Archive for May, 2015

Rules are rules only “post factum”?

Friday, May 29th, 2015

Concerning our entry as of 11 May – “When is a rule a rule?” –  we received two comments from Wittgenstein experts (one from Munich and one from Slovenia). The commentators marked the following:

1. Mutual control is not the general scheme of Wittgenstein. According to him, it is only possible post factum to determine, which rules were followed. Following rules is done blindly. Wittgenstein would have said that the described mirroring is a proof that rules can only be described as rules post factum.

2. It would be possible to follow a rule alone (for instance, we play patience alone). It makes no sense to wait ad infinitum that the others confirm our rules. We do not follow rules in order to control each other, but as a constitutional part of society.

Concerning these comments, I would like to summarize the last blog entry: I am curious, why economic subjects ask me to control their accounts. My key problem is to decide whether a rule is a rule (i.e. what I should control). The observed phenomenon is that the controller becomes the controlled. I identified economic interest as a limiting condition for possible endless mirroring. The promise of growth seems to be the motivation why subjects start to create rules and ask for confirmation that they really followed a rule. This original motivation makes this way of rule handling dependent on growth.

I am not so good in discussions of what Wittgestein said or did not say (I took a chapter from Habermas´ Communication Theory, Vol. II – and I learned now that his interpretation of W. was probably simplified). I learned from the comments: Yes, we can only say post factum that a rule is a rule. And once again this is exactly what happens in practice! It seems as if the client accounts “blindly”, but the client is accounting somehow – only, post factum auditors determine: “Ah, obviously you are accounting in this way; this seems to be your rule; let´s fix this rule and then we can say that you followed the rule!” This is exactly what happens in our transnational audits. Did you know that this phenomenon is so far poorly addressed by the International Standards on Auditing?

Of course I cannot exactly say whether my clumsy ideas are “Wittgenstein”-derived, but I feel that your comments encourage me to go further on this path. The surprise is that we need philosophy to understand what is going on in contemporary business.

Yes, also true: You can play patience alone. Thank you for this remark. In this case an auditor is not needed. This is not our case.

When is a rule a rule?

Monday, May 11th, 2015

If someone would like to be sure that a rule is a rule, for instance that an arithmetic rule is really an arithmetic rule, this person would need someone else to check this rule. Only, if this other person also applied that rule and only if this other person received the same result, and if they compared the result, the first person could be sure that the rule is indeed a rule. A rule exists only in communication. Nobody could follow a rule alone, or at least, no single person could be sure that the rule is in fact a rule.
But this sentence is not without difficulties. For instance, how could the first person (who would like to get assurance that a rule is a rule) be sure that the second person really was able to carry out the same operations as the first one. It could be that the second person did not verify the result, but simply repeated it, blindly saying that it was okay. Thus, the first person could ask the second to repeat the arithmetic operation, not telling them that they had already done that themselves. Thus, the second person, the one who should carry out the control, becomes the one who is being controlled.
The second person, who is now being controlled, could execute the required arithmetic operation and show the result to the first person, and the first person would then compare the result with the result previously achieved by themselves . And if the result is the same, the first person would accept the second person as someone who is able to verify the rules, which were executed by the first person.
Would the second person also require proof that the first person is able to verify the operations executed by the second person? This may happen, for instance, in case the first person did not accept the second person as someone being able to verify the result. In this case, for instance, a verifier, i.e. the second person, would question the competence of the assessing person.
If both sides needed an acceptance, this process could go on endlessly, without result (and this was a procedure described by Wittgenstein). However, in commercial terms, a verifier with commercial interests would exit the algorithm (the process, the mirroring) after the first mirroring: either there is an audit contract (the second person was accepted as an auditor) or there is not. But, because of commercial reasons, an auditor would not challenge the competence of the client.
You might think that this chain of actions, which we referred to above, is abstract. It may seem to you as if this is only shadow boxing. In my conviction, it is not. Our globalized world throws us auditors into situations, which were formerly only known to extravagant philosophers. It is the first time that philosophy becomes our daily business. The reason behind this is that the market destroys all traditional coverage that would veil the pure logics. We really do not know whether a rule is a rule.
Indeed, I think the abstract scheme, as described above, is very close to what happens in transnational audits right now, and most probably you know this from practice: The controllers become the controlled; and this is not because of a power struggle, but because of pure logics. So, the first learning point here is: if you understand the logic, you feel easier, when others control you – they simply wonder whether you are really a controller.
This was the optimistic half. The pessimistic half is: Anyway the controlled parties also challenge your controlling in retrospect, because they want to defend themselves. They will challenge your competence not before accepting your audit offer, but after receiving your audit opinion. Then, indeed, the issue of legitimation would once again be unclear: The client assesses the quality of the assignment. But do they have the competence to do so? We could then question this by asking: “How do you assess the quality of the audit work? Do you really have the competence to do so?” We should talk about this, I think.
The second difficulty in our theorem lies in the very first sentence above: “If someone would like to be sure that a rule is a rule” – why should a person be motivated to find out whether a rule is a rule? Our theorem only works if there is a motivation to find out whether a rule is a rule. It is not only that commercial reasons prevent the theorem from going on endlessly, it seems to be the case that an economic interest stands at its beginning. Thus, this is all not abstract, it is real. Or better: It creates reality.
If there is an economic interest that would cause us to want confirmation that a rule is a rule, then this would drive us to create more and more rules, and create more and more mechanisms to prove them. We would enter into an expanding audit world. Once again we realize that this is really what is happening, isn´t it? But wait, we have uncomfortable news for you:
Here a really captivating thought is waiting for us at the end of the road: If everything that is stated above is true, this would mean that voluntary rule making is bound to expansion. There is no voluntary rule making, no voluntary audit, if there is not a promise of growth – no motivation of rule checking would mean that no rules will be created in this voluntary modus. In brief: No promise of growth would mean no voluntary rule making.
If there is an ultimate need for rule making (for instance, because of urgent ecological needs), I suppose we will return to the endless challenging of competences, as described above.
This is probably a simple and uncomfortable truth for a world with limited resources.

Frank Fabel