AN HISTORICAL AND NEO-INSTITUTIONAL ANALYSIS OF INSTITUTIONS INVOLVED IN INTERNATIONAL

ACCOUNTING CONVERGENCE

After the implementation of International Financial Reporting Standards (IFRS) in the European Union in
2005, many countries including Canada, United States and Mexico have now announced that they will
adopt IFRSs for all listed entities from 2011, 2014 and 2012 respectively. Thus, the process of
international convergence of accounting standards appears to be entering a culminating stage. There
are three theoretical and contextual premises which form the basis of this research. The first is that the
process of international accounting convergence (IAC) has taken place within a highly institutionalized
environment characterized by isomorphic pressures directed towards convergence of accounting
standards on a worldwide basis. The second premise pertains to the apparent controversy concerning
the origins of international accounting convergence: American or European. A third contextual premise
relates to the lack of prior literature; only a few organizations and institutions have been previously
examined and discussed by the research literature. Based on these three contextual premises, the
purpose of this paper is double. First of all, we identify the primary institutions and organizations which
have been influential in the process of international convergence of accounting standards from the end
of the 19th century through the present. Second, employing a framework derived from neo-institutional
theory, we seek to explain how this process has been influenced and caused by several primary
organizations.

A neo-institutional analysis

Neo-institutional theory studies organizations in relation to their environments, the effects of external
expectations on organization, and the development of structures and practices within organizations as
they seek to establish their legitimacy. Institutionalization is a process whereby structures, rules and
practices in a particular organization are developed and learned. It is assumed that organizational
activities are motivated by legitimacy-seeking behaviors, which in turn are influenced by socially
constituted norms. For organizations to survive, they must interact with their environment in ways that
are seen to be legitimate. Thus, institutionalized elements are regularly incorporated into the structure
of organizations because these elements demonstrate conformity with expectations and re-enforce
legitimacy (Scott & Meyer, 1983). As a result, the organization demonstrates that it is acting in
accordance with collectively valued purposes. The incorporation of institutionalized elements into
organizational structures provides support for organizational cohesion and protects the organization
from having its legitimacy questioned. A highly institutionalized environment exerts pressure on
organizations which coerce them into adopting structures and practices consistent with expectations
(Meyer & Rowan, 1977).

Within neo-institutional theory, the concept of isomorphism refers to the processes through which the
organization adapts to the expectations of its environment. DiMaggio & Powell (1983) label the process
through which organizations tend to adopt similar structures and practices as institutional isomorphism.
Institutional isomorphism is a process that prompts a particular organization within an organizational
field to resemble other units in the field facing similar environmental conditions. Due to isomorphic
pressures, organizations become increasingly similar within given organizational fields as they conform
to the expectations of their environment. Within the framework of institutional theory, DiMaggio &
Powell (1983) discuss the concept of institutional isomorphism and consider three types of
isomorphism: coercive, normative and mimetic.
“Coercive isomorphism results from both formal and informal pressures exerted on organizations by
other organizations upon which they are dependent and by cultural expectations in the society within
which organizations function” (DiMaggio & Powell, 1983: 150). Coercive isomorphism comes from
external influences, for example the pressure of the capital markets. Normative isomorphism stems
primarily from professionalization, including the collective efforts of members of a profession to define
the conditions and methods of their work and to establish a cognitive base and legitimacy for their
professional autonomy. Mimetic isomorphism involves the copying of structures and practices from
other organizations operating in the same environment, especially the structures and practices of those
of institutions and organizations that are perceived to be successful. An inductive model of influences of
the organizational field of IAH, based on the new-institutional theory, is shown in Figure 8.

The organizational field has been divided into three segments depending on the type of institutional
isomorphism that is exerted directly or indirectly. Figure 8 shows that for each type of isomorphic
pressure, the main influence comes from an American organization. In the case of coercive
isomorphism, it is the United States Government through the SEC which has exerted the most influence.
With regard to normative isomorphism, the major influence comes from the AICPA which has influenced
developments in IAC for over fifty years. Mimetic isomorphism refers to imitation of the actions taken by
other organizations that are deemed more successful in the same organizational field.

A complex process of isomorphic tendencies coming from the United States has emerged which leads to
harmonization and convergence of accounting standards among countries. In effect, even if
spontaneous harmonization was not possible, a type of imposed harmonization was achieved in
European and other countries. Colasse (2002: 93) has observed that “the evolution of international
harmonization of accounting […] has taken place and will continue in a quasi-indifference to European
policies, and will be ultimately abandoned to specialists in Anglo-Saxon accounting”.

Conclusion

The American influence on IAC could not have been achieved without an anchor in Europe. The United
Kingdom was an ideal place to establish an international accounting standard setting body. By creating a
standards setter that was ostensibly independent of American influences, located in the United Kingdom
and privately funded, there could be an influence on international standards setting without raising
objections to American hegemony. While a significant portion of the funding of the IASB continues to
come from large international corporations and large international accounting firms, the Europeans and
others have largely accepted the legitimacy of the IASB and the global accounting standards setter. Not
completely acknowledged is that the organization structures and practices of the IASB are virtually
identical to those of the FASB and that American accounting standards setters have played a key role in
the process of IAC. Not only were American organizations active as the precursors of the concept of
providing information that is useful for investors and creditors in capital markets, they were also
advocates for a reduction in the number of allowable accounting methods (i.e. harmonization).
Moreover the American organizations were pursuing these objectives as early at the 1950s. Secondly,
the American organizations have sought to focus primarily on the needs of investors, rather than other
interested parties, such as, for example, providing fair value information. Thus, IAC has been the result
of a long process in which American organizations have influenced the perception of the role of
accounting standards setting in an advanced capitalist society.
One of the insights from DiMaggio & Powell (1983) is that isomorphic processes may be rational at the
level of individual actors, but not at an aggregate level. They represent mimetic isomorphism that can be
seen as a rational response to uncertainty: if the underlying processes are not well understood, it may
be rational to adopt structures and approaches that are perceived as successful. This could arguably be
applied to accounting standard setting, which is characterized by the absence of a fundamental
consensus on what constitutes good accounting. During the 1990s, this created strong incentives for
companies and standard setters to follow the apparently successful US GAAP model. More recently, and
in the wake of US accounting scandals, one might perhaps argue that uncertainty over the quality of US
GAAP has lead to a greater willingness in the US to converge with IFRS. These processes do make
accounting standards more alike, but not necessarily better and the isomorphism may, for instance,
imply the persistence of inefficient organizational forms.
Accounting change in central government: The adoption of double entry bookkeeping at the Portuguese
Royal Treasury (1761)

Abstract

Purpose –The purpose of this paper is to look at the adoption of double entry bookkeeping at the Royal
Treasury, Portugal, on its establishment in 1761 and the factors contributing to this development. The
Royal Treasury was the first central government organization in Portugal to adopt double entry
bookkeeping and was a crucial first step in the institutionalisation of the technique in Portuguese public
administration.

Design/methodology/approach – Set firmly in the archive, this paper adopts new institutional sociology
(NIS) to inform the findings of the local, time-specific accounting policy and practice at the Portuguese
Royal Treasury.

Findings – Embedded within the broader European context, this study identifies the key pressures
exerted upon the Royal Treasury on its formation in 1761, which resulted in major accounting change
within Portuguese central government from that date. The study provides further evidence of the
importance of the state in the institutionalization of accounting practices by means of coercive pressures
and highlights for Portugal the importance of individual actors who, as powerful change agents, made
key decisions that influenced accounting change.

Originality/value – This study examines a major instance of accounting change in European central
government and broadens the application of NIS in accounting history research to a different country –
Portugal – and to a different time – the eighteenth century. It also serves to illuminate the difficulties of
collecting pertinent evidence pertaining to this long-dated time period in identifying certain forms of
institutional pressures

Institutional theory

In organizational theory and sociology, institutionalism encompasses a rejection of rational-actor

models, an interest in institutions as independent variables, and a turn toward cognitive and cultural
explanations (DiMaggio, 1988, p. 7; DiMaggio and Powell, 1991, pp. 8-9). Institutional theorists are
sceptical about the use of technical reasons to justify the adoption and maintenance of practices or
procedures. Technical explanations are perceived as masking political and cultural features (Carruthers,
1995, p. 316). An organization that incorporates in its formal structure practices and procedures that are
institutionalized in society increases its legitimacy and its survival prospects (Meyer and Rowan, [1977]
1991, p. 50; Scott, 2001; Tolbert and Zucker, 2003, p.178). Accounting practices and personnel selection
among other technical procedures “become taken-for-granted means to accomplish organizational
ends” and, as institutionalized techniques, they “establish an organization as appropriate, rational, and
modern” (Meyer and Rowan, [1977] 1991, p. 45). In order to survive or even thrive, organizations need
more than just material resources and technical information, “they also need social acceptability and
credibility” (Scott, 2001, p. 58). However, possible conflicts between institutionalized rules and efficiency
can be solved by the organization through a certain gap, known as decoupling, between its formal
structure and the work activities (Meyer and Rowan, [1977] 1991; Scott, 2001, p. 173).
Institutional theorists see organizations as occupants of an institutional environment that defines and
delimits social reality. Although for an initial period new institutional theorists concentrated on the
processes of legitimization and social reproduction, later on issues of change[2], power[3] and
efficiency[4] began to be addressed (Scott, 2001; DiMaggio, 1988; DiMaggio and Powell, 1991; Powell,
1991) and these are often addressed in accounting research that is informed by institutional theory
(Abernethy and Chua, 1996; Collier, 2001; Covaleski et al., 1993). Attention was then devoted to the
“ways in which both individuals and organizations innovate, act strategically, and contribute to
institutional change” (Scott, 2001, p. 75).

As recently argued by institutional theorists, researchers should not neglect the role of key institutional
actors in the political process of institutionalization (Beckert, 1999, p. 778; DiMaggio and Powell, 1991,
p. 27; Lawrence et al., 2001; Scott, 2001, p. 193), since what becomes institutionalized will depend on
the power of the organizational actors who support, oppose, or even struggle to influence it. As is the
concern in this study, it is important to not only clarify the conditions and processes that lead accounting
practices, such as DEB, to become institutionalized (Tolbert and Zucker, 2003, p. 186) but also to be
apprised of the role played by what has been described by DiMaggio (1988, p. 14)as the “institutional
entrepreneur.” Such an individual is recognised as an agent who has an interest in specific institutional
structures, “someone who commands resources which can be applied to influence institutionalized
rules, either by committing those resources to the support of existing institutions or by using them for
the creation of new institutions” (Beckert, 1999, p. 781). There may, of course, be more than one
institutional entrepreneur in any setting or context.

Institutional entrepreneurs can support processes of socialization of actors and the mobilization of
“subsidiary actors” within the organizational field as strategies for institutional change (Beckert, 1999. p.
781; DiMaggio, 1988, p. 15). Referring to Schumpeter’s notion of the entrepreneur Beckert (1999, p.
786) argued that the entrepreneur is “the innovator who leaves behind routines (...) devotes his
attention to new options, he takes over unusual tasks, and realizes new combinations in the production
process, against the adaptive pressures of his/her surroundings.” Therefore, the initial tendency by
institutional theorists to deemphasize human agency has conducted, in more recent times, to an
emergence of interest in “institutional entrepreneurship” (Delbridge and Edwards, 2007, p. 192;
Beckert, 1999, p. 778; Dorado, 2005; Greenwood and Suddaby, 2006). In this study, the role played by
Pombal, in particular, in the stimulation of accounting change within central government and in the
institutionalization of accounting practices in Portugal is specifically examined.

Special attention is given under NIS to the process of homogenization. The “constraining process that
forces one unit in a population to resemble other units that face the same set of environmental
conditions” is defined as “isomorphism” (DiMaggio and Powell, 1983, p. 149). Placing their analysis at
the organizational “field” or sector, DiMaggio and Powell (1983, p. 150) identified three key forms of
institutional isomorphism: coercive, mimetic, and normative isomorphism. The authors acknowledged
that all three forms intermingle in empirical settings but emphasised that they tend to derive from
different conditions and provide different outcomes (1983, p. 150)

Coercive isomorphism results from formal and informal pressures exerted on organizations by other
organizations upon which they are dependent as well as cultural expectations in the society in which
organizations function. It stems from political influence and legitimacy; therefore some pressures may
be attributed directly to government mandates, as in the case of certain accounting practices and
procedures (Carruthers, 1995; Carmona and Macias, 2001; Carpenter and Feroz, 2001). Mimetic
isomorphism emerges under uncertainty as a powerful force that encourages imitation. Organizations
will model themselves on similar organizations in their field whose practices are considered to be
legitimate (Tolbert and Zucker, 1983). Normative isomorphism is derived from two key aspects of
professionalization: formal education and professional networks that span organizations and across
which new models and practices diffuse rapidly (DiMaggio and Powell, 1983, p. 152). These three forms
of institutional pressures are useful categories for understanding the actions of organizational actors
and can be applied both today, in contemporary accounting research, and in the past, in historical
accounting research, as previous studies have shown (Abernethy and Chua, 1996; Carmona et al., 1998;
Carmona and Macias, 2001). Nonetheless, when applying the concept of isomorphism it is important, as
explained above, not to exclude an examination of “the role that organizational actors in their fields play
in interacting with the environment and interpreting the meanings of the contexts to construct and re-
construct their environment” (Robson et al., 2007, p. 415).

Institutional theory has been specifically applied in a number of recent studies on accounting, in general,
and also in studies on accounting’s past. An overview of this literature follows in order to reinforce the
aptness of the perspective for use in this study.

Discussion and conclusion

This study examines a major instance of accounting change in European central government and is
intended to augment the literature on the initial adoption of DEB in central government in Europe, in
general, and in Portugal, in particular. During the second half of the eighteenth century, and especially
following the Lisbon earthquake in 1755, the State appeared as a dominant element in Portuguese
economy and society with a commitment to both encourage and impose the application of specific
organizational procedures, both by private and public sector organizations. As indicated, the Portuguese
State intended for Portugal to be, once again, among the most developed nations in Europe and,
accordingly, adopted reforms to stimulate cultural and economic development. Accounting change was
an integral part of certain major reforms that were adopted within central government and soon DEB
became an institutionalized practice within Portuguese public administration following its first time
adoption in the public sector at the Royal Treasury as a new central government agency that was formed
for administering public monies.

The Royal Treasury was established in unusual circumstances under sweeping reforms initiated by
Pombal immediately following the devastating Lisbon earthquake which not only destroyed the city but
also effectively brought about the demise of the Customs House and virtually destroyed all of its
records. The creation of the Royal Treasury, together with other measures, resulted in the centralization
of the administrative structure. It also stimulated the advent of a loyal and competent bureaucracy,
where the functions and qualifications for each function or post were specified, and the division of the
governmental functions, all of which were characteristics of an enlightened government. Creating a new
agency in the form of the Royal Treasury assisted in overcoming the problem of structural inertia and
resistance to change that appears to have been evident in the case of the French fiasco manifest in
abandoning DEB within ten years of its initial introduction in 1716. Notwithstanding, the Portuguese
reforms in general were clearly concerned with modernizing the state, and were seen as an important
step, among the others, for bringing the country closer to the most developed countries of Europe.
For a better comprehension of the reforms implemented at the beginning of the second half of the
eighteenth century it is important to give particular attention to the role played by individual actors in
that process. In the Portuguese case the actions implemented by the Portuguese government in the
beginning of the second half of the eighteenth century were, as shown in this study, the collective result
of the knowledge and experience as well as the determination and power of one key person – the
Marquis of Pombal – who played a central role at all levels of Portuguese society as Chief Minister.
Pombal, as a key “institutional entrepreneur” (DiMaggio, 1988, p. 15), possessed strong ideals and
convictions of what actions were to be necessarily taken in order to develop the country to the level of
the most advanced nations of Europe. His stay in London and elsewhere in Europe, combined with his
readings, together with his particular interest in identifying the attributes which made other European
nations become leading nations, were influential in stimulating a general process of isomorphism,
particularly from the time of his appointment as the country’s Chief Minister.

Indeed, Pombal was the underlying force behind all the initiatives occurring between 1750 and 1777. To
assist in facilitating this process, Pombal surrounded himself with a small group of important and
influential businessmen, enlightened personalities, and public officials who shared his ideals to develop
the country. His wide ranging reforms touched all sectors of the Portuguese society, from the creation of
new industries, the establishment of monopoly trading companies, the introduction of educational
reforms with an emphasis in increasing the commercial knowledge of Portuguese businessmen, as well
as the adoption of reforms to public administration. Among the different measures implemented by
Pombal were specific developments in accounting practice and education, such as the creation of the
School of Commerce, where DEB was taught and the establishment soon after of the Royal Treasury
where DEB was used on a partial basis, consistent with the notion of decoupling under institutional
theory as explained earlier. As argued by institutional theorists, the power and support of important
organizational actors, or even the opposition of such actors, affects the measures and practices that
become institutionalized and, as shown, the power and support of Pombal were determinant in the
accounting change witnessed in Portugal. As explained, Pombal himself held foreign books on
accounting in his personal library and was familiar with DEB as the method was applied in his own
private business (Ratton, 1813).

In addition, the study provides support for the view that the adoption and use of recognised accounting
practices is associated with the quest for social acceptability and credibility. As shown to be important
under the 1761 Law, the objective in creating the Royal Treasury was to centralize collections and
payments of rents, to improve the efficiency and effectiveness of the means of collection and to
rationalize all the procedures related with the public money (1761 Law, p. 2). The adoption of DEB was,
therefore, intended to legitimize the new organization by constructing an appearance of rationality and
efficiency, based on the fact that the method had been adopted by the most important business houses
in the most developed European nations, thus acquiring a “taken-for-granted quality of institutionalized
practices” (DiMaggio, 1988, pp. 4-5). It had also been applied in managing public finances within certain
other central governments based, at least in part, on the perception of the method as an efficient and
successful technology among businessmen (Herna´ndez Esteve, 1986; Lemarchand, 1999; Vlaemminck,
1961). In fact, the apparent importance attributed by Pombal and his government to accounting
practices and related knowledge seems to add support to the view that DEB assumed a pre-eminent role
in reforms of public administration.
More specifically, the 1761 Law itself illuminates an appreciation that DEB was connected with a system
of rational beliefs which underlined the method’s adoption at the Royal Treasury. The rationale is
related with the belief that the mercantile system was equally useful for public administration, as it was
“the most simple and clear, and the most conclusive to organize the administration of the big amounts,
without subterfuges,” as argued by the 1761 Law (Title XII) and also by Marquis of Pombal (1777, p. 20)
himself. It was believed that by controlling the collection of revenues and payment of expenses at the
four general control offices and by adopting the DEB method, centralization would be effectively
operationalised and maintained, thus avoiding the problems of the previous organization which was
perceived as inefficient and incapable of handling public monies without corruption (Rau, 1951).
Furthermore, it was believed that the new DEB system would provide for better control of revenues and
expenses through the preparation of regular summaries and balances of revenues and expenses, as
ordered in the 1761 Law (Title XV). Such reforms were intended to assist in enhancing the wealth of the
state. Hence, during the Pombalism phase in Portugal, accounting in the form of DEB became
instrumental in serving the objectives of mercantilist policies of wealth accumulation by the state.

Furthermore, the study demonstrates that public sector organizations are vulnerable to institutional
pressures and that the government employed coercive pressures in pursuing its ends. Although the
three key designated forms of institutional pressures (coercive, mimetic and normative) are useful
categories for understanding the actions of organizational actors, in the specific case of the Royal
Treasury mimetic and normative pressures were not found to have impacted upon the adoption of DEB
at the royal finances. At that time in Portugal, there was no organized accounting profession and,
indeed, knowledge of DEB was sparse and was often introduced to specific settings in the private sector
by visiting merchants and other travellers. In addition, the State did not play any formal role in the
instruction of Portuguese in DEB until the establishment of the School of Commerce in 1759. This newly
established educational organization was only beginning to produce graduates with knowledge of DEB at
the time the Royal Treasury was formed. In addition, the non-existence of Portuguese language books
on the subject until 1758 would not have assisted in the creation of any general moves from any
emerging occupational group for the widespread adoption of DEB in Portugal[31]. Hence, normative
pressures are not recognised in this study, based on the available evidence, as having been influential in
the adoption of DEB at the Royal Treasury.

While this study has shown that DEB was known in Portugal as a suitable method of accounting in
managing large commercial establishments, thus making it suitable for a new organization that was
specifically formed to administer public finances, the study has not uncovered any evidence that the use
of DEB in any signal European country for central government purposes prior to 1761 was influential in
its adoption at the Portuguese Royal Treasury. This does not mean, of course, that the earlier use of DEB
in certain European countries for central government purposes, even where it had been adopted and
later abandoned, was unknown or considered unimportant in Portugal. Rather, the evidence gleaned in
the conduct of this study indicates that the effective use of DEB within the private sector at the time was
more significant than its earlier adoption elsewhere in Europe within central government. Hence, based
on the available evidence mimetic pressures in the context of specific accounting developments within
central government at Royal Treasury organisations in Europe do not appear to have been particularly
influential in Portugal. However, the time distance from the events of 1761 to the time of writing acts as
an impediment to obtaining and presenting pertinent evidence, based on the gradual depletion of
surviving primary records across time, in identifying all the relevant influences on the Portuguese actors
of almost 250 years earlier.

This study has shown, however, that mandating DEB and specifying the skills of those who would
implement the new accounting system under the 1761 Law was an important process of coercive
isomorphism exerted by the State. The study has also shown that decoupling was apparent and
evidently necessary due to the relatively small number of Portuguese who were skilled at that time in
using DEB. As also shown, the pivotal role played by Pombal, notably the interplay between his views
and actions, as elucidated, in the enactment of the 1761 Law was instrumental in this episode of
accounting change in Portugal.

In conclusion, this case study has contributed to the accounting history research agenda in a number of
ways. First, it extends and expands the literature on the initial adoption and use of DEB within central
government in Europe, in general, and on the earliest adoption of DEB in central government in
Portugal, in particular. Second, it broadens the application of institutional theory in accounting history
research to a different country and to a different time period in the context of European central
government. In the process, the collection of evidence of mimetic and normative pressures, as opposed
to that of coercive pressures which are often more readily apparent to the history researcher, is argued
to be increasingly problematic as the time span from the historical events subject to examination
extends beyond mere decades to two or more centuries.

Third, by analysing the initial sequence of an “instance of institutionalization” (Lawrence et al., 2001, p.
627) through which DEB became and remained diffused across the Portuguese public administration,
the study highlights for Portugal the importance of individual actors, as powerful environmental agents,
in making key decisions which influence the institutionalization of accounting practices and, by
implication, create an environment that tends to restrict major changes in future years. Applying the
principles of enlightened despotism, Pombal played a dominant role in reforms aimed at developing and
strengthening Portugal’s mercantile capability. Accordingly, this study contributes to overcoming an
important limitation identified in the work of early institutional theorists (Dacin, 1997; DiMaggio, 1988;
Powell, 1991) and answers a call made by accounting researchers to give more attention to the role of
individuals in a context of accounting change (Hopwood, 1974; Pihlanto, 2003).

Fourth and finally, the study provides further evidence of the importance of accounting as a system of
rational beliefs through which the organizational structure is legitimized and of the state as an important
agent in the process of institutionalization of accounting practices. The adoption of DEB was intended to
legitimize the new organization by constructing an appearance of rationality and efficiency in response
to the quest for social acceptability and credibility of the reforms implemented by the Portuguese
government, particularly the creation of the new agency. Accordingly, it adds support to the findings of
previous investigations of accounting developments within public administration in the eighteenth
century that applied institutional theory (Carmona et al., 1998; Carmona and Macias, 2001; Nu´n˜ez,
2002). In Portugal, DEB was perceived as a successful practice among businessmen and, accordingly, was
transferred into the public sector with the state “imprinting such practices as the only acceptable
methods” (Carpenter and Feroz, 2001, p. 566, emphasis in original). This locally held perception may
assist in explaining why no evidence was found of any criticism or debate about the use of DEB at the
Royal Treasury from its formation in 1761.
Narrative disclosure of intellectual capital: A ‘‘structurational’’ analysis

Abstract

Purpose – The purpose of this paper is to investigate the manner and impact of intellectual capital (IC)
disclosure. To frame the discussion, elements of Giddens’ ‘‘structuration’’ theory and narrative theory
are used to analyse change from within an organisation.

Design/methodology/approach – Using a case study approach, this paper explores the impact of the
narrative disclosure of IC by an Australian public sector organisation, the New South Wales (NSW)
Department of Lands (Lands), which is the first Australian government organisation to externally disclose
IC.

Findings – By taking a structuralist approach to analysing the narrative disclosure of IC this paper moved
beyond attempting to quantify or identify the wealth created by IC, and thus account for IC. By
investigating the narrative disclosure of IC, initially in the form of the IC statement as a supplement to
the annual report, it was shown how at Lands the use of narrative became routinized in the activities of
management. Thus narrative was no longer used to only provide understanding of the IC measures and
the reasoning behind the use of IC, but to provide a mechanism that engendered further management
action and subsequent organisational change.

Research limitations/implications – The limitation of this paper is that it provides a lone example of a
particular organisation from which generalisations are not possible. But it is possible to extend this
research, using the structuration framework, to other organisations that have engendered the use of
narrative to disclose IC to both internal and external stakeholders. Doing so will further question the
domination of ‘‘accounting’’ within the IC paradigm and provide additional insights that allows
practitioners and academics to develop additional tools for understanding and utilising IC.

Originality/value – This paper investigates the manner and impact of IC disclosure from within an
organisation by use of ‘‘structuration’’ and narrative theory to analyse change as a result of the
implementation of IC practices.

Structuration theory and IC

Weick and Browning (1986) assert that structure guides the interactions involved in the process of
communication in organisations and that structure is also a result of communication. They base their
argument on the theory of structuration as espoused by Giddens (1976, 1984) which is based on the
notion of the ‘‘duality of structure’’ and ‘‘the structuring of social relations across time and space’’
(Giddens, 1984, p. 376). The term ‘‘structure’’ in structuration theory is not used in the classical
organisational science sense to depict the interrelated functions of an entity. Structure may be defined
as the rules and resources, recursively implicated in the reproduction of social systems (Giddens, 1984).
As a result of this recursiveness, structure is both a product of and the basis for the interactions of
agents (Macintosh and Scapens, 1990). In structuration theory (see Figure 1), interactions
(communication, power and sanction) are transformed into structure (signification, domination and
legitmation) by way of modalities (interpretive schemes, facilities and norms) and vice versa (Giddens,
1984).
Within the structuration perspective, the disclosure of IC can have a possible impact on the way that
members of an organisation understand IC; allocate resources to the management and measurement of
IC; and legitimise the use of IC as a management technology. Utilising the concept of the ‘‘duality of
structure’’ it is further argued that this changes the basis of future interactions including communicative
interactions. Thus, it is these communicative interactions, by means of IC disclosure, which is of interest
in this paper.

While structuration theory is a social theory grounded in developing critical insights (Giddens, 1984, p.
287; Bernstein, 1986; Laughlin, 1995, pp. 69-70), it has been used within management accounting to
examine the results of accounting change (Roberts and Scapens, 1985; Macintosh and Scapens, 1990).
Structuration theory has been used to view management accounting from three aspects (Scapens and
Macintosh, 1996). First, interpretive schemes are used by management to understand the past, to plan
and to act. Second, it provides the norms by which the values and ideals of the organisation are
communicated. Third, it provides the facilities by which managers control and coordinate the activities
of people in the organisation. From this perspective, an accounting of IC is included as evidenced in the
publication of IC reports and statements supplemental to annual reports (see NSW Department of
Lands, 2005, 2006) and internal organisational documents such as IC scorecards (for example the
Balanced Scorecard, Kaplan and Norton, 1992).

The accounting of IC and the resultant internal and external disclosure of IC can also provide interpretive
schemes, norms and facilities to view the duality of an organisation’s interactions and structure. There is
evidence in the IC literature to show that ‘‘structuration’’ is also a valid tool for understanding the
dynamics of change within organisations embarking upon implementing IC practices (Johanson et al.,
2001, 2006; Skoog, 2003). Thus, it is contended that structuration theory is a frame by which IC
practices, such as the narrative disclosure of IC, can be discussed.

Conclusion

By taking a structuralist approach to analysing the narrative disclosure of IC this paper, moves beyond
attempting to quantify or identify the wealth created by IC that is so often the purpose of current IC
frameworks. By investigating the narrative disclosure of IC, initially in the form of the IC statement as a
supplement to the annual report, it was shown how at Lands the use of narrative became routinized in
the activities of management. Thus narrative was no longer used to only provide understanding of the IC
measures and the reasoning behind the use of IC, but to provide a mechanism that engendered further
management action and subsequent organisational change. Furthermore, it was shown how narrative
extends the boundaries of involvement by allowing management, employees, stakeholders and
constituents to become involved, not just the accountants and IC experts. Thus narrative, in conjunction
with IC, has become another tool in the tool box of Lands’ management.

The use of structuration theory demonstrates that organisational change is not an event but is
continuous and recursive. It also demonstrates that change in organisations happens not in indifference
to its members but requires the reflective monitoring of agents and their continued input and
involvement into the process of change.

This study shows how narrative can form an essential part of that process. It is not to say that narrative
is the only enabler of change, but an essential part of the communicative interactions which is essential
to recursive structural change in organisations.
The limitation of this study is that it provides a lone example of a particular organisation from which
generalisations are not possible. But it is possible to extend this research, using the structuration
framework, to other organisations that have engendered the use of narrative to disclose IC to both
internal and external stakeholders. Extending this research will further question the domination of
‘‘accounting’’ within the IC paradigm and provide additional insights that will allow practitioners and
academics to develop additional tools for understanding and utilising IC.
Exploring the Role of Standard Costing in Lean Manufacturing Enterprises: A Structuration Theory
Approach

Lean accounting experts have argued that use of standard costing in lean manufacturing enterprises is a
non-value added activity. They have asserted that the use of standard costing systems in lean
manufacturing environments can give rise to anomalies in performance measurement and reporting.
Yet, lean accounting experts have also provided anecdotal evidence suggesting that many lean
manufacturers continue to use standard costing and variance analysis even after lean management
methods are pervasively implemented.

This research study, the first cross-organizational survey in the US of standard cost accounting practices
in mature lean manufacturing business units, was undertaken to examine two main research objectives:
(a) to understand the current state of practice with regard to use of standard costing and variance
analysis (SCVA) in mature lean manufacturing enterprises in US, and (b) to understand the reasons why
lean manufacturers might choose to retain standard costing even after pervasive implementation of
lean management methods.

Based on responses from 49 identified lean manufacturers, the results show that 46 (94%) lean
manufacturing companies continue to use SCVA. A chi-square test was used to test the hypothesis that
the minimum majority (50%) of the identified mature lean manufacturers will discard standard costing.
The test showed that the number of identified mature lean manufacturing enterprises in the sample
that have discarded standard costing is significantly lower than the expectation.

The evaluation of reasons behind continuing use of SCVA was limited by small sample size. Yet, the
pattern of responses suggests that the majority of the reported lean manufacturing enterprises seem to
retain SCVA due to the existence of legacy arrangements such as use of monument machines, low
knowledge of lean by accountants, and continued use of legacy ERP systems, which might be
contributing factors for continued retention of SCVA.

The researcher offers guidance for future quantitative and qualitative studies. The researcher takes a
position that the existence of legacy factors may be indicative of institutionalization of SCVA such that
these practices may have become part of organizational culture over a period of time.

Conclusion

The literature in the management accounting field indicates that the use of standard costing technique
may not be suitable for use in the lean manufacturing environment. Through a survey approach, this
study looked into the extent of the use of standard costing in lean manufacturing enterprises in US.
Using a meta-theoretical lens of Giddens’ structuration theory, this study analyzed the survey data to
explore the probable reasons for use of standard costing in lean manufacturing enterprises in US. The
contributions of this study include (a) construction of simple indexes for measuring the extent of
leanness of manufacturing enterprises and their accounting practices (b) formulating a skeletal theory
for analyzing structures of management accounting practices in lean manufacturing enterprises and (c)
providing a theoretical framework of 9 propositions that can explain the probable reasons for the
research problem.
Smooth lean transformation requires focus on behavioral aspects. Concern for people is one of the
pillars upon which lean manufacturing systems are built. In the Chapter 6, this issue will be examined
from a Vedic Science perspective to gain insights for lean transformation from the sublime level of
transcendental of human consciousness.

The Modified Structuration

Model for Lean To understand the research problem from a more fundamental level of organizational
functioning, this study adopted Giddens’ structuration theory lens. Giddens’ came up with Structuration
Theory to provide a solution to the problem of “duality”. The Structuration Theory recognized the
concept of “Duality of Structures” which identified three aspects of social reality as the “structure” or
objects, “agency” or subjects and “system” or process of interaction between subject and object
(Giddens, 1984, pp. 25-9). Giddens suggested that in order to overcome the problem of “duality” one
has to understand that “systems” or process of interaction, as an aspect of social reality which is distinct
from the object and subject that interact in such systems.

When we read the three concepts of Giddens’ structuration theory - Structuration, Structures and the
Systems- we can see their marked similarities with the concepts of Rishi (knower), Devata (process of
knowing), and Chandas (known) described in the theory of MVS. Both the theories describe the three
aspects of the reality- the objective, the subjective and the interaction of the two.

While the powerful analytical insights that structuration theory provides seems to have close affinity
with the concepts from MVS, the MVS approach goes beyond the structuration theory to propose the
concept of samhita or totality of consciousness from which the three values emerge (Maharishi Mahesh
Yogi, 1963 [1995], p. 326). But, Giddens expressly declines to vouch for a theory of consciousness
(Giddens, 1984, p.5)

Another aspect of the structuration theory is the three dimensions of interaction described as
domination, signification and legitimation. These three aspects of interactions are markedly similar to
the aspect of “Triguna” or “three traits” described in Vedic Sciences. In his commentry on Bhagavad Gita
Chapter 4, verse 13, Maharishi describes the nature of the interplay of the three gunas (traits) as
follows:

The entire creation is the interplay of the three gunas... Tamas destroys the created state; sattva creates
a new state...The force of rajas ...maintains a bond between the forces of sattva and tamas (Maharishi
Mahesh Yogi, 1967, p. 269).

The MVS describes the manifest universe as being pervaded by three qualities,.i.e., Rajas or the force of
domination (eg. exercise of strategic power), Tamas or the force of inertia (eg. organizational inertia due
to legitimation) and Sattva or the harmony (eg. quest for organizational change) which brings about
equilibrium between Rajas and Tamas.
BENCHMARKING, COST REDUCTIONS, AND QUALITY OF CARE: A STUDY OF THE MEANING OF
INSTITUTIONAL CHANGE IN AN ONTARIO HOSPITAL

This dissertation is a qualitative study of the cognitive and moral dimensions of the management
accounting process of benchmarking using the perspective of institutional theory. The purpose of the
research is to describe, analyze, and explain how an executive group of 27 members of the professions
of either medicine or management in one large, urban, acute care, not-for-profit teaching hospital used
benchmarking to construct solidarity on the both the appropriateness and meaning of achieving cost
reductions that would create massive changes to the delivery of medical services. The research question
is: How did benchmarking contribute to the institutional change that resulted in the invention and use of
a shared framework of meaning? The thesis is that benchmarking was a conduit, a field of opportunity
where two professions invoked two sets of symbols (harmony, allegiance, authority and images of well-
being, the common good and logics of progress) to communicate the idea that order, control, and
meaning were possible despite the uncertainty of impending turbulent change. The research focus is on
the benchmarking process that dominated the activities of the executive management team known, as
Noah's Counselors, during the 16-week period of data collection. The benchmarking process was
undertaken because this hospital had no choice but to respond to the demand by the Government of
the Province of Ontario on February 23,1996 that this hospital reduce its operating budget by over 20%
or $40 million by April 1,1999. The results of a content and symbolic analysis of data collected from
fieldnotes of 48 meetings and transcripts of 32 interviews show how the benchmarking process was the
opportunity for Noah’s Counselors to mobilize symbols to inspire and sustain faith. They inspired faith
that achieving the benchmarks would not impair the safety of patient care delivered at the hospital,
faith that achieving the benchmarks would not affect their volumes and types of cases and cause a
decrease in revenue, and faith that achieving the benchmarks would in fact reduce costs. . The research
results have practical implications for those who teach management accounting to members of the
medical profession, management accountants who create and apply techniques such as benchmarking
to measure cost efficiency and medical care quality, and managers faced with the challenge of massive
and unavoidable change.

Conclusion

The results of this dissertation research, from the perspective of institutional theory, provide important
insights into the moral dimension of the cognitive effort that constitutes the management accounting
process of benchmarking. Like other collective activities, benchmarking is part of an administrative
process. Administrative processes are an important part of organizing activities. Institutional theory is
one way of reminding us of the importance of moral intent, purpose and value to any organizing effort.
Outcomes do not constitute purpose, and cost reduction targets do not constitute meaning. People at
Ontario City demonstrated how well they understood that intense and combined effort was needed by
the leaders at this hospital to invent and inspire faith in the possibility that cost cuts could have
meaning. They actively created and communicated that meaning as one that connected cost reductions
using the benchmark to the achievement of social purpose.

The results of this study also suggest that institutions are more like cognitive fragments than monolithic
and deterministic scripts. At Ontario City the framework of meaning was based on not only shared
stores of experience and knowledge of calculative techniques, but also on producing a shared meaning
based on experience and knowledge. To produce meaning Noah’s Counselors consciously acknowledge
the existing institutional constraints on their rights and obligations and then changed them. They also
actively used their shared experience and knowledge as well as unshared experiences to invent an
epistemological basis for constructing meaning. The individuals in this hospital worked hard to create
alternatives within which they could interpret the moral value and meaning of their collective
management activity.
Financial accounting reforms in the Australian public sector: An episode in institutional thinking

Abstract
In recent years in Australia, accounting regulations have been developed that require the
adoption of commercial accounting and reporting practices by public-sector organisations,
including the recognition of cultural, heritage and scientific collections as assets by non-profit
cultural organisations. The regulations inappropriately apply traditional accounting concepts of
accountability and performance, notwithstanding that the primary objectives of many of the
organisations affected are not financial. This study examines how this was able to occur within
the ideas outlined in Douglas's %1986) How Institutions Think. The study provides evidence to
demonstrate that the development; promotion, and defense of the detailed accounting
regulations were each constrained by institutional thinking and, as a result, only certain
questions were asked and many problems and issues associated with the regulations were not
addressed. Thus, it seeks to further our understanding of the nature and limits of change in
accounting and the role of institutions in promoting and defending changes to accounting
practice.

Discussions and conclusions

It would be relatively simple to attribute the recent financial accounting reforms
identified here to broad movements in public-sector management philosophies
experienced in Australia and in many other regions throughout the world. Such
movements, claimed to offer a ``new'' public management are influenced by
``economic rationalism'', ``managerialism'' and their associated philosophies
Parker and Guthrie, 1990; Pusey, 1991; Yeatman, 1987; Zifcak, 1994).
Closely associated with this ``new'' public management is a range of
accounting techniques, which have been classified as ``new public financial
management'' Guthrie and Humphrey, 1996; Olson et al., 1998)[23].
This is not to deny that such global movements in management paradigms
influence accounting reforms undertaken. While the accounting reforms
recently developed in Australia should be understood within their broader
context, they should not be reckoned simply as automatically resulting from
the new public management movement. Rather, neither new public
management nor new public financial management are claimed to represent a
specific set of management techniques, even among those countries that
might be labeled ``active'' in reform, nor can either movement be claimed to
be global or cohesive. To attribute accounting reform in the APS to such
global movements would tell us little about why such changes might be
adopted in one country and not others, and how some countries are more
fanatical than others in their respective approaches to reform Pusey, 1991, p.
209)[24]. Particularly, such a perspective would ignore the complex web of
forces and interrelationships impacting upon the form and content of public-
sector accounting regulations and practice Guthrie and Parker, 1998, p. 50)
and the role of institutions of financial accounting such as CF projects in the
reform process.
The study has attempted to demonstrate that the Australian CF has been
influential in shaping the nature and content of recent accounting reforms in
the APS and that Douglas's institutional thinking can assist our understanding
of how such influence has occurred. It has been argued that through a
process of carefully constructed deductive reasoning, the CF established and
justified a connection between the preparation of conventional accounting
reports containing full disclosures for financial statement elements and
improvements in the accountability and performance of diverse public-sector
entities. These concepts outlined in the CF were used to develop detailed
accounting rules to resolve specific accountability and performance issues
facing non-profit cultural
organisations. It is maintained here that the regulations developed have
inappropriately applied accounting concepts of accountability and performance
to these organisations. Evidence provided in the study suggests that this was
able to occur since the development and subsequent promotion and defense
of the regulations were each constrained by institutional thinking, which meant
that many questions were left unanswered. During this time, traditional
accounting tasks of measurement and disclosure were continually
emphasised, the rationale for commercial accounting disclosures for these
organisations remained beyond question and alternative, non-financial
accountability and performance measurement systems were never
considered.