Institutional theory and accounting rule choice: an analysis of four US state governments' decisions to adopt generally accepted accounting principles

In this study, we use institutional theory to explore how institutional pressures exerted on four state governments (New York, Michigan, Ohio, Delaware) influenced the decision of these governments to adopt or resist the use of generally accepted accounting principles (GAAP) for external financial reporting. We identify resource dependence as a potent form of coercive institutional pressure that was associated with early GAAP adoption. We identify three factors that may lead to initial resistance to institutional pressures for change. First, if accounting bureaucrats are not active in professional associations that promote GAAP adoption, they may miss the educational process that we believe is important to early adoption of GAAP. Second, organizational printing may impede GAAP adoption. Third, powerful interests may impede GAAP if the proposed GAAP legislation is expected to alter the existing power relationships. We found that key accounting bureaucrats in New York and Michigan used “compromise” as an initial strategic response to institutional pressures to adopt GAAP, Ohio's key accounting bureaucrat adopted a “defy” strategy, although the political leadership endorsed an “acquiesce” strategy. While Delaware initially employed a “manipulate”strategy with some success. Delaware did not adopt GAAP for external reporting until a political entrepreneur for GAAP emerged in the early 1990s. Our study suggests that all strategic responses to resist institutional pressures for GAAP adoption will ultimately fail because of the potency of the institutional pressures that result from the well organized professional accounting and governmental institutional fields.     

The FASB exposure draft on accounting for business combinations and intangible assets: an instructional assignment

Accounting standards are constantly evolving to meet the needs of a rapidly changing business environment and changes in accounting theory. Accounting students need to be familiar with the content of Exposure Drafts, since these documents reflect the Financial Accounting Standards Board's (FASB) position on current financial reporting issues. Students are generally not well versed on the standard setting process and how contextual factors affect this process. The purpose of this instructional assignment is to enhance students' understanding of how contextual factors affect the standard setting process within the context of the Exposure Draft on “Business Combinations and Intangible Assets.” The assignment requires that students examine the Exposure Draft and answer questions designed to elicit responses as to why the FASB is considering a new standard and the impact the standard would have on current accounting procedures and financial statements.     

On the Myth of “Anglo-Saxon” Financial Accounting

The term “Anglo-Saxon accounting” (ASA) is used by a number of academic writers on the subject of International Accounting to refer to an approach to financial accounting and reporting that is supposedly common to the UK and Ireland, the USA and other English-speaking countries including Canada, Australia, and New Zealand. While most of the writers we cite as using this term are continental Europeans, they also include an Englishman, J. Flower. The term is typically used to imply not just similar conceptual and technical approaches, but also a hegemonic alliance in the international politics of accounting regulation.This article seeks to establish that ASA in this sense is a myth. We do this first by critically examining four putative commonalities that are frequently attributed to the UK and USA approaches to financial accounting and that form the basis of the myth, and second by indicating the unfeasibility of such a hegemonic alliance within the IASC. A myth may have some factual foundations, but belief in it rests also on bases that are non-factual. So it is with ASA. In particular, analysis of the terms “true and fair view” (TFV) and “fair presentation (FP) in accordance with generally accepted accounting principles (GAAP)” shows that, far from their possessing a semantic equivalence that constitutes a commonality between UK and US financial reporting, their interpretation indicates a profound difference between the UK and US approaches. What UK and US financial reporting have historically shared is a micro- and capital market orientation that lends itself to international accounting regulation in a context of global capital markets. But with such an orientation now being generally accepted internationally, the differences between UK and US financial reporting are taking on an increased significance that this article seeks to highlight.     

Strategy and accounting in a U.K. conglomerate

This paper sets out to explore various aspects of the relationship between the use of accounting information for performance reporting and control and the formulation and implementation of business and corporate strategy. It does this by means of a case study of the acquisition and subsequent management of “ELB Ltd” by “Conglom Inc.” The case gives an account of the structuring of relationships both between the Corporate centre and ELB senior management, and within ELB itself. A very complex picture of the relationship between strategy and accounting emerges. Although accounting results are often taken as a proxy for the relative success of strategy, the case suggests that in this respect accounts typically conceal as much as they reveal. Especially with a conglomerate structure it is quite possible for corporate financial “success” to be realized at the expense of the long term strategic positioning of individual unit companies. The paper illustrates how the sharing and integration of market knowledge required for the successful formulation and implementation of strategy can conflict with the conformity and distorted communication encouraged by the hierarchical use of accounting controls. It also describes some of the positive effects that can be realized from deliberate attempts to integrate strategic decision making with routine accountability.     

Microcomputer competency requirements in the accounting industry: A pilot study

The significant changes in the accounting environment resulting from the expanding use of microcomputers suggests a need for an evaluation of the changing requirements placed on universities in educating accounting students. The purpose of this paper is to update information on how microcomputers are being used in public accounting and in industry and to report on the investigation of the resulting microcomputer competency requirements as defined from the perspective of those companies.There have been many attempts to define computer literacy (or competency) from a pedagogical point of view (see Barger [1983]). Herbert Simon [1983] explained the term, computer literacy, as a part of “a broader problem that has been with us for a long time … the problem of quantitative literacy for the population of the technical world.” Ijiri [1983] saw the problem as one of moving from illustrative methods of teaching that rely on the students' inductive abilities to the “algorithmic” method of instruction that utilizes the computer's powerful deductive abilities. In this study, however, microcomputer competency is defined in terms of the specific requirements of the accounting industry. The depth and breadth of desired knowledge for graduating accountants relating to broad microcomputer topics as well as specific concepts considered important by prospective employers are investigated. The normative question of curriculum development is not discussed, although the information presented may assist those involved in developing curricula in reaction to this important change in the accounting environment.     

“Informing” technologies and the World Bank

The current study examines how the World Bank uses an assemblage of information generation and reporting practices, bounded by accounting/financial expertises, to attempt to influence the practices associated with administering education in Latin America. Starting from the premise that these “informing” technologies make the objects of governance knowable in terms of accounting and financial expertises, we consider how accounting practices embedded within lending agreements enable, translate and regulate behaviour. Focusing on the institutional field(s) of basic education, the study offers an in-depth analysis of 15 World Bank loan agreements from across the region, plus 25 interviews with field participants from a single Latin American country. We examine how the World Bank lending agreements install a variety of informing technologies across a network of agents in Latin America. We propose that such agreements can be viewed as technologies of governance in that they diffuse financial technologies to distant fields, re-structure the habitus of these fields, and serve to reaffirm the expertise of the Bank within these fields. In this way, the World Bank increases its legitimacy with other potential borrower countries and ensures its continuing influence.     

Adopting commercial software in the accounting classroom: A focus on learning

Concerns about the current state of accounting education are well documented. A common anxiety is that students are not prepared to deal with the complex issues and unstructured problems that they will encounter throughout their professional lives. Recent studies conclude that an educational objective for accounting is to teach students how to learn. This paper discusses adopting commercial-use software as an approach to accomplish this objective. The paper also provides an example for an accounting information systems class. Because “learning to learn” involves teaching students learning strategies, accounting educators need to find new ways to help students acquire these strategies. This paper will be useful for instructors seeking ways to assist students in developing strategies for learning that will better prepare them for careers in a complex and dynamic environment.     

CRITICAL THEORY AND ACCOUNTING HISTORY: CHALLENGES AND OPPORTUNITIES

This paper briefly examines the contributions that postmodern (critical) research has made to the historical accounting literature and the opportunities that this new body of literature has created for traditional historical researchers. I suggest that the “new history” that has rendered the “familiar strange” has provided new understanding of our discipline that should be welcomed by all historians. The paper briefly examines two areas, the emergence of double entry bookkeeping and cost accounting, to demonstrate the new insights that critical historians have provided to what has been considered a settled agenda. I conclude by noting that the diversity critical research has added to the accounting history research should be celebrated, but caution that we not engage in the modernist strategy of trying to find a “certified path to knowledge.” Accounting history will be enhanced if our community adopts the values–tolerance, willingness to listen, and respect for alternative views–ithat have enabled researchers in other disciplines to flourish.     

Formative assessment in accounting education and some initial evidence on its use for instructional sequencing

Formative assessment (FA) provides instructors and students with feedback to improve learning. Across a variety of education settings FA is one of the most effective classroom interventions for improving student learning outcomes. Yet the accounting education literature is almost devoid of any work related to FA. One barrier for developing FA in accounting education is the significant background knowledge needed to implement FA successfully. The purpose of this paper is to provide some of that background. The paper includes conceptual discussion from the general education literature to explain how FA improves learning and discussion of research that has identified features that affect the efficacy of FA practice. One of these features is how instructors use FA data to adjust instruction. An empirical study illustrates that accounting educators can use FA data to inform a decision about instructional sequencing. Instructional sequencing principles have been used to develop new accounting curricula and courses, and accounting education research has used empirical data to inform an instructional sequencing decision. The current study tests, using a sample of introductory accounting students, alternate versions of two FA tasks to determine which version is better for identifying deficiencies in student learning outcomes. Results suggest that one version of each task is better for identifying deficiencies, but an adjustment to instructional sequencing may be needed to ensure efficacy of one of the tasks, depending on how the FA practice is implemented.     

Experimental research in financial accounting

This paper uses recent experimental studies of financial accounting to illustrate our view of how such experiments can be conducted successfully. Rather than provide an exhaustive review of the literature, we focus on how particular examples illustrate successful use of experiments to determine how, when and (ultimately) why important features of financial accounting settings influence behavior. We first describe how changes in views of market efficiency, reliance on the experimentalist’s comparative advantage, new theories, and a focus on key institutional features have allowed researchers to overcome the criticisms of earlier financial accounting experiments. We then describe how specific streams of experimental financial accounting research have addressed questions about financial communication between managers, auditors, information intermediaries, and investors, and indicate how future research can extend those streams. We focus particularly on (1) how managers and auditors report information; (2) how users of financial information interpret those reports; (3) how individual decisions affect market behavior; and (4) how strategic interactions between information reporters and users can affect market outcomes. Our examples include and integrate experiments that fall into both the “behavioral” and “experimental economics” literatures in accounting. Finally, we discuss how experiments can be designed to be both effective and efficient.     

Undergraduate student research programs: Are they as viable for accounting as they are in science and humanities?

This paper reviews a recent thrust in academia to stimulate more undergraduate research in the USA, including a rapidly growing annual conference. The paper also describes programs in which significant foundation grants have been received to fund undergraduate research projects in the sciences and humanities. In particular, selected humanities students working in teams in a new “Philosophy Lab” are allowed to embark on long-term research projects of their own choosing. Several completed projects are briefly reviewed in this paper.In April 1989, Trinity University hosted the Third National Conference on Undergraduate Research (NCUR) and purposely expanded the scope of the conference to include a broad range of disciplines. At this conference, 632 papers and posters were presented representing the research activities of 873 undergraduate students from 163 institutions. About 40% of the papers were outside the natural sciences and included research in music and literature. Only 13 of those papers were in the area of business administration; none were even submitted by accounting students. In 1990 at Union College, 791 papers were presented; none were submitted by accountants. In 1991 at Cal Tech, the first accounting paper appeared as one of 853 papers presented.This paper suggests a number of obstacles to stimulating and encouraging accounting undergraduates to embark on research endeavours. These impediments are somewhat unique to accounting, and it appears that accounting education programs are lagging in what is being done to break down obstacles in science, pre-med, engineering, humanities, etc. This paper proposes how to overcome these obstacles in accounting. One of the anticipated benefits of accounting student research, apart from the educational and creative value, is the attraction of more and better students seeking creativity opportunities in addition to rote learning of CPA exam requirements. This, in part, might help to counter industry complaints that top students are being turned away from accounting careers nationwide.     

An institutional analysis of accounting growth and regulation in the United States

The accounting profession in the United States has experienced rapid growth in the past two decades, and growth is likely to continue in the foreseeable future. Although the U.S. Securities and Exchange Commission possesses explicit statutory authority to regulate accounting and financial reporting, the profession is largely self-regulated, an arrangement widely supported by the corporate business community. Yet no single current accounting theory provides a full understanding of these two very basic phenomena. This paper examines organizational models based on contractualism (agency theory and transaction cost analysis), hierarchy (radical) and Fligstein's “organizational fields” conception, and evaluates their application to the accounting process. It is proposed that institutions are central to an understanding of accounting growth and regulation. The essay then offers a theoretical critique based on the internal and external aspects of economic organizations.     

An Analysis of Concepts and Evidence on the Question of Whether IFRS Should be Conservative

Do international accounting standards require conservative accounting? The IASB's conceptual framework suggests that they should not, while the research literature is largely silent on the matter, typically presuming conservatism to be an outcome of private contracting rather than standardized, public, general purpose financial reporting. In this paper, we analyze the actual requirements of IFRS. We find multiple examples of recognition requirements that lead to unconditional conservatism, measurement requirements that lead to conditional conservatism, and also presentation/disclosure requirements that further support a conservative reporting environment. These findings complement, support and deepen existing evidence in the empirical literature that accounting is in practice conservative. We show, however, that the requirements for conservatism in IFRS conflict with, first, the IASB's stated position in its conceptual framework that accounting should not be conservative and, second, the private contracting explanation for conservatism that is generally accepted in the literature. What is missing, and lies behind both conflicts, is an acknowledgement and understanding of the role of an agency/contracting perspective in enhancing the decision‐usefulness of general purpose accounting standards, given the information/incentive asymmetry and uncertainty that characterizes the real‐world context in which those standards operate. From a policy perspective, such an understanding would reconcile the IASB's conceptual framework with the actual requirements of IFRS. From a research literature perspective, such an understanding would re‐position accounting standards as central to the practice of accounting conservatism, which would in turn require revision to the generally accepted theory of a private contracting explanation for the empirical evidence of conservative accounting practice.     

The economics of external reporting: Three frameworks for the classroom

In this paper three frameworks are presented that can be used by accounting instructors to explain some of the economic issues surrounding the external reporting process. The first framework explains accounting numbers in terms of the relationships among capital providers, managers, and auditors. The second framework explains external reporting in terms of its role in determining capital market allocations. The third framework focuses on the policymaking process and the notion of “economic consequences.” In each case the framework is first described and then some suggestions are provided on how it might be used in the classroom. The frameworks have been developed for use in introductory, intermediate, and advanced accounting courses at both the undergraduate and graduate level.     

Perceptions of the learning context and learning approaches: Implications for quality learning outcomes in accounting

This study analyses learning approaches, course perceptions and learning outcomes of a group of second year accounting students at an Australian university using qualitative data analysis techniques. The research method involves the development of a series of matrices linking types of motives and strategies used by students in their study, together with their perceptions of the learning context associated with learning outcomes. The study focuses on assessing the links between learning approaches and a qualitative assessment of students' conceptual understanding of aspects of financial accounting studied at the undergraduate level. The results confirm how individual differences in the perceptions of the learning context relate to study motives and strategies. The findings show how different forms of memorisation relate to study strategies and how the completion of accounting tasks link to students' perceptions of course requirements. There was also some evidence that, in terms of learning outcomes, students with sophisticated levels of understanding of concepts, tended to have consistent deep and achieving approaches to learning. This result was compared with students' academic performance as a measure of learning outcome. Discrepancies between these two measures of learning outcome are highlighted in the conclusions. The findings strengthen the case for further investigation of the use of measures other than academic performance in examining relationships between learning approaches and learning outcomes.     

Problem-centred research and knowledge-based theory in the professional accounting setting

The paper discussess the emerging need for theory development and much more extensive task and context analysis with respect to cognition in the professional accounting setting (“accounting” being taken to include the various accounting, auditing, tax and related subjects about which accounting professionals exercise judgment). The paper examines how such theory development and task and context analysis can improve the research and its contribution to understanding the professional settings that are the province of accounting research. Our analysis reflects our proposal that accounting judgment research contribute more strongly to the general body of accounting research, and deal better with practitioners' problems. From our analysis, we conclude that the lack of theory development is associated with several problems in the research, including an over-emphasis on transference of simplified models from psychology, inappropriate use of normative criteria for evaluating performance, and an over-emphasis on accountants and auditors rather than accounting and auditing. We offer a large number of constructive comments about task analysis, theory development and other steps to guide future accounting judgment research.     

Using the standard-setting process to demystify the concepts statements: The case of SFAS 76

To illustrate the accounting standard-setting process and how conceptual consistency is lost during the negotiations involved in that process, Statement of Financial Accounting Standards (SFAS) 76 Extinguishment of Debt is used as a case study. Excerpts from actual “Comment Letters” sent to the FASB are used to highlight issues and stimulate discussion. Classroom results, wherein SFAS 76 was used, are summarized. While SFAS 76 as a case study was found to be an excellent vehicle for illustrating the problems faced by standard-setters and the role of the Conceptual Framework, any pronouncement could be used. The SFAS 76 case takes 20 or more minutes to use. However, the case can be substituted for some of the lecture on standard-setting so it does not have to expand the time needed to cover the topic.     

Accounting history and theorising about organisations

Historical accounting research has a substantial track record of using a variety of theoretical insights to better understand how and why accounting has contributed to, and been affected by, organisational change and development. The article outlines the emergence of a range of theories that have been employed by accounting historians, against the background of the development of accounting history as a significant disciplinary field within accounting research. From its investigation of accounting historians’ approaches to studying accounting as a central practice in organisational processes, it reveals how historical accounting studies have been informed by and contributed to theorisation of such organisational phenomena. The article concludes that theory is largely used to provide conceptual frameworks for historical narratives, with historical accounting research often focused on case studies of single organisations or organisational settings. However, theory has also been mobilised at more general levels, to provide meta-narratives of the rise of capitalism and the emergence of managerialism. Far from treating accounting as technical practice, accounting historians are revealed as conceiving accounting as social practice, impacting both human behaviour and organisational and social functioning and development. As social practice, accounting emerges deeply embedded and pervasive in organisations and societies.     

Business-model (intent)-based accounting

We discuss how basing financial reporting on an entity's business model is, in effect, basing financial reporting on management's intent with respect to the use, transfer or other disposition of an asset or liability. We provide several examples of existing International Financial Reporting Standards and US Generally Accepted Accounting Principles that permit or require intent-based accounting. We describe the meaning and consequences of basing the accounting for financial assets on management's intentions for realising value from those assets. We analyse the positive and negative features of intent-based accounting in the context of the Financial Accounting Standards Board's and International Accounting Standards Board's conceptual frameworks, specifically, the qualitative characteristics relevance and comparability and the objective of financial reporting, and apply that analysis to existing and proposed guidance for measuring financial assets. We also discuss evidence from academic research on the measurement of financial assets.