Accounting Research Center, Booth School of Business, University of Chicago

Why Bother with Postulates?

Author(s): R. J. Chambers
Source: Journal of Accounting Research, Vol. 1, No. 1 (Spring, 1963), pp. 3-15
Published by: Wiley on behalf of Accounting Research Center, Booth School of Business,
University of Chicago
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 Why Bother with Postulates?

R. J. CHAMBERS

Accounting has frequently been described as a body of practices which

have been developed in response to practical needs rather than by deliber-
ate and systematic thinking. Thus: "In one important respect bookkeeping
differs from other sciences, in that it is not in the least theoretical, but
essentially and fundamentally practical. It is based upon expediency, and
upon the actual needs and requirements of everyday life. It was invented
because man wanted it, because he found that he could not get on without
it. It is essentially utilitarian. It is not the result of the work of dilletanti,
of men who conceived some theory and labored to prove the truth of it." 1
The view thus represented has persisted in various forms, such as: "Ac-
counting is not formulated with reference to, nor does it stand on general
truths or the operation of natural or general laws." 2
In one sense such statements convey an idea of the way in which account-
ing rules and procedures have been developed. There has been little regard
for an orderly and systematic formulation. Multiple solutions have been
put forward and adopted for many specific accounting problems. In
another sense such statements are confused and confusing. For, if ac-
counting is utilitarian there must have been some concept or some theory
of the tests which must be applied in distinguishing utilitarian from non-
utilitarian procedures. And, if rules are not formulated with reference
to general laws or ideas of some kind then it is quite pointless to speak of
rules and to write textbooks about them. It is largely because the tests of
"utilitarian-ness" and the general ideas or laws which underlie accounting
rules have not been made explicit that the body of accounting practices
now employed contains so many divergent and inconsistent rules. Even
rules which have been adopted, and recommendations which have been

'Woolf, Arthur H., A Short History of Accountants and Accountancy (London:

Gee & Co., 1912), pp. xxix, xxx.
2C. A. Smith and J. G. Ashburne, Financial and Administrative Accounting (New
York: McGraw Hill Book Company, Inc., 1955), p. 2.

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4 / WHY BOTHER WITH POSTULATES?

made, after considerable discussion over the past thirty years exhibit in-
determinacies, divergencies and inconsistencies. The application of good
intentions and long deliberations in an ad hoc setting cannot free practice
of these features.
Recognition of this has given rise to the belief that some rigorous and
extensive examination of accounting is necessary3 and to demands that
such an examination should be undertaken.4 The response of the Special
Committee on Research Program of the American Institute of Certified
Public Accountants to all this is singular in that it envisaged a program
in which attention would be directed initially to the "postulates" of ac-
counting.5 Reactions to the product of such an inquiry are likely to be
extremely diverse, for an examination of basic assumptions is not the kind
of thing which falls within the common and regular experience of practi-
tioners or teachers. Although there are some important differences, there
are also some important similarities between an inquiry of this nature and
the solution of practical day-to-day problems. It is the present purpose to
explore some of these for the light that may be thrown on the close link
between what appears to be a quite theoretical pursuit and the exigencies
of professional practice.

Practice and Research: Similarities and Differences

An everyday problem, no matter how extensive, is circumscribed by a

host of details which lead or confine the efforts of a practitioner. These
include the specific characteristics of the firm considered at the time, and
its specific problem at that time; the general standards of practice or
methods available for solving similar problems at that time; and the
amount of time available and its cost to the client. It is a matter of ex-
perience that different practitioners confronted with the same problem will
offer different solutions-not invariably, perhaps, but often enough to
suggest that any given solution is no more than a hypothesis. In effect
each says: "That is my best advice; try it that way and see how it works
out." If the proposed solution works satisfactorily no one says: "That
was a sound hypothesis," nor even, "That was a lucky guess." The matter
is closed. If the proposed solution does not work satisfactorily, some other
solution is tried-another hypothesis. In fact, by virtue of the first trial
the situation may have changed, and when further advice is sought by the
client, the practitioner has a slightly different problem to solve. The first
piece of advice is not then seen as an unsound hypothesis, or even as a
hypothesis at all. In any event, the constant modification of advice and

'Leonard Spacek, "The Need for an Accounting Court," The Accounting Review,
July, 1958.
4Alvin R. Jennings, "Present-Day Challenges in Financial Reporting," The Journal
of Accountancy, January, 1958.
'Report of the Special Committee, The Journal of Accountancy, December, 1958.

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 R. J. CHAMBERS / 5

adaptation of practices and policies are the means by which business be-
havior is geared to circumstances.
Every new set of circumstances creates a new problem in a new setting,
providing the opportunity to choose new assumptions and avoiding the
need for consistency in those assumptions from one situation to the next;
for what is required is a practicable and acceptable solution to one problem
at a time. When a practitioner has a number of clients or has any one
client over a long period, he should (and most do) take steps to see that
there is a measure of uniformity, or that there are no gross inconsistencies,
in the advice he gives and the reports he gives on annual statements. But
the range of clients of any practitioner is limited and every task he un-
dertakes has a definite set of technical, temporal or institutional limits.
An inquiry into the postulates and principles of accounting has no such
limits. From this, difficulties arise, both in carrying out the inquiry and in
evaluating the products received. Ideally a statement of postulates or
principles will be sufficiently comprehensive to provide the ground rules
for solving problems in all specific situations in which people prepare or use
accounting information. In other words, the person who seeks out postu-
lates or principles is endeavouring to provide a general solution to the
whole series of specific problems which may and do confront practitioners.
To imagine or devise propositions which cover all conceivable situations
is a difficult task because it is open-ended. It is possible to seek less com-
prehensive sets of postulates or principles, covering limited fields, such as,
for example, corporate accounting, governmental accounting, fiduciary
accounting. But even these are much more difficult to discover than is
the framing of a solution to a particular problem. Once such a proposition
has been put forward one or both of two things may befall it. It may be
condemned "as a hypothesis" much more readily and by many more people
than would condemn as a hypothesis a proposed solution to a practical
problem. And it may be cause for considerable disappointment; for either
it may appear to be so obvious that it is not worth stating, or it may
appear to have no direct utility to the practitioner and give rise to irrita-
tion and impatience with the whole business.
These are natural reactions, even on the part of researchers, and more
so on the part of practitioners. But a sense of history is some protection
against disquiet. For all practical purposes, for over 2,000 years men
accepted the postulates of three-dimensional geometry; but the practical
utility of non-Euclidean multi-dimensional geometries now extends through
to the latest and most sophisticated and practical of scientific and busi-
ness calculations. For 1300 years it seemed reasonable to postulate that
animal and human anatomies are the same; it required the insight of
Vesalius to question this assumption of Galen and to lay the foundation
for scientific study of human anatomy. The number system using the
base ten has long been extolled for the economy it gives to calculation;
but only by resort to the binary system has it been possible to do all

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6 / WHY BOTHER WITH POSTULATES?

the things which require the use of high-speed computers. There are
literally thousands of examples of advances made in practically useful
human knowledge by stating and questioning established hypotheses or
their postulates, or by putting forward new hypotheses on the basis of
postulates which appeared to be trivial or even ridiculous. There is no
reason why accounting should be considered to be different in this re-
spect from any other field of knowledge.

The Analysis of Practices

As the last paragraph suggests, there are two ways of examining the
foundations of accounting. By one of these, a statement is made descrip-
tive of an operation; the description being full and complete, it is analyzed
to discover on what postulates the operation is based; finally these postu-
lates are considered for the purpose of discovering whether they are reason-
able by whatever criteria are deemed necessary to judge reasonableness.
It will be useful to consider an example, say, the practice of setting down
periodically the assets of a client or an employer, assigning dollar amounts
derived by a diverse set of rules, and adding those amounts to ar-
rive at a total. This is not all the accountant does periodically; but
it is a full and complete description of one thing, one operation. The only
objection that may be taken is in respect of the phrase "assigning dollar
amounts derived by a diverse set of rules"; but a moment's thought will
enable any accountant to recognize that different rules may be applied
to different assets-to cash, the face amount; to receivables, the book
value less a provision; to marketable securities, market value if less than
cost; to inventories, cost on a LIFO basis; to fixed tangible assets other
than land, cost less depreciation; to land, cost; to intangibles, a nominal
sum-all these rules and many other variants of them are currently
acceptable. Upon what postulates, then, is the above-mentioned opera-
tion based? There are at least two.
First. The assignment of money amounts, with the intention that they
shall be added, is based on the assumption that there is a common quality
which all items in the list possess and which may be represented by a
money sum. That this is a reasonable postulate cannot be denied. But it is
not the postulate appropriate to the above operation; for it has been
shown that for seven types of asset there are at least seven methods, all
different and all acceptable, of assigning money amounts; and by the
description given to each of these methods, it is clear that the amounts
assigned do not represent a common quality of the assets. The postulate
underlying the use of a diverse set of rules is that the subj ect items do
not have a common quality; or alternatively, if they have a common
quality, it is not a quality with which accounting is concerned. Both of
these possibilities lead in curious directions. Take the former-that
assets do not have a common quality. The fact that they are called by a ge-

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 R. J. CHAMBERS / 7

neric name-assets-signifies that they have some quality in common. This

fact stands out above all the different methods of assigning money sums; as-
sets have some quality in common. The first alternative postulate is there-
fore invalid. Take, now, the second that, if assets have a common quality, it
is not a quality with which accounting is concerned. It may be observed
here that this is the only postulate which can justify the use of a diverse
set of rules for assigning money sums; but clearly it makes nonsense of
all the discussion in accounting about common denominators. This matter
will crop up again when the other postulate underlying the described
practice is considered.
Second. The practice of summing the several money amounts assigned
to specific assets postulates that such an addition can be performed
legitimately. Legitimately means that the set of magnitudes can be added,
and that when added they will give a total which has a definable meaning,
and in particular a meaning of the same kind as the meanings of the in-
dividual magnitudes added. Now it is unlikely that anyone would pro-
pose, if he were asked to find the combined weight of two men, to add the
weight of one man at sea level to the weight of an astronaut in orbit. If
he did he would reach the nonsensical conclusion that the weight of two
men is equal to the weight of one man. The sum of two weights means
nothing unless they are measured by the same rule. Similarly, an unin-
formed person might easily take equal distances on a map drawn on
Mercator's projection to represent equal longitudinal distances on the
spherical surface of the earth; if he were to add two such distances and
convert them on the scale given for distances at the equator, he too
would obtain a meaningless result, for it would imply that the circum-
ference of every circle obtained by cutting a sphere is the same as that
of the circle obtained by cutting the sphere through its center. What, then,
about the procedure of adding the amount of cash held by a company today
to the amount of cash paid twenty years ago for a piece of freehold land
which the company still holds today? The practice is no less absurd than
the other two examples. The two things can not be added because they
have not been converted to common scale (unless a given amount of
money can purchase the same amount of land as it could twenty years
ago). And it follows that if they are added the result would be meaning-
less. As in the previous section the reasonable postulate stated at the
outset is found to be inconsistent with the practice we are considering
and we are forced to seek an alternative. The only alternative is this:
that the process of addition can be applied to unlike things and that these
may be added, regardless of their dissimilarity, to obtain a meaningful
result. This, of course, is patently absurd.
In conclusion, of the only two postulates which are consistent with the
described practice one makes nonsense of accounting and the other is
absurd; therefore the practice is absurd; for there is no mental process
by which two such propositions may yield a sensible result. It is quite

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8 / WHY BOTHER WITH POSTULATES?

useless to protest that this practice is "practical," or that it is time-

honored, or that it is a generally accepted practice; it has only become these
things because men have not asked: upon what postulates is the practice
based?
One of the purposes of this exercise was to show that every practice
has certain postulates. Postulates are not some theoretical nonsense.
They are the hard core of which practice is merely an expression. Every
time a practitioner acts, in whatever capacity, he is acting on some
postulates. He may not even know them; he may never have thought of
them, for he may have accepted the weight of opinion or authority in
place of personal conviction; but he cannot escape them. It is the great
difference between a technician and a skilled craftsman that the latter
knows the powers and limitations of his art. And these he knows because
he has sought out the postulates underlying his operations; he has sought
to discover the qualities of the materials through which his art is ex-
pressed and of the communities in which or about which he uses that art.
The, example of the previous section was selected because it is a widespread
everyday practice, not simply a novel or ephemeral problem. It was
analyzed for the purpose of illustrating a method of inquiry into postu-
lates or foundations which begins with known practices. It should not be
supposed that every such analysis of a practice will reveal so starkly
that there are flaws in the practice or its underlying ideas. But the conse-
quence of proceeding this way is plain. No one likes his cherished habits
to be lampooned, ridiculed or even criticized. What to one appears to
be reasoned analysis appears to another to be an insolent, immoderate
and irreverent attack on the establishment. A study which begins this
way is likely to arouse animosity and resentment from the outset, and if
it is more likely to be passionately rebuffed than dispassionately con-
sidered, the procedure is clearly impolitic. It will be dubbed "destructive
criticism" and consigned to limbo or the waste basket.
But this procedure has also another flaw. If the inquirer is limited in
his examination to practices which are already followed, the whole in-
quiry will be unnecessarily circumscribed. If "accounting" is the subject
matter, the scope of the inquiry should not be limited by present circum-
stances-one particular country, one particular decade, one particular
class of organization. Nor indeed should it be limited to the practices
of all countries, all historical times, or all classes of organization. For
if the practices of one organization in one country at one time are
circumscribed by traditional, legal or accidental factors, so is the sum
of all practices of all organizations in all countries at all times. The
inquirer should also be free to imagine forms of accounting which have
not been tried, in exactly the same way as does a practitioner confronted
with an entirely novel problem; in exactly the same way as people have
"imagined" freely moving, self-powered road transport, synthetic fibres,
telephonic communication, color T.V., before these things were used in

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 R. J. CHAMBERS / 9

practice. The only requirements or constraints should be that the out-

come of a line of inquiry should be reached by logical steps, and that
no patently absurd assumptions should be made. This leads to the second
method of inquiring into the foundations of accounting, a method which
begins, not by describing practices but by discovering postulates which
are useful.

Synthesis by Postulation and Reasoning

This method begins by selecting from the world of experience and

reflection a set of ideas about things, which fall within the field of in-
quiry. If it is necessary these ideas are clarified by explicit definition,
so that the correspondence between the ideas and the relevant aspects
of the observable events and things they represent is established. Certain
propositions are then set up which describe the relationships between
the ideas or concepts thus derived, or rather the relationships which
are postulated to exist. The implications of the ideas and the postulates
are then worked out, the result being a set of theorems or conclusions
about the events and things represented by the ideas and postulates.
Postulates are thus propositions enunciated without proof-either be-
cause no proof can be given or because the assent of others to such
propositions can be reasonably expected-and used in the derivation
of other propositions. These latter propositions may culminate in a set
of rules or prescriptions for doing something, such as keeping accounts
and making summaries of results and position. If the set of rules and
prescriptions is derived logically, reasonably, from the definitions and
postulates, and if the result of applying those rules is something which
is acknowledged to be useful, the postulates are confirmed, and the whole
system of definitions, postulates, principles and rules will represent both
a theory of and a method for producing the useful result. The proof of
the pudding is in the eating, so to speak.
But what is a useful result? One may not judge the usefulness of a
set of postulates, principles and rules by reference to the existing tech-
nical practices of practitioners or by generally accepted principles or
procedures. Those practices themselves are the outcome of some judg-
ments as to usefulness; but they may also be so hedged by conventions
and expedients that usefulness has less than its share of influence. The
existence of a practice is evidence that "it can be done"; it is not evi-
dence of usefulness or of superiority over other possible practices, no
matter how widely the practice may be found. The search for postulates
is in the realm of the pursuit of useful knowledge, and, at every turn
in the path to knowledge, history has proved generally accepted prac-
tices to be faulty, unreliable or incomplete and the ideas underlying
them to be wrong, inadequate or inconsistent. That the earth is flat,
that atoms are indivisible, that flying is only for the birds, that radio

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10 / WHY BOTHER WITH POSTULATES?

and television would reduce literacy, that pain is inevitable-all these

are beliefs once widely held, beliefs which limited the practical pursuits
of men until some individuals challenged their implicit assumptions and
devised postulates which in due course gave men new knowledge and
new practices.
The question of what is useful bedevils every inquiry, every science.
And the typical answer of the scientist is: all knowledge is useful. By
this he means that all propositions which put man in possession of more
ideas about his environment or more ideas about his situation in that
environment are useful. Now it may seem that the experimental sciences
have the advantage of the social sciences here. For it is possible to test
thoroughly the qualities of a new agricultural fertilizer, a new insec-
ticide, a new paint, a new antibiotic, whereas it is not possible to test in
any similar way the qualities of a new tax, a new form of city govern-
ment or a new form of accounting. But the advantage is only an ap-
parent advantage. Laboratory tests do not necessarily disclose all the
consequences or even all the qualities of new products; they may have
side effects which only become apparent over many years. Further, all
knowledge, in the physical as well as the social sciences, is a matter of
inference from statements put forward as descriptions of the phenomena
under consideration, that is, from postulates.
Accounting, in common with other studies which relate to human be-
havior, has no recourse to experimental methods. Nevertheless there are
two ways in which it is possible to determine whether any set of prin-
ciples derived by logical processes from postulates are useful pieces of
knowledge. It will appear that whichever of the two ways is adopted,
practical experience and knowledge-of-acquaintance (i.e., knowledge of
immediate perception and cognition as distinct from "book" knowledge)
have much to do with any such determination.
The first way is to establish that the postulates are ample descriptions,
for the purpose in hand, of the phenomena or events to which they re-
late. The process is simply an affirmation of the propriety of the pos-
tulates by skilled observers or by men of experience, preferably by both.
It should be possible to reach agreement at this level. Given "the purpose
in hand," the only room for difference of opinion arises from the word
"ample." There is an enormous number of possible statements about the
environment of accounting or about any aspect of it which can be affirmed.
Not all of them will necessarily be useful in the sense that, taken to-
gether with others, they can be made to yield a conclusion. It is the
particular problem of the researcher to ensure that he overlooks no possi-
bly useful statement, and to select from all the statements about the en-
vironment those which will yield conclusions. Suppose one puts forward
as a postulate the statement: Monetary calculation is concerned with
market (or exchange) values. It should be possible to obtain agreement
that this is or is not supported by observation and experience. If it is

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 R. J. CHAMBERS / 11

agreed that the statement is so supported, it is a potentially useful pos-

tulate. To give or withhold assent to such propositions is one of the func-
tions of the voice of experience.
The next stage in deriving principles or rules is to draw out the impli-
cations of postulates, to link the bare statements in such a way that cer-
tain conclusions emerge. The process is the same, in kind, as men employ
in the solution of any problem from a cross-word puzzle to the proof of
an abstruse mathematical proposition. Given the same concern for care
and rigor in reasoning, and the same level of skill, it should be possible
for any person to assess the steps by which a conclusion is reached. Not
necessarily the steps taken by the researcher in reaching the conclusion,
because these involve initial insight, hesitation, subconscious reflection,
re-examination of assumptions and eventual statement of the argument.
By what personal processes is immaterial; at length he becomes able
to state, step by step, an argument which can be assessed or tested by
others. If it is agreed that the postulates are supported by observation
and experience and if the steps in the argument are unobjectionable,
the conclusion would appear to be unobjectionable.
The second point at which practical experience may bear on the whole
process of deriving principles or methods from postulates is in testing
the usefulness of the deduced result-in accounting this would mean
testing the usefulness of the information flowing from a deduced method.
This involves looking at the information from the point of view of all
possible users for all possible purposes, but not from the point of view
of the information-processor, the accountant. For example, in the field
of business accounting, if the current rate of return on invested funds is
important to users, the product of a deduced method must be such that
the rate can be derived, and that this derived rate is both a logical re-
lationship and a mathematically valid relationship. If the expected rate
of cash flow is important to users, the product of a deduced method
should enable users to derive a useful idea of expected cash flow. If both
rate of return and rate of cash flow are important to users, the product
of a deduced method should enable both to be derived. If different classes
of users are envisaged, and if any person may at a given time be simul-
taneously a member of several such classes, the product of a deduced
method should be such that it meets the needs of all classes simultane-
ously. It is on the hypothetical part of each of the preceding sentences-
the "if" clause-that professional men should be able to pass judgment,
and hopefully uniform judgment.

Some Problems

In an examination of the propositions postulated by any person, or

of the end-result of argument from postulates, it is important to keep
in mind that the purpose of deriving general statements is to cover situ-

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12 / WHY BOTHER WITH POSTULATES?

ations in general. If it is postulated that "all men act reasonably" (what-

ever "reasonably" may mean), it is no criticism to assert that sometimes
men act foolishly or without reason. Some men appear to do so, some-
times; but accounting is not for them at those times. If it is postulated
that "privately owned business firms and corporations are motivated
by the expectation of profit," it is no criticism to assert that some com-
panies do not make profits. If it is postulated that "monetary calcu-
lation is concerned with market (or exchange) values," it is no criticism
to assert that generally accepted accounting principles do not uniformly
indicate market or exchange values; for it will be found that, for any
operation intended in the market for money or goods, one calculates in
terms of market or exchange values regardless of what his accounting
system tells him. Generally, then no criticism of postulates or principles
can be accepted simply because there are some cases in which they do
not apply. In this respect there may be a difference between the natural
and the social sciences. One instance may give rise to doubt about a
theory in the natural sciences; but because the social sciences are con-
cerned with classes of people rather than individuals, their postulates
and conclusions have only to meet the general test: does this postulate
or that conclusion amply describe or relate to this or that class of people
or this or that group of people?
Two methods of inquiry into postulates have been considered. By one,
the procedure is to discover the ideas which are implicit in an established
practice and to consider whether those ideas appear to be consistent with
the "facts of life" or the requirements of reason. By the other, the "facts
of life" and human reason are used to build systems of ideas which are
examined in the light of observation and experience to establish whether
they yield something useful. Both methods should yield answers of the
same kind, for it is impossible for reason to contradict reason. And ideally
both methods are used as checks on the possibility of errors or omissions
or plain bad argument. It should also be clear that the mental processes
involved are the same as any intelligent person adopts if he deliberately
attempts to solve any practical problem intelligently rather than by
tossing a coin.
There is one further point to make. The method of defining one's
terms, stating one's postulates and deducing a system from them does
not suffer from the same disability as the method of seeking postulates
from observable practices and submitting them to analysis. The latter,
as we have said, may readily be dubbed "destructive criticism." The
former is essentially constructive. One may, of course, say in a dis-
paraging way that this is all pure theory. But to do so is simply to deny
the power of human reason, including the reason of those who disparage
reason.

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 R. J. CHAMBERS / 13

From Postulates to Principles

There is no such thing as a set of postulates which is independent of a

set of conclusions or principles or hypotheses. Postulates are only pos-
tulated for the purpose of reaching some conclusion. It is necessary in
short to consider a whole system of postulates and a conclusion together.
One may set down five or fifty or five hundred potentially useful prop-
ositions as possible foundations for a conclusion; but if only three are
necessary, all the rest are irrelevant to that specific conclusion; only three
are postulates.
For any system of principles-say principles of accounting-there will
be a series of separate sets of postulates, one set for each principle.
Whether or not the system is internally consistent is of importance, for
an internally inconsistent (i.e., contradictory) set of principles can not
be a clear guide to practice, nor is it satisfying to the intelligence. The
whole system of principles may entail quite a large number of postulates,
but if it is to be an internally consistent system, the postulates, how-
ever large in number, will necessarily be consistent (this is the test used
above when dealing with the listing of assets). To repeat, neither pos-
tulates nor principles can be considered in vacuo. They are inevitably
linked and they may only be evaluated as part of a system.
As an illustration the following is offered. A principle is stated: cer-
tain postulates necessary to establish it are set out and certain defi-
nitions of the terms used are given; by relating the postulates step by
step the conclusion stated at the outset is reached.

PRINCIPLE OF NEUTRALITY

The probability of optimal adaptation varies directly with the neu-

trality of accounting information.

1. Suppose a situation in which there is an actor and a processor

of information on his behalf, so that acting and information
processing are separate functions. (Postulate)
2. The state of satisfaction on the part of an actor, or action
which procures it, will be called optimal adaptation. (Definition)
3. The independence of information with respect to any specific
action will be called neutrality. (Definition)
4. Individuals have different systems of wants at any time. (Postulate)
5. The system of wants of any individual changes from time to
time. (Postulate)
6. Satisfaction of an actor's system of wants at any time is the
goal of and incentive to action. (Postulate)
7. The function of an information processor or processing
system is to produce information relevant to action. (Postulate)
8. In the postulated situation 1 the processor will not know at
any time what the present state of the actor's want-system

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14 / WHY BOTHER WITH POSTULATES?

is; or if he did know at some previous time, he will not know

how far it has changed from that time to any other time.
(From 4 and 5)
9. The processor is thus not able to anticipate what the next
action of the actor will be. (From 8 and 6)
10. Therefore the greater the relevance of the information pro-
duced to all possible courses of action, the greater will be the
possibility of optimal adaptation. (From 2, 7, 9)
11. Accounting information is one class of information available
to an actor. (From 1)
12. From 8, 3 and 11 it follows that the probability of optimal
adaptation on the part of an actor in the postulated situation
1 varies directly with the neutrality of accounting information.
Corollary: For even stronger reasons, the conclusion holds if the number
of actors served by any financial statement is large and their
interests are varied, for the information processor is removed
from direct knowledge of the wants of any of them.

This principle is not to the writer's knowledge established at all in the

literature of accounting; certainly not by the process adopted here. Yet
it is an important and practical one. Apply for a moment the procedure
of discovering the postulates underlying a stated operation, mentioned
earlier in this paper. It is an established practice to publish one set of
financial statements in respect of corporations in which it is known that
the public and other institutions have equities, either as shareholders or
as creditors. The only proposition which justifies this practice is: the
information so published is equally useful to all parties in spite of their
diverse interests. And this is simply a modified way of saying that the
information is neutral with respect to the particular subsequent actions
of all actors. The proposition is established from both directions! This
should demolish the view, often asserted, but never found in practice, that
companies should publish different financial statements for different
classes of users (actors). The principle thus established in fact under-
lies a most important idea-the professional accountant's independ-
ence-an idea which has often been dogmatically stated, but the reason
for which has never been proved by explicit argument. (It should be
noted that the proposition discussed above has nothing whatever to say
about the quality of the information contained in such statements; that
is another matter altogether, requiring additional principles.)

What is a Postulate?

An attempt has been made to show by illustration what a postulate is.

It will be seen on examination of all the statements described as pos-
tulates throughout this paper that none of them incorporates words or
phrases which are peculiar to accounting. They are all descriptions of

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 R. J. CHAMBERS / 15

some thing, some event or some form of behavior found in the environ-
ment of accounting. Accounting has no justification whatever in itself.
It has no rationale beyond the domain of men acting purposefully in
monetary economies. All of its postulates must therefore be outside of
it, must be descriptive of the world in which it plays a part. Of the
thousands of statements it is possible to make about the environment
in which we live, only those which deal with financial transactions or
relationships or which have financial consequences or which deal with
the problems of computation and communication can be related to ac-
counting. That the same statements may at the same time be postulates
or conclusions of other types of study is to be expected. In a sense it
is to be welcomed, for it gives some assurance, if assurance be needed,
that our concepts of the environment are not concepts we have invented
for our own purposes. Those that are chosen as postulates are dictated by
the function ascribed to accounting. Any proposition descriptive of the
environment which is fundamentally necessary to support a conclusion,
a principle or a practice in accounting is a postulate of accounting, how-
ever remote or trite it may appear to be.

Why Bother With Postulates?

Because every deliberate action of reasonable men, and every piece of

advice proffered by practitioners, is based on some postulates, and rea-
sonable men always want to be sure of their ground. Because it is com-
mon wisdom to re-examine the foundations of one's practices; practices
may become so overlaid with habitual and conventional trappings that
their avowed purposes are no longer well served. Because a man's postu-
lates are the substance of his understanding of the world in which he
acts; if his postulates are irrelevant or inconsistent, neither he nor his
practices merit the esteem of his fellows. Because to examine one's postu-
lates is the simplest and most effective way to discover the possibility
and direction of improvements and innovations in practice. Because
man's reasoned judgment is his only protection against self-delusion,
cant and deceit.

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