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[Chapter 3 - Current institutional structures]

Accounting for environmental decision making:

Chapter 4

Accounting for decision making


4. Accounting for decision making

What is accounting?

What is the in society in general and in decision making in particular? Gray et al. (
1996:73) distinguishes four main types of accounting theory: classical inductive theories, income theories, decision usefulness theories, and information economics / agency theories. These theories try to describe the rôle of accounting. Gray et al. (1996) note that this is a simplifying classification and that in practice these categories overlap in many cases. I will look at accounting as a means of reducing information and quantifying the consequences of pass actions. This becomes necessary when we turn to look at environmental information where the degrees of uncertainty increase. There is a wide range of accounting systems each looking at different information, or measuring and reducing this information in different ways. Accountancy is part of an institutional structure that has to know which actions have worked well in the past and the reasons why they may not work in the future.

The centralising effects of accounting.

An accounting system needs to know two things, who it is producing information for, and for what purpose. This defines its main functions, data collection and data reduction.

The first function of an accounting system is to collect data, but obviously not all data is relevant to a particular report or decision. Knowing the purpose of the data allows an initial restriction on the types of data collected. It is seldom useful to know the price of tea-bags in the canteen if a firm wants to know which departments of a office are spending the most on printer paper (if this was a major expenditure within the company).

Hopefully there would be records of the quantities of different types of paper requisitioned by the departments, so that the accountant could then reduce this information to a more manageable form. Photocopying all the requisition forms and presenting them to the management would not be considered to be an appropriate form of data reduction. This means that the data has to reduced further splitting the information into departments and producing totals of expenditure for each paper type. Then this information could be used by managers to try to reduce needless expense. This is obviously a very simple example, the data is easy to measure and assign, given the proper organisation within the company.

But some information is harder to quantify or assign to a particular process. In these cases there are a number of techniques to quantify the information but each has its advantages and limitations. The affect of using a particular method is to give a subjective option on the problem not a true and accurate view. This cannot be helped, if you use too many different systems, you can end up with more information than you had in the first place. However, if you don't use a system, the problem can be more difficult to deal with. The important thing to note is that each accounting system reduces the information in a certain way, presents it from a certain viewpoint. This viewpoint should be taken into consideration when actions are made of {taken from?} this information. This can produce problems when the information is passed to different users who have limited knowledge of the systems used and their limitations.


Gray et. al. (
1996) see the primary function of accounting as accountability. They define accountability as "the duty to provide an account (by no means necessarily a financial account) or reckoning of those actions for which one is held responsible" (ibid. p.38). This, they say, involve two duties, responsibility to take actions, and responsibility to account for those actions. These duties are a communication between two parties, the accountee (or principle) and the accountor (or agent). The agent takes actions and provides information about these actions to the principle. The principle gives instructions about actions, provides rewards and power of resources to the agent. This takes place within the social context of the parties, ties of accountability may form complex webs in a real situation.

Types of accounting system

Accounting systems can be divided into four main sections, based on who they provide information to.
Within these systems there are different ways of reducing information, and valuing goods and services.
[Chapter 5 - Environmental decision making]

Finished 13/9/96
Created 18/9/98