Introduction to the Theory of Accounting and Control

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Three ideas are central to understanding accounting and control in organizations. First, all organizations are sets of contracts among individuals or groups of indi­ viduals. Second, provision of shared information among the contracting parties helps design and implement these contracts. Finally, control in organizations is a sustainable balance or equilibrium among the interests of its participants. It should be distinguished from control of organizations, which suggests manipulation or exploitation of some participants by others. We start this overview by stating these ideas briefly, leaving most definitions and details for the following chapters. We conclude with a summary of ideas about micro and macro aspects of accounting and control presented in the book.

Organizations as a Set of Contracts
Organizations are many things to many people. Business firms, for example, are employers to those who work for them; customers to the purveyors of goods and services; suppliers to their own customers; benefactors to those who receive their charity; investments to those who save; taxpayers to the government; a threat to the livelihood of their competitors; impersonal bureaucracies to the powerless; and pillars of free enterprise to the believers. Organizations are variously seen as com­ plex networks of human relationships, production functions, hierarchies, even garbage cans. They are praised for being storehouses of culture and civilization, and for being engines of change. They are also pilloried as sources of vulgarity and as roadblocks to progress in society. We take no issue with these and other ways of looking at organizations. How­ ever, for our limited purpose of trying to explain the nature of accounting and con­ trol in organizations, we will use an