Accounting in hierarchies: a TCA interpretation of internal reporting

A basic message of the transaction cost approach (TCA) is that the firm is not a market. In this spirit the coalitional, holistic and social nature of the firm and the importance of recognizing certain behavioural assumptions are discussed and illustrated empirically in the first part of the article. This TCA-based interpretation of the (internal) accounting context is followed by a brief exposé of some of the "accounting principles" ramifications of the approach. It is concluded that TCA helps to explain why internal reporting often has such a traditional and seemingly simple character, and why various suggestions based on economic theory have had so little impact.