Accounting for banks,capital regulation and risk-taking

This paper examines risk-taking incentives in banks under different accounting regimes in presence of capital regulation. In the model the bank jointly determines the capital issuance and investment policy. Given an exogenous minimum capital requirement, lower-of-cost-or-market accounting is the most effective regime that induces the bank to issue more excess equity capital above the minimum required level and implement less risky investment policy. However, the disciplining role of lower-of-cost-or-market accounting may discourage the bank from exerting project discovery effort ex-ante. From the regulator’s perspective, the accounting regime that maximizes the social welfare is determined by a tradeoff between the social cost of capital regulation and the efficiency of the bank’s project discovery efforts. When the former effect dominates, the regulator prefers lower-of-cost-or-market accounting; when the latter effect dominates, the regulator may prefer other regimes.     

Accounting, regulation and profitability: The case of PFI hospital refinancing

The refinancing of PFI (Private Finance Initiative) projects represents one of the most contentious aspects of Public Private Partnerships (PPPs) in the UK. The negative publicity associated with UK PFI refinancing deals is associated with several factors, including, evidence of massive private sector profit making, the failure of private sector financiers to share refinancing profits and, lastly, private sector frustration of adequate regulatory intervention in this area. Utilising a dynamic model of capital market and state interaction, this paper explains these outcomes as a function of effective private sector lobbying of bureaucratic state agencies to alter the structure of accounting, accountability and regulation with the goal of securing favourable profit and risk outcomes. These dynamics are illustrated with reference to the history of UK PFI refinancing and a case study of one of the projects where these gains reached extreme levels.     

Accounting and prudential regulation: from uncomfortable bedfellows to perfect partners?

Recent initiatives to improve the public information about individual firms have brought to the fore significant differences in perspective between accountants and prudential regulators. We examine the reasons for these differences and propose ways in which they could be reconciled within a broader framework aimed at identifying the type of information conducive to the proper functioning and stability of the financial system. We argue that such information should concern three characteristics: estimates of current financial condition; estimates of risk profile; and measures of the uncertainty surrounding those estimates. So far, efforts have mainly focused on the first characteristic, with the second having drawn attention only recently and the third having been largely neglected. We propose a strategy to reconcile different perspectives based on two principles: first, in the long-term, the “decoupling” of the objective of accurate financial reporting by the firm from that of instilling the desired degree of prudence in its behaviour; second, a “parallel transition” process towards that objective so that at all points the prudential measures can neutralise any undesirable implications of changes in financial reporting standards on financial stability.     

National Accounting, Government Budgeting and the Accounting Discipline

National accounting and government budgeting include two kinds of financial reporting that are not influenced by, but have an increasing influence on, the accounting discipline. The government budget has changed, over the last sixty years, from a financial statement that was recognisably part of the accounting discipline to one in which national accounting and government budgeting have the dominant influence. There were early attempts to reconcile national accounting and the discipline but these have largely disappeared. Although the three forms of accounting measure the same phenomena, each is different in fundamental ways, in terms of both relevance and reliability.     

Accounting Practices and the Market Valuation of Accounting Numbers: Evidence from Indonesia, Korea, Malaysia, the Philippines, Taiwan, and Thailand

This study examines the relation between stock prices and accounting earnings and book values in six Asian countries: Indonesia, South Korea, Malaysia, the Philippines, Taiwan, and Thailand. The analysis is based on a residual earnings model that expresses the value of the firm in terms of book value and residual income. The model holds for any clean surplus accounting system. However, for finite time horizons, biased accounting may affect model estimates. The six countries examined in this study differ in faithfulness to clean surplus accounting as well as bias (conservatism). The study addresses two questions. First, are there systematic differences across countries in the value relevance of accounting, and are these differences related to accounting differences? Second, are there systematic differences in the incremental and relative information content of book value per share (BVPS) and abnormal (residual) earnings per share (REPS) across the countries, and are such differences related to accounting differences? We find differences across the six countries in the explanatory power of BVPS and REPS for firm values. Explanatory power for Taiwan and Malaysia is relatively low while that for Korea and the Philippines is relatively high. These differences are generally consistent with differences in accounting practice; however, since Korean accounting practice is strongly influenced by tax law, we did not expect the high association for Korea. Second, with respect to the incremental and relative explanatory power of BVPS and REPS, we find BVPS to have high explanatory power in the Philippines and Korea but little in Taiwan. In all six countries REPS has less explanatory power than BVPS in most years. Again, the evidence may be interpreted as suggesting accounting practice affects valuation (with Korea again as the exception). Finally, we provide evidence on the sensitivity of the timing of comparisons of stock prices and accounting values. We find that comparing prices at year-end (even though annual accounting information has not been released at that time), in general, provides the highest correlation between market and accounting numbers.     

Domestic Accounting Standards, International Accounting Standards, and the Predictability of Earnings

We investigate (1) whether the variation in accounting standards across national boundaries relative to International Accounting Standards (IAS) has an impact on the ability of financial analysts to forecast non-U.S. firms' earnings accurately, and (2) whether analyst forecast accuracy changes after firms adopt IAS. IAS are a set of financial reporting policies that typically require increased disclosure and restrict management's choices of measurement methods relative to the accounting standards of our sample firms' countries of domicile. We develop indexes of differences in countries' accounting disclosure and measurement policies relative to IAS, and document that greater differences in accounting standards relative to IAS are significantly and positively associated with the absolute value of analyst earnings forecast errors. Further, we show that analyst forecast accuracy improves after firms adopt IAS. More specifically, after controlling for changes in the market value of equity, changes in analyst following, and changes in the number of news reports, we find that the convergence in firms' accounting policies brought about by adopting IAS is positively associated with the reduction in analyst forecast errors.     

Analyzing the state-accounting profession dynamic: Some insights from the professionalization experience in China

The dynamic nature of the state-accounting profession relationship has been mostly explored within a western democratic and capitalist context. Taking into account the unique culture and the system of power in China, this paper contributes by examining the influence of the state over the Chinese public accounting profession during the 1990s. Utilizing a corporatist framework and combined with Gramsci’s concept of hegemony, this paper provides insights into the power relation between the state and the accounting profession, as well as illuminates the ideological influence of the state in the development of the profession. The empirical investigation also pays particular attention to the intra-professional conflicts that took place in the 1990s and provides further insights into the dynamic of the state-accounting profession relationship in that era.     

创新 特色 趋同:我国农业会计改革与发展30年述评

本文回顾改革开放30年来我国农业和农村会计改革与发展的历程,并展望未来发展。文章认为,我国农业、农村会计改革与发展大致可分为恢复重建、局部改良、模式转换和国际趋同四个阶段;而农业会计标准建设重心、核算手段、职能作用和村组织会计转型等四个转变彰显了我国农业会计改革与发展的主要特征;创新、特色、趋同,既是诠释30年来我国农业会计改革与发展的最佳关键词,也是未来我国农业、农村会计改革与发展之根本。     

Accounting Practice Harmony, Accounting Regulation and Firm Characteristics

Harmonization of accounting standards has been the subject of many initiatives taken at international, regional and national levels in recent years. Policy makers advancing this idea believe that accounting regulation harmony will lead to practice harmony. The literature in the area of accounting harmonization also generally relies on a similar belief.
Comparing accounting regulations and accounting practices of two countries that are pursuing a program of harmonization, Australia and New Zealand, revealed some association between the levels of regulation harmony and practice harmony. Although this indicates that regulatory harmony can improve practice harmony, the association is 'noisy', suggesting that there are also other factors affecting practice harmony. Evidence adduced here shows that accounting practice harmony is also associated with firm-specific characteristics.     

Accounting regulation, inertia and organisational self-perception: Double-entry adoption in a Spanish casa de comercio (1829-1852)

This paper analyses the influence exerted by compulsory mechanisms and cognitive and social factors on the adoption and implementation of double-entry bookkeeping. The study focuses on a small, commercial and family owned company located in Spain in the period 1829-1852. As our main conclusion we suggest that the adoption of double-entry bookkeeping in 1851 was influenced more by the managers' self-perception as traders, and the belief (internal and environmental) that the company must employ an accounting method appropriate to its new commercial status, than by State pressures derived from the enactment of a new accounting regulation in 1829.     

Accounting Information, Disclosure, and the Cost of Capital

In this paper we examine whether and how accounting information about a firm manifests in its cost of capital, despite the forces of diversification. We build a model that is consistent with the Capital Asset Pricing Model and explicitly allows for multiple securities whose cash flows are correlated. We demonstrate that the quality of accounting information can influence the cost of capital, both directly and indirectly. The direct effect occurs because higher quality disclosures affect the firm's assessed covariances with other firms' cash flows, which is nondiversifiable. The indirect effect occurs because higher quality disclosures affect a firm's real decisions, which likely changes the firm's ratio of the expected future cash flows to the covariance of these cash flows with the sum of all the cash flows in the market. We show that this effect can go in either direction, but also derive conditions under which an increase in information quality leads to an unambiguous decline in the cost of capital.     

Accounting, hybrids and the management of risk

This essay addresses the implications of accounting and hybrids for the management of risk. We argue firstly and most generally for a definition of hybrids that extends beyond organisational forms. The existing literature, we suggest, has been too focused on organisational forms, and has largely neglected the hybrid practices, processes and expertises that make possible lateral information flows and coordination across the boundaries of organisations, firms, and groups of experts or professionals. Secondly, we argue that the management of organisations is rapidly being transformed into and formalised around the management of risk, while much of the management of uncertainty occurs through a variety of hybrids that reside beyond the formalised practices of risk management. Thirdly, we argue that accounting practices are central to these issues, in so far as accounting is constantly engaged in a dual hybridisation process, seeking to make visible and calculable the hybrids that it encounters, while at the same time hybridising itself through encounters with a range of other disciplines. We address these issues in three main stages. The first section considers the ‘discovery’ of hybrid organisational forms by researchers on management and organisations over the course of more than two decades. The second section examines the ways in which economists, lawyers and other social scientists have considered the issue of hybrids. Here, the preoccupation with hybrid organisational forms largely continues, with its attendant neglect of hybrid practices, processes and expertises. The third section considers the discovery of a wider range of hybrids by researchers in accounting, and examines two specific arenas in which the hybridising of accounting expertise has been central: the microprocessor industry, and the various encounters between medical and financial expertise in the context of the ‘New Public Management’ reforms. The essay concludes with a discussion of the implications of this broader definition of hybrids for accounting and the management of risk.     

Accounting,risk, and revolution

In response to the position of Steve Toms, this article argues that risk must be understood not as it has been posited by capital but rather as it might be taken up by labour. It uses Marx's socialization thesis to maintain that risk is a symptom of possibility for labour. Drawing on the work of Randy Martin the argument culminates in a consideration of the interanimation of capital in labour occasioned by the second helping of risk produced by its commoditisation. It concludes that far from being just what Michel Aglietta calls a social evaluation of private economic activity, risk offers the opportunity to develop an accounting not just to provoke capital's contradictions with its own tools but to develop an immanent accounting of socialized labour in revolution, an accounting to come.     

Public Interest, Ethics, and the Balanced Scorecard: Implications for the Accounting Profession

The accounting profession bos been grappling with the issue of public interest responsibility for a number of years. The aim of this paper is to examine how a balanced scorecard (BSC) model can be used by the accounting profession to more effectively incorporate a public interest responsibility in its strategic framework. By using a BSC model, the paper provides an integrated framework for translating strategic values into a comprehensive set of objectives, performance measures and improvement actions .