‘Thinking: What can accountants gain from applying the principles of pragmatic constructivism?’

Management accountants have long struggled to find a convincing conceptual framework that would help them to substantiate their profession’s work in society, but pragmatic constructivism is one approach that could serve their purposes.

Based in philosophy, this approach has four dimensions: values, facts, possibilities and communication.

  • Values. All professionals should work according to established values that will give their profession credibility. These exist at three levels in management accounting. First are the values that characterise the profession in society – honesty and competence, for instance. Second are the values that characterise the organisation that employs them. These derive from its particular culture and management style. Third are the technical values that relate to the information produced by management accountants. These include factors such as accuracy and completeness.
  • Facts. Management accounting needs to be based in fact – otherwise, its values will lack credibility. The facts recognised by accountants establish the substance of the profession. There are three factual types. First, there are those with a physical presence – eg, products and markets. Second, there are facts that are constructed – eg, costs and profits. These need to become accepted in the profession and wider society, thereby becoming institutionalised. Third, there are future estimates – eg, asset residual values and budget forecasts. Their accuracy can be confirmed only after the event, so their authenticity depends on the accountant’s record of forecasting success. The second and third categories of fact are constructs. So, while accountants can claim to deal in facts, it is untrue to say that all accounting information can be substantiated via a physical correspondence with reality.
  • Possibilities. Without these there can be no action – ie, no management accounting. Possibilities are derived from recognised facts such as the existence of trading activity. Accounting possibilities need to be recognised and selected. Values are the basis for making the appropriate choice. For example, if the value of prudence is to be applied, then any possibility that does not involve it should not be considered. l Communication. Social activities such as management accounting would not be possible without communication. Effective communication within the profession is essential in order to establish values, facts and possibilities, while effective communication beyond the profession is needed to ensure that these are all enshrined in the accounting information provided. A conceptual framework for management accounting can be constructed by integrating these four dimensions in a coherent way. This will:
  • Formally recognise and define the values that management accountants try to achieve with their actions. This gives the profession its societal credibility.
  • Base information in the reality of recognised facts. There should be a defensible factual base for management accounting – it was a failure to do this that gave scope for the rise of activity-based costing.
  • Involve the identification and careful evaluation of possibilities for action inherent in the recognised facts of a given situation. Values should drive and justify the action chosen.
  • Explain how effective communication, both inside the profession and with others who use management accounting information, is to be achieved.

By professors Hanne Nørreklit of Aarhus University, Lennart Nørreklit of Aalborg University and Falconer Mitchell of the University of Edinburgh Business School.

Illustration: Karolin Schnoor/Dutch Uncle



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