Academic journal article The Accounting Historians Journal

The "Revolution" in Financial Reporting Theory: A Kuhnian Interpretation

Academic journal article The Accounting Historians Journal

The "Revolution" in Financial Reporting Theory: A Kuhnian Interpretation

Article excerpt

The 1960s was a decade of turmoil in financial accounting theory and research. Post-1960s financial accounting research is radically different in method, theoretical content, and philosophical thrust than pre-1960s research. Wells [1976] has suggested that the turmoil signified the beginning of a Kuhnian revolution. Beaver [1989] characterizes the outcome as "an accounting revolution"; a revolution whereby an "economic income" approach was replaced by an "informational perspective" [Beaver, p. 18]. Although there is no indication that Beaver is using the term revolution in a Kuhnian sense, the implication is that the changes were internally generated, an overthrow that was initiated by developments in accounting theory. This paper offers a significantly different interpretation. A Kuhnian perspective is employed to argue that the new view of financial reporting theory described by Beaver can be seen as a "normal science" expansion of the economics paradigm.

This approach holds the potential of a new explanation for the failure of the normative a priori research movement and the success of the new informational research movement. The Kuhnian perspective also provides a unique vehicle for analyzing the potential significance of challenges to the validity of the efficient markets hypothesis (EMH) and the capital asset pricing model (CAPM) which have long served as cornerstones or the informational perspective. First, however, it will be useful to locate the present study within the context of existing Kuhnian analyses in the accounting literature.


Cushing [1989] has provided an excellent review of Kuhnian references in the accounting literature and there is no need to repeat that process. This section, accordingly, shall be limited to locating the present study with respect to the more prominent and comprehensive applications of Kuhnian ideas that can, in turn, be related to the accounting debates of the 1960s and 1970s

In the mid-1970s, there were suggestions that accounting was in the midst of a Kuhnian crisis characterized by paradigm debate [Wells, 1976; The AAA's Statement on Accounting Theory and Theory Acceptance, 1977]. Peasnell [1981] and Laughlin [1981] challenged the applicability of Kuhn's ideas to accounting. Kuhn's theory, according to Peasnell, applies only to sciences, and since accounting is not a science, Kuhnian analysis of accounting thought is inappropriate. Cushing, on the other hand, presents a case for the applicability of Kuhn's ideas to intellectual disciplines other than the sciences. His analysis is more elaborate than previous studies and provides useful background for the present study.

With respect to accounting, Cushing argues that since the traditional concerns of accounting (making sense of the economic performance of business enterprises) share significant common ground with the concerns of science (making sense of reality), "Kuhn's theories may be pertinent to an understanding of the historical evolution of the accounting discipline" [Cushing, p. 11]. He maintains that "the double-entry bookkeeping model has the features of an accounting paradigm, as that term is used by Kuhn, and that the historical evolution of accounting from approximately the Sixteenth century until about 1960 resembles the normal science of Kuhn's theory" [p. 20].

The advent of governmental regulation of accounting practice and reporting in the Twentieth century led to a search for uniform accounting principles and resulted, according to Cushing, in the first stage of crisis for the double-entry paradigm. "The combination of government regulation and the commitment to uniformity has led to a buildup of unresolved accounting issues that perhaps more closely resemble the anomalies of Kuhn's theory" [Cushing, p. 23].

A second stage of accounting's crisis was triggered, Cushing suggests, when the search for a scientific foundation for financial accounting theory--a search which reached its most fervent pitch in the 1960s--produced instead a widespread conviction that "accounting was inherently arbitrary" [Cushing, p. …

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