Equity Financial Assets: A Tool for Earnings Management—A Case Study of a Chinese Corporation

With China’s adoption of principles-based international accounting standards and its convergence with International Accounting Standard 39 (IAS 39), Chinese companies have discretion under the original Accounting Standards for Enterprises 22 (CAS 22) as to how they account for the initial measurement, sale, and subsequent reclassification of financial assets. We use a Chinese company (‘Company A’) as a case study to illustrate how earnings are managed to exploit this discretion. We document that the company re-classifies its available for sale equity investments as long-term equity investments to decrease the volatility of the company’s apparent profits. We also make some predictions regarding how the company will handle its financial assets under the new standard, which is the same as IFRS 9. Our research contributes to the continuous improvement of China’s accounting standards and has implications for regulators of the capital market.     

Management accounting and accountability in a new reality of everyday life

This paper focuses on the concept ‘accountability’. Individuality and accountability is discussed against the background of management accounting in a privatised company in transition from command to market economy. With Berger, P.L., Luckmann, T., 1966. The social construction of reality. A Treatise on the Sociology of Knowledge. Garden City, New York, Doubleday/Anchor, the accountability concept is presented as a translation and interpretation of an institutional arrangement with a given logic or rationality. Based on a case study, the paper shows that changing views on accountability support the institutionalisation processes, constituting the case company as a market economy actor in which there is a ‘struggle’ between different rationale views (the market economy, social accountability and production-oriented views). The analysis explicates various ways in which these matters relate to the new way of talking about the company and its survival under market economy conditions—a struggle that management accounting must take into account particularly in the way it deals with the consequences of individual action.     

The role of structure and agency in management accounting control change of a family owned firm: A Greek case study

This study seeks to understand the changes in management accounting controls in a large Greek company (pseudonym: FA), with a focus on understanding the role of structure and agency in this change. In order to do this, we have employed a critical realist philosophy, pioneered by Roy Bhaskar (Bhaskar, 1979; 1997). We believe that the empirics of the case, the time span under consideration, and our theoretical approach provide us with a unique opportunity to explore the role of structure and agency in changing management accounting controls within the case firm. Our analysis revealed that changes in management control practices in FA were a function of different interacting structural conditions as mediated through human agency. This paper contributes to the debate about how to conceptualise agency and structure in management accounting control change (Kilfoyle and Richardson, 2011). Our analysis also demonstrates that the ‘dualism’ approach to agency and structure will result in a better analysis of management accounting control changes within firms.     

Capitalized customer acquisition costs and earnings quality: A case study of PhotoWorks,Inc

This case examines issues related to accounting method choice, earnings management, and earnings quality. Specifically, the case examines a company (PhotoWorks, Inc.) that chose the less conservative approach of capitalizing and then amortizing a certain type of advertising expenditure rather than expensing the costs as incurred. The primary purpose of this case is to illustrate the role of judgment in accounting method choice and how it provides potential opportunities for earnings management. The case also allows students to explore the multi-dimensional nature of financial reporting decisions and to develop a greater appreciation for how their accounting coursework relates to important “real-world” issues. After completing this case, students should be able to do the following: (1) describe factors that are involved in accounting method choice and support the appropriateness of an accounting method choice based on a search of the accounting standards; (2) understand and evaluate the effects of accounting method choice on the financial statements; (3) describe the conflicting motivations managers face when deciding on financial accounting methods versus tax accounting methods; (4) explain what is meant by earnings management, factors that motivate managers to manage earnings, methods they can use to manage earnings, and how earnings management affects earnings quality; and (5) describe the role of auditors in analyzing a company’s accounting method choices and in assessing the quality of a company’s earnings.     

Capital Allowances and the Incentive to Invest

In recent years many organisations have moved towards a total quality management (TQM) path in their quest for quality. Accounting researchers have become interested in understanding how accounting systems are implicated within a TQM environment. This paper reports on a case study of TQM adoption and changes in management accounting systems (MAS) within a New Zealand construction company. It evaluates organizational approaches to implement TQM as a strategic option and the subsequent change in MAS. The paper suggests that an organisation may initiate TQM practices to promote ‘institutional’ and ‘quality’ culture rather than for purely technical reasons. It also suggests that when an organisation adopts new management practices such as TQM, it may lead to changes in the organisation's internal control mechanisms, such as management accounting and reporting processes.     

Financial accounting choice and earnings management

This paper presents a case that exposes students in graduate accounting or MBA financial accounting classes to the concepts of accounting choice and earnings management. In the case, students role-play as a manager who, facing conflicting incentives, must make and defend three expense estimates for a hypothetical company. Students also read selected business press articles that introduce earnings management and that highlight the importance of the issue to the business community. The articles give students some background from which to approach the choices they will make with respect to the financial statements.     

Financial accounting choice and earnings management

This paper presents a case that exposes students in graduate accounting or MBA financial accounting classes to the concepts of accounting choice and earnings management. In the case, students role-play as a manager who, facing conflicting incentives, must make and defend three expense estimates for a hypothetical company. Students also read selected business press articles that introduce earnings management and that highlight the importance of the issue to the business community. The articles give students some background from which to approach the choices they will make with respect to the financial statements.     

Management accounting and the challenge of strategic focus

The paper presents a case study of management accounting in a company that had been a highly diversified conglomerate but was implementing a new strategy of product market focus combined with a more multinational scope. Formerly subject to a simple but rigorous form of financial control, the new organizational identity of becoming a high-growth, high-technology company posed fresh challenges for its control style and, in particular, for the role of management accounting. The paper draws on self-referential systems theory in order to analyse the paradox that while an organization can become more focused on particular markets and technologies, its management accounting seems to become more diffuse and differentiated. As the company sought to develop a different corporate epistemology through the reproduction of a fresh identity, it established new forms of corporate communication through its quality and performance management systems. Autopoietic theory would acknowledge that management accounting should provide some system guidance but would warn against the possible danger that some forms of performance control may damage company self-production.     

公允价值计量对上市公司盈余管理的影响——基于金融行业的研究

新会计准则下,公允价值计量属性更多地应用于会计实务,可能会给企业创造新的盈余管理空间。本文就公允价值计量与上市公司盈余管理的关系建立了一个规范与实证相结合的研究框架。根据公允价值在我国各个具体会计准则中的应用情况,分析企业运用会计准则中的公允价值计量属性进行盈余管理的手段,并选取2007-2010年度可能存在盈余管理的上市公司作为样本,使用相关分析、回归分析等方法对财务报表的各特定指标进行实证研究,最终得出公允价值计量与上市公司盈余管理存在的线性关系,并给出相关建议。     

Accounting decoupled: A case study of accounting regime change in a Malaysian company

Using a case study of accounting regime change in a Malaysian company, this paper analyses how an accounting regime was changed to overcome an instance of decoupling that management of the case company perceived to be problematic and, despite certain technological and managerial improvements, why the accounting regime yet remained decoupled from the control of core operations. Through an eclectic use of ANT, neo-institutionalism and political economy, it demonstrates that accounting remains decoupled from operational processes because of the particular manner in which accounting is constructed and enabled; the ostensive characteristics of accounting objects around which performativity of accounting is defined; and the organisational context, which involves certain ‘political imperfections’ that cannot be narrated within organisational apparatus of modernity. Accounting, being an apparatus of modernity, finds it difficult to codify such ‘imperfections’ and to offer an operational doctrine to govern the real business processes that are embedded within these ‘imperfections’. Hence, it remains decoupled from core operational activities but performs an important role of insulating ‘political imperfections’ with which business operates.     

Trust for accounting and accounting for trust

This paper combines insights from the sociology of knowledge and the emerging practice-based literature on learning and knowing to extend the institutional framework of accounting change developed by Burns and Scapens [Burns, J., Scapens, R.W., 2000. Conceptualising management accounting change: an institutional framework. Manage. Acc. Res., 11, 3–25]. In particular, it explores how management accounting systems (MAS) can be implicated in processes of learning and culture change, and used to identify ‘trustworthy’ solutions in the face of organisational crises. A case study of an Italian company, which was subject to massive change following its acquisition by General Electric, is used to discuss how, when crises arise and organisation members find themselves under intense pressure for change, their rationales and routinised behaviour, which are driven by the existing knowledge and cultural assumptions, are challenged. The case illustrates how MAS can act as sources of trust for the processes of change – i.e., accounting for trust; while at the same time being socially constructed objects of trust – i.e., trust for accounting. Drawing on the concept of personal trust and the notion of roles as access points to organisational (expert) systems, the paper discusses how, in this case, finance experts facilitated the acceptance and progressive sharing of new rationales and routines. Clearly, this does not guarantee that change will occur or occur in some ‘desired’ direction in other cases, but it increases the possibility of replacing trust in the predictability of routines with feelings of trust for change.     

Management accounting change and stability: Loosely coupled rules and routines in action

A problematic practical situation, which had remained unsolved for a long period, was encountered in a case research project. The apparent problem of the case firm was the modest standardisation of its information systems and management accounting reporting. Though problems linked with standardisation seemed to chronically look for solutions in the firm, only few attempts to change the situation emerged. The immediate purpose of the paper is to explain why there appeared to be problems without solutions in the case firm, and, in particular, how it managed to cope with such a situation. The paper contributes to recent literature on management accounting change and stability, primarily by drawing on the framework, based on institutional theory, by Burns and Scapens [Burns, J., Scapens, R.W., 2000. Conceptualizing management accounting change: an institutional framework. Manage. Acc. Res. 11, 3–25]. The notion of loose coupling is mobilised and integrated with the framework, and thereby the many-sided relation between two of its central notions, rules and routines, is refined. Loose coupling between rules and routines was characteristic of the everyday management accounting life in the case firm: well-developed and flexible informal routines and knowledgeable actions by the organisation's participants had the capacity to smooth the frictions of the formal rule systems related to management accounting, saving them from pressure for major change. The findings support the argument of the possible coexistence of change and stability in management accounting, however pointing to the need of keeping clear what aspect of management accounting – formal or informal – we refer to in each instance. They also suggest that the legitimising relation between the formal and the informal domains of an organisation can be an inverse of that typically claimed in the new institutionalist theory.     

Framing financial responsibility: An analysis of the limitations of accounting

In organisations, accounting—understood broadly as calculative practices—is claimed to serve as a critical vehicle when introducing forms of individual financial responsibility. Whereas most prior accounting research has been preoccupied with asserting this claim, this paper opens an opportunity to examine the limitations of accounting as a technology of responsibilisation. It does so by moving the empirical focus beyond the borders of people's work settings and into the private sphere of everyday life, investigating governmental efforts to turn high school students into financially responsible citizens. The analysis, informed by framing theory, reveals that the efficiency of accounting is conditioned by people's calculative understanding. Hence, in situations where individuals are expected to lack this basic calculative competency, accounting is presumed to be inappropriate as a means of introducing financial responsibility. This has implications for re-considering how the relation between accounting and responsibility is constituted.     

The role of internet-related technologies in shaping the work of accountants: New directions for accounting research

This paper reviews the accounting literature that focuses on four Internet-related technologies that have the potential to dramatically change and disrupt the work of accountants and accounting researchers in the near future. These include cloud, big data, blockchain, and artificial intelligence (AI). For instance, access to distributed ledgers (blockchain) and big data supported by cloud-based analytics tools and AI will automate decision making to a large extent. These technologies may significantly improve financial visibility and allow more timely intervention due to the perpetual nature of accounting. However, given the number of tasks technology has relieved of accountants, these technologies may also lead to concerns about the profession's legitimacy. The findings suggest that scholars have not given sufficient attention to these technologies and how these technologies affect the everyday work of accountants. Research is urgently needed to understand the new kinds of accounting required to manage firms in the changing digital economy and to determine the new skills and competencies accountants may need to master to remain relevant and add value. The paper outlines a set of questions to guide future research.     

Performance Reporting under Fair Value Accounting

Abstract

This paper compares performance measurement under fair value accounting vs. U.S. GAAP accounting. As illustrated in the paper, the main difference between fair value accounting and U.S. GAAP accounting lies in the treatment of gains and losses on both assets and liabilities. Fair value accounting would report all gains and losses on both assets and liabilities in the period in which they arise. U.S. GAAP on the other hand, recognizes gains and losses over the life of the block of business (or at the time of a transaction). When net gains and losses on assets and liabilities are immaterial, the pattern of earnings under both systems can be quite similar. However, If a company is generating significant gains or losses on its net book of business (such as in the case of an asset/liability mismatch), fair value accounting will reveal this much sooner than U.S. GAAP. When the full impact of its actions (including gains and losses) is reported in the current period, management is in a better position to understand how the value of the company is changing and adjust its decisions accordingly. This is one of the main reasons for moving to a fair value system and is expected to be a major benefit if fair value accounting is ultimately adopted.     

Accounting practices as social technologies of colonialistic outreach from London,Washington, et Cetera

Critical studies of accounting are a potential source of invigoration and action to abate lingering injustice and opportune the betterment of present and future life. In this study, we combine a foundation study of accounting usages over two centuries in the Kiribati Islands; and an exposé of these usages from the perspective of the I-Kiribati indigenes. The study is unusual in linking the history of a colony with the history of an emerging economy. We argue that colonisers espied economic, social and political benefits of colonialistic acts, and accounting usages were initiated and maturated alongside these, to avail commerce and life's personal dealings, religion-making, and government and public policymaking. Several persisting inadequacies of these accounting usages are revealed. They derive mostly from how asymmetric power relations in various contexts have played important roles in ways that accounting usages were constituted and sustained, and that this continues to be the case. The indigenes have not been accounted to, nor have had ready access to information concerning them. The indigenes have shared in some benefits but only incidentally and invariably down the pecking order. The indigenes have been precluded, befuddled and amazed by the usages, which concomitantly have enabled successive colonisers to re-define, enclose, exploit, subject and neo-liberalise them.     

Meeting the evolving corporate reporting needs of government and society: arguments for a deliberative approach to accounting rule making

We review ways in which corporate reporting might be useful for the government's management of the macro economy and for society's needs for more comprehensive reporting of corporate social and environmental performance. We highlight the constitutive as well as the representational nature of corporate reporting and how accounting subtlety impacts the culture and focus of governments, societies and corporations. Prominent examples are the ways accounting encourages financialisation and fails to account for externalities and the environment. While many proposals for the reform of corporate reporting emphasise more standards and rules, we suggest that what is needed instead are different rules, brought about by a more deliberative approach. A move to deliberation, however, requires that accountants highlight the pervasive but often subtle impacts of accounting.     

A Conceptual Framework for Learning Management Accounting

This paper demonstrates how Schoenfeld's ( 1985 ) conceptual framework for mathematics can provide an alternate framework for learning and thereby teaching management accounting. The four‐part framework—heuristics, resources, beliefs, and controls—is a refinement to problem‐based learning with three attributes in regard to management accounting. First, all aspects for teaching management accounting are integrated into a single framework or theory. Consistency among all parts of management accounting clarifies student and instructor roles in the learning process. Second, the framework's problem‐solving focus with linkages to explanatory materials or resources allows students to be rigorously informed about the functionality of management accounting heuristics. Third, transition or extension of relatively simple, standard problems to more complex nonstandard problems or cases is facilitated by introducing appropriate beliefs and controls. In effect, this approach enables management accounting, and particularly case analysis, to be taught with more structure.     

Alcoa: Toward understanding minority interest

In this case students explore the financial statements of Alcoa as an example of a consolidated company with minority interest in order to understand minority interest and the differences among the concepts of accounting for consolidated enterprises: economic-unit, parent-company, and proportionate concepts. Unlike other Fortune 500 companies, Alcoa presents sufficient footnote disclosures to approximate financial statements based on each theoretical concept. Although Alcoa, and most public companies, primarily follow a mix of parent-company-concept and economic-unit-concept, students need to understand all three concepts discussed in FASB Discussion Memorandum Consolidation Policy and Procedures (FASB, 1995) because accounting for consolidated enterprises is changing in the 1990s and will surely continue to evolve during their professional careers. By transforming Alcoa's financial statements to be consistent with each accounting concept and evaluating the usefulness of these statements, students expand their understanding of minority interest and consolidated financial statements from a user's perspective and gain insight into accounting theory.     

Canada Generators Limited*

This case depicts an armchair situation involving a newly formed small private Canadian company that has recently begun operations in Western Canada. Of concern to the owners is their understanding that Canadian generally accepted accounting principles (GAAP) are about to be replaced by International Financial Reporting Standards (IFRS) at the end of 2010, and so the statements in their present form will have to be conformed to the new standards if the company decides to go public with a share offering, which is an option it is considering. Other issues facing the company concern the appropriate accounting and reporting requirements that will be required in order to allow the company to secure additional financing and engage in some necessary research and development. This case is suitable for students who have progressed beyond the introductory financial accounting level; it involves adjustments to inventory and capital asset accounts as well as income effects including taxation, and it draws out some of the more important nontransitional differences between GAAP and IFRS.