Academic journal article Accounting Historians Journal

Accounting for a Disappearance: A Contribution to the History of the Value Added Statement in the UK

Academic journal article Accounting Historians Journal

Accounting for a Disappearance: A Contribution to the History of the Value Added Statement in the UK

Article excerpt

Abstract: Burchell et al's [1985] historical analysis of value added in the UK attributes its rise and fall to societal circumstances which initially encouraged the voluntary disclosure of the Value Added Statement (VAS) by companies and then, following societal change, influenced its disappearance. This paper supplements Burchell et al's thesis by arguing that a fuller explanation for the disappearance of the VAS can be found by also considering the contents of the statement itself. An empirical study of the information in the VASs of UK companies shows that they were unlikely to give support to the economic interests of the employee user group who had been promoted as an important beneficiary of the VAS. The study demonstrates that the social and economic nature of accounting means that change analyses which take account of both aspects of the discipline's character are likely to be more convincing than those which focus solely on one or the other.

INTRODUCTION

Although earlier reference can be found to value added (VA) in the accounting literature (e.g. Suojanen [1954], Ball [1968]) it was the influential advocacy of this measure in The Corporate Report [ASSC, 1975] that coincided with the emergence of a practical financial accounting interest in VA in the UK. At this time VA reporting began to attract the attention of corporate management, employees and trade unions, the accounting profession, accounting academia and government. Each of these groups exhibited a substantially favorable disposition towards the preparation of VA information by accountants and its explicit public disclosure by UK companies. This consensus led, during the late 1970s and early 1980s, to the voluntary inclusion of a Value Added Statement (VAS) in a considerable number of annual shareholder reports. However, the VA phenomenon in the UK proved to be short-lived and by the mid-1980s interest in it had waned and the VAS quickly disappeared from corporate financial reports. Subsequently no significant practical interest has been shown in the VAS and it therefore remains a brief episode in the recent history of UK financial reporting.

This paper explores the reasons both for this rapid disappearance and for the VAS's continuing absence as a practical financial accounting issue. It does so on the basis of an empirical analysis of the utility of the information content of UK corporate VASs. This analysis is designed to ascertain whether the new disclosure served the interests of the employee stakeholder group who were identified as the major beneficiary of the VAS. This group comprised company directors, who controlled the voluntary disclosure of the VAS, other employees and trade unions. A positivist approach is employed to provide an explanation of a significant change in financial accounting [Watts and Zimmerman, 1979]. In this instance the positive approach is not used as a basis for predicting behavior but to explain behavior retrospectively by reference to the possible economic consequences [Zeff, 1978] of the information contained in the VAS for those responsible for its supply and demand. The analysis suggests that the information content of the VAS was likely to have been prejudicial to the interests of the company employee stakeholder group that it was intended to benefit. In addition, information deficiencies in the VAS compromised its ability to meet some important aspects of the purposes on which its advocacy had been based. These findings are used to supplement an existing social history of this period of accounting engagement with VA in the UK [Burchell et al, 1985]. The findings also provide an explanation of the VAS's failure to subsequently reappear on the UK financial accounting scene.

The paper is structured as follows. First, a summary is given of the development of interest in the VAS in the UK from 1975 to 1980, a period during which its popularity reached a zenith. Second, a review is undertaken of the existing historical study [Burchell et al, 1985] that traces the societal influences that can be implicated in the rise and fall of the VAS in the UK. …

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