Where's the evidence that "accounting is just data"?
Malcolm McLelland
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Where's the evidence suggesting your theory that "accounting data isn't information until it's processed into information" (The Theory) is consistent with what goes on in the real world?
I'm glad you asked because that's what my co-authors, Matt Anderson and Greg Gerard, and I were working on this past summer. Here's some evidence obtained for the U.S. public accounting industry we found that's actually quite consistent with The Theory:
Anderson, Gerard, and McLelland, 2006, "Sarbanes-Oxley and the shrinking accounting labor market: Exploring potential causes and their implications", Working Paper, Purdue University.
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Q1: Has demand for accounting services increased following Sarbanes-Oxley Act passage?
A1: Yes, at least in terms of total revenues generated by the accounting industry.
Q2: Has quantity demand for accounting services also increased following Sarbanes-Oxley?
A2: Yes, output volume (roughly, billable hours of professional accountants) has increased also.
Q3: Are accounting services valued more highly following Sarbanes-Oxley, as well?
A3: No, accounting industry output prices (roughly, average realized billing rate per hour) have decreased markedly following Sarbanes-Oxley.
Q4: Has the increased overall demand for accounting services following Sarbanes-Oxley resulted in an increased overall demand for accounting labor, as well?
A4: No, total accounting industry professional compensation has decreased markedly following Sarbanes-Oxley ... strange because the big accounting firms say they need professionals as never before.
Q5: Has such increased demand following Sarbanes-Oxley at least resulted in increased professional hours worked in the accounting industry?
A5: Again, no ... strange again: Not only is total professional compensation in the industry down, even the total professional hours worked are down.
Q6: Has such increased demand following Sarbanes-Oxley perhaps resulted in increased professional hours worked on a per-professional basis in the accounting industry?
A6: No, total hours worked on a per-professional basis have decreased as well.
Q7: Have hourly wage rates of professionals in the accounting industry increased or decreased following Sarbanes-Oxley?
A7: Increased; this seems the one component of accounting labor demand improved following Sarbanes-Oxley. This suggests the people the accounting industry is hiring are more highly-skilled; more on this below.
Q8: What changes have occurred in other inputs to producing accounting services?
A8: Perhaps the only other substantial input to accounting services production is information technology (IT capital); and the accounting industry has substantially increased its IT capital investments and costs.
... ALL SUGGESTING THIS: The accounting industry is employing fewer, more highly skilled professionals, and it is combining such human capital inputs with a large increase in IT capital inputs. This suggests, in turn, that it's necessary for the accounting industry to combine accounting knowledge/skills with IT knowledge/skills (a lot more so than in the past) in order to provide--or, more likely, maintain--the value of its service output.
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If you're visually-oriented like me, you'll find the graphs and related regression analyses we put together from our research work interesting.
Why do I say the evidence referenced above is consistent with The Theory? At a somewhat deeper level than the answers presented above, the econometric results shown on pp. 11-16 of the linked graphs/analyses suggest ...
- There's only one thing that's making accounting more valuable (stay with me here, I mean the value of the entire US accounting industry output) and that one thing is the output from the information services industry! Consistent with The Theory, this suggests that the usefulness of the accounting industry output depends on the output of the information services industry ... so the evidence suggests that, on average, it's necessary to combine accounting/information technology/etc. in a certain way to create valuable information.
- The accounting industry is very closely tied to the information services industry in terms of output prices, employment levels, labor demand, wage rates, etc., and is not largely affected by sources of what I think of as artificial demand (e.g., the Sarbanes-Oxley Act).
In the end, if we think carefully about what accounting is and how people actually use it in making decisions, then The Theory seems very common-sensical. In this context, I think the evidence has strong implications about what we do as accountants, how accounting is taught, and what non-accountants need to know about accounting. More on this later ...
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