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Richard V. Mattessich is a Professor Emeritus at The University of British Columbia. Financial assistance of the Social Science and Humanities Research Council of Canada for this project is gratefully acknowledged. I also thank the Sauder School of Business, its Dean and faculty, for putting all the research facilities (including an office) at my disposal. 1 I must confess that these four papers reached my attention only in September 2008. This was partly due to a preoccupation with the completion of a comprehensive book on Two Hundred Years of Accounting Research—An International Survey of Personalities, Ideas, and Publications (Mattessich 2008), and partly due to my advanced age (I am in my 87th year). API Volume Nine 2009 FASB and Social Reality— An Alternate Realist View Richard V. Mattessich ABSTRACT: This paper follows up on the discussion on ‘‘advising’’ the Financial Ac- counting Standards Board (FASB) about social and economic reality. It began with Lee (2006a), was commented upon in Macintosh (2006) and Williams (2006), and closed with a reply to both papers in Lee (2006b). All three authors criticized, in one way or another, the Financial Accounting Standards Board and the fashion in which it attempts to incor- porate principle-based accounting standards into its conceptual framework (CF). The main thrust of these four papers is a critique directed toward the FASB, which has been more concerned with ‘‘comparability and consistency’’ than with ‘‘identifying improved ways of recognizing and representing social-constructed reality and truthful correspondence in the light of principle-based accounting standards’’ (Lee 2006a, 1). Thereby, Lee promotes Searle’s (1995) theory of constructing social reality. The primary purpose of the current paper is to show that the methodology of the ‘‘onion model of reality’’ (OMR, developed in Mattessich 1991, 1995, and 2003) offers several advantages over Searle’s (1995) approach. Above all, the results of the OMR are less confusing and much closer to accounting terminology as well as that of everyday language (e.g., saying: ‘‘The U.S. federal debt is a social reality,’’ instead of the cumber- some formulation: ‘‘The U.S. federal debt is ontologically subjective’’—the text discusses additional advantages of the OMR). The backbone of the OMR is the fact that each reality level is endowed with its very own emergent properties, hence with its specific kind of reality. Keywords: principle-based CF; construction of social reality; onion model of reality. INTRODUCTION Let me begin with a concise recapitulation of the major points made in the four papers by Lee (2006a, 2006b), Macintosh (2006), and Williams (2006). This may be all the more appropriate as some three years have passed since their publication. 1 The first of these essays starts with reference to the Financial Accounting Standards Board’s (FASB 2002, 5) proposal to continue
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Page 1: FASB and Social Reality

Richard V. Mattessich is a Professor Emeritus at The University of British Columbia.

Financial assistance of the Social Science and Humanities Research Council of Canada for this project is gratefullyacknowledged. I also thank the Sauder School of Business, its Dean and faculty, for putting all the research facilities(including an office) at my disposal.

1 I must confess that these four papers reached my attention only in September 2008. This was partly due to a preoccupationwith the completion of a comprehensive book on Two Hundred Years of Accounting Research—An International Survey ofPersonalities, Ideas, and Publications (Mattessich 2008), and partly due to my advanced age (I am in my 87th year).

APIVolume Nine

2009

FASB and Social Reality—An Alternate Realist View

Richard V. Mattessich

ABSTRACT: This paper follows up on the discussion on ‘‘advising’’ the Financial Ac-counting Standards Board (FASB) about social and economic reality. It began with Lee(2006a), was commented upon in Macintosh (2006) and Williams (2006), and closed witha reply to both papers in Lee (2006b). All three authors criticized, in one way or another,the Financial Accounting Standards Board and the fashion in which it attempts to incor-porate principle-based accounting standards into its conceptual framework (CF). The mainthrust of these four papers is a critique directed toward the FASB, which has been moreconcerned with ‘‘comparability and consistency’’ than with ‘‘identifying improved ways ofrecognizing and representing social-constructed reality and truthful correspondence in thelight of principle-based accounting standards’’ (Lee 2006a, 1). Thereby, Lee promotesSearle’s (1995) theory of constructing social reality.

The primary purpose of the current paper is to show that the methodology of the‘‘onion model of reality’’ (OMR, developed in Mattessich 1991, 1995, and 2003) offersseveral advantages over Searle’s (1995) approach. Above all, the results of the OMR areless confusing and much closer to accounting terminology as well as that of everydaylanguage (e.g., saying: ‘‘The U.S. federal debt is a social reality,’’ instead of the cumber-some formulation: ‘‘The U.S. federal debt is ontologically subjective’’—the text discussesadditional advantages of the OMR). The backbone of the OMR is the fact that each realitylevel is endowed with its very own emergent properties, hence with its specific kind ofreality.

Keywords: principle-based CF; construction of social reality; onion model of reality.

INTRODUCTIONLet me begin with a concise recapitulation of the major points made in the four papers by

Lee (2006a, 2006b), Macintosh (2006), and Williams (2006). This may be all the more appropriateas some three years have passed since their publication.1 The first of these essays starts withreference to the Financial Accounting Standards Board’s (FASB 2002, 5) proposal to continue

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with its conceptual framework (CF) by improving it in various directions, and basing its standardson a principle-based (PBAS) approach, instead of the traditional rule-based standards. Lee(2006a) points at the past dissatisfaction with the American CF. He continues with an examinationof FASB (2002) and notes that ‘‘the FASB proposal advocates accounting standards based onthe notion of faithfully representing a relevant economic reality [note omitted]’’ (Lee 2006a, 2).But the author doubts whether the FASB can succeed in such an endeavor unless it comes togrips with ‘‘the issue of socially constructed reality and its numerical representation,’’ as well aswith the problems of (1) an economic (or social) reality independent of human minds, and (2)practical devices to measure the manifestations of this kind of reality. Lee then asserts that‘‘social reality is subjective and dependent on human observation, consensus, and communica-tion for its existence’’ (Lee 2006, 3; emphasis added). This sentence appears to anticipateSearle’s (1995) theory, but before Lee had an opportunity to introduce its details and intricaciesto the reader. Apart from that, this is a passage where many accountants might disagree or askthemselves: ‘‘If social reality is subjective (‘‘as a reality’’), how come we regard such verifiablethings as properties rights, debt relations, acquisition costs, current market value, etc., as ob-jective?’’ Yet, in this section I am committed to offer a concise overview of those papers. So letme continue, with the intention to return to this central problem in a later section.2

Lee (2006b, 45) is distrustful of the FASB intentions and compares them to a ‘‘cunning plan’’(playing on the well-known TV series of the Blackadder Dynasty), and assumes that the othercommentators share in this distrust. From Macintosh’s (2006) point of view, Lee (2006a) mayhave been too neutral, failing to challenge the FASB continuation of using old building blocks inrevising their CF. Williams (2006), on the other hand, regrets that Lee missed challenging theFASB’s undemocratic role as a lawmaker. Both complaints are rejected by Lee (2006b). ButWilliams is more sympathetic to realism than Macintosh. Williams also invokes the views of theNobel laureate A. Sen (1987, On Ethics and Economics); in particular on the distinction betweenthe ethical and the engineering approach to economics. Sen emphasizes the moral, political,and human aspects, while the ‘‘engineering’’ approach emphasizes the efficiency and profit-maximizing aspects. For Sen, the problems of wealth are not merely ‘‘engineering’’ questionsbut also those of justice.

Williams (2006), like Macintosh (2006), attacks the Schipper and Vincent (2003) line of rea-soning (derived from positive economics and the ‘‘engineering’’ approach to accounting) on thecorrespondence between the comprehensive income concept and the Hicksian income notion.The latter is, in Williams’ view, not a scientific concept but merely a practical term. A majorconcern for Williams (2006) is the law-creating potential of the FASB that, as he deems, is notdemocratically based and favors shareholders or, even worse, the Wall Street fraternity, at thecost of the public and taxpayers. Similar arguments have become very popular since the largeU.S. government ‘‘bail-outs’’ of investment institutions, insurance companies, etc., during thelast quarter of 2008.

In essence, Lee’s skepticism (about the FASB’s initiative to base its CF principle-basedaccounting standards) stems from the following considerations: the initiative relies too much oncurrent accounting practice; it would not prevent fraudulent misreporting; it may have some

2 However, I should point out, at this stage, that I presume that all the authors cited in this paper, when thinking and writingabout ‘‘social reality,’’ they mean ‘‘social reality of the human kind.’’ This is important, insofar as there also exists a socialreality of the animal kingdom—and not only of higher animals, but even of ants, bees, termites, etc.

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short-term but no long-term benefits; and finally, the FASB as well as other standard-setters(e.g., the International Accounting Standards Board) operate in an undemocratic way. From amore academic point of view, a major concern of those four papers is characterized by Lee(2006b, 46) in the following words:

[T]he FASB does not appear to understand—or perhaps care—that accounting for ec-onomic reality is a chimera because of difficulties associated with the ambiguity ofeconomic reality and its accounting representation. The objective of accounting for ec-onomic reality seems plausible until you scratch below the philosophical surface anddiscover the practical problems that lie beneath. It seems to me, therefore, that theFASB is trying to get the Enron and WorldCom monkey off its back by resorting tothe stratagem of suggesting that there is a coherent body of knowledge contained inits conceptual framework (CF) that can support the content and use of its accountingstandards. This, however, is a stratagem that has failed on each occasion it has beenattempted.

On the same page, Lee emphasizes that his intention is neither, as Macintosh (2006) does,to criticize the instrumental function of the CF to improve financial statements, nor, as Williams(2006) does, to investigate the FASB’s social entitlement to create laws. His central purpose isto draw attention to the need for a more enlightened understanding of social reality, be it byaccountants in general, or by the FASB in particular. Hence, he complains about the fundamentalflaw in the FASB’s apparent notion ‘‘that there is some form of objective economic reality inde-pendent of its accounting representation’’ (my italics). But this is another passage by Lee thatimplies issues to be analyzed in a later section. In order to solve the problem of social reality (oraccounting reality, as one of its sublayers), Lee turns to Searle’s (1995) book and outlines in afew strokes the essence of Searle’s theory of constructing social reality.

IS SOCIAL REALITY OBJECTIVE OR SUBJECTIVE?Let me first return to Lee’s (2006a, 3) statement that ‘‘social reality is subjective.’’ At best,

it presents only a very particular ontological view that requires some elaboration and qualificationbefore bursting with it on the scene. The statement that social reality (hence economic as wellas accounting reality) is ‘‘subjective,’’ expresses neither a well-established fact, nor a proventheory, nor is it generally accepted, neither in philosophy nor by the man on the street. Thatdoes not necessarily make it an incorrect proposition, but it is a debatable one. And this is amajor purpose (though not the only one) of my paper.

Why should a social fact as, for example, Mr. John Doe’s ownership on his home be some-thing subjective? Why should such a debt relation (another social fact) as the mortgage on JohnDoe’s home be subjective? If this home is acquired lawfully and if the mortgage is legitimatewhy should such facts not be part of (an ‘‘objective’’) social reality? Why should any reality besubjective? Is the term ‘‘reality’’ not contradictory to the notion of subjective? Under the de-scribed conditions, would not every law-abiding citizen recognize the objectivity of those socialfacts? This raises the question what do we, in everyday life, mean by such adjectives as ‘‘ob-jective’’ and ‘‘subjective’’? Accountants, for example, have long held the view that acquisitioncosts are ‘‘objective’’ because they can be verified; the same holds for current market prices,while ‘‘present values’’ have been considered ‘‘subjective’’ because of all the personal estimatesinvolved (as to future returns, discount rates, etc.). Of course, there are many other meanings of

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these two terms but, in general, the term ‘‘objective’’ refers to a proposition that, at least inprinciple, can be verified as being true, while ‘‘subjective’’ refers to a personal view or to prop-ositions that are relative or normative. Whether the terms ‘‘objective’’ and ‘‘subjective’’ can orshould be used in relation to the question of existence (rather than to truth) is debatable.3 Wedo not say ‘‘the moon is objective,’’ but ‘‘the moon (actually) exists.’’ Nor do we say ‘‘Jane Eyreis subjective,’’ but ‘‘Jane Eyre is a fictitious literary character’’—but I am ahead of myself, as thisagain anticipates Searle’s theory to be discussed below.

If we call social reality (or some of it) ‘‘subjective,’’ do we not assert that it is not really real?And if real, real for whom? If John Doe cannot repay the mortgage, and thus forfeits his home,then ownership and debt relations will be very real to him and his family, as well as to his creditor,and even to the new buyer of the home, etc. How about expectations (optimistic as well aspessimistic)? Do they exist on the social level? How about fluctuations in the stock market?How about bankruptcies? And the stock market meltdown during October 2008? Is such anevent not historically as real on the social level of reality as the explosion of the Type II supernovaSN 1987A in the Large Magellanic Cloud (in 1987) is real on the astronomical level? Thosephenomena are not only true (epistemic) occurrences; they also exist (ontologically) on the sociallevel or, in the latter case, the astronomical level of reality, respectively.

Does all this not contradict Lee’s assertion? And how is it possible that many academics,among them a prominent philosopher like Searle, advance such a view? The answer is verysimple: these academics all are perfectly correct—provided they refer by ‘‘ontologically objec-tive’’ to physical reality, possibly also biological reality, etc., or some kind of ultimate reality—butcertainly not to social reality. Indeed, those academics (Searle, Lee, Macintosh, etc.) repeatedlyspeak of ‘‘brute facts’’ (or ‘‘brute reality’’), implying that there also exist ‘‘not (so) brute’’ or ‘‘lessreal realities.’’4 But why, then, call social reality reality at all? Why not call it the ‘‘social realm’’or the ‘‘social hemisphere,’’ or choose some other, less controversial name? Indeed, this wouldbe one possibility to avoid or resolve the dilemma of multiple realities. Yet, Searle offers anotheralternative that will be discussed in the next section.

SEARLE’S ONTOLOGY OF CONSTRUCTING SOCIAL REALITYIn his attempt to clarify the problems of social reality, Searle has a very clever trick up his

sleeves (and this is meant in admiration for his ingenuity, not facetiously). He introduced two

3 Searle (1995, 8) states: ‘‘Epistemically speaking, ‘objective’ and ‘subjective’ are primarily predicates of judgments ... In theontological sense ‘objective’ and ‘subjective’ are predicates of entities and types of entities, and they ascribe modes ofexistence.’’ (Emphasis added.)

4 I presume by ‘‘brute reality,’’ these authors refer to all reality levels other than the social one (including its sublevels)—thoughthe quote below from Searle (1995, 190–191) might suggest that he has only physical phenomena in mind. This vaguenesslays a veil over the fact that reality has numerous levels and sublevels, each with its own kind of emergent properties.Furthermore, it puts a ‘‘wall’’ between social reality and the rest, and may distort our view of the way in which the variouslevels of reality are connected to each other.

As to the notion of ‘‘less real realities,’’ I am of course aware that many people regard physical reality as more ‘‘per-manent’’ or ‘‘solid’’ than other realities, particularly than social reality. Indeed, in Mattessich (2003, 446) I pointed out that:

[T]he different layers cannot be considered equally permanent. The core layer (possibly of pure energy, whateverultimate form it may assume) is regarded to be more permanent than the things, events, properties, and otherrelations on the higher levels (e.g., the social, legal, and economic levels). These ‘‘surface realities’’ become in-creasingly transient the higher one climbs their hierarchy. Just as the crust of the earth, the oceans, and thedifferent atmospheric layers of our planet become increasingly volatile the higher one ascends.

However, if you consider for example the very nature of an atom (with its nucleus a relatively immense distance from itselectrons and nothing in between), then social reality might no longer appear more ephemeral than physical reality.

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distinctions, one between ‘‘ontologically objective’’ (e.g., our earth exists independent of ourminds) versus ‘‘ontologically subjective’’ (e.g., the Federal Reserve System of the U.S.A. exists—it is its central bank, entrusted with issuing bank notes and related tasks—a statement depen-dent on human minds), on one side, and between ‘‘epistemologically objective’’ (e.g., the Dec-laration of Independence of the U.S.A. was signed in 1776) versus ‘‘epistemologically subjective’’(e.g., the Constitution of the U.S.A. is the best in the world), on the other side. Hence, Searlecalls social and institutional facts (like ownership, debt claims, Supreme Court, etc.) ‘‘ontologi-cally subjective’’ because their existence depends on human minds. This stands in contrast toatoms, mountains, etc., that Searle calls ‘‘ontologically objective’’ because they are not mind-dependent (i.e., they are independent of representation). Thus Searle’s terminology rests on thepremise that a reality that depends on human minds is to be called ‘‘(ontologically) subjective.’’

At a first glance, this seems reasonable enough because we are used to regarding propo-sitions that refer to personal thoughts, views, beliefs, etc., as subjective. But wait a minute. First,the usage of ‘‘objective’’ and ‘‘subjective’’ refers to propositions, and these belong to the epi-stemic plane (where we deal with truth versus falsehood, verification, etc.) and not to the on-tological plane (where we deal with existence versus nonexistence). Second, the usage of ‘‘sub-jective’’ refers to a single person (at best, to a small group of persons). If we talk about collectivesocial phenomena, like markets, legal institutions, etc., we are accustomed to using the term‘‘objective.’’ In other words, Searle introduced terminological changes that deviate considerablyfrom everyday usage. Listen to the Nobel laureate Konrad Lorenz (1977, 2):

In our present usage the word ‘‘subject’’ means the experiencing, thinking, feeling agentas opposed to the objects which the agent experiences, thinks, and feels ... And how,in what is obviously a complementary development to this devaluation of the subjective,have we arrived at our high estimation of what is popularly called ‘‘objective’’ or, whichis the same thing, ‘‘corresponding to something real’’?

Now, philosophers may be forgiven for using esoteric locutions, but scientists and plainaccountants have to be more down-to-earth—especially if we want to convince institutions, likeFASB, to base legislations on some philosophical ideas. A terminology that sounds too compli-cated or deviates drastically from traditional usage is bound to be rejected.

Thus, the pivotal question is: Why regard the realities of all levels as objective, save thoseof the social level? Why not admit that social facts, things, events, relations, properties, etc., arejust as ‘‘socially real’’ on the social level, as are physical facts, biological facts, etc., real on theirown levels? Why segregate the social level from all the others and introduce the outlandish term‘‘ontologically subjective’’? Of course, Searle (1995, 190–191) does not deny that physical, bio-logical, and mental realities are behind all social facts. Indeed, he emphasizes that:

To construct money, property, and language, for example, there have to be the rawmaterials of bits of metal, paper, land, sounds, and marks, for example. And the raw ma-terials cannot in turn be socially constructed without presupposing some even rawermaterials out of which they are constructed, until we eventually reach a bedrock ofbrute physical phenomena independent of all representations. The ontological subjec-tivity of the socially constructed reality requires an ontologically objective reality out ofwhich it is constructed.

Although Searle’s (1995) reference to ‘‘some even rawer materials out of which they areconstructed, until we eventually reach a bedrock of brute physical phenomena’’ (as well as oc-casional references to biological facts) might suggest a vision of reality as consisting of many

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layers, he does not emphasis or analyze such a structure of reality (as one finds, for example,in Hartmann 1940, or Bunge 1977, 1979).5 Reading Searle’s book, one gets the impression thathe rather concentrates on the simultaneity of social facts and ‘‘brute’’ facts. This stands in con-trast to a picture of reality as a structured entity where one layer after the other emerged in anevolutionary process of numerous steps—with many reality levels (and evolutionary leaps) inbetween social and physical reality. Searle might object to this by pointing at the hierarchicaland structural features of his worldview (Searle 1995, 120–121, 150–151). But neither is this acomplete nor an evolutionary structure. In defense of Searle (1995), one may object that his bookis not aimed at ‘‘analyzing the structure of all reality’’ but at the ‘‘construction of social reality.’’And yet, the neglect (or insufficient emphasis) of structural aspects beyond the social may furtherlimit the application of Searle’s (1995) theory to scientific and practical problems.

Apart from this limitation and the introduction of unfamiliar terminology, there is an evenbroader, nonlinguistic perspective to be considered when discussing Searle’s (1995) ontology.He seems to imply a collective egocentricity—not a personal one, but of humankind in general.For a long time humans regarded themselves as the center of the universe. This may no longerbe the case; yet, the present discussion confirms that many people still regard humanity as thecollective creator of all things social. It rarely occurs to them that they are only the instrumentsby which the evolutionary process (in the broadest sense of the word) or the creative universalforce, or God, are the ultimate cause of their existence and of social reality (no less than of anyother reality). This process, force, or entity ‘‘created’’ or ‘‘impelled to evolve’’ social reality in thevery same fundamental way as It (or He or She) created the physical and biological universe.6

Has modern astronomy not convinced us of the ‘‘modest’’ (not to say ‘‘insignificant’’) role weplay in this incomprehensibly large universe? Thus the human mind might not be quite as au-tonomous as we deem it to be. And the suggestion that ultimately it is evolution that ‘‘con-structed’’ social reality (no less than brute reality) should make us pause and think before wecall all or parts of social reality ‘‘subjective.’’ Is the mating dance of cranes (impelled by theinherent nature of cranes) an objective or subjective reality? It certainly is mind-dependent sincecranes also have minds. Is the dam ingeniously constructed by a beaver an objective or sub-jective biological reality? Might Searle regard it as objective if seen as a pile of wood obstructinga river, but as subjective as an intentionally created protection of the beaver’s castle (with anunderwater passage)? That sounds as strange as would be the assertion that a skyscraper, ifseen as a ‘‘heap of matter,’’ (steel, glass, and concrete) is objective, but as a building, collectivelyintentionally created and inhabited by people, it is an ‘‘office tower’’ and, thus, is subjective.What about the conic mud-skyscrapers of African termites? Are these ‘‘towers’’ objective asmud-piles but ontologically subjective as fortresses, dwellings, and breeding grounds? Andspeaking of collective intentionality (an important tool in Searle’s conceptual arsenal), he seems

5 Nicolai Hartmann (1940, 1949, 1953) formulated several laws of the ‘‘levels of complexity’’ (also called ‘‘levels of stratification’’)of reality, as translated in abbreviated form in Wikipedia (2008, Nov. 10)—see also the separate issue (with 15 papers) onNicolai Hartmann in Axiomathes 12 (2001), edited by Roberto Poli (2001a), and Poli (2001b).

Mario Bunge (1977, 1979) presented a more modern and science-oriented version of ‘‘levels of reality’’ based on systemstheory—see also the comprehensive anthology Studies on Mario Bunge’s Treatise, edited by Weingartner and Dorn (1990);particularly, Bochenski (1990) and Agassi (1990).

6 I should like to emphasize that this argument of the evolutionary creation of reality is independent of the argument of termi-nological discrepancy (with general usage). The latter ought to be sufficient to convince accountants of the practical advantageproposed in this paper.

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to admit that a pack of wolves attacking a prey is also a collective intentional activity. But doeshe deem it to be ontologically subjective? I realize that Searle concentrates on institutional facts,and that my examples may not refer to them, but how about other social realities or facts? Dopersons and their creations (like domesticated animals, tables, buildings, and airplanes, etc.) notalso belong to the level of social reality (rather than to the physical level of atoms, quarks, etc.)?Would Searle regard all of these social realities as ontologically subjective? Does not social realityalso consist of ‘‘concrete’’ as well as of mental entities (including objects, facts, etc.)? To argue,for example, that these social, yet ‘‘concrete,’’ things (e.g., buildings) belong to the physical level(instead of being merely ‘‘based’’ on it) would be a fundamental error, as Hartmann’s ontologyclearly reveals (see Footnote 5, as well as Mattessich 2009).

It may be tempting—even for a ‘‘naturalistic’’ philosopher such as Searle—to make a fun-damental distinction (like subjective versus objective) between the social layer and the otherlayers of reality. After all, a similar attitude goes back to the Old Testament. But in the face ofthe Darwinian Revolution and the more recent discoveries that human DNA has basically thesame structure as that of animals and even plants, we can no longer make a fundamental breakbetween social reality (and its evolution) and other reality levels. It would be like chasing mankindfrom the Garden of Eden for a second time. Of course, there are fundamental differences be-tween the various levels of reality; between the physical and biological level, no less thanbetween the biological and the social level. But all those levels and their entities are due to anevolutionary process (whether physical, biological, or social) in which the leaps from one level(or sublevel) are mainly due to the phenomenon of emergence in all its variations.

From an epistemic viewpoint, the significance of ‘‘sociocultural’’ evolution has been illumi-nated in Campbell’s (1974) ‘‘Evolutionary epistemology’’; and Konrad Lorenz (1973, 306) pointedout that—as an ontological fact—such evolution has relatively recently been recognized:

The insight that human cultures develop, analogously to those of animals and plants,each for itself at its own account and risk, penetrated into historical philosophy relativelylate ... Toynbee was probably the first historian and historical philosopher who startedwith the assumption that the evolution of mankind and its culture is a uniform process.

Post-modernists seem to disagree with such an ‘‘evolutionary’’ view of social reality, andargue with regard to ‘‘reification’’ (i.e., to see man as part of a larger reality) that:

Reification is the apprehension of the products of human activity as if they were some-thing else than human products—such as facts of nature, results of cosmic laws, ormanifestations of divine will. Reification implies that man is capable of forgetting hisown authorship of the human world. (Berger and Luckmann 1966, 82)

If this is a denial that social-cultural entities are ultimately the result of evolution, then itsounds pretty arrogant to me. Does it not remind of the innumerable attacks hurdled againstCharles Darwin when he suggested that man and ape may descend from a common ancestor?This does not imply that Searle is a post-modernist. But were I to write a book like Searle’sConstruction of Social Reality, I would call it: The Evolutionary Construction of Reality and OurConceptual Reconstruction (or in case of focusing primarily on social reality, as Searle does, itwould be: The Evolutionary Construction of Social Reality and Our Conceptual Reconstruction).Are we and other social beings not merely trying to reconstruct (i.e., conceptually represent) thisreality? And if so, we have to be aware of the relatively limited means provided by our nervous

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systems and their scientific extensions.7 Such reconstruction is a slow and painful process. Itmay begin already in the womb, and continues through childhood—as Piaget (1950, 1961, andlater publications) showed in his ingenious way. Then this reconstruction continues when weengage in scientific research. It too is a process of trial and error, which indicates that the mentalor social reconstruction of reality is imperfect and has to be constantly improved. Hence, tospeak of a ‘‘correspondence’’ between reality and our reconstruction may be exaggerated; amore cautious expression, like ‘‘preliminary matching,’’ might be better. The naıve correspon-dence theory (e.g., Wittgenstein’s [1961] picture theory, which he later abandoned) is at best animperfect theory of imperfect correspondence. And as to the misconception that the correspon-dence theory is an integral part of realism, Searle (1995, 154) correctly points out that ‘‘realismis not a theory of truth and it does not imply any theory of truth. Strictly speaking, realism isconsistent with any theory of truth because it is a theory of ontology and not of the meaning of‘true.’’’ Later, Searle (1995, 199–226) presents his reasons for accepting a (sophisticated) cor-respondence theory of truth.

It seems there are at least four reasons why the crucial distinction between the evolutionaryconstruction of reality, on one side, and the attempt of its ‘‘reconstruction’’ in our minds, on theother side, leads frequently to misunderstandings. Let me summarize some of those reasons.

First, many people have difficulty in comprehending the immensity of the chasm betweenthe nonlinguistic category of ‘‘reality,’’ and the attempt to grasp it mentally through the verydifferent category of ‘‘conceptual representation.’’ How can we ever expect a perfect isomor-phism between such fundamentally different entities? Obviously we have to be modest andsatisfied with a process of approximation and preliminary matching as well as continuing im-provement. But this is precisely what science is trying to do, whether you call it ‘‘correspon-dence’’ or chose more appropriate names such as ‘‘match’’ or ‘‘fit.’’ It also is based on whatLorenz (1977, 6–14, 244) calls ‘‘hypothetical realism.’’ Second, as mentioned above, there is ourdeeply ingrained feeling that ultimately humans create social reality. Yet, at best, we are inter-mediaries or instruments. As far as we know, humanity and its reality has evolved in the verysame way as all reality—be it physical and chemical or biological and social, etc. We are thepawns of evolution and of the innumerable accidents that are an integral part of any kind ofevolution. This may lead to the problem of free will. The latter I do not deny, but there are limitsto our free will that cannot be ignored. At any rate, the scientific fact that humans and theirmanifestations are an integral part of cosmic evolution (spanning the entire gamut from physicalto mental and social, even political evolution) can hardly be denied. The scientific evidence inthe twenty-first century—from astrophysics to studies in animal behavior to neurobiology, or therecent discovery of the epigenome and its function of cell reprogramming—speak overwhelm-ingly against the traditional vision that segregates mankind from the rest of the cosmic scheme.

Third, our brain ‘‘in there’’ (where the mental reconstruction takes place) belongs also to thereality ‘‘out there’’ (to be represented). Hence, we are confronted with a kind of regress by whichwe try to project something ‘‘out there’’ by means that are also ‘‘in there’’ (the electro-chemicalevents in the brain). But the fact that a social reality as our brain (the activities of which createmental processes) is ultimately based on ‘‘brute reality,’’ constitutes a crucial link between socialreality and lower reality levels. Yet, it would be a misconception to relegate our brain to thephysical level of reality while considering mental activity as part of the social or psychic level.

7 I do not use the terms ‘‘reconstruct’’ and ‘‘represent’’ synonymously, but before we can represent something conceptually, wehave to model or reconstruct it consciously.

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Both the ‘‘material’’ brain as well as its mental activity (be it ‘‘material’’ or ‘‘immaterial’’) belongto the level of social reality. Indeed, Searle argues at great length, and very ingeniously, aboutthe interconnections of brain (or body in general) and mind, and the still-mysterious causal re-lations between them, acting in both directions.

Apart from that, there is a third step involved that is often neglected: the jump from theconceptual to the linguistic plane (cf., Mattessich 1995, 47, Figure 3.1). It is not sufficient tohave ideas, concepts, and propositions in our mind; we also want to express them in speechand writing through terms and sentences, etc., when again something ‘‘out there’’ (sound waves,ink on paper, etc.) is involved.

Fourth, we use words in reference to real or nonlinguistic entities (such as things, properties,facts, events, relations, etc.), and at the same time we use them in reference to conceptual/linguistic entities (such terms and words, propositions and sentences, etc.). In other words, weuse them linguistically as well as metalinguistically, and this may create confusion. For example,a sentence like the ‘‘‘the cat is on the mat’ is true, if and only if (if) the cat is on the mat’’ (cf.,Searle 1995, 208–216). The first part of this sentence (between ‘single quotation marks’) refersto the epistemic sphere. The middle part states a truth condition to be verified—apparently stillbelonging to the epistemic sphere, since it deals with truth. But the third part (apparently merelyrepeating the first part, yet without quotation marks—hence called in philosophic parlance ‘‘dis-quotation’’) seems to belong to the ontological sphere (asserting existence). According to Searle,this part expresses a fact. And he points out that ‘‘once we understand the logic of the wordsinvolved, we see that facts are not complicated objects, and that there is no necessary isomor-phism between the syntactical structure of true statements and the structure of facts ... For everytrue statement there is a corresponding fact, because that is how these words are defined’’(Searle 1995, 214). Searle continues to stress that ‘‘there is no property of truth at all’’ (Searle1995, 215) and ‘‘we need a metalinguistic predicate for assessing success in achieving the word-to-world direction of fit, and that term is ‘true’ ... We need general terms to name these how-things-are-in-the-world, and ‘fact’ is one such term.’’ (Searle 1995, 219).

Searle (1995, 12) also introduces the distinction between facts intrinsic to nature versusobserver-relative facts or, synonymously, mind-independent facts versus mind-dependent. Thesetwo contrasting pairs are closely related to the distinction between ontologically objective versusontologically subjective. This relationship could play an important role in reconciling Searle’squestionable use of ‘‘ontologically subjective’’ with a terminology more in tune with everydaylinguistic usage. Why not substitute consistently the distinction between mind-independent ver-sus mind-dependent—or, alternatively, intrinsic to nature versus observer-relative—for the awk-ward distinction between ‘‘ontologically objective’’ versus ‘‘ontologically subjective’’?

Furthermore, Searle (1995, 13) postulates the following three requirements necessary toaccount for social reality within an overall scientific ontology:

The assignment of function, collective intentionality, and constitutive rules. Not all as-pects of social reality require all three elements, but one or more of the three are nec-essary to account for any aspect of social reality. (Later, in Chapter 6, to explain thecausal functioning of institutional structures, we will introduce a fourth element, thebackground of capacities that humans have for coping with their environment). (Em-phasis added.)

Apart from pointing out that the assignment or imposition of functions upon objects mustcome from outside (i.e., is never intrinsic), let me illustrate concisely those requirements in the

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case of property rights. First, a function of the law is to secure the right to property. Second, aprerequisite for the right to property is collective intentionality (i.e., a general willingness to acceptthe rules). Third, society creates constitutive rules (laws that have some continuity) to ensure theright to property. Those three requirements, together with the rest of the conceptual apparatuscreated by Searle, are highly valuable tools for analyzing social reality. Thus, Searle’s notion ofinstitutional facts and institutional reality, in general, (as an important subset of social reality) are‘‘created’’ by social institutions and are intrinsically connected to language and the structure ofpower relations. Here, I am only fleetingly hinting at the impressive arsenal of Searle’s socialontology, as I have tried elsewhere to use aspects of this conceptual apparatus to supplementthe OMR (cf., Mattessich 2009a). But this may be the proper place to acknowledge my ad-miration for Searle’s work, and my belief that much of it can help in clarifying philosophicalproblems of accounting and the social sciences in general. Yet, I think that some adjustmentsto his framework (possibly along the lines here suggested) may facilitate the application of histheory to practical problems.

However, there is another aspect that I should like to note. In reading the four papers dis-cussed above, I have the impression (rightly or wrongly) that some accounting authors may notdistinguish clearly enough Searle’s kind of ‘‘social constructionism’’ from the totally different kindof social constructionism advanced by such authors as Berger and Luckmann (1966), Latourand Woolgar (1979), or Pickering (1984).8 This latter kind (but not Searle’s) is the idealistic main-stay of the critical-interpretive or post-modern research direction as promulgated, for example,by Macintosh.

In fact, Searle’s philosophy has little to do with idealism; he rather is a self-confessed realist,an ‘‘external realist’’ as he calls himself.9 Though some might regard Searle as an idealist whenit comes to social reality, but a realist when discussing the physical or all other levels of reality.After all, does he not regard social reality as being constructed by our minds? In other words,his ‘‘naturalist’’ attitude is restrained by his ‘‘constructivist’’ inclination when it comes to socialreality. I presume this is the reason why Searle calls himself an ‘‘external realist.’’ However,ultimately, he does regard social reality as real (in contrast to the idealists)—albeit ‘‘subjectively’’real. But let us listen to Searle himself:

I have not shown that there exists a real world but only that you are committed to itsexistence when you talk to me or anyone else. (Searle 1995, 194)

Also:

I just said that we have a large and growing body of knowledge which is certain, ob-jective, and universal. I emphasize these three traits because they are precisely what ischallenged by a certain contemporary form of extreme skepticism sometimes called‘‘post-modernism,’’ with such subsidiary branches as ‘‘deconstruction,’’ ‘‘post-structuralism,’’ and even some versions of pragmatism. (Searle 2003, 5)

8 These authors promoted an idealist social constructionism (or constructivism) asserting that all reality (even physical reality) issocially constructed. Hence they do not recognize any reality independent of the human mind. For some of these scholars,constructivism is not only an ontological but also an epistemic theory, as they assert that scientific knowledge (hence ‘‘epi-stemic’’) is constructed by scientists and not discovered from the environment. The Wikipedia (2009, ‘‘social constructionism’’)points out that: ‘‘social constructionism is typically described as a sociological construct, whereas social constructivism istypically described as a psychological construct.’’ (Emphasis added.)

9 Thereby Searle (1995, 154) defines external realism as the view that ‘‘holds that reality exists outside of, or external to, oursystem of representation.’’

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The external realist attitude probably accounts for Searle’s book title, The Construction ofSocial Reality, in contrast to Berger and Luckmann’s (1966) The Social Construction of Reality—the latter does not defend a realist (constructionist) but a constructivist (idealist) position, andrefers to all reality levels. The difference between a ‘‘construction of something social’’ and a‘‘social construction of something’’ is subtle: in the first case the emphasis is on the social, thereality of which is being constructed (in Searle’s case, at least, epistemologically objective); inthe second case the stress is on reality (in general) that is being constructed—hence, a fictionof the human mind. Hacking (1999), obviously frustrated by the debate over ‘‘social construc-tion,’’ posed already in the title in his book the question, The Social Construction of What?Hacking believes that different notions (e.g., relations such as facts, or phenomena such asquarks, or things such as books, or ideas such as theories, or persons such as Bertrand Russell)have to be approached differently in social construction. This book probes deeply into the con-tentious issue of reality (and not only of social reality—though, obviously, of social construction).

However, some authors like Cupchik (2001), in his paper on ‘‘Constructive realism: An on-tology that encompasses positivist and constructivist approaches to the social sciences,’’ be-lieve—as this particular title suggests—that those two approaches can be used in a comple-mentary and parallel way. He emphasizes that:

Positivists and constructivists can orient toward social phenomena that exist indepen-dent of their scholarly disciplines. These phenomena do not rely on either group fortheir existence. Consequently, as members of a society they can agree on the existenceof these phenomena and, therefore, on a shared reality that is prior to them. But theway that scholars parse these phenomena and explicate their underlying processes willdepend on different goals. Positivists have a greater interest in uncovering specificfunctional relationships between operationalized variables; it is the predictability thatcounts most. Constructivists will be more interested in describing the coherent structureof a multilayered phenomenon; this strengthens the fabric of understanding. (Cupchik2001, 5 [paragraph 15, end of Section 1])

Furthermore, in various fields, like psychology, political science, etc., many theories haveemerged that bear in one form or the other the name of ‘‘constructivism’’ or ‘‘constructivist.’’ Seefor example the paper by Korsgaard (2003), ‘‘Realism and constructivism in twentieth centurymoral philosophy.’’ Many of those theories with similar names but different meanings may provequite confusing to accountants and other readers. In the area of international and political stud-ies, there also were serious attempts to find a ‘‘bridge’’ between constructionism and realism.For example, the paper by Barkin (2003) on ‘‘Realist constructionism,’’ and the Forum (edited byJackson 2004, International Studies Review), with papers by Jackson and Nexon (2004), Sterling-Folker (2004), Mattern (2004), Lebow (2004) together with a response by Barkin (2004). In general,these contributions reveal a favorable attitude toward building a connection between these twotraditionally opposed views. The major differences between those papers are interpretational andmethodological. First, whether Barkin (2003) may have underrated the gap between these twoviews; second, which methodology might be best to bridge this gap. However, as this exchangeof opinions—despite some relevance to our analysis—did not take place in the accounting lit-erature, I will be satisfied to have drawn attention to it.

THE ONION MODEL OF REALITY AS AN ALTERNATIVEWe have seen Searle’s theory of constructing social reality might offer a solution to the reality

problem of accounting. Indeed, some accounting academics (e.g., Mouck 2004; Lee 2006a,

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2006b) are quite hopeful about it; and Alexander and Archer (2003, 6) seem to draw a conclusionfrom it that might go beyond Searle’s intentions:

That such a robust exponent of ER (external realism) accepts that social (and economic)reality does not exist independently of the collective representations of it, strongly sug-gests that an ER position on the economic reality that accounting (among other dis-cursive practices) seeks to represent is not tenable.

This passage indicates that Searle’s theory provides wind for the sail of (idealist) construc-tivists and their fellow travelers. Apart from that, there is the question whether the conclusionexpressed in the above quote is logically valid—particularly in the face of Searle’s obvious rec-ognition of the representation of institutional facts as epistemically objective.

Even before the publication of Searle (1995), I suggested an alternative way of looking atthese problems (in Mattessich 1991, 1995, 2003). There, I envisaged not merely a horizontalhierarchy of different strata of reality (e.g., in Hartmann’s sense), but one that emphasizes theevolution of the higher levels from the lower ones, and, above all, the ‘‘embeddedness’’ ofthe lower levels in the higher levels (like the layers of an onion). This vision was inspired by theNobel laureate Konrad Lorenz’ (1973, 1977) book, Behind the Mirror, as well as by Hartmann’s(1940) categories of being no less than Bunge’s (1977, 1979) ‘‘scientific ontology.’’ Each level(from the physical to the chemical, the biological, the mental, the social, as well as each of theirinnumerable sublevels, etc.) grows out of the preceding one, but is endowed with new emergentproperties.10 The existence of these ‘‘new’’ properties implies that each reality level possessesits own and very distinct kind of reality. Furthermore, emergent properties on a specific realitylevel (or sublevel) usually exist on the next higher level(s), but definitely not on the more basicones preceding it. My approach—conceived from the very beginning for practical orientationrather than as a philosophical doctrine—may even manifest a few similarities with Searle’s muchmore sophisticated and elaborated philosophical theory. This and the potential usefulness ofthe OMR for accounting have been emphasized by Lee (2006a, 14) and others. Furthermore, thefollowing quote may confirm such similarity:

Our aim is to assimilate social reality to our basic ontology of physics, chemistry, andbiology. To do this we need to show the continuous line that goes from moleculesand mountains to screwdrivers, levers, and beautiful sunsets, and then to legislatures,money, and nation-states. The central span on the bridge from physics to society iscollective intentionality, and the decisive movement on that bridge in the creation ofsocial reality is the collective intentional imposition of function on entities that cannotperform those functions without that imposition. (Searle 1995, 41)

At the risk of some repetition, let me summarize the major items of divergence:(1) I believe that such terms as ‘‘objective’’ and ‘‘subjective’’ are better applied to epistemic

discussions, and may create confusion when used on the ontological plane. Obviously, to say‘‘The U.S. federal debt is a social reality’’ is easier to understand and less confusing than say-

10 According to Goldstein (1999), emergence is ‘‘the arising of novel and coherent structures, patterns and properties during theprocess of self-organization in complex systems.’’ For further details, see Corning (2002) and Buchanan (2000). The latterspeaks of a ‘‘law of universality’’ in evolution—‘‘from our cosmic origins to economic societies.’’

A popular example of an emergent property is that of ordinary table salt, a harmless, even essential, substance forhumans and other creatures. But its components, sodium and chloride, consumed individually are toxic. In other words, bycombining them to a molecule, entirely new properties emerge.

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ing: ‘‘The U.S. federal debt is ontologically subjective.’’ However, when I say that ‘‘ownershiprelations belong to the social level of reality, it means pretty much the same as Searle saying:‘‘ownership relations are ontologically subjective but epistemologically objective in social reality.’’Hence, at this stage, we may consider the difference between our two approaches mainly aterminological one—whereby I claim that it is clearer, and perfectly sufficient, to say that some-thing belongs to the physical or biological or social-cultural level of reality, instead of discrimi-nating between ‘‘ontologically objective’’ and ‘‘ontologically subjective.’’ One of the few possibleexceptions where the notion of a subjective reality is accepted in everyday language is in ref-erence to schizophrenic or otherwise mentally sick persons who suffer from hallucinations thatmake them see and believe things that do not exist. But even there, it is not really reality that isreferred to.

(2) In my approach the notion of ‘‘physical’’ is somewhat different than in Searle’s. Its popularmeaning refers to tangible things, concrete, nonmental, etc. But in talking about the physicallevel of reality we ought to think about the basic constituents of this level, namely those thatform the foundation of numerous higher levels (and sublevels) of reality. Hence, a human beingis certainly something ‘‘physical’’ (in common parlance); yet, ontologically he or she belongs tothe (human) social-cultural level of reality (that incorporates, among many other levels, the phys-ical one as well). But human beings do not belong to the physical level proper—because thelatter deals only with atomic and subatomic particles and physical laws, etc.11 Hartmann (1940)had similar concerns, as Stegmuller (1969, 220–221) points out:

This infringement of categorial boundaries, as Hartmann calls the theoretical encroach-ment of one province of being upon another, must be eliminated by rigorous criticalanalysis; yet the categories must preserve their relative validity for the domain fromwhich they were taken originally.

For Searle, ‘‘Mount Everest’’ is a physical reality, but in the OMR it would be assigned tothe geological level of reality. For me physical reality refers, first of all, to things taught in theo-retical physics, and chemical reality to things taught in chemistry, etc. Yet, Mt. Everest is notbeing taught in physics; it is taught in geography and geology. And rightly so, because thismountain is ‘‘embedding’’ a long geological history of the earth and pertinent emergent prop-erties. Of course, its roots are in physical reality, but so are the roots of all higher reality levels.

(3) I put great emphasis on emergent properties found on all the levels and sublevels ofreality—as well as their specificity for each reality level. In the first few lines of Searle’s (last)quote above, he speaks of ‘‘the continuous line [my italics] from molecules ... to ... money, andnation-states.’’ But let us not forget that this continuity is ‘‘punctured’’ on each level by emergentproperties. Searle occasionally does mention emergent properties; for example, in Searle (1997,22) by pointing out that: ‘‘all of our conscious experiences are explained by the behavior ofneurons and are themselves emergent properties of the system of neurons.’’ Yet, in general,Searle puts less stress (than I do) on those properties and their crucial role in ontology.

As far as emergent properties are involved, an entity of a specific reality level cannot simplybe ‘‘reduced’’ to a lower level—see the final part of Hartmann’s (first) law of recurrence (Wikipedia2008, Nov. 10, on ‘‘Nicolai Hartman’’). In the case of the paperweight, the stone might be reduced

11 Here, I must confess of a ‘‘change of mind.’’ In Mattessich 1995, Chapter 3, I still regarded such accounting items as inventory,machinery, buildings, etc., as physical reality (e.g., on p. 54, I referred to a photocopier as a ‘‘physical reality’’). But thoughthey may be ‘‘physical’’ (in the sense of ‘‘concrete’’), they do belong to social and not to physical reality—they certainly arenot the subject of theoretical physics.

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to the geological level of reality because no emergent property was involved in using it as apaperweight, but it cannot be directly reduced to an entity on the physical level because theemergent properties of the geological level and further down, of the chemical levels, lie in be-tween. As to the screwdriver, such a tool (even if it ultimately consists of atoms) is much morethan an arrangement of atomic and subatomic particles. Remember, I consider the level of phys-ical reality as embracing approximately the things being taught in theoretical physics. Neitherscrewdrivers nor pieces of wood and metal belong to the topics of theoretical physics. The factthat a tool like a screwdriver ultimately consists of physical particles does not mean it belongsto the physical level if higher levels are involved—even if, among its many entities and properties,there are also ‘‘physical’’ ones.

By looking in greater detail at the entire structure of individual reality levels, we may com-prehend why emergent properties play such an important role in the OMR.12 These propertiescreate the ‘‘leaps’’ in the transition from one reality level (or sublevel) to the other. As I haveshown, Searle does occasionally mention emergent properties, but the following quote mightgive a hint of where their mentioning would be appropriate: ‘‘the existence of observer-relativefeatures of the world does not add any new material objects to reality, but it can add epistemicallyobjective features to reality’’ (Searle 1995, 10) (emphasis added). I do not question this statement,but I would have extended it by saying that ‘‘these features do add emergent properties thatdistinguish social reality from any form of brute reality, and make the former real in its ownontological way.’’

(4) While I use the onion metaphor to convey a rough image of the hierarchical structure ofreality as a whole, Searle—by concentrating more on social reality—comes close to what I wouldcall the metaphor of the ‘‘Janus-faced reality’’ (JFR). Searle emphasizes repeatedly the dualityof brute reality (facts) versus social reality (facts) as two different aspects of the same thing (likethe two opposite faces of Janus, the Roman god of ‘‘doors’’ or the ‘‘beginning and end’’). Searle(1995, 41) even speaks of a ‘‘boundary,’’ even a ‘‘wall’’ separating the two sides. For example astone is, on one side, a physical reality but if used as a paperweight, it is simultaneously a socialreality. The same is supposed to hold for a ‘‘screwdriver’’—as such, it is observer-relative, butat the same time, it has the intrinsic features of wood, metal, etc., of ‘‘brute reality.’’ This isSearle’s way to express the connection between brute reality and social reality, as the followingquote reveals: ‘‘We will use the ‘mental,’ so constructed, to show how ‘culture’ is constructedout of ‘nature’’’ (Searle 1995, 9). If my interpretation is correct, then Searle emphasizes thissimultaneity of two layers rather than a ‘‘global’’ hierarchy of innumerable levels of reality.

Smith (in Smith and Searle [2003, 285])—in an exchange of thoughts—claimed that Searleenvisages a ‘‘two-level ontology.’’ Searle (in Smith and Searle [2003, 304]) admitted that hestarted by distinguishing between ‘‘brute and institutional facts,’’ but later (in Searle 1995, 121,by referring to his Table 5.1) he points out that ‘‘there are at least seven different levels’’ (Searle,in Smith and Searle [2003, 304]). For a response to this claim see the next item.

(5) In contrast to the OMR that sketches a structure of all reality, Searle offers a very detailedanalysis of social reality. In doing so, he also presents a kind of hierarchy (see also Searle 1995,

12 Since the analogy of the OMR is limited in many respects, I formulated an extended version of the OMR in Mattessich 2009.This model includes evolutionary aspects (e.g., trees and branching analogies) and aspects from Bunge’s system-orientedontology, and as well as from Searle’s (1995) social ontology. But the hallmark of this extended version is, just as it was forthe original OMR, the plurality of reality—i.e., its central question is ‘‘on which of the many levels of reality is somethingconsidered to be (constitutively) real or not real.’’

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121, Figure 5.1). This figure reveals the following hierarchy of facts: Brute Physical Facts versusMental Facts: Nonintentional (facts) versus Intentional (facts): Singular versus Collective � SocialFacts: ‘‘All Others’’ (facts) versus Assignment of Function: Nonagentive Functions versus Agen-tive Functions: Causal Agentive Functions versus Status Functions � Institutional Facts: Lin-guistic (facts) versus Nonlinguistic (facts).

This is undoubtedly an interesting ‘‘hierarchical taxonomy’’ that may help in clarifying socialreality, but it is not one that ‘‘will show the place of the social, institutional, and mental realitywithin a single physical reality’’ as asserted by Searle (1995, 120–121) because Figure 5.1, again,lumps all reality levels but the social one into the category of ‘‘Brute Physical Facts.’’ Thus, itconceals crucial individual strata of the total hierarchy (and underlying emergent properties) ofthe realities belonging to the physical, astronomical, chemical, botanical, zoological, and otherlevels. Second, even the hierarchy of social reality is incomplete. For example, the crucial socialcategory of human beings, as well as the one of their creations (whether ‘‘living’’ or ‘‘concrete,’’like domesticated animals, as well as buildings, machinery, airplanes, etc.) are missing—unlessSearle deems them to be included in the category of ‘‘Brute Physical Facts,’’ where such entitiescertainly do not belong.

(6) I believe my approach hints at a more consistent or ‘‘full-fledged’’ realist attitude (partic-ularly in regard to social reality) than does Searle’s. In his case, one might believe or even claimthat his is an idealist (constructivist) position as far as social reality is concerned. This is rein-forced by the title of his book, The Construction of Social Reality, because such terms as ‘‘con-structivist’’ and ‘‘constructivism’’ are traditionally associated with the idealist position of thecritical-interpretive school and its forerunners. Beyond that, Searle’s external realism could beinterpreted as partly realist (as far as ‘‘brute reality’’ is concerned) and partly idealist (as far associal reality is concerned) as previously suggested.

(7) Related to the previous item, I regard social reality (including persons and their creations)ultimately as products of socio-cultural evolution. Obviously, they are also the creation of hu-mankind and its mental and physical capacity. But all this were not possible without the creativeforce of cosmic nature and its evolutionary process. This aspect is hardly emphasized by Searle,despite his claim to a ‘‘naturalistic’’ approach—from Searle’s account, one is even uncertainwhether persons are at all entities of social reality or whether he counts them as ‘‘brute reality.’’One might even argue that human beings, although ‘‘concrete’’ entities, are mind-dependent.Could any person come into this world without another mind?

I am far from claiming that my approach—or my amendment to Searle’s approach—is sub-stantially superior to his. But, as demonstrated, it conforms better to existing linguistic usage,is less complex, and may avoid confusion. Hence, beyond the items raised above, I have nofundamental disagreements with either Searle, or Lee, or Williams (or, for that matter, with Mouck2004). But Macintosh’s post-modern view rejects Searle’s approach (see Macintosh 2006, 30)—and, presumably, the onion model of reality—and therefore needs further examination.

Reading Macintosh (2006) can be a bewildering experience. Sometimes, I thought to be infull agreement with him. For example, when he states that ‘‘most of us are pretty sure that thingsare out there (stones, mountains, atoms, etc.) that are not just a creation of human minds andlanguage and that do exist as things-in-themselves, as Nietzsche calls them’’ (Macintosh 2006,30).13 I also agree with his continuation that ‘‘the vital point is that the physical world is out there

13 My only possible caveat to this statement is that it was Emanuel Kant who created the term ‘‘das Ding an sich’’ (popularlytranslated as ‘‘the thing itself,’’ or ‘‘the thing-in-itself,’’ or ‘‘the thing as such’’).

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but the truth or falsehood about it, its essential meaning, is not’’ (Macintosh 2006, 30). In on-tology, reality just exists—if it does not exist, it is not reality. Such terms as ‘‘truth’’ and ‘‘false-hood’’ are, indeed, not ‘‘out there’’ but belong to the epistemic sphere where we try to establishthe truth value of propositions, depending whether our propositions are backed up by something‘‘out there’’ or not. Macintosh’s quote is similar to Rorty’s: ‘‘To say that the truth is not out thereis simply to say where there are no sentences there is no truth.’’ (Rorty 1989, 5). Here too, thereference is to epistemology and not to ontology. And when Macintosh then says: ‘‘Sentencesand language are human creations, and so truth cannot be ‘out there’ because descriptions ofthe world are not ‘out there’’’ (Macintosh 2006, 30), this still would be in agreement with my ownthinking. But the following passage makes all those ‘‘agreements’’ to naught and reveals theidealist background of this author:

From the poststructuralist position, the border between the concepts of ontology ... andepistemology ... is not only fuzzy but also indistinguishable. The idea of identifying somebrute ontological reality is by definition epistemology (a way of ‘‘knowing’’ this thing),while the idea of knowing something is ontology in the sense that to know is to be. Onthis view, the difference between ontology and epistemology implodes. (Macintosh2006, 30)

It is true that in ontology we not only confront real entities, we are also talking about themby means of words and sentences manifesting concepts and propositions. Hence, from a realistpoint of view, conceptual representation takes place in ontology no less than in epistemology.Yet, these two subdisciplines are by no means identical because each of them poses entirelydifferent questions. The first is concerned with such notions as reality versus fiction, existenceversus nonexistence, actuality versus probability, materiality versus ideality, etc. The seconddeals with knowledge versus belief, truth versus falsehood, verification versus refutation, etc.Whoever contends this fundamental difference between these two subdisciplines ought to com-pare Mario Bunge’s (1977, 1979) Vols. 3 and 4 (on ontology) with Bunge’s (1983a, 1983b, 1985a,1985b) Vols. 5, 6, 7/I, and 7/II (on epistemology). Nevertheless, philosophers and other scholarsseem to be divided on how to deal with the issue of the real and its representation. Hartmann(1949, 1953, 19), for example, who distinguishes (conceptual) ontological categories from (real)cognitive categories, states:

Insofar as we gain any knowledge at all of categories [of reality] we do not gain it by apriori methods ... but rather through an analysis of objects to the extent that they areintelligible to us. In this way, however, we grasp in the first place ontological categoriesonly, not cognitive categories as such. The latter are arrived at only through reflectionon the cognitive function by proceeding backward from the comprehended ontologicalcategories.

This state of affairs is of greatest import. First, it follows that epistemology, in regard tothe problem of categories, is not independent but presupposes an ontological under-standing of the whole fields of objects of knowledge ... Rather itself needs an ontologicalfoundation.

At other places Hartmann refers to ‘‘ontological levels of reality’’ versus ‘‘actual levels ofreality.’’ This opens two interpretations: first, Hartmann’s ontology deals, on one hand, directly

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with reality, but on the other with conceptual issues about reality—thus has two facets. Orsecond, he regards the conceptual part as actually belonging to epistemology. The latter viewis also defended by Poli (2001b, 262):

The theme of the levels of interpretation is obviously important, but I do not believethat it should be superimposed on (even less confused with) the problem of the levelsof reality. Although confusion between the two planes is not infrequent, their namesthemselves indicate that they occupy different places in a theoretical framework witheven the minimum of structuring. The levels of reality have a strictly ontological signif-icance, while those of description have an epistemological one. The presence of inter-mediate or ambiguous cases does not authorize one to confound categoricalspecificities.

A third alternative is chosen by Lee (1995, 11–12, with Figure 1) where he distinguishesbetween three different categories: Reality, Ontology, and Epistemology. Lee has a strong ally inBunge, who demonstrates convincingly that ‘‘theoretical science and ontology handle not con-crete things but concepts of such, in particular conceptual schemata sometimes called modelthings’’ Bunge (1977, 119). However, ontology uses words for both real things (such as atoms,properties, cells, levels of reality, human beings, brain processes, populations, etc.), as well asfor conceptual constructs (such as predicates, propositions, categories of reality, species, con-texts, theories, etc.), and it is extremely important not to take construct-words for thing-wordsor vice versa. While the three alternatives of looking at ontology arose in the realist camp, thefourth one (suggested by Macintosh; see above)—of the identity of ontology with epistemology—stems from the poststructuralist camp.

To further clarify the reality issue, let us probe into the question of how humans constructor reconstruct reality—all reality, not only the social kind. The confrontation with the environment(as a segment of reality) forced us and other living beings to respond to it by forming mental orsimilar structures (i.e., in humans down to concepts and propositions) in order to reflect in ourmind this very environment. Hence, the process takes place on the conceptual plane and iscalled by constructivists the ‘‘construction of reality.’’ Indeed, realists would agree to that, thoughthey might call it ‘‘model building’’ or even ‘‘reconstruction.’’ The difference, however, is thatrealists realize that in this process of reconstructing or modeling, reality must already exist beforehumans (or ‘‘higher’’ animals) can attempt to reflect it mentally. Humans do not invent reality, butreality imposes itself on humans who, in turn, try to know it. To what degree we can know realityis another matter. Obviously reality, by its very nature, is something fundamentally different fromour conceptual representation—that’s one reason why we have to distinguish between realityand ontology, and separate the latter from epistemology. But there exist structural affinities (e.g.,‘‘mathematical’’ and ‘‘logical’’ analogies) between reality and our conceptual representation. Andthe history of science demonstrates, par excellence, how this very imperfect ‘‘correspondence’’between our conceptual representation and the reality ‘‘out there’’ improves with every genuinescientific discovery. Whether this knowledge will ultimately benefit or destroy mankind is a verydifferent question. At any rate, so far, we did not do too badly.

Yet, in defending a contrary, idealistic view, Macintosh deviates not only from the positionof the FASB but also from that held by the other participants of the ‘‘2006 discussion.’’ However,the philosophical controversy between realists and idealists is thousands of years old, and—short of a cataclysm—will probably continue for further millennia. Thus, any attempt to solve it

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in a modest accounting paper would be presumptuous. We just have to accept the fact thatthese are two or more very different viewpoints that all sides ought to respect—even withoutfinding mutual agreement.

Finally, to the question of whether accountants and other academics, or even the man onthe street, can create new realities and thus change reality, I believe they can and they do—andprobably not only on the social level.14 But, so do—on the biological level—such creatures asants and termites, beavers and birds, elephants, primates, and so on. Yet, this invokes anotherimportant question that is rarely vented in current accounting discussions. For ages, philosophershave debated whether such generalities as genera, species, natural laws, etc., are real or not.This is the famous controversy between various theories of universals. The major medieval re-alists were Saint Augustine [354–430] and Thomas of Aquinas [1225–1274]. The former was aradical (Platonic) realist and believed in the existence of universals (i.e., genera as contrastedwith individuals) as thoughts of God; the latter held a more moderate realist position by believingthat there are objective similarities between things and their generalization—thus, species havemore than a mere mental existence. This stands in contrast to Peter Abelard [1079–1142], aconceptualist, who considered universality to be a function of the mind. William Ockham [1285–1349] took originally a nominalist position by accepting that universals are mere names, but laterchanged to a conceptualist view.

I am impelled by reason as well as instinct to accept a (critical) realist position. That means—apart from the fact that generalizations (including law-like statements) are conceptual forms andconjectures on the epistemic plane—there must exist genuine laws of nature in reality. And if so,universals must exist as well, because laws of nature are generalizations. Apart from this, thereare similarities between things and their common forms, and this too speaks for consideringuniversals as real.

THE PROBLEM OF VALUATIONOf course, scholars like Macintosh would use a meltdown of the stock market as an example

for the ‘‘unreality,’’ or in his and Baudrillard’s terminology, the ‘‘hyperreality’’ of modern life. Butas much as an ownership relation (e.g., in stocks) or a debt relation (bonds) belongs to the sociallevel of reality, the fact that their values fluctuate (sometimes to the vanishing point) is equallyreal on this level—just as the vanishing of a subatomic particle in the atomic accelerator is aphysical reality. Some might blame the financial failures on accounting standards, but the realtrouble lies in a monetary and financial system based on such social realities as ‘‘over-leveraging,’’ ever-increasing money and credit creation, greed and fraud inherent in present ec-onomic practices, and so on.15 However, Macintosh (2006, 35) comes to the followingconclusion:

14 I recall the creation of a series of trans-uranium elements (e.g., plutonium, americium, curium, berkelium, einsteinium, fermium,mendelium, and nobelium) that were first created by the Nobel laureate Glen Seaborg (in collaboration with others) in theBerkeley Cyclotron (even if these elements were extremely short-lived). If some of these elements did not exist previously (noteven in outer space—and there seems to be some doubt about that), then humans can, indeed, create new realities, even inphysics. This also invokes the intriguing question ‘‘do these trans-uranium elements belong to the social reality level?’’ Afterall, these elements might not have come into being but for the human mind and its collective intentionality (not only of theteamwork discovering them but also of those who invented and constructed the cyclotron, etc.).

15 To the extent that individual public accounting firms are involved in fraud or obstruction of justice—e.g., by destroying vitaldocuments (as did Arthur Andersen Co. in the ENRON case)—I would agree with Macintosh or anyone else. But that doesnot justify confusing the immense complexity and difficulty of accounting measurement in the twenty-first century with anentirely different problem, that of corruption, dishonesty, and the breakdown of morality in modern business practices.

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[I]ncome and capital in financial reporting are ‘‘bullshit’’ ... nevertheless a large part ofthe world today relies on and takes vital decisions based on the accounting spinners’financial statements. That is the big message, the one that should set financial worldcapital markets back on its heels. Surely this is the crucial concern that academicaccountants of all persuasions should be addressing today.

As to the problem of valuation, no one is more aware than the accounting fraternity that thisis one of the most intricate issues of social reality. There are not merely the fluctuations of pricesdue to the economic laws of supply and demand, there are many other factors that contributeto the instability of values. There is the manipulation of the monetary system (e.g., artificially lowinterest rates and deflation, sometimes creeping and even rampant inflation), the creation ofcredit out of thin air without much ‘‘substance’’ behind it (e.g., in the U.S.A., federal permission,given in 2004, allowed investment institutions to increase their leverage from previously 1-to-12to the enormous rate of 1-to-30 and higher), the industry-fed incentives to buy almost anythingon credit, and the addiction of the public to do so, the psychology of speculation (that oftenleads to vicious circles, up as well as down the spiral), and many other factors. These problemsrequire much deeper probing, and will not be solved by denying capital and income its realitystatus or by calling this reality ‘‘subjective.’’ Some suggestions to the income measurement andits clarification are offered in Mouck (2004, 537–539).

For me, the problem of accounting valuation is foremost a pragmatic-methodological ratherthan an epistemological or ontological one. Although it may be true to say ‘‘the price of a shareof X Corporation at the New York Stock Exchange on October 1, 2008 (at closing time), was$54.00,’’ you cannot specify with the same certainty the value of individual assets and liabilitiesof the same corporation. To assign values to them, you need an intricate set of rules, principles,standards, risk-indices (implicit or explicit ones), etc. You may have to attach different probabilityfunctions to different values, etc. All these are methodological problems of social reality. In phys-ical reality we encounter no less complex measurement problems, but this does not mean thatthere the things and properties to be measured are unreal. Take the measurement problems oflength and speed in relativity theory; they can lead to the most unexpected or ‘‘absurd’’ results.Or take the ‘‘uncertain’’ determination of the simultaneous position and momentum (mass timesvelocity) of a subatomic particle. Again such measurement problems do not negate the existenceof the pertinent phenomena.

In order to make sense of reality (and to represent it by approximation), we have to recon-struct or model it in our own terms and language. But that would be meaningless if there wouldnot exist a reality ‘‘out there.’’ How do we know that it exists out there? I would suggest that weknow it (albeit more or less vaguely) by our observations in everyday social life no less than bythe stunning results and achievements of the sciences, like astronomy, physics, biochemistry,etc.

Another crucial factor for understanding the ‘‘measurement’’ problem of such accountingvariables as wealth, income, etc., is the necessity to distinguish these notions from the ‘‘value’’(and the magnitude) attributed to them—something accountants occasionally forget to take intoconsideration (they talk about ‘‘income’’ but mean ‘‘the value of income at a specific moment’’).If you own an automobile, that ownership is, so to say, guaranteed by law. But the magnitudeof the value of the car is not guaranteed. If you recently paid for it a sum of $80,000, but if youwant to sell it a month later, you will get much less. What does that mean for the reality statusof value (in contrast to that of ownership)? Does it mean that value is not a social reality?

The notion of value is derived from the biological notion of preference and the psychologicaland economic notions of usefulness and utility. Modern accounting valuation may be defined as

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the assignment of some monetary value to an asset, liability, ownership (or some of their deriv-atives) according to convention. But the valuation conventions of accounting are often contro-versial, and their status function is not always clear. For these reasons, I think the reality statusof individual accounting values is presently difficult to asses and may require further analysis. Atthis stage, I do not hesitate to consider acquisition costs as well as current market prices asobjective (or ‘‘epistemically objective’’ in Searle’s terminology), and present values as subjective(or ‘‘epistemologically subjective’’ in Searle’s terms). But I would consider all of these values as(ontologically) real on the social level because even discounted cash flows or similar epistemicallysubjective values are indispensable for making purchase and investment decisions, and thusexpress a social reality. As to the phenomena of capital and income, they play a significant rolein society and economics, and can hardly be excluded from social reality despite the constantfluctuations of the values attributed to them.

PERSONAL REACTION TO THE FASB’S ATTEMPT TO MOVETOWARD PBAS

Whatever the criticism raised against the FASB, the move toward PBAS seems to me mostlaudable. Above all, it should neither be confused nor mixed up with other critical issues raisedby the four 2006 papers. My positive attitude toward PBAS may have been influenced by thefact that for decades (cf., Mattessich 1957, 1964, 1995) I have pleaded in favor of a more rigorousapproach, like a principle-based CF. That is to say, a set of basic accounting assumptions shouldform the backbone of the CF and its more specific accounting standards. These earlier attemptshave been recognized in the literature (together with similar attempts by other authors (e.g.,Chambers 1966) as having been an impetus, first for the American Institute of Certified PublicAccountants (AICPA) in their accounting postulates and principles project (as confirmed by Zeff1982), and later for the FASB to initiate the development of the CF (as confirmed by Slaymaker1996, 151).

As regards the conception (or acclaimed misconception) of social reality by the FASB, myattitude is relatively sympathetic. I agree that the ‘‘legislators’’ of the CF should have a grasp ofsocial reality and its meaning in accounting, but I do not believe that the FASB has to abandonits realist position. Here Lee and Macintosh might disagree, while Williams (2006, 38, first line)is likely to agree with me.

There can be no doubt that to create a CF with principle-based accounting standards is agigantic task. I made my first stumbling steps toward an axiomatization of some accountingpropositions in Mattessich (1957). Soon afterward during my tenure at U.C.-Berkeley, my col-league and mentor Maurice Moonitz became interested in those attempts. When he accepted atwo-year appointment as Director of Research of the American Institute of Certified Public Ac-countants (AICPA), he decided to pursue a similar project (on a nonmathematical basis). Theresults were published in a monograph (Moonitz 1961), The Basic Postulates of Accounting.16

This was followed up by Sprouse and Moonitz’ (1962) monograph, A Tentative Set of BroadAccounting Principles. These, together with in-official attempts (by Mattessich 1964; Chambers1966; Ijiri 1967) were the forerunners of the ‘‘conceptual framework’’ (cf., Zeff 1982; Slaymaker1996, 151). But as to Sprouse and Moonitz (1962), it was rightly criticized in this very publication

16 Moonitz (1961) acknowledged my contributions (as well as those by Chambers) to this particular project in various ways (e.g.,by reference to Mattessich 1957; see also Zeff 1982), as well as in his book (Moonitz 1986, 56–58) on the History of Accountingin Berkeley.

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by a comment of Leonard Spacek. The latter pointed out that ‘‘there is very little attempt todemonstrate how these principles flow from or are based on the postulates set forth in theprevious [Moonitz 1961] study’’ (Spacek 1962, 77—see also Spacek 1963). I consider this crit-icism fully justified. It ought to be a lesson to the FASB, which has to make sure that the logicalconnections from postulates to principles (and later to standards) must be preserved in theforthcoming principle-based CF.

However, these early problems are an indication of how difficult the problems of building aprinciple-based CF are. It may require a genius to overcome them. A scholar like Spinoza [1612–1677] comes to mind, who created his Ethica Ordine Geometrico Demonstrata (1674, 1981) onthe basis of a (verbal) axiomatic system with rigorous proofs—or a great legalistic talent, likeHans Kelsen [1881–1973], who based his Reine Rechtslehre (1934, 1967) or Positive Theory ofLaw on a Grundgesetz (basic law) from which he derived more specific legal propositions.Kelsen’s work has been called ‘‘probably the most significant body of legal theory of the 20c’’—cf., Bullock and Woodings’ (1983, 386) reference work. In our time Mario Bunge undertook themonumental effort of building not only his ontology (Bunge 1977, 1979) but an entire philosophyof many volumes on the basis of rigorous set-theoretical and axiomatic principles. Yet, all theseattempts were more of theoretical than practical significance. Whether a ‘‘committee’’ is capableof succeeding to convert such profound theoretical ideas into practice is far from certain.However, there is no other way but trying, and to do so should be encouraged rather thandiscouraged.

As to the five specific recommendations offered by Lee (2006a, 16–18), I have suggestionsonly as regards the first one. There, I would delete the following of Lee’s phrases (and substitutethem with my suggestions below): ‘‘It [the FASB] needs to explicitly recognize that the subjectmatter of accounting comprises institutional facts that are ontologically subjective because oftheir human creation. The task of the FASB is to produce standards that permit representationof these facts in an epistemologically objective way. In other words, the subject matter of ac-counting cannot be made objective, but its representations can’’ (Lee 2006a, 17–18). I wouldsuggest replacing this passage with the following formulation: ‘‘The FASB needs to explain ex-plicitly that the subject matter of accounting comprises predominantly of institutional facts thatare real on the social level (and no other level of reality). Even where ‘concrete’ things likeinventory, machinery, buildings, real estate, etc., are involved, they assume social functions andbelong to the social level of reality (without any ‘infringement’ by more basic categories on whichsocial reality rests). The task of the FASB is to produce standards that permit representation ofall of such facts.’’

CONCLUSIONIf the FASB is inclined to take the ‘‘discussion of 2006’’ into consideration—especially the

central issue of social reality—the board members and other accountants might find my belatedadditions a useful afterthought.17 And since the mills grind slowly, that afterthought may not evenbe too late. Furthermore, the International Accounting Standards Committee Foundation (IASCF2007) and, possibly, other international organizations have meanwhile showed interest in moving

17 Should, in addition to that, the FASB be interested in my suggestions for improvements to Searle’s (1995) original formulation,it might be advisable for the expose of FASB to contain some preliminary explanations of his theory as well as of the ‘‘onionmodel of reality.’’ Above all, a discussion of the difference between the two versions would be necessary, particularly forunderstanding the terminological advantages of the latter.

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toward PBAS.18 Hence, the associates of those institutions might also be inclined to take thisamended perspective on social reality into consideration.

Apart from such remarks, I must remind the reader that this short paper is but a sketch,and in order to get a richer picture, accountants would have to read Searle’s (1995) book,Mouck’s (2004) application of it to accounting, and possibly my previous effusions on the onionmodel of reality. I should add that the latter—as well as the entire issue of social reality (andsuch sublayers as accounting, economic, and legalistic reality)—requires much further studyand deeper analysis. Here, I have merely touched on such notions as ownership, debt relations,income, and said a few words on valuation issues. Above all, I have tried to show that there isgood reason to consider capital and income as social realities (even without censoring them as‘‘ontologically subjective’’). But what about many other accounting concepts, such as assets,among them good will and other imponderables? What about accrued and deferred items? Whatabout fictitious notions of accounting (i.e., those not backed by any reality) as some accountingtransactions (versus economic transactions on which they are based, but with which they mustnot be identified). Furthermore, there is not only the distinction between reality and conceptualrepresentation; semantic (or linguistic) representation also has to be taken into consideration.Some of these issues I have raised in Mattessich (1995, 2003), but there still is a host of problemsto be investigated before we can expect a comprehensive understanding. For readers interestedin further exploring some of these issues, I recommend Mattessich (2009), and above all Mouck(2004); I also take the liberty of quoting a passage of his summary. However, I do so with a twist.Certain passages with which I disagree (mainly for reasons of ‘‘Searle’s versus my own termi-nology’’) I put in italics, followed by my own terminology in brackets:

As this [Mouck’s] paper has demonstrated, Searle’s philosophical analysis of institu-tional reality does provide building blocks for developing a theory of financial account-ing. Using those building blocks, I have demonstrated that many financial accountingrepresentations (regarding ownership claims and monetary obligations, for example)may be properly characterized as epistemologically objective facts, even though suchfacts have an ontologically subjective mode of existence [in my terms: ‘‘have realitystatus on the social level only’’]. Such facts are based upon already existing institutionalarrangements involving such things as money, corporations, property rights, etc. Otherfinancial accounting representations, however, only come into existence in accordancewith a set of rules, financial accounting rules, that have no objective basis in eitherphysical or institutional reality [in my words: ‘‘belong exclusively to social reality (includ-ing institutional reality as its sublevel)’’]. The financial accounting rules for aggregatingthe monetary amount of total assets, for calculating net assets, net income, and earn-ings per share are more akin to the rules for a game such as football. Once the ruleshave been established, certain accounting representations based on those rules maybe said to be epistemologically objective with respect to those rules, even though there

18 IASFC (2007, 4): ‘‘It is also important to keep our efforts focused on advancing our goal of creating a single set of high-quality,principle-based financial reporting standards that are used throughout the world’s capital markets. In the context of this goal,the IASC Foundation and the IASB have made much progress, and the European Union has been a leader in this effort. Morethan 100 countries throughout the world, including the 27 European Union Member States, require or permit the use ofInternational Financial Reporting Standards (IFRSs) developed by the IASB. This number is expected to rise substantially withina relatively short time frame.’’

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is no objective basis for the rules themselves [in my words: ‘‘that reflect a social andinstitutional level of reality’’].

From this perspective, I have argued that net income [in my terms: ‘‘the valuation of netincome’’] can be seen as a fuzzy indicator of subjective reality. Net income provides anindication of the increase in value, or wealth [in my terms: ‘‘change in wealth’’], eventhough there is no objective criteria for measuring that value. [in my terms: ‘‘the valueof that income’’] In this sense, net income [in my terms: ‘‘the value of income’’] hasmuch in common with indices [in my terms: ‘‘values offered by indices’’] such as theConsumer Price Index. (Mouck 2004, 540)

This indicates that, basically, I am in agreement with Mouck (2004) no less than with Searle(1995)—apart from a language that I consider closer to the accountant’s and layman’s termi-nology, as well as simpler and less confusing. This terminological difference manifests itself inthe above quotation in two ways: first, I use instead of ‘‘ontologically subjective,’’ the phrase‘‘on the social reality level’’ (or some equivalent formulation), and second, I make a strict dis-tinction between income and the value of income (or to be even more precise, though pedantic,‘‘the magnitude attributed to the value of income’’). I can only hope the thoughts here exposedmay serve the FASB and similar institutions, and will be further developed by younger accountingscholars, above all doctoral students, who might bring them to ultimate fruition.

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