Auditors routinely addressed groups of bankers and creditors who were the key audience for financial statements during the Progressive Era. These occasions were used to reinforce the contingent nature of the auditor’s truth claims. Consider the following example:
You will sometimes come across a statement signed “audited and found correct” but I would call your attention to the fact that only an inefficient and unqualified man would give such a certificate …. No man who understands the risks, who appreciates the importance of truth and who sets a high value on his signature is going to give such a sweeping statement as the one mentioned …. A certificate should give exactly the shade of meaning the auditor is trying to convey. (Gibbs 1928-1929, 298)
One of the purposes of the 1933-1934 U.S. Securities Acts was to democratize the capital markets. The stability of the capital markets was to be enhanced through the broad distribution of shareholdings and by refocusing financial reporting from the needs of creditors to the needs of investors. In this way, the audience for financial statements after the Progressive Era became more like the audience for advertisements. It is not surprising, then, that the auditors’ coherence truth claims became problematic. By the 1970s, the conflict between what the average investor thought the auditor’s certificate meant and what the auditor thought it meant had become so severe that it was given a name: “the expectations gap.” The accounting profession is still wrestling with this disruption to their philosophy.
Second, advertisers and auditors did not face the same consequences for equivalent statements about their products. For simplicity, imagine that both advertisers and auditors are reporting on some verifiable claim about a company or its products. There are three possibilities about the statements made by these groups: they can understate the claim, provide “truthful” reports, or overstate the claim. The consequences for the groups in each situation are different.
In auditing, the audit firm is expected to provide a conservative report on the company (i.e., it is required by standards of the profession and social expectations to understate the quality of the company). Of course, if an audit firm is consistently too conservative (as defined by management), it will lose business and possibly face legal liability; if an audit firm overstates the qualities of a company, it will face legal liability for losses incurred by those who have relied on the statements. The auditor is thus “between Scylla and Charybdis” (Gregory 1894, 960).
In advertising, an agency that systematically understates clients’ qualities will most certainly lose business. The advertising agency also faces legal liability for overstating the claims of a client, but there appears to be greater leeway for an advertising agency to emphasize positive qualities. The 1888 PI editorial, cited above, reminded the advertiser to tell the truth but, while making “use of all the address and skill of which he is possessed, to present his client’s case in the most favorable aspect of bearing… in the strongest and most skillfully arranged light they will bear” (quoted in “It’s Still Good” 1938, 31). Puffery is, perhaps, an extreme example of this.
Part of the differences in the structure of legal liability facing these groups may stem from the nature of their discourses. Auditors are expected to use denotative language. The references made by auditors to the firm’s assets and liabilities are expected to refer to specific things. Advertisers, on the other hand, use connotative language. The most effective ads tie together consumption with broader social values (e.g., “the good life”) and often establish these links through metonymy (i.e., through the juxtaposition of words and images) rather than through analogy or other more direct techniques.
Third, the advertising industry was disorganized compared with the accounting profession and was unable to generate a consistent vision of its craft or the institutional structures to implement such a vision. The advertising clubs, for example, included publishers, advertising agents, and sponsors. The interests of these groups were not always closely aligned. Accountants had worked consistently to bring closure to their occupation and had well-established training programs and legislative protection of their titles before they had fully developed their technique. The closure of the accounting profession facilitated the development of a set of truth claims built around the profession’s own standards.
One of the roles of the occupations that have successfully claimed professional status in Western societies is to define appropriate behavior in specific domains. This is reflected in their claims to collegial control (since laypersons cannot evaluate the quality of professional practice) and in their exercise of professional powers with respect to the definition of clients’ needs and how they should be handled (Richardson 1997). This role is premised on society’s belief in the expertise of the professions, particularly in the independence and integrity of their judgment. The Progressive Era nurtured this view of expertise as well as the aspirations of professional status. Accountants were better positioned than advertisers to draw on these cultural expectations.
CONCLUSION
Advertisers and auditors faced the same issue: their texts were used by people to make decisions and as such were subject to an evaluation of their “truthfulness.” Through the Progressive Era, these groups wrestled with the concept of truth and came to different accommodations. The codes of ethics, standards of practice, and moral suasion used by the advertising industry to control its own were only partially effective. Many were truthful; many more were not. The halo of science at that time had two effects on the advertising industry. Scientific knowledge held much promise for advertising’s professional aspirations. Science also helped define the criteria for truth in advertising–those criteria reflected a correspondence version of truth. Correspondence criteria also seemed the easiest to legislate, inasmuch as self-regulation seemed doomed to only partial success.
Auditors rejected correspondence criteria as appropriate standards for their work, adopting instead a coherence concept of truth that held them accountable only to their own standards. The auditors’ version of truth provided the impetus for accountants to begin standard setting. Initially, this was simply a codification of existing practice, but ultimately the standard-setting process served to define what would be regarded as truthful reporting in North America. Recently, this version of the truth has been subject to severe criticism. A Canadian case, for example, has rejected generally acceptable accounting principles and generally accepted auditing standards as a sufficient defense for financial statements that conceal material economic realities (Kripps v. Touche Ross Co. and Victoria Mortage Ltd. 1999).
The ontological status of accounting continues to be debated in the literature (e.g., Morgan 1988; Shapiro 1997). It has been suggested that accountants have adopted a realist view of financial reporting, seeing “themselves as objective appraisers of reality” (Morgan 1988, 477). This view of accountants’ engagement with the truth is too narrow. As we have shown, accountants have debated the truth and adopted a version of the truth that can be regarded as “objective” only in reference to a set of a priori commitments about what exists and how it should be represented. This debate explicitly rejects a naive view of financial accounts as “objective reality.” Morgan (1988, 484) suggests that “rather than cling to an outdated concept of objectivity, they should confront the basic subjectivity of their craft.” The historical record suggests that accountants have confronted the subjectivity of their craft as part of a professionalization project and successfully resolved the dilemma of constructing “truth.”
NOTE
(n1.) Marketing scholars are well acquainted with the following question: “What do we say of something when we say that something is true?” Hunt (1990) summarizes the various challenges to the “traditional” view of the truth of marketing theories and research that have been raised by proponents of relativistic views of truth (e.g., Anderson 1988; Peter and Olson 1983). Against these challenges, Hunt argues that relativistic views of truth are incoherent and untenable and advocates instead a view of truth based in the philosophy of scientific realism. That debate, which has enlivened the pages of marketing journals for nearly two decades, illustrates the extent of the controversy that surrounds the meaning of truth. This article does not contribute to that debate. Rather, the concern here is to use three conventional theories of truth to inform understanding of the persuasive and justificatory appeals uttered by marketing and accounting practitioners in the period under study. This study makes no claims, either for or against, any of the three truth theories to which this article refers.
TABLE 1 COMPETING THEORIES OF TRUTH
Legend for Chart:
A – Truth Theory
B – Defining Attribute
C – Philosophical Root
D – Major Criticism
A B
C
D
Correspondence Correspondence with the independent
object world
Ontological realism
“Truth” reduces to that which names
a truth
Coherence Coherence with a body of propositions
held to be true
Absolute idealism
Cannot distinguish what is true from
what one is warranted in believing
to be true
Pragmatic Practical value: that which is useful
to believe
Pragmatism
Idiosyncratic to individual holder of
belief; long-term versus short-term
usefulness
PHOTO (BLACK & WHITE): FIGURE 1 EMBLEM OF THE ASSOCIATED ADVERTISING CLUBS OF AMERICA
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