Accounting Qualities in Practice: Rhizomatic stories of representational faithfulness, decision making and control

Lennon, Niels Joseph Jerne Doctoral Thesis Accounting Qualities in Practice: Rhizomatic stories of representational faithfulness, decision making and control PhD Series, No. 6.2013 Provided in Cooperation with: Copenhagen Business School (CBS) Suggested Citation: Lennon, Niels Joseph Jerne (2013) : Accounting Qualities in Practice: Rhizomatic stories of representational faithfulness, decision making and control, PhD Series, No. 6.2013, ISBN 9788792977250, Copenhagen Business School (CBS), Frederiksberg, https://hdl.handle.net/10398/8640 This Version is available at: https://hdl.handle.net/10419/208843 Standard-Nutzungsbedingungen: Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden. Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen. 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If the documents have been made available under an Open Content Licence (especially Creative Commons Licences), you may exercise further usage rights as specified in the indicated licence. https://creativecommons.org/licenses/by-nc-nd/3.0/ LIMAC PhD School Department of Operations Management PhD Series 6-2013 PhD Series 6-2013 Accounting Qualities in Practice copenhagen business school handelshøjskolen solbjerg plads 3 dk-2000 frederiksberg danmark www.cbs.dk ISSN 0906-6934 Print ISBN: 978-87-92977-24-3 Online ISBN: 978-87-92977-25-0 Niels Joseph Jerne Lennon Accounting Qualities in Practice Rhizomatic stories of representational faithfulness, decision making and control Accounting Qualities in Practice Rhizomatic stories of representational faithfulness, decision making and control Niels Joseph Lennon Department of Operations Management Copenhagen Business School Supervisors: Professor Jan Mouritsen Associate professor Ivar Friis PhD School LIMAC PhD programme in Technologies of Managing Niels Joseph Jerne Lennon Accounting Qualities in Practice Rhizomatic stories of representational faithfulness, decision making and control 1st edition 2013 PhD Series 6.2013 © The Author ISSN 0906-6934 Print ISBN: 978-87-92977-24-3 Online ISBN: 978-87-92977-25-0 LIMAC PhD School is a cross disciplinary PhD School connected to research communities within the areas of Languages, Law, Informatics, Operations Management, Accounting, Communication and Cultural Studies. All rights reserved. No parts of this book may be reproduced or transmitted in any form or by any means, electronic or mechanical, including photocopying, recording, or by any information storage or retrieval system, without permission in writing from the publisher. Acknowledgements Writing this ph.d. thesis has been a comprehensive piece of work in terms of hours and strain. The three years started to count down in April 2009. Already early in the process many people around me recommended me to ”start instantly”. The problem for me that even though I started by following my research proposal, things moved and other more interesting aspects of the research project turned up. If it wasn’t for the much appreciated support from friends, family and colleagues, I am not sure this thesis would have been finished in time. Especially not in the form it has today. I will give my thanks to the people at the different loci where I have had the opportunity to present and reflect on my work, which includes the EAA 2010 Doctoral Colloquium and the 2011 Imagining Business workshop hosted by IE Madrid, held in Segovia. I especially want to thank HEC and Martin Messner for letting me attend the research seminars at the department of accounting and management control in the fall 2010. One of their seminars was with Paolo Quattrone. Because of the intense afternoon traffic in Paris I had the opportunity to talk with him in a taxi from HEC to the CDG airport for a couple of hours. If it was not for this talk I am not sure I had started reading Gilles Deleuze’s work. In the taxi we discussed research and among other appreciated comments Paolo Quattrone suggested me to start looking into Deleuze’s writings. And the deleuzian theory turned out to be element that bounded my thesis together with the claim I wanted to write. I also want to give my thanks to the assessment committee, Professor Bino Catas´us (Stockholm University), Senior Lecturer Ann-Christine Frandsen (University of Essex) and Professor with special responsibilities Allan Hansen (Copenhagen Business School), for their thorough reading of the thesis and much appreciated comments. At the department of Operations Management at CBS my thanks will go in two directions: to my supervisors and to my fellow ph.d. students. I have iii been very happy to discuss my research with Ivar Friis, who acted as my cosupervisor. Even though we did not always agree academically, he could get me ”down to earth” after sometimes writing what he referred to as ”extremely psychedelic theory”. He always acknowledged my academic claims and supported me in doing it the way I did. A special thanks will go to my main supervisor Jan Mouritsen. I am very grateful for the opportunity to have him as a resource and discussion partner. Jan has been a great inspiration and aspiration for me during the whole ph.d. period. Even though always being critical towards my writing Jan supported me in doing what I did the whole way through, which I am very thankful for. I will also give my thanks to the rest of the management accounting researchers at the department for helping me along the way. As mentioned I owe a special thanks to the other ph.d. fellows at our department. Especially Thomas Frandsen, Peter Andreasen, Alex Yu Lichen and Linn Gevoll have always been helpful when we have discussed theoretical claims in our ph.d. corridor, which we did almost everyday. And also their willingness to drink a lot of coffee and through that keep up the good working spirit has surely made its traces throughout the thesis. Without my fellow students I am sure this would have been a lonesome process. My last thanks will go to my family. My mom has always been there to help us out during pressed periods and especially the last couple of months before the submission deadline she has been a great help to keep our family together and taking care of our children. And thanks to my children, Oscar and Alba, who have given me a space at home to disconnect from the thesis and by doing so have helped me not to become crazy in the writing process. Finally, many many thanks to my beloved wife Christina, who has always supported me in using a research approach nobody else at the department had experience with, and encouraging me to keep going in that direction. iv Simulacrum There’s supposed to be something pretty abstract called labor that one can buy and sell, in situations that either mark a basic social injustice or establish a little more social justice. But Godard asks very concrete questions, he presents images touching on what exactly is being bought and sold. What are some people prepared to buy, and others to sell, these not necessarily being the same thing? A young welder is prepared to sell his work as a welder, but not his sexuality by becoming an old woman’s lover. A cleaning lady’s happy to sell the time she spends cleaning but won’t sell the moment she spends singing a bit of the ”Internationale” - why? Because she can’t sing? But what, then, if one were to pay her for talking about not being able to sing? A specialist clockmaker, on the other hand, wants to get paid for his clockmaking efforts, but refuses to be paid for his work as an amateur filmmaker, which he calls his ”hobby”; but the images show that the movements he makes in the two activities, the clock making sequence and the editing sequence, are so remarkably similar that you can mistake one for the other. But no, says the clockmaker, there’s a great difference of love an warmth in these movements, I don’t want to be paid for my filmmaking. But then what about filmmakers and photographers who do get paid? What, furthermore, is a photographer himself prepared to pay for? He’s sometimes prepared to pay his model. Sometimes the model pays him. But when he photographs torture or an execution, he pays neither the victim nor the executioner. And when he photographs children who are sick, wounded, or hungry, why doesn’t he pay them? Guattari once suggested at a psychoanalytical congress that analysands should be paid as well as analysts, since the analyst isn’t exactly providing a ”service”, it’s more like a division of labor, two distinct kinds of work going on: there’s the analyst’s work of listening and sifting but the analysand’s unconscious is at work too. Nobody seem to have taken much notice of Guattari’s suggestion. Godard’s saying the same thing: why not pay the people who watch television, instead of making them pay, because they are engaged in real work and are themselves providing a public service? The social division of labor means it’s not only work on the shop floor that gets paid but work in offices and research laboratories too. Otherwise we’d have to think about the workers themselves having to pay the people who design the things they make. I think all these questions and many others, all these images and many others, tear apart the notion of labor. Gilles Deleuze, Negotiations, p. 39 v vi Summary There is a tendency in accounting theory, both external reporting and management accounting, to express a representational ideal. This to be understood in the sense that accounting information, independent on whether it is reported externally or used for control purposes internally, ought to represent something underlying, whether this is revenue, costs, performance or other things inscribed in the accounting information. In some cases the underlying is not an object, but a procedure which is developed with the purpose of standardising the calculations as to become comparable (Financial Accounting Standards Board, 1980a). In the beginning of the 1970’s in the accounting information literature, simultaneously with the foundation of the American Financial Accounting Standards Board (FASB), an academic discussion regarding which qualitative characteristics accounting information ought to have, emerges (e.g. Ijiri, 1975, Hines, 1988 og Ingram and Rayburn, 1989). This was caused by FASB’s work on a conceptual framework Standard of Financial Accounting Concepts (SFAC), which was meant as a guide to the standard setters in the development of new accounting standards/principles. A new notion, representational faithfulness, was introduced in SFAC no. 2. The discussion about representational faithfulness is equivocal and no unambiguous definition of what representational faithfulness actually is. This has occasioned a range of dialogues about the representativity of accounting information, the accounting setters’ roles and effects of disclosure of accounting information. Simultaneously with the dialog in external reporting discussions regarding management control, the purpose of using accounting information to this end and which qualitative characteristics that constitute a good management control design (performance measurement design). In this stream of literature the principle of representing are expressed too, because the literature talks about representing employee effort, or performance, and through incentives construct vii xiv Contents Contents xv List of Figures xix List of Tables xix I Introduction and Domain Theory 1 1 Introduction 3 1.1 Research question ........................... 7 1.2 Perspectiveofthethesis ....................... 8 1.3 Contributiontodomainliterature.................. 9 1.4 Structureofthethesis ........................ 12 2 Theory of accounting qualities 13 2.1 Introductiontothetheorychapter ................. 13 2.2 Accounting Theory: Representational faithfulness and other accountingqualities........................... 18 2.2.1 FinancialAccountingStandardsBoard(FASB) ...... 18 2.2.2 Accounting: a system of accountability relationships .... 20 2.2.3 Qualitative characteristics in the work of IACPA’s study group ............................. 22 2.2.4 Performance measurement criteria in Ijiri 1975 ....... 22 2.2.5 SFACno.2:Qualitativecharacteristics........... 25 2.2.6 AccountingqualitiesinIAS ................. 31 xv CONTENTS 2.2.7 Summary of accounting qualities .............. 32 2.3 Research on faithful representation ................. 33 2.3.1 The purpose of a framework of qualitative characteristics offinancialreporting..................... 33 2.3.2 Discussion of the ”reality” accounting represents ...... 35 2.3.3 Summary of the theory on qualitative characteristics of accounting............................ 41 2.4 ManagementControl:PerformanceMeasurementCriteria..... 45 2.4.1 Performancemeasurementforcontrol............ 46 2.4.2 The emergence of qualities of performance measurement: alignmentproblem ...................... 47 2.4.3 Incentives and controllability ................. 50 2.4.4 The value of information: risk, precision and sensitivity . . 53 2.4.5 Myopia,biasandprecision.................. 54 2.4.6 Congruityanddiversity ................... 58 2.4.7 Asetofperformancemanagementcriteria ......... 60 2.4.8 Summary of performance measurement criteria ....... 63 2.5 Constructivist approaches to accounting information and performancemeasurement ......................... 67 2.5.1 ANT research on accounting qualities ............ 68 2.5.2 Deleuzianperspectiveonaccountingqualities ....... 74 2.5.3 Summary of constructivist accounting research ....... 79 2.6 Conclusionontheliteraturestudy.................. 82 II Theoretical Approach and Methodology 85 3 Theoretical Approach 87 3.1 Deleuze’s Difference and Repetition ................. 88 3.1.1 General concepts and complete concepts: blocking ..... 89 3.1.2 Eternalchainsofrepetitionsandthesimulacra....... 91 3.2 Therhizome.............................. 94 3.3 Deleuze in the social: Assemblage Theory ............. 97 3.4 Machinic assemblages and regimes of signs ............. 99 xvi CONTENTS 3.4.1 Machinic assemblages ..................... 100 3.4.2 Regimesofsigns ....................... 102 3.5 Positioning the theoretical approach . . ............... 105 3.6 Concluding remarks on the theoretical approach .......... 109 4 Methodology 111 4.1 Epistemology:Thethought-experiencerelationship ........ 113 4.2 Ontology................................ 120 4.3 Casestudydesign........................... 123 4.3.1 Selectionofthecase ..................... 123 4.3.2 Collectingdata ........................ 124 4.3.3 Workingwiththedata.................... 127 III Empirical Stories and Theorisation 131 5 Discorp Denmark A/S: Introducing the case company 137 6 Reporting and the chart of accounts as rhizomatic multiplicities139 6.1 Deterritorialising the general ledger table: repetition of registration 140 6.2 Designofthenewgeneralledger:repetitionofreporting ..... 144 6.3 Chapterconclusion .......................... 150 7 Rhizomatic time-space movements. Becoming revenue centre 155 7.1 Thecontrollermanual ........................ 156 7.2 The rhizomatics of becoming accountable - delegation of budget responsibility ............................. 159 7.2.1 Planning the budget ..................... 162 7.2.2 Evaluatingtheperformance ................. 164 7.3 The framing of decision freedom ................... 166 7.3.1 The sales and marketing budget ............... 166 7.3.2 The budget letter ....................... 172 7.3.3 Transfer prices ........................ 174 7.4 Chapterconclusion .......................... 179 xvii CONTENTS 8 Tracing the future. Market movements and the revenue calculation 183 8.1 Description of the market ...................... 185 8.2 Themarketconditionsinmotion:salescriteria .......... 188 8.3 The private clinics market and the sales criteria. Time, quality and profitability ............................ 194 8.4 Chapterconclusion .......................... 201 IV Discussion and Conclusion 205 9 Discussion 207 9.1 Setting the scene for theorisation .................. 208 9.2 Dilemmas and tensions for decision making: the representativity ofaccounting ............................. 209 9.3 Dilemmasandtensionsforcontrol:accountingsimulacra ..... 216 10 Conclusion 223 References 231 xviii List of Figures 2.1 SFACno.2.Hierarchyofaccountingqualities........... 26 5.1 Organisational diagram Distech Holding Ltd. ............ 138 6.1 Sizeofaccountingtable........................ 152 List of Tables 2.1 Summary of literature on accounting qualities ........... 42 2.2 Summary of literature on performance measurement criteria . . . 64 2.3 Summary of literature on constructivist accounting research . . . 79 xix xx Part I Introduction and Domain Theory 1 2 Chapter 1 Introduction In the 1970’s, simultaneously with the founding of the Financial Accounting Standards Board (FASB), the development of a theoretical foundation of qualitative characteristics of accounting information was initiated. The work had to deal with ”the criteria which should be used in the process of corporate scorekeeping” (Burton, 1973). Until the 1960’s objectivity had been one of the principal ideals of accounting information (e.g. Wojdak, 1970 and Ijiri and Jaedicke, 1966). However, accountants and accounting scholars moved away from objectivity as an ideal for accounting information. This was acknowledged by FASB in their conceptual framework no. 2 (SFAC no. 2) and they developed the concept representational faithfulnessas a reliability criterion to substitute objectivity(Financial Accounting Standards Board, 1980a). This thesis concerns accounting qualities and the representativity of accounting information. It will concentrate on what representational faithfulness could mean and analyse how it unfolds in practice. The purpose is to analyse how this ideal of representational faithfulness of accounting information creates dilemmas and tensions in practice. This is studied with departure in Ijiri (1975)’s claim that accounting information is meant to render somebody accountable to somebody else. The author’s interest in the field stems from the problematisation poststructuralist and performative theory offer to the accounting domain. The point in the 3 1. Introduction is used to understand how representativity of accounting information unfolds in the particular circumstances and what its consequences for accountability is (Ijiri, 1975). The thesis claims that accounting information does not represent, and therefore the treatment of accounting information as more or less precise representations, or estimates of something underlying(e.g. firm or employee performance, or effort provided), creates performances brought about by the complexity of the movements in the assemblages constituting the accounting calculations. The conception of accounting information as representations of something is therefore challenged by the complexity of assemblages in movement and the signification (generation of meaning) of the calculation. The point is that management, or managing, emerges because there is always a disconnect between the accounting information and the world in which they act. Thus, from this perspective, organisations should give the managers the possibility to think and act independent on the accounting information, with a smaller emphasis an accounting information as the reference point by which to decisions are justified. Accounting information should rather be used as a dialogue partner and it should be avoided to elevate it to a position where accounting alone determines whether a decision is good or bad. The thesis shows this through three empirical matters. The first is how the structure of the chart of accounts becomes different because the structure intermingles with the particular movements of the world. This affects the way reports can be assembled. The second shows how the internal accounting structure moves because of different significations of the accounting information and how accounting information performs as a sign whose meaning is not given (which is the reason for different significations). The different significations lead to interventions from HQ which affects the managers’ decision space and this changes their ideal of a profit centre to perform more like a revenue centre. The difference in significations of the information is important for control because they express opinions about employee performance. The third matter raises a concern about the budget as a means of tracing the market, through calculation of revenue. This shows how being an ”accountable manager” is is assembled in by the planning and evaluating activities of the performance management process. Moreover, it shows how the 10 1. Introduction managers’ decision freedom becomes constrained by multiple movements within the management accounting structure, and that these movements are effects of the signification(s) of the performance measures, the budget provides. The point is that the budget traces a certain version of the future, but could be many tracings. But the remarkable point is that there could be many propositions about what the future actually is when it is actualised, too. Potentially, many different realities exist on the same time and they are effects of which assemblages that construct and signify the actuality/-ies. Thus both the tracing of the future and the actualisation of the future is heterogenous. 11 1. Introduction 1.4 Structure of the thesis Part I of the thesis covers the introduction and the domain theory. Chapter 1 introduces the thesis, its research question and contribution. Chapter 2 reviews literature on accounting qualities and focus on two alternative theoretical positions. Part II Covers the theoretical approach of the study and methodology. Chapter 3 outlines the theoretical approach of the thesis. Chapter 4 discusses the methodology. The chapter concentrates on the epistemological and ontological concerns and eventually discusses the case study design. Part III comprise of the empirical stories of the thesis. Chapter 5 introduces the case company. Chapter 6 shows how the structure of the chart of accounts is effectuated by rhizomatic movements and how performance evaluation becomes an assemblage of the past, the presence and the future both in terms of the rhizomatic movements that have to be dealt with in the registration practice. Chapter 7 analyses how the management accounting structure in the case company becomes problematic because it is a general structure in which rhizomatic movements of the organisation is not accounted for. Thus, the rhizomatic movements moves the performance of the accounting structure from being a profit centre to perform as a revenue centre. Chapter 8 concentrates on the relationship between accounting representationsand the market from which the revenue line of the budget is constructed. The point of this chapter is to show how accounting information is a blocked concept (a sign) which can be conceptualised as simulacrum rather than representation. Part IV makes up the discussion and conclusion of the thesis. 12 Chapter 2 Theory of accounting qualities 2.1 Introduction to the theory chapter This chapter elaborates the theoretical domain the thesis will concern. The chapter will cover financial accounting theory and management control theory. Financial accounting theory is reviewed for two reasons: firstly, the boundary between financial accounting information and management accounting information is sometimes artificial to draw because financial accounting theory is used for internal control purposes as well (as is the case in the company studied in this thesis too) and thus, qualitative characteristics of financial accounting information is influential for management control too. Secondly, because there has been a systematic discussion about accounting qualities and representational faithfulness, which is important for the claim in this thesis as well as because it indicates the representational ideal that dominates in accounting theory. Management control theory is covered because it deals with decision making and constructing incentives for taking good decisions. Management accounting is concerned with a coordination problem and a motivation problem and somehow assumes that a solution to both problems can be designed by choosing the right calculations (or management models). The dialogue about accounting qualities is not as structured in the management accounting literature, but when it comes to representativity of accounting information several concerns in the theoretical conversations indicates the information to be representational: bias assumes that we 13 2. Theory of accounting qualities know the true, earnings management assumes that we know. What appears to be at stake in the very centre of the accounting literature is a problem of alignment; that managers makes the right decisions for the owners (what Merchant (2006) treats under the notion of congruity). The point is therefore to emphasise a concern about constructing appropriate effects in a performance measurement design. However, within this line of thinking lies the assumption that it is possible to know the truthand that accounting information represents the truth or certain aspects of it. Despite both financial accounting and conventional management accounting express a representational ideal, the literature treats representational faithfulness as an explicit, distinct concern. Representational faithfulness is systematically treated in financial accounting, but management accounting is more diverging in their conceptualisation of accounting information as representations (as in e.g. Lazear and Gibbs, 2008’s algebraic notion of performance measure and effort) or re-presentations (as in e.g. Chua, 1995). But both financial accounting, conventional management accounting and the actor-network theory inspired accounting research consider accounting information as a frame within which decisions take place and are justified. The representational character of accounting information is treated in both the financial and conventional management accounting literature streams and both are reviewed in order to gain an understanding of how accounting representativity and the connection with managers’ thinking and acting is handled in the literature. Actor-network theory inspired accounting research is reviewed too because they provide counter-movement to the representational ideal. In this theory accounting is treated as reality-constituent rather than reality-representative. The theory chapter is structured as follows. First, theory of accounting qualities with special attention on representation faithfulness is reviewed with the purpose of presenting the the main claims, the theoretical conversations consist of. This will be done with departure in financial accounting theory because the theoretical conversation about representativity of accounting information emerged in this field. The financial accounting qualities sections will be followed by a review of management control literature (performance measurement) with spe- 14 2. Theory of accounting qualities cial attention on qualitative characteristics of performance measures. As we see in this section, the distinction between financial accounting qualities and performance measurement qualities is not very clear which is evident in e.g. Merchant (2006) who borrows research theory from financial accounting when developing his framework of qualitative criteria. Thereafter the scholarly work about performativity of management accounting representations is processed with focus on actor-network theory accounting research and deleuzian accounting research. Both reviewed with the same ambition as the other sections: to obtain an understanding of how accounting calculations are understood and problematised as representations. The part on financial accounting qualities is bigger than on performance management qualities and constructivist accounting research which might seem an an uneven weighting while considering the research question and theoretical approach. However, there is a very mundane explanation on that. The theory on financial accounting qualities is much more extensive than theory on performance measurement qualities and constructivist research on representativity of accounting information. Therefore, in order to review the literature consistently the sections on financial accounting qualities cover more pages than the other part of the chapter. The selection of publications to be reviewed in the chapter is done mainly by database searches combined with an analysis of how the publications relates to each other as a discussion1. The very first part of the chapter presents accounting principles literature on accounting qualities. This is done by reviewing publications from main accounting institutions such as FASB and IASC/B together with a review of the sources, the standard setters use when aligning accounting qualities. The sources for the review in the second part, the theory of representational faithfulness, is selected by a data base search on representational faithfulness and faithful representation and the intersection between searches on conceptual framework and economic reality. The following section, performance management criteria, did not return a useful result in data base searches. Probably because Merchant (2006) is the very first attempt to align criteria in the performance 1This is done by reviewing title, abstract and bibliography to see who the article discusses with 15 2. Theory of accounting qualities management literature. Therefore the papers covered in that section was found by reviewing sources from Lazear and Gibbs (2008) and Merchant (2006) and combining these with a database search on performance measurement criteria in the abstract. The articles used in the constructivist research has been selected by focusing on Robson (1991) and Robson (1992) and following the ANT papers quoting these seminal papers. This is not meant as a method for developing a exhaustive review of the ANT accounting literature, but rather to follow the conversation and understand how accounting representations are perceived in this literature. The deleuzian accounting literature is selected by a data base search on the intersection between deleuze and accounting,deleuze and performance measurement and deleuze and management control in the abstract. Before entering into the literature of financial accounting qualities, a piece of writing about the boundary between financial accounting and management accounting will be described. Watts on the boundary between financial accounting and management accounting As described in the introduction to the theory chapter some differences arguably exist between external reporting (or financial accounting) and internal reporting (or management accounting) and there might seem to be a logical boundary between the two fields of research. However, such a boundary can be too overemphasised, if it means that research in the one domain are carried out without considering the other domain. Watts (2003a) and Watts (2003b) argue that accounting standard setting is influential on managerial behaviour: ”FASB attempts to ban conservatism in order to achieve ”neutrality of information” without understanding the reasons conservatism existed and prospered for so long are likely to fail and produce unintended consequences. Successful elimination of conservatism will change managerial behavior and impose significant costs on investors and the economy in general”. Watts (2003a, p. 207) 16 2. Theory of accounting qualities He continues: ”Researchers and regulators who propose the inclusion of capitalized unverifiable future cash flows in financial reports should consider the costs generated by their proposal’s effect on managerial behavior”. Watts argues that the boundary between financial accounting and management (or, more precisely, managerial behaviour), which have been argued in the performance management literature, can be problematic because accounting standards influence the behaviour of managers. The study object here is the concept of conservatism which, according to Watts, FASB tries to eliminate from accounting standards in favour of neutrality in accounting information. Whilst Watts main argument is tailored around the need for conservatism in accounting he explicitly addresses criteria for performance measures, derived from contracting theory. Obviously, in contracting, verifiability is a crucial matter. But what becomes interesting in the following years after this publication is the ”timeliness” of information. As Watts states it ”Timeliness avoids dysfunctional outcomes associated with managers’ limited tenure with the firm, often referred to as the manager’s limited horizon” (p. 211). The argument in both Watts (2003a) and Watts (2003b) is that financial accounting standards influence managerial behaviour and therefore plays a significant role in reducing moral hazard of managers and thereby increasing the value of the firm. This means that, according to Watts, accounting standard setting certainly has control elements which normally are considered an internal accounting matter. Therefore, the boundary between the two, external and internal accounting, is not very clear from a control perspective. 17 2. Theory of accounting qualities 2.2 Accounting Theory: Representational faithfulness and other accounting qualities Qualitative characteristics of accounting emerged in the 1970’s when one of the major accounting institutions, the Financial Accounting Standards Board (FASB) initiated its work on accounting qualities. This section will cover the qualitative characteristics of accounting covered by FASB and the theories the apply in their development. The Financial Accounting Standards (FAS) were published by FASB with the first, FAS 1, in 1973. Prior to this the Accounting Principles Board (APB) had issued accounting standards in the U.S., but APB did not deal with accounting qualities per se. 2.2.1 Financial Accounting Standards Board (FASB) In 1973 John C. Burton published the article ”Some general and specific thoughts on the accounting environment” in the Journal of Accountancy. What is interesting about this paper is firstly that it dates back to the year 1973 when the Financial Accounting Standards Board (FASB) were founded as the US accounting standards setting body and secondly that John Burton was chief accountant at the U.S. Securities and Exchange Commission (SEC), an institution closely collaborating with The Accounting Principles Board (APB) and later FASB (Burton, 1973).1Historically FASB replaced the APB in 1973 which according to Burns was thought of as an improvement of the standards of accounting measurements2. The work of FASB materialised as the first statement (FAS 1) in 19733.The title was ”Disclosure of Foreign Currency Translation Information” (Financial Ac- 1this chapter reviews the literature on representational faithfulness. The method for constructing the chapter is not to make a key words search in a scientific data base in a certain time period, but to trace the conversation back and try to construct an understanding of key work within their domain. In order to do so it is the plan to present the academic conversation about representation faithfulness to show the claims made about it and how scholars treat the matter. 2APB was founded by the American CPA institute (IACPA) and was therefore not independent of IACPA, which could be problematic. FASB was independent and therefore had better structural conditions for succeeding as a standard setter (Burton, 1973) 3The FAS standards was later superseded by the US GAAP. 18 2. Theory of accounting qualities counting Standards Board, 2011). As the title indicates this very first statement did not literally treat accounting qualities. The only indication as to qualities of accounting was its emphasis of accounting for foreign currency as ”translation practices to facilitate assessment of possible implications with respect to its financial position and results of operations” (paragraph four). Thus, here we see that accounting (at least the practice of valuing accounts in foreign currency) is not understood as a one-to-one representational activity, but as an act of translation. Before the March 1975 issue of FASB statement no. 5 ”Accounting for Contingencies” none of the prior statements dealt particularly with representativity or faithfulness. But in the statement no. 5 FASB introduced contingencies into financial reporting. A contingency were defined as ”an existing condition, situation, or set of circumstances involving uncertainty as to possible gain or loss to an enterprise that will ultimately be resolved when one or more future events occur or fail to occur” (Financial Accounting Standards Board, 1975). The uncertainty element was manifested as three possible scenarios of the likelihood of a future event (or set of events) happening. Probable, reasonably possible and remote. Each representing the likelihood of the occurrence of the event with probable as the most likely and remote as the least likely. The idea of the statement was to make companies disclose the loss contingencies as accruals. Again, this statement touch only the edge of representativity without mentioning it directly. The ideal is the same as in FASB statement no. 1: to strive to make the distance between representation and referent as short as possible, to minimise the difference between model and object. FASB discusses this by aligning a claim of integrity of financial statements. The argument went: if the event was not probable (referring to the three scenarios) and the amount could not be reasonable estimated then the recognition would erode the integrity of the statement (p. 22). Parallel to the publication of financial accounting standards FASB published a number of concept standards (SFAC’s) too. The abbreviation SFAC comes from ”Statements of Financial Accounting Concepts”. The SFACs is where the accounting qualities debate emerged from. The intention of the concept standards was to set ”objectives, qualitative characteristics, and other concepts that guide 19 2. Theory of accounting qualities Figure 2.1: SFAC no. 2. Hierarchy of accounting qualities Usefulness Understandability Relevance Reliability Representational faithfulness Verifiability Neutrality Timeliness Predictable value/ feedback value Source: own production (based on Financial Accounting Standards Board, 1980a) a difference to decisions by improving decision makers’ capacities to predict or by providing feedback on earlier expectations” (p. 5), but more importantly ”knowledge about the outcomes of actions already taken will generally improve decision makers’ abilities to predict the results of similar future actions. Without a knowledge of the past, the basis for a prediction will usually be lacking”. The interesting point here is the idea of similarity. If the future is similar to the past, then information about the past will have predictable value. This means that for information to be relevant the future must (at least to some extent) be similar to the past. But the question is whether such an assumption is productive for the performance of management accounting representations. 26 2. Theory of accounting qualities Figure 2.1 shows that reliability is defined as representational faithfulness, neutrality and verifiability. It is representational faithfulness that indicates something about the assumption of the representational ideal of accounting. Representational faithfulness was a new term introduced in SFAC no. 2 and cannot be found in any of the previous books or papers on qualitative characteristics of accounting. It relates to the AICPA study group’s discussion of reliability even though in SFAC no. 2 it is more precisely defined: The reliability of a measure rests on the faithfulness with which it represents what it purports to represent, coupled with an assurance for the user that it has that representational quality [..] Reliability rests upon the extent to which the accounting description or measurement is verifiable and representationally faithful [..] Representational Faithfulness (means) correspondence or agreement between a measure or description and the phenomenon that it purports to represent (sometimes called validity)  Financial Accounting Standards Board (1980a, pp. 6 and 10) SFAC no. 2 claims that the matters that distinguish better information from inferior information is primarily relevance and reliability (p. 14). FASB touches on the problem of representation and referent by discussing cartography as a metaphor for accounting. The information is the map and and the accountant is the cartographer. In relation to this FASB claims it to be problematic to design a ”general purpose” map that aims to satisfy all user needs. Such a map is problematic because the cartographer, exactly as the accountant, must make choices on which information to include. Scope of SFAC no. 2.: internal or external decision making Some readers would argue that the qualitative characteristics in SFAC no. 2 is developed for external stakeholders and the principles do not apply to internal matters such as the concerns management accounting usual deals with. However, 27 2. Theory of accounting qualities FASB is concerned with qualities that makes accounting information useful in general. SFAC no. 2 discusses explicitly this link between financial reporting and internal control as a matter of assessing stewardship (i.e. efficiency, effectiveness and integrity of the steward and the steward stewarding for a range of stakeholders. Not only the owners, but also for example bond holders (p. 18)). The SFAC states that financial reporting is designed to provide information useful to decision making carried out by suppliers, lenders, employees, owners, and customers (p. 17). As we see in the list, internal stakeholders (employees) are present as well as external ones. Furthermore, performance appraisals of stewardship as well as internal economic decision making are activities included in the scope of the SFAC no. 2. Therefore, the qualitative characteristics stated here can not be said to be delimited to external use only, it applies to internal decision making as well. Financial reporting includes not only financial statements but also other means of communicating information that relates, directly or indirectly, to the information provided by the accounting system - that is, information about an enterprise’s resources, obligations, earnings, etc. [..] Financial reporting should provide information that is useful to managers and directors in making decisions in the interests of owners. Financial Accounting Standards Board (1980a, p. 9 and 21) Altogether SFAC no. 2 is not limited to deal with decision making for external parties, as should be evident internal concerns for control is covered too. Therefore, the qualitative characteristics applies to internal decision making and performance appraisals likewise1. 1The perspective of external stakeholders were introduced explicitly in SFAC no. 3 in paragraphs 10 - 13 in which FASB stated that the ”definitions in this statement are of economic things and events that are relevant to investment, credit and similar decisions and thus are relevant for financial reporting”(Financial Accounting Standards Board, 1980b). Investment were later in paragraphs 11 - 13 defined as a concern for owners. Thus, from SFAC no. 3 and onwards financial reporting was dealt with only as a matter of decision making and therefore not a matter for internal control. 28 2. Theory of accounting qualities SFAC no. 2. on Representational Faithfulness In the discussion of reliability FASB argues accounting decisions1always to be in a tension between relevance and reliability, meaning that an increase in relevance will imply a decrease in reliability and vice versa (Financial Accounting Standards Board, 1980a). Reliability is conceptualised through a metaphor of drugs. Either can drugs be reliable in the sense that it cures what it claims to cure (which in accounting is conceptualised as effectiveness) or in the sense that the label on the drug corresponds to the content. Reliability in SFAC 2 is defined as the latter: that the label corresponds to the content. In order to stress this point FASB introduces the notion of representational faithfulness mentioned in section 2.2.1. Representational faithfulness is defined as follows: Representational faithfulness means correspondence or agreement between a measure or description and the phenomenon it purports to represent. Financial Accounting Standards Board (1980a) The question FASB realises is the problem of representing what it purports to represent. SFAC no. 2 problematises this through a simple example of costs of acquiring assets: If the inventory consists only of good A and good A is bought 3 times during january in quantities 10, 13 and 16 at the prices DKK 105, DKK 120 and DKK 113 and the company gets a discount of 10% for each piece more than 20 they buy each month (which means they got 10% discount on the last 19 pieces) , how can we know what the cost of each good is? The first 10 products are easy to value. They cost 10 each. But what about piece no. 11, 12, 13 or even worse, piece no. 21? Depending on the registration it might be possible to calculate the value of each product. And if the last 16 pieces was bought strategically in order to obtain the bonus on these 16 pieces because the bonus exceeds the inventory cost 1Decisions related to recognise assets and liabilities, valuate them and eventually prepare financial reports 29 2. Theory of accounting qualities of those 16 pieces, we even have to account for the purchasing politic in the cost estimate. Beyond that the cost of estimating purchase costs will probably exceed the benefit and therefore companies often use some inventory conventions such as FIFO, LIFO avg. cost price etc. The next problem becomes one of pricing: how do we price precisely if costs are estimates that do not reflect any true valueof what it purports to represent? This means that prices, as derivatives of costs, are not reflecting the true valuefor the firm too because they are referring to a singular referent (the specific good sold) and not the collective in which they are part (the order of a quantity of goods). This is important because the collective is an effect of not only operations, but also politics of purchasing and possibly other microsociological movements too, which makes it impossible to decompose the collective to the sum of its individuals.1 The example is a very simple problematisation of representational faithfulness. If we consider manufacturing cost calculations, depreciations or estimates of the future (for example market values of assets) the link between representation and referent becomes even more sophisticated. An example of this is assets: an asset expresses a value. But this value, whether recognised at historical cost, market value or depreciated cost rely on a condition about the future. If the asset has a future value the asset book value could be faithful. But the faithfulness here relies on the assumption that the asset represents a future value to a customer. This means that not even market values, but also historical costs are faithful only to the extent that the proposition about future value is true. The problem is therefore whether a cost calculation as valuation of assets expresses faithfully the future value of the asset2(Financial Accounting Standards Board, 1980a and Financial Accounting Standards Board, 1980b). What becomes maybe even more interesting is the SFAC no. 2’s discussion regarding the relation between reliability and predictability. ”Reliability as a quality of a predictor has a somewhat different meaning from reliability as a quality of a measure” (paragraph 75). FASB addresses this point very precise by stating that accounting reliability is not to be judged in its predictability of 1This example is an extension of the example of acquiring assets described in SFAC no. 2 paragraph 65-67. 2The same applies to liabilities. The difference, however, is that liabilities often rely on contractual agreements between lenders and borrowers. 30 2. Theory of accounting qualities the future, but oppositely on the relation between representation and referent. Because the predictability depend on a lot of other factors too, e.g. forecasting model (which SFAC no. 2 denotes predictive model) the information’s reliability must not be determined based on that. 2.2.6 Accounting qualities in IAS In 1989 the IASC framework was published. It was very similar to the SFAC framework1. The qualitative characteristics aligned to ensure usefulness in the IASC framework are understandability, relevance, reliability and comparability2. IASC adopted FASB’s concept of representational faithfulness when operationalising reliability. Reliability was here defined as follows: ”Information has the quality of reliability when it is free from material error and bias and can be depended upon by users to represent faithfully that which it either purports to represent or could reasonably be expected to represent” (IASC Foundation Education, 2007). When comparing to SFAC no. 2 two differences in the definition occur. Firstly, SFAC no. 2 states that the representation, in order to reliable, must be coupled with an assurance for the user (verification) which emphasise the information’s ”representational quality”. The second difference is that the IASC framework not only argues that the information must represent what it purports to represent, but in extension of that ”could reasonably be expected to represent”. A guess on why the definition includes this expectation in the definition is because IASC allows for discounting future cash flows in valuations in the balance sheet. Furthermore, in FASB’s SFAC no. 2 they denote it representational faithfulness whereas in the IASC Framework it is defined as faithful representation. This vocabular difference could be to stress faithful representation as a quality of the activity of representing which concerns the process of representing not leaving the criteria as quality of the end, the representation. But this argument is only partially evident in the 1FASB and IASC worked in the 1980’s totally independent of each other. However, as it looks the SFAC framework highly influenced the work on the IASC framework (Hendriksen and Breda, 1992, p. 241). 2IASC denotes these as ”principal qualitative characteristics” (IASC Foundation Education, 2007, p. 18). 31 2. Theory of accounting qualities IASC framework through its emphasis on process rather than product. Even though slight differences between the SFAC standards and the IASC framework are evident, they are still founded on the same representational basis, that representation and referent can be reliably linked. In FASB’s work they refer to this as representational faithfulness where in the IASC work they refer to it as faithful representation1. 2.2.7 Summary of accounting qualities The financial institutions’ work on accounting qualities and representational faithfulness articulates an understanding of accounting information as representing something. However, it is very difficult to qualify a definition of what it actually should represent faithfully and therefore no one talks deliberately about accounting information as representing an underlying economic reality, or truth. Therefore, they rather talks about process: instead of representing something underlying, representational faithfulness is about reporting according to standards. Thus, a procedural faithfulness more than an ontological faithfulness. But important as to this thesis, the work on accounting qualities strongly articulates a representational ideal, namely that accounting information is constructed to represent something. In Ijiri’s work a surrogate that represents the state of its principal. Even though the definition of representational faithfulness is problematic and FASB uses metaphors to give a direction for what it could mean, the notion is repeated within later attempts of constructing frameworks for accounting qualities (The IAS Framework). Thus, it looks paradoxically that representational faithfulness is a matter which the standard setters can not even themselves define, which might indicate a problem as to what role representativity in accounting information has. 1Reliability is not operationalised as faithful representation alone. Four other subcharacteristics of reliability is evident too (Substance over form, Neutrality, Prudence and Completeness). These, however, are not directly the main focus of this thesis and will therefore not be addressed explicitly. One thing, that should be mentioned though, is the principle of conservatism which is not to be found in the IASC framework. However, Prudence refers to a ”degree of caution” that makes assets not being overstated and liabilities/expenses not understated” (IASC Foundation Education, 2007, paragraph 37). 32 2. Theory of accounting qualities Where this section set the scene for the representational ideal in articulated in accounting theory (the representativity of accounting information), the next section will review the academic debates around representational faithfulness and the questioning of the existence of an underlying economic truth. 2.3 Research on faithful representation While the previous section concerned the standard setting bodies this section reviews academic articles on the topic of representational faithfulness or faithful representation1. 2.3.1 The purpose of a framework of qualitative characteristics of financial reporting In 1981 Donald Kirk, Chairman of FASB, published an article where he expressed the need for a conceptual framework for standard setters of accounting standards (Kirk and Horngren, 1981). It can be seen how this framework intended to ”serve as a system of accountability for the board in fulfilling its public responsibility” (p. 83) and to align the individuals within the standard setting bodies to adopt the same perception of ”reality”: Without a framework, it is difficult for a standard setter to assess the contention that a particular method of accounting better reflects ”’economic reality’” or is more ”useful” than an alternative method. Reality is personal to the observer: a framework helps identify the particular facet of reality that is most useful and that should be or can be measured in financial statements. Kirk and Horngren (1981) 1A discussion of fair value accounting vs historical cost accounting is evident in the domain of faithful representation and there are proponents and opponents of both measurement techniques. However, fair value accounting is not explicitly what this thesis is concerned with and therefore the dialogue on issues related to cost recognition is not part of the theory. 33 2. Theory of accounting qualities In the same article Charles Horngren raised an important question: Why is FASB building a technical framework? He argued it to be based on an axiomatic belief: ”if we only had a foundation, deductive logic would lead us to the correct answer”. From an efficiency viewpoint it might be true that a framework is needed because it makes decision making within standard setting easier when the standard setters have a general framework upon which to justify their standards. However, another problem is whether the framework gets so much power that it manages to persuade people who work with accounting (whether it is financial accounting or management accounting) about this representational ideal, and maybe even persuades that the underlying economic reality really exists out there. Vickrey (1985) argues that an analysis of normative information qualities (NIQ’s) such as the ones FASB develops in the SFAC no. 2 framework must be built on the relation between information system qualities and usefulness on individual level. The article is written from a information economics (IE) point of reference. From that perspective information system qualities are to meet the criteria of normativity only to the extent that they are useful on the level of the individual. Vickrey explicitly states it important to remember that different NIQ’s (such as the ones FASB develops) lead to different accounting policy decisions. This expresses the NIQ’s used as an axiomatic point of reference in order to be able logically to account for the effectiveness of policy making decisions. Normative is defined as ”qualities which are individually necessary and collectively sufficient for usefulness in probability revision in the context of expected utility maximization” (p. 116). This means that the focus in this paper explicitly is on utility maximisation in economic decision making. Thus, Vickrey questions the purpose of a framework (of accounting qualities) just as Kirk & Horngren. But where Horngren discussed purpose and social choice between constituencies, Vickrey’s focus is on the qualitative framework isolatedly. In 1986 David Solomons published an evaluation of the conceptual framework in the Journal of Accountancy (Solomons, 1986a). While he argued against the skepticism about the need for a conceptual framework, he argued for a scepticism for the outcome of the project (which had been running for 9 years). Solomons 34 2. Theory of accounting qualities does not explicitly evaluate the SFAC no. 2 but a text box on representational faithfulness shows as an example how actuarials’ many assumptions about the future are problematic to the notion of representational faithfulness because ”some or all of these assumptions will prove not to be in accordance with the way things turn out” (p. 121). Unfortunately, Solomons does not discuss the notion of economic reality and the idea underlying transactions but possibly he agrees with the ideal of accounting information as representation. However, he explicitly states that the outcome of the conceptual framework is very weak - ”a lost opportunity” to paraphrase him. This standpoint is summed up in the very last paragraph ”A ”guiding model of the overall order”, a ”utopia”, a ”guiding conception of an internally consistent model” - this is what the conceptual framework might have been. In my judgment the result of the board’s work falls dismally short of this ideal”. 2.3.2 Discussion of the ”reality” accounting represents Parallel to the publication of the article in Journal of Accountancy Solomons also published a book at Oxford University Press entitled ”Making Accounting Policy” (Solomons, 1986b). In this book chapter 5 was devoted to SFAC no. 2. In this book Solomons explains the problematics of the notion of ”economic reality”: accountants are striving ”to present a picture of economic reality in an enterprise’s financial statements. [..] economic reality [..] is incapable of precise definition”. Again, he reflects the notion of representational faithfulness to pensions: ”virtually none of the factors that determine the ultimate cost of a pension plan to an employer can be foreseen accurately during the working lives of the employees covered by a plan”. This illustrates the problem of economic reality and estimates about the future very well. In 1988 Ruth Hines published a paper in Accounting, Organizations and Society with the intriguing title ”Financial Accounting: In Communicating Reality, We Construct Reality” (Hines, 1988). This article is not directly related to qualitative characteristics of financial reporting but has a strong claim about accounting representations in general. What is interesting in the article is Hines’ strong emphasis on the problema- 35 2. Theory of accounting qualities to represent”. Some equate this with an underlying economic truth while others claim it to be about following procedures and being faithful to the way calculations are described to be carried out (e.g. historical costs versus fair value is not a matter of representing a trueeconomic reality, but rather to specify how the value is constructed). Others again criticise the whole stream of writing for representativity not to be adequate to explain what accounting is. Some authors are proponents of the idea of representational faithfulness while others are opponents. The review of discussions within the literature is summarised in the table 2.1. Table 2.1: Summary of literature on accounting qualities Author(s) Claim Hines The reality is not represented by accounting information, but co-constructs reality when assets are real -ised). Vickrey Proponent of the conceptual framework and representational faithfulness. Argues for normativity to be the turning point of a framework’s qualities. Shows adequacy/ inadequacy of criteria by stating the aim as utility maximisation. Kirk Proponent of representational faithfulness, but not as representing an underlying economic realitybut rather representing what it purports to represent (epistemological or procedural faithfulness) Horngren Probably proponent of the representational faithfulness ideal, but emphasises the problem of a constitution as a common agreement between constituent parts. Thus he is proponent of the procedural faithfulness and not ontological faithfulness. Continued on next page 42 2. Theory of accounting qualities Author(s) Claim Tinker opponent of representational faithfulness. The notion is effectuated by the epistemic position that the economic world is out there. Solomons Proponent, but argues that the economic realityis almost impossible to represent (using the example of representing faithful the value of pension plans). Kripke Proponent of ideals of accounting qualities, but opponent of the ontological conception of representational faithfulness as a possible ideal (it is problematic to on a cost basis when they are defined in SFAC no. 3 as value). Ronen and Sorter Opponents of the ideal of representational faithfulness and suggests that financial standard setters work on frameworks that makes accounting a faithful representation. Ingram and Rayburn Opponents of ”representational faithfulness”. They state that accounting reports are distortions of reality because there is no empirical referent for much of the information contained in accounting reports Burton Proponent of the framework and procedural representational faithfulness. Kirk Proponent of procedural faithfulness. He argues that FASB left the notion of the economic reality out of the definition of representational faithfulness because economic realityleaves space to a discussion about what the economic reality is. Bushman and Indjejikian Opponents of representational faithfulness as ideal. They argue that it is not always good for stewardship assessment. Continued on next page 43 2. Theory of accounting qualities Author(s) Claim Gibbins and Willett Opponents of representational faithfulness. They show how measures becomes stochastic variables which means that a recognition as direct/discrete numbers are problematic. What the literature study indicates is linked to the claim in Tinker (1991) about epistemic positions. Rather than being ontologically representational faithful, the standards in essence become epistemologically representational faithful. Rather than being faithful to the world, representational faithfulness is more about being faithful to the standards themselves, which means representational faithfulness becomes a procedural faithfulness more than an ontological faithfulness1. This point is reflected in the ambitions of the standards. One ambition is to represent faithfully the underlying economic reality, but another thing is comparability. Comparability is not as much about being ontologically ”representational faithful” than being ”epistemologically, or procedurally, ”representational faithful”. We must be faithful to the standards, else wise comparability is compromised. But what it also shows is that the representational ideal is very strong in the financial accounting theory, especially though the development of accounting qualities. This is emphasised in the literature, but also in the fact that representational faithfulness as a notion survives throughout discussions and are still present in IASB and FASB’s frameworks in 2010 and also in the common framework FASB and IASB published together in 2012 (in the 2012 framework it is denoted faithful representation (Ernst & Young, 2012)). Because of its inscription as an SFAC and in the IASC conceptual framework and the later convergence frameworks the principle of representativity of 1This understanding of faithfulness is indicated in Ingram and Rayburn (1989) too where the authors state that ”we are not so much interested in the empirical phenomena in accounting policy as in how the phenomena can be abstracted and defined in some consistent and comparable way. 44 2. Theory of accounting qualities accounting information applies to financial accounting and financial reporting. But the thesis argues that representativity of accounting information is equally important for internal accounting (management accounting), as we will see in the next section. In management control theory, there is just as in financial accounting theory, a presupposition of accounting information as representations, or re-presentations, as we will see. 2.4 Management Control: Performance Measurement Criteria Ijiri’s work showed how performance measurement is used differently by different stakeholders. Owners assess performance probably to asses the return on the investment in the company (investment decision making) whereas the board assesses performance of managers in order to align their behaviour with the company’s overall goals (control) (Zimmerman, 2009). Performance measures for different purposes must be designed differently which means performance measures for investment decisions might focus on revenue, contribution margin, EBIT, annual result, return on assets, return on equity etc. Those measures are logically inadequate to use for behavioural control purposes because it is hard to understand how individual employee behaviour affects such measures1. As will be evident in the following section which reviews literature on performance measurement criteria a strong correlation between financial accounting qualities and performance measurement criteria seems to be evident. Maybe this could be because of the fact Ruth Hines aligns in Hines (1991) that the extensive work in terms of money, publications and legislation which have been done around the development of financial conceptual frameworks ”is an important discourse about the practice of financial accounting, analysis of which can lead to insights into the constitutive nature of both accounting practices and reasoning processes” (p. 314). Hines explicitly says that when a discourse is narrated as far-reaching as it is in the work of both FASB, IASC and later IASB it shapes the way people reason. Therefore it is argued to create this strong link between 1This is elaborated under the performance measurement criteria section below 45 2. Theory of accounting qualities accounting for external purposes (financial accounting) and accounting for internal purposes (such as performance measurement). Along with this argument it is also evident that many companies use data for external reporting for their internal control purposes as well (maybe in order to be ”cost effective” which is one of the criteria for a good performance measurement system)1. 2.4.1 Performance measurement for control In 2006 Kenneth A. Merchant published the article ”Measuring general managers’ performances: Market, accounting and combination-of-measures systems” in the Accounting, Auditing and Accountability Journal. The motivation for writing the article was, as he stated it in the abstract ”While comprehensive sets of evaluation criteria have been applied to financial accounting choice issues, this is the first such approach in management accounting” (Merchant, 2006, p. 893). In the paper he develops a set of criteria to be used in the design and evaluation of performance measurement in management accounting (i.e. for the purpose of directing employee behaviour in a certain way). As can be seen, the set of criteria can be understood as management accounting’s equivalent to the qualitative criteria of financial accounting developed in SFAC no. 2 and later in the IASC framework and IFRS framework. The section reviews papers considered to be important for the understanding of performance measurement design. But before doing so it is necessary to specify the problem performance measurement is said to be a solution to. The problem is one of decision making (Zimmerman, 2009): to be sure decisions are made most efficient with respect to the firm’s interest (Lazear and Gibbs, 2008). This is modelled though various means (organisational design, job design, allocation of decision rights (decision management/control) and performance measurement.). The point in the literature2is to align the organisational design, job design and decision rights structure with the company’s strategy and capital structure3from 1Which they for example do in the company analysed in this thesis 2The literature here refers to economic theories such as transaction cost economics and agency theory. 3Also called pay off structure 46 2. Theory of accounting qualities a marginal analysis point of view. When that is done a performance measurement system can be designed so that decisions are made in the interest of the firm. The problem of designing a space for efficient decision making is (at least) two dimensional: it has a motivation aspect and a coordination aspect (Friis, 2011). This dualistic problematisation stemmed from the 1950’s and 1960’s proposal of ”bringing the market inside the firm” (Baker et al., 2001). The motivation aspect (or the motivation problem) departed from the transaction cost economics assumption of opportunistic behaviour (Williamson, 1985) and later agency theory (Jensen and Meckling, 1976) while the coordination aspect is a matter of designing a decision making structure where perceived optimal decisions are aligned with the ”real” optimal decision of the firm. An example is decisions which carry with them externalities to other parts of the organisation. If externalities are not incorporated in the incentives system the decision maker might not consider them in relation to their decisions and hence the decision, even though it is made under optimal motivational conditions, does not lead to the best effect measured on firm level value (Hansen, 2007 and Merchant and Shields, 1993)1. 2.4.2 The emergence of qualities of performance measurement: alignment problem In 1975, the same year as Ijiri published the book ”Theory of Accounting Measurement”, Kerr published the article ”On the folly of rewarding A, while hoping for B” in the Academy of Management Journal. The purpose of the article is to show how reward systems affect behaviour of employees. Kerr describes a number of empirical stories in which the reward system affects behaviour. One example is orphanages. The primary goal might be to place children in good homes, but because of the way money is allocated (based on number of children in the orphanage) the behaviour of the management might be opposed to the goal: keep the children in the orphanage longer because of money and prestige value of the 1For example signified in the example from Boise Cascade Corporation where the costs of supporting computers were biased downwards in order to stimulate PC use. Another example is Tektronix Portable Instruments Division’s use of imprecise cost estimates to direct attention to other performance areas than costs (Merchant and Shields, 1993, p. 78-79) 47 2. Theory of accounting qualities manager1. But if the reward system is changed to pay off for placements of children, then, by borrowing from experience with rehabilitation centres, another problem emerge: then the managers might work for placing the children who are easiest to place and give a lower priority to other children (Kerr, 1975). Another example is from universities in which ”society hopes that teachers will not neglect their teaching responsibilities but rewards them almost entirely for research and publications” (p. 773). Kerr shows a number of other examples where behaviour is based on optimising rewards rather than doing what is in the best interest of the organisation (whether it is public or private). The most relevant part of Kerr’s article for this thesis is the ”four general factors” that may ”be pertinent to an explanation of why fouled up reward systems seem to be so prevalent”. First,hepointstowardtheobjectivecriterion stating that ”many individuals seek to establish simple, quantifiable standards against which to measure and reward performance” This, he argues, is influenced by a fascination with the ”objective” criterion and is efficient only in highly predictable areas within organisations (p. 780). Everywhere else such performance metrics cause goal displacement. Second,someaspectsoftasksaremorevisible than other aspects which means those visible aspects tend to be measured more frequently than the others. Third, Kerr argues the undesired behaviours might be effects of hypocrisy. Simply because the researchers argue for them to exist, it still might be that the rewarder gets the desired behaviour. Fourth,heargues that ”undesired” behaviour is assessed from an efficiency viewpoint, but other goals might also be desired (e.g. moral goals). Therefore this a priori definition of efficiency might not always be the best. The point is that we do not (always) know the actual desired of the rewarder. As can be seen Kerr do not explicitly set up ideals for performance measurement, but he shows how a desired behaviour can be problematic to achieve. He argues that some rewarders are too concerned with objectivity in performance measures. The costs of monitoring employee behaviour were introduced to agency theory in Jensen and Meckling (1976). In this article the authors developed the concept 1”Total organizational size will determine largely the director’s prestige at the annual conventions, in the community etc.” (p. 772). The larger the organisation, the more prestigious. 48 2. Theory of accounting qualities of agency costs and showed how insider ownership and outsider ownership created different problems in relation to maximising the total value of the firm. The paper contains several important points in relation to this thesis. Firstly, the definition of agency relationships: We define an agency relationship as a contract under which one or more persons (the principal(s)) engage another person (the agent) to perform some service on their behalf which involves delegating some decision making authority to the agent. If both parties to the relationship are utility maximizers, there is good reason to believe that the agent will not always act in the best interests of the principal. The principal can limit divergences from his interest by establishing appropriate incentives for the agent and by incurring monitoring costs designed to limit the aberrant activities of the agent  Jensen and Meckling (1976, p. 5) The solution of the align interests of the principal(s) and the agent is through the construction of incentives and to monitor the agent’s behaviour. The point is that constructing a space where the principals and agents’ interests are aligned is costly (agency costs =0) 1. What is interesting about this paper is their move away from structuring contractual relations as the solution to the agency problems to the one of providing incentives (p. 7). Jensen and Meckling do not, however, discuss very detailed how to monitor behaviour. The only means they mention is monitoring through ”auditing, formal control systems, budget restrictions, the establishment of incentive compensation systems which serve to identify the managers interests more closely with those of the outside equity holders” (p. 26). This implies as ideal for performance measurement that agents’ interests must be aligned with the firm’s interest. Beyond this objective for performance measures, Jensen and Meckling is silent about how performance measures should 1Agency costs are defined as the monitoring expenditures by the principal, the bonding expenditures by the agent and the residual loss (The dollar equivalent of the reduction in welfare experienced by the principal as a result of the divergence between the agent’s decision and the decision that would maximise the welfare of the principal). 49 2. Theory of accounting qualities be constructed. The only paragraph in which they discuss it is on p. 46 ”since management is a continuous decision-making process it will be almost impossible to completely specify such conditions without having the bondholders actually perform the management function”1. Of course they argue that this is impossible because of the problem of specifying ex ante future management decision making. 2.4.3 Incentives and controllability Demski and Feltham followed up on the incentive dimension of Jensen and Meckling’s article by studying budgetary control systems (Demski and Feltham, 1978). The paper offers a ”consideration of such questions as the type of standards that should be used, whether the evaluation should be confined to factors controllable by the subordinate, and the extent to which participation in setting the standards is desirable” (Demski and Feltham, 1978, p. 336). The quote indicates that Demski and Feltham, among two other concerns, focus their paper on the controllability aspect: whether factors evaluated should be controllable for the subordinate. The underlying logic of budgeting as control system is that ”compensation paid for labor services depends, in part, on the relationship between actual and standard performance” (p. 337). The problem of contracting for certain performance levels implies is caused by the ”costliness of precisely observing skill and effort levels” (p. 337). Therefore, Demski and Feltham argue, performance contracts are often based on other indicators such as output (e.g. piece rates or sales). What we can see is, from this agency-theoretic viewpoint, that ultimately if we had perfect information with no information asymmetry, we could write complete contracts that maximised output for the given resource structure of the firm. Depending on how perfect information is conceptualised, this might be true. But more importantly, perfect information is an ideal which is not achievable in real life. We cannot measure skill and effort precisely, even if we had unlimited resources for doing so, because, as Miller (1992) argues, skills and effort are psychological parameters determined by personal cost curves of employees and those personal cost curves are only known by the subordinates 1The paragraph is from a section that discusses directing employee behaviour by imposing constraints on manager’s behaviour in bond contracts (a control means for external stakeholders). 50 2. Theory of accounting qualities themselves and not the principal. Budget based contracts are by definition output based and the benefit to the owner comes from production efficiency and improved decision making (Demski and Feltham, 1978, p. 337-338). Demski and Feltham argue that a performance measure in an incomplete market cannot pay for a specific effort level but must rely on other measures, i.e. output measures that tells something about employee effort. In the model the work’s output is modelled as x=p(s, a, q, h) where x is the output, s is the randomness of the output (the uncontrollable part of the output), a denotes his effort, q denotes the capital, the worker is provided and h denotes his skills (p. 342). Thus, they introduce into their model the controllability problem. The fact that output, or performance measure, might look good while effort is low, or look bad while effort i high. This is the classical distention of the worker’s risk (which is modelled as σ2 pay, the variance of pay). The question one can raise is; if h is constant (which it typically is in the short run), effort (a) and randomness of output (s) is unobservable but the capital provided (q) and output (x) is observable, how, then, is the relation between effort, risk and output (a, s and x)? In the mathematical models it is possible to assume certain things, but the question is how the relations between a, s and x is turns out in real life? The article states that controllability is an issue but must be dealt with by ”reasonable information costs”1(p. 357). As they state (and ascribe to themselves) the accounting literature suggests that performance measures should ”encompass only that which is controllable by the worker” (p. 356). This is the accountability principle. But it means for the accounting representations that the ideal must be tat they represent what they purports to represent. How, else, can anyone be claimed to be held accountable for achieving the standard outputs, if they are not ”representationally faithful” (to use the vocabulary of the conceptual frameworks) but simulacra? An extension on the informativeness of performance measures and controllability was suggested by Holmstrom in his 1979 article ”Moral Hazard and Observability” (Holmstrom, 1979). Holmstrom takes as his point of departure the 1This argument is derived from the theory of the perfect market where perfect information is available and that we can go toward this ideal by investing heavily in information which means that information can minimise s. The question is whether this is true or not. We actually do not know. 51 2. Theory of accounting qualities 2.4.6 Congruity and diversity Congruity and diversity of performance measures used to evaluate and motivate managers was introduced in Feltham and Xie (1994). The article introduces three problems of performance appraisals: the information asymmetry of managers’ actions (the impossibility of directly observing managers’ actions), the observation of the full consequences of managers’ actions and the effects of uncontrollable events. The article differs from other approaches to the problem by introducing into its model a ”multidimensional representation of the manager’s actions” (p. 430). This does not refer to single tasking/multi tasking but rather that the model measures performance through multiple measures. The point of the article is that if additional performance measures are introduced, risk and non-congruity can be reduced. The basis criteria for performance measures in Feltham and Xie’s model are therefore congruity, precision1and controllability and a solution can be to use diverse measures of performance. Thus, we see that performance measurement in Feltham and Xie (1994) takes the form PM =PM(e1...i,), where precision refers to and congruity refers to the relation between the action of the agent (directed by the performance measure) and the firm payoff x. The idea of congruity is that when a measure is 100% congruent the firm value varies perfectly with variations in the performance measure. But not only that; the performance measure varies perfectly with variations in employee effort and therefore firm value varies with variations in employee effort. Controllability is important because it reduces risk for the manager and therefore increases the incentive efficiency. By drawing on prior research Feltham and Xie argue that uncontrollable events are productive to include if they positively correlate with unidentified events which means that controllability as an overall principle is beneficial only if the uncontrollable events are uncorrelated with other events not measured/identified. As already argued in literature financial performance measures create management myopia which is intuitive as many financial measures relates to the present financial period which is often one year2. Myopia conflicts with the congruence 1Precision measures noise in the performance measure. 2This might come from financial accounting because a financial period is defined to be maximum one year in e.g. IAS 1(Ernst & Young, 2012, p. 77). 58 2. Theory of accounting qualities quality of performance measures. Ittner et al. (2003) does not explicitly deal with criteria for designing performance management systems, but study the choice of a specific solution to the problem of myopia: as suggested in prior literature one solution is to use multiple performance measures in combination with subjective performance evaluations where the manager’s superior subjectively assess the manager’s performance based on the multiple performance measures. Prior literature argues that subjective evaluations can be beneficial because they take into account also ”non contractible information” and therefore reduce the weighting problem of multiple performance measures. The article shows how a solution always creates new problems to deal with: when solving the problem of myopia by introducing multiple measures, a weighting problem emerge. By solving the problem of weighting by introducing subjective evaluations the evaluation gives preference to financial performance measures, reintroducing the problem of myopia, favouritism and controllability1. Ittner et al. (2003) concludes that the success of performance measurement systems may be far more complex than technical attributes such as qualities or criteria can account for: ”implementation issues may be far more important to the success or failure of balanced scorecard systems than the scorecard’s technical attributes [..] Future research on scorecard adoption and performance consequences must move beyond the measurement of these attributes to encompass the entire implementation process” (p. 754). A framework for ”analysing the operation of management control systems” was proposed in Otley (1999). Because the article concentrates on the operation of a given performance measurement system2the framework departs in the objective of the management control system. It then considers strategies and plans, level of performance needed, reward structures and information flows (feed forward and feed back loops). The operation of a management control system is in Otley’s 1Ittner et al. do not explicitly denote it controllability, but they write that it introduced ”uncertainty in the criteria being used to determine rewards” (p. 754). This means that managers did not know how they could control pay because of noise in the reward criteria, i.e. a problem of sensitivity (remember sensitivity = ΔE(PM)/Δ(e)). 2David Otley prefers the notion ”management control system”, but as he argues in Otley (2003) management control systems and performance measurement systems are both conceptual notions of the same control systems. 59 2. Theory of accounting qualities view dependent on the implementation1. This means that the framework is much more emphasising processual perspectives of the operation of control systems than the prior literature on performance management suggests. The processual emphasis also require organisations continually to work with the five dimensions of performance measurement: The questions2themselves appear to remain constant, but organizations need to continually develop new answers to them. This is because the context in which the organization is set is constantly changing and new strategies need to be developed to cope with new operating environments. p. 365 (footnote added) Because of this processual claim that the management control system must continually be aligned with the changing context, Otley do not prioritise explicitly criteria for a ”good” performance measure. However, as prior literature does, Otley ascribes to the ”congruity” criteria when discussing shareholder value as objective and financial performance measures. Other criteria such as precision, risk and controllability is not mentioned. Therefore, the means to achieve a valuable management control system shifts from being a design problem to being an adaption problem (adaption to a changing environment). 2.4.7 A set of performance management criteria The first attempt to assemble a list of design criteria for performance measurement was made in 2006 in Merchant (2006). By reviewing literature on management control the article develops a list of ”criteria for evaluating measurement alternatives” (p. 894). The list consist of an assemblage of the ideals discussed in the preceding part of this section. The list of design criteria looks as follows. 1Where implementation is operationalised as strategies, plans, targets, rewards and feedback. 2”The questions” refer to the five dimensions of the operation of management control systems. 60 2. Theory of accounting qualities •Congruent with the organisation’s objectives •Controllable by the manager whose behaviours are being influenced •Timely •Accurate •Understandable, and •Cost effective to produce As the list indicates none of the criteria are new to the theory of performance management. But what is new is the attempt to assemble them in a list that satisfies the objective of such a framework: ”for motivational (decision-influencing) purposes, a measure or a combination of measures should have all of the following qualities” (p. 894). Congruence and controllability is discussed previously and will not be elaborated further. Accuracy is two dimensional: the first dimension is precision (which has been discussed in Banker and Datar (1989) and Feltham and Xie (1994) as the inverse variance in the performance measure) and the second dimension is objectivity, meaning freedom from bias which is found in various research from the work of the IACPA study group and Ijiri (1975) and later Merchant and Shields (1993). Understandability comes from the theory of financial accounting qualities (SFAC no. 2) and is mentioned in Vickrey (1985) too. The argument is intuitive: if information is not understandable, it is not informative and thus cannot be used for motivational purposes. Therefore understandability means that managers must ”understand what the measure reflects; i.e. how the measure is calculated” (p. 897) and know how they can influence the signal. The last criteria, cost effectiveness, is evident in Jensen and Meckling (1976) and Kim and Suh (1993). Cost effectiveness is a relevant concern even though it can be hard to understand which it is necessary for motivational purposes (which is what Merchant argues the list is made for). Of course the idea is, as with any other economic decision, to consider costs of designing a performance measure relative to the benefit in terms of incentive efficiency. The list of design criteria shows how Merchant juxtaposes criteria, or qualities, both from the financial reporting 61 2. Theory of accounting qualities domain and from the management control domain in order to make a comprehensive list of design criteria. The ontology of the framework is very close to the one in the financial accounting standards: The belief in an underlying ”truth” which it is possible to represent. Kominis and Emmanuel (2007) extends Merchant (2006) by studying ”managerial perceptions [..] of the performance measurement, evaluation and reward system” (p. 49). While Merchant (2006) addresses performance measurement for general managers, Kominis and Emmanuel (2007) study middle management. The article adopts the expectancy-valence theory as starting point where motivation is modelled as a function of the perceived value (valence) of an outcome and the perceived probability (expectancy) of achieving the outcome. They combine the E-V model with prior management control theory. Based on that, the SEM model in the article models motivation as a function of ”perceived probability that effort will lead to reward (E→R)” and ”perceived value of rewards (V)” (p. 54) where the ”E→R” variable are modelled as perceived attainability (of standards), accuracy (of measures) and dependency (between performance and rewards). Kominis and Emmanuel (2007) support the claim that congruence, controllability1 and accuracy is adequate performance measurement criteria. However, they distinct themselves from Merchant by emphasising the managers’ perception: is it therefore in this article not modelled as objective facts, but as perceptions in the minds of managers that makes the difference. Another interesting point is that the model in the article shows the relation between performance measurement and motivation to be dependent on the ”value of extrinsic rewards” meaning that the link between performance and rewards is significantly influencing the motivation. This means that, in this study, Merchant’s criteria is a back-end that enables the motivational aspect of performance measurement systems whereas without the performance-reward relationship managers would not be motivated. Merchant does not explicitly align the performance-reward relationship as a criteria for performance measurement systems (even though his discussion about different performance measures is touching upon rewarding). Therefore, Kominis and Emmanuel (2007)’s model suggest that the effectiveness of performance measure- 1Controllability is in the article modelled as ”attainability of standards” which expresses the effort-performance targets relationship. 62 2. Theory of accounting qualities ment systems cannot be said to exist without a link between performance and rewards. Thus, if managers do not perceive extrinsic rewards to be valuable, then they are not becoming motivated to perform in accordance with the performance measurement system1. Merchant and Otley (2007) will serve as an ending of the performance measurement theory section. While reviewing literature on control and accountability several important concerns are raised in this article. An important point that reflects a problem of the literature reviewed in the preceding part of this chapter is the accountability-orientation in control systems. The point is, as argued in Ijiri (1975), that control systems makes people become accountable for ”their actions or for the results they or their organization produce” (p. 791). Merchant and Otley reflect on the ontology of accounting representations and opposes themselves to the belief in an ”underlying” economic reality: ”if one could measure an organisation’s ”true” performance over time, one could judge the congruence of a measure.” (p. 792). The problem is two-dimensional: one the one hand it is a question of what the performance is about: if it is economic performance, is it then shareholder value, and on the other hand, how future consequences of present actions should be considered. Therefore, Merchant and Otley does not ascribe to the ontology of an underlying economic reality. But even more interesting, the article raises the question ”why do we generally hold managers accountable for much more than they can control” (p. 793)? Here we see the controllability, as an accountability concern, is not a straightforward notion. Generally, performance objectives are about future states of the company, but many things happen, which is not inscribed into performance measures. Thus, people are held accountable for phenomena out of their reach. 2.4.8 Summary of performance measurement criteria Management control theory do no systematically deal with criteria for measurement before Merchant (2006)’s attempt to develop a set of criteria. The literature have been concerned with the overall objective of aligning performance measures 1Where extrinsic rewards in the article are defined based on their instrumentality: the rewards attained as a consequence of performing an activity. 63 2. Theory of accounting qualities with the organisations’ overall goals. The following table summarises the reviewed literature’s points about criteria for performance measures. Table 2.2: Summary of literature on performance measurement criteria Author(s) Claim Kerr (1975) It is difficult to align performance measures with the rewarder’s goals, especially in areas of organisation’s which are not highly predictable. Kerr further problematise this because of the fact that it is not (always) possible a priori to know the rewarder’s actual desired behaviour. Jensen & meckling (1976) Argues for solving the principal-agency problem (the agency relationship) by constructing incentives that aligns interests. Demski & Feltham (1978) Argued that the factors evaluated in performance measurement should be controllable for the subordinate. They argue that precision of a measure can be achieved by using more costs on the performance measurement design. Holmstrom (1979) Holmstrom argues that as soon as a signal says something about an agent’s performance, it should be included in the performance measure because the performance measure therefore becomes more aligned with the principal’s interest. Gjesdal (1982) Focus on the value of information and argues that risk is important because higher levels of risk means that pay becomes less dependent on effort provided. Continued on next page 64 2. Theory of accounting qualities Author(s) Claim Banker & Datar (1989) Models precision and sensitivity in their analysis of performance measures. The more precise, the less variance in the measure and the more sensitive, the higher the correlation between changes in employee effort and performance measure value. Thus, precision and sensitivity is equivalents of faithful representation (of employee effort). Merchant (1990) Dysfunctional effects of control systems are more evident in companies with uncertain environments. And myopia is encouraged if there is a high ”felt pressure” to meet targets (especially net income and budgeted expense targets). Merchant & Shields (1993) It is not always beneficial to make accurate measures when the measure is used for directing employee behavior. Sometimes biased or imprecise measures lead to higher value because it gives incentives to make decisions which are more congruent with the organisation’s objectives. By articulating bias and precision Merchant and Shields (1993) believe in a ”true” economic measure, or an ”underlying” object, or phenomenon, the calculation refers to. Kim & Suh (1993) Introduces incentive efficiency, which concerns the relationship between incentive devices (performance measures) and the ”true outcome”. Thus, they articulate an idea of a performance which is ”true” and which can be represented by the surrogate. Continued on next page 65 2. Theory of accounting qualities Author(s) Claim Feltham & Xie (1994) Argues for measuring performance through multiple measures. The point of the article is that if additional performance measures are introduced, risk and non-congruity can be reduced. Ittner et al. (2003) The success of performance measurement systems may be far more complex than their technical attributes such as qualities or criteria can account for. Otley (1999) Otley argues for a processual perspective of the performance of management control systems, starting at the objective of the control system and then considers strategies and plans, level of performance needed, reward structures and information flows. The operation of the control system is in the article’s view dependent on the implementation(i.e. strategies, plans, targets, rewards and feedback). Merchant (2006) Aligns a list of performance measurement criteria and discusses different measures in accordance with the list. The list consist of congruity, controllability, timeliness, accuracy, understandability and cost efficiency. Kominis and Emmanuel (2007) The article studies performance measurement for middle management though an expectancy-valence (E-V) model. E-V models motivation as a function of the perceived value (valence) of an outcome and the perceived probability (expectancy) of achieving the outcome. The article supports congruence, controllability and accuracy as qualities of management control systems. Continued on next page 66 2. Theory of accounting qualities Author(s) Claim Merchant & Otley (2007) Claims that control systems are accountability-oriented in the sense that control systems makes people become accountable for their actions or for the results they (or their organisation) produce. They mobilise a problematisation of measuring ”true” performance and from that argue that managers are held responsible for much more than they can control. The management control literature reviewed is concerned with the same problematisation of whether it is adequate to understand performance measures as representations. The majority of the literature articulates the representativity of performance measures as representations of effort, or employee performance while others problematise the pre-concern for developing technical attributes to be used for designing a successful system (e.g. Ittner et al., 2003, Otley, 1999 and Merchant and Otley, 2007). The theory, however, do not deals as systematically with the representativity of performance calculations than do financial accounting theory through the notion of representational faithfulness. However, the literature review indicates that models articulate the representational ideal of accounting in the sense that performance measurement is about presenting through calculations (or subjective performance evaluations) employee effort, or performance. 2.5 Constructivist approaches to accounting information and performance measurement An alternative to the normative paradigm of accounting theory (section 2.4) exist in constructivist research. Within this domain the dominant methodology in accounting research is actor-network theory1. This section will review the 1Foucauldian inspired research is a strong tendency in accounting scholarship too, but because of its emphasis on discourse formations of accounting technologies and their implications 67 2. Theory of accounting qualities mobilising ANT is constrained by two concerns: an emphasis on management existing only/primarily within the framing networks of inscriptions construct and an a priori emphasis of materialism: the research concerns calculations and networks of objects without considering the hinterland or plasma. Therefore, while acknowledging the ANT research claims and building on the same ontological ground1, this thesis will theoretically depart in a problematisation of the relationship between the accounts (the ”representations”) of the reality and the ”reality” (the actuality/-ies they inscribe). Even though inscriptions problematise the accounting standards’ ideals of representational faithfulness and representability, the calculations within this literature still achieves an ”objective” singular ontology when they are mobilised in practice (hence the notion heteromogeneity). Thus, even though this literature problematise the realism research discussed previously in the chapter, they still support the argument that the representations, or calculations, become ontologically secure, i.e. they become ”facts”2. The problem not addressed in this research stream is how all the unstructured becoming of the world is performing relative to the networks constructing the management models mobilised in managerial practices. Even though the management inscriptions are heterogenous constructs, they are still prescribing the reality organisations find themselves within. 2.5.2 Deleuzian perspective on accounting qualities The theorisation of accounting from a Deleuzian perspective is still emerging3. This section will discuss the deleuzian research which relates to accounting qualities with the first article published in 2005. Harney (2005) theorises not specifically about accounting, but about labour and management. He touches upon calculations in his writings about ”miracles” and ”miraculating”. 1Heterogeneityand multiplicity. 2Ontological security is not meant to reflect Giddens’ concept, but rather are meant as people do not question their existence and ontological nature. 3The search explained in the introduction to the theory chapter returned 6 results. 74 2. Theory of accounting qualities Capital is like a body without organs, unproductive in itself, all surface and no depth. But because labor, or what they call the production machines, takes place on the surface of this body without organs, it comes to appear that the body without organs, or capital, is the source of wealth. Labor is recorded, captured on this surface and also miraculated, made to appear like it arose from this body without organs, and was caused by this body without organs,by capital.  Harney (2005, p. 587) As we see in the quote the miracle means that value look like it has arisen from capital. And making capital look like the source of value is actually what management is about. Management ”increase labor’s value, by making workers work harder or with more cooperative knowledge without paying them more, or by remixing living labor with the labor embodied in machines, technology, and science, or indeed by rearranging or recalculating any of these components to increase the quantity and quality of what is produced in a given period [..] Deleuze and Guattari note that this technique makes capital look like the source of value and the key to producing more value and this takes the form of a miracle since capital is at any other moment utterly unproductive” (p. 587-588). Thus, management becomes the ”miraculating machine” that makes capital look like the source of value. This is not directly referring to accounting, but financial information is a capitalisation of phenomena and we see how capital extends broader than a translation from matter to form (representation). Davison (2008) studies the ”narratives and pictures in annual reporting” through theory of repetition (e.g. Deleuze, 2004). Davison shows how contents of annual reporting are exposed to repetition. However, Davison (2008) do not analyse accounting numbers, but limits herself to texts and pictures. The article argues that intangible assets are accompanied with words and pictures to ”emphasise the existence of intangible assets whose recognition is often inadequate under the traditional accounting framework” (p. 792). 75 2. Theory of accounting qualities This is interesting because it touches upon Ijiri (1975)’s criteria of identifiability. If the surrogate is to explain the state of the principal, then it would not require additional information. Thus, the necessity of adding a text or picture to the financial calculations of intangibles point towards a representational problem of identifiability1. Davison concludes by stating that ”the corporate annual report is today a space of multitudinous signs”. But where Davison focus on words and pictures, she do acknowledge accounting as signals as well2even though she does not include it in her analysis. And the analytical approach she suggest to theorise about signals, is the relationship between signals and meaning, or signifiant and signifi. In 2009 Neu et al. went a step further in applying Deleuze’s theory to study accounting in their article ”Accounting assemblages, desire, and the body without organs” (Neu et al., 2009). The article applies a governmental view to understand accounting as a means for modernising development countries. They do so by studying the Latin American country El Salvador with the research focus ”how assemblages of people and accounting come to shape that country’s domain of governance” (p. 320). Neu et al. stress the point that many supranational organisations such as the World Bank and the International Monetary Fund as well as NGOs advocate for accountability and transparency to be important for the modernisation of development countries. As the authors write, their findings show ”how accounting may contribute to the at-times ”over-organized” nature of the modernization field” (p. 321). The paper do not address accounting qualities explicitly, but shows how accounting interacts in an assemblage of modernisation and that desire drives the territorialisation of modernisation in certain ways, where desire is simultaneously moving with the movings of the assemblage. Accounting is in the article not presented as a means for representation. Accounting is viewed as constructing an assemblage that ”creates a firm inside/outside distinction” (p. 331, paraphrased). This is done with a concern for being able to follow the flow of monies, how monies ”would be disbursed and to 1Davison’s emphasis is that words and pictures adds ”flesh to corporate identity, to emphasise markets, products and other facets of a company’s life” (p. 793). 2Signals is the opposition to representations. 76 2. Theory of accounting qualities whom” (p. 330). In the accounting assemblage, an element relates to accountability, which is about ”generating accounts that allow the international organizations to evaluate the effectiveness of their monetary contributions” (p. 334). Accountability is thus a matter between the account giver and the account receiver. In the article performance evaluation is conceptualised as a ”surveillant assemblage” where the concept of accountability is combined with the performance indicators (i.e. a technology). Thus, accounting and especially performance evaluation ”accounts” is here considered an assemblage that constructs certain ”lines of flight” which directs the way the accountability assemblage moves. The accounting assemblage is therefore not viewed as a representational element, but rather as a process of becoming; continuous territorialising and deterritorialising movements: Interview participants acknowledged that the emphasis on performance indicators and accountability encouraged the reterritorialization of government. Neu et al. (2009, p. 335) With basis in the presentation of accounting as engaging in assemblages of accountability and surveillance the authors claims accounting to over-organise the modernisation as a ”rationalist application of these techniques that had the effect of interrupting desire’s inherent productivity and substituting in its place a concern with interests” (p. 344). Thus, accounting reterritorialised itself in the El Salvador as a government form. As we see Neu et al. (2009) do not analyse accounting techniques by themselves, but takes a governmental perspective (Miller and O’Leary 1987 and Miller 2001) on the link between the accounting assemblage and the modernisation of development countries. They show the point that accounting information is understood as signals when they state accounting ”through its ability to encode and decode, permits common conversations across development bodies” (p. 345). The last Deleuzian accounting study to present here is Martinez (2011). The article explains that Deleuzian theorisation of accounting is very scarce but argues 77 2. Theory of accounting qualities Deleuzian concepts to be able to enrich the scholarly conversation about what accounting does. However, while Neu et al. (2009) develops an analysis frame from some of Deleuze’s concepts, Martinez (2011) focus mainly on deleuze’s concept ”society of control” from a theoretical point of view. He does so to extend the discussion Macintosh (Hopper and Macintosh, 1993, Macintosh, 1994 and Macintosh, 2002) raises from 1993 onwards about accounting and control as ”technologies or techniques of discipline such as hierarchical surveillance, normalizing sanction, and examination” (Martinez, 2011, p. 200). Martinez therefore seeks to broaden the discussion of accounting that emerged from accounting research based on Foucault’s works in Discipline and Punishment with special attention on the panopticon. The article theorises management control as ”a component of modality of power exercised through overlapping digital information networks that extend throughout the social landscape” (p. 202). Even though the article does not treat accounting or the qualities of accounting in relation to its representational character, as we see from this point of view accounting is understood as having effects that ramify much wider in a social context than what realism literature presuppose. The close relationship between actor-network theory and Deleuzian theory is articulated in the fact that Martinez (2011) position his analysis as an extension of actor-network theoretical accounting literature as well as Macintosh’s work. Martinez’ argues through Deleuze’s ”society of control” that the emergence of accounting and IT technologies problematise the foucauldian literature’s use of the panopticon metaphor: Rather than the disciplinary factory-as-prison enclosure and its analogous forms (barracks, hospitals, family etc), the society of control has given way to the corporation, ”a spirit, a gas” [..], that, lacking specific shape, volume or permanent location, permeates throughout the social landscape.  Martinez (2011, p. 204-205) Here we see how accounting and technology is argued to be constructing an assemblage of control which is not materialistic in its form, but rather, it is 78 2. Theory of accounting qualities rhizomatic. Thus, accounting is an object (a calculation), but at the same time it expresses intensities of control which extends wider as an assemblage than the mere ostensive qualities of calculations. To sum up on the deleuzian inspired accounting research still no study applies the theory on a particular accounting practice in a particular organisation where the study object is accounting and its qualities. The closest we come to such a study is Neu et al. (2009) and their discussion of the dispersion of accounting techniques and the accountability-assemblage. Thus, in order to understand the performance of accounting as representing from a deleuzian/deleuzeoguattarian perspective, further studies are needed. 2.5.3 Summary of constructivist accounting research The constructivist accounting research reviewed in this section consist of actornetwork theory inspired accounting research and (the very scarce) deleuzian accounting research. The reviewed literature is summed up in the following table. Table 2.3: Summary of literature on constructivist accounting research Author(s) Claim Robson (1991) Introduces the actor-network theory to accounting research. The article shows how the ANT concept of translation will be beneficial to understand ”the specific associations, connections or ”positive” relations that are made between accounting and its social context” and through that gain insight into extending the impact of accounting to understand how it translates into societal, economic and political discourses. Continued on next page 79 2. Theory of accounting qualities Author(s) Claim Robson (1992) Accounting is more than a mere representation; it is an inscription which emerges through translation. And the inscription has effects which ramify in directions the conventional accounting literature do not anticipate. Preston et al. (1992) Studies budgeting as a process of black-boxing. It challenges the normative view of budgets as a design / implementation relationship with a well-defined purpose and effect by showing how black-boxing is a process of negotiations between various actors and how these negotiations frame the budget as well as the responsibility design. Chua (1995) Accounting is an imaging device which constructs images, which present the organisation. The world is not there before the calculation, but comes after, or simultaneously with, the fabrication of the image of it (the (re)presentation). Mouritsen et al. (2009) Calculations create new insights about different concerns by providing competing propositions that visibilise and re-visibilise what presence is. The calculations do no represent, but mediate, translate, and redesign business ideas of companies. Dambrin & Robson (2011) The article shows how weak performance measures gain performativity and how the representation should be understood as ”tracing” rather than ”representing”. Weak performance measures are conceptualised as the missing ability to trace the performance measures back to the practices of the people who performs. Continued on next page 80 2. Theory of accounting qualities Author(s) Claim Busco et al. (2007) Discusses the stability/change dichotomy. They argue that translations ”are constantly shifted, mediated and renegotiated”. Therefore change is an inherent part of translation because translations in principle never stops. Because calculations are translations too, this means that calculations simultaneously with the calculation induce change. Management technologies are conceptualised as heteromogenous, meaning that they appear homogenous, but is constituted by a network of relations between heterogenous actors. Harney (2005) Studies labour and management from a Deleuzian viewpoint. The article argues for capital to be a surface on which labour takes place and makes capital and management appear as if they are the means from which value emerge. Davison (2008) The article examines the repetition of texts and pictures in annual reporting and argue that intangibles are accompanied with words and pictures to emphasise their existence. Neu et al. (2009) Studies accounting as a means for modernising development countries from a Deleuzian perspective. Accounting is in the article not viewed as representation, but as a construction of an assemblage that creates a firm inside/outside distinction, used to track the flow of monies. Performance evaluation ”accounts” is in the article considered as an assemblage that constructs certain ”lines of flight” that directs the way the accountability assemblage moves. Continued on next page 81 2. Theory of accounting qualities Author(s) Claim Martinez (2011) Argues that Deleuzian theorisation of what accounting does will enrich the scholarly conversation about accounting. The article emphasises accounting as a technology of discipline where Deleuze’s writings about the society of control can give new insights to the existing accounting research based on Foucault’s Discipline and Punishment. The constructivist accounting research is radically different from the conventional accounting literature in its perception of the ends (effects) of what accounting does. The theory leaves accounting as representations by showing how accounting constructs the reality in which companies act and creates new insights about what the business is about. Moreover it is shown how the link between re-presentation and what it purports to represent, at best, is evident as an ”auditable” trace, meaning that the reference is there to qualify the inscription as an object (circulating reference). The literature reviewed in the chapter will all together be summed up in the conclusion in the next section. 2.6 Conclusion on the literature study The chapter has reviewed literature on accounting qualities with attention on how the representativity of accounting information/calculations is understood in existing accounting research. The work which have been carried out to define criteria for financial reporting and evaluating managers’ performance strives toward constructing information that measures faithfully values on phenomena such as assets, or activities that depreciates assets. The work strives to develop sets of criteria that guides accountants in developing such accounting information and accounting principles 82 2. Theory of accounting qualities respectively. This is productive in the sense that it makes it possible to compare financial reports and thus supports the usefulness criteria in this respect. Performance measurement as treated in Merchant (2006) and other similar works is about directing employee behaviour by representing certain aspects of the organisational value creation through calculations and set goals and reward structures for the employees based on the performance measures. When doing so the calculations select certain aspects of the organisation to be represented. The problem is whether these representations actually are faithful or accurate to what they purport to represent(i.e. employee effort or performance). As discussed in the previous sections of the chapter, the ontological conditions of accounting information can not unambiguously defined in the literature. In the conceptual frameworks this was acknowledged already in SFAC no. 2 where they stated that objectivity was not a relevant ideal, because the relation between reference and referent could not be understood as objective. Thus, the matter would be about representing faithfully what the information purports to represent. However, this lead the analysis to understand representational faithfulness as a matter of following the right procedures (procedural faithfulness) rather than representing something underlying. Ijiri stated accounting to be about rendering people accountable, and therefore the analysis which will be provided in the empirical part of the thesis will reflect on how representational faithfulness is unfolding in practice and which consequences it has for what accountability is. Representational faithfulness is not reflected literally in the management accounting research but in e.g. Merchant (2006) it is connected to the notion of controllability and, among others, Merchant and Shields (1993) discusses accuracy and precision. The point in this literature is that representational faithfulness and, on the whole, the conceptual frameworks, can be understood as conditions that makes it possible to keep employees accountable to the signification of the performance calculations. A counter-movement to the conventional accounting literature has emerged in the constructivist accounting literature. This stream of research understands accounting calculations radically different from the conventional literature by showing how accounting fabrications have many other effects than the conventional accounting literature is concerned with. Accounting 83 3. Theoretical Approach God [..] you could follow the drops descent in reverse, all the way back up into the clouds, through all of its various paths determined by the winds, to the point at which evaporated water molecules first condensed into that singular drop and so forth. All of these moments in the individual drops history and future taken together constitute its complete concept and, importantly, this concept excludes all other drops and their concepts. The drop’s individual difference is included in its concept.  Hughes (2009) p. 36, original emphasis In the quote the analysis of a concept means that the particularity of it does not depend on concepts themselves, but how long the analysis of the concept is extended. If you stop at ”this is a drop of water”, you generalise the concept but lose its particularity. This is what Deleuze denotes ”blocking” (Deleuze, 2004), or ”blocked concepts” (Williams, 2003). The point is that blocked concepts ”never satisfactorily corresponds to a particular object” (Williams, 2003, p. 40). The same applies to accounting concepts. The immediate difference between the drop of water and an accounting technology is that the first is a physical object and the second it a immaterial object. However, this difference between the nature of the concepts is not a problem for applying the Deleuzian scholarship about repetition as an analytical tool to explain the concept and idiosyncrasy. For the analysis in this thesis, the idiosyncrasy of the accounting technology expresses the difference by which its performance will become different than the expected performance of the general concept, e.g. performance management information such as the budget or financial statements. The reason is that the differences of complete concepts opens up for rhizomatic movements, which will make the performance of the concept move. Deleuze’s theory is translated into a sociological concern in DeLanda (2006)’s assemblage theory. From the perspective of assemblage theory, the meaning of a concept and its performance is not defined by its interior parts. Conceptual objects engage in relations of exteriority to other objects that together constitute the becoming of the object. Thus, the meaning and performance of a budget is defined not by technical characteristics 90 3. Theoretical Approach of the concept of the budget, but by the exterior relations that makes the budget in practice (DeLanda, 2006). Thus, in practice the complete concept of an accounting technology becomes something else than the general concept of e.g. a budget describes. This applies to all other objects in the assemblage too. And therefore, because of the repetition of the concept, it becomes different. This section has discussed the concept-object relationship and in accounting this applies to the theoretical concepts and their actualisation in practice (e.g. the budget as a theoretical concept and a budget as an empirical object). There is, however, another related problematic, simulacra, which is articulated through eternal chains of repetitions. Blocking is about the relationship between general and complete concepts, simulacra is about the repetition of concepts. 3.1.2 Eternal chains of repetitions and the simulacra One of the cornerstones in Difference and Repetition is its counter-intuition to the stability-change dichotomy. Repetition intuitively can be understood as repetition of the same and in this sense repetition carries with it stability. But just as complete concepts are not the same as their generalities, for Deleuze repetition can not be repetition of the same. When repetitions happen, they carry along difference. The difference in repetitions is in this thesis understood as the product of relations of exteriority that are repeated. Therefore, the object which is repeated is changed simultaneously with the repetition1. Difference is not a measurable difference like for example a difference between Balanced scorecard and KPI scorecards (as Kaplan and Norton outlined in Kaplan and Norton (2001)). In the deleuzian perspective difference is always part of repetition on the level of the particular. Difference is not necessarily in itself identifiable, but conditions the movement of objects in an assemblage, and therefore difference is inherent in 1This is inspired by DeLanda (2006)’s assemblage theory and do not correspond perfectly with Deleuze’s writings in Deleuze (2004). For Deleuze difference within repetition is connected to the virtuality and actuality of things. But the terms virtual and actual will not be used in this thesis because they are theoretical notions developed to argue for the philosophical claim of difference as something in itself and are difficult to apply to empirical studies. The only thing I will mention regarding difference and the virtual/actual is that for Deleuze difference is not the actual distance between things, but, on the contrary, variations in the virtual dimension of things. 91 3. Theoretical Approach repetition. Thus, repetitions of objects are not a matter of models and copies. Repetitions are rather repetitions of other repetitions in endless chains. Deleuze explains how this is connected to the simulacrum: The simulacra is the true character of the form - the ”being” of that which is. When the identity of things dissolves, being escapes to attain univocity, and begins to revolve around the different. That which is or returns has no prior constituted identity: things are reduced to the difference which fragments them, and to all the differences which are implicated in it and through which they pass [..] difference does not lie between things and simulacra, models and copies. Things are simulacra themselves, simulacra are the superior forms, and the difficulty facing everything is to become its own simulacrum, to attain the status of a sign.  Deleuze (2004, pp. 80 and 81) Thus, as Deleuze argues in the quote, the being of that, which is, is simulacra. When the mind engages with something, it fixes its identity. Though this fixation, which comes from the mind, that something becomes simulacrum. This, happens because the matter, which’s identity has been fixed, repeats difference. And this repetition makes the matter distinct from the form. Thus, form is simulacra which do not relate to the matter as representation. Therefore, simulacra relates to the habitual repetition of memory. The human memory contains fixed representations of things (Williams, 2003) but these do not correspond to the actual things we engage with. The mind makes a synthesis of the information from senses with the memory’s representations and makes the mind believe the actual thing to be a copy of the representation from memory. And as Deleuze states in the quote above when the identity of things dissolves the difference of things show up; things are constituted by their difference and the differences inscribed in them. 92 3. Theoretical Approach As Williams notes: Pure Differences are the other face of all actual things - there is no such thing as a well-defined actual life. Deleuze claims that all our representations, senses and concepts of identities are illusions (nothing fixed is real). Williams (2003, p. 13) In relation to the Deleuze’s quote above, Williams goes so far as to say that there is no such thing as a ”real” (actual) life. All the things humans experience (through the perception of the life we live) and the memory humans get from experiences are illusions because our mind fixes the actuality which, if the deleuzian theory of difference and repetition is true, are univocal representations of difference. Williams continues by bringing up the claim of eternal chains of repetitions: Simulacrum is a member of a repeated series that cannot be traced back to an origin of the series or back to an origin outside the series. Williams (2003, p. 27) This relates to the thesis in the sense that simulacra cannot be differentiated from the differences they carry along in order to trace them back to an origin that exist outside the simulacra. The particular performance of the simulacra is therefore to possible to reduce to an origin outside the series of repetitions that construct the simulacra. In an accounting setting this means that the particular performance of accounting information cannot be reduced to the model from which the information is constructed. The performance is just as much, or maybe even more, a matter raising from the difference implicated in the accounting information, to use Deleuze’s own vocabulary. To sum up difference and repetition turns around the understanding of what difference is and what repetition is. 93 3. Theoretical Approach Difference is not something opposite to repetition. Repetition is difference, because things change. When we understand something ”as the same”, it is the mind that makes us experience this ”sameness” through the mind’s representations. This is why Deleuze argues the world as it is perceived by humans not to be real. We live in simulacra. Actual things are illusions of the virtual differences they express. 3.2 The rhizome The rhizome is a concept through which it is possible to explain the movements of social phenomena. In biological terms the rhizome refers to a certain part of some plants close to its roots. The rhizome is under certain conditions able to reproduce the plant vegetatively. If even a very small part of the rhizome is removed and planted elsewhere, the plant can reproduce itself there. If an animal eats of the rhizome it might disperse small parts of the rhizome on the ground and reproduce the plant as new plants. The implication is that it is impossible to anticipate where the plant reproduce and which connections the plant makes to other entities (Deleuze and Guattari, 2004, p. 7 and Encyclopædia Britannica Inc., 2012). The deleuzeoguattarian concept of the rhizome is developed in Deleuze and Guattari (2004). Deleuze and Guattari explains their use of the rhizome as follows: It is tracings that must be put on the map, not the opposite. In contrast to centered (even polycentric) systems with hierarchical modes of communication and preestablished paths, the rhizome is an acentered, nonhierarchical, nonsignifying system [..] the rhizome has no beginning and no end; it is always the middle, between things, interbeing, intermezzo. The tree is filiation, but the rhizome is alliance, uniquely alliance. The tree imposes the verb ”to be”, but the fabric of the rhizome is the conjunction [..] This conjunction carries enough force to 94 3. Theoretical Approach shake and uproot the verb ”to be”.  Deleuze and Guattari (2004, pp. 23 and 27) The quote shows that the rhizome conceptualises continuous becoming. Becoming that comes from the acentered conjunctions (”conjunctions” here means links, or relations.) that move the assemblage rhizomatically without underlying structural order. The rhizome is, as (Deleuze and Guattari, 2004) write in the quote, to be contrasted with centered systems. It is acentered, nonhierarchical and nonsignifying. The authors argue that the rhizome contradicts the root-tree which is organised with a root system, a trunk, branches and leafs. This structure organises the tree. However, Deleuze and Guattari argue, the root system and the rhizome are always intermingled with each other and cannot be understood as two opposite models. The two are always present at the same time, the one as structural organising (the root-tree) and the other as continuous movements in relation to the particularity in which it operates (the rhizome). The example is from plants: even when they have a root, trunk and branches, they, too, have an outside that constructs a rhizome with the wind, animals, humans. In terms of accounting and management control this means that accounting signifies a structural organised system, the accounting system, but this system has an outside which connects with the particular and thus the performance of the structural system becomes realised by the structure and its rhizomatic side, which moves the performance by the rhizomatic conjunctions it is exposed to. Thus, both the signifying structure of the accounting system and the nonsignifying rhizomatic movements happen and the performance of the accounting system is an effect of both sides of the control system1. While claiming to be traditional Deleuze nevertheless defines philosophy in an unusual way as the art of forming, inventing and fabricating concepts (Deleuze and Guattari, 1994, p. 2). It has nothing to do with 1In the chapter ”the smooth and the striated” Deleuze and Guattari explains how the structured system (the accounting system) constructs a space for striatisation whereas the rhizome constructs a space for the smooth. And the space of the smooth is always surrounded by the striated or vice versa 95 3. Theoretical Approach contemplation, reflection, or communication (ibid., p. 6). At its deepest level it is the creation of concepts [..] This description suggests the famous rhizome concept, a multiplicity whose parts are interconnected but not according to an underlying structural order, where connections can be made at any point to any point, where new branches can grow and old ones regenerate and reconnect. The rhizome is an image of what philosophy should be, a complex, ungovernable place of spontaneous encounters and devisings standing in sharp contrast to all the efforts of systems of established power to capture, block, channel and control the force it expresses.  Heywood (2002) The quote explains that the rhizome is contrasting with all systems of established power. But not only that. The rhizome is multiplicity. It is interesting especially for this ”principle of multiplicity” (Deleuze and Guattari, 2004, p. 8). As Deleuze and Guattari state, within multiplicity there is no axis, or taproot. The multiplicity does not have an object or a subject but only ”determinations, magnitudes, and dimensions that cannot increase in number without the multiplicity changing in nature” (p. 9). As a consequence there are no points in a rhizome that forms a structure, its fabric is multiplicity. Thus, the concept is there along with other signifying structural systems, but the two are entangled in each other in a complex relationship. The rhizome ontology relates to many phenomena, including identity, by showing how things move and connect with other multiplicities in complex ways. Bidima and Warren (2005) discuss identity through the notion of the rhizome: ”They (Deleuze and Guattari) established a perspective [..] of thinking, a thinking of the root and of the rhizome. The unique root is one which kills its surroundings whereas the rhizome is a root that extends towards an encounter with other roots”. On the basis of this distinction, Glissant challenges atavistic notions of cultures that define their 96 3. Theoretical Approach identity in terms of territory, origin, and ancestry. He opposes to this the idea of composite cultures, which, in the image of a rhizome, disregards territories and de-emphasizes genealogies and unilinear affiliation, thus giving rein to pluralities.  Bidima and Warren (2005). Brackets added. The quote shows how Bidima and Warren (2005), by drawing on Glissant, applies the concept of rhizome to a problematisation of the identity of culture. In the same way the rhizome is able to explain how management technologies (which’s general models can be understood as the management technology’s taproot) will extend and connect in the particularity it acts within which changes the identity of the particular management technology. This means, we cannot understand two management technologies that build on the same general model, e.g. the Balanced Scorecard, as the same. Their performances are co-constructed by rhizomatic connections they develop in the particularity they are mobilised within (the principle of multiplicity). Accounting practice is in this way understood rhizomatically because it connects and moves with the assemblage, is constitutes. One side of it is the signifying model which prescribes a certain performance, the other side is the rhizomatic which challenges and constructs particular becomings of the technology. 3.3 Deleuze in the social: Assemblage Theory In this section the argument from Deleuze’s theory will be extended to concern the social. Assemblage theory (DeLanda, 2006) is interesting in two respects. Partly because it builds on Deleuze’s theory and partly because of its ontological claims. DeLanda writes in his introduction to ”A New Philosophy of Society”: Assemblages, being wholes whose properties emerge from the interactions between parts, can be used to model any of these intermediate entities: interpersonal networks and institutional organizations are assemblages of people; social justice movements are assemblages of 97 3. Theoretical Approach several networked communities; central governments are assemblages of several organizations; cities are assemblages of people, networks, organizations, as well as of a variety of infrastructural components, from buildings and streets to conduits for matter and energy flows; nation states are assemblages of cities, the geographical regions organized by cities, and the provinces that several such regions form. DeLanda (2006, p. 5) The quote explains how assemblage theory extends the analytical level from being one concentrated on the particularity of objects in the section about difference and repetition, to become one concerning larger entities, e.g. interpersonal networks or institutional organizations. By applying an assemblage approach to accounting it will be possible to understand the performance of the accounting technology together with the rhizomatic movements that happen simultaneously. Besides this point assemblage theory is interesting to this thesis because of its ontological claims. As Delanda writes, some social scientists (as well as accounting scholars) performs their research on implicit, uncritically accepted, ontological foundations (DeLanda, 2006, p. 7). With this starting point the question assemblage theory raises is whether the implicit ontology of thinking in models and information as representations is appropriate to give a thorough understanding of how accounting performs in the social context. Delanda explains the productivity of constructing an approach based on assemblage theory and other scholarly work on Deleuze’s philosophy, to theorise about social phenomena, with reference to theories of relationships of interiority. As he writes (pp. 8-10) assemblage theory aims to understand the part/whole relationship of assemblages not as mechanistic totalities with interior relations (which means that components of totalities are constituted by their relations to other parts and that the totality is an unproblematic whole which’s performance is composed of its inherent parts alone). But, by drawing on Deleuze’s thinking, assemblage theory is concerned with capacities of entities rather than properties of entities. Capacities which first and foremost acknowledges the multiplicity of the whole and its relations to exterior assemblages, but also inscribe the idea of 98 3. Theoretical Approach movements and becomings and thereby problematise the stability of performance of a whole when its capacities to interact moves (DeLanda, 2006, p. 10). Delanda, paraphrasing Deleuze, explains the problem of reducing wholes to its constituent parts as follows: ’Relations do not have as their causes the properties of the [component parts] between which they are established ...’ although they may be caused by the exercise of a component’s capacities. In fact, the reason why the properties of a whole cannot be reduced to those of its parts is that they are the result not of an aggregation of the components’ own properties but of the actual exercise of their capacities. DeLanda (2006, p. 11) (original brackets) DeLanda emphasises in the quote the rhizome as a principle for organising in contrast to arborescence1. Connections in this sense is therefore exterior as they connect to rhizomes and develop rhizomatically in unanticipatable (nonsignifying) ways (Deleuze and Guattari, 2004). Thus, even though arborescent structure exist, it will always interact with the rhizome. Thus, the performance of arborescent organisings always emerges from the actual exercise of its capacities when it interconnects with the rhizome. For accounting objects assemblage theory claims that there is no underlyingessence of the object (i.e. the behaviour-directing mechanism of certain accounting information). Its significance is constructed in the assemblage that mobilises the object in order to perform something and the rhizomatic movements and arborescent organising of the accounting technology mix together and together constitute the performance of the accounting technology. 3.4 Machinic assemblages and regimes of signs Together assemblages of signs form machinic assemblages. For Deleuze all things humans engage with are signs and when understanding the sign in a certain 1Arborescence means having the form or characteristics as a tree; organised as a tree. 99 3. Theoretical Approach 2001). However, the Foucault literature is predominantly concerned with how things become discursive (Miller and O’Leary, 1987), even though for example Mennicken and Miller (2012) touches briefly upon the territorialising performance of accounting, which is adjacent to the this thesis’ theoretical approach. Foucault talks about discourse as stabilisation in epochs (also resonated in Miller and O’Leary, 1994’s notion of temporary stability of assemblages), whereas Deleuze’s concern is the fluidity and emerging characteristics, performance and organising of things and phenomena. Therefore, the thesis arguably says more to ANT inspired accounting research than to foucauldian accounting research, because ANT shares the concern about emergence, difference and fluidity. With departure in this, the rest of this section will discuss the thesis’ theoretical approach in relation to actor-network theory inspired accounting research. The similarities between the theoretical concepts mobilised in the previous sections and actor-network theory are significant, especially when it comes to assemblages, territorialisations and deterritorialisations. This might be one of the reasons of why some articles drawing on Deleuze’s theory argues their drawing on Deleuze’s scholarship to be used as an extension of the actor-network theory (e.g. Martinez, 2011). Others again find it necessary to articulate explicitly the differences between deleuzian theory and actor-network theory, to pinpoint their distinct differences (McFarlane, 2011). As the previous sections argue the cornerstones of deleuzian theory is concerned with emergence, difference and movements. Thus, the articulation of assemblage is co-articulating movements of repetition, assembling and reassembling, into different becomings. The literature review of constructivist accounting theory illustrates that the actor-network theory inspired accounting research is concerned with the emergence of networks. But it does not articulate explicitly difference and movements as effects of repetitions. McFarlane (2011) goes so far as to argue, with reference to other scholars as well, that actor-network theory is predominantly pre-concerned with the stabilisation of networks. However, newer sociological actor-network theory do become more concerned with variation and difference. For example in Latour’s Reassembling the Social, in which he argues that actor-networks, whether they constitute sociological, economic or geographical phenomena, emphasise the organised part of a whole, which is much 106 3. Theoretical Approach bigger. Between the organised connections is the unorganised, which Latour denotes plasma (Latour, 2005, p. 241-244). In relation to this point, the deleuzian theory raised in this thesis’ theoretical approach do not have a pre-concern for the stabilisation of networks, but rather articulates the variation and difference of networks which could be read as a concern about the performance of the plasma, in Latourian terms (how the multiplicities not inscribed directly in the networks get become concerned with the network through repetitions of difference and through significations and counter-significations. Networks and scientific accounts of them, in Reassembling the Social, could be read as simulacra in the Deleuzian sense because they constitute matters of concern. And they actually assemble as significations of the concern by going back and reconnecting with the world they inscribe (Latour, 2005, p. 253-258). In the accounting domain Quattrone and Hopper (2005) complements the theoretical approach of this thesis. They do so by keeping heterogeneity an an empirical concern that allows for continuous change in the networks, by studying distance in centralisation/decentralisation. As Quattrone and Hopper (2005) states ”[how control is related to integration and establishing order into work activities] is a complex process involving inscriptions, translations, beliefs, mediation, accounting, and information processing technologies, as previous work in this vein illustrates. However, such work needs to avoid modernist approaches based on, or leading to, dichotomies such as principal-agent, controller-controlled, here-there, and before-after to fully comprehend relations between distance, accounting, ERPs, and control” (p. 761, square brackets added). Thus, by letting the heterogeneity unfold they problematise stability by opening up for continuous changes in networks. In their paper this difference is expressed in continuous changes of loci of control which is expressed in their statement that ”everybody is king, albeit temporarily” (p. 761). Perhaps even closer this thesis’ concern of difference and repetition is Quattrone and Hopper (2006)’s analysis of implementation of SAP where they explicitly state how the technology is heterogeneous. To conceptualise the potentiality of continuous change they introduce the notion of drift which can be read as an emphasis of rhizomatic movement (even though they do not refer to the rhizome). Regarding the technology, SAP, they conclude that ”at best SAP is an idea, an absent presence, which instils hopes of order in 107 3. Theoretical Approach those who buy it” (p. 244). And the heterogeneity of the technology makes the management practices drift. SAP never becomes a singular, it is heterogenous and in a continuous state of drift. John Law touches upon a similar concern as Latour does in Law (2004)1in which he talks about messy social science methods that capture the social in organised frames of explanation. Frames which are not coherent with the presence they inscribe because presence is consisting of movements and heterogenous multiplicities. Law (2004) argue these frames to be constructed, argued through or against, hinterlands of existing knowledge about the phenomena. Thus, hinterlands are John Laws way of stating different propositions about the reality studied and influenced by research practices and paradigms of research. John Law goes further in his method discussion by discussing out-thereness (p. 24). And because his own hinterland is from the constructivist/STS research tradition, he does not discuss out-thereness as a matter where reality is out-there, external and before the human that experience it, but rather discusses whether a hinterland building on the assumption of a pre-established singular world which is ”the same everywhere” (p. 25). Law (2004) challenges this assumption by introducing constancy, which can be read as difference and repetition in Deleuze’s scholarship. He does so by raising the question ”do objects or processes in general stay the same unless they are disturbed (p. 25)? By mobilising concerns about hinterlands and out-thereness, and eventually multiplicity2he takes the actor-network theory closer to the works of Deleuze and his concepts of difference, repetition, simulacra and regimes of signs (which could be one version of hinterlands). With reference to the above described relations between deleuzian theory and actor-network theory, the Deleuzian frame of analysis is chosen because it signifies difference, variability and movements to an even stronger degree than present actor-network theory of accounting does. Latour’s interest in in the things that actually happen, but Deleuze and Guattari problematise this by arguing that we actually never know what happens, because our thinking singularises heterogenous relations to become a memory. Thus, memory is not the same as the past 1Law (2004) is inspired by Deleuze and Guattari (2004) by drawing on the notion of assemblage. 2Multiplicity is also from one of Deleuze’s co-authorships, with Claire Parnet. 108 3. Theoretical Approach actuality, it ought to represent. The point is that we do not not know where the fixity, which is important to construct the regime, comes from. In actor-network theory it is trials of negotiations between actors which makes things happen and things to change (or translate), but for Deleuze and Guattari there are many possible worlds at the same time. Based on that the deleuzian theory extends the assemblage/network analysis by introducing epistemological concepts about interpretation of signs through signifying regimes. By doing so it becomes possible to analyse how the repetitions of practice co-construct movement and difference. Thus, the theory is chosen as analytical frame in order to be able to explain movements around repetitions, difference and simulacra, which are not core concepts within the actor-network theory as yet. The last concern to point out is about accounting theory. It is not at all the point of this thesis to say anything value-laden about accounting. This thesis could possibly be read as stating that accounting is not good (”anti-accounting”). This is not the intention. Accounting has been shown to be good for many purposes such as for example limiting decision possibilities and managing at a distance. However, this thesis will give some insights into some of the limits of the representational ideal of accounting, which is manifested in both the theoretical domain of accounting as well as in the empirical domain (the case study of the thesis). Additionally, by introducing the concepts from Deleuze’s, Deleuze and Guattari’s and DeLanda’s scholarship, it will propose some of the complexities that can be attached to study the surface (trials of negotiation), which is what actor-network theory does. 3.6 Concluding remarks on the theoretical approach The intention of departing theoretically in Deleuzian theory is to study accounting from the point of view that there is no underlying object to represent. Accounting, from the deleuzian viewpoint is repetition of practices of calculating. Accounting, including management accounting, sets up structures of organising. Structures which engage with other structures, e.g. the structures of the market 109 3. Theoretical Approach movements. Thus, as Williams describe, there will never come a day where the right truthswill lead the world to peace. Tensions and blockages will continue to arise because of the structural clashes. One remaining analytical implication of Deleuzian theory still needs to be discussed. The relation between sign and meaning of the sign. Structural clashes are one of the explanations of the emergence and continuation of tensions and the decoding of a sign is another. Because the world is consisting not of essences or representations of underlying concepts, but of eternal chains of repetitions, our experience of the world is a simulacrum; we live in simulacra of repetitions in which we ascribe certain meanings to certain signs. This raises a problem of how to construct a meaning of the sign. Deleuze uses the term ”regimes of signs” to explain how signs are interpreted in a certain way (Deleuze and Guattari, 2004, chapter 5). Regimes of signs assigns meaning to the object (the sign). This is an unproblematic part of the becoming. But as soon as more than one regimes of signs engage with each other to construct a meaning, a conflict might occur. A conflict of which meaning becomes dominant. Deleuze and Guattari (2004) do not treat how one regime of signs becomes dominant, but the fact that in the tension of becoming dominant another regime of signs must be repressed the other and this creates a space for movement. The regimes must either dissociate themselves from each other. It should be clear that the theoretical approach applied in this thesis builds on the ontological claim that the world is consisting of simulacra of repetitions where phenomena and things cannot be reduced to essences. Rather, objects are characterised as being assemblages of relations of exteriority which moves through repetitions and meanings are constructed through regimes of signs which again are assemblages of exteriority. In order to understand how accounting is actualised and what it is doing it is therefore necessary to study it in the particular setting that constructs its performance. 110 Chapter 4 Methodology Chapter 3 outlined the theoretical approach of the thesis, which is the frame in which the empirical study is analysed. This chapter is occupied with research methodology, especially the epistemological concerns of the thesis1. The purpose of the chapter is to discuss the epistemological question What are we able to know about the world and how do we achieve this knowledge?. The chapter eventually elaborates the case study design and methodical procedure. But the first aspect to be discussed is how method is understood and the complexity of the performance of method. Some words on the perspective This thesis draws on a poststructuralist perspective, where epistemology it not about being objective and knowledge is not understood as something universally true. The thesis is understood as a territorialised construction coming out of the interaction between many heterogenous assemblages; the study object, the methodical procedure, the scientific domain and domain literature and the researcher. Each of which cannot be reduced to being a singular entity without losing valuable information about the assemblage of knowledge that comes out of it. 1Epistemology understood within the field of methodology. Therefore the chapter is not meant to discuss epistemology as the collective knowledge of a science in general (the philosophical discipline theory of knowledge), but rather, what knowledge is, how knowledge can be achieved and what the limits of it’s validity and truth is. 111 4. Methodology Epistemology is important to discuss because it frames the thesis’ view of research and what method is considered capable of doing (the performance of method). Williams states the epistemological concerns of poststructuralism this way: The limits of knowledge play an unavoidable role at its core. This is the common thread running through poststructuralism [..] Knowledge cannot escape its limits: ”It is not surrounded, but traversed by its limits, marked in its inside by the multiple furrows of its margin” (D: 25). Williams (2005, p. 1) Williams argues that poststructuralist scholars are interested in the boundaries of theories and knowledge whereas, as he says, the limit in structuralism ”indicates relative security and stability within a given environment, where the boundaries is seen as less dependable than the centre. For poststructuralism, the core is not more reliable, significant and better known than its limits or outer boundaries” (p. 2). This means that the boundaries of knowledge are studied and problematised by ”folding the limit back on to the core of knowledge and on to our settled understanding of the true and the good” (p. 2). This means, that in poststructuralism, the limit is not marginalised. Rather, the limit is rendered as the core of knowledge or research. In this thesis this is done by questioning the representational ideal of accounting, which is taken for granted in conventional accounting theory, by suggesting an alternative conceptualisation of accounting information as signs. The research method in the thesis builds on an interactionist perspective (Mik-Meyer and J¨arvinen, 2005)1. This has several consequences for the research design. First of all, just as stated above and in the theory chapter, the object of 1The choice of the work ”interactionist” might lead one’s thought to social constructivism but this is not the intention. Interaction here means that ”the meaning of an action or a phenomenon is created in the interaction between humans or between humans and things” (p. 10, author’s translation). 112 4. Methodology analysis is not understood as something stable, but rather, something in movement, a becoming. This means, as Mik-Meyer and J¨arvinen (2005) says, that the study object is by definition ”fluid, unstable and heterogenous” (p. 9, translated). The thesis’ view on philosophy of science is explained by drawing on deleuzian theory, and it introduces some concerns from Foucault’s scholarship as well. Foucault is mainly used in the discussion of questions about truth and knowledge about the reality. Foucault will therefore be used only to argue for the thesis’ epistemological concern and will therefore not inform the empirical analysis directly. The empirical analysis will draw on the deleuzian concepts discussed in chapter 3. The foucauldian theory used in this chapter will be based on Foucault (1994) and secondary literature by Heede (1992). It is not the intention to review thoroughly the foucauldian scholarship, but to use the claim about ”truth” as something, which is historically produced. 4.1 Epistemology: The thought-experience relationship Deleuze mobilises the thought-experience relationship as a description of what constitutes thinking and theorising. Consequently, claims about knowledge must build on the premises of what happens in the relationship between experience and thought1. In continuation of the discussion about signs and significations in chapter 3, thinking is always emerging from the engagement with signs because ”thought is forced to occur by the sign” (Williams, 2005, p. 76). Deleuze touches on this too: To think is always to interpret - to explicate, to develop, to decipher, to translate a sign. Translating, deciphering, developing are the form of pure creation. There is no more an explicit signification than a clear idea. There are only meanings implicated in signs; and if thought has the power to explicate the sign, to develop it in an Idea, this is because 1The comprehension of knowledge as a matter of the thought-experience relationship is inspired by Anne Sauvagnargues key note speak at the 2011 Deleuze Studies Conference. 113 4. Methodology the Idea is already there in the sign, in the enveloped and involuted state, in the obscure state of what forces us to think. Deleuze (2008, p. 62) Etymologically speaking, epistemology comes from the words episteme (knowledge) and logos (word, to learn or discourse). This means that epistemology can be understood as knowledge discourse. The epistemology is concerned with questions such as (Grayling, 2002): •What is knowledge? •How can knowledge be achieved, and can it be achieved at all? •What are the limits of the validity and truth of knowledge? According to the Deleuzian theory, thinking is a matter of constructing meaning of signs. Constructing knowledge is in this sense is a matter of translating the signs, we engage with. And as mentioned in chapter 3, this is a matter of synthesising the heterogenous assemblage that constitutes the presence, the thought is connected with. But this very synthesis is a translating as well, from signs of movements and becomings, which we cannot comprehend in their ontological, heterogenous and multiple form, to the thought and memory of it. What is truth, what is knowledge about the reality? Deleuze’s contribution to epistemology is concerned with the cognitive aspects of thinking and memory. Foucault takes another perspective by focusing more broadly on how knowledge and truth are historically situated. One can read Deleuze and Foucault as distinct from each other but Deleuze argues for their commonness in Negotiations (Deleuze, 1995) where he states that Foucault and himself analysed the same ”mixed forms, arrangements, what Foucault called apparatuses [..] We looked for foci of unification, nodes of territorialization, and 114 4. Methodology processes of subjectification in arrangements” (p. 86)1. Deleuze and Foucault’s writings can therefore be read as close allies in terms of philosophy. The discussion in this section will therefore be be inspired by both Foucault’s writings and Deleuze’s repetition and difference, because the assemblage of the two makes the discussion broader than both are individually. Dag Heede explains the epistemological significance of Foucault’s writings in the book ”The empty human”2. He states it this way: The French philosopher Michel Foucault’s scholarship describes one long ”de-doctrination”-process where we do not learn very much new but rather learn to see what we already know - or think we know - with new eyes [..] One have to let go of preconceived meanings and illusions about essences inherent in nature [..] to be able to participate in Foucault’s endeavours of achieving epistemic free space, breathing space for new thinking, re-thinking and inventiveness. Michel Foucault’s writing is a form of anti-knowledge. Heede (1992, p. 7) (Author’s translation). The implications of Foucault’s scholarship for this thesis is how knowledge is understood. Foucault was concerned with studying discursive ”truths” during the history from the Age of Enlightenment and onwards. He shows, through his archeological approach how ”truths” are historically produced, which is consistent wit h Deleuze’s territorialisation of assemblages and the construction of plateaus that allow for certain discursive truths to be perceived as ”real” (form ”What is philosophy”). The implications of this production of truth means that what we believe is true today will change as discourses transform3. 1These arrangements is what is denoted ”Agencements” (assemblage) in Deleuze’s writings and ”dispositifs” in Foucaults writings (Deleuze, 1995, p. 196). Deleuze argue that their space of is similar, but their ends different (Foucault studies discouse and power, Deleuze studies the emergence of ”actuality”.) 2Translated from Danish. The original title is ”Det Tomme Menneske” 3Foucault talks about discourse formation and therefore, when discourses change, according to Deleuze’s theory of changing plateaus, the discourse transform into something different which allows for different truths 115 4. Methodology interview brings forth a collective proposition which is one of many ”plausible understandings of the world” (p. 29). To sum up this means that method, even though it must be designed somehow in order to persuade readers of the validity of the findings, achieves its validity and are challenged on its validity by the exterior relations that makes the method perform as it does. This view is very much in accordance with Alvesson and K¨arreman’s view on method as a dialogue partner the researcher must interact with: The empirical material may be mobilized as a critical dialogue partner -not a judge or a mirrorthat problematizes a significant form of understanding, thus encouraging problematization and theoretical insights [..] The researcher’s preunderstanding, including his or her academic framework(s), may be used as a tool that opens up a dialogue with the empirical material [..] We do not just encounter empirical material and see where it leads us. Rather, we are always doing something with it -framing and constructing it. Alvesson and K¨arreman (2007, pp. 1266 and 1269) The presence of the researcher is not seen as a problem but rather the premise. The researcher will always be there either through personal intervention or through the technologies set up to gather data, or both. It is hard to imagine a method which is not mediated by technology and the researcher. From the deleuzian perspective the performance of method is not emerging from the interior parts of a case study design. Rather, and as evident in the preceding sections of the chapter, method is an assemblage, meaning that (social science) method is not achieving it scientific significance through its interior design. Rather, it achieves its qualities by taking into consideration its connections to exterior multiplicities which it engages with, for example all the multiple movements it tries to describe in the empirical field. 122 4. Methodology The rest of the chapter will elaborate the methodical procedure of the thesis by describing the selection of the case, the data collection and some of the problems related to data collection and, finally, how the data has been worked with in the analysis. 4.3 Case study design It is a good idea to think about the (methodological) procedural design if method is not to become an arbitrary phenomenon which the researcher cannot account for. And accountability is one of the strengths method could perform: to render the researcher accountable for the reliability of the research findings. David Silverman’s states that method is something we have to be explicit about and follow the discourse for various reasons, e.g. to be able to get research grants (Silverman, 2007). 4.3.1 Selection of the case Grounded in the theoretical frame of analysis (chapter 3) and methodological preunderstanding (preceding part of this chapter) of the thesis the case study was chosen to become a longitudinal study of a single organisation in order to be able to gain as much data of the particularities of the movements happening in the organisation as possible. A description of the case company will follow in the first chapter of the empirical part of the thesis. The case study was planned to start in 2009. The idea was to find a privately held company big enough to work seriously with management accounting as a technology to perform management at a distance. To frame a set of possible organisations it was chosen to concentrate on medium sized companies. The operational definition of medium sized companies was borrowed from the Danish Financial Statements Act’s definition of ”financial reporting class B” companies (in Danish: Regnskabsklasse B), which is companies do not exceed minimum two of the following three conditions: 1) balance sum of 36m DKK, 2) revenue of 123 4. Methodology 286m DKK, 3) Average 250 FTE during the financial year1. The company could be a production company or a service company. Some companies with Danish HQ near Copenhagen was contacted. Many responded they did not have time to engage in a research project because of reductions in the staff due to the financial crisis, which had started the year before. One of the companies responded with interest in the project and was about to implement a new management accounting practice ultimo 2009 affecting the financial year 2010/11. This was interesting for the research project and a collaboration with the company was initiated. 4.3.2 Collecting data The data collection consisted of field observations, interviews with managers and the CFO and collection of internal and external documents about the company and the market. The study have mainly consisted of shadowing and interviewing the CFO because it was him who worked with the implementation of the new management accounting practice. Shadowing was not the perfectdata collection method. First of all shadowing means the researcher is situated ”in one room, one corridor, one branch, although some excursions may happen” (Czarniawska, 2004, 786) and thus will get the story from the situated perspective and many other things might happen other places at the same time. Secondly, for this research project the time dimension of shadowing became a problem. The time use of shadowing is correlating 1:1 with the chronological time of the daily work in the organisation and often a lot of other things than this very project was taking the CFO’s time. The benefit of the time used on shadowing was therefore varying a lot and the study was expanded with interviews where many things happening across time and space could be discussed in a shorter time span. Thirdly shadowing was not generating material data. This had to be done by writing field notes which was done at my desk in the company (I was normally placed at the desk right next to the CFO’s desk). And as Emerson et al. (1995) elaborates writing field notes is, as any other 1Numbers are from the 2010 Financial Statements Act. 124 4. Methodology part of conducting research, not a simple thing: Writing descriptive accounts of experiences and observations is not merely a matter of accurately capturing as closely as possible observed reality, of ”putting into words” overheard talk and witnessed activities. To view the writing of descriptions simply as a matter of producing texts that correspond accurately to what has been observed is to assume that there is but one ”best” description of any particular event”. But in fact, there is no one ”natural” or ”correct” was to write about what one observes. Emerson et al. (1995, p. 2) This emphasise the point from Alvesson and K¨arreman (2007) that rather than comprehending the target for data collection as resulting in an external, accurate description of reality, data can be understood as a conversational partner when theorising about the phenomena studied. It can be difficult to align a distinct boundary between collecting field note data and interview data, as both are effects of assemblages constructing the data. The apparent distinction is that when transcribing data is could be the objective to come as close to the recorded speech as possible (Kvale and Brinkmann, 2009). However, conducting interview and eventually transcribing them can be understood as the act of transforming the empirical phenomena to research data exactly as field notes do it. Thus, its performance relates to the interview situation as well as the transcription (Michael, 2004). As to the assemblage constituting the interview session Michael denotes the assemblage co(a)gencyemphasising the assemblage as a co-agency of which the interview session gains cogency (p. 10). But later in the interview he stress that something can easily connect with and challenge (deterritorialise) the interview assemblage. He describes a story about a”disastrous interviewwhere he interviewed an ex-drug user after a period of unemployment. In the interview, which was conducted in her home, he was seated in a sofa and the respondent in an arm chair. The tape recorder was placed between them on the floor: 125 4. Methodology During the preliminary conversation, her pitbull terrier ambled up and sat on my feet. [..] While this conversation was going on, her cat came into the room, and after a few moments of clawing at the tape recorder began to pull it along the ground by its strap. As the cat played with the recorder, I got further and further away from the interview [..] being too distracted by the disappearing tape recorder and the pit bull’s liking for my feet. Michael (2004, pp. 12-13) Michael (2004) claims later in the article that the communication between the interviewer and the interviewee to be parasitisedby the dog and the cat which explains the heterogeneity of the sociological interaction between the two. From the perspective of assemblage theory this story illustrates very well how the interview assemblage can be deterritorialised very quickly by movements an ex ante research design plan cannot account for. Thus performing interviews affect the data and it is the researcher’s task to try to keep deterritorialising parasiteson a distance. Thus, when conducting interviews, I always tried to do it in a meeting room at a time where the interviewees had a clear space in their calendars for a while. Often it went well but sometimes the deterritorialising parasites came very close and challenged the data collection. E.g. the 17.06.2010 when the CFO was interviewed he wanted us to make the interview outside on their terrace. Unfortunately it was very windy which I did not see as a problem before I came home to transcribe the interview. It was very hard to hear what had been said and therefore it took very long time to transcribe the interview1. Another parasitised interview happened in January 2011 with one of the sales managers. No meeting room was available and we chose to conduct the interview in the kitchen. Prior to the interview she had told me she had hearing difficulties and therefore wore hearing aids which I did not see as a problem. However, as people opened the door to get a cup of coffee the noise in the room increased a 1The transcription software could reduce the environmental noise which made transcription possible 126 4. Methodology lot. And apparently noise in a room makes a hearing aid automatically turn the volume of speech up why she muffled her voice and almost whispered. However, overall speaking the interviews were conducted successfully as ”semi structured” with departure in prepared interview guides. In total the interviews counted 21 interviews with an average of about one hour each and they were all transcribed. The field notes counted 17 days in the company during the period from november 2009 to october 2010 (mainly concentrated in April and May 2010 where the CFO had worked mainly on the new accounting practice). 4.3.3 Working with the data As a consequence of following Alvesson and K¨arreman (2007)’s claims the qualitative analysis started during the study and data collection. The interesting mysteriesthat turned up during the field study and interviews framed the eventual focus of the study and theorisation. While the data was collected, the mysteriesguided the focus of the interactions with the case. With departure in that the key themes for studying accounting qualities and accountability was selected together with the phenomena that was seen to have a significant implication for the research question. The mysteriesfocused on in this study are the content of the different rhizomatic stories described in the empirical chapters of the thesis. Refer to chapters 6 - 8 for an elaboration. Documenting the case study: Transcribing interviews When the data was collected the interviews were transcribed in Microsoft Word following Kvale and Brinkmann (2009)’s suggestions. However, where Kvale and Brinkmann (2009) suggest the transcription to be a matter of getting as close to the spoken meaning as possible in the written accounts (transcriptions) the transcriptions in this thesis is processed to make the interview situation an immutable mobile (Latour, 1987) whose purpose is to document the empirical matters raised in the case study. The transcription process is thus a space in which the researcher can work together with the interview persons, with the relation- 127 4. Methodology ship between theory and practice. In this way the heterogenous assemblage of empirical practice already in the interview becomes a critical dialogue partner for the researcher (Alvesson and K¨arreman, 2007). In this respect it is the interview itself which constitutes the space in which theory can be folded onto the empirical episodes presented and discussed in the interview situation. The transcription is therefore understood mainly as a means for documenting and remembering (in accordance with Deleuze (2004) discussion of memory), because the transcription is the process through which the heterogeneity of the interview is transformed into a singular entity: the transcribed text1. The interview is therefore always more than the transcribed text, because transcribing singularises the multiplicities pervading the interview. The interviews was transcribed as close to the spoken words on the tape recorder as possible. However, in order to respect the confidentiality agreement with the case company, the interviews sometimes had to be changed a bit. Analysing: Searching and coding data After the data was transcribed the documents together with the field note documents was imported into an NVIVO 8 database. NVIVO was chosen as an IT analysis application for two reasons: to make sure the original data in the word documents was not changed unintended during the analysis (NVIVO imports the word documents into its own database) and because NVIVO 8 is a very flexible technology in terms of coding and searching for data. NVIVO does not force the user to conduct the coding/analysis in any pre-given way (it does for example not require to construct a coding scheme before the coding is carried out). The codes (called free nodesin NVIVO) are developed simultaneously with the analysis. Thus, the user has a lot of freedom for developing the coding scheme during the analysis. Another advantage NVIVO has is its query engine which is able to search for queries in all documents in the database in one search. This allows the user to get all passages from all documents imported into NVIVO 1As Kvale and Brinkmann (2009) claims the transcription is a translation from spoken language to written language. The written language follows different linguistic rules than the spoken language and the meaning can therefore sometimes be lost when transcribing word for word. 128 4. Methodology when searching for a keyword. For example a query on ”transfer price” returns all paragraphs with ”transfer price” in it from all documents in the database. The query result links the paragraph returned from the search to the original document in the database from which the passage has been queried. Besides this functionality it is also possible to search the individual documents themselves without using the query engine, if it becomes necessary to search for more results on for example ”transfer price” within the queried document. Because of the coding and search functionality NVIVO allows for a flexible analysis without a pre-given structure of both coding and searching and the risk of losing data is minimal. In this way NVIVO helped querying and searching the data needed to describe the ”mysteries” encountered during the case study. Theorising: Folding texts onto each other The Deleuzian concepts from chapter 3 have organised the case study and the empirical chapters in the sense that they concern repetition and difference, rhizome, significations and regimes of signs and mobilise these concerns in the accounting context. During the case study the ideal of accounting as being representational has been articulated as an epistemological concern in both interviews and text documents. The way the thesis handles this is to follow Deleuze and Guattari (2004)’s point about folding texts onto each other (p. 6). The empirical chapters therefore present accounting in the way, and with the words, accounting has been talked about during the case study. 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Morten Knudsen Beslutningens vaklen En systemteoretisk analyse of moderniseringen af et amtskommunalt sundhedsvæsen 1980-2000 4. Lars Bo Jeppesen Organizing Consumer Innovation A product development strategy that is based on online communities and allows some firms to benefit from a distributed process of innovation by consumers 5. Barbara Dragsted SEGMENTATION IN TRANSLATION AND TRANSLATION MEMORY SYSTEMS An empirical investigation of cognitive segmentation and effects of integrating a TM system into the translation process 6. Jeanet Hardis Sociale partnerskaber Et socialkonstruktivistisk casestudie af partnerskabsaktørers virkelighedsopfattelse mellem identitet og legitimitet 7. Henriette Hallberg Thygesen System Dynamics in Action 8. Carsten Mejer Plath Strategisk Økonomistyring 9. Annemette Kjærgaard Knowledge Management as Internal Corporate Venturing – a Field Study of the Rise and Fall of a Bottom-Up Process 10. 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Peter Hobolt Jensen Managing Strategic Design Identities The case of the Lego Developer Network 2002 6. Peter Lohmann The Deleuzian Other of Organizational Change – Moving Perspectives of the Human 7. Anne Marie Jess Hansen To lead from a distance: The dynamic interplay between strategy and strategizing – A case study of the strategic management process 2003 8. Lotte Henriksen Videndeling – om organisatoriske og ledelsesmæssige udfordringer ved videndeling i praksis 9. Niels Christian Nickelsen Arrangements of Knowing: Coordinating Procedures Tools and Bodies in Industrial Production – a case study of the collective making of new products 2005 10. Carsten Ørts Hansen Konstruktion af ledelsesteknologier og effektivitet TITLER I DBA PH.D.-SERIEN 2007 1. Peter Kastrup-Misir Endeavoring to Understand Market Orientation – and the concomitant co-mutation of the researched, the re searcher, the research itself and the truth 2009 1. Torkild Leo Thellefsen Fundamental Signs and Significance effects A Semeiotic outline of Fundamental Signs, Significance-effects, Knowledge Profiling and their use in Knowledge Organization and Branding 2. Daniel Ronzani When Bits Learn to Walk Don’t Make Them Trip. Technological Innovation and the Role of Regulation by Law in Information Systems Research: the Case of Radio Frequency Identification (RFID) 2010 1. Alexander Carnera Magten over livet og livet som magt Studier i den biopolitiske ambivalens