Louisiana State University LSU Digital Commons LSU Historical Dissertations and Theses Graduate School 1970 An Application of General Systems Theory to the Determination of the Nature of Accounting. Robert Eldon Bailey Louisiana State University and Agricultural & Mechanical College Follow this and additional works at: https://digitalcommons.lsu.edu/gradschool_disstheses Recommended Citation Bailey, Robert Eldon, "An Application of General Systems Theory to the Determination of the Nature of Accounting." (1970). LSU Historical Dissertations and Theses. 1819. https://digitalcommons.lsu.edu/gradschool_disstheses/1819 This Dissertation is brought to you for free and open access by the Graduate School at LSU Digital Commons. It has been accepted for inclusion in LSU Historical Dissertations and Theses by an authorized administrator of LSU Digital Commons. For more information, please contact [email protected]. 71-6539 BAILEY, Eldon Robert, 1935- AN APPLICATION OF GENERAL SYSTEMS THEORY TO THE DETERMINATION OF THE NATURE OF ACCOUNTING. The Louisiana State University and Agricultural and Mechanical College, Ph.D., 1970 Accounting University Microfilms, Inc., Ann Arbor, Michigan THIS DISSERTATION HAS BEEN MICROFILMED EXACTLY AS RECEIVED AN APPLICATION OF GENERAL SYSTEMS THEORY TO THE DETERMINATION OF THE NATURE OF ACCOUNTING A Dissertation Submitted to the Graduate Faculty of the Louisiana State University and Agricultural and Mechanical College in partial fulfillment of the requirements for the degree of Doctor of Philosophy in The Department of Accounting by, Eldon R. Bailey B.S., McNeese State College, 1957 M.B.A., Louisiana State University, i960 August, 1970 ACKNOWLEDGEMENT The writer wishes to express appreciation to Dr. Fritz A. Me Cameron, Professor and. Head of the Department of Accounting, Loui­ siana State University, and Dr. Ehniel G. Kyle, Assistant Professor of Accounting, for reading and commenting on the manuscript during its preparation. The writer also wishes to acknowledge the helpful suggestions made by Dr. Herbert G. Hicks, Professor of Management, and to express appreciation to the other members of the dissertation committee, Dr. C. Willard Elliott, Associate Professor of Accounting, and Dr. Donald E. Vaughn, Associate Professor of Business Finance. iii TABLE OF CONTENTS PAGE ACKNOWLEDGEMENT..................................... ii LIST OF FIGURES ..................................... v ABSTRACT .......................................... v± CHAPTER I. INTRODUCTION ............................... 1 Purpose of the Study Approach and Methodology Limitations of the Study II. THE NATURE OF GENERAL SYSTEMS THEORY ........... 8 The Need for General Systems Theory The Development of General Systems Theory The Realm of Systems Theory ’* System” Defined Open vs. Closed Systems Variations and Applications of Systems Theory Summary III. THE NATURE OF OPEN S YSTEMS................... 32 Hierarchical Order Elements of Systems Characteristics of System Behavior I)ynamics of Systems A System Model Summary IV. THE APPLICATION OF GENERAL SYSTEMS THEORY TO ACCOUNTING................................. ?8 The Problem of the Nature of Accounting Accounting as a System Summary iv CHAPTER PAGE V. THE ELEMENTS OF ACCOUNTING AS A SYSTEM ....... 102 Environment Objective Boundary Inputs and Outputs Production Components Management and Information Components Summary VI. THE BEHAVIOR OF ACCOUNTING AS A SYSTEM .......... 139 Accounting as a Process Ifcmamics of Accounting as a System Summary VII. THE NATURE OF ACCOUNTING...................... 152 A Definition of Accounting Accounting as a Body of Knowledge Accounting as a Profession Accounting Education Summary VUI. SUMMARY AND CONCLUSIONS ...................... 168 SELECTED BIBLIOGRAPHY................................. X75 VITA ................................................ 186 LIST OF FIGURES FIGURE PAGE 2-1. A Simple Cybernetic System...................... 23 2-2. Schematic Diagram of a General Communication System............................................. ^5 3-1. A Self-Regulating S y s t e m ........................ 72 5-1. A Nesting of Systems...........................1^3 ABSTRACT Accounting as a profession and body of knowledge has a long his­ tory of service in the conduct of the economic affairs of mankind. In recent years, however, change in all areas of human endeavor has forced accountants to reevaluate the role of their discipline in society and to seek to expand its boundaries in order to maintain and increase its importance as a discipline. General systems theory is a developing body of concepts which can be quite useful in the effort to describe the nature of accounting. These concepts are based on the assumption that the entire universe can be viewed as a hierarchical structure of systems, a system being apy complex of elements in mutual interaction. The purpose of the study here is to identify the basic concepts of general systems theory and to describe the nature of accounting within the systems framework. The view of human organizations taken in this study is based on the concept of the cybernetic system. Qybernetic systems maintain a state of self-regulation through the feedback process. Human orga­ nizations will be most effective if they operate as self-regulating systems with three basic groups of components— management, production, and information. The management components control the system, the production components process inputs into outputs, and the information components measure and communicate feedback information. The role of accounting should be to act as the feedback information component of self-regulating human organizations of all kinds. The basic elements of the structure of any system are the envi­ ronment, objective, boundary, inputs and outputs, and components. The environment of accounting includes primarily the organizations in which it functions as information component. The basic objective of any sys­ tem is considered to be survival, which is achieved through production of output useful to the suprasystem. The objective of accounting then is the production of information output of maximum usefulness to its suprasystem. The boundary of accounting is the state of affairs which identifies it and links it with its environment. In one respect this boundary is determined by tradition or general acceptance, but ideally it should be determined by a structure of accounting theory. Mainte­ nance inputs from the suprasystem sustain accounting, while signal in­ puts are selected for processing into information output. The output of accounting results from the measurement and communication activities of the two basic production components of accounting— accounting for external users and management accounting. Accounting ideally should function as a self-regulating system, in specific organizations and. in the aggregate as a profession. A system in a condition of maintained self-regulation is said to have achieved, a steady state. The steady state of accounting should be that of constant production of useful information output through an adaptive system structure. The process of adaptation inevitably means growth and expansion, and accounting may grow quantitatively by multiplication of usual activities and. qualitatively through incorporation within its boundary of other information techniques so as to maintain and. improve the usefulness of its output. Accounting may be defined as the system for the measurement and communication of feedback information on the state and process of human organizations. Accounting is considered to encompass the entire scope of feedback information production. As a body of knowledge, accounting should consist of a framework of general principles based on general systems concepts. As a profession, accounting should be staffed, with information specialists capable of functioning in any organization. The responsibility of accounting education should be production of graduates inspired by an understanding of accounting*s vital role in human affairs and equipped with the knowledge that will enable them to fulfill that role. CHAPTER I INTRODUCTION Purpose of the Study Rapid change in all areas of human endeavor has become the basic characteristic of the second half of the twentieth century.1 The rush of technological advances sweeps away the old technology and makes prod­ ucts, processes, and equipment obsolescent from the moment they are con­ ceived. The development and application of the electronic computer has had a most profound effect in recent years. The vast information stor­ age and processing capabilities of this instrument have either caused or made possible many of the changes and achievements in science, busi­ ness, government, and other areas.2 Change is rampant not only in technology and science but also in the areas of human behavior and social organization. New technology, scientific progress, and rapid change itself have undoubtedly had pro­ found, pervasive, but poorly understood effects on the mores of human society. ^■This conclusion has been reached by numerous writers. Max Ways states: "The great new truth about humanity is change, movement." Max Ways, "Gearing U.S. Policy to the World’s Great Trends," Fortune, LXXIX (May 1, 1969), p. 65. A recent book that explores the pervasive effect of the computer is John Diebold, Man and the Computer: Technology as an Agent of Social Change (New York: Frederick A. Praeger, Inc., 1969). 2 The accountant of today finds that his area of knowledge has not escaped the