton and Littleton. Their volume, An Introduction to Corporate Accounting
Standards (1940), is described as “probably the most influential work in American
accounting literature” (American Accounting Association, 1977, p. 9). Numerous
commentators have pointed to the antithetical positions of these two authors – as we have
seen, Paton writing alone being classified as a deductivist, while Littleton was to go on to
publish the text just described – and express bemusement that they should have been
prepared to cooperate (American Accounting Association, 1977, p. 9; Chambers, 1962, p. 7;
MEDAR Gaffikin, 1987, p. 23). But perhaps their cooperation should be seen as further evidence that
27,3 the differences between so-called inductivists and deductivists are not clear-cut. The AAA
report itself concedes “occasional oughtness” and suggests that the joint work actually
“might defy classification as either deductive or inductive” (1977, p. 28). Zeff (2018, p. 64)
considers that “the two approaches blended into each other”.
The work adopts the user-needs model: “The purpose of accounting is to furnish
434 financial data concerning a business enterprise, compiled and presented to meet the needs of
management, investors and the public” (Paton and Littleton, 1940, p. 1). The authors address
the modern problem of the separation of ownership and control, the wide range of users with
an interest in the corporation and the likelihood of conflicts of interest between them.
Further, the AAA report considers that “insofar as it represents a deductive argument, one
would opt for the decision model approach” (American Accounting Association, 1977, p. 28),
the approach generally associated with golden-age thinkers. Paton and Littleton (1940, p. 3)
argue that “from the social point of view”, it is important that capital flows to those
corporations making most effective use of it, so that “the social importance of accounting
therefore is clear [. . .] since dependable information about earning power can be
an important aid to the flow of capital into capable hands and away from unneeded
industries[14]”.
These two works can be seen in Cartwrightian terms as seeking to draw out the
theoretical components of reporting schemes, the better to refine, develop and extend them.
The third work identified (Ijiri, 1975) is highly unusual in rejecting the user-needs approach,
which it does explicitly (pp. 29-33), in favour of “historical communication on a caveat
emptor basis” (p. 31) or “accountability” (p. 33); it thus does not qualify as defeasible
postulationism.

The golden age

One significant influence on golden-age thinking was the recent history of elevated levels of
inflation experienced in the USA and elsewhere (Lee, 2008), and a major focus of its theories
was the measurement of income and capital under conditions of fluctuating prices. Some
golden-age theorists at least (Mattessich, 1980) recognized that their theorising was
postulational and some also showed a real commitment to defeasibility.
A particularly clear example of this commitment is the book-length volume of empirical
work published by Chambers in 1973 (Chambers, 1973b). His principal target was existing
reporting schemes, in which he claimed to have found “anomalies” (Chambers, 1973a,
p. 162), in the Kuhnian sense, leading him to insights that supported his proposed scheme,
but he was also able to adduce some evidence supporting his identified user needs and
postulates. Hence, his theorization was:
[. . .] a consequence of the interplay of inferences from observations and of theoretical
considerations such as consistency, orderliness and completeness. Observation and theory
construction went hand in hand, so to speak. Tentative theoretical propositions provided ways of
interpreting what was observed, and observations provided tests of the feasibility of theoretical
propositions (p. 171).
Of course, Chambers’ theory could not be fully tested because it had not been implemented:
responding specifically to the criticism in the volume carrying Nelson’s (1973) essay, he
conceded that, “if empirical testing means testing a proposal as a whole in the context in
which it is intended to be used, then certainly it has not been tested” (1973a, p. 174). But
Chambers clearly saw that it ultimately required support from “those observable events [. . .]
which are in the nature of reactions or responses to, and consequences of, particular Classical
accounting practices” (p. 156). accounting
Although he is often counted among the important golden-age theorists (Gaffikin, 2003),
Mattessich’s major efforts were actually devoted to building a generalized “uninterpreted or
thought
semi-interpreted calculus” (Mattessich, 1980, p. 165) suitable for theory-building in
accounting but quite deliberately separate from actual theories (Gaffikin, 2003). His remarks
do reflect, however, a recognition of the role of defeasibility; he argues, for example, that
“competent empirical research could enormously enrich theory construction and theory 435
testing in accounting; above all empirical research is indispensable for the teleologic
interpretations of the general theory” (Mattessich, 1980, p. 168, emphasis in original).
Commentators now principally focus on golden-age theorists’ specific prescriptions for
various measurement systems and this adds to a sense of divergence and disharmony. The
first sentence in the following passage was used earlier to illustrate the received view along
these lines and it is easy to see how the text that follows confirms that judgement:
By the late 1960s, financial accounting theory had a chaotic flavour. Theorists such as Littleton,
Grady and Ijiri argued for historical cost accounting. Chambers advocated net realizable values.
Edwards and Bell were primarily concerned with mixed values. Sprouse and Moonitz and
Mattessich wanted a range of current values in financial reports. A further study by the AAA
gave another theoretical alternative – historical cost accounting supplemented by current cost
accounting (defined in terms of replacement costs, realizable values and price indices) (Lee, 2008,
p. 152, reference omitted).
Indeed, some commentators effectively reduce the theories of the golden age to their
measurement systems, so that Riahi-Belkaoui (2004, pp. 340-41), for example, classifies most
of them with income modellers, listing five theories identified simply by measurement basis.
Some commentary draws attention to particular aspects of the theorization, for example
Chambers’ (1966) identification of relevant user needs as “information about the ability of
organizations to respond to changes in their circumstances” (Napier, 2014, p. 101) or
Sterling’s (1970b) chosen “context of a simple business model of a wheat trader under
conditions of certainty and uncertainty” (Lee, 2008, p. 152). The secondary literature of the
golden age itself included major comparative studies of various theories such as Sterling
and Thomas (1979), while Fraser and Nobes (1985) drew attention specifically to the
different users and user needs embodied in different theories. But, as the original sources are
read less and less and the secondary literature fades from sight, we are losing an
appreciation that it was the environmental and systemic differences that yielded the
differences in theorization – the individual system studied by each theorist being, in
Cartwrightian terms, a nomological machine for testing their theory. When golden-age
theorising is seen in this light, rather than as a competition between “grand theories”
(Napier, 2014, p. 100) to offer the “grand scheme” (Cartwright, 1999, p. 25), it becomes not a
confusing melange of conflicting opinions, but a rich range of resources available for
incorporation in a variety of reporting schemes in response to the features of the particular
environments and systems being modelled.
This is not to suggest that the only reason why a golden-age theory, or one from any
other era, would fail to achieve adoption is that the system and environment being modelled
do not manifest themselves in practice. Even plausible theoretical ideas can turn out to be
erroneous and natural science abounds with examples of valid ideas proffered ahead of their
time or in other ways that undermined their acceptability: Mendel (genetics), Semmelweis
(antisepsis) and Boltzmann (atomic theory) were ahead of their time; Zweig (quarks)
insufficiently senior (Waller, 2004). Persson and Napier (2018) explore a variety of
contextual factors that affected the dissemination of Chambers’ ideas.
MEDAR Reporting schemes incorporating elements of golden age (and previous) thought directed
27,3 at alternatives to historical cost were implemented during the rapid inflation of the 1970s
and 1980s and fell away only as inflation was largely eliminated from the financial reporting
environment, while contemporary fair value reporting can be seen as incorporating elements
of this thought (Bromwich, 2005; Whittington, 2008). Persson and Napier (2018) are able to
show how delays in the dissemination of Chambers’ ideas resulted in their becoming widely
436 available only as inflation was declining.

Classical accounting thought in the conceptual framework project

Zeff (2013) provides a meticulous plotting of the evolution of precursor authoritative and
other literature to its culmination in the conceptual framework project of modern accounting
standard-setters, with decision-usefulness evolving into a specific conception of investment
decision-making and cash-generative ability. The framework can be thought of in
Cartwrightian terms as a generic reporting scheme incorporating various accounting
theories and other resources (such double-entry bookkeeping); it draws on, and continues to
develop, classical accounting thought (Baker, 2017; Lee, 2008). Now that such theorising has
been largely abandoned by academia, it is only via the conceptual framework project that it
survives: as Glover (2014, p. 17) puts it, “academic accountants and financial accounting
standard setters have traded places”.

Methodology and metaphysics in the writing of golden-age theorists

In this section, I want to ask whether golden-age theorists actually did, as received wisdom
has it, espouse full-blooded, exact-sciences, received-view hypothetico-deductivism and
foundationalist, positivist realism – something akin to Cartwright’s fundamentalism – and,
if not, how they opened themselves up to this charge and what their views actually were.
The four leading golden-age methodologists identified by Gaffikin (1988, pp. 16-17),
Chambers, Mattessich, Devine and Sterling, unquestionably called for a more scientific
approach to accounting theorising – and presumably felt that they were contributing to such
a movement – but it is important to attend to their language. Chambers (1973a, p. 175)
considered that “the traditional ways of seeking to remove defects in accounting [. . .] are
pseudo-scientific, if not ascientific” and in the last of his major methodological contributions,
as identified by Gaffikin (1988), he argues that “the first condition of research in accounting
is the belief that accounting can be studied scientifically” (Chambers, 1960, p. 35) and that
accounting can be “studied the better by drawing on the methods of the sciences” (p. 39).
Mattessich (1980, p. 160) reminds us that “Chambers reiterates [. . .] the need for ‘the
scientific study of accounting’” (Chambers, 1957, pp. 208-209) and says of his own thinking
that it is “similar to Chambers, with whom I wholeheartedly agreed on the construction of a
‘scientific’ accounting theory”. He had earlier written of the need for accounting to make the
“transition from [. . .] dogmatic thinking [. . .] to the behavioural-analytical thinking of the
scientist” (1964, p. x). But many golden-age theorists, including Chambers, Devine,
Mattessich and Sterling, were well-read in the philosophy of science (Gaffikin, 1988,
pp. 20-23; Lee, 2008, p. 151; Mouck, 1989, pp. 86-87) and it seems unlikely that they can have
been naively unaware of the disparity between their postulational methodology and the
tenets of the received view: what did they actually mean when they called for the scientific
study of accountancy?
In his famous, and “seminal” (Gaffikin, 1988, p. 17), “Blueprint” article Chambers (1955,
p. 19) tells us that “it is, in fact, one of the greatest pleasures of the theorist to put his [sic]
hypotheses to the test of reality”. But he then begins the coverage of his preliminary sketch
of postulates in the paragraph immediately following this comment, confirming, surely, his
belief that postulationism and testing against reality are compatible. In the 1960 Classical
methodological paper referred to above, he explicitly says that for some of the reasons accounting
I alluded to in discussing the methodology of classical theory, “experimentation in the
course of practice is difficult and costly, and is likely to be quite inconclusive”, calling
thought
instead for propositions to be “tested by reference to observable general characteristics of
the field in which they are applied” (p. 38). He adumbrates “a number of methods of
acquiring knowledge” (Chambers, 1960, p. 34) including “historical inquiry” and
“examination of the sets of conditions under which particular ideas or methods were 437
developed, used or rejected”, emphasising that “each method serves in its own way to fill out
the knowledge of a subject. The feature that distinguishes all such inquiries as scientific is
the attitude of doubt or scepticism with which they are pursued”. At another point he says,
“not all the methods of the natural sciences may be appropriate to the study of accounting,
but the attitude toward the subject matter can be essentially the same” (p. 35). In summary:
To stipulate that accounting may be studied the better by drawing on the methods of science is
[. . .] to indicate that extensiveness of view and rigour in analysis will yield more practically useful
knowledge than ad hoc deliberation on the limited aspects of accounting which from time to time
force themselves on public or professional consciousness (p. 39).
In the paper (1973a) explaining the background to his empirical volume, already referred to,
Chambers emphasizes that he subscribes to:
The belief that the test of any actual form, and the grounds for any proposed form, of accounting
lie in those observable events of the commercial, financial and professional communities which
are in the nature of reactions or responses to, and consequences of, particular accounting practices
(p. 156).
He goes on:
What distinguishes scientists from others is that they are critical (discriminating) of what they
have been led to believe. The method of science is criticism. The concern of the scientist is
whether there are better theories or guides to action, theories which are more reliable or
dependable than those currently held as guides to action (p. 157, emphasis in original).
And he quotes Cohen (1964, p. 79, at p. 157): “scientific method is a systematic effort to
eliminate the poison of error from our common knowledge”. Again, he dismisses full-scale
experimental testing as “not even a starter” (p. 161), concluding that “the method of direct
observation, therefore, seem[s] to be the only method of inquiry or testing available” and
drawing comfort from the fact that “observation is the principal method of such fields as
astronomy, history and political science”. When (rarely) Chambers is tempted to draw on the
terminology of hypothesis testing, as in the Blueprint article’s reference to putting a
hypothesis to the test of reality, we should be prepared to see it as used loosely in his sense
of testing propositions “by reference to observable general characteristics of the field in
which they are applied” (Chambers, 1960, p. 38). What Chambers actually advocated,
supported – and lived up to – in the name of science was a critical, sceptical attitude, a
rigorous approach and empirical grounding in the manner of human sciences like history
and politics; no less but no more.
Mattessich was equally clear that theory testing in accounting could not fully meet the
tenets of exact-sciences hypothetico-deductivism:
[. . .] once accounting theorists have come to realize [the many] difficulties of the empirical
approach in our discipline, they will acknowledge that a minimum of a priori assumptions in
accounting are indispensable. It might turn out, for example, that the accounting users’
information needs cannot satisfactorily be established by empirical research alone, and that
MEDAR certain a priori assumptions about rationality criteria of those users will have to be accepted. In
other words a priori reasoning might not remain restricted to the purely analytical procedures of
27,3 accounting, but might continue to compete with empirical research and supply more or less
legitimate substitutes (1980, p. 168).
And although his 1960 paper advanced the case for the scientific method, Devine also
rehearsed the difficulties associated with it at length: “most of the [methodological] problems
438 of science [. . .] are found in the field of accounting, and, in addition, accounting may have
some normative and psychological problems that the physical sciences do not ordinarily
possess” (p. 394).
These theorists said little, if anything, to imply that their advocacy of the scientific study
of accountancy entailed full-blooded hypothetico-deductivism, still less foundationalist
positivism; commentators accusing them of the latter rely not on anything they said but on
the philosophical entailments of their supposed received-view hypothetico-deductivism.
Were golden-age theorists, then, careless or naive in their language?
Given their familiarity with the philosophy of science, they would have been aware of
contemporary developments in the subject. The two closely related philosophical
movements, logical positivism and logical empiricism, which had held sway over the
epistemological framework surrounding hypothetico-deductivism since the 1920s, came
under considerable challenge since the 1950s. Willard Quine challenged the assumptions of
logical positivism from a pragmatist perspective while Kuhn began work on his
paradigmatic model (already described), which undermined the rationality of science.
Observations were shown to be theory-laden rather than independent of the hypotheses to
be tested and “by the end of the 1960s it was clear that positivism could not stand up to the
criticisms, and that a new philosophy of science was required” (Vickers, 2011, p. 366)[15].
Advocacy of a scientific approach not necessarily entailing received-view hypothetico-
deductivism or logical positivism was to be found elsewhere in the philosophical literature –
for example, and especially, in the philosophical pragmatism of thinkers such as John
Dewey, referred to by classical accounting theorists such as Littleton and Devine[16]. Thus,
golden-age theorists were entitled to expect that their advocacy would not be read as
necessarily signalling the espousal of the received view or metaphysical fundamentalism.
The attractions of a scientific vocabulary more loosely interpreted included a means of
combating the kind of arguments from authority and appeals to precedent habitually used
by conservative forces in accounting, as excoriated by Chambers (1973a) and others.
Ironically, just as the edifice of hypothetico-deductivism was beginning to crumble, two
major and highly influential US inquiries into higher education for business, both reporting
in 1959, recommended that “research be based on underlying disciplines, such as the
behavioural sciences and economics, and strongly encouraged the conduct of hypothesis-
testing research” (Dyckman and Zeff, 2015, p. 513; see also Jeanjean and Ramirez, 2009;
Mouck, 1989), making appeals to a scientific approach particularly attractive in the US
accounting academy. But, most importantly, it seems reasonable to assume that the golden-
age theorists did believe passionately in the research qualities they were actually advocating
under the banner of a scientific approach and that they also believed, in the light of
contemporaneous developments in philosophy of science of which they would have been
fully aware, that it was, indeed, reasonable to use this banner to symbolize what they were
calling for.
In Sterling, we do encounter a golden-age theorist apparently espousing the full-blooded
received view and his works illustrate the challenges for accounting thought that follow
from such an espousal. His major contribution to methodological discussion was his 1970
paper (1970a), which offers a strong commitment to Hempel’s, recent and more
sophisticated, version of the received view. Known as the deductive-nomological model, this Classical
held that a deduction from general laws and initial conditions leads to an explanation or accounting
prediction, the only difference between the latter two being temporal. Sterling explains
Hempel’s scheme at length and makes various attempts to fit accounting into it, for example
thought
by treating accounting records as observations modelling the firm and tested by audit. In
each case, he shows that the attempt does not work: in the example cited here, because
auditors test inputs and procedures, not outputs. Ultimately, Sterling concludes that
“accounting ought to supply the data specified by decision theories” (p. 454) with the
439
consequence that the epistemological problems of accounting theory are not solved but
dissolved: “in one sense, under this interpretation, there is no separate theory of accounting.
Every theory calls for measurements, and accounting is simply the measurement activity for
certain kinds of theories” (p. 455). Sterling saw his own 1970 work of theory construction
(1970b) as doing this for “an oversimplified firm”, conceding that even determining what
ought to be measured, let alone how it should be measured, was “a formidable task” (1970a,
p. 457).
Sterling’s (1979) second book-length exposition of theory devotes much of the first third
of its length to pressing the case for hypothetico-deductivism. However, although the section
headed “defining scientific hypotheses” (p. 39) has at its head a quotation from Hempel, it
actually begins with Sterling saying that “the first requirement for a proposition to be
considered a scientific hypothesis is that it be empirically testable – it must specify a
measurable attribute” (p. 39). Now, while the last clause in this statement could be read as
pointing incidentally to the necessary but not sufficient condition that, to be testable (as an
explanation or predication), a proposition must be expressed in measurable terms, the
remainder of Sterling’s text suggests that he is intending it to mean that measurability is a
synonym for testability. To illustrate the point, consider the proposition, “if you drop this
plate it will break”, which is a testable prediction in hypothetico-deductive terms because it
satisfies both the requirement that it specifies a relationship between two chronologically
ordered events and the requirement that the events are measurable (because observable).
The proposition, “if you drop this plate you will hurt its karmic feelings”, though it specifies
a relationship between two chronologically ordered events, is not a testable prediction
because the latter is unmeasurable, while the proposition, “this plate is broken”, is
measurable but does not become a testable prediction or explanation as a consequence
because it does not specify a relationship between two events. That Sterling’s argument
comes close to conflating measurability and testability is apparent, for example, in his
concluding chapter, which begins by saying that “the primary problem of accounting is that
our figures do not have empirical referents” (p. 213) and goes on:
There have been a growing number of accountants who have more or less clearly recognized the
need to transform accounting into an empirical science. Several proposals satisfy the requirement of
empirical testability. These include unallocated entry values, undiscounted cash flows, and physical
capacity, as well as exit values. Since all of these meet the criterion of empirical testability, the
decision as to which one [. . .] we should account for requires an additional criterion. Thus the
second problem facing accountants is the selection of which [. . .] we should measure and report.
The solution to this problem is the rigorous application of the relevance criterion [. . .] we must get
deeply involved in the decision process; we must carefully examine the various decision models that
are designed to allow decision makers to achieve their individual objectives (p. 215).
Whereas in his 1970 paper, Sterling (1970a) appeared to distance accountants from the
decision-theorists who were to specify data requirements, he now takes this role on for
accountants. He says that:
MEDAR A “decision model”, as I use the term, is merely a special kind of scientific law. It is a goal-
oriented, economic, empirical generalization. Its purpose is to permit one to make scientific-type
27,3 predictions – to permit one to make “if [. . .] then [. . .]” statements (1979, p. 85).
But if the if-then statements are arrived at from goals by pure deduction, then they are true
by definition and not hypotheses and the capacity to check observations fed into them
against empirical referents does not make them hypotheses; if they are predictions, then
440 testing them empirically is subject to all the difficulties described earlier and the theory’s
methodology amounts to defeasible postulationism.
Returning to Sterling’s first book-length theoretical work suggests that he actually held a
more nuanced view than the remarks so far quoted imply. He says there that his discussion
will adopt the “assumption” (Sterling, 1970b, p. 42, emphasis in original) of scientific
realism – that is, the view that the objects of scientific knowledge exist independently of the
minds or acts of scientists – the italics surely indicating a degree of tentativeness. A note to
the relevant passage points out that advances in science have “led many scientists to return
to a kind of Platonic idealism in which it is claimed that scientists talk about things that are
only mental constructs”, and if scientists have made such moves, then why not accountants?
In the rest of the chapter, he discusses problems of interpreting data, citing the example of
Rorschach ink-blot tests. In a later chapter, he says that he had “wanted to avoid the whole
subject” of objectivity, as coverage “would entail arguments of an epistemological and
metaphysical nature that are much beyond the scope of [his] study” (p. 105), but finds
himself needing to address it because accounting texts so often refer to it. The conclusion of
his discussion cites Kuhn’s work and ends with the point that “data is, at least partly, a
product of the theory being employed, and therefore theoretical arguments are at least
equally as important as ‘the evidence’” (p. 115). These remarks suggest that even Sterling
had reservations about the implications of a fundamentalist position. He may have been
influenced in focusing on measurability against an empirical referent by the demands of
trying (ultimately unsuccessfully) to disabuse accounting practitioners of their attachment
to the, as he saw it, arbitrariness of historical cost allocations, a struggle he described to the
Accounting Hall of Fame in 2006 (Lee and Wolnizer, 2012).
If golden-age theorists ever saw the positivism of the neo-empirical paradigm as
delivering their demands for a scientific study of accounting, as Napier claims (see above),
then they came quite rapidly to revise this view – even Sterling (1990) launched a virulent
attack on positive accounting theory and Chambers (1993) was no less passionate.

The metaphysics of the accounting domain

In this final section, I draw together the paper’s implications for the metaphysics of the
accounting domain. Cartwright’s metaphysical nomological pluralism shows us that we
should seek to learn about the metaphysics of the domain from an examination of the
methodology used in those of its theoretical endeavours that contribute to the successful
performance of the discipline of accountancy. I have argued that the discipline of
accountancy does perform successfully within the context of its contemporary social roles,
that the theoretical tradition that contributes to this success is to be found in
classical accounting thought and that the methodology of that tradition is defeasible
postulationism[17].
As we have seen, according to Cartwright, the methodologies of disciplines such as
physics and economics lead us to conclude that they inhabit a world of “‘dappled’ realism”
(Vickers, 2011, p. 373), “a world rich in different things, with different natures, behaving in
different ways”, so that “the laws that describe this world are a patchwork, not a pyramid”
(Cartwright, 1999, p. 1). It seems to me that the methodology of classical accounting thought
points in a similar direction – and, indeed, that accountancy may offer a particularly Classical
illuminating case of dappled realism. The theories of accounting do not uncover universal accounting
regularities but are useful, together with other components such as double-entry
bookkeeping, in the construction of reporting schemes that themselves achieve the successes
thought
of the discipline and support our understanding of the nature of the accounting domain and
objects in it.
A pattern example of the working out of dappled realism in actually used reporting
schemes is the way in which, first proprietary theory and then entity theory, responded to 441
the characteristics of the environments and systems being modelled with both then used in
combination in schemes, the better to describe entities which are both organisms in their
own right and the projection of the interests of their equity investors. Other cases include
successive theories of goodwill, leases, deferred taxation, development expenditure, share-
based payments and so on being formulated as the legal and commercial nature of systems
being modelled, user needs and the quality of measuring instruments (such as the economic
sophistication of audit tests) change through time[18].
A rather different case is the way in which we can make sense of the multiplicity of
valuation models offered by golden-age theorists by seeing each as responding to particular
system and environmental characteristics and user needs; although these theories have not,
in general, been incorporated in actually used reporting schemes, some have found their way
into such schemes via deprival value, the alternative to historical cost actually used
historically as a response to the deficiencies of historical cost under conditions of high and
persistent inflation and the increasing use of fair values. In a similar way, Staubus’
theorising using discounted future cash flows (Napier, 2014, p. 101; Staubus, 1961), while it
has not been adopted generally in any actually used reporting schemes, has found a place in
such schemes via accounting for leases and financial instruments.
The character of the evaluative phase in classical accounting thought’s methodology –
the defeasibility of its postulationism – warrants the realism of accountancy while at the
same time giving appropriate recognition to the tentative, socially negotiated nature of that
realism and the enormous challenges facing us as we grapple with the complex relationships
involved in it. It is a “transactional realism” (Sleeper, 1986, p. 92) which responds to the
different natures and behaviours of the different parts of the accounting domain, as captured
in the patchwork of theories that make up classical accounting thought. Of course, classical
accounting theorists did not explicitly espouse dappled realism, not least because, by the
time Cartwright unveiled her ideas, classical accounting thought in the academy had met its
demise. However, what classical theorists did have to say about metaphysics suggests that
their views were nearer to Cartwright’s than to the fundamentalist foundationalist
positivism that commentators accuse them of displaying.
In applying metaphysical nomological pluralism to the accounting domain, we can not
only rescue classical accounting thought from the sink of logical positivism and other
fundamentalist positions but also move the metaphysical analysis on from the Kuhnian
multi-paradigmatics prevalent at the time of the golden age to a philosophy of science with a
contemporary resonance. Viewed in this light, classical accounting theorising surely
justifies a place in the endeavours of modern accounting scholars.

Notes
1. Unlike post-classical, social scientific theorists who address accounting procedures only
indirectly, for example by examining the behaviour of accountants or the behaviour of others
towards the products of accounting procedures.
MEDAR 2. See the section on “Early classical thought and the proprietorial environment”.
27,3
3. Gaffikin enters the caveat that his use of these terms may be premature but offers very little
encouragement to take this view.
4. The author herself puts the word between inverted commas, perhaps using them as scare quotes.
5. As pointed out earlier, the close relationship between classical accounting theory and practice
442 means that not all theoretically driven innovations are the product of work by academics.
6. I return to this point later in the paper.
7. Riahi-Belkaoui talks of the structure as a “frame of reference” which applies “whatever
approaches and methodologies are used” (2004, p. 210), but it can equally well be thought of as
methodology at a more abstract level.
8. Hakansson’s (1973) contribution to the volume including Nelson’s (1973) critique of classical
accounting thought in effect proposed treating results from neo-empirical studies as building up
towards a systematic test of classical accounting theories.
9. The report points out, for example, that several theorists pre-dating the emergence of its decision
usefulness approach “cite particular users [. . .] and occasionally suggest the information that
users would find useful” but argues that “it is not possible to employ these casual references to
explain the surrogate choices that the writers made” (American Accounting Association, 1977,
p. 8). While it may not be possible to derive these choices rigorously, it is nonetheless possible to
discern the argument.
10. There are structural similarities between the methodology described here and Mattessich’s
Conditional-Normative Accounting Methodology, which post-dates his golden age theorising
(Mattessich, 1995a). A significant difference is that Mattessich sees his methodology as
something he is constructing de novo, including specifications in a number of areas offering a
standard to be worked towards, rather than, as Cartwright envisages, as something to be found
by examining the successful endeavours of a discipline.
11. I do not suggest that the only reason reporting schemes may be altered over time is in response to
changes in systems and environments; in the practical world of accounting regulation all sorts of
micro-political considerations arise. But if the cumulative effect of these draws schemes away
from successfully modelling systems within their environments, then expert users will surely
judge them to be unsatisfactory.
12. Although International Accounting Standards do not specify sub-totals and totals to be
presented in the statement of financial position, IAS 1 (International Accounting Standards
Board, 2014, paragraphs 54(r) and 55) does require a line item for total equity (other than non-
controlling interests) and presentation of sub-totals where relevant to an understanding of
financial position; actual published financial statements and model financial statements
provided by professional firms commonly do include total equity and a total for liabilities.
Further refining the distinction between liabilities and equity continues to occupy the
International Accounting Standards Board (see, for example, International Accounting
Standards Board, 2017).
13. Deductive argumentation was used before the income modellers; for example Napier (2014, p. 95)
finds in the work of Hurstcraft Stephens (see the section on early classical thought) “a forerunner
of the ‘deductive’ approach to accounting theory”.
14. Zeff (2018) conducts a meticulous textual analysis tracing the content in Paton and Littleton’s
(1940) work back to its individual authors. The chapter quoted here contains content contributed
by both authors “by turns” (Zeff, 2018, p. 64). Paton himself accepted that the work as a whole
contains an element of compromise between its two authors’ positions (Zeff, 2018, p. 64), but Zeff
is not arguing that this tension resulted in radical incoherence. If authors agree on their
 methodology, then any inconsistency in their theorising does not undermine this agreement: Classical
observing a black swan necessitates our abandoning an exclusively white swan-based theory but
not our commitment to falsificationalist empiricism.
accounting
thought
15. The work of the Stanford School, of which Cartwright’s work is part, is one attempt to provide
such a new philosophy (Vickers, 2011, pp. 369-374).
16. See, for example, Deinzer (1965). Mouck (1989, p. 88) points out that Devine’s thinking has a
“pragmatic orientation”, although the extent of his commitment to pragmatism became 443
clearer after the publication in the 1980s of his extensive writings, previously circulated
privately.
17. A useful extension of the work in this paper would be to explore its arguments in the context of
non-Anglophone, and particularly continental European, scholarship.
18. This is not to suggest that all changes in reporting schemes occur only in response to changes in
systems and environments – see Note 11.

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Corresponding author
Brian A. Rutherford can be contacted at: b.a.rutherford@kent.ac.uk

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