Preparing Future-Ready Professionals

Redefining Accounting for Tomorrow

Garry Carnegie, Lee Parker, Eva Tsahuridu | April 6, 2021

How we define accounting today and what defines accounting tomorrow are fundamental to the purpose, value and identity of the accountancy profession. In a recent article we review current definitions of accounting and propose a dialogue to develop a definition that is representative of accounting today and fit for purpose.  We are following other calls to define the accountant of tomorrow[1] and propose that accounting can play a major role in answering the planet’s “big questions” and solving its “wicked problems”.  We argue this is crucial to the future of our profession.

Why is a definition necessary?

A good definition is concise, coherent and complete.  It conveys the fundamental meaning or state of something. A definition is a formal statement expressing the essential nature of something, as are the definitions of accounting, auditing and financial reporting.  The application of authoritative pronouncements of the independent standard setting boards related to the accountancy profession (IASB, IAASB, IPSASB and IESBA) for instance, depends fundamentally on the definitions provided for the common and clear use of words or terms in accounting, such as the definition of assets, liabilities, income, expenses, substance over form, professional judgement, scepticism and post-balance-date events.

The absence of meaningful, accurate and accepted definitions would have unfavourable implications for the effective application of accounting, auditing, ethical and accounting education pronouncements globally.  Accounting students of today and the future professional accountants, are educated in the fundamental facets of accounting as a professional discipline with strong reliance on suitable meaningful definitions, that are appropriate and current.

What is accounting today? 

We searched for common definitions of accounting developed by accounting educators and professional accountancy organisations (Carnegie et al, 2020).[2] Our objective was to evaluate existing definitions and consider their appropriateness.   We found that they do not reflect the essential nature of accounting.  We proposed discussion and debate in order to develop a meaningful and suitable definition of accounting for the 21st century and suggested a working definition to start the process.  We did not set out to define the “practice of accounting”, such as in terms of what professional accountants actually do, an endeavour that has been pursued by others. Like the Institute of Management Accountants[3], we suggest that the behaviours of professional accountants and their evaluation should be based on the definition of accounting.

Underpinning most of key definitions of accounting is that delivered long ago by the American Institute of Accountants (now the American Institute of Certified Public Accountants): defining accounting as “… the art of recording, classifying, and summarizing in a significant manner and in terms of money, transactions and events which are, in part at least, of a financial character, and interpreting the results thereof” (American Institute of Accountants, 1953, p. 9). 

Another longstanding definition of accounting by the American Accounting Association (1966) is premised on the notion of “decision-usefulness” of the accounting process: “Accounting is the process of identifying, measuring and communicating economic information to permit informed judgments and decisions by users of information”.

Today, the definition of accounting on Wikipedia is “the measurement, processing, and communication of financial and non-financial information about economic entities such as businesses and corporations”.[4]  This definition also focusses attention on the use and reporting of non-financial information primarily for “businesses and corporations”.

Specialist institutes of management accountants, such as the IMA and the Chartered Institute of Management Accountants (CIMA), have focused on defining management accounting.  The IMA, for example, defines management accounting as “a profession that involves partnering in management decision making, devising planning and performance management systems, and providing expertise in financial reporting and control to assist management in the formulation and implementation of an organization’s strategy.”[5] However, given management accounting is a key part of the accountancy profession, its definition should also be aligned with its overall purpose and objectives. 

We are long overdue for a review and revision of the definition of accounting to answer the question “What defines accounting of tomorrow?”.  Like Prinsloo (2020), we agree that the accountancy profession can “build on its strong foundations [and its long history], evolve the skills of its members and become even more central to a high-functioning society” (third para).  Compared to the typical definitions of accounting, the profession needs to understand and present accounting as much more than mere technical practice.[6] Accounting is more than the “means of accounting” or “the doing of accounting”, these already being “hyper-developed” (Carnegie, Parker and Tsahuridu, 2020).   

Key conceptions of accounting

Conceptions of accounting have broadened as its impacts and implications have been addressed by contemporary and historical accounting researchers since the 1980s.  In addition to the abovementioned technical practice definitions, accounting is now recognised as a “social practice” (i.e., what does accounting do?)  and a “moral practice” (i.e., what should accounting do?) (see, for instance, Tsahuridu and Carnegie, 2018, Carnegie and Tsahuridu, 2019[7] and Carnegie et al (2020). A technical practice (i.e., how to do accounting?) approach to defining and perceiving accounting fails to recognise accounting’s impacts on organisational and social functioning and sustainable development.  

At accounting’s core, ethics should be reflected in the definition of accounting.  Accounting shapes and affects lives and is exercised by moral agents. It is an ethical and social practice.  While few within, or outside the profession appear to disagree, the definition of accounting has not shifted to reflect this proposition. Our proposition follows. .

What defines accounting of the future?

Current or new definitions of accounting, in our perspective, need to recognise and reflect the multi-faceted conception of accounting as a technical, social and moral practice more proactively.  We agree that this is a key starting point if accounting is to help shape and create a better world for all forms of life on planet earth. Importantly, this step will also support attempts to depict “what defines the accountant of tomorrow?” (Prinsloo, 2020).  Therefore, our position is consistent with that of Prinsloo.

We have endeavoured to focus the proposed definition of accounting on its place in the world and broaden its boundaries to reflect its responsibilities and influence, including sustainability and sustainable development, and all stakeholders, including the natural environment, rather than a prime or sole focus on shareholders.

 For discussion and debate, we propose a potential definition of accounting for consideration:

Accounting is a technical, social and moral practice concerned with the sustainable utilisation of resources and proper accountability to stakeholders to enable the flourishing of organisations, people and nature (Carnegie et al, 2020).

While other proposed definitions in future may also prove suitable, we put forward a definition of accounting that takes us beyond historical limitations, brings us into the 21st century, includes nature and the environment among stakeholders, and engages with the full dimensions of accounting as an enabling, disenabling and pervasive practice as has emerged in recent decades and reflects the discipline’s growing interdisciplinary orientation.

We look forward to this topic gathering more attention and thought leadership contributions during the remainder of 2021 and building on the example set by Prinsloo (2020).  Such contributions can only assist in focusing attention on ensuring that “today’s accountant will be ready to lead tomorrow” and for the profession to help create a better world, or being even more ambitious, for our profession to help save the world[8].  Definitions are important. It is only right that we get this sorted for the future of the accountancy profession and its professionals. Tolerating tired or outdated technicist definitions of accounting does not project a vibrant, forward-looking profession operating in the difficult early 2020s global conditions. 

 

[1] Prinsloo (2020), What Defines the Accountant of Tomorrow? | IFAC (last accessed 3 January 2021).
[2] Carnegie, Parker and Tsahuridu (2020), It's 2020: What is Accounting Today? - Carnegie - - Australian Accounting Review - Wiley Online Library (last accessed 4 February 2021).
[3] IMA (2008), Definition of Management Accounting, (last accessed 19 February 2021).
[4] Accounting - Wikipedia (last accessed 4 February 2021)
[5] IMA (2008), Definition of Management Accounting, (last accessed 19 February 2021).
[6] Tsahuridu and Carnegie (2018), Accounting as a Social and Moral Practice | IFAC (last accessed 4 February 2021).
[7] Carnegie and Tsahuridu (2019), Key Performance Indicators and Organizational Culture: A New Proposition | IFAC (last accessed 4 February 2021).
[8] Bakker (2013) Accountants Will Save the World, (last accessed 4 February 2021).
 

Garry Carnegie

Emeritus Professor, School of Accounting, RMIT University

Garry Carnegie is an Emeritus Professor of RMIT University having served in the roles of Head, School of Accounting and Professor of Accounting at RMIT from 2010 to 2017. Prior to joining academe, Professor Carnegie gained experience in the IT industry, professional accounting services, and in the financial services industry. Professor Carnegie had been employed in Australian higher education institutions since 1985 and, prior to joining RMIT, he held full-time professorial posts at Deakin University, Melbourne University Private/The University of Melbourne, and at the University of Ballarat (now Federation University Australia). For a consecutive period of 25 years between 1995 and 2019, he was the Editor (1995-2007) and Joint Editor (2008-2019) of Accounting History and, during 2020, he was the journal’s Consulting Editor.   See more by Garry Carnegie

Lee Parker

Lee Parker is Research Professor of Accounting, Glasgow University Scotland and Distinguished Professor of Accounting, RMIT University, Melbourne. Globally published, Lee is joint founding editor of Accounting Auditing & Accountability Journal and member of over 20 journal editorial boards. He has been President: Academy of Accounting Historians (USA), American Accounting Association Public Interest section, Vice-President (International) American Accounting Association, President CPA Australia (SA Division), Deputy Chair Australian Institute of Management (SA), member of the Australian Accounting Hall of Fame and the Australian Centre For Social and Environmental Accounting Research Hall of Fame.

Eva Tsahuridu

Business Ethicist, Board Director

Dr. Eva Tsahuridu is a business ethicist who has been researching, teaching and advising on business and professional ethics for over two decades.  Eva is currently a board director and advisor.  She is the section editor of Practice in Business Ethics of the Journal of Business Ethics, an executive editor of Philosophy of Management and the deputy chair of the Australasian Business Ethics Network. Eva writes for practitioner and academic publications and her research interests include personal and organisational ethical conduct, whistleblowing, ethical and professional standards and philosophy of management. See more by Eva Tsahuridu

  

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Norma Geba April 6, 2021

Humildemente entiendo sobre: "La contabilidad es una práctica técnica, social y moral que se ocupa de la utilización sostenible de los recursos y la rendición de cuentas adecuada a las partes interesadas para permitir el florecimiento de las organizaciones, las personas y la naturaleza (Carnegie et al, 2020)", que: La contabilidad es una disciplina científica que tiene un cuerpo conceptual doctrinario y normativo (hay marcos conceptuales normativos y marcos conceptuales doctrinarios) y procesos contable para brindar conocimiento por medio de informes contables.. En la práctica contable los conocimientos teóricos se aplican,o deberían aplicarse, en las organizaciones económicas por un Proceso Contable, que se encuentra en el Sistema de Información del ente u organización económica. La práctica contable debe encuadrarse en los marcos teóricos contables, marcos teóricos que deben adaptarse a una compleja y cambiante realidad, como lo es la sostenibilidad. No es cualquier hacer, debe ser un buen hacer y para ello los conocimientos teóricos son indispensables. Con respecto a ocuparse al "uso sostenible de los recursos" parece interesante... aunque creo que se ocupa, como disciplina científica, de brindar conocimientos útiles para el control y toma de decisiones para la sostenibilidad de la sociedad en su conjunto. De ser posible apreciaría algún comentario. Desde ya muchas gracias, cordiales saludos, Prof. Norma G.

 

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