CHAPTER 5

ONTOLOGICAL PERSPECTIVE IN ACCOUNTING THEORY

INTRODUCTION
The ontology perspective in accounting theory can be explained in more
depth as a view of the nature of the entity or reality that is recognized and used in
the accounting process. The ontology perspective discusses what exists in the
world of accounting, such as the types of entities or realities that are recognized
in the accounting process, such as assets, liabilities, equity, revenues, and costs.
The ontology perspective also includes how we view the relationships
between these entities. For example, the traditional view of accounting ontology
views assets and liabilities as separate entities, while the alternative view of
accounting ontology emphasizes the interrelated relationship between assets and
liabilities.
An understanding of the ontology perspective in accounting theory is
important because it can influence how financial information is recognized,
measured, and reported, as well as how accounting decisions are taken. For
example, different ontological views of the relationship between assets and
liabilities can influence how a company recognizes liabilities arising from certain
transactions or how related assets and liabilities are measured and reported in
financial statements.
How is it different from epistemology? In the last chapter we have
discussed it. Epistemology is concerned with how we acquire knowledge and how
we gain an understanding of the realities that exist in the world of accounting.
While ontology deals with questions about what exists and how these entities or
realities are related to one another in the world of accounting.
The main difference between the epistemological and ontological
perspectives in accounting theory concerns that, while epistemology questions
how we acquire knowledge, whereas ontology questions what exists.
 perspective focuses on the process of human observation and experience,
while the ontology focuses on the entities or realities that are recognized in the
accounting process.
Epistemology asks about how we can ensure that the knowledge we have
is accurate and useful, while ontology asks about the nature of entities or realities
that are recognized in the accounting process.
In the accounting context, epistemology can influence how we collect and
obtain financial information, and how we ensure that it is reliable and relevant to
users of financial information. Meanwhile, ontology can affect how we recognize,
measure, and report financial information, as well as how we understand the
relationship between recognized entities in the accounting process.
The purpose of discussing the ontology perspective in accounting theory is
to ensure that the financial information presented is relevant, reliable, and useful
for users of financial information, as well as to enrich accounting theory as a
whole.

UNDERSTANDING ONTOLOGY IN ACCOUNTING THEORY

Definition of Ontology in General
Ontology is a branch of philosophy that studies the nature of reality,
entities or objects that exist in this world. Ontology tries to understand what exists
in the world and how it relates to one another. Ontology asks reality what is real
and how it affects our reality. In ontology, there are various kinds of concepts
discussed such as existence, identity, causality, relations, and objects. In general,
ontology discusses the nature of what exists in this world and tries to explain the
relationship between existing objects. Ontology can also be used in various
scientific disciplines such as philosophy, science, and social sciences to discuss
existing reality.
According to Tom Gruber, an expert in computational ontology, an
ontology is an explicit conceptual specification of a domain. This concept includes
terms, relationships, and axioms that apply to the domain.
 Barry Smith, an ontologist in the field of philosophy, ontology is the study
of existence, including the various kinds of entities or objects and the kinds of
relationships that exist between them.
Meanwhile, according to John Searle, a philosopher and linguist, ontology
is the study of reality which is independent of language and human thought. In this
case, ontology includes issues such as existence, existence, and relationships
between various objects.
Martin Heidegger, a German philosopher, ontology is the study of das Sein
or "existence" which involves discussing the nature of human existence and its
relationship to the world.
In general, ontology can be thought of as the study of the nature of reality,
including the various kinds of entities, relationships, and properties that exist
between them. Ontology has a wide range of applications, from science to
philosophy and information technology.
The similarity of the definition of ontology according to experts is that
ontology is a discipline that studies the existence of objects or entities in this
world. In addition, experts also consider that ontology involves a discussion of the
relationship between these objects or entities, as well as the problem of existence
or being.
However, there are some differences in the definition of ontology
according to experts. For example, Tom Gruber's definition of ontology focuses
more on computational and information technology ontologies, where ontologies
are considered as explicit conceptual specifications of a domain. Meanwhile, Barry
Smith and John Searle focus more on ontology as a philosophical study of existing
reality.
In addition, there are differences in the views of experts regarding
ontology. Martin Heidegger, for example, considers ontology as the study of the
nature of human existence and its relationship to the world, while computational
ontologists focus more on ontology as a tool to help process data and information
in computer systems.
 In this case, the different definitions of ontology according to experts
depend on the point of view, focus, and fields of knowledge studied by each
expert. However, the similarity of the definition of ontology is that ontology
discusses reality, existence, and relationships between objects or entities that
exist in this world.

Definition of Ontology in Accounting Theory

Ontology in accounting theory can be defined as a study of the entities or
objects that exist in the accounting domain and how the relationships between
these objects are represented in the accounting system. The definition of ontology
in accounting theory can also be understood as a study of the nature of accounting
reality, which includes the basic principles, concepts, categories and assumptions
used in preparing financial statements.
Another understanding is obtained from Abdolmohammadi and
AbuGharbieh (2013): "Ontology in accounting refers to the study of the nature and
relationships between objects that exist in the accounting domain and the way
these objects are represented in the accounting system."
Hossain and Adams (2016): "Accounting ontology is the study of the nature
of accounting reality, including the basic assumptions, concepts, principles, and
accounting categories used in preparing financial statements."
Macve (2014): "Accounting ontology deals with the basic concepts and
entities used in accounting and the relationships between those entities."
Wu and Wu (2012): "Accounting ontology refers to the study of accounting
realities, the classification and categorization of entities in accounting, and the
relationships between those entities."
Stangl (2015): "Ontology in accounting is a study of objects or entities that
exist in the accounting domain and the way these objects are represented in
accounting information systems, so as to produce accounting information that can
be interpreted consistently."
From the definitions above, it can be concluded that ontology in
accounting theory discusses the nature and relationships between objects in the
accounting domain and how these objects are represented in the accounting
system. Ontology also discusses the nature of accounting reality, including the
basic assumptions, concepts, principles, and accounting categories used in
preparing financial statements.
Furthermore, ontology in accounting theory discusses the organization and
representation of accounting information in a structured accounting information
system. Ontologies help to define standard categories and relationships between
entities related to accounting information, thereby enabling accounting
information to be interpreted consistently by information users.
Ontology has also played an important role in the development of
accounting principles and concepts that can be widely and consistently adopted
by different organizations. In this case, ontologies can help identify entities or
objects that must be recorded in financial statements, clarify the relationships
between these objects, and produce more accurate and reliable accounting
information.

The difference between ontology in accounting theory and ontology in other

disciplines
Ontology in accounting theory differs from ontology in other disciplines in
terms of its object of study. The following is the difference between ontology in
accounting theory and ontology in other disciplines:
1. Object of study
Ontology in other disciplines is broader in covering various kinds of entities
and phenomena that exist in the universe, while ontology in accounting
theory is more focused on objects in the accounting domain such as
entities, events, and transactions.
2. Purpose
Ontology in other disciplines generally aims to understand the nature and
characteristics of entities or phenomena that exist in the universe, while
ontology in accounting theory aims to understand the nature and
 relationships between objects that exist in the accounting domain and how
these objects represented in the accounting system.
3. Methodology
Ontology in other disciplines uses a variety of research methods such as
experimentation, observation, and analysis, while ontology in accounting
theory uses more qualitative and interpretive approaches.
4. Basic assumption
Ontology in other disciplines often assumes the existence of a reality that
is independent of human perception, while ontology in accounting theory
recognizes human interpretation in representing accounting reality.
In conclusion, ontology in accounting theory differs from ontology in other
disciplines in terms of object of study, objectives, methodology, and basic
assumptions. Ontology in accounting theory is more focused on objects that exist
in the accounting domain, aiming to understand the nature and relationships
between these objects and how these objects are represented in the accounting
system.

ONTOLOGICAL PERSPECTIVE IN ACCOUNTING THEORY

Traditional Ontological Perspectives in Accounting Theory
The traditional ontology perspective in accounting theory assumes that
accounting reality is objective and independent of human perception. This
perspective views that accounting entities such as assets, liabilities, capital, and
transactions have existences that are independent of human processes or
interpretations.
The traditional ontology perspective in accounting theory emphasizes that
accounting entities must be represented objectively and neutrally, and must be
able to be measured and assessed consistently. For example, in revenue
recognition, the traditional ontology perspective will emphasize the importance of
maintaining objectivity and neutrality in determining when revenue is recognized,
so that the process of interpretation and evaluation by humans does not affect the
results obtained.
 The traditional ontology perspective also assumes a causal relationship
between accounting entities. For example, an increase in assets will lead to an
increase in capital or a decrease in liabilities, and the transactions that occur will
have a direct impact on the accounting entities involved.
However, the traditional ontology perspective in accounting theory has
drawn criticism because it is considered unable to accommodate the diversity of
interpretations and contexts that exist in complex and dynamic accounting
practices. Along with the development of accounting theory, a more pluralist
ontological perspective emerged and considered the important role of human
interpretation in representing accounting reality.

Alternative Ontology Perspectives in Accounting Theory

The alternative ontology perspective in accounting theory emphasizes the
importance of considering the role of human interpretation in representing
accounting reality. This perspective emphasizes that accounting reality is not
objective and independent of humans, but is influenced by human interpretation
and construction.
The alternative ontology perspective in accounting theory acknowledges
the complexity and diversity in accounting practices, and emphasizes the
importance of considering the social, political, and economic context in
representing accounting reality. This perspective also views that human
interpretation can affect the measurement, recognition, and reporting of
accounting entities, so it is important to consider the important role of human
interpretation and construction in accounting practice.
The alternative ontology perspective in accounting theory also emphasizes
the importance of considering the interests involved in accounting practices, such
as business owners, employees, governments, investors, and the wider
community. This perspective emphasizes that accounting practices must consider
diverse interests and are not always in line with each other, as well as consider the
social and environmental impacts of business decisions.
 The alternative ontology perspective in accounting theory tries to
overcome the weaknesses of the traditional ontology perspective which is
considered unable to accommodate complexity and diversity in accounting
practice. This perspective views that human interpretation and related socio-
political-economic contexts should not be ignored in representing accounting
reality.

Comparison Between Traditional And Alternative Ontological Perspectives In

Accounting Theory
The following is a comparison between traditional and alternative ontology
perspectives in accounting theory:
1. The nature of accounting reality
• Traditional ontology perspective: accounting reality is objective and
independent of humans.
• Alternative ontology perspective: accounting reality is subjective and
influenced by human interpretation and construction.
2. Analysis focus
• Traditional ontology perspective: focus on real and physically
observable accounting entities.
• Alternative ontology perspective: focus on human interpretation and
related socio-political-economic context in representing accounting
reality.
3. The relationship between reality and accounting practice
• Traditional ontology perspective: accounting reality is used to
represent accounting practice, and accounting practice is expected to
reflect objective accounting reality.
• Alternative ontology perspective: accounting practice represents
human interpretation of accounting reality, so it is important to
consider the important role of human interpretation and construction
in accounting practice.
4. Diversity of accounting practices
 • Traditional ontological perspective: accounting practices are assumed
to be uniform and objectively measurable.
• Alternative ontology perspective: accounting practice is seen as having
complexity and diversity, and requires consideration of the related
socio-political-economic context.
5. The interests involved
• Traditional ontology perspective: the interests involved in accounting
practice are considered to be uniform and in line with each other.
• An alternative ontology perspective: the interests involved in
accounting practices are diverse and not always aligned, and require
consideration of the social and environmental impacts of business
decisions.
In this comparison, it can be seen that the traditional ontology perspective
tends to view accounting reality as objective and independent of humans, while
the alternative ontology perspective emphasizes the role of human interpretation
in representing accounting reality and considering the related socio-political-
economic context. The alternative ontology perspective is also more concerned
with the complexity and diversity in accounting practices, as well as the
importance of considering the interests involved and the social and environmental
impacts of business decisions.

THE IMPACT OF ONTOLOGICAL PERSPECTIVES ON ACCOUNTING PRACTICE

Ontological Perspective Influences Aspects of Accounting Practice
The ontology perspective adopted in accounting theory will influence
aspects of accounting practice, such as the recognition, measurement, and
reporting of financial information. Here are some examples:
1. Confession
The traditional ontology perspective tends to assume that reality is
objective and can be measured with certainty, so that in practice,
recognized financial information is that which can be measured and
presented objectively. Meanwhile, alternative ontology perspectives tend
 to pay more attention to the aspects of subjectivity and social construction
of reality, so that in practice, the recognition of financial information may
better accommodate the diverse understandings of information users.
2. Measurement
The traditional ontology perspective tends to assume that reality can be
measured with certainty, so that in practice, the measurement of financial
information is carried out using objective measures, such as market prices
or carrying values. Meanwhile, alternative ontology perspectives tend to
pay more attention to aspects of subjectivity and the social context of
reality, so that in practice, the measurement of financial information may
better accommodate the different values and preferences of the users of
the information.
3. Reporting
The traditional ontology perspective tends to assume that reality can be
represented in an objective and measurable way, so that in practice,
reporting of financial information is done in a formal and standard way.
Meanwhile, alternative ontology perspectives tend to pay more attention
to the subjectivity and social construction aspects of reality, so that in
practice, reporting of financial information may better accommodate the
diverse understandings of information users and may use a format that is
more flexible and unconventional.

Examples of the Impact of an Ontological Perspective on Accounting Practice

Some examples of the impact of the ontology perspective on accounting
practice are as follows:
1. Recognition of assets that are not objectively measurable
The alternative ontology perspective emphasizes that reality can be
viewed from different perspectives, so that accounting must consider the
different understandings of the users of the information. This can affect
the recognition of assets that are not measured objectively, such as
 goodwill or other intangible assets. In practice, alternative ontology
perspectives can result in a more subjective and more varied recognition.
2. More holistic measurement
The alternative ontology perspective assumes that reality is the result of a
social construction process, so measurements are not only carried out
using objective measures, but also by considering the existing social
context. In practice, this may mean that more holistic and flexible
measures are used, for example, value-based measures or non-financial
measures.
3. More comprehensive reporting
The alternative ontology perspective notices that reality can be viewed
from different perspectives, so that accounting must consider the different
understandings of users of information. This could lead to reporting that is
more comprehensive and accommodates varied information. For example,
reporting can include information related to corporate social and
environmental responsibility, or information about the social and
environmental impacts of company activities.

IMPLICATIONS OF ONTOLOGICAL PERSPECTIVES IN ACCOUNTING THEORY

Implications of an Ontological Perspective in Accounting Theory in the
Preparation of Accounting Standards
The ontology perspective can have significant implications for the setting
of accounting standards. Some of these implications are as follows:
1. Recognition of assets and liabilities
The traditional ontology perspective tends to produce accounting
standards that are more formalistic and objective. However, alternative
ontology perspectives can produce standards that are more subjective and
varied, especially in terms of recognizing assets and liabilities that are not
objectively measured. Accounting standards that consider alternative
ontology perspectives can allow for more flexible recognition of assets and
liabilities, thereby enabling more relevant and accurate information.
 2. Performance measurement and evaluation
The traditional ontology perspective tends to produce accounting
standards that are more focused on measuring and evaluating financial
performance. However, an alternative ontology perspective can produce
standards that are more holistic and consider non-financial factors, such as
environmental, social, and ethical. Accounting standards that consider
alternative ontology perspectives can enable measurement and evaluation
of performance that are more comprehensive and cover a wider range of
aspects.
3. Reporting and disclosure
The traditional ontology perspective tends to produce accounting
standards that are more focused on financial reporting and disclosure of
relevant financial information. However, an alternative ontology
perspective can result in standards that are more open and inclusive,
taking into account non-financial information and a wider range of
disclosures. Accounting standards that consider alternative ontology
perspectives can enable more comprehensive and relevant reporting, by
providing broader and more transparent information.
In considering the ontology perspective, the preparation of accounting
standards must take into account the different points of view and perspectives of
users of information, including internal and external stakeholders. In addition, the
process of setting accounting standards must also include the involvement and
participation of stakeholders, including academics, practitioners and civil society.

Implications of the ontology perspective in accounting theory on the

development of accounting theory
The implication of the ontology perspective in accounting theory on the
development of accounting theory is that accounting theories must pay attention
to the underlying ontology. This means that accounting theory must be based on
a world view that is consistent with the adopted ontology. If not, then the
accounting theory will not be consistent with the ontology used and will produce
inaccurate information.
In the development of accounting theory, the ontology perspective can
influence how these theories are directed and developed. For example, if using a
realist ontology perspective, accounting theory will tend to produce information
that is more objective and independent of humans. Meanwhile, if using a
constructivist ontology perspective, accounting theory will tend to produce
information that is more related to human experience and is formed by social
construction.
Thus, the ontology perspective in accounting theory can influence how
these theories are developed and applied in accounting practice. This shows that
it is important to consider the ontology perspective in the development of
accounting theory in order to produce relevant and accurate accounting
information.

Implications of an ontology perspective in accounting theory on accounting

decision making
The implication of the ontology perspective in accounting theory on
accounting decision making is that the ontology perspective used can influence
how accounting decisions are taken. For example, if using a realist ontology
perspective, then accounting decisions will tend to be based on facts and objective
data, whereas if using a constructivist ontology perspective, accounting decisions
will tend to consider social construction and human experience.
In addition, the ontology perspective in accounting theory can also
influence how financial information is presented and interpreted. For example, if
using a realist ontology perspective, then financial information will tend to be
presented objectively and independently of humans, while if using a constructivist
ontology perspective, financial information will tend to be presented as a social
construction formed by human experience.
Therefore, it is important for accounting decision makers to consider the
ontology perspective used in their decision making. This will ensure that decisions
are made consistent with the ontology used and consider the implications of an
ontology perspective on the presentation and interpretation of financial
information.

Exercises
1. What is an ontology?
2. What is the difference between ontology and epistemology?
3. What is the role of ontology in the development of theory in various fields?
4. What is meant by an ontological perspective in accounting theory?
5. How can an ontology perspective influence accounting practice?
6. What is the difference between traditional and alternative ontological
perspectives in accounting theory?
7. How does the ontology perspective influence accounting decision making?
8. What are the implications of the ontology perspective in accounting theory
on accounting standard setting?
9. What are examples of the impact of an ontology perspective on accounting
practice?
10. How can the use of an ontology perspective help in the development of a
better accounting theory?
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