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Accounting and Busine.ss Research, Vol 31. No. 3. pp. 203-234. 2001 203

Mathews, Gynther and Chambers: threepioneering Australian theoristsGeoffrey Whittington and Stephen A. Zeff*

Abstract—This paper reviews the professional careers and contributions of three distinguished Australian aca-demics, Russell Mathews, Reg Gynther and Ray Chambers, each of whom died recently. Particular attention is paidto their contributions to the debate on price change accounting, including the exchanges that took place betweenthem on this subject. Price change accounting was a central issue in academic and professional debates of the 1960sand 1970s, when the trio were at the peak of their activity as academics. The paper also records the wide range oftheir contributions to accounting research, education, standard setting and public policy.

1. IntroductionThree pioneering Australian accounting theoristsrecently passed from the scene: Russell Mathews,Reg Gynther and Ray Chambers. AnotherAustralian pioneer, Lou Goldberg, a noted histori-an and theorist, died in 1997.' All four made sub-stantial marks not only in Australia but alsooverseas. The purpose of this article is to recognisethe respective contributions to the accounting dis-cipline of Mathews, Gynther and Chambers, whodied between September 1999 and March 2000.

Mathews, Gynther and Chambers, together withGoldberg, while distinctive figures in the postwarevolution of accounting academe in Australia,nonetheless had a number of attributes andachievements in common: they were intellectualleaders par excellence, they were the first fourpresidents of the organisation of Australian ac-counting educators, and they were the first full-time accounting academics at their respectiveuniversities. Ray Ball has written that 'these peo-ple established the honors and doctoral programsthat captured the interest of and trained my gener-ation. Without them I wouldn't be here'.^

In addition to their important work in developingaccounting as an academic discipline in universi-ties, the trio also made important contributions to

* The authors appreciate the major assistance, includingcomments on an early draft of parts 1 and 2, supplied by KenWright, Frank Finn, Allan Barton and Geoff Burrows, as wellas the useful comments by others who read early drafts: JohnMcB. Grant, Scott Henderson, Philip Brown, Ray Ball, KevinStevenson, Richard Morris, Graeme Dean, George Foster,Michael Gaffikin, Jayne Godfrey, Lee Parker, Allen Craswell,Stewart Leech, Bob Officer, Jean Kerr, Merle Gynther andGeoff Harcourt. They also appreciate the information fur-nished by Russell Craig, Malcolm Miller, Jill Bright andGraham Peirson, and interviews with Allan Barton and GeoffHarcourt. The comments from an anonymous referee wereuseful. The authors are solely responsible for what remains.

the development of accounting thought. In partic-ular, they were all involved in the fierce interna-tional debate on price change accounting whichraged in the 1960s and 1970s, and we shall usetheir contributions to this debate to illustrate theirdifferent styles of thought and the interactions be-tween them.

The paper proceeds as follows. First, we de-scribe the historical context within which our trioworked. Second, we provide biographical sketchesof each, particularly emphasising their contribu-tion to accounting thought and education. Third,we discuss the distinctive contributions of each tothe price change accounting debate. Fourth, weexamine two controversial exchanges betweenChambers and Mathews and between Chambersand Gynther. Finally, we consider the legacy of thetrio from the perspective of the present day.

2. Historical contextThe era of predominantly full-time accounting ac-ademics both in Great Britain and Australiadawned after World War II, lagging the Americansby some four decades. The first full-time account-ing chairs in Britain were filled in 1947 (by WilliamT. Baxter at the London School of Economics(LSE), and Donald Cousins at the University ofBirmingham^), but in Australia it was not until1955 that the first full-time accounting professor,E. Bryan Smyth, at the University of New SouthWales, commenced his tenure."* Four years later,Louis Goldberg became the second full-time ac-

' For personal portraits of Goldberg, including a list of hispublications, see Kerr and Clift (1989) and Parker (1994).

2 Letter from Ball to Zeff, dated 20 July 2000.3 For further discussion, see Zeff (1997: 9)."* In this paper, the year in which a chair's occupant began

his tenure, not the year in which the appointment was made, isused throughout.

204 ACCOUNTING AND BUSINESS RESEARCH

counting professor in Australia, filling the G. L.Wood chair at the University of Melbourne.^Goldberg thus succeeded the distinguished practi-tioner, scholar and public servant. Sir AlexanderFitzgerald, who had occupied the chair on a part-time basis since its inception in 1954 and hadserved as a part-time lecturer in the university con-tinuously since 1925. In 1958, Mathews had be-come professor of commerce at the University ofAdelaide. In the 1960s, Australian universitiescontinued to stimulate academic work in account-ing, installing eight foundation professorships in,or related to, accounting, as follows:

1960 Ray Chambers, University of Sydney1960 John McB. Grant, University of Tasmania,

professor of applied economics (with specialreference to accounting)

1965 James W. Bennett, Monash University1965 Mathews, Australian National University,

professor of accounting and public finance;F. Kenneth Wright succeeded to Mathews'Adelaide chair

1966 Martin O. Jager, Newcastle University1967 Reg Gynther, University of Queensland1967 Allan D. Barton, Macquarie University1968 Athol S. Carrington, University of New

South Wales

In Britain and Australia, the accounting theoryliterature began to build in the 1930s. In Britain,Ronald S. Edwards (1938) and R. H. Coase (1938)wrote important articles, and they were succeededin the literature by William T. Baxter, Harold Edeyand David Solomons following the war (seeWhittington, 1994).^ These early theorists were allat LSE, and LSE graduates of the 1950s and1960s, as well as a growing cadre of researchersfrom other institutions, continued to make impor-tant contributions (see Whittington, 1981).

Australian accounting theorists also launchedtheir efforts in the 1930s, when Fitzgerald beganwriting a stream of articles that culminated in thepublication of two books in 1952: CurrentAccounting Trends and, with L. A. Schumer,Classification in Accounting? Through his manyarticles, his public lectures, and his leadership inthe professional accountancy bodies, Fitzgeraldstimulated interest in academic and professionalaccounting developments that were occurring inthe US and the UK, including especially the grow-ing literature on accounting theory. As Sir DouglasCopland has written, 'no other person has con-tributed so much and in so many capacities to theacademic development of accounting [in Australia]as Sir Alexander Fitzgerald' (1965: Introduction).Although the chair that Fitzgerald occupied forfive years in the 1950s was part-time, he was be-lieved to have spent more time at the universitythan many full-time academics.'*

In 1939, Louis Goldberg began his many contri-butions with the publication of his landmark the-sis, A Philosophy of Accounting. By the 1950s,Australian accounting theorists began to developan even more vibrant literature. At Sydney andAdelaide, Chambers and Mathews (with Grant),respectively, were beginning to mark out signifi-cant theoretical turf. And in the 1960s, Gynther, atQueensland, began to stake his own claim.Kenneth Wright and others joined in the quest.

It is interesting that a country as small asAustralia has produced so many important contrib-utors to the international literature on accountingtheory. One view on this phenomenon is that ofKen Wright: 'I believe that an important source ofthat strength was the fact that all our university de-partments of accounting were located in facultiesof economics'.'

Publication outlets for theory papers were com-paratively few until the 1960s: the professionalmagazines The Accountant and the IncorporatedAccountants' Journal (which became Accountancyin 1938) in Britain, The Australian Accountant,and The Journal of Accountancy in the US, plusthe two academic journals The Accounting Reviewand Accounting Research (1948-1958). In the1960s, the Journal of Accounting Research, TheInternational Journal of Accounting Educationand Research, and Chambers' ambitious entrant.Abacus, quickly became established vehicles.

3. Biographies3.1. Russell Lloyd Mathews (1921-2000)

Russell Mathews was born on 5 January 1921in Geelong and attended Haileybury College inMelbourne, where he was dux of the school.'" Hewent straight from school to work and studied ac-countancy in night school in order to obtain a qual-ification. He saw Army service in New Guinea andBougainville during the war, which he described inhis official history of his battalion (Mathews,1961). He rose to the rank of Captain and was citedfor bravery. But he sustained a serious leg injury.

' As will be noted below, accounting courses were offeredby part-time instructors in Australia as early as 1902, begin-ning at Adelaide (Edgeloe, 1989).

* In the 1930s and 1940s, Baxter also wrote important arti-cles and a book on accounting and business history.

' For a list of Fitzgerald's publications, see Chambers et al.(1965: 226-240). For a profile of Fitzgerald, see Burrows(1989).

^ This belief was confirmed by Ken Wright and Jean Kerr inletters to Zeff dated 11 August and I September 2000, respec-tively.

' Letter from Wright to Zeff, dated 23 April 2000. Harcourt(1982: 1-2) acknowledges the benefit that an economist de-rives from this relationship.

'" 'Dux' means that he was the school's outstanding schol-ar, i.e., he topped the examination averages or won the mostsubject prizes.

SUMMER 2001 205

and he limped for the rest of his life (Karmel andBarton, 2000). After the war, he enrolled in theUniversity of Melbourne under the CommonwealthReconstruction Training Scheme, which enabledex-servicemen and women to study full-time. In1950, he graduated with a four-year honoursBachelor of Commerce (B.Com.) degree, majoringin economics but with a substantial accountingcontent." He qualified as a member of theCommonwealth Institute of Accountants.'^

Following graduation, he moved to Canberra tobecome a personal assistant to Sir DouglasCopland, the first Vice Chancellor of the recentlyestablished Australian National University.'Russell's major task,' writes Allan Barton, 'was torecruit some of Australia's most prominent aca-demics to return to Australia for the new researchuniversity' (Barton, 2000a).

In 1953, Adelaide's economics professor, PeterH. Karmel, who had taught Mathews at Melbourne,brought him to Adelaide as reader in commercialstudies, and Mathews was given responsibility forthe courses in public administration and public fi-nance, as well as in accounting and commerciallaw. He thus became Adelaide's first full-timeteacher of accounting, even though accounting in-struction at the university had begun in 1902(Goldberg, 1981: 6; Edgeloe, 1989; Mathews,1964b). The distinctive features that he introducedinto his first-year accounting syllabus were re-placement cost accounting and consolidations.Wright recollects: 'His reasoning was that thecompulsory first-year subject, which he named"Elements of Accounting", should introduce futureeconomists to those two techniques. Consolidationswere considered important for economists becauseconsolidation accounting is the basis of theNational Accounts'.'^ The textbook that Mathewswrote in 1962 carried the title. Accounting forEconomists (to be discussed below).

Mathews' preferred emphasis on the educationof economists was made easier by the fact that the'the South Australian Institute of Technology, withits own School of Accountancy, was situated im-mediately adjacent to the University. It would havebeen wasteful for the two institutions to run verysimilar courses. Since the SAIT was committedto providing courses leading to professional ac-countancy qualifications, it was decided that theUniversity's programme should emphasise theneeds of students who did not necessarily intendto take up accounting as a profession' ('TheUniversity of Adelaide', 1973: 424). The secondunit in the accounting stream of the Bachelor ofEconomics (B.Ec.) course treated the managerialuses of accounting, and the third year was intend-ed mainly for future accountants, but the workin accounting theory was 'solidly grounded ineconomic theory' (p. 424).''*

In 1953, Mathews described the objectives,and structure of the new courses in accounting asfollows:

'In designing the new courses in accountancy wehave been influenced by two broad considera-tions: first, the need to go back to first principlesand to provide where possible a theoretical basisfor the practical work in accounting methodsthat must necessarily occupy so much of ourtime; and second, the need to relate our coursesin accounting to the work done in the social sci-ences of economics, law, statistics, political sci-ence, etc. The emphasis throughout will be ontheory and principles rather than on techniques,and the approach will be logical rather than me-chanical.' (Mathews, 1964c: 3)

In 1962, the year in which he publishedAccounting for Economists, Mathews elaboratedon his strong views regarding university educationin accounting:

'...I believe university work in accountingshould be analytical rather than merely descrip-tive. If a subject is to establish itself as a univer-sity discipline it must be intellectuallychallenging, that is to say it must operate as amental discipline, and it must have a place on theadvancing frontier of knowledge. I believe thataccounting can meet these tests, but only if it isdeveloped as an analytical tool with emphasis ontheory rather than on descriptions of currentpractice, with emphasis on why rather thanhow.' (Mathews, 1964a: 24)

He said he started from the position that 'ac-counting, although one of the basic social sciences,is the hand-maiden of economics' (p. 26).

Mathews was, from the very beginning of his ac-ademic career, deeply interested in macro-account-ing issues, and one of his early themes was socialaccounting. His first published article, writtenwhile he was an undergraduate student, was'Government Accounts for Social Accounting'(1948). In 1951, his 12th Commonwealth Instituteof Accountants' research lecture was titled 'NewHorizons in Accounting: The Application ofAccounting Techniques to Problems of Social

" Geoff Burrows has written that Russell's 'overall record,with only one P and the rest His, has rarely been surpassed'.E-mail message to Zeff, dated 26 July 2000. Allan Barton,who was an honours graduate the University of Melbourne in1954, agrees. Letter from Barton to Zeff, dated 10 August2000.

'̂ In 1953, the Institute combined with another body to formthe Australian Society of Accountants, which is known todayas CPA Australia.

" Letter from Wright to Zeff, dated 12 May 2000.''' A description of the course content of the B.Ec. degree is

given in an article, probably written by Ken Wright, in TheAustralian Accountant ('The University of Adelaide', 1973).


Accounting' (1952). Five years later, he gave theAustralian Society of Accountants' research lectureat the University of Melbourne on 'GovernmentAccounts and Social Accounting' (1957).

In 1958, Mathews was promoted to becomeAdelaide's first professor of eommerce. He was in-strumental in establishing a Master of BusinessManagement degree, which was to comprise twoyears of full-time study followed by a thesis. Afterovercoming initial opposition from the University'seducation committee, in 1960 Mathews succeededin gaining approval for the degree, which was thefirst of its kind in Austraha (Mathews, 1964c:10).'^ It was launched in 1962, and Allan D.Barton, who had joined the Adelaide staff in 1959as a lecturer in economics and had received a PhDin eeonomics from the University of Cambridge in1961,'* was appointed to the new position of sen-ior lecturer of business management. Ken Wright,who came to Adelaide in 1962 as senior lecturer incommerce and also was to give instruction in theMBM programme, recalls:

'Russell had his heart set on a full-fledged grad-uate school of business at Adelaide. But enrol-ments in the initial years continued to be verysmall, and the [University's] DevelopmentCommittee apparently took the view that thenumber of students did not justify additional ap-pointments. Russell was quite disenchanted'."

Also in 1958, Mathews played an active role inthe founding of what was to become, two yearslater, the Australian Association of UniversityTeachers of Accounting (AAUTA)'^ (Goldberg,1987: 13^0) . He served as the body's president in1963.

Mathews, together with economist PeterKarmel, stimulated the interest of a number ofyoung academics in the commerce and economicsdepartments, most of whom went on to occupychairs and have distinguished aeademic careers.Those who made significant contributions toaccounting included John McB. Grant, GeoffHarcourt, Wright, Barton, James W. Bennett,Robert H. Parker, Scott Henderson and GrahamPeirson.'^ Mathews' first book. Inflation andCompany Finance, published in 1958, was co-au-thored with Grant. It presented a statistical analy-sis of the accounting effects of inflation onAustralian company profits and finances duringthe years of postwar inflation. The book was saidto be 'the first study in Australia of the impact ofinflation on corporate profits and finance' (Karmeland Barton, 2000). Much of the book drew onjournal articles that Mathews and Grant had re-cently published. Grant writes that Mathews was'the initiator and primarily responsible for Chapter2'.^" Grant was responsible for most of the statisti-cal analysis (see Section 4.1 for further discussion

of this work).Both in Inflation and Company Finance and

Accounting for Economists, Mathews advocatedthe use of valuation adjustments for stocks andfixed capital assets. He did not favour the applica-tion of a general price-level index to historical costdata (see Mathews, 1965a). Parker has writtenthat, in Mathews' Accounting for Economists, 'itwas typical of RM not just to get the theory rightbut also to produce a workable solution (two rela-tively simple adjustments in the P&L account)rather than insisting on total reform of HCA [his-torical cost accounting]'. Parker added thatMathews' book with Grant 'also greatly influencedme'.^' It also influenced many others, includingeconomists, such as Geoff Harcourt, who writesthat his Cambridge PhD dissertation 'was in effectMathews and Grant for the UK (with a bit of JoanRobinson's The Accumulation of Capital [1956]thrown in)'.̂ -^

Mathews contributed to the writing of the chap-ter that dealt with accountancy edueation in theCommonwealth's Martin Report on the future oftertiary edueation, issued in 1964, and in the fol-lowing year he criticised the Vatter Report (1964),sponsored by the professional accountancy bodies,beeause it proposed a continuing intrusion by thebodies into the educational policies and practicesof the universities. Mathews favoured a liberalisedundergraduate program, in which students wouldstudy, in conjunction with accounting, such relateddisciplines as economics, statistics, mathematics,law and the behavioural fields, with a requirement

'̂ New South Wales inaugurated Australia's first M.B.A.course in 1962.

'* Barton, who had graduated from the University ofMelbourne with a first class honours degree in commerce,with majors in accounting and economics, thus became thefirst Australian accounting academic to earn a doctorate. Infact, two New Zealanders, G. Bernard Battersby and Trevor R.Johnston, were the first accounting academics in the antipodesto obtain doctorates: Battersby, at the University ofCanterbury, obtained a PhD in business finance from theUniversity of London in 1951, and Johnston, at the Universityof Auckland, received a PhD in economics from CambridgeUniversity in 1954.

" Letter from Wright to Zeff, dated 12 May 2000.'* In 1964, Australian became Australasian, and in 1972 the

name was changed to the Accounting Association of Australiaand New Zealand so as to broaden the membership to includethose at non-university colleges (Goldberg, 1987: 50-51,62-63). Subsequent references to the Association will useAustralasian, which embraces both Australia and NewZealand.

" Parker is English and the others are Australian. Gibsonhas remarked that a number of those who fell under Mathews'spell at Adelaide 'subsequently have joined in the advocacy ofcurrent cost accounting' (1984: 241).

™ Letters from Grant to Zeff, dated 23 May 2000 and 20July 2000.

^' E-mail message from Parker to Zeff, dated 1 June 2000.^̂ Note from Harcourt to Whittington, dated November

2000.

SUMMER 2001 207

that they study in depth some of these latter sub-jects. His view was that 'the primary role of theuniversities is to develop accounting as an aca-demic subject; if they have a role at all to play inthe field of professional education, it is at the post-graduate and not the undergraduate level' (1965b:3B-15). He opposed a possible consequence of theVatter Report, namely, that accounting researchshould be focussed primarily on the needs of theprofession and not as an academic subject in itsown right (p. 3B-10).

In 1964, the Australian National University an-nounced a new department of accounting and pub-lic finance, which 'had been established to attractRussell back to the ANU', as he 'always believedin the merits of combining the accounting and eco-nomics disciplines as much as possible' (Karmeland Barton, 2000). He applied for and received thenew chair, and he moved to the ANU at the end ofthe year.

At the A N I J , Mathews continued his interest inaccounting, although, with the founding in 1972 ofthe Centre for Research in Federal FinancialRelations, of which he became director, the largerquestions of public finance came to occupy almostall of his time and interest. Between 1965 and1972, he published his last four articles on ac-counting theory,^^ including one on methodology,with John W. Buckley and Paul Kircher (1968),which he had proposed doing during his year asvisiting professor at the University of Califomia,Los Angeles, in 1966.̂ *̂ Also, between 1965 and1972, Mathews served on the Accounting andAuditing Research Committee of the AccountancyResearch Foundation (Burrows, 1996: 196), abody just created by the organised aecountancyprofession that was to sponsor pure and applied re-search in accounting and auditing.

In comparison with Chambers, whose long pro-fessional career of more than 40 years was as anaccounting academic, Mathews and, as will beseen, Gynther were accounting academics for peri-ods of less than 20 years each.

In 1971, Mathews wrote The AccountingFramework, a textbook styled as a revised editionof Accounting for Economists. In his preface, heissued a stem pronouncement on the state of ac-counting when he entered academe:

'During the first half of the 20th century...ac-counting became increasingly remote from real-ity, as complex allocation procedures, implicitvaluation assumptions and the possibility of ar-bitrary ehoices among alternative valuation orproeedural mles eombined to make accountinginformation irrelevant for many of the uses itpurported to serve. By the end of the half-centu-ry, it is not too much of an exaggeration to saythat accounting had become a great illusion en-acted before a credulous business community.

the members of which thought they were receiv-ing information related to their decision-makingresponsibihties but who were instead often beingfed irrelevant or misleading data based onstylised accounting conventions.' (p. xiii)

Strong stuff, indeed. He hastened to observe that,in the last 15 to 20 years, there had been 'a signif-icant change in direction', with the emergence ofaccounting as an information system, the increas-ing use of quantitative analysis to test the useful-ness of accounting information, and the growingimportance of systematic theories of valuation inplace of rules of thumb in income measurement(pp. xiii-xiv).

Barton has written: 'Along with his academicwork, Russell was keenly sought after by govern-ments of both persuasions for advice on all mattersto do with taxation and fiscal federalism'(2000a).25 In 1974-1975, in the middle of a decadeof mounting inflation, Mathews chaired anAustralian Govemment committee to study the ef-fects of inflation on taxation. Among the recom-mended reforms in the Mathews Report (Report ofCommittee of Inquiry into Inflation and Taxation,1975), as it came to be known, were a stoek ap-preciation adjustment and a depreciation valuationadjustment, both on a replacement cost basis,which dovetailed with the argument that Mathewshad been making for profit measurement since the1950s. The report was said to have 'introduced thecurrent cost revolution in Australia' (Tweedie andWhittington, 1984: 267), much as the report of theSandilands Committee (1975) did in the UK. (SeeSection 4.1 for further discussion of the MathewsReport.)

During Mathews' service on the interim board ofmanagement of the newly created AustralianGraduate School of Management, it was he whopersuaded Philip Brown, then at the University ofWestern Australia, to become the School's founda-tion director in 1975.^^ In this respect, Mathewsgave a boost in Australia to the market-based re-search in accounting and finance in which Brownwas a leader.

Mathews served as a consultant to govemmentbodies as well as a member or chairman of a num-ber of other Govemment commissions and com-mittees of enquiry, including the Review of theAccounting Discipline in Higher Education, which

^' We exclude from this count a reply (1967) and a rejoin-der (1968) relating to his review article in the Journal ofAccounting Research (1965a). These are discussed in Section4.1.

'̂' Telephone interview with John W. Buckley, 16 June 2000.^' Mathews' work in these areas is surveyed in Grewal and

Barton (2000), which includes a useful list of the major publi-cations.

*̂ E-mail message from Brown to Zeff, dated 25 August2000.


he chaired. The review panel's report, rendered in1990, made sweeping recommendations with re-spect to funding, degree structure, teaching and re-search. The Mathews Report, as it also came to beknown, was a factor leading to consideration of thefunding of salary supplementation out of either re-current funds or funds from full-fee paying stu-dents. Its proposal for a 'broad-based' three-yearcurriculum, followed by a fourth year leading to aprofessional accounting qualification, did not,however, come to pass. In all, the Mathews Reportdid not have a considerable impact at the time.

During his long service on the CommonwealthGrants Commission, from 1972 to 1990, he wasthe principal author of many of its reports (Karmeland Barton, 2000).

Karmel and Barton have written:

'Russell always combined accounting, econom-ics and finance. He was a firm believer in nor-mative approaches to economic enquiry thatwould assist in policy analysis. He strongly sup-ported the need for social justice and full em-ployment, and in this regard, he was an advocateof Keynesian policies for macro-economic man-agement and Galbraithian policies for publicsector infrastructure.' (2000)

Russell Mathews retired and was made professoremeritus in 1986. His public service was recog-nised by a CBE in 1978 and an AO (Order ofAustralia) in 1987. During his long career, hewrote or edited 43 books, produced 47 official re-ports, and wrote in excess of 250 articles, encom-passing accounting theory and education, fiscalfederalism, taxation theory and policy, and publicexpenditure theory and policy (Barton, 2000a).

Allan Barton, his longtime colleague and friend,remembered Russell Mathews as 'a gentleman inevery way. He was always polite, considerate,compassionate, friendly, reliable, etc. He was agreat person to work with. He was never autocrat-ic - he led by example, understanding and kind-ness, and was always approachable.'^^ PhilipBrown, who served with Mathews on the 1990 re-view panel on Accounting Discipline in HigherEducation, has written: 'Three things alwaysstruck me about Russell during the review: his eyefor detail, his quick mind, and the speed withwhich he could write a report!'^^ Russell Mathewsdied on 1 March 2000.

3.2. Reginald Sydney Gynther (1921-1999)Reg Gynther was born on 24 September 1921 in

his parents' home in Nundah, a suburb ofBrisbane. His parents were working class people,and he had to leave school after his junior year toget a job and enrol as a part-time evening student.During the war, he served in the Army and rose tothe rank of Lieutenant. After the war, he worked as

a company secretary and accountant, and eventu-ally as assistant manager for several companies,first in Sydney and then in Brisbane. He qualifiedas a member of the Australasian. Institute ofCost Accountants,^' the Institute of CharteredAccountants in Australia, and the AustralasianInstitute of Secretaries.

Gynther began as a part-time lecturer in ac-counting at the University of Queensland in 1952,and in 1959, at age 37, he accepted the first full-time appointment in accountancy, a senior lecture-ship in the department of economics. When thedepartment of accountancy was established in1961, he became its head.-"* The following year, hereceived a B.Com. degree from Queensland.^' Hewas advised, however, that he could not be pro-moted to professor without a doctorate, and therewas no one at Queensland of appropriate rank whowould be competent to supervise a thesis in ac-counting. He was entitled to a year's study leave,and, by diligent enquiry, he discovered that theUniversity of Washington, in Seattle, would accepthim as a doctoral candidate with only a year'sstudy in residence, but only if he already had amaster's degree. He then wrote to RussellMathews to ask if Adelaide would allow him toenrol for its Master of Economics (M.Ec.) degreeby submitting a thesis in absentia. Mathews per-suaded the faculty dean to accept this arrangement,in view of the unusual circumstance in whichGynther found himself. Mathews also agreed toserve as Gynther's thesis supervisor. Gyntherwrote a thesis on the choice of index in accountingfor price-level changes, which was an outgrowthof an article he had published in 1962. The degreewas awarded in 1964, and two years laterPergamon Press published Gynther's thesis underthe title. Accounting for Price-Level Changes:Theory and Procedures. (For discussion of thisbook, see Section 4.2.) In the book, Gynther ex-plained his advocacy of specific price indexes forfinancial reporting purposes as follows:

'...it so happens that most accountants in publicpractice favour the use of one genera! index be-cause many of their duties relate to the protec-tion of the interests of shareholders. On the otherhand, accountants in commerce and industry

" Letter from Barton to Zeff, dated 10 August 2000. Similarsentiments were expressed by Geoff Harcourt in an interviewwith Whittington, August 2000.

28 E-mail message from Brown to Zeff, dated 27 June 2000.2' In 1966, the Institute became part of the Australian

Society of Accountants, which is known today as CPAAustralia.

'" The department was renamed Commerce in 1973.•" He had begun his university studies on a part-time basis

in 1941, earning his Associate in Accountancy of theUniversity of Queensland (AAUQ) certificate in 1943. He re-sumed his part-time studies in 1958 and completed his workfor the bachelor's degree in 1961.

SUMMER 2001 209

usually favour the use of specific indexes. Theauthor of this book has been affected by hisenvironment (in industry) and he is a firm sup-porter of the use of specific indexes for thedetermination of profit, for balance-sheetvaluations, and for day-to-day accounting andreporting purposes.' (1966: 45)

This perspective on accounting was shared byRussell Mathews, who approached the subject asan economist concerned with the health of thebusiness sector.

Also in 1964, Gynther somehow found time toserve as president of the AAUTA.

With the master's degree in hand, Reg Gyntherwas promoted to a readership. He then obtained anArthur Andersen & Co. fellowship and planned tospend 1965-1966 at the University of Washington,which used one of its Ford Foundation doctoralfellowships to help support his visit. His choice oftopic for a doctoral thesis was a profile of theAustralian accounting profession, patterned on astudy by A. B. Carson of the public accountingprofession in California (1958). In fact, during1964-1965 Gynther had designed the survey in-strument, had mailed the questionnaires and re-ceived the replies, and also had completed anextensive draft of his thesis, even before he arrivedin Seattle; hence, the critical part of the researchand writing had all but been completed before hebegan his year of doctoral study. Once in Seattle,he was shocked to discover the amount of course-work outside accounting that was required, as wellas written and oral examinations in addition to athesis. Undaunted, and with characteristic zeal andtenacity, Gynther completed all of the doctoral re-quirements just prior to leaving Seattle after 12 ex-ceptionally full months, which included somepart-time teaching.-'^ The Doctor of BusinessAdministration (DBA) degree was conferred in1966,-'-' and in the following year he published histhesis as a book entitled Practising Accountants inAustralia: An Analytical Study (1967b). The bookhad a mixed reception. It was praised 'as a trulyfine demonstration of the value of research by wayof questionnaire when intelhgently performed' inThe Accounting Review (Dixon, 1968: 614). ButRobert G. Walker, in Abacus, found the survey tobe 'lacking in depth, and therefore disappointing'(1968: 94). In 1967, Gynther became Queensland'sfirst professor of accounting.

Gynther installed a very successful honours pro-gramme in the department of accountancy, datingfrom the early 1960s. It was said to be 'the first inAustralia to concentrate completely on honourslevel studies in accounting related subjects' (Yule,2000: 21). Quite a number of his honours studentsentered academe and eventually were appointed tochairs.^'' While no one could be said to have beena Gynther disciple, 'most who did honours under

him are full of respect for all his pushing, cajoling,arguing, etc. during the honours program'.^^Gynther insisted that each of the honours studentsadopt some position, e.g., current cost accounting,and defend it before the class. Richard D. Morrisrecalls: 'we were encouraged to argue about eachissue in class. He had a great gift for instilling en-thusiasm about accounting theory into his stu-dents, and I can still recall us debating amongourselves after class. There was a special cama-raderie among honours students, at least in myyear.'^^ One of his honours students, GeoffMeredith, completed a PhD under Gynther in 1969and thus became the first Australian accounting ac-ademic to receive a doctorate from an Australianuniversity.

Gynther recruited a strong staff, includingRobert R. Officer and Ray Ball, both coming fromthe University of Chicago. Officer was appointedto the fledgling department of management, whileBall went to the department of accountancy. YetOfficer has written that he was 'always intellectu-ally, socially and emotionally tied to theDepartment of Accounting.'^^ Gynther recognisedthe significance of the new wave of empirical ac-counting and finance research emanating fromChicago, and he had the foresight and courage tobring a young exponent of this research into hisdepartment, only the second in Australia to do so.-'̂Ball, who joined the department as professor of ac-counting and finance in 1972, was, at age 27, theyoungest accounting professor in Australia as wellas the youngest full professor in any disciplineat the University of Queensland {Prospectus

^̂ E-mail messages from Gerhard G. Mueller to Zeff, dated1 May and 11 September 2000, communication dated 30 June2000 from Merle Gynther (Reg Gynther's sister), and tele-phone interview with Kermit O. Hanson, 22 July 2000. ArthurN. Lorig was the chairman of Gynther's doctoral committee,and Mueller was a member of the committee. Hanson wasdean of the University of Washington business school at thetime.

'3 In the 1970s, the University of Washington retitled allDBA's as PhD's.

^̂ 'Of the Honours graduates with academic careers, mosthave obtained further postgraduate awards. Approximatelyhalf of their number have been awarded PhD's in USA and inAustralia' (M. Gynther, 1990: 341).

•'̂ E-mail message from Erank Finn to Zeff, dated 8 May2000. Einn obtained an honours degree from Queensland in1969 and is currently head of the department of commerce.Among the others who did at least some honours work underGynther and who then embarked on academic careers wereAllen Craswell, Peter Dodd, Allan Kleidon, Richard Leftwich,Terry Marsh, Geoff Meredith, Richard Morris, StephenPenman, Barry Spicer, David Watson, Ron Weber and GregWhittred.

30 Letter from Morris to Zeff, dated 15 May 2000.^' E-mail message to Zeff from Officer, dated 28 August

2000.'* In 1968, Philip Brown, fresh from Chicago, went to the

University of Western Australia as reader in accounting. Hebecame UWA's foundation professor of accounting in 1970.


2000/Department of Commerce, 2000: 19). Finn(1999) has written that 'Ray Ball's appointment to-tally changed the research emphasis and culture inthe Department, and much of what the Departmentdoes today has its foundations in that appointmentin 1972'. Ball left Queensland in 1976 to acceptone of the foundation chairs at the new AustralianGraduate School of Management, in Sydney.

Gynther also introduced the first dual degree inAustralia linking commerce and law, which today'is one of the most popular degrees for graduatesand practitioners in both the legal and accountingprofessions in Australia' (Finn, 1999).

Most of Gynther's articles dealt with the theo-retical and practical aspects of accounting for pricechanges, and he was a tireless advocate of currentcost accounting. His three articles in TheAccounting Review attracted considerable atten-tion: 'Accounting Concepts and BehavioralHypotheses' (1967a), 'Some "Conceptualizing" onGoodwill' (1969) and 'Capital Maintenance, PriceChanges, and Profit Determination' (1970). Theseare discussed in Section 4.2.

Between 1961 and 1977, Gynther published 27articles, many of which were reproduced in collec-tions, 'leaving a legacy from his 18 years few aca-demics match in a lifetime' (Gibson, 1984: 246).In 1977, at age 55, he decided to leave academe fora policy-level position in public accounting. Hebecame a national partner of Coopers & Lybrandin Australia, with responsibilities in research andeventually also in professional education. Duringthe inflation accounting debates in the late 1970sand early 1980s, he was the face of Coopers,speaking and writing extensively on the merits ofcurrent cost accounting. From 1977 to 1983, hewas an energetic member of the AccountingStandards Committee, which was reorganised in1978 as the Current Cost Accounting StandardsCommittee (CCASC). He was much involved withthe preparation of the CCA Working Guide, and hedid the initial work on the committee's exposuredraft on monetary items.-" (See Section 4.2 for fur-ther discussion of this work.)

Gynther also fathered the Coopers & LybrandAccounting and Education Research Fund, whichfinanced research by academics and provided hon-ours and master's scholarships.'*^ He retired fromthe firm in 1985.

In his capacity as head of the accountancy/com-merce department, Reg Gynther has been de-scribed as 'a totally dedicated, straight down theline leader, with a limitless capacity for hardwork...[and regarded by a colleague] as "the timeand motion man" because he hated to waste aminute' (Yule, 2000: 27). Gynther was keenlycompetitive in any endeavour he undertook,whether work or sport.'*' Yule added that Gynther

'had a highly centralist style, seeing consultation

as a waste of time and consensus as automatic aseveryone would agree with him. Having a totalcommitment to the department and the advance-ment of academic accounting, Reg Gynther wasprepared to take on anyone who threatened thedepartment or queried the position of accountingas an academic discipline. Although he had veryconservative attitudes, he was tolerant of person-al eccentricities, provided that people pulledtheir weight in teaching and research.' (p. 27)

Kevin Stevenson, a former director of theAustralian Accounting Research Foundation and aformer technical partner in Coopers & Lybrand,has written that, during Gynther's long service onthe CCASC, 'he was a mentor to many, includingme, much in the mode [that he was in his depart-ment at the University of Queensland]. Reg hadthe ability to move between academe and practice,and the drive to do whatever needed to be done.His approach to his PhD was not a one-off effort -it was the way he worked....His energy, under-standing and capacity for work were exhaustingforme'.'*2

Following Gynther's departure from theUniversity of Queensland in 1977, its Senate con-ferred on him the title of professor emeritus. Hedied on 27 November 1999.

3.3. Raymond John Chambers (1917-1999)Ray Chambers was born on 16 November 1917

in Newcastle, New South Wales, the son of aYorkshire coal miner. He was educated atNewcastle Boys' High School, and a universityscholarship enabled him to enrol as a part-time stu-dent in economics at the University of Sydney. Hegraduated with a B.Ec. degree in 1939 (Wolnizer,2000: 1). In 1934, he had begun studying account-ing by correspondence in order to obtain a qualifi-cation (Chambers, 1991: 101-102; Chambers,2000: 318-320).

Following three years as a stock clerk in Shelland two years as a materials control supervisorand statistical officer in a large light engineeringfirm. Chambers spent the further war yearsof 1943-1945 on the regulatory staff of theAustralian Prices Commission (Chambers andDean, 1990: 287; Chambers, 1991: 102). There, asChambers has written:

'I was engaged in the analysis of the financialstatements and cost calculations of firms. Prices

^' E-mail message from Kevin Stevenson to Zeff, dated 24July 2000.

'"' E-mail message from Stevenson to Zeff, dated 19 April2000.

'" Zeff recalls that, in a visit to Gynther's home in 1972, hedefeated Gynther in several games of table tennis, which thelatter never forgot.

"2 E-mail from Stevenson to Zeff, dated 23 July 2000.

SUMMER 2001 211

were controlled by reference both to costs andprofits. Ideally the figures supplied by firmsshould have been derived by the same rules, sothat comparisons of firms and industries couldbe readily made. I had previously worked in twolarge manufacturing companies and had someidea of the rather crude ways in which cost cal-culations and asset values were made. Now, con-fronted by the accounts of many firms in manyindustries, all using their own combinations ofaccounting rules, the impression of disorder wasintensified.' (1974a: vi)

In a later retrospection, he added: 'Brought upon basic economics - the ideas of economising atleast, profit maximising at best, and the adaptivebehaviour which the theory of market economicsentailed - there seemed to be no place for the con-ventional accounting stuff (1991: 103).

By 1943, he had qualified as a member of theCommonwealth Institute of Accountants,'*-' theAustralasian Institute of Cost Accountants, and theAustralasian Institute of Secretaries.

Chambers began to lecture part-time in auditingin Sydney Technical College, and then in 1945 hebecame a full-time lecturer in the College's newcourse in financial management. He taught in allfacets of the College's programme, including ac-counting. He continued to be vexed by 'the coex-istence of different accounting rules yieldingfigures of greatly varying quality. How discrimi-nating managers, investors and creditors could usesuch figures was at least puzzling' (1974a: vi).When he discovered the need for a textbook to linkaccounting with financial administration, he wroteFinancial Management (1947). It was, he laterwrote, 'the product of my first two years as a fulltime teacher' (1991: 105). Although its author hadnot yet reached his 30th birthday, the book was amature and comprehensive work, which demon-strated a commendable awareness of the leadingAmerican and British and Australian literatures.Goldberg called it 'the first book of its kind inAustralia'(1981: 32)."'*

During the early 1950s, Chambers gave a seriesof research lectures at Australian universities, andthese, together with a triptych of lectures for a re-fresher course sponsored by the CommonwealthInstitute of Accountants, were published in TheAustralian Accountant, which, under the enlight-ened editorship of Alexander Fitzgerald, became afavoured outlet for academics. The research lec-tures represented his first forays into theory devel-opment, in which, among other things, heproposed a future orientation for the financialstatements (Chambers, 1952a). 'That experience,'he later wrote in reference to his extensive study ofthe accounting literature in the course of preparingthe research lectures, 'revealed many specificpoints at which conventional doctrine and practice

were financially wayward and logically falla-cious.. ..To point out these flaws, and to attempt toeradicate them, seemed to be a game well worththe candle' (1991: 23). In his refresher lectures, heexplored the relation between accounting informa-tion and its internal and external users, includingcontemplations on how best to reflect the effects ofthe postwar inflation in accounting reports.

In 1953, he moved to the University of Sydneyas senior lecturer in accounting, the first full-timeappointment in accounting at the university, eventhough the subject had been taught there since1907 (Brown, 1982: 100). A scant two years later,he was promoted to associate professor of ac-counting, the first appointment at that level in ac-counting at any Australian university.'*^

It was in the mid-1950s that Chambers took thefirst bold step to erect his theory as well as to re-pair the literature. He has written as follows:

'The textbooks and much of the periodical liter-ature of the fifties gave the impression that mostwriters were too fond of prescribing to spendtime or energy in observing what was going onabout them. The literature was dogmatic. Manyof the things being done in practice were eitherdisregarded or dismissed as improper. Some ofthe literature purported to be theoretical. But [it]was short on analysis, loose in argument and am-bivalent in conclusion. I proceeded with twokinds of work in parallel!:] observing accountingpractices and their consequences, and trying toput into some coherent order the general ideaswhich were held to constitute the theory of ac-counting.' (1974a: viii)

His first major article on theory construction, aswell as his first paper published outside of Australia,was 'Blueprint for a Theory of Accounting', whichappeared in the British journal AccountingResearch (1955a). He later described it as

'a tentative expression of my aim and method. Itstated that the foundations of a theory of ac-counting lie in the environment of economic re-alities; that there is a need for a general theory ofaccounting which would provide the basis fortheories specific to different classes of entities;and that, on grounds of usefulness, accountingsummaries should be expressed in currently rel-evant terms' (Chambers, 1962: 46).''*

'*' Through a series of amalgamations, the Institute eventu-ally became part of the Australian Society of Accountants,which is known today as CPA Australia.

^ For his further reflections on this period of 'apprentice-ship', see Chambers (1991) and (2000).

•*' Louis Goldberg, at Melbourne, was the next associateprofessor, in 1957.

''̂ This unpublished paper was written in 1962 and is repro-duced, together with the rest of Chambers' papers, inChambers and Dean (1986/2000).


He began by quoting John B. Canning's obser-vation that 'the accountants have no completephilosophical system of thought about income noris there any evidence that they have ever felt theneed for one' (1955a: 17). Chambers was criticalof accounting writers who seemed content to de-scribe practice rather than propound 'a theory ofaccounting' (pp. 17-18). He then demonstratedhow a theory might be constructed, and he pro-posed and defended a set of four propositions that'lie outside of the field of accounting proper' (p. 19)together with several implied corollaries. A. C.Littleton, who viewed accounting theory as a dis-tillation of accounting practice, responded withtwo articles in which he criticised Chambers' viewthat a theory could be framed without reference tothis practice (1956a; 1956b). In particular, he ob-jected to Chambers' suggestion that a technologyof price-level adjustments should be injected intoaccounting, an alien ideology that Littleton hadopposed during his long and distinguished career.Littleton deliberately published one of his two ar-ticles in The Australian Accountant, on Chambers'home turf.

Also in 1956, by coincidence. Chambers pub-lished a detailed and critical review of Littleton'smagnum opus, Structure of Accounting Theory(1953), in The Accounting Review, the journal thatLittleton had edited in the 1940s. It wasChambers' first article published in the US.Although he praised Littleton in the initial para-graphs, he could find little to praise in the mono-graph itself. Finally, he wrote, perhaps inexasperation, 'The general purport of Structure ofAccounting Theory is to demonstrate the proprietyof conventional business accounting method'(p. 590). Chambers' and Littleton's domains ofenquiry were fundamentally different, and criti-cism across the methodological divide can hurt tothe quick.

In 'Detail for a Blueprint' (1957a), Chambersreplied to Littleton (1956b) on the latter's hometurf. The Accounting Review. Showing supremeconfidence, he dismissed Littleton's points one byone, and he claimed that Littleton's defence of his-torical cost accounting 'is an excellent example ofwhat is a very common logical fallacy: post hocergo propter hoc' (p.211). He remarked that'Professor Littleton's approach to accounting is es-sentially pragmatic,' one, he said, that 'leads tooversimplification' (p.214). Aged 39 and not yet afull professor. Chambers had bearded one of thelions of US academic accounting, a professoremeritus who had just been inducted into theAccounting Hall of Fame. Littleton never came toterms with Chambers' criticism, which he took asan affront."*^

The second half of the 1950s and the early 1960swere an especially busy time for Chambers. He

published two books. The Function and Designof Company Annual Reports (1955b)''^ andAccounting and Action (1957b), gave three re-search lectures, wrote some two dozen articles,and at Sydney introduced an honours programmein accounting. In 1958-1960, he played a leadingrole in the founding and establishment of theAAUTA, and he served as its first president in1960-1961 (Goldberg, 1987: 13^8) . In 1960, hebecame Sydney's first professor of accounting,and he began 15 years as head of the new depart-ment of accounting. His teaching staff in account-ing was still small: one senior lecturer and threepart-time lecturers (Brown, 1982: 101). In 1962, inorder to foster a dialogue between academic andpractising accountants. Chambers founded theSydney University Pacioli Society (Wolnizer,2000: 2).

In 1959 and 1962, Chambers took extensivetrips overseas, visiting many universities, spend-ing two months as a consultant on the researchstaff of the US Accounting Principles Board(APB),"*' and attending the Eighth InternationalCongress of Accountants and the annual meetingof the American Accounting Association.^"Accounting Research had ceased publication in1958, and during his tour in 1962 he began to lookinto establishing a journal to fill the void. At onetime, he considered co-sponsoring, together withthe London School of Economics, the new Journalof Accounting Research, which the University ofC!hicago launched in 1963 (Davidson, 1984:283-284), but instead, with the support ofGoldberg, Mathews and Roy Sidebotham (ofVictoria University of Wellington, New Zealand),who composed the editorial board, he opted tofound his own journal. Abacus, in 1965 (Brown,1982: 101; Wells, 2000). It was a characteristical-ly bold scheme, as the output of academic ac-counting research in Australia and New Zealandprobably could not have justified an antipodeanjournal. To provide a broader net. Abacus wasstyled as 'A Journal of Accounting and BusinessStudies', and four of the 10 main articles in thefirst two issues fell in the latter category.^'Chambers served as editor of the journal until1974, and he continued as an active 'editorial con-

"' Interview by Zeff with Littleton, July 1964.•*" A reviewer in Accounting Research wrote, 'This interest-

ing book by Professor Chambers is the only one known to thereviewer that attempts exhaustively to examine the case forgiving copious individual accounting information to a wideraudience than receives it under the present practice'(Nightingirl, 1956: 399).

''̂ For a recollection of Chambers' visit to the APB's re-search staff, see Moonitz (1982).

^° For a report on his 1962 trip, see Chambers (1963a)." For a discussion of the difficult, early years of editing

Abacus, as well as the events that led up to its founding, seeChambers (1969a) and Wells (2000).

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sultant' until his death (Dean, 2000: ii).During the early 1960s, Chambers published

three important papers dealing with the contentand method of his emerging theory. Pride of placebelongs to the monograph based on his researchlecture at the University of Adelaide, Towards aGeneral Theory of Accounting (1961). RussellMathews, who invited Chambers to deliver thelecture, regarded this monograph 'as the watershedbetween the old style of pragmatic accounting andthe new theoretically based accounting in whichChambers was to play such a dominant role in de-veloping it during ensuing years' (1982: 177). Headded that 'it was not until 1961 that I came to fullrealisation that Chambers was an intellectual giant,who was in the process of transforming accountingfrom a technical set of arbitrary rules into a rigor-ous conceptual framework and measurement sys-tem' (p. 177). This 48-page monograph anticipatedhis Accounting, Evaluation and EconomicBehavior (AEEB) (1966b) both in content andmethod: it was a densely written, tightly logicalexposition (a 'layer cake', as he called it) of 40foundational statements, or postulates, about thecharacteristics of the world of action, together with21 derived statements, or principles, related to ac-counting.^^ Mathews recalled, without exaggera-tion, that 'The lecture itself left the audiencesomewhat bemused, because the structure of ideasand the complexity of the theoretical frameworkdeveloped by Chambers could not be easilygrasped from an oral presentation' (p. 177). Thepublications committee of the Australian Societyof Accountants, which sponsored the lecture, 'de-cided that it was not prepared to publish the lecturein any form', and it was finally published only atthe insistence of the University of Adelaide, andwas partially subsidised by Chambers (p. 177).One important difference between the 1961 mono-graph and AEEB was the former's adoption of re-placement cost as the valuation system fornon-monetary assets. Chambers' important transi-tion from replacement prices to resale prices is dis-cussed further in Section 4.3.

The year before his research lecture was deliv-ered. Chambers published 'The Conditions ofResearch in Accounting' (1960), which outlinedthe scientific method he would use in the lecture.He wrote another methodological piece, 'WhyBother with Postulates?', in the inaugural issue ofthe Journal of Accounting Research, in which heargued, somewhat in reaction to Moonitz (1961),that it is necessary 'to consider a whole system ofpostulates and a conclusion together'. 'There is',he said, 'no such thing as a set of postulates whichis independent of a set of conclusions or principlesor hypotheses'(1963b: 13).

In the 1960s, Chambers critically analysed theideas of leading writers in several papers: 'The

Resolution of Some Paradoxes in Accounting'(1963c), 'Conventions, Doctrines and CommonSense' (1964b) and 'The Development ofAccounting Theory' (1965b). In the 1960s and1970s, he wrote penetrating review articles on thetreatises by Edwards and Bell (1965a),'^Mattessich (1966a), Fisher (1971a), Ijiri (1972b)and Canning (1979), as well as on the AmericanInstitute of Certified Public Accountants' account-ing research studies 1 and 3 on postulates and prin-ciples (1964a), 6 on price-level accounting(1966d), and 7 on generally accepted accountingprinciples (1966c). All of these articles repay acareful reading by anyone seeking a deeper under-standing of the works, as they well typifyChambers' laser beam of analysis. While he likedto say that he had no more than a 'spotty' under-standing of others' writings,^'' he was indeed athorough and incisive analyst of every work thathe addressed.

In February 1966, Prentice-Hall publishedChambers' monumental work. Accounting,Evaluation and Economic Behavior (AEEB,1966b). It embodied his complete theory ofaccounting, which he called ContinuouslyContemporary Accounting. As an ideal. Chambersrejected replacement cost in favour of 'currentcash equivalents', or selling prices - also known asexit values, a term coined by Edwards and Bell(1961: 79). Yet he 'resorted to replacement pricesas a means of getting an approximation to currentcash equivalents on an ideal basis, both when deal-ing with short-term inventories and when suggest-ing methods of obtaining evidence of currentresale prices of durables...' (1966b: 249). Hisoverriding concern was to provide accounting in-formation that was relevant to the firm's capacityfor adaptation to changes in its environment, andhe concluded that, in principle, only 'current cashequivalents' would suffice.

Chambers had signed the contract with Prentice-Hall in 1962, when visiting the US, and the writ-ing of the manuscript occupied all of 1963 and1964 (Chambers, 1974a: xiv). Like his 1961 re-search lecture, but on a much larger scale, the bookwas densely written and, from the most primitivepropositions to the conclusions and implicationsfor accounting, was rigorously logical. At the end

'^ Chambers has said that his curiosity about how peopleact, i.e., solve problems, was 'sparked off in part by a highschool mathematics teacher who brought into his class a num-ber of logical word problems, which, he said, were exercisesin mathematical analysis. (Interview by Zeff with Chambers,14 January 1967.) In the same interview, he cited von Mises(1949) and Robbins (1932) as being particularly influential inthe development of his ideas in the 1961 research lecture.

' ' In 1982, Chambers continued his analysis and criticism ofEdwards and Bell (1961) and included later writings by bothEdwards and Bell.

'̂' Interview by Zeff with Chambers, 14 January 1967.


of the chapters, he summarised the argument byconcisely stating more than four hundred postu-lates and definitions as well as inferences and con-clusions. He dutifully traced his methodologicaland theoretical debt to philosophers, linguists, psy-chologists, decision theorists and scientists(among others), and, on matters close to account-ing he drew on the economics, finance andaccounting literatures. It was a weighty and intri-cately woven tome. (For a further discussion ofAEEB, see Section 4.3.)

The reviews were admiring but critical(McDonald, 1966; Wright, 1966; Dein, 1966;Solomons, 1966; Cruse, 1967; Benston, 1967;Hendriksen, 1967; Baxter, 1967). In his review,Wright said that 'the author has struck an impor-tant blow for the adoption of contemporary pricesas the basis of accounting: the care with which hehas developed the logical structure of his argumentwill make it impossible to dismiss his conclusions,and difficult to demolish them' (1966). YetChambers had opened himself to criticism for ac-cepting replacement prices when resale priceswere not readily available for short-term invento-ries. In 'Second Thoughts', his first general replyto his critics. Chambers responded by comingdown unequivocally in favour of resale prices forall classes of inventory (1970). This, and relatedissues, are discussed in Section 4.3.

In 1967, AEEB was honoured as a NotableContribution to the Accounting Literature, arecognition jointly conferred by the AmericanAccounting Association and the American Instituteof Certified Public Accountants. Two years later,Arthur Andersen & Co. paid him the unique trib-ute of reprinting more than 50 of his papers ina volume entitled Accounting, Einance andManagement (1969b). In 1973, the University ofSydney conferred upon Chambers a Doctor ofScience in Economics (D.Sc.Econ.) degree basedon AEEB and his other published writings.

From the late 1960s onward. Chambers battledagainst 'value to the business' (1971b), multiplecolumn reporting (1972a; 1972c), both generalpurchasing power accounting and current cost ac-counting (e.g., 1967a, 1975a, 1976c, \91%&),^^ thtargument that it is impossible to set an accountingstandard that would be preferred by all individualusers (1976b), and both market-based research andpositive accounting theory (1993). Numerous writ-ers crossed swords with Chambers in the literature,but few would take him on in seminars or confer-ences. He was a formidable debater, and any con-cessions he might make, and they were few, werewell disguised in return thrusts of his own. Somefound his manner at times to be disdainful, al-though he loved a good argument. Mathews wrotethat, 'An adversary could be irritated by the senseof superiority or even condescension which

Chambers sometimes displayed in his writings, buthis arguments could never be ignored' (1982:176-177). We shall see later, in our discussion ofthe debate between Chambers and Gynther, howprovocative Chambers' style of debate could be.

In 1976, Chambers was the first person chosenby the American Accounting Association to tourNorth American universities as DistinguishedInternational Visiting Lecturer. In 1977-1978, heserved as national president of the AustralianSociety of Accountants. And in 1978 he was hon-oured with an AO.

Chambers devoted much of the remainder of hiscareer to replying to critics, clarifying his views,and, with unflagging energy and missionary zeal,advocating the acceptance of his views by all con-cerned (e.g., see Chambers, 1970, 1974b, 1975b,1976d, 1978a), publishing articles and lecturingthrough5)ut the world.^^ In a book. Securities andObscurities, he used an earthy approach to enlargethe audience for his reformist theory. Rather thanrestate his elaborate theoretical argument, he in-stead examined scores of opinions of analysts,journalists, economists, accountants, executives,jurists and other classes of commentator to demon-strate that 'the existing [accounting] practices,even of companies that are well esteemed, are in-adequate, uninformative, and often obscuran-tist... [and to establish] a case for the reform ofpresent laws and practices' (1973: ix).

Chambers' major accomplishment, in terms ofpractical effect, was to secure a serious considera-tion of exit value by accounting academics (espe-cially in their teaching and in their textbooks onaccounting theory) and by accounting policy mak-ers and governmental committees of enquiry in theUS, UK, Canada, Australia and New Zealand (forparticulars, see Zeff, 2000: 8-9). Moreover, in themid-1970s, five New Zealand companies, includ-ing the country's second largest corporation,adopted 'continuously contemporary accounting'in a supplementary exhibit to their annual financialstatements, and Chambers was brought in as a con-sultant (Trow and Zeff, 1976: 342; Chambers,1976a).

He retired from the university in 1982 and wasmade professor emeritus. But that act of retire-ment, required by university statute, did not slow

^' After hearing Chambers' demonstration, by 'resolute in-quiry', that his 'continuously contemporary accounting is log-ically and practically imperative' and that it, and only it, meetsthe criteria of a superior accounting system (1967: 26, 42), theAmerican theorist Carl L. Nelson remarked that Chambers'presentation 'is the proclamation of an impatient individual -a person who is far more impatient than would be expected ofthe author oi Accounting, Evaluation and Economic Behavior'(1967: 50).

*̂ Abacus, however, was by far the predominant place inwhich his work was published, with 30 articles appearingthere between its first volume in 1965 and 2000.

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his pace of production. Chamhers continued tospeak and puhlish extensively into the 1990s. In1995, he published a mammoth thesaurus covering500 years of accounting, a work that only he couldhave produced. His encyclopaedic knowledge ofthe accounting literature, as well as his deep andabiding interest in the evolution of ideas, are rich-ly on display in this beautifully crafted work. Itwas a fitting valediction to a career devoted tire-lessly to the improvement of the accounting disci-pline.

In 1991, Chambers received two accolades. Hewas chosen by the American AccountingAssociation to receive an Outstanding AccountingEducator Award, and he was inducted into theAccounting Hall of Fame. He was the first recipi-ent of the AAA award not from a US universityand was only the second member of the Hall ofFame from outside of North America. In 1996, theAccounting Association of Australia and NewZealand (successor to the AAUTA) gave Chambersone of its two inaugural awards for OutstandingContribution to the Accounting Research Literature('AAANZ Outstanding Contribution...', 1996).

The final tally of Ray Chambers' published writ-ings was 'a dozen books and well over 200 arti-cles, monographs and reports on accounting,financial management and the law...' (Wolnizer,2000: 1). Few have had the impact on students, oncolleagues and on the field as Chambers.^^ He wasa stimulating figure, always questioning, alwaysprobing. A Festschrift was published in theDecember 1982 issue of Abacus, the journal hefounded, and a second appeared in its October2000 issue. Ray Chambers died on 13 September1999.

4. Contributions to the debate on pricechange accountingThe names of Chambers, Gynther and Mathewsare inextricably linked with the debate on pricechange accounting that raged (not too strong aword) in the 1960s and 1970s. This extended farbeyond Australia, but Australia made a dispropor-tionately large contribution to the international de-bate, and these three authors were at the heart ofthe Australian contribution. It therefore seems tobe appropriate to recount and assess their individ-ual contributions to this debate, and some contro-versies that took place between them. It shouldalso be recognised, however, that, as indicated ear-lier in this paper, their contributions extended farbeyond price change accounting. Russell Mathewswas primarily concerned with public finance is-sues and spent a substantial part of his career inposts that focussed on such issues. Reg Gyntherentered the academic profession relatively late inhis career and left it while still in his prime to take

up a research post with a leading firm of charteredaccountants. Ray Chambers had a long career asan academic accountant, stretching beyond his for-mal retirement, but he contributed to all aspects ofaccounting and certainly did not confine himself toprice change accounting.

Before embarking on a discussion of pricechange accounting, it is perhaps worth recallingthe importance of this subject both in practice andin academic debates of the 1960s and 1970s. Acomprehensive history of the subject is provided inTweedie and Whittington (1984).

The practical impetus for the debate was the per-sistent inflation that developed in most free-mar-ket economies as a result of the Keynesianeconomic policies adopted after the Second WorldWar. We have already seen that this gave rise to thepolicy problems that Mathews and Grant (1958)sought to address. There were similar studies inother countries, such as the US and the UK, whichfaced similar problems at the time. The rate of in-flation accelerated in the 1960s, when profession-al bodies, particularly in the English-speakingcountries, started to take an interest in recom-mending the adjustment of accounts by generalprice indices. Inflation in these countries contin-ued to accelerate, reaching a climax in the mid-1970s, by which time governments had started totake an interest in the price-adjustment of accountsfor taxation and other purposes (e.g., the appoint-ment of the Sandilands Committee in the UK, theMathews Committee in Australia and theRichardson Committee in New Zealand). TheseGovernment-appointed bodies advocated the ad-justment of accounts by specific price indicesrather than general indices. A fierce internationaldebate followed, with the result that accountingstandards incorporating specific price adjustmentswere issued in the US in 1979 and in the UK in1980, and similar proposals were planned in othercountries. However, both the US and the UK stan-dards were unpopular with preparers of accountsand, at the time they were issued, inflation rateswere falling rapidly under the influence of the new'monetarist' macro-economic policies, based onrestricting government expenditure and strict con-trol of the money supply.

As a result of this, the impetus for comprehen-sive price change adjustment of accounts was lost:the UK and the US standards were withdrawn andother countries did not issue their planned stan-dards on the subject. An exception was LatinAmerica, where hyper-inflation justified require-ments for general index adjustment of accounts in

" Among Chambers' leading intellectual disciples areFrank Clarke, Graeme Dean, Atiq Islam, John Staunton,Murray Wells and Peter Wolnizer. Many others were much in-fluenced by Chambers, including Michael Gaffikin, SidneyGray, David Johnstone, Hector Perera and Robert Walker.


certain countries into the 1990s (Tweedie andWhittington, 1997).

The academic debate on price change account-ing can be traced back to the beginning of thetwentieth century (Tweedie and Whittington,1984: ch. 2) so that Chambers, Gynther andMathews were able to draw on a substantial exist-ing literature. The debate was international, andthey were also able to interact with scholars inmany other countries. The debate was concernedwith the choice of index to be used for price ad- 'justment: should it be an index of general purchas-ing power or a specific price index, representingthe price of a particular asset?

There were two distinct strands to this debate,the valuation of specific assets (and, where thevalue was not fixed in nominal terms, liabilities)and the measurement of capital for the purpose ofcalculating income. Our trio were agreed that val-uation should be based on specific prices (or spe-cific price indices) rather than using a generalpurchasing power index to adjust historical cost.They disagreed on the issue of which specific priceshould be used: Mathews and Gynther preferredreplacement costs (entry values) whereas Chamberspreferred selling prices (exit values). With regardto the measurement of capital for determiningprofit, Mathews and Gynther believed that thisshould be based upon maintaining the productivecapability of the business entity (which implied areplacement cost adjustment), whereas Chambersbelieved that it should be based upon preservingthe real purchasing power of the net assets attrib-uted to proprietors (which implied a general pur-chasing power index adjustment).

The solution to the price-change problem that,briefly, appeared likely (in the late 1970s) to be-come adopted in practice was Current CostAccounting (CCA). This was based on valuing as-sets at value to the business rather than replace-ment cost. Value to the business is replacementcost except when replacement cost is not recover-able either by use (the net present value of cashflows obtainable from continued use in the busi-ness) or by sale (the net realisable value obtainedby orderly disposal). Thus, value to the businesswill be replacement cost in most realistic situations(Gee and Peasnell, 1976) and can be viewed as re-placement cost, moderated by an impairment test.It can therefore be seen that the CCA valuationmethod was close to that preferred by Mathewsand Gynther and distinctly different to that pre-ferred by Chambers. The same can be said of theCCA capital maintenance concept. CCA operatingprofit, as advocated in UK's Sandilands Report(1975), corresponded with Mathews' preferredconcept of capital maintenance. Later variants ofCCA, such as the New Zealand Richardson Report(1976) and the UK's Statement of Standard

Accounting Practice (SSAP) 16 (1980) incorporat-ed monetary working capital and gearing adjust-ments which captured the effects of changingprices on monetary assets and borrowing, but interms of specific prices (those of the specific assetsused and traded in by the entity). These were ac-cepted by Mathews (although they did not featurein his earlier contributions), and welcomed byGynther (who had adopted monetary working cap-ital adjustments from his early study of the Philipssystem), but were anathema to Chambers.

In considering the contributions of the trio toprice change accounting, we shall first considertheir individual contributions. Russell Mathewswill be discussed first, because he was chronolog-ically the first to make a major contribution to thearea. Then we shall consider Reg Gynther, becausehis work grew out of a thesis supervised byMathews of whom he might be described a fol-lower (but not a disciple). Finally, we shall con-sider Ray Chambers, who adopted a differentapproach to the other two (preferring exit values toentry values) and clashed with both of them.Having considered each individually, we shall goon to consider the clashes between Ray Chambersand Russell Mathews in 1965-1968, and betweenRay Chambers and Reg Gynther in 1971-1972.We shall conclude with some observations on theimpact of their respective contributions on ac-counting thought and practice at the beginning ofthe 21 st century.

4.1. Russell Mathews and Replacement CostAccounting

Although Russell Mathews devoted most of hisconsiderable energies to public finance issues,price change accounting was an important themein his academic writing, not least because of itsrelevance to public finance, through its implica-tions for the basis of corporate taxation.

The particular form of price change accountingpreferred by Russell Mathews is best described asreplacement cost accounting, rather than currentcost, because he was reluctant to embrace theeclectic 'value to the business' principle supportedby most advocates of current cost (e.g. theSandilands Report, 1975). His basic approach wasthat price changes rendered historical cost irrele-vant to current decisions, and that appropriate cor-rections to historical cost profit could be achievedby two simple adjustments, based on current re-placement costs, a cost of sales adjustment (whoseeffect was to charge stocks used at current re-placement cost rather than historical cost) and adepreciation adjustment (reflecting the differencebetween the current replacement cost of fixed as-sets consumed and their historical cost). He reject-ed general index adjustments of monetary assetsand claims or of proprietors' capital, on the ground

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that they were irrelevant to the needs of a continu-ing business entity.

These views crystallised early in Mathews' aca-demic career, notably in his book written with theeconomist John McB. Grant, who was his col-league in Adelaide (Mathews and Grant, 1958).This book represented work done from 1954 on-wards and was Mathews' most substantial contri-bution specifically to price change accounting. Itreported an empirical study of the Australian com-pany sector in the period following the SecondWorld War. The cost of sales adjustment and stockadjustment were estimated, using specific indicesand assumptions about asset ages, and the conse-quent effects on the measurement of retained prof-its were calculated. The purpose was to considerdividend policies, tax policies and pricing policiesin the light of the revised information. The conclu-sion of the study was that the incorporation ofthese adjustments in company accounts to yieldwhat the authors described as 'current income'would provide a safeguard against over-distribu-tion of dividends and a more equitable tax base:'current income is a measure of the income that isavailable for distribution, so that both taxes anddividends should be related to it' (Mathews andGrant, 1958: 3). The study also concluded that re-placement cost pricing would lead to a more effi-cient allocation of resources in the economy.

Of equal importance for present purposes is thetheoretical basis of the study. The authors ap-proached the problem as economists, asking ques-tions that are important for the economy as awhole, as well as for individual companies.Mathews himself had done his honours thesis atthe University of Melbourne on a topic in nationalincome accounting,^^ and his first publicationswere in this field. It is therefore perhaps naturalthat, in adjusting business accounts for pricechanges, he should resort to precisely the same ad-justments as are used in national income account-ing, the elimination of stock appreciation and there-statement of depreciation at replacement cost.These adjustments are designed to measure in-come after the maintenance of the productive ca-pacity of the entity, whether at the level of thenation or of the individual firm.

Mathews and Grant rejected the use of generalindices for adjusting the values of physical assets(Mathews and Grant, 1958: 20-21), and more im-portantly they rejected the use of general indicesfor adjusting owners' capital and monetary assetsand liabilities (pp. 21-23). The latter followed nat-urally from their view that capital maintenanceshould be concerned with the physical assets of theentity:

'...there are strong practical grounds for accept-ing accounting procedures designed to maintainthe real value of capital invested in physical as-

sets, but it is difficult to justify accounting pro-cedures designed to preserve the purchasingpower of cash resources and money claims'.(Mathews and Grant, 1958: 22)

The only role acknowledged for general pricelevel adjustment was for comparison of incomesbetween years (not their calculation within years),'but this is a task for the statistician rather than theaccountant' (p. 23). Again, this is consistent withthe approach of national income accounting, inwhich general price level adjustments are used toconstruct series of 'real GNP' to produce appropri-ate measures for inter-year comparison.

It was this strong stance in favour of replace-ment cost adjustments that led to Russell Mathews'next important contribution to the price changeaccounting debate. This was his critique (1965a)of an important American study (Staff of theAccounting Research Division, 1963) (ARS 6),which recommended general price-level adjust-ment of business accounts to reflect the impact ofinflation. The title of Mathews' critique was bothblunt and pertinent: 'Price-Level Changes andUseless Information'. The burden of the argumentwas that ARS 6 had been wrong to give priority togeneral price-level adjustment. Rather, adjust-ments for the specific price changes of the operat-ing assets of the business should have been themain focus, to yield an operating income measurelike that advocated by Mathews and Grant (1958).General price level adjustments were given a sec-ondary role: '...adjustments designed to measurechanges in the general price level only acquiremeaning if they are calculated by reference to datawhich have themselves been valued on a consis-tent basis' (Mathews, 1965a: 136). Furthermore,the general price level adjustment was merely toaid inter-year comparison and was 'of relativelyminor significance' (p. 137). The idea of restatingowners' equity by general price level changes tomaintain the real purchasing power of capital wasfirmly rejected, as were the related concepts of re-porting a real gain on borrowing or loss on holdingmoney in a period of inflation.

Mathews' trenchant critique of ARS 6 attractedcritical response from three commentators, one ofwhom was Raymond Chambers. The Chambers-Mathews exchange will be considered in more de-tail later. For the present, it should be noted thatthis hinged primarily on Mathews' insistence on aphysical capital maintenance concept and rejectionof general price level adjustment for this purpose.Chambers, always a shrewd judge of his oppo-nents' strengths and weaknesses, noted thatMathews' approach to income measurement wasmore suited to national income accounting than

'* Interview by Whittington with Allati Barton, July 2000.


business accounting (Chambers, 1967b: 216).The final important contribution by Russell

Mathews to the price change accounting debatewas associated with the Mathews Report onInflation and Taxation (1975). This report maderecommendations about the Australian system oftaxation in the context of the inflation of the early1970s, which was more severe than that in the im-mediate post-war period studied by Mathews andGrant (1958). The section of the Report that dealtwith business income taxation was obviously rele-vant to the price change accounting debate. Theconclusion was consistent with the earlier views ofthe Chairman: for taxation purposes, companiesshould be allowed to deduct from their historicalcost profit two adjustments, a cost of sales adjust-ment (equivalent to the increase in the replacementcost of stocks during the period) and a depreciationadjustment (equal to the excess of replacementcost depreciation of fixed assets over the historicalcost depreciation). This recommendation was verysimilar to that of the Sandilands Committee (1975)in the UK which reported a few months later, al-though the latter was in favour of 'value to thebusiness' as the measurement method, whereas theMathews Report favoured the narrower replace-ment cost method.^' The Mathews Report, unlikethe Sandilands Report, was addressed specificallyto taxation, rather than the wider issue of financialreporting, but Mathews made clear that he wouldhave preferred the proposed system to be adoptedfor financial reporting as well as taxation. He laterexpressed the view that the failure of theGovernment to implement the Report was encour-aged by the failure of business to adopt the pro-posals for financial reporting purposes (Mathews,1980: 268-269)

The Mathews Report suffered a similar fate tothe Sandilands Report. It led to no significant orlasting changes in the Australian system of compa-ny taxation, which dealt with inflation in the shortterm by a temporary stock appreciation relief, sim-ilar to that introduced in the UK. As in the UK, thepressure for reform of the tax base was lessened bythe falling rates of infiation. Both reports were in-fiuential in the subsequent debate on the use ofcurrent cost accounting for financial reporting,which led, briefly, to professional recommenda-tions for current cost accounting, although in bothcountries (and especially in Australia) the successof current cost was limited and short-lived(Tweedie and Whittington, 1997).

In the aftermath of the Mathews Report, RussellMathews contributed further to the price changeaccounting debate. He welcomed the RichardsonReport (Report of the Committee of Inquiry intoInflation Accounting, 1976), which recommendeda form of current cost accounting for use in NewZealand (see Mathews, 1977). In doing this, he

commended the use of the gearing adjustment,which was proposed by the Richardson Report.This adjustment was considered in the MathewsReport but did not feature in its final recommen-dations and had not appeared in Mathews' earlierwritings. It represents a specific price adjustmentmethod of dealing with the gain on borrowingand loss on holding monetary assets that resultsfrom infiation. His acceptance of this adjustmentdemonstrates his strong commitment to the physi-cal capital maintenance approach to incomemeasurement even when calculating incomeattributable to proprietors.

It was this latter commitment that gave rise tohis last serious public debate on price change ac-counting. In 1978, Peter Swan, then an economistat the Australian National University (and a son ofT. W. Swan, who provided some of the modelsused in the earlier Mathews and Grant study), pub-lished a highly critical review of the MathewsReport's recommendations on business taxation.His criticisms were based upon a rigorous neoclas-sical economic model of the firm and this led himto advocate a general price level adjustment ofopening capital, as in Ray Chambers' ContinuouslyContemporary Accounting (CoCoA) system (Swan,1978: 9), although it was the capital maintenancemodel with which Swan was concerned, ratherthan the choice between current entry value (pre-ferred by Mathews) and current exit value (pre-ferred by Chambers). Thus, Swan rejectedMathews' physical capital maintenance concept,concluding that it represented 'an emotional cru-sade in which "business survival" has replaced theholy grail' (Swan, 1978: 13). Essentially, Swan'sargument was that rising replacement costs didrepresent a gain to the firm if they could be passedon to the consumer, albeit that the gain might bereduced in real terms by a decline in the purchas-ing power of money (which would be captured bya general purchasing power adjustment). Therewould be no consequent financing problem, as vi-sualised by the Mathews Report, if prices yieldedsufficient expected profit to justify new invest-ment: if necessary, such investment could befinanced by the capital market.

A related criticism by Swan was of the MathewsReport's failure to deal with monetary assets andliabilities properly. During periods of inflation, theso-called Fisher Effect produces a gain on borrow-ing or loss on holding monetary assets, which rep-resents the difference between nominal and realinterest rates (Swan, 1980: 270-271). This effect ismost naturally expressed in terms of general price

' ' The two will, of course, typically lead to the same result.The similarities between the recommendations of theMathews Report and the Sandilands Report were possibly en-hanced by contact between the two committees (Tweedie andWhittington, 1984: 80).

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level indices, because it is concerned with the pur-chasing power of money rather than the cost of aspecific bundle of assets. The Mathews Report didnot recommend any adjustment for this effect, andthe only adjustment it considered to be possiblyappropriate was the gearing adjustment.

Mathews' reply to Swan (Mathews, 1980) is in-structive as an illustration of his underlying as-sumptions and objectives. He explicitly appealedto the methods of national income accounting (p.262) as authority for his approach of maintainingphysical capital. He emphasised that 'the notionthat under conditions of rapid inflation, a liquidityor cash flow problem is inherent in a system of his-torical cost accounting, pricing and taxation wascentral to the Committee's argument, and it is notpossible to rebut it by asserting that the problemcan be overcome by raising fresh capital' (p. 263).The latter was supported by an appeal to the de-pressed state of the capital market, which made itimpossible for firms to raise additional funds.Equally, he questioned the practicality of firmsbeing able to raise prices sufficiently to compen-sate for higher replacement costs if they were notgiven additional tax relief to reflect those costs.Finally, in response to the argument that apprecia-tion in asset values constitutes a gain to propri-etors, he wrote, 'it is difficult to conceive of anyaction which would be more damaging to theAustralian economy and its competitive positionthan the inclusion in taxable income of the unre-alised appreciation which has occurred in thedepreciable assets held by business enterprises'(p. 267).

His reply to Swan shows that he approached theproblem from the perspective of economic policyrather than economic theory. His reasoning wasconducted within the practical constraints facingthe policy-maker, and he assumed frictions andimperfections in the financial system which wereinconsistent with Swan's theoretical model (p. 263).He was also concerned to construct a tax systemthat would work more effectively than the one inplace, rather than attempting to achieve optimality,which he regarded as impractical. His concernswere as much macro-economic as micro-econom-ic. The central concem of his Committee was 'withthe maintenance of financial stability in the busi-ness sector, with continuity of business investmentand operations, in short with business survival' (p.263). In summary, Mathews adopted a Keynesianview of the economy, which regarded disequilibriaand market imperfections as normal facts of eco-nomic life, creating a need for govemment inter-vention in order to correct them.*"*̂

Swan's rejoinder (Swan, 1980) re-iterated anumber of points of logic which he felt thatMathews had not addressed, notably on the FisherEffect, but the debate ended on a suitable note of

agreement, in that both parties agreed that a pro-portional consumption tax would provide an effec-tive and simple substitute for both the personalincome tax and corporate profits tax (p. 276).

This exchange was Russell Mathews' final con-tribution to the price change accounting debate,and it illustrated both the strengths and the weak-nesses of his current cost accounting model. Thesewere explored further in the work of his pupil, RegGynther, to whom we now turn.

4.2. Reg Gynther and the entity approach to pricechanges

We have seen that Reg Gynther came late toacademe, taking his first full-time academic post atthe mature age of 37. He acknowledged that hisview of price change accounting was shaped by hispractical experience as an accountant in business.This led him to adopt the 'entity' view of pricechange accounting, which is the perspective of themanager rather than of the shareholder or propri-etor.

Like Mathews, Gynther produced a major workon price change accounting early in his researchcareer. This was Accounting for Price-LevelChanges: Theory and Procedures {Gyniher, 1966).It was developed from his master's thesis for theUniversity of Adelaide, and its central ideas weredeveloped from an article published earlier inAccountancy (Gynther, 1962). This was super-vised by Russell Mathews, and the assistance ofboth Mathews and Grant (as external examiner) isacknowledged in the preface. Thus, Mathews musthave exercised some influence over the develop-ment of the work, despite the fact that the degreewas taken on a part-time basis and at long distance(Mathews being based in Adelaide and Gynther inBrisbane). Certainly, the conclusions of the work,favouring specific replacement cost adjustmentsand rejecting the use of general price level indices,were consistent with the approach of Mathews andGrant. On the other hand, Reg Gynther was verymuch his own man, and he may have chosen hissupervisor to match his well-developed interest inreplacement cost accounting, which liad developedfrom his commercial experience and his contactwith the Philips system.

Whatever the origins of Gynther's interest in re-placement cost accounting, his book (Gynther,1966) became a standard source of reference onthe methodology of replacement cost accounting,and it also contained most of the ideas that he de-veloped further in his later work. WhereasMathews and Grant's work had been concernedwith aggregate adjustments to the accounts of the

** This view of Russell Mathews' economics was confirmedby an interview in August 2000 with Geoff Harcourt, emeritusprofessor of economics at Adelaide.


company sector, using two simple adjustments andmaking a number of fairly heroic simplifying as-sumptions, Gynther was concerned with detailedreplacement cost adjustment of the accounts ofthe individual company. He modelled his work ona study of the Philips system and, consistent withthe approach of Limperg's Amsterdam School,was concerned that replacement costs should berecorded throughout the accounting system, as anaid to management as well as for external report-ing purposes. Thus, the final four substantial chap-ters of his book (Chs 12 to 15, inclusive) aredevoted to matters of practical application (such asthe choice between average and end of periodprices, Ch. 12), including a case study of the ap-plication of current cost accounting in PhilipsElectrical Industries (Ch. 15). His book was shapedin two respects by his extensive practical experi-ence in business. First, as we have already ob-served, his attachment to replacement cost aroseout of his adoption of the perspective of the man-ager, rather than of the shareholder. Second, heapproached the problem of replacement costadjustment at the detailed level of the accountingsystem (illustrating many of his points by means ofjournal entries) rather than as a matter of adjustingthe summary financial statements. In this respecthe was a true accountant, like Chambers, withwhom he was to debate strenuously on the relativemerits of replacement costs and selling prices asthe basis of valuation:

'It is believed that the main purpose of main-taining accounting records is to provide manage-ment with vital information to assist it in itsday-to-day functions of planning, controlling andmaking decisions to increase the performancesand efficiency of its entity'. (Gynther, 1966: 3)

The theoretical core of Gynther's work wasbased upon his entity perspective of the firm. He(like Mathews) was concerned with the preserva-tion of the business entity (as expressed in an op-erating capability concept of capital maintenance)rather than with the maintenance of shareholders'wealth, in real or nominal terms. He expressed thisperspective with admirable clarity and candour inhis book, and this was one of his important contri-butions to the price change accounting debate, al-though a controversial one. Associated with thisview was his belief in using specific prices, wherepossible, and, in their absence, specific indices, forthe re-statement of accounts: The more specificthe available information is the better, and the moreaccurate the accounting will be as far as each firmis concerned' (Gynther, 1966: 55). This specificapproach was to apply both to balance sheet valu-ations and to the restatement of opening capital:

'When the specific current cost of either an in-ventory item or a fixed asset item rises or falls, it

costs more or less to be in that kind of industry.To treat any part of such a rise or fall as a profitor a loss is tantamount to looking at the rise orfall in prices through the eyes of a shareholder(or other outsider) and not from the viewpoint ofthe firm as a going concern'. (Gynther, 1966: 68)

He did, however, express approval of the workof Edwards and Bell (1961) and, perhaps as a con-cession to their approach, he accepted that it wouldbe possible, although not desirable in the financialstatements, to use general index adjustment ofshareholders' funds, which would be offset againstnominal holding gains and losses on real assets, toprovide a measure of real holding gains, whichcould be added to profit 'for those with a generalindex concept of profit, i.e., for those with a propri-etorship outlook' (Gynther, 1966: 81). However,he added a stern warning that, in his view, all suchtransfers to or from reserves should not affect theprofit calculation but should instead be treated asappropriations of profit:

'Any such further transfers have nothing to dowith the determining of profit itself. Such at-tempts to protect shareholders' funds are financ-ing problems only', (p. 81)

The specific index approach posed particulardifficulties for the treatment of current monetaryitems. Gynther showed himself to be a pioneer ofthe 'monetary working capital adjustment', a fea-ture of the current cost accounting (CCA) systems,which were later adopted by professional bodies:

'...the specific-index man treats as profits andlosses the total movement (up or down) in therelative specific indexes that he associates withthe monetary items', (p. 139)

Thus, Gynther would apply to the net currentworking monetary asset pool (current assets lesscurrent liabilities) a specific index, related to thefirm's purchasing pattern. In a period of risingprices, this would give rise to a loss, which wouldbe an additional charge against profits, when netmonetary assets were positive, and to a gain,which would add to profits, when net monetary as-sets were negative.

Long-term liabilities were treated differentlyfrom short-term liabilities in Gynther's approach.They were regarded as part of the permanent cap-ital of the business, so that changes in their realvalue would, in effect, be transfers between bond-holders and shareholders, which would not affectthe total capital of the entity (p. 151). Thus,Gynther's strict entity assumption ruled out hisadoption of the gearing adjustment, which featuredin some later CCA proposals.

A final feature of the book that is worthy of noteis its comments on goodwill and intangible assets(pp. 129-133). Here, Gynther not only foreshad-

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owed his own later paper on the subject (Gynther,1969), but he also anticipated the approach adopt-ed much later by the UK Accounting StandardsBoard (1997), which is also currently being con-sidered by the International Accounting StandardsCommittee. He advocated capitalising purchasedgoodwill and writing it off only when it was im-paired. He opposed compulsory amortisation. Hisreasoning was that, from his entity oriented view,the accounts should record a reduction in goodwillonly when the operating capability of the businesswas impaired.

Gynther followed his book with a cycle of threepapers on accounting for price changes, two in TheAccounting Review (Gynther, 1967a and 1970) andone in Accounting and Business Research (1974).His paper on goodwill (Gynther 1969) was alsopublished in The Accounting Review; so the periodup to 1974 was the one in which he sought to ad-dress academic audiences at the highest level.

The cycle of papers on price change accountingelaborated on the ideas in the 1966 book but didnot change them in any fundamental way. Thefirst, on 'Accounting Concepts and BehavioralHypotheses' (1967a), which built on an earlierpaper (1962), explored the different assumptionsand reasoning of advocates of both 'proprietary'and 'entity' theories of the firm. It showed consid-erable knowledge of the relevant literature andmade an acknowledgement of social, political andpsychological influences on accounting which, forits time, was incisive and anticipated later devel-opments in the accounting literature. However, theconclusion was not novel: the author expressed hisenthusiasm for the entity approach, based on hisown experience:

'This author votes for the entity theory, and in sodoing he admits that his twelve years in industryas an accountant-controller before entering aca-demic life have shaped his frame of refer-ence....' (Gynther, 1967a: 289)

The consequence of this was, of course, his op-erating capability concept of capital.

The second paper in the cycle, 'Capital Main-tenance, Price Changes, and Profit Determination'(1970) elaborated on the alternative capital main-tenance concepts and their consequences for prof-it measurement in price change accounting. Itcontained (p.72O) Gynther's matrix presentation ofalternative price change accounting systems, withcapital maintenance concepts identified in therows and asset valuation methods in the columns,which he had previously published in a profes-sional bulletin (Gynther, 1968: 13). There wasalso, in typical Gynther style, a substantial numer-ical appendix, enabling the accountant to see thedetailed calculations and journal entries underly-ing the alternative systems. The main conclusion

of the paper was that accounting for price changesis concerned with long term profit and that capitalmaintenance, rather than asset valuation, is funda-mental to this process. He demonstrated this as-sertion by means of a numerical example whichshowed that errors in asset values ultimately re-verse (as they are liquidated) whereas differentcapital maintenance concepts give rise to perma-nent differences in measured profit. Unlike mostof Gynther's writings, this second paper did notreach a normative conclusion.

The final paper in the sequence (acknowledgedas such by the author, Gynther, 1974: 141) was'Why Use General Purchasing Power?' This fo-cussed on an extensive discussion of the price in-dices, around the theme that these should be asspecific as possible. Those used in accounts shouldbe specific to the needs of the entity, and thoseused by the shareholder should be specific to theconsumption pattern of the individual shareholder.Hence, the author opposed the use of general pricelevel indices in the accounts: the place of a gener-al price level adjustment was in the personal ac-counts of the proprietor (or shareholder), and theindex should be selected according to the needs ofthe individual. This was, of course, an elaborationof another of Gynther's themes: its genesis owed agreat deal to the work of Hendriksen (1961 and1963), which were cited extensively in Gynther(1966). The paper also contained an interesting ap-pendix (Appendix 2), which elaborated the matrixtreatment of asset valuation and capital mainte-nance, attributing various combinations to variousauthors. It shows Gynther's 'ideal concept' (i.e.,not practical) of capital maintenance as beingNet Present Value. This is consistent with hisdiscussion of asset valuation in his 1970 paperand also with his paper on goodwill ('Some"Conceptualizing" on Goodwill', 1969). The latterpaper had elaborated the earlier goodwill propos-als in Gynther (1966) and made clear that the au-thor preferred the capitalisation and revaluation ona net present value basis (i.e., what would now beknown as an 'impairment test') of purchased good-will but would also, ideally, treat self-generatedgoodwill on this basis. Thus, his ideal balancesheet would show specific assets at replacementcosts, but goodwill at net present value, the totalsumming to management's estimate of the total netpresent value of the business. However, Gyntherrejected the view that goodwill is simply a residualamount, representing the present value of expectedabnormal returns. He took the view that such re-turns had a source, albeit an intangible one, andthat is why it should be amortised only when thesource was impaired.

The 1974 paper completed the elaboration of theideas that Gynther had developed in his 1966work. Having, in effect, completed his programme


of academic research, he moved in 1977 to the ac-counting profession. This gave him the opportuni-ty to apply his ideas through his influence on theaccounting standard-setting process. He had al-ways sought to make his work practical and acces-sible to practitioners, through publication inprofessional journals. One of these publicationsled to a controversy with Chambers, to which wewill return.

His new role as research partner of a leadingprofessional firm enabled Gynther to continue hiscrusade through publication in professional journalsbut also gave him greater access to the standard-setting process. He therefore had a considerableinfluence on the development of a current cost ac-counting standard in Australia (Tweedie andWhittington, 1984: Chapter 8). Notably, he con-tributed to the debate on the treatment of monetaryitems and was a member of the committee thatproduced the 1978 exposure draft (AustralianAccounting Research Foundation, 1978), whichproposed specific indexation of the net monetaryasset pool, with no adjustment for long-term lia-bilities. This was almost a replica of Gynther'sconclusions in his previous work. Statement ofAccounting Practice 1, Current Cost Accounting(Australian Society of Accountants, 1983) whichwas the ultimate outcome of the Australian stan-dard-setting debate, incorporated the monetaryworking capital adjustment and relegated the gear-ing adjustment (for long-term debt) 'below theline', as Gynther would have wished.

At this stage (1983), it must have seemed thatReg Gynther's move to the accounting professionhad resulted, in practical terms (which is whathe would have valued), in triumph over his oldadversary, Ray Chambers, who advocated a verydifferent price change accounting system.Continuously Contemporary Accounting (CoCoA):asset values based on selling prices, combinedwith a capital maintenance concept of the propri-etorship type, based on general index adjustment.However, as we have seen, the triumph was short-lived. The 1983 statement was a recommendationrather than a standard, and it was not widely fol-lowed. As inflation rates fell and industry (in theabsence of the concessions based on it) rebelledagainst CCA, this system of accounting failed totake root in Australia or elsewhere (Tweedie andWhittington, 1997).

We now turn to consider the creator of theCoCoA system, Ray Chambers.

4.3. Ray Chambers and Continuously ContemporaryAccounting (CoCoA)

As we have already seen, Ray Chambers devot-ed most of his long career to the academic study ofaccounting, unlike Russell Mathews, the majorityof whose publications was in the public finance

area, or Reg Gynther, who came late to academefrom commerce and left early to take a partnershipin a professional firm. Thus, in dealing with RayChambers' contribution to price change account-ing, we are touching on only a small part of hiscontribution to accounting thought and the aca-demic literature of the subject.

Nevertheless, accounting for price changes wasan important aspect of his theory of ContinuouslyContemporary Accounting (CoCoA), developed inhis most important work. Accounting, Evaluationand Economic Behavior (AEEB) (1966b). Wetherefore have to understand the development ofCoCoA in order to understand his views on pricechanges.

Chambers was driven by a desire to develop ac-counting theory on what he called a scientificbasis. By this, he meant that the theory should belogically deduced from clearly stated assumptions- i.e., it should be deductive, as opposed to the in-ductive approach of his predecessors, such asLittleton U953), who had observed accountingpractice and attempted to rationalise it. In this en-deavour, he was inspired by the work of Canning(1929) who had observed the primitive state of ac-counting theory from the perspective of an econo-mist. This agenda was spelled out in Chambers''Blueprint for a Theory of Accounting' (1955a).

The next major development was in Towards aGeneral Theory of Accounting (1961), which pre-sented 40 basic assumptions and derived 21 prin-ciples from them. With regard to price changes.Chambers stressed the importance of stating the fi-nancial position at balance sheet date properly. Hetherefore advocated the valuation of assets at theircurrent values as measured by replacementprices:*'

'Replacement price (or replacement cost) does notmean some hypothetical future price to be paidon some hypothetical future replacement date. Itmeans the price currently ruling for equivalentservice potential. The price currently ruling forproducers' goods is the market's assessment ofexpected income flows from their use at thepresent level of prices, for all potential users ofsuch goods.' (Chambers, 1955: 29, para. 90)

Later, he was to modify this view and he con-ducted a crusade in favour of selling prices ratherthan replacement costs.

Another feature of the 1961 paper was Chambers'treatment of changes in the general price level. Hisearlier professional writings had recognised theproblem of changes in the general price level af-fecting the value of the unit of measurement

^' He had first advocated replacement cost accounting ad-justments much earlier in a brief paper (Chambers, 1949) thatmight have won the applause of Mathews and Gynther.

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(money), as being distinct from the problem ofchanges in specific replacement prices (e.g..Chambers, 1952b, in which he cited Sweeney,1936). In his 1961 study, he formalised this in hiscelebrated notation, which became almost a stan-dard in the literature for expounding alternativemodels of price change accounting.^^ Starting witha balance sheet, defined as:

M + N = L + R (1)(where M are Monetary Assets, N non-monetary

assets, L liabilities and R residual equity),

he multiplied through by the change in the generalprice level (1 -i- p) over a period which was other-wise transactionless, to yield (Chambers, 1961: 35):

M (1 + p) + N (1 + p) = L (1 + p)

+ R (1 + p) (2)

And, remembering that the monetary items, M andL, are, by definition, fixed in monetary terms, thisled to the conclusion that, if p were positive, therewould be a loss on holding money of pM and again on borrowing of pL, although at this stageChambers did not treat such gains and losses aspart of profit. This simple statement, which is nowso familiar as to seem obvious, was, at the time, aconsiderable clarification of the issue. It ledChambers to take a proprietary view of capital andto support the use of general purchasing power in-dices for capital maintenance purposes, an issuethat he later clarified through modification of hisnotation (Chambers, 1967b). This brought himinto direct conflict with Russell Mathews, in aheated, published debate which we shall reviewlater. The issue there was the role of general in-dices and the treatment of monetary items, but RayChambers was about to enter a more momentousdebate, that relating to valuation, which lasted forthe rest of his career.

The valuation issue was clarified, and, inChambers' view, settled, in AEEB (1966b), whichdeveloped his 1961 framework into a comprehen-sive theory of financial accounting. ContinuouslyContemporary Accounting (CoCoA). The anchorof this system was its valuation principle of cur-rent cash equivalent, by which Chambers meantrealisable values. Thus, he had switched allegiancefrom buying prices (replacement costs) to sellingprices. He modified this in the case of work-in-progress inventories and non-vendible durables(i.e., fixed assets with httle or no resale valuewhich were nevertheless assets that were essentialto the business) by allowing replacement cost to beused a proxy for current cash equivalents in suchcases. When his critics gleefully seized on this asan inconsistency. Chambers, who was fastidious(even relentless) in his application of logic,changed his position to one that he regarded asbeing totally consistent: if work-in-progress and

non-vendible durables had no sale price, then theywould be given a zero value (Chambers, 1970).

Chambers' conversion to selling prices was driv-en by the logic of his theoretical assumptions. Itwas foreshadowed in his paper 'Measurement inAccounting', published in 1965 but first drafted in1963. Two particularly pregnant excerpts from theintroduction to this paper are as follows:

'It transpires that the assumption of adaptive be-haviour in a changing environment necessitatesa set of quantification rules which shall be ameasurement system.' (Chambers, 1965d: 32)

and

'This paper takes uncompromisingly the posi-tion that accounting is concerned strictly withthe past and present, but so that it is always rel-evant to the future. To mix measurements withexpectations is to confuse an already compli-cated present. To make measurements is thebusiness of the accountant as such; to form ex-pectations is the business of actors.' (p. 33)

These quotations capture the essence ofChambers' thought, although from that essence hegenerated a complex system. The first quotationindicates that he was concerned with adaptive be-haviour, and that he wished to develop a measure-ment system around this objective. His idea of ameasurement system would be one that was com-prehensive and logically consistent. The secondquotation indicates that he was concerned to pro-vide information that was as up-to-date as possiblewithout straying into assumptions or expectationsabout future actions. In a way, this showed him tobe a true accountant, because he was concernedwith events that have occurred, rather than onesthat might occur; i.e., he wished to report ex postrather than ex ante. However, because he was con-cerned with adaptability, he wished to reflect thecurrent financial position, and this led him to cur-rent values rather than historical cost. He preferredcurrent cash equivalents, based on selling prices,rather than replacement costs, because, in order toadapt, the entity would have to realise its assets asa pre-condition. Thus, selling prices were alwayspotentially relevant. Moreover, they reflected anaspect of the entity's present holding of assets, un-like replacement costs, which represented the costof assets that the firm had not yet acquired, even ifit might expect to do so in the future.

AEEB was a remarkable work of scholarship,showing encyclopaedic knowledge, extending farbeyond accounting, and it made an ambitious at-tempt to provide a new, rigorous, framework foraccounting, the scope of which is wider than our

^̂ He later reviewed these applieations in Chambers(1978b).


present review. The heart of the CoCoA systemis developed in four chapters (4. MonetaryCalculation, 5. Financial Position, 9. TradingVentures, and 10. Accounting for Trading Ventures)out of a total of 14. Stripped of all the supportingarguments, these chapters basically advocate avaluation system based on resale prices ('currentcash equivalents'), using the arguments fromChambers (1965d), summarised above, and com-bined with general price level adjustment of pro-prietors' equity, to allow for changes through timein the value of the monetary unit of measurement,as developed in Chambers (1961) and (1965c).Thus, Chambers supported the broad systemadopted earlier by Edwards and Bell (1961), butwith the important exception that he deploredEdwards and Bell's acceptance of replacementcost as the method of valuation in their businessprofit model. He asserted that:

'In relation to adaptive behaviour the relevantprice of goods in possession, their opportunitycost, is the present market resale price'.(Chambers, 1966b: 201)

He saw replacement cost as being related to thereplacement decision, but that was a matter for fu-ture action rather than the measurement of thepresent financial position (p. 202). Equally, he re-jected, for accounting purposes, the use of dis-counted present values of assets currently held,because these involved expectations about the fu-ture, whereas he was concerned with opportunitiesavailable in the ^̂

'Whatever consideration one gives to the long-run, adaptation in a fluid environment cannot bedeferred. Adaptation is action here and now.'

and

'The process of determining financial position,the accounting process, can take no cognisanceof expectations in respect of the long- or short-runs. Until the manager of a firm discovers itspresent position, he does not know whether he isable to take a long-run view or must be contentwith short-run adaptation.' (p. 205)

These strongly expressed views naturally led toconsiderable controversy on the valuation ques-tion, particularly with advocates of the 'value tothe business' method (sometimes known as depri-val value), such as Baxter (1967), Solomons(1966) and Wright (1966). Value to the business isbased on what Chambers would have called 'long-run' considerations, based on the going concernassumption and using discounting methods as onecomponent of the assessment of value. At the heartof the issue was Chambers' refusal to accept thatvalues based on expectations are suitable for in-clusion in accounts, and his assertion that current

cash equivalents contained no element of expecta-tion (although cash realisation is a future event).

Chambers answered these critics in his 'SecondThoughts' paper (1970). This was in many respectshis definitive statement on CoCoA. We have al-ready seen that, in this paper, (pp. 47-49), he hard-ened his views on valuation by excludingreplacement costs as proxies for the selling pricesof work-in-progress and non-vendible durables.He also acknowledged (p. 43) that he had beenwrong to use the idea of realisation in his discus-sion of the relation between inventory values andincome: recognition in the CoCoA system depend-ed only on asset prices changing, not on sale of theasset.

Apart from these two concessions. Chambersheld his ground with robust arguments, and hecontinued to do so for the rest of his life. His argu-ments against 'value to the business' (Chambers1970: 44-47) are a good illustration of his con-frontational debating style. His numerical example(p. 46) shows clearly that he was concerned withthe opportunities offered by the cash representedby the asset, whereas his opponents were con-cerned with the opportunities offered by owner-ship of the asset itself (including discountedpresent value). Both seem to be legitimate thingsto be interested in, but when, as a compromise so-lution, Reg Gynther (1971) later suggested multi-ple column reporting, he was, as we shall see,roundly criticised, as someone who was, from aCoCoA perspective, a heretic. This numerical ex-ample is also of interest because of its implicit as-sumption of capital rationing: in his two 'feasible'cases, case (a) and case (b), it is assumed that anasset with a present value in excess of resale priceshould be sold and reinvested in a new asset, if thepresent value of the new asset is higher. If the firmcould raise more funds at its cost of capital, itshould clearly, in this case, invest in both assets.By assuming that resale prices of existing assetsconstrain investment opportunities. Chambers washere making an implicit assumption of capital mar-ket imperfection which, strangely, also lay behindRussell Mathews' belief that holding gains couldnot be regarded as part of profit (as revealed in hisdebate with Swan).

Another contentious issue was that of long-termliabilities, which Chambers (1966b) had insistedshould be recorded at face value, rather than atmarket value, despite the fact that similar bondsheld as assets would be recorded at selling prices.He defended this in his 'Second Thoughts'(Chambers, 1970: 158-159) and later in his 'Third

''•' Barton (2000b) attempts to reconcile the exit and entryvalue approaches by suggesting that the former is concernedprimarily with the short run and the latter with the long run.These extracts from Chambers' work are consistent with this

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Thoughts' (Chambers 1974b: 132-134), using theargument that long-term liabilities are somehowsimilar to equity claims:

'The position is perhaps analogous to that ofstockholders'. (Chambers, 1970: 50)

Here again, there is a remarkable resemblanceto the assumptions of his opponents, such asMathews (who refused to recognise an inflationary'gain on borrowing', on similar grounds) andGynther (whose 'entity' approach precluded 'gains'arising from transfers between long-term debt andequity).

After the 'Second Thoughts', Chambers devotedhimself vigorously to the defence of his systemagainst its critics (e.g.. Chambers, 1976d, whosetitle captures his contentious style: 'ContinuouslyContemporary Accounting: Misunderstandingsand Misrepresentations'), in promoting it as a suit-able system for adoption by accounting standard-setters (e.g.. Chambers, 1980), in gatheringrelevant empirical evidence (Chambers, 1973),and in demonstrating how the system could be ap-plied in particular aspects of accounting practice(e.g., Chambers, 1983). He remained fiercely crit-ical of the 'value to the business' method, and ofmany of the efforts of accounting standard setterswhich, in his view, lacked an adequate conceptualbasis (Chambers, 1998). Thus, he devoted the re-mainder of his career to fulfilling the task he hadset in 1966:

'We have not come to the end of the road. In avery real sense, much of the journey lies ahead.Only the broadest questions have been broached,and perhaps not all of those. To the minutiaeof everyday transactions, and their treatment inaccounting, little attention has been given'.(Chambers, 1966b: 365)

We now turn to consideration of two publishedinterchanges on the issue of accounting for pricechanges that took place between Ray Chambersand our other two subjects, Russell Mathews andReg Gynther, respectively.

5. Two interchanges5.7. Chambers v. Mathews on general price leveladjustment

We have already noted that, in 1965, RussellMathews published a highly critical review ofARS 6, the American research study which advo-cated general price level adjustment of historicalcost accounts (often known as Current PurchasingPower, or CPP Accounting) as the appropriate re-sponse to inflation. His central criticism was thatcurrent valuation is an essential requirement foraccounts to meet the requirement of reportingchanging prices. The valuation of assets at histori-cal cost, adjusted by subsequent changes in the

general price level was regarded as 'useless': whatwas required was an adjustment with respect to thespecific prices of the asset concerned.

Chambers did not disagree with Mathews'analysis up to this stage, although Mathews' ideaof a specific price was a replacement price, where-as Chambers had just undergone his conversion tothe CoCoA method, which used selling prices asthe basis. Their disagreement arose in relation tothe capital maintenance concept: Mathews, in hiscritique, used his preferred 'entity' concept, basedon replacement costs and refused to include gainson borrowing or losses on holding money in thecalculation of profit. Thus, he did not recognisegeneral price level adjustments of capital as affect-ing profit calculation within the accounting period:for him, as for the national income accountant, themain purpose of general price level adjustmentwas to facilitate comparisons between accountingperiods and was therefore 'of relatively minor sig-nificance' (Mathews, 1965a: 137).

From Chambers' perspective, Mathews addedinsult to injury by borrowing (or, as Chambers waslater to describe it, mis-using) Chambers' own no-tation to support his case. Chambers (1961: 35)had derived from (1) and (2) above the followingexpression:

M + N (1 + p) = L + [R (1 -H p)

+ Lp - Mp] . . . (3)

This expression groups, in the square brackets, theadjustments for monetary items together withresidual equity. Chambers also noted that

pN = pR + pL - pM (4)

Thus, the 'p' multiples in the square bracketswere equivalent to the price adjustment of non-monetary assets. Although, as a piece of algebra,this is identically true. Chambers subsequentlyconsidered the exposition to be misleading froman accounting perspective (Chambers, 1965c and1978b):

'the deceptive simplicity of the assumptions ledme into error' (Chambers, 1965c: 244).

There were two key simplifications. First, thegrouping of the monetary adjustments (pL andpM) with residual equity, R, is obviously alge-braically possible, but it wrongly (from Chambers'proprietary perspective) assumes that the mone-tary adjustments are made direct to capital ratherthan appearing as separate gains or losses to be re-ported in the profit and loss account. Second, theexample did not allow for specific price adjust-ments of the non-monetary assets, N, to give riseto real holding gains and losses on these items:such gains and losses were, from Chambers' per-spective, part of the total profit of the period, notsimply adjustments to capital.


To Mathews, however, the implications ofChambers' assumptions were entirely acceptable.Under his physical capital maintenance concept,real holding gains or losses on non-monetary as-sets and gains or losses on monetary items wereexcluded from profit, and he quoted Chambers' re-sult ((4), above) with approval (Mathews, 1965a:139-140). This use of Chambers' notation enabledMathews to claim that his preferred system(recording only specific price changes) embracedgeneral price level adjustment. This was true onlyin the unusual case in which the specific pricechanges were the same as the change in the gener-al price level, and if it were considered appropriateto regard gains and losses on monetary items asadjustments to capital rather than as part of profit.

C!hambers (1965c) responded vigorously toMathews' use, or mis-use, of his notation. As wehave seen, he realised that he had previously(Chambers, 1961) failed to recognise the simplify-ing assumptions underlying his notation, particu-larly in his derivation of (4), above. He developeda more general model, in which the specific priceof non-monetary assets, N, changes at a differentrate, r, from that of the general price level, p, andin which holding gains and losses are separatedfrom capital adjustments. Thus, (3) above was re-placed by:

M -h N (1 -f r) = R (1 + p) + N (r - p) - Mpand income included the holding gains:Income = N (r - p) - Mp(Chambers, 1965c, p.244)«''

This was consistent with Chambers' proprietaryapproach to capital maintenance, combined withcurrent valuation of assets. It can be contrasted withMathews' preferred approach (1965a: 140), whichwas:

M -H N (1 + r) = R -I- Nr

This yielded (in a transactionless period) a zeromeasure of income, because holding gains andlosses went directly to capital (through Nr).

Not content with criticising the use of his ownnotation. Chambers (1965c) made a searching ex-amination of the assumptions underlying Mathews'physical capital maintenance/replacement costsystem, and particularly the effective exclusionfrom Mathews' income calculations of gains orlosses due to a change in the purchasing power ofmoney:

'And are we to suppose that when a firm sells agood the money it receives is specialised moneyonly fit for doing specialised things?' Chambers,1965c: 249)

Inevitably, Chambers' vigorous critique attract-ed a response from Mathews (1967), who saw thecentral point but found it hard to resist being

drawn by Chambers' disputatious style:

'To a large extent the differences between us aredifferences of definition although Chambers alsocharges me with an error of logic....' (Mathews,1967: 113)65

After restating his own current value assump-tions, and stating (correctly) that this was not log-ically incomplete, within its own assumptions,Mathews came to the central point:

'My chief criticism of the model is concerned withits treatment of N (r - p) - Mp as income;Chambers would be prepared to distribute Nr, asincome, except to the extent that a purchasingpower loss Rp (that is, Np + Mp) has occurredon opening residual equity. But although the dis-tribution of N (r - p) - Mp (or Nr - Rp) willleave the firm with a residual equity that is main-tained in terms of general purchasing power, thiswill not, to the extent that Nr exceeds Rp, com-mand the same quantity of operating assets N attheir new prices N (1 + r).' (Mathews, 1967:116)

Thus, the essential difference between the twoprotagonists was one of assumption about the ap-propriate capit;al maintenance concept. This mighthave been an appropriate note on which to end thedebate, but there was yet another response fromChambers.

Chambers' response (1967b) offered 'an im-proved representation' of his notation, as well assome further criticisms of Mathews' concept ofcapital maintenance. With respect to the latter, heshrewdly pointed out (pp. 215-216) the differencein perspective of national income accounting (towhich Mathews' approach was well suited) andbusiness accounting.*^ In the new exposition of hisnotation, he introduced currency symbols, withdifferent symbols representing the value of thecurrency unit at different times. This particular in-novation did not find favour with subsequent au-thors, such as Parker and Harcourt (1969) andBarton (1977), who preferred using time sub-scripts to indicate the point in time at which the

^ There is no trading income in this model because, for sim-plicity, a transactionless period was assumed. M now has Lnetted off against it, so that it is equivalent to M-L in the pre-vious notation.

^̂ He goes on to refer to a dispute about the averaging pro-cedure for price adjustment, which was raised by Chambers(1965c). This dispute is not discussed here because it was notcentral to the differences between them and is essentially con-cerned with technique rather than principle.

'^ One of the founders of the current cost accounting,Schmidt (1931), explicitly expressed the argument for a phys-ical capital maintenance concept in the context of preservingthe productive capability of the nation, although Chambersseems to have been unaware of this at the time. Schmidt is notreferred to in AEEB.

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currency unit was dated. They were roundly criti-cised for their alleged 'abuse' of the notation inChambers (1978b).

The interchange ended with a very brief 'rejoin-der' from Mathews (1968) in which he re-statedhis position and defended his physical capitalmaintenance concept as follows:

'The weakening of the firm's financial position isa fundamental objection, not only to Chambers'system but to any other approach...which de-fines income in such a way as to allow for thedifferential effects of general and specific pricechanges'. (Mathews, 1968: 285)

He did not explain the assumptions that lay be-hind the view that maintenance of real financialcapital, as advocated by Chambers, would lead toa 'weakening of the firm's financial position'.Some of these were aired in his later debate withSwan, which we have already reviewed.

The net outcome of the debate was that both par-ties clarified their positions, and their fundamentaldifferences of assumption became more obvious.Also, Chambers changed his position on an impor-tant issue, capital maintenance (now recognisingmonetary gains and losses in profits). In lateryears, he was more inclined to defend his positionthan change it.

5.2. Chambers v. Gynther on multiple columnreporting

In December 1971, Reg Gynther published apaper, 'Accounting for Changing Prices: SomeRecent Thinking, Recommendations and Practice',in The Chartered Accountant in Australia. Thepaper drew attention to the recent rises in the rateof inflation in Australia and elsewhere, and illus-trated its distortionary effects on conventional his-torical cost profits. He also reviewed variousproposals for dealing with the problem, suggestedby academics and by professional bodies. He ex-plained clearly the alternative models that hadbeen suggested, with numerical examples, and heemphasised a theme that ran through his otherwritings: the importance of the capital mainte-nance concept in measuring income. His exposi-tion of the capital maintenance issue was, in fact,much clearer than that of either Chambers orMathews in their interchange described above. Healso emphasised the importance of using currentasset values rather than historical cost adjusted bya general index (the latter having recently beenfavoured in pronouncements by professional bod-ies in the UK, and the US). He concluded by com-mending the Philips system, explaining theusefulness of a similar system in a company ofwhich he was chairman, and criticising the piece-meal approach to price change adjustment.

In general, Gynther's argument was a clear, live-

ly and persuasive exposition of an emerging prob-lem and of alternative solutions to it. For example,although he made clear his own replacement costpreferences, Gynther provided a very fair exposi-tion of Chambers' CoCoA system. He also recog-nised that different types of information could berelevant to different users, and, rather than insist-ing on replacement cost as the only method, madethe following suggestion:

'The solution could quite easily be the produc-tion of multiple column statements in which theresults of several of the combinations of (i) netasset valuation methods and (ii) capital mainte-nance ideas are presented.' (Gynther, 1971: 19)

A brief paper by another academic, PhilipBrown (1971), followed Gynther's and supportedthe usefulness of multiple column reports.

It might have been expected that Ray Chamberswould have supported much of what Gyntherwrote, especially the emphasis on the misleadingnature of historical cost accounts in periods of in-flation, the critical importance of current values(rather than indexed historical cost) and the dis-tinction between asset valuation and capital main-tenance. However, Chambers (1972a) respondedwith an all-out attack on Gynther. The issue thatparticularly provoked Chambers was the briefparagraph, quoted above, which suggested thepossibility of multi-column statements. Chambersdescribed this as 'a flanking attack' (p. 4) and as-serted that multiple column statements were 'aweak conclusion' which would lead to confusion.He then, in a paragraph significantly prefaced 'Ibelieve', asserted the importance of precisely iden-tifying financial position, with the clear implica-tion that his CoCoA method was the only means ofdoing this. He went on to describe:

'The result - uncertainty and confusion, to theextent of what has been called "scientific scan-dal"'. (Chambers, 1972a: 5; footnote omitted)

Chambers then proceeded to outline his own as-sumptions about accounting, and asserted that thealternative systems, described by Gynther (otherthan CoCoA), would not meet them. He thenlaunched into an attack on Brown's assertion thatmultiple column reporting would provide data forempirical research on the usefulness of alternativemeasures. In doing this, he asserted that:

'One of the most elementary rules of enquiry isto isolate causal factors, and not to mix them upor apply them simultaneously in the course ofenquiries made to isolate their several effects.'(Chambers, 1972a: 8)

This statement shows a lack of appreciation ofthe efforts of econometricians and other social sci-ence researchers, who have striven to develop sta-


tistical methods to model situations where severalcausal factors work simultaneously. Of course,controlled experiments would be a much simplerand more efficient research method, but the realworld does not often give such opportunities to so-cial scientists.

Chambers concluded with a section ('CuiBono?') in which he described calls for investordecision-making as 'a red-herring' and called foran end to 'sterile argument and invention'. In casehis displeasure had not been adequately expressed,he concluded by repeating the allegation of 'an in-tellectual scandal'.

Not surprisingly, Gynther, who was not usuallyat a loss for words, appeared to be taken aback bythis verbal assault and replied briefly in the formof a letter (Gynther, 1972). In this, he deploredChambers' 'irritating' writing style and 'unreason-able comments' and described the allegation of 'anintellectual scandal' as 'offensive' (p. 42). He ex-plained the essentially didactic objective of hispaper (which he had fulfilled admirably) and con-cluded that 'the "tirades" by Chambers tend to be-come wearisome to many people' (p. 42).

This ended the exchange between Chambers andGynther, but the cause was taken up, on Gynther'sbehalf, by Edward Stamp (Stamp, 1972). Withcharacteristic eloquence and wit, he destroyedChambers' analogies with locating the position ofa ship and the methods of the natural sciences (asa natural science graduate who had served in theCanadian Navy, he was well qualified to commenton both), and made a powerful case that account-ing should not be 'one-eyed' (p. 12). The responsefrom Chambers (1972c) was perhaps predictable:a strong defence of CoCoA but little direct re-sponse to Stamp's arguments for a multi-dimen-sional approach.

This debate is perhaps of most interest for thelight that it sheds on Ray Chambers' evolving atti-tudes. In his early debate with Mathews, he had of-fered considerable insight into Mathews' ownthoughts, and he had modified his own. After thepublication of his major work in 1966, and evenmore after his 'Second Thoughts' (1970), he seemsto have regarded his system as complete and tohave decided to defend it vigorously against allcomers. He may also have been disappointed bythe sceptical reaction of several commentators onhis 1966 book, to whom his 'Second Thoughts'was addressed.

Too much significance should not be read intothe gladiatorial style of the debate. This was char-acteristic of Chambers when defending CoCoA (orindeed any intellectual position), but it did not ex-tend to personal animosity. Outside the debatingarena, he had particularly good personal relation-ships with Russell Mathews and Eddie Stamp,both of whom wrote warmly of their respect for

him in the volume of Abacus (dated December1982) that marked Chambers' retirement. However,the style of the debate may have had adverse con-sequences for the reception of Chambers' ownviews both in the accounting profession and inacademe.

In the accounting profession, the issue of infla-tion accounting was becoming very important inthe early 1970s, as inflation gathered pace.Academics such as Mathews, Gynther andChambers were agreed on many issues, and no-tably on the need for some form of current valua-tion, as opposed to general indexation of historicalcosts. The main choice of model lay between CCA(which embodied one version of the former) andCPP (which embodied the latter). Gynther's(1971) liberal proposals would have enabled theseacademics to take a united front on the need forcurrent values. Instead, Chambers' strong dissentenabled unsympathetic practitioners to argue that'the academics cannot even agree amongst them-selves'. Thus, Chambers' 1972 intervention, andthe attitude that it represented, may have resultedin precisely the 'weak' message from academe thathe was trying to avoid.

In academe, there was increasing impatiencewith an apparently sterile debate between 'norma-tive' theorists who insisted that others were wrongmerely because they made different assumptions.This mood of impatience was well captured in aninfluential paper by Carl Nelson (1973), and it wasassociated with an increased interest in assessingalternative accounting methods empiricallythrough statistical studies, such as stock marketimpact studies, which had been pioneered byyoung researchers such as Beaver (1968) and Balland Brown (1968). Later, Watts and Zimmerman(1979) took this a stage further by reducing the sta-tus of 'normative' theorising (as done by Mathews,Gynther and Chambers) to that of providing 'ex-cuses' for people to choose accounting methodswhich suited their own interests. These develop-ments were probably inevitable, in the light ofchanging technologies (databases and computingpower became more accessible) and the naturaltendency of new generations to seek new methods,but the process was possibly encouraged by theconfrontational and unconstructive style of debatebetween such 'normative' theorists.

6. An overviewMathews, Gynther and Chambers all served toclarify the issues of price change accounting, par-ticularly in the three decades from the early 1950sto the late 1970s, when the subject attained in-creasing importance on the agendas of practicalpolicy-makers. The subject itself receded inprominence and importance as inflation subsided(Tweedie and Whittington, 1997), but the issue of

SUMMER 2001 229

price changes remains fundamental to accountingmeasurement, as do the associated issues raised byprice change accounting. Thus, for example, inter-national groups of standard-setters are currentlywrestling with the restructuring of the incomestatement. This raises many issues, such as the ap-propriate concept of capital maintenance, the crite-ria for income recognition, and the relationship ofthe profit and loss account to the balance sheet,which were clarified in the earlier debates. Theconcept of financial adaptability, on whichChambers laid such stress, has also entered theconsideration of accounting standard setters (e.g..Accounting Standards Board 1999: 28). Equally,in academic research, the work of Ohlson (1995)and Feltham and Ohlson (1995) has revived inter-est in the theoretical relationship between account-ing information and stock market valuation, andparticularly the implications of the 'biased ac-counting' to which traditional historical cost ac-counting often gives rise.

Thus, the work of our trio in price change ac-counting and accounting theory generally hasadded to the stock of knowledge. However, theircontribution was much wider than this. We havealready alluded to Mathews' substantial work inpublic finance. Chambers' much wider contribu-tion to accounting, and Gynther's professionalwork. The major contribution of all three was toincrease the rigour and status of accounting as anacademic discipline. In Mathews' case, this is ap-parent not only in his research, but also in his text-book. Accounting for Economists (1962), whichsought to improve the application of economics toaccounting and the intelligibility of accounting toeconomists. In Chambers' case, it was most appar-ent in AEEB (1966), which was a truly remarkableand innovative attempt to derive a comprehensiveaccounting system from a set of axioms. InGynther's case, his academic output shows an elo-quence, clarity of thought and curiosity which isall the more remarkable, because, unlike the othertwo, he did not have the advantage of completingan undergraduate degree before he became an aca-demic. In all three cases, the contribution wascrowned by founding distinguished academic de-partments: Mathews in Adelaide and the AustralianNational University, Gynther in Queensland, andChambers in Sydney.

In summary, Mathews, Gynther and Chambers,each in his distinctive way, made a lasting contri-bution to accounting thought and education. Theywere fortunate in living at a time when there wasan obvious need for their contributions, but theyseized their opportunities and thus earned theirplace in accounting history.

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