RUTH D. HINES
Macquarie University, N.S.W., Australia
At first I saw Don Juan simply as a rather peculiar man who knew a great deal.., but the people.., believed
that he had some sort of “secret knowledge”, that he was a “brujo”. The Spanish word brujo means, in
English… sorcerer. It connotes essentially a person who has extraordinary.., powers.
I had known Don Juan for a whole year before he took me into his confidence. One day he explained that
he possessed a certain knowledge that he had learned from a teacher, a “benefactor” as he called him, who
had directed him in a kind of apprenticeship. Don Juan had, in turn, chosen me to serve as his apprentice,
but he warned me that I would have to make a very deep commitment and that the training was long and
arduous…
My field notes disclose the subjective version of what I perceived while undergoing the experience. That
version is presented here…
My field notes also reveal the content of Don Juan’s system of beliefs. I have condensed long pages of
questions and answers between Don Juan and myself in order to avoid reproducing the repetitiveness of
conversation… (TheTeachingsofDonJuan~.A Yaqui WayofKnowledge,Carlos Castaneda, 1970, pp. 14,
24, 25).
W e s t o o d t o g e t h e r , l o o k i n g d o w n i n t o t h e v a l l e y
b e l o w . . . t
” W h a t d o y o u s e e b e f o r e you?” said t h e Master.
“Well, in t h e valley, I s e e b u i l d i n g s o f v a r i o u s
kinds, s p r e a d o v e r a l a r g e area, a n d s u r r o u n d e d
b y a f e n c e . T h e r e a r e p e o p l e i n s i d e t h e f e n c e . A
r i v e r r u n s t h r o u g h t h e valley, a n d t h r o u g h t h e
a r e a e n c l o s e d b y t h e f e n c e . A n d o u t s i d e t h e
f e n c e t h e r e are trees, u p t h e s i d e s o f t h e valley,
all a r o u n d , as far as t h e e y e c a n see.”
” A n d d o y o u k n o w w h a t it is, t h a t y o u see?”
It s e e m e d t o m e t h a t I h a d a c c u r a t e l y , t h o u g h
briefly, d e s c r i b e d w h a t I saw. B u t I w a s u s e d t o
s u c h q u e s t i o n s f r o m t h e Master. It w a s his w a y o f
g u i d i n g m e a l o n g t h e p a t h o f t h e s p e c i a l k n o w –
l e d g e w h i c h h e p o s s e s s e d , a n d w h i c h h e h a d dec i d e d to i m p a r t to m e , as his a p p r e n t i c e . I rec a l l e d o u r p r e v i o u s c o n v e r s a t i o n :
“Is t h i s a n ‘ o r g a n i z a t i o n ‘ , p e r h a p s ? ”
H e s m i l e d faintly, a n d l o o k e d at t h e far hills:
” T h a t is g o o d , y o u r e c a l l o u r last lesson. Y o u
are p a r t i a l l y right. P a r t o f w h a t y o u s e e is a n
o r g a n i z a t i o n . ”
“Well, I r e a l l y o n l y m e a n t w h a t lies w i t h i n t h e
f e n c e . ”
“Yes I k n o w y o u did, b u t again, o n l y p a r t o f
t h a t is t h e o r g a n i z a t i o n . . . A n d i n d e e d , p a r t o f
t h e o t h e r is also t h e o r g a n i z a t i o n . ”
” P a r t o f t h e o t h e r ? Y o u m e a n , w h a t lies o u t s i d e
t h e f e n c e – – t h e hills a n d t r e e s – – t h e y are also
p a r t o f t h e o r g a n i z a t i o n ? “2
” N o t t h e hills a n d t r e e s , as such, b u t . . . W e
m u s t n o t g e t o u t o f o u r d e p t h b e f o r e w e c a n
s w i m . T h e hills a n d t r e e s m u s t wait.”
” W e l l t h e n , w h i c h parts, w i t h i n t h e f e n c e , are
p a r t o f t h e o r g a n i z a t i o n ? I s u p p o s e t h e b u i l d i n g s
a n d l a n d a r e p a r t o f it?”
“In all l i k e l i h o o d , t h e y are. B u t n o t n e c e s –
sarily.”
” W h a t a b o u t t h e river? It m u s t b e b e c a u s e I
c a n s e e t h a t t h e r i v e r w a t e r is b e i n g u s e d b y t h e
o r g a n i z a t i o n . I c a n s e e . . . ”
“Yes y o u are right. T h e r i v e r s u p p l i e s w a t e r
vital for t h e m a n u f a c t u r i n g p r o c e s s e s o f t h e
o r g a n i z a t i o n , b u t n e v e r t h e l e s s , t h e w a t e r o f t h e
r i v e r is n o t c o n s i d e r e d to b e p a r t o f t h e o r g a n i z a –
•The author thanks the anonymous reviewers and Michael Miko for their helpful comments.
251
252 RUTHD. HINES
t i o n . . . Unless of course the organization is sold.
If it is sold, then whoever purchases the organization will pay for the water of the river, and, it
being thus recognized, will b e c o m e part of the
organization. It will be named ‘Goodwill’.”
“The river – – the water – – will be called
‘Goodwill’? Good Heavens. Is there anything else
of this nature?”
“What do you mean ‘of this nature’? One must
be clear in one’s own mind, as to what it is precisely that is being questioned.”
“I mean, ugh, in a sense, the river does not
e x i s t . . . ”
I hurriedly reflected on past conversations. I
did not want to appear to be stupid before the
Master. I tried to convey my question according
to the language which c o m m u n i c a t e d his special
knowledge:
“The river – – the water in it – – only becomes
an ‘asset’ of the organization, w h e n the whole
organization is sold. At that point, the point of
sale, it becomes part of the organization’s reality.
Like a miracle. Is there anything e l s e . . , of that
nature?”
“Excellent, you see what clarity of mind can
achieve? You are a fine apprentice. You will be a
Master yourself someday. And in answer to your
question, everything is of this nature.
Now, that point in time, w h e n something becomes real, w h e n we recognize the reality of
something, what point in time might that be
called, do you imagine?”
“Well, I would call it the point ofreal-ization,
since that is the point at which things b e c o m e
real.”
“And so we do. That is just what we do. Do you
see, are you beginning to see, where our power
lies?”
”Yes, I think I am beginning to see. I think I understand about the water. What other things are
real-ized at certain points in time, which you
decide?”
“Oh everything, everything! We decide everything. Remember we talked about revenue: revenue less expenses equals profit. Remember?”
”Yes.”
“When do you think something becomes revenue?”
“When it is real-ized?”
“That’s right. We recognize revenue w h e n it is
realized: that’s what we say – – ‘we recognize revenue and gains w h e n they are realized’. We
create the impression that they do not exist, and
that suddenly, they b e c o m e real, and we recognize them as such. But of course, we make them
real, by recognizing them as real. 3 Until we recognize them, they are, for just about all intents
and purposes, not real.”
“But aren’t they there? I mean, if they are
t h e r e . . . ”
“Again, clarity of mind. What do you mean
exactly w h e n you say, ‘if they are there’?”
“I mean, if they exist, then, even without you
recognizing them, they are real.”
“Oh yes, that is our everyday concept of reality alright. But everyday concepts are a cover-up.
Did ‘black holes’ and ‘subatomic particles’ exist,
before physicists created the idea of them?4 Of
course they did not!”
“But…”
“Oh yes, I know, you’re a literal sort of chap;
you will be a fine master. But even with your literal mind, do you believe everything you read
and hear? What about the newspaper? Are all
those stories real?”
“Well, I suppose it depends what you mean by
‘real’. I mean, I think, some of them are true.”
“Unbiased, neutral, do you mean?”
“Well, yes.”
“Do you seriously think that anything in this
world can be ‘neutral’?”
“Yes, well, ugh, I’m not sure …. ”
“Do you think there ever was a news story that
took everything into account; left out nothing;
gave the full picture?”
“It depends what you mean by ‘the full picture’.”
“What do you mean by it?”
“Agh, I don’t really know. Ha. Ha.”
”Yes, good, n o w we are getting somewhere.
You ‘don’t know’! Who knows what ‘the full picture’ is? Who knows? How do you k n o w n w h e n
you have the full picture?
Having the full picture – – a true, a fair view of
something – – depends on people deciding that
they have the full picture. Sometimes, they later
FINANCIALACCOUNTINGAND REALITY 253
d e c i d e they did not have the full picture, and
then t h e r e are recriminations: w h y didn’t w e get
the rest of the picture; or a different picture? It
can go on and on. People feel entitled to reality.
Did you study history at school?”
“Yes, I did.”
“History creates past reality for us. The past is
always being reinterpreted. They are always rewriting the history books. They don’t tell you
that at school though, do they? What about history in y o u r o w n time: Vietnam, for example?
You must admit, accounts have changed over
the years.5 Or w h a t a b o u t t h e Bible, is that ‘real’?”
“I do see what you are saying, but science is
different. It describes real things, physical
things.”
“No, m y boy, you are quite wrong. A black
hole – – m y dear fellow, what is it exactly that the
physicists say is a “black hole”? Certain areas in
the Heavens p r o d u c e certain b e w i l d e r i n g exp e r i m e n t a l r e s u l t s . . . That is all. And these areas
are called ‘black holes’. By naming them, w e
suggest that w e have named, ‘discovered’, something: something real. But m y boy, ‘black holes’?
Even you must see.
Black holes are an idea, a metaphor, a concept.
Like atoms. Like electrons. Like organizations!
These things help structure our lives. Ideas. 6
W h e r e w o u l d w e be, w i t h o u t ideas? But I am
going m u c h too fast. W h e r e w e r e we?”
“We w e r e talking about r e v e n u e and gains,
and their p o i n t of r e c o g n i t i o n . . , and realization.”
Oh yes, that’s right. ‘We recognize r e v e n u e
w h e n it is realized’. By n a m i n g it ‘revenue’, it becomes r e v e n u e . . , just like the black holes.”
“How do you k n o w w h e n to recognize revenue? Or should I say, h o w do you k n o w w h e n
to ‘realize’ revenue?”
“Now y o u ‘ r e getting i t . . . Revenue is generally r e c o g n i z e d – – c o n s i d e r e d to be realized – –
at the point of sale, but not always.”
“Why at the point of sale?”
“This is w h e n g o o d s are c o n s i d e r e d to leave
the organization, and to b e c o m e the p r o p e r t y of
s o m e o n e else.”
“When the g o o d s are taken away, you mean?”
“No. The goods d o not have to actually leave
the organization. They m e r e l y have to be
thought of as having d o n e so. See those big containers d o w n there, beside the square building
over on the right? Those g o o d s may well b e
sold.”
“So, you are saying, g o o d s are ‘sold’, w h e n they
are c o n c e i v e d of, as having left, the idea of ‘the
organization’?”
“Very good.”
“How do you d e t e r m i n e w h e n to think of
them as having left the organization?”
“Oh it varies. W e have a lot of discretion here.
It is all arbitrary of course, but w e take into
account various factors. You cannot just arbitrarily define these things: they have to be seen to be
the p r o d u c t of experience, judgement.”
“Why?”
“Well, otherwise, anyone c o u l d do the job.”
“Oh y e s . . . But, agh, I mean, s u r e l y . . . ? ”
“Yes I know, it’s confusing. Let m e try and explain: there is no such thing as the truth, but
there is such a thing as stretching the truth too
far. There is a reality: there’s s o m e t h i n g there
alright. Do not think for a m i n u t e that I am saying
w e imagine the world! O h no, not at all! The
bricks are there, and the people, and those containers – – no d o u b t about it. But the organization, and the most minute particles in the bricks,
and revenue, well, w e create them!
Now, back to w h e r e w e were: ‘point of recognition’, being, point of real-ization, being, sometimes, but not necessarily, p o i n t of sale. There
are n u m e r o u s possibilities. Sometimes w e recognize revenue w h e n the goods are completed;
sometimes w h e n they are partly completed;
s o m e t i m e s w h e n the c u s t o m e r is invoiced; or
even w h e n he telephones and places an order; or
s o m e t i m e s w h e n he is billed; or w h e n he pays.
And even these are not clear-cut. W h e n is a
building ‘finished’, for example? What percentage of a b u i l d i n g – or a sheep – – is ‘completed’?
W h e n does a c u s t o m e r ‘pay’: w h e n his c h e q u e is
received; w h e n it is honoured?”
I felt o v e r w h e l m e d . T h e r e was m o r e here to
learn than I had imagined. The Master read m y
thoughts:
“It is all a bit confusing now, but d o not be concerned, you will understand.”
254 RUTHD. HINES
“Could we talk about what lies outside the
organization, but is part of it?”
“Lad, you are not making sense.”
“I mean, you said there were things outside
the fence, which were part of the organization.”
“Oh yes. Now, do not confuse the boundary of
the organization, with the fence – – that is just to
keep people out. You must not think of the
organization as ending at the fence – – that is
c o m m o n sense. That is the way lay people think
of the organization. Remember, we are professionals.
Now, you see all these trees? The land on
which they stand, belongs to the government,
but the organization is able to take trees from
this forest for its paper manufacturing. That’s a
curly one, isn’t it? How would you account for
that?”
“Well, I suppose the land is not an asset of the
organization, not part of it, so as to speak, but the
trees are, for as long as the organization is
allowed to take t h e m . . .
But it doesn’t make sense to exclude the land
and include the trees – – the trees are part of the
land…?”
“‘In reality’, you were about to say?”
I felt stupid.
“Remember, we are creating reality. We do
not have to be constrained by the everyday way
of thinking – – it is just a way of thinking, can’t
you see? As ordinary people, we arbitrarily combine, and define, and add, and subtract things
from our picture of reality. As professional
people, we arbitrarily combine, and define, and
add, and subtract things, in a different way to the
everyday way: that is what differentiates us.
The fence does not designate the organization. We do that. We designate it, by deciding
what things will be part of the organization, and
by deciding how big or small these things will
be: ‘recognition’ and ‘ m e a s u r e m e n t ‘ . . . Come
over h e r e . . . You see that murky b r o w n in the
river, downstream of the plant? What would you
say of that?”
“It’s pollution.”
”Yes, but do you think it is part of the organization? Now try to forget about the fence.”
“Well, ordinary people would say it i s . . . So,
ughm, perhaps an accountant would say it is
not.”
“It is not quite as simple as that. We do not
always define reality differently to the c o m m o n
conception. Quite the contrary. In fact we play
such a large part in creating the c o m m o n conception, and we have so largely absorbed the
c o m m o n conceptions into our o w n thinking,
that one cannot, by any means, assume that our
definitions are always the contrary of lay definitions. In this case, you are right in saying that
most people would see the pollution as being, in
some way or another, part of the organization.
They used not to. They used to be quite unaware
of it. But since they have b e c o m e aware of it, and
because they are beginning to see it as being the
responsibility of the organization, we inevitably
must do so, in time. Once the organization becomes accountable for something, we must
account for it, sooner or later.”
“I’m still not sure I understand. Before, you
said you don’t have to be constrained by ordinary people’s notions.”
“That’s the paradox. That’s where we walk a
very thin line. We c o m m u n i c a t e reality: that is
the myth; that is what people believe. It is even
what most of us believe. And, in a sense, we do
communicate reality. There is something there:
bricks and people and so on. And the organization can, say, be ‘doing well’, or ‘doing badly’, in
whatever sense you take that to mean. And it is
our job to convey it. But what is ‘the full picture’?
There is no full picture. We make the picture. 7
That is what gives us our power: people think
and act on the basis of thatpicture! Do you see?
Are you beginning to see?”
“Yes… I think I am beginning to see. My
word, there’s a lot more to it than I r e a l i z e d . . .
Real-ized… Ha, ha, yes I see, ‘realized’: we say it
all the time, don’t we? We think we have grasped
reality, w h e n we ‘realize’; but really, ha, ha – –
there I go again, ‘really’ – – but we have not so
m u c h grasped reality, as created it, by thinking of
it in a certain way, and treating it in that way!”
“Good, good, well done! Now, most things, we
are free to define, and shape, and mould, and
measure, without interference. But w h e n people
have a preconceived notion of what reality is,
FINANCIALACCOUNTINGAND REALITY 255
well, w e can’t afford to go against it!”
“Why not?”
“Because, w e are s u p p o s e d to c o m m u n i c a t e
reality: if p e o p l e have a certain c o n c e p t i o n of
reality, then naturally, w e must reflect that.
O t h e r w i s e p e o p l e will lose faith in us.”
“What happens then?”
“Oh, it’s terrible, terrible. Hearings, lobbying,
investigations, criticisms, public intervention.
W e seem to get m o r e and m o r e of it these
d a y s . . . But, w e w e r e talking about the pollution.”
“Yes, I was wondering, h o w c o u l d it be
‘measured’?”
“We will c o m e up with something. W e always
do. No different to the bricks really, o r the
people.”
“How are the buildings measured?”
“At the a m o u n t that they cost the organization, generally, although there are o t h e r ways.”
“And the people?”
“The same.”
“Isn’t that a bit strange?”
“Why so?”
“Well, bricks and people, measuring t h e m the
same way?”
“Oh, I see what you m e a n . . . Well, there are
p e o p l e – – radical types – – w h o say w e devalue
things, like people, b y measuring t h e m this way.
They hate the w h o l e system, I mean the w h o l e
thing: reality, as w e p e r p e t u a t e it. They say w e
are conservatives, defining and measuring things
the way they always have been, and not trying to
make it any better, not trying to make any
changes. But w h e r e w o u l d w e be if w e tried to
o v e r t h r o w the system? W e are part of the syst e m . . .
You see, if w e valued p e o p l e any differently to
the w a y that w e do, say w e thought this way: ‘the
m o r e an organization produces, the m o r e boring, injurious, and so on, it is for the workers’.
And then, if w e w e r e to take this b o r e d o m , o r injuriousness, into account, then p e o p l e w o u l d
e x p e c t to be c o m p e n s a t e d for these things; and
if p e o p l e w e r e c o m p e n s a t e d for these, then the
organization w o u l d have to charge a higher
p r i c e for its products. And at a higher price,
p e o p l e w o u l d not want to buy so many of its products. They might buy o t h e r things instead. And
that, w o u l d change everything. Everything!
People buying less of this, m o r e of that; investing
less in this, m o r e in that. Nothing w o u l d be the
same: some p e o p l e w o u l d be b e t t e r off, some
w o r s e off; w e w o u l d have less of s o m e goods,
m o r e of others. It w o u l d change what w e call the
‘ i n c o m e distribution’ and ‘resource allocation’ in
our society. Changing that is major; that is social
change.
That pollution, for example: what if that is inc l u d e d in the picture? It w o u l d not help that
organization, w o u l d it? The m o r e g o o d s it produced, the m o r e pollution. Not a p r e t t y picture.
It w o u l d have consequences.”
“And you could d o all that! It’s incredible!”
“Well, w e c o u l d not do something as big as
that on our own. Social c h a n g e . . , w e could not
change the picture as radically as that, and get
away with it. But the day will come, w h e n p e o p l e
so clearly ‘see’ pollution as part of the organization, that w e will have to include it in the picture. And there will be c o n s e q u e n c e s . . .
So you see, it’s not w e alone that create reality.
Everyone does it. But as official C o m m u n i c a t o r s
of Reality, w e have m o r e p o w e r than most.”
“Hmm …. It’s very interesting …. So, ah, if that
happens, I mean if p e o p l e c o m e to ‘real-ize’ pollution as part of ‘the organization’, and you have
to ‘measure’ the pollution, I d o n ‘ t see h o w you
can do it? It doesn’t cost the organization anything. O t h e r p e o p l e pay.”
“We will w o r k s o m e t h i n g out. Getting consensus on it though, that’s the problem.”
“I suppose p e o p l e d o n ‘ t think its real – – the
real measurement, the true one – – unless they
can see you all agree about it.”
“That’s right. That is right. It is very bad for
p e o p l e to see us quarrelling amongst ourselves.
It lowers their confidence. It lowers our o w n
confidence too.”
“Yes, I suppose p e o p l e w o u l d n ‘ t be h a p p y to
see that their w o r l d is s o . . . tenuous. I feel unsettled by all this myself.”
”Yes, they need us. Everything w o u l d be in a
mess w i t h o u t us. Just a jumble. No-one w o u l d
k n o w w h e r e they were. H o w w o u l d that work,
eh?”
256 RUTHD. HINES
“Is that w h y s o m e p e o p l e have called you the
‘handmaidens of the status quo’?”
“Ha, h a . . . W h e r e did you hear that?”
“Oh, I don’t know.”
“Well, it is not us, that they call the handmaidens of the status quo. W e just do our job. It
is the p e o p l e w h o make up theories about us.
They do not really question what w e do. They
take it all at face value. They adopt the same perspective w e do. O u r w o r k is officially designated
as Communicating Reality, and they just accept
that is what w e do. A c o m m u n i c a t i o n perspective; m e a s u r e m e n t perspective; information perspective; that sort of thing. They never suspect
w e play a role in constructing the status quo.”
“Oh, I see.”
“They see our job as a technical one – –
measuring and c o m m u n i c a t i n g reality. Like ordinary people, they think that there is a pre-existing reality, w h i c h w e reveal. They even say that
s o m e p e o p l e can ‘look behind ‘8 accounting numbers; that they can ‘unravel ‘9 them. Imagine!
People are not ‘fooled’, they say. Well, I don’t
k n o w about that! Hhmm, I don’t k n o w about
that!
Some of our methods, according to these
fellows, are ‘trivial’, ‘cosmetic’: these m e t h o d s
do not c o n v e y anything n e w about reality, and
so sophisticated p e o p l e do not react to them.
People w h o react to these ‘arbitrary’, methods,
they say, are stupid. They call them ‘functionally
fixated’. Imagine, ‘functionally f’Lxated’! O t h e r
methods, they say, are ‘substantive’: these
m e t h o d s carry additional information c o n t e n t
about reality, and so p e o p l e react to them.
This, m y boy, is what can c o m e of not being
clear in your mind about what reality is, and
what ‘information’ is. It never occurs to these
chaps, that information plays a part in creating
reality, lo
Well, the theorists, p o o r chaps have had a
dreadful time lately: s o m e of the trivial m e t h o d s
seem to be real – – they have consequences;
some of the real ones do not seem to have any
consequences, 11 p e o p l e act as if they d o not believe in their theories. Oh, a m e r r y dance! Still, it
suits us.”
“Why?”
“It keeps them busy. They d o n ‘ t interfere. 12
W h e r e w o u l d w e be if the w h o l e thing was unm a s k e d ? . . . Still, w e could d o with a bit of help at
p r e s e n t . . . 13
“Does e v e r y o n e think that way? I mean, the
theorists, surely some of t h e m suspect?”
“Oh yes, some of t h e m do! But it is up-hill
going for them. H o w do you get it across, that w e
play a part in creating reality, w h e n e v e r y o n e
knows, with conviction, that reality exists unproblematically, out there! H o w do you start to
say something like that? ‘Yes, yes, of course,
there is a reality, but…’ People do not want to
hear that sort of thing. You can’t b l a m e them.”
” N o . . . Gosh! To be honest, I didn’t realize
h o w fascinating this could be. It’s really very interesting!”
“Oh yes. It doesn’t have to be dull you know.
It all just d e p e n d s on the w a y you look at things.”
“I’ve b e e n wondering, do p e o p l e ever d e c i d e
that the accounts of an organization don’t represent reality?”
“Oh yes, that does happen. Always embarrassing. People get very upset indeed.”
“Could you give m e an example?”
“Company failures. They, are our b~te noire.
The accounts sometimes present a picture of a
healthy organization, and then, it fails. W e never
hear the end of it! People say: ‘if this organization’s accounts w e r e so untrue, what about
o t h e r organizations?’ As I said, there is no truth as
such, but there is such a thing as stretching it too
far – – that is w h e n you get caught out.
You see, normally a healthy-looking set of
accounts will get an organization through difficult t i m e s . . . ”
“Save it? Save it, do you mean?”
“Yes. If the accounts look alright – – so b e it!
W h o is going to panic? An organization will generally get through rough waters as long as noone rocks the boat.
But if the accounts suggest an organization is
going to fail, so b e it! Say, w e lift what w e call the
‘going-concern’ assumption, and p r e p a r e the
accounts of an organization on the basis of liquidation values rather than costs. What do you
think will happen?”
“People w o u l d panic, and the organization
FINANCIALACCOUNTING AND REALITY 257
w o u l d fail.”
“Self-fulfilling p r o p h e c y . A n d p e o p l e w o u l d
b l a m e us! M a r k m y w o r d . T h e y w o u l d say w e
made it h a p p e n ! I r o n i c , i s n ‘ t it?”
“It c e r t a i n l y is.”
“So, n o – o n e in o u r b u s i n e s s likes t o p r e p a r e
a c c o u n t s w h i c h m a k e a n o r g a n i z a t i o n l o o k bad.”
” D o y o u feel r i g h t a b o u t that? I m e a n , I s e e
n o w t h a t t h e r e is n o t r u t h , as s u c h , b u t , u h m , as
y o u said, s t r e t c h i n g t h e t r u t h . . . ”
“Look, m a n y t r i b e s h a v e w i t c h d o c t o r s . T h e y
c a n will a m a n t o d e a t h . D o y o u w a n t u s d o i n g
that?”
“No, o f c o u r s e n o t . . . G o s h , y o u h a v e s o m u c h
p o w e r . . . Y o u k n o w , n o w t h a t I a m b e g i n n i n g to
s e e it, I d o n ‘ t u n d e r s t a n d h o w all t h i s h a s n o t
c o m e out. I m e a n , I ‘ m t h i n k i n g a b o u t all s o r t s o f
t h i n g s : w h a t w e c o n s i d e r to b e ‘ o b j e c t i v e ‘ , w h a t
w e c o n s i d e r t o b e ‘rational’, t h e w a y w e t h i n k ,
t h e w a y w e act, o u r t h e o r i e s , t h e w a y o u r s o c i e t y
is s t r u c t u r e d – – it’s n o t r e a l in t h e w a y w e t h i n k
it is. It’s all j u s t a n idea, i s n ‘ t it?”
” T h a t ‘ s r i g h t m y boy. J u s t a n idea. A n d b y acti n g in a c c o r d a n c e w i t h it, w e m a k e it so! “If m e n
d e f i n e t h i n g s as real, t h e y a r e r e a l in t h e i r c o n s e –
q u e n c e s . ” 1 4
W e c r e a t e a p i c t u r e o f a n o r g a n i z a t i o n , o r t h e
‘ e c o n o m y ‘ , 15 w h a t e v e r y o u like, a n d o n t h e basis
o f t h a t p i c t u r e ( n o t s o m e u n d e r l y i n g ‘real’ r e a l i t y
o f w h i c h n o – o n e is a w a r e ) , p e o p l e t h i n k a n d act.
A n d b y r e s p o n d i n g t o t h a t p i c t u r e o f reality, t h e y
m a k e it so: it b e c o m e s ‘real i n its c o n s e –
q u e n c e s ‘ . 16 And, w h a t is m o r e , w h e n p e o p l e resp o n d to t h a t p i c t u r e , a n d t h e c o n s e q u e n c e s
o c c u r , t h e y s e e it as p r o o f o f o u r h a v i n g c o r r e c t l y
c o n v e y e d reality. C l e v e r , i s n ‘ t it? T h a t is h o w
s o c i e t y w o r k s . ”
“So, y o u ‘ r e s a y i n g t h a t a n y o n e c h a r g e d w i t h
t h e r e s p o n s i b i l i t y o f p r o v i d i n g t h e s e p i c t u r e s ,
h a s a lot o f p o w e r , b e c a u s e p e o p l e will r e s p o n d
t o w h a t t h e y d r a w – u p ? ”
” T h a t is so.”
“It s e e m s to m e , t h a t y o u r p o w e r is a h i d d e n
p o w e r , b e c a u s e p e o p l e o n l y t h i n k o f y o u as communicating reality, b u t in c o m m u n i c a t i n g reality, y o u construct reality.”
” T h a t ‘ s right. A h i d d e n p o w e r . A n d all t h e
m o r e p o t e n t for it. T h i s m a y s o u n d silly t o you,
b u t m o s t o f u s a r e o n l y j u s t b e g i n n i n g t o r e a l i z e
o u r s e l v e s t h a t w e h a v e t h i s p o w e r . W e a l w a y s
t h o u g h t o f o u r s e l v e s as b e i n g t e c h n i c a l p e o p l e .
B u t it h a s b e e n b e c o m i n g c l e a r lately, t h a t t h e r e
is m u c h m o r e t o o u r w o r k . M u c h m o r e . . . ”
N O T E S
1The process by which society is created is subtle. Ifindividuals were to be serf-consciously aware of the constructed nature
of society, and the part they play in creating and sustaining it, society would not function effectively.
Every word, gesture and deed on the part of an individual or group is either, in conformity with social mores and thus contributes to the maintenance of society as it is, or is deviant and will be tolerated only in small degree, unless the individual
or group can change society – – the latter is the story of minority voices and groups.
Contrary to commonsense intuitions, reality does not concretely exist independently of the concepts, norms, language and
behaviour of people. People create society, but at the same time, their concepts, norms, language and behaviour, become institutionalized. By becoming thus objectified, society acquires a semblance of concreteness. Indeed it is more than a
semblance, as anyone who breaks the rules of social convention quickly learns.
Many readers of this paper will have already lost patience with it, because it does not accord with the norms of academic
reality. Every properly socialized person responds to deviance in this way. Thus, society is stabilized, and protected from
change – – but, in this way also, many interesting things slip past our notice… By taking for granted those things which others
take for granted, we fail to understand how those things arise, and how they are sustained, through being taken for granted
and thereby forming the basis for thought and action. By taking for granted, and rigorously studying, things as they are, one
merely builds on lay conceptions, becoming an expert of description, and a collector of “facts”. But too close an attention to
the “facts” leaves unquestioned how the facts arise – – it leaves us bereft of deep explanation.
Academic discourse frequently functions as a stabilizer of society. Conferred with authority and legitimacy by a social
ideology which holds that academics engage in expert and free thought, research of sociai “facts” plays the important role in
society of objectifying, normalizing, and so perpetuating those “facts” and the interests and power relations which give rise
to them.
258 RUTH D. HINES
The “facis” of society such as “crime”, “profit”, “madness”, “marriage”, “organizations”, “sexuality” and “assets” are generally
taken for granted, but authors such as Berger & Luckmann ( 1966 ), Berger & Kellner (1964), Bittner (1965), Foucault ( 1967,
1977, 1981), Garfinkel (1967), and Giddens (1976, 1984), whilst viewing social reality from different theoretical and
methodological perspectives, all recognize that the facts of society do not pre-exist social practices, but are created and sustained by social action.
Crime, profit, madness, and so on, are socially constructed categories – – they are definitions of reality or “ways of seeing”.
Social power accrues to those who can influence conceptions of reality, since by influencing conceptions of reality – – what
is considered to be “rational”, “moral”, “true”, “efficient” – – one influences social action.
Hines ( 1986a, 1987) shows how mainstream financial accounting research is based on taken-for-granted commonsense
conceptions and assumptions, which mitigate against the questioning of how social reality arises and is maintained and legitimized, and which therefore obscure the roles that financial accounting plays in the creation and maintenance of society.
Mainstream financial accounting research represents a ‘~¢ay of seeing” similar to the commonsense ‘~zeayof seeing”, but in
the words of Poggi (1965), a way of seeing is also “a way of not seeing”.
It is necessary to breach a way of seeing or worldview, in order to create a new way of seeing (see especially Handel [1982,
pp. 55–77 ] and Mehan & Wood [1975, pp. 3-33]). Castaneda’s master, the sorcerer Don Juan, refers to breaching a worldview
as “stopping the world”. “Stopping the world”, or dissolving our taken-for-granted conception of reality, and thereby seeing
that it is essentially arbitrary and constructed rather than “true”, is the first step to gaining a new reality or a new way of
“seeing” (Castaneda, 1971, 1974). It was some years before Castaneda began to be able to stop his world, and to see how that
world which he had taken for granted and had seen as pre-existing his own and others’ action, was socially constructed by
the thought and action of himself and others. He was then empowered to experience a new reality, that of Don Juan.
A touching aspect of Castaneda’s early apprenticeship to Don Juan, is his dedication to pursuing what he sees as rigorous
research procedures. Eventually Castaneda comes to recognize that these procedures merely serve to sustain his taken-forgranted world, and to prevent him from discovering an alternative world.
Whilst it is recognized in some management accounting research and organization behaviour research, that accounting
practices, as well as communicating reality, also play a part in creating, sustaining and changing social reality, this view of
accounting is not “seen” in mainstream financial accounting research. The present paper represents an attempt to momentarily breach or “stop the world” of mainstream financial accounting research.
2Reality does not exist independently of accounts of it. As Meyer ( 1983, p.236 ) states, an organization, “is in fact a sprawling,
complex institution, with multiple purposes and disconnected programs (technologies), of unknown production functions,
of competing and autonomous subordinate units”. But accounting imposes a conceptual boundary on it: “the accountants
settle the matter by definition, and acquiring boundaries means, for an organization, acquiring reality” (p. 236).
Hines (1986b) shows how the financial accounts of an organization do not merely describe, or communicate information
about, an organization, but how they also play a part in the construction of the organization, by defining its boundaries. An
organization is not a concrete thing, but a set of interrelationships, and if it is to exist, then it must somehow be bounded or
defined. Financial accounting controversies are controversies about how to define the organization. For example, what
should “assets” and “liabilities” include/exclude: at what point does an asset/liability become so intangible/uncertainfunenforceable/unldentifiable/non-severable, etc., that is ceases to be considered to be a “part” of an organization? The answers to
questions such as these, define the “size”, “health”, “structure” and “performance”, in other words, the reality of an organization.
3When the constructed nature of social reality is recognized, it becomes readily understandable why, for example, the Financial Accounting Standards Board (FASB, 1984) was unable, in its Conceptual Framework, to divorce measurement from
recognition. It is difficult to “measure” something, before it has been made real, that is, “realized”!
4 Gribbin (1985) elaborates how subatomic particles, and other conceptions of physical reality, are the artefact of observation and measurement procedures:
The only things we know about the quantum world are the result of experiments… The electron is created by our process of experimental probing. The story stresses the fundamental axioms of quantum theory, that no elementary
phenomenon is a phenomenon until it is a recorded phenomenon. And the process of recording can play strange tricks
with our everyday concept of reality (pp. 209-210).
In the 1930s physicists were intrigued by the prediction of another new particle, the neutrino, required in order to explain the subleties of the spin interactions of some radioactive decays. “I am not much impressed by the neutrino theory”
said Eddington, “l do not believe in neutrinos”. But “dare l say that experimental physicists will not have sufficient ingenuity to make neutrinos?”
Since then, neutrinos have indeed been “discovered” in three different varieties… Can Eddington’s doubts really he taken
at face value? Is it possible that the nucleus, the positron and the neutrino did not exist until experimenters discovered
the right sort of chisel with which to reveal their form? Such speculations strike at the roots of sanity, let alone our concept
of reality. But they are quite sensible questions to ask in the quantum world. If we follow the quantum recipe book cor
FINANCIAL ACCOUNTING AND REALITY 259
rectly, we can perform an experiment that produces a set of pointer readings that we interpret as indicating the existence
of a certain kind of particle. Almost every time we follow the same recipe, we get the same set of pointer readings. But
the interpretation in terms of particles is all in the mind, and may be no more than a consistent delusion (p. 162).
s See, for example, Tucker ( 1981 ). For different accepted versions of the Cuban Missile Crisis, see Allison (1969).
6 It is now acknowledged by philosophers of science that predictive success of a theory does not necessarily infer the “truth”
of a theory. Many theories in the history of science which were (are) empirically successful, have been established to be nonreferential, that is, not descriptively valid, with respect to their central explanatory concepts. These include the humoral
theory of medicine, the effiuvial theory of static electricity, the caloric theory of heat, the vibratory theory of heat, the theory
of circular inertia, and theories of spontaneous generation (see Laudan, 1981 and 1984, for many others).
Conversely, many theories which are presently considered to be genuinely referential theories, were previously rejected,
because of their apparent empirical failure. For example, the chemical atomic theory in the eighteenth century was so unsuccessful, that most chemists abandoned it. Wegener’s theory of plate tectonics, published at the beginning of this century, was
ridiculed on the basis of its empirical support, until the 1960s, when it became geological orthodoxy.
Furthermore, according to the formal rules of logic, the predictive success of a theory does not logically infer the descriptive validity of a theory (Hesse, 1975). For example, alternative theories can predict equally well. Laudan (1977) discusses
many cases of scientific theories which successfully predicted, but were eventually determined not to be descriptively valid.
Feyerabend ( 1978 ), Kuhn (1962) and Laudan ( 1981, 1984 ) illustrate by reference to many episodes in science, that scientific observations and theories, are a product of a researcher’s expectations, sensory impressions, cognitive processes,
research methods, ideological prejudices, epistemological assumptions, categories and assumptions embedded in their language, and auxiliary theories such as measurement theories. Gribbin (1985) and Pickering ( 1984 ) illustrate this in relation
to atoms and quarks respectively.
A growing literature describes the processes by which theories and knowledge are socially constructed and negotiated, for
example, [Gilbert ( 1976 ), Latour & Woolgar (1979), Myers (1985) and Schuster ( 1984 )].
Foucault ( 1967, 1977, 1980) goes even further, to show how socially constructed “truth” and “knowledge”, are the product of interests and power relations [see also Dreyfus & Rabinow ( 1982 ) and Racevskis ( 1983 )].
From the perspective of Foucault’s writings, it may be suggested that it is not merely chance that has determined the preeminence of positivist financial accounting research, such as capital market research and agency theory. Since this type of research uncritically and unreflectively investigates “what is”, without questioning how the status quo arose, and is ongoingly
sustained and legitimated, such research legitimizes, rather than threatens, the social, political and economic interests vested
in the status quo. It is thus the type of research that will be encouraged, admired and funded by those interests.
7 The themes in this paper emphasize the constructionist view of society, because it has not generally been acknowledged
in mainstream financial accounting research, that social reality, whilst tangibly pre-existing the individual, arises interactively
with social action. It is therefore in an effort to partially redress this imbalance, that the constructed nature of social reality
has been emphasized in this paper.
Various critiques have been made of the constructionist viewpoint for its neglect of social structure (for example Giddens,
1976 ). However, the present paper, whilst emphasizing that people construct social relations and social structure in an ongoing fashion, also recognizes that social structures, such as organizations, pre-exist the individual. As the title of this paper
reflects, social reality exists tangibly, and accounting practices communicate that reality, but in so doing, such practices play
a part in creating, shaping and changing, that is, in constructing reality. Thus the overall theoretical position of this paper corresponds more to the position of Berger & Luckmann (1966) or Giddens (1984) [although these are not unproblematic perspectives – – see, for example, Smith & Turner ( 1986)].
8 Beaver ( 1973, p. 51 ).
Holthausen & Leftwich ( 1983, p. 81 ).
~oWhen accounting is seen as merely reflecting or communicating or monitoring the characteristics of organizations, then
many accounting methods are seen as “cosmetic” or “arbitrary” and it is supposed that investors can “see through” these
methods to the “real” company. Indeed early efficient markets research tested for those methods and standards which were
“cosmetic”. Moreover, certain accounting changes and standards were held as being “cosmetic”, and market efficiency was
tested on the basis of this maintained assumption. However, no clear or consistent picture emerged from this research as to
which methods, issues or standards are indeed “cosmetic” i.e. do not have “information content” about reality (Lev & Ohlson
( 1982 ), Hines ( 1984 ) ). This state of affairs ceases to be surprising or to seem anomalous, when it is acknowledged that reality
does not pre-exist financial accounting practice, but rather arises reflexively and interactively with inter alia financial
accounting practices.
Such a recognition also throws light on why companies have so strongly opposed apparently “cosmetic” accounting stand°
ards, and why their managements have gone to such lengths in order to mitigate the effects of them. It is not necessarily that
260 RUTH D. HINES
managements do not believe or do not understand the Efficient Market Hypothesis, it is rather that they do not think of their
company’s “size”, “performance”, “stability”, etc. as existing concretely and independently of financial accounting practices,
so that sophisticated investors can “see through” accounting numbers to it. For this reason managements often go to expensive lengths, in order to manage their company’s appearance [see Wyatt (1983) for some of these costly circumventions of
accounting standards].
i i For example, the stock market does not appear to react to replacement cost disclosures, but it appears that it may react to
depreciation changes (see Lev & Ohlson, 1982).
2 “A grequent topic of debate in the literature is the impact of accounting research on the accounting profession; the general
conclusion is that the direct impact has been minimal” (Ball & Foster, 1982, p. 166).
t3 The accounting profession in Europe, the United States and Australia, is increasingly attracting investigation and governmental intervention. The following statement was made by Arthur M. Wood, chairman of the Public Oversight Board of the
Securities and Exchange Commission practice section of the AICPA division for CPA firms:
This is a critical time in the history of the accounting profession. To believe that the crisis exists because of the hearings
being held by the House Subcommittee on Oversight and Investigations is in m y estimation a serious error. Congressman
Dingelrs hearings are a symptom, not a cause. The cause of this crisis is in fact that investors and depositors are losing faith
in the ability of the accounting profession to perform the job that has historically been its unique function: assuring the
integrity of the financial information on which our capitalistic society depends ( From “Statements in Quotes”,Journal of
Accountancy(August, 1985, p. 142)).
14Handel ( 1982, p. 36), first stated by W. I. Thomas in the 1930s. Handel (1982) and Mehan & Wood (1975) elaborate h o w
assumptions about reality predispose one to interpreting events in harmony with those assumptions. When acted upon, these
assumptions perpetuate or create the conditions that one already assumed to have existed.
~s See Miller (1986) for a review of Fourquet’s La Comptes de la Puissance (Encres, Editions Recherches, 1980), which
shows how national accounts are instrumental in shaping economic behaviour.
16See Zeff (1978) for discussion of the power struggles which have surrounded a n u m b e r of U.S. accounting standards, as
various groups have sought to impose their definition of reality, and the consequences of it, upon society.
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