Interactive spreadsheet models reinforce accounting principles

This note presents an interactive spreadsheet model requiring students to create formulas that complete an incomplete, preexisting spreadsheet model and thereby demonstrate their understanding of the accounting principle being applied. The model's verification feature uses keyboard macro commands that compare the student's formulas to correct formulas stored on the spreadsheet. If any formula is incorrect, the error is highlighted and an online help screen is displayed to assist the student in preparing a correct solution. Interactive models provide students with immediate knowledge of results and improve the efficiency of class administration.     

A spreadsheet analysis of different costing systems

This note describes a project that uses a spreadsheet to illustrate the conceptual similarities and differences between actual, normal, and standard costing systems, under both variable and absorption reporting formats. Budgeting and variance analysis are also included in the illustration. The purpose of the project is to enhance, via a comprehensive numerical example, the student's understanding of these three costing systems. A spreadsheet formulation enables the student to perform sensitivity analysis, while eliminating the need for repetitive income statement formatting and calculations.     

Policy models in accounting: A critical commentary

The accounting profession, through its rule-making apparatus, employs a particular choice model for identifying and resolving policy issues. This model is referred to in this article as the “constitional” approach. It is of interest to inquire why accountants have adopted this paradigm and eschewed other policy models, such as the “legal” or “scientific” approaches, even though the latter have generated considerable advocacy within the recent history of the profession. This paper examines the interesting hypothesis that the choice of the “constitutional” approach is consistent with the Group Self-Interest Hypothesis. By forming an associative group the major accounting firms have a primary interest in achieving higher prices for the industry's products. These higher prices can be achieved in three ways: (1) restricting entry, (2) restraining supply and (3) increasing demand. The “constitutional” approach is more efficacious in achieving these results than are the proposed alternative policy models.     

Employers' accounting for pensions: A theoretical approach to financial accounting standards no. 87

The extensive disclosure mandated for defined benefit pension plans by FAS 87 resulted in part from the ongoing controversy concerning the nature of the pension plan obligation. Based on a review of the pension chapters of seven intermediate accounting texts, conflicting perspectives of the nature of the plan obligation have not been thoroughly and appropriately integrated in textbook discussions of FAS 87 reporting requirements.The objective of this article is to present a teaching method which interprets the reporting requirements of FAS 87 as a reconciliation of the conflicting perspectives concerning the pension obligations. Examples are provided demonstrating how FAS 87 reconciles the opposing perspectives in the basic financial statement presentation, and how the perspectives are useful in understanding the reporting requirements related to the minimum liability and actuarial gains and losses.     

A Knowledge-engineering approach to accounting education

In the context of the massive expansion of the knowledge base facing all fields of professional activity, instructional science (which embraces the use of a knowledge-engineering approach to curriculum design) could well help to unvael the complexity of important pedagogical issues confronting accounting educationalists. The delineation and use of an expert knowledge base within the framework of the ‘dimensions of processing model’ of human information processing provides a valuable focus for making decision about the breadth, depth and nature of specific educatinal objectives. Knowledge engineering, which is fundamental to this process, appears to provide an appropriate framework for the systematic planning, development, delivery and evaluation of high-quality education and training programmes. Such an approach base while ensuring practitioners and teachers to keep pace with their rapidly changing knowledge base while ensuring that students acquire and become competent in the use of the cognitive skills they need in order to work effectively in their chosen profession.     

Risk perception of mobile communication: a mental models approach

Some lay people confronted with a new base station project fear serious health consequences from the high‐frequency radiation, while experts consider exposure under the current international standards as unproblematic. These conflictive estimations may be attributed to the different mental models of lay people and experts. Less is known about lay people’s knowledge in regard to mobile communication and their intuitive understanding of the associated health risks. An adaptation of the ‘Mental Models Approach’ was used to reveal lay people’s beliefs about mobile communication and to learn more about lay people’s information requirements, potential knowledge gaps, and misconceptions. Through the means of open interviews with Swiss experts (N = 16), lay people (N = 16), and base station opponents (N = 15), different mental models were constructed and evaluated. Comparisons between the expert and the lay groups showed several qualitative differences in all identified knowledge domains. Knowledge gaps in regard to changing exposure magnitudes due to the interaction patterns of cell phones and base stations as well as misconceptions about regulation issues and scientific processes were found in both lay groups. In addition, lack of trust in responsible actors and disaffection with base station location processes were mentioned. The reported qualitative insights may be useful for the improvement of further risk communication tools.     

A cos-benefit analysis of accounting for inflation

This research develops a methodology to assess the net social benefits associated with three alternative measurement models: general price-level adjusted historical cost (GPLA), current cost (CC), and current cost general price-level adjusted (CC-GPLA). Net benefits were estimated in six basic steps: 1) computer programs were used to restate historical cost financial information covering 16 years for 21 companies for specific and general price-level changes; 2) three multiple regression models were developed for each company and each measurement model that were used to develop forecasts of the societal rate of return (income before deducting interest and income taxes divided by total assets net of accumulated depreciation, depletion, and amortization) for each year of a three-year test period; 3) the total societal resources available to each industry were allocated to the companies with forecasted average rates of return in the higher percentiles of the distribution of rates of return as measured by each mode; 4) gross benefits were estimated by comparing the total societal income (using CC-GPLA as a surrogate) under GPLA, CC, and CC-GPLA with the total societal income under the historical cost model; 5) estimated costs of applying each model were obtained by surveying company executives; 6) net benefits of each measurement model were estimated by discounting the differences between estimated gross benefits and the estimated costs. The results indicated that the CC-GPLA model almost always was superior to GPLA and CC. The CC model was inferior to GPLA for the chemical industry, but whether it was inferior for the steel industry depended on the assumptions made.     

An approach to detecting plagiarism in spreadsheet assignments: A digital answer to digital cheating

Accounting instructors often experience frustration when confronted by plagiarism in student assignments. Also, they face difficulty verifying and proving cases of plagiarism. Students have increasingly found it easier to plagiarize assignments because of digitization in education. Instructors face an important pedagogical challenge due to digitization based plagiarism. Digitization, however, provides instructors with tools to address this issue. This paper showcases three tried and tested methods built into spreadsheet software to identify and detect plagiarism in spreadsheet based assignments. The first method is a manual method of hiding unique markers in files sent to students. The second method involves hiding a formula that can track plagiarism in more detail. The third method uses a program code to track issues related to authorship of assignments. These methods along with a compiled list of strategies discussed in this paper can help reduce plagiarism.     

The teaching-research gestalt in accounting: A cluster analytic approach

This paper considers accounting academics' views of the mutuality of accounting research and education. These views are captured by administering a survey instrument that measures eleven dimensions of the relationship between teaching and research in the accounting discipline. This model was developed from the extant education literature considering those factors that encourage or militate against the integration of accounting research and education (the teaching-research gestalt). These factors relate to issues relating to students, researchers, the curriculum and extrinsic rewards available. Cluster analysis was performed to identify distinct subgroups of academics with similar teaching-research relations profiles. Three distinct clusters were identified. One cluster labelled ‘teaching-research incongruity’ sees teaching and research as mutually exclusive activities. In contrast ‘teaching-research connexion’ sees teaching and research as mutually reinforcing and compatible. A third cluster, allied to the world of teaching-research incongruity, emphasises the lack of extrinsic rewards for integrating teaching and research. This third cluster we label ‘Extrinsic-reward focus’. The clusters are described in terms of their demographics. There are significant barriers to integrating accounting research into education; these include the role of professional education and resistance from many accounting academics in universities.     

Econometric analysis of microscopic simulation models

Microscopic simulation models are often evaluated based on visual inspection of the results. This paper presents formal econometric techniques to compare microscopic simulation (MS) models with real-life data. A related result is a methodology to compare different MS models with each other. For this purpose, possible parameters of interest, such as mean returns, or autocorrelation patterns, are classified and characterized. For each class of characteristics, the appropriate techniques are presented. We illustrate the methodology by comparing the MS model developed by He and Li [J. Econ. Dynam. Control, 2007, 31, 3396–3426, Quant. Finance, 2008, 8, 59–79] with actual data.     

Fair value accounting: Simulacra and simulation

The paper examines the application of simulacra and simulation in fair value accounting for financial instruments in the U.S. As copies of copies, simulacra problematize the notion of an original and with it an imaginary of a single authentic reality. We examine simulacra as they have been applied in two interconnected fair value accounting arenas. Firstly, simulacra employed as a measurement basis for certain financial instruments. In this regard, we challenge the FASB's insistence that fair value accounting is an originary market based measurement system. Secondly, we examine the process of simulation as employed by the FASB in copying and amending FAS 157 in its subsequent modifications to the guidance provided to the preparers of financial statements. Our purpose here is to both reinforce the absence of a market reality and also to illustrate how the FASB's subsequent modifications to FAS 157 were shaped by political forces. We conclude with some suggestions as to how simulacra and a politicization process might be productively embraced in future fair value accounting endeavors.     

Disharmony in international accounting standards setting: The Chinese approach to accounting for business combinations

The paper addresses two distinct aspects of disharmony in international accounting standards setting. The first aspect relates to the political economic context of financial accounting standards. This is illustrated by the Chinese standards setters’ decision to allow the pooling of interests method of accounting for business combinations despite the prohibition of this method by both the FASB and the IASB. This decision by the Chinese standards setters appears to have been based on political economic factors related to the need for industrial reorganization in China rather than a desire to serve the needs of global capital markets. The second aspect of disharmony relates to the role played by differential understandings of the fundamental objectives of financial reporting in an international context. The IASB's goal of producing one set of global accounting standards to serve the needs of global capital markets has led to a reduction in the number of permissible accounting methods and a move towards the fair value accounting model. In particular, the IASB concluded that the acquisition method of accounting for business combinations should be the only method allowed for business combinations. In contrast, the Chinese standards setters have recognized the existence of both mergers and acquisitions, and in response they created two different methods of accounting for business combinations. Effectively, the Chinese standards setters developed an alternative approach to accounting for business combinations which challenges the IASB's goal of achieving international accounting convergence through the fair value model.     

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.     

The Risk Map: A new tool for validating risk models

This paper presents a new method to validate risk models: the Risk Map. This method jointly accounts for the number and the magnitude of extreme losses and graphically summarizes all information about the performance of a risk model. It relies on the concept of a super exception, which is defined as a situation in which the loss exceeds both the standard Value-at-Risk (VaR) and a VaR defined at an extremely low probability. We then formally test whether the sequences of exceptions and super exceptions are rejected by standard model validation tests. We show that the Risk Map can be used to validate market, credit, operational, or systemic risk estimates (VaR, stressed VaR, expected shortfall, and CoVaR) or to assess the performance of the margin system of a clearing house.     

A controversial-issues approach to enhance management accounting education

A transformation of management accounting education is being driven by the changing role of the accounting educator and the increasingly controversial status of traditional management accounting practices. This paper discusses a variety of controversial issues and describes how controversy can be used to enhance management accounting education.     

Commentary on: A synergistic approach to an accounting educator's primary responsibilities

Many students find the application of sampling theory to audit testing difficult, even if they have a good grounding in business statistics. This paper describes an action-learning technique used to teach audit sampling theory to third-year business degree students at The Open Polytechnic of New Zealand. Feedback from students indicated that they found action-learning better than traditional lectures and printed material in enhancing their understanding of sampling theory and practice and in maintaining their interest and enjoyment.     

Testing conditional factor models: A nonparametric approach

Some recent studies of conditional factor models do not specify conditioning information but use data from small windows to estimate the time series of conditional alphas and betas. In this paper, we propose a nonparametric method using an optimal window to estimate time-varying coefficients. In addition, we offer two empirical tests of a conditional factor model. Using our new method, we examine the performance of the conditional CAPM and the conditional Fama-French three-factor model in explaining the return variations of portfolios sorted by size, book-to-market ratios, and past returns, for which recent literature has generated controversial results. We find that, although in general the conditional FF model outperforms the conditional CAPM, both models fail to explain well-known asset-pricing anomalies. Moreover, for both models, the failure is more pronounced for the equally-weighted portfolios than for the value-weighted ones.     

Conditional beta pricing models: A nonparametric approach

We propose a two-stage procedure to estimate conditional beta pricing models that allows for flexibility in the dynamics of asset betas and market prices of risk (MPR). First, conditional betas are estimated nonparametrically for each asset and period using the time-series of previous data. Then, time-varying MPR are estimated from the cross-section of returns and betas. We prove the consistency and asymptotic normality of the estimators. We also perform Monte Carlo simulations for the conditional version of the three-factor model of Fama and French (1993) and show that nonparametrically estimated betas outperform rolling betas under different specifications of beta dynamics. Using return data on the 25 size and book-to-market sorted portfolios, we find that the nonparametric procedure produces a better fit of the three-factor model to the data, less biased estimates of MPR and lower pricing errors than the Fama–MacBeth procedure with betas estimated under several alternative parametric specifications.