A Comment on "Accountants and the Price System: The Problem of Social Costs." (Response to Article by Donald R. Stabile, Journal of Economic Issues, P. 178, V. 27, March 1993)
Senge, Steven V., Journal of Economic Issues
Professor Donald R. Stabile's recent analysis of social cost accounting places the efforts of social accountants in an interesting institutional context. A central theme of the analysis is that "social cost accounting has not provided useful concepts for examining social costs" [Stabile 1993, 171]. Although the following comments are not intended to refute Professor Stabile's position, they do provide amplification. The concepts to be extended include the impact of the broader institutional framework, possible impediments caused by the incompatibility assumption, a brief examination of three fundamental accounting policy issues, and some current signs of progress.
The Impact of the Broader Institutional Framework
The lack of social cost accounting theory and practice is not a universal phenomenon. Accounting policies are established to provide financial information for stakeholder groups, and the specific direction of a nation's accounting policies is heavily influenced by broader economic institutions. Specifically, accounting policies are typically quite responsive to the information needs of the providers of financial capital. When capital is provided by public sector institutions, there is often a broader scope to financial reporting requirements. For example, the accounting policies of a nation where governmental units are major providers of capital will typically require more social reporting than the accounting policies of a nation where capital is generated primarily through private debt and equity markets. In practice, social disclosures are much more common among continental European accounting systems than in Anglo-American accounting systems [Mueller, Gernon, and Meek 1991, 59-64!. These social disclosures include value added statements, employee reports, and statements on the environment and product safety.
The Incompatibility Assumption
Critics of the current lack of social cost accounting and reporting in the United States often begin with the assumption that adequate reporting on social issues is incompatible with the underlying foundations of U.S. Generally Accepted Accounting Practices (GAAP). From this premise, the only logical conclusions are the development of either parallel accounting systems or entirely new accounting paradigms. Suggestions for radical modifications can be found throughout both the theoretical and applied accounting literature [Rubenstein 1989; Senge 1993). With each suggestion, however, the challenge is the same. The intellectual investment associated with the current model for U.S. accounting is substantial, and the decision to shift to a new accounting model carries with it a significant start-up cost to develop a new base of intellectual capital. A major impediment to progress on the social cost accounting issue, therefore, may be the initial premise itself Immediately advocating new models before exploring solutions within the existing model can inhibit progress. Rudiments exist within the present accounting framework that can address some aspects of social cost reporting. The current accounting model outlined in the Financial Accounting Standards Board's (FASB's) Concept Statements includes definitions and practices that can affect social cost accounting. For example, a heightened adherence to the definitions of both liabilities and expenses, together with the use of traditional accrual concepts, can address many social accounting and reporting issues [FASB 1985].
Fundamental Accounting Policy Issues
The specific measurement of social value is at the core of Professor Stabile's analysis of social cost accounting's shortcomings. The valuation issue, however, is only one of the accounting issues to be resolved in order to make progress in the social reporting area. Besides valuation issues, recognition and disclosure challenges are often a large part of accounting policy formulation. Decisions about the specific recognition of an economic event, together with accompanying disclosure requirements, play just as big a role in accounting for social costs as the questions of valuation. …