The Fuzziness of Financial Measurement: An Exploration of the Logic of Accounting’s Indeterminacy
Financial measurement is fuzzy: questions about the values ofassets and liabilities and of surpluses and deficits often havea wide range of more or less equally plausible answers. Thisfuzziness creates doubts about accounting, suggesting to somethat its measurements are arbitrary and do not represent theworld. In this thesis, I apply the tools of logic to explore thesources of accounting’s fuzziness.
One source of the fuzziness is accountants’ need to makeestimates, either about the future (e.g., for pension liabilitiesand assets measured at historical cost) or about events thatmight have occurred but in fact did not (e.g., for assets measuredat market value or replacement cost). The uncertainty ofestimates about future events can be understood using classicallogic. The uncertainty of estimates about counterfactualevents requires something nonclassical, such as the Lewis–Stalnaker logic of counterfactuals.
A second source of the fuzziness is the multitude of waysin which the vague terms of accounting can be made precise,either in accounting rules or in the application of those rules toparticular cases. Some logics of vagueness would require radicalchanges in the way accounting is understood or practised.
Plurivaluational logic is attractive because it applies fairly naturallyto accounting and does not require such changes. Theessence of plurivaluational logic is the claim that vague sentenceshave a multitude of individually precise, acceptablemeanings, among which users of a language have not yet chosen.
Other possible sources of fuzziness are logical gaps andconflicts in accounting rules and a lack of clarity about whichrules follow from a given set of rules as a matter of logic. Thesesources seem less important in practice than uncertainty andvagueness, and a promising basis for a logic of accountingrules—so-called standard deontic logic—rules them out.
Neither the need to make estimates nor the need to makevague terms precise precludes realism about accounting. Accountingmeasurements may, moreover, be measurements accordingto the representational theory of measurement. Nevertheless,accounting measurements are also pragmatic in thesense that there is no right way to do accounting that is independentof human interests.
