Rethinking the central institutions of modern society: science and business

A significant part of this issue of Futures is given over to the following presentation by Willis Harman, and a series of responses from prominent futurists—a colloquium, if you like. Harman's paper, written prior to the UN Conference on Environment and Development (UNCED) in June 1992, develops further his argument, made in Global Mind Change and other works. Harman argues that the origins of our current problems lie in the belief system supporting our economic structure. The symptoms will only be healed if our worldview changes. All six respondents find merit in Harman's paper, although not all accept his diagnosis or recommendations.     

Accounting for decisions and decisions for accounting

Behavioral decision theory (BDT) is concerned with “accounting for decisions”. The development of this interdisciplinary field is traced from the appearance of several key publications in the 1950s to the present. Whereas the 1960s saw increasing theoretical and empirical work, the field really started to flourish in the 1970s with the appearance of the review by Slovic & Lichtenstein (Organizational Behavior and Human Performance, pp. 549–744, 1971), and key papers on probabilistic judgment (Tversky & Kahneman, Science, pp. 1124–1131, 1974), and choice (Kahneman & Tversky, Econometrica, pp. 263–291, 1979). From the early 1980s to the present, BDT has seen considerable consolidation and expansion and its influence now permeates many fields of enquiry. After this brief history, eight major ideas or findings are discussed. These are: (1) that judgment can be modeled; (2) bounded rationality; (3) to understand decision making, understanding the task is more important than understanding the people; (4) levels of aspiration/reference points; (5) use of heuristic rules; (6) the importance of adding; (7) search for confirmation; and (8) thought as construction. Next, comments are addressed to differences between BDT and problem solving/cognitive science. It is argued that whereas many substantive differences are artificial, two distinct communities of researchers do exist. This is followed by a discussion of some major shortcomings currently facing BDT that include questions about the robustness of findings as well as overconcern with a few specific, “paradoxial” results. On the other hand, there are many interesting issues that BDT could address and several specific suggestions are made. Moreover, these issues represent opportunities for accounting research and several are enumerated. Finally, BDT presents “decisions for accounting” in the sense that scarce resources need to be allocated to different types of research that could illuminate accounting issues. The argument is made that BDT is one research metaphor or paradigm that has proved useful in accounting and that should be supported. Such support, however, may mean that some researchers may work on issues that, at first blush, might seem distant from accounting per se.     

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.     

Goliath Corporation: An instructional case in transfer pricing policy

This case illustrates some of the issues associated with setting firms’ transfer pricing policies. The simulation requires students to assume the roles of top management and divisional management for Goliath Corporation in negotiating transfer prices. The student playing the role of top management first selects a transfer pricing policy from four possible mechanisms: market-based, cost-based, negotiated, and dual-pricing. Given the top manager’s policy choice, divisional managers are then constrained to use that policy as they decide whether to purchase internally or externally based on their respective negotiations. In each negotiation, there is an ex ante best decision for Goliath as a whole. The case is thus useful in demonstrating how managers’ transfer price policy choices can lead to bad sourcing decisions.     

On the Characterisation of Investor Preferences by Changes in Wealth

As wealth increases, preference of one fixed gamble over another typically changes once or not at all. A key question is whether certain assumptions on preferences guarantee such behaviour. Bell [Management Science, 34(12), 1416–1424, 1988; 41, 1145–1150, 1995a; 41(1), 23–30, 1995b] has addressed this difficult question and characterised the specific functional form of utility functions which allow a finite number of switches between two arbitrary gambles over the entire range of initial wealth. By extending this analysis, and linking the discussion to more recent works, the authors characterise conditions under which a large set of utility functions with respect to their switching characteristics, and discuss the results in the context of the classical notion of decreasing absolute risk aversion.     

Leading by feel

Like it or not, leaders need to manage the mood of their organizations. The most gifted leaders accomplish that by using a mysterious blend of psychological abilities known as emotional intelligence. They are self-aware and empathetic. They can read and regulate their own emotions while intuitively grasping how others feel and gauging their organization's emotional state. But where does emotional intelligence come from, and how do leaders learn to use it? In this article, 18 leaders and scholars (including business executives, leadership researchers, psychologists, an autism expert, and a symphony conductor) explore the nature and management of emotional intelligence--its sources, uses, and abuses. Their responses varied, but some common themes emerged: the importance of consciously--and conscientiously--honing one's skills, the double-edged nature of self-awareness, and the danger of letting any one emotional intelligence skill dominate. Among their observations: Psychology professor John Mayer, who co-developed the concept of emotional intelligence, warns managers not to be confused by popular definitions of the term, which suggest that if you have a certain set of personality traits then you automatically possess emotional intelligence. Neuropsychologist Elkhonon Goldberg agrees with professors Daniel Goleman and Robert Goffee that emotional intelligence can be learned--but only by people who already show an aptitude for it. Cult expert Janja Lalich points out that leaders can use their emotional intelligence skills for ill in the same way they can for good. "Sometimes the only difference is [the leader's] intent," she says. And business leaders Carol Bartz, William George, Sidney Harman, and Andrea jung (of Autodesk, Medtronic, Harman International, and Avon respectively) describe situations in which emotional intelligence traits such as self-awareness and empathy have helped them and their companies perform at a higher level.     

Financing the United Nations : Some possible solutions

This article suggests four basic propositions. First, financing is not an issue of UN policies or of UN management. Every member-state accepts an outright treaty obligation to pay its share of the organization's costs. The Charter gives no licence whatever to pay or not to pay one's dues according to whether one likes or dislikes some facet of UN work. Second, discussion of the financing of the UN should proceed from the Charter's principles of democratic revenue raising and governance, which plainly need reinforcement. Third, we should certainly explore additional sources, beyond the present triplicate framework of continuous dues assessment for regular budgets, ad hoc assessments for peacekeeping, and voluntary funding of development and humanitarian activities. But they should be additional sources—not devices to compensate for any state not paying its assessments. Fourth, UN financing is extremely vulnerable to disinformation and lack of information.     

Random walk and breaking trend in financial series: An econometric critique of unit root tests

The present note sheds light on several pitfalls associated with unit root tests that are overlooked by a growing volume of literature in financial economics. Specifically, several studies have confused unit root tests with the Random Walk hypothesis. Unit root tests are not designed for such a task since they aim at investigating whether a time series is difference-stationary or trend-stationary and are not, therefore, predictability tests. Secondly, we emphasize some serious shortcomings associated with the widely used unit root test developed by Zivot and Andrews [Zivot, E. & Andrews, D.W.K. (1992). Further evidence on the great crash, the oil-price shock, and the unit-root hypothesis. Journal of Business and Economic Statistics, 10, 251–270.]. In particular, we stress that results from the Zivot–Andrews test are sensitive to the methods employed to calculate the critical values and to select the maxim lag k. Furthermore, Zivot–Andrews test imposes a one time structural break in a time series; however recent studies showed that not counting for other true structural breaks may bias the results and may cause a spurious rejection of the unit root null hypothesis. Finally, we support our arguments by an empirical example based on the findings of Narayan and Smyth [Narayan, K.P. & Smyth, R. (2004). Is South Korea’s stock market efficient? Applied Economics Letters, 11, 707–710.] with regards to the efficiency of South Korean stock market. We show that contrary to what the authors claim, the KSE (KOSPI) price index is predictable, and hence the South Korean stock market is not informationally efficient.     

A Note on Gaussian Estimation of the CKLS and CIR Models with Feedback Effects for Japan

In this note we extend the Gaussian estimation of two factor CKLS and CIR models recently considered in Nowman, K. B. (2001, Gaussian estimation and forecasting of multi-factor term structure models with an application to Japan and the United Kingdom, Asia Pacif. Financ. Markets 8, 23–34) to include feedback effects in the conditional mean as was originally formulated in general continuous time models by Bergstrom, A. R. (1966, Non-recursive models as discrete approximations to systems of stochastic differential equations, Econometrica 34, 173–182) with constant volatility. We use the exact discrete model of Bergstrom, A. R. (1966, Non-recursive models as discrete approximations to systems of stochastic differential equations, Econometrica 34, 173–182) to estimate the parameters which was first used by Brennan, M. J. and Schwartz, E. S. (1979, A continuous time approach to the pricing of bonds, J. Bank. Financ. 3, 133–155) to estimate their two factor interest model but incorporating the assumption of Nowman, K. B. (1997, Gaussian estimation of single-factor continuous time models of the term structure of interest rates, J. Financ. 52, 1695–1706; 2001, Gaussian estimation and forecasting of multi-factor term structure models with an application to Japan and the United Kingdom, Asia Pacif. Financ. Markets 8, 23–34). An application to monthly Japanese Euro currency rates indicates some evidence of feedback from the 1-year rate to the 1-month rate in both the CKLS and CIR models. We also find a low level-volatility effect supporting Nowman, K. B. (2001, Gaussian estimation and forecasting of multi-factor term structure models with an application to Japan and the United Kingdom, Asia Pacif. Financ. Markets 8, 23–34).     

Reconsidering performance evaluative style

Journal of Accounting Research, 10, 156–182, modeled “performance evaluative style” as the predictor of unintended effects from performance measurement control systems, stimulating one of the few areas of cumulative research in behavioral accounting. However, despite twenty-five years of empirical testing, this stream of research has failed to converge. This paper considers the validity issues created by evolution in the conceptualisation and specification of the relevant variables and classifies them by calculation type. Results of an empirical test designed to explore comparability between the variable types are reported. Finally, implications for interpreting prior research and for future research directions are considered. ©     

The interplay between professional groups, the state and supranational agents: Pax Americana in the age of ‘globalisation'

In response to recent calls for systematic and in-depth studies of the impact of international forces on local accounting practices, discourses and institutions, this essay explores the interconnectedness of national politics with global forces and the ramifications of this interaction for the regulation of accounting and the state–profession relationship. The paper employs Held's (1991) framework [Held, D. (1991). Democracy, the nation-state and the global system. Economy and Society, 20(2), 138–172.] on the role of the nation state in the age of globalisation, extended to encompass insights from the realist paradigm on international politics, to examine the international aspects of an attempt by a group of indigenous auditors in Greece to recapture their monopoly status, following the ‘liberalisation' of the Greek auditing profession in 1992. The paper explores changes in the state–profession relationship in the era of ‘globalisation' and documents the catalystic role of major states (the USA), politico-economic blocks (the EU), and other powerful international actors. It is posited that the politics of international accounting professionalism in the ‘globalisation' era are becoming more polycentric with (lesser) nation-states as merely one level (of diminishing importance) in a complex system of superimposed, overlapping and often competing national and international agencies of governance. The lessons to be learned from the Greek experience seem to be relevant to a number of countries — weaker or more important players in the world economy and politics — as they realign the assemblage of government in accounting and in other domains, in response to the progressive internationalisation of the world economy.     

A comparative analysis of the construct validity of coefficients in paramorphic models of accounting judgments: A replication and extension

This study adds to research which examines the construct validity of coefficients of cue importance in studies concerned with how decision-makers use accounting information in formulating judgments (see Larcker & Lessig, The Accounting Review, January, 1983, pp. 58–77; Selling & Shank, Accounting, Organizations and Society, 1989, pp. 65–77). Historically, accounting studies have modelled cue importance with almost exclusive reliance upon linear models. But as the Selling & Shank study indicates, inferring the importance of accounting cues through reliance upon only one kind of model can leave “method variance” undetected and raises threats to the construct validity of coefficients (see Cook & Campbell, Quasi-experimentation: Design and Analysis Issues for Field Settings, 1979, pp. 59–70). To the extent that cue importance appears similar across models, then the model coefficients are presumed more valid. While Selling & Shank compare linear models to process tracing models, we compare a linear model to an eigenvector-scaling routine known as the Analytic Hierarchy Process (see Saaty, The Analytic Hierarchy Process, 1980). As with Selling & Shank, we find that the importance of cues is sensitive to model choice, suggesting that more research is needed into method variance before judgments can be made with respect to the construct validity of linear coefficients in accounting studies.     

An empirical study of the evidence for contingency theories of management accounting systems in conditions of rapid change

This paper continues the theme of Jones (Accounting, Organizations & Society, 10, 177–200, 1985) which described the findings of an empirical study of the changes introduced into management accounting systems following acquisition. It adopts a contingency theory perspective of the findings; relates them to existing hypotheses; and introduces a test of the theory involving measurement of the control relationships established between acquisition partners. Theoretical expectations for the adaptation of effective post- acquisition MAS are developed and related to success/failure.     

Care in the community: Professional Ethics and the paradox of pro bono

This study is primarily concerned with accounting's claim to be a profession and aims to stimulate further discussion on the kind of education that one would imagine should be commensurate with this claim. In particular, the study reports on a seminar that was designed to introduce students to the concept of a profession. The study describes a visit to one of Glasgow's toughest housing estates. The visit concluded at Ruchill Unemployment and Community Centre where the managing director of a local development agency discussed how some local accounting practices occasionally provided pro bono services in the area. The study picks up on some of the issues discussed during this seminar in order to explore the potential of pro bono publico and Service Learning as ways of educating accounting professionals in the wider concept of public interest. The study concludes by considering the critical educational potential of service learning in undergraduate education and pro bono publico within the area of continuing professional development.     

Life in the tube

Douglas Rushkoff, author of Media Virus, Cyberia, and Playing the Future, explains how sensationalism in the media tends to promote our culture's natural, unexpressed agendas. This is an optimistic appraisal of the seemingly banal and exploitative fora of tabloid television, ‘Court TV’ and ‘Cops’. Such low-brow media, when approached from an evolutionary perspective, reveal themselves as the process by which closeted social issues are brought out into the cultural conversation exactly when they need to be.     

Virtual geography

Geography and its study are changing in subtle and dramatic ways in the rapid transition to a digital world. Here we present a preliminary discussion of how this new geography, which we call ‘virtual geography’, might be classified. Virtual geography is not merely Cyberspace per se for it comprises many types of place and space in which the digital world finds expression. We define cspace—the space within computers, cyberspace—the use of computers to communicate, and cyberplace—the infrastructure of the digital world, as key components of what Castells¹ refers to as ‘real virtuality’. Virtual geography is all this as well as the study of these worlds from traditional geographic perspectives. Like all classifications, the interesting questions lie at the boundaries between classes—between espace and cyberspace, cyberspace and cyberplace, and between all of these. We illustrate this variety and complexity with examples.     

Tests of time: organizational time-reckoning and the making of accountants in two multi-national accounting firms

There has been remarkably little study of the recruitment, training and socialization of accountants in general, much less the specific case of trainee auditors, despite many calls to do so. In this paper, we seek to explore one key aspect of professional socialization in accounting firms: the discourses and practices of time-reckoning and time-management. By exploring time practices in accounting firms we argue that the organizational socialization of trainees into particular forms of time-consciousness and temporal visioning is a fundamental aspect of securing and developing professional identity. We pay particular attention to how actors consciousness of time is understood to develop, and how it reflects their organizational and professional environment, including how they envision the future and structure their strategic life-plan accordingly. Also of particular importance to the advancement of career in accounting firms is an active engagement with the politics of time: the capacity to manipulate and resist following the overt time-management routines of the firms. Rather than simply see trainees as passive subjects of organizational time-management devices, we noted how they are actively involved in ‘managing’ the organizational recording of time to further their career progression.     

Rights in rem,Article 5 and the EC Insolvency Regulation: an English perspective

The treatment of security interests is central to any insolvency régime, national or transnational. Under Article 5 of the EC Regulation on Insolvency Proceedings (E.C. 1346/2000) extensive protection is given to a security interest—or right in rem—over assets of the debtor situate in a Member State other than one in which insolvency proceedings have been opened. The absence, thus far, of any significant body of European case law on Article 5, allows commentators to put forward a range of views on how Article 5 ought to be applied. This article aims to examine the scope of Article 5 protection both conceptually and in terms of illustrations drawn largely from English insolvency law and practice. Particular attention is given to the following issues: what is meant by the ‘opening of insolvency proceedings’ with reference to Article 5; when a liquidator may pay off the holder of a right in rem; whether the rules under the Regulation for determining the situs of an asset alter the English common law position; whether Article 5 prohibits the discharge of an underlying debt by way of a restructuring plan; the position of unsecured creditors who attempt to acquire rights in rem prior to the opening of insolvency proceedings; and whether the English court's equitable jurisdiction to enforce a charge which does not comply with the lex situs, survives the coming into force of the Regulation. Through the discussion of these topics, this article seeks to identify an approach to the interpretation of Article 5 which is consistent not only across the wide range of issues identified but also with the broad policy objectives underlying the treatment of in rem rights in the Regulation. Copyright © 2006 John Wiley & Sons, Ltd.     

An “American Dream” theory of corporate executive Fraud

In this paper, we first describe a “Broken Trust” theory that was introduced by Albrecht el al. [Albrecht, W. S., Albrecht, C. C., & Albrecht, C. O. (2004). Fraud and corporate executives: Agency, Stewardship and Broken Trust. Journal of Forensic Accounting, 5, 109–130] to explain corporate executive Fraud. The Broken Trust theory is primarily based on an “Agency” theory from economic literature and a “Stewardship” theory from psychology literature. We next describe an “American Dream” theory from sociology literature to complement Albrecht el al.'s (2004) Broken Trust theory. Like the Broken Trust theory, the American Dream theory relates to a “Fraud Triangle” concept to explain corporate executive Fraud. Finally, we provide some anecdotal evidence from recent high profile corporate executive Fraud to explore the American Dream theory. We conclude our thoughts on corporate executive Fraud from a teaching perspective.     

Efficiency audit: An assembly of rationalities and programmes

This paper focuses on the insertion of accounting and auditing knowledge into wider areas of practice, and examines the processes of auditing change through studying the development of “efficiency auditing” using events in one jurisdiction, the Province of Alberta, Canada, as an exemplar. These developments are interpreted through use of Miller and Rose's (1990; Rose & Miller, 1992) theoretical concerns with governmentality, and especially the links between generally stated political rationalities and more specific programmes for action. In studying the association of ideas of efficiency with auditing, and the developing belief that efficiency could be investigated or procured through audit scrutiny, it is argued that these events can be understood in terms of an intersection between wider discourse (concerning, for example, best management practice, appropriate auditing roles, etc.) and local circumstance. The specific interpretations that result are understood as providing one set of conditions by which auditing (and accounting are linked to the social (Burchell et al., 1985). Further research (Radcliffe, 1995) attends to the logistics of how one might audit for efficiency, using fieldwork to trace the technologies which provide practitioners with particular mechanisms for action (Miller & Rose, 1990). © 1998 Elsevier Science Ltd. All rights reserved.