Agenda formation and accounting standards setting: lessons from the standards setters

There are many studies on lobbying of accounting standards, but the technical agenda of regulators is taken as ‘given’ and why a particular topic was admitted to the agenda is not investigated. Agenda formation is important as control of the agenda determines which topics get regulated and the form of the regulatory response. A few studies have explored agenda formation across regulatory institutions but are largely silent on the role of individual decision makers and technical staff. However, the standards setters have sought to explain their agenda processes. This paper reviews statements by the members of accounting standards setting agencies about their experiences of agenda formation. It identifies insights gained from standard setters and makes some suggestions for future research.     

Valuation-based accounting research: Implications for financial reporting and opportunities for future research

This paper discusses the relation between financial reporting research and practice, particularly standard setters. Many studies addressing financial reporting issues use a valuation approach. The paper describes alternative approaches to valuation research and summarises the findings relating to four major current issues: fair value accounting for financial, tangible, and intangible assets, cash flows versus accruals, recognition versus disclosure, and international harmonisation of accounting standards. The summaries include identifying what standard setters and others would like to learn from research, what we have learned, and what is left to learn. The paper concludes with observations about future financial reporting academic research.     

Towards a Theory of Cultural Influence on the Development of Accounting Systems Internationally

Research has shown that accounting follows different patterns in different parts of the world. There have been claims that national systems are determined by environmental factors. In this context, cultural factors have not been fully considered. This paper proposes four hypotheses on the relationship between identified cultural characteristics and the development of accounting systems, the regulation of the accounting profession and attitudes towards financial management and disclosure. The hypotheses are not operationalized, and empirical tests have not been carried out. They are proposed here as a first step in the development of a theory of cultural influence on the development of accounting systems.     

Cultural differences and judgment in financial reporting standards

This instructional resource provides you with the opportunity to explore how cultural differences can impact financial reporting outcomes through the judgments accountants make when interpreting and applying accounting standards. It is intended to draw your attention and awareness to culture’s impact on financial reporting judgments since financial reporting is becoming increasingly international in scope. The instructional resource begins by discussing financial reporting standards and cultural differences and then moves into presenting three accounting scenarios. The three scenarios (lease classification, contingent liability, and revenue recognition) examine how applying accounting standards requires judgment and how cultural differences can influence accountants’ judgments and the resulting financial reporting outcomes. In each scenario, you have the opportunity to identify and consider how different cultural dimensions could impact cross-cultural financial reporting outcomes. The instructional resource content allows you to consider the challenges in using and applying a uniform set of global accounting standards that require judgment across cultures.     

Recent Changes in the Regulation of Financial Markets and Reporting in Canada*

The regulation of financial reporting and financial markets has undergone significant change in both the United States and Canada since 2000. In Canada, the regulatory regime is particularly complex and politically controversial, with much speculation about possible future directions. This paper's purpose is to explain the current regulatory environment as it stands in mid‐2006 to assist those who teach or conduct research in this domain. On the basis of a review of existing regulations and related studies, this paper first provides an explanation of the major jurisdictional issues that affect financial reporting and regulation in Canada, including identifying the roles of the key players. Second, it identifies specific reporting changes that might be of particular relevance to prospective capital market researchers. Where relevant, comparisons are made with regulatory provisions in the United States, because the majority of capital markets research concerns U.S. securities exchanges regulation, and the Canadian regulations themselves often refer to U.S. regulations as a point of comparison. We find that the lack of a single national securities regulator in Canada and overlaps in federal and provincial jurisdiction and among regulatory bodies mean there is a large range of players involved in financial markets regulation. Ongoing efforts to improve integration include the new passport system, improved harmonization of securities regulation, and consideration of mergers between some of the involved organizations. Other changes have led to a greater emphasis in Canada on the regulation of continuous disclosure and corporate governance than was previously the case. Changes in specific reporting regulations and guidelines since 2002 have generally increased the amount of disclosure.     

Desired attributes of public accounting firms in the job selection process: an empirical examination of accounting graduates' perceptions

The purpose of this study is to identify attributes of public accounting firms that accounting graduates find most desirable in their job selection decisions, and the impacts of individual differences on these perceptions. Factor analysis performed on the responses of 167 final-year accounting students in Hong Kong to a 30-item questionnaire identified seven factors. The results indicate that accounting graduates considered help in finishing their professional accounting examinations and good staff relationships as the most important criteria in their choice of employers. In addition, female accounting graduates were more concerned about the possibility of being required to travel or be transferred, but were less concerned about the reputation and profile (such as the client base and the size) of the firms than their male counterparts. Accounting graduates with a higher grade point average (GPA) were less concerned about the working environment, but more concerned about a firms' reputation and profile than those with a lower GPA. The implications of these results are discussed.     

Development of accounting regulation in Jordan

This study examines the development of accounting regulation in Jordan with emphasis on the dominant environmental factors that influence it. In order to have a better understanding of Jordan's present accounting practices, and its future development tendencies, we examine the path of accounting in Jordan since the early days of the nineteenth century, and analyze how Jordan's accounting environment — political, economic, legal and cultural — influenced the development of accounting in Jordan. We also examine Jordan's recent move towards full adoption of International Financial Reporting Standards (IFRS) and find that Jordan's colonial past has exerted a strong influence. In addition, we conclude that political and economic factors, through privatization and the resulting accounting reforms, contributed more to the development of accounting practices than other environmental factors. Privatization led to reforming Jordan's disclosure regulation and laying down of the corporate-governance policy framework. Our conclusions could be of interest to other countries, particularly developing countries, who want to improve the quality of their accounting disclosures and practices.     

An empirical study of factors affecting accounting students' career choice in New Zealand

This study examines the influence of intrinsic factors; financial and job-related factors; other factors such as parent and peer influence and work experience; exposure to high school accounting; and the students' perceived benefit-cost ratio to being a chartered accountant, on whether accounting students choose to pursue a chartered accountancy (CA) career or a non-accounting career. Based on a survey of 295 students from five universities in New Zealand, the results show that the students who intend to pursue a CA career place significantly greater importance on financial and job-related factors and perceived benefit-cost ratio than those who choose a non-accounting career. Intrinsic factors, other factors and exposure to high school accounting have no significant influence on the decision whether to select a CA career. A discriminant analysis revealed that financial and jobrelated factors have the highest explanatory power differentiating the two groups, followed by the students' perception of benefits and costs associated with a CA career. The results have important implications for recruitment into the accounting profession in New Zealand.     

Complexity of financial reporting standards and accounting expertise

This study tests whether firms seek to mitigate the adverse effects of Financial Reporting Complexity (FRC) by investing in accounting expertise. We develop a measure of FRC based on the complexity of accounting standards that govern annual disclosures. We find that FRC is positively related to the accounting expertise on a firm’s board of directors and audit committee. We also find that accounting expertise mitigates the relation between FRC and negative reporting outcomes. Collectively, this study increases our understanding of the actions firms take to mitigate the negative consequences of FRC, and the role of accounting expertise in this setting.     

An empirical examination of stress in public accounting

This paper presents the results of an investigation of stress in public accounting, using a national sample of certified public accountants. The relationship between a set of predictor variables (organizational stressors and work/home conflict) and a set of criterion variables (job-related tension, job dissatisfaction, and propensity to leave public accounting) was analyzed using canonical correlation analysis. Job-related tension was associated with heavy work demands; job dissatisfaction and intension to leave were associated with slow career progress, unfulfilling jobs, and unclear job objectives.     

Understanding accounting discretion in China: An analysis of fair value reporting for investment property

This study sheds light on the discretionary accounting practices in China, the largest emerging market in the world. In particular, we focus on whether Chinese firms use discretion in investment property fair values to manage reported performance. We examine whether firms’ ex ante needs for accounting discretion affect their decisions to adopt fair value reporting for investment property and the ex post performance management by these fair value adopters. Our findings show that the voluntary adoption of fair value reporting for investment property in China remains low. However, the fair value option for investment property is significantly more likely to be chosen by firms with greater needs for accounting discretion. Consistent with the conjecture that firms choose the fair value model to manipulate reported earnings, we show that fair value adopters use the unrealized gains and losses associated with investment properties to smooth earnings and that these firms are also more likely to meet or beat earnings benchmarks after adoption. Overall, our findings indicate that the use of fair value reporting for investment property in the emerging Chinese market is driven by managerial opportunism.     

Equity accounting adoption in regulated and unregulated settings: an empirical study

This article examines equity accounting adoption by Australian companies before and after standard AAS 14 (1984), the first standard on equity accounting in Australia. To bypass a legal constraint, AAS 14 and its successor ASRB 1016 (1989) required that equity accounting of associates appear in supplementary disclosures (third-column or footnote) and not in consolidated accounts. Before AAS 14, extensive voluntary adoption of equity accounting occurred in consolidated accounts. Equity accounting adopters from 1971 to 1989 were matched in their adoption years with companies that could have used equity accounting but did not. Throughout, equity accounting adopters' EPS tended to be declining and equity accounting adoption tended to increase reported earnings. After AAS 14, adopters showed equity accounting via a third column if it increased reported earnings but in footnote disclosures if it reduced reported earnings. Leverage is associated with adoption before but not after AAS 14, perhaps because the standards required equity accounting in supplementary disclosures which had no impact on borrowing constraints, while no such restriction on equity accounting existed before regulation. Pre-AAS14 adopters tended not to be audited by large audit firms. Adopters after AAS 14 had higher ratios of investments in associates to total tangible assets; before AAS 14 they did not. The results are consistent with equity accounting being adopted opportunistically; there is limited evidence to support contractual efficiency motives.     

Normative Information Qualities: A Contrast Between Information-Economics and FASB Perspectives

The goals of this paper are (1) to develop a hierarchy of normative information qualities (NIQs) that operates at the level of the individual in an assumed information-economics (IE) setting, and (2) to contrast the FASB (1980) hierarchy of NIQs with the related IE hierarchy. In this context, the IE hierarchy is meant to reflect qualities which make an information system useful to the individual and contains the NIQs of signal relevance, cost effectiveness, act selectivity, state-predictive ability, reliability, representational faithfulness, timeliness, and understandability. With respect to goal (2), the analysis reveals numerous areas of both agreement and disagreement between the two hierarchies. Significantly, the investigation indicates that the two frameworks are more similar than might have been expected although numerous differences also exist. These similarities and differences are important because different policy decisions may flow from different sets of NIQs.     

An Essay on Accounting's Social Complexity and the Fairness Challenge/ESSAI SUR LA COMPLEXITÉ SOCIALE DE LA COMPTABILITÉ ET LE DÉFI DE LA FIDÉLITÉ DE L'INFORMATION

We are honoured to contribute our ideas to the tribute to Ross Skinner, stimulated by his 1995 CA Magazine article “Judgment in Jeopardy". Our effort is titled “An Essay” because we want to suggest an approach to the problem of judging fairness in financial reporting that Skinner raised and to explore some consequences of that approach. We include no literature references other than to “Judgment in Jeopardy", and occasionally to Homer, because we have developed the ideas in this essay specifically for this tribute and have not relied on others in doing so. There has been an enormous amount of writing about accounting standards, professional judgment, fairness, and other related topics, but rather than exploring all that, we have focused directly on Skinner's concerns and have tried to develop some consequences of those concerns. One of the issues Skinner's article raised is the possibility that a solution to the judgment problem will forever be elusive. Another is the enormous challenge that “fairness” presents in an increasingly complex world. To explore the implications of Skinner's call for judgment, we use a framework based on the relevance, reliability, and validity of accounting information as a means of addressing this challenge and the demands on social consensus that result. Since Skinner was concerned about the application of judgment to real problems, we illustrate our analysis by considering four contemporary accounting debates: principles versus rules, global convergence of accounting standards, the need for a stand‐alone Canadian standard‐setter, and accounting for stock options. We argue that ideological choices, competition among parties in society, and fundamental measurement problems support Skinner's prediction that a solution will remain elusive.     

Engineering culture and accounting development at Albion Motors, 1900-c.1970

This paper examines the relationship between the engineering-oriented culture at Albion Motors, Scotland's most successful vehicle manufacturers, and the development and use of accounting systems there. Utilizing primary sources and information obtained from interviews, the study concludes that Albion's comparatively rudimentary management accounting systems, in particular, were a direct result of the firm's technological values. The study also concludes that there is no evidence that any major disadvantage accrued directly from this. It ends with a discussion of the relevance of the findings for issues in the accounting and business history literature and for future research.     

The compatibility of multicurrency accounting with functional currency accounting

In today's high-tech and global economy, this study introduces multicurrency accounting as an effective tool to manage resources and compares its reporting capabilities with current generally accepted accounting principles. Further, it proposes a means to integrate multicurrency accounting into internal reporting and external reporting as supplemental disclosures. Multicurrency accounting has the merit of reflecting the true exposure position of each hard currency, in addition to the dollar-based consolidated financial statement. It lends itself readily to mark-to-market accounting; its application for external reporting is foreseeable in the near future.     

Measurement in Financial Reporting: Half a Century of Research and Practice

The paper explores developments in the choice of measurement method in financial reporting over the half century that has elapsed since the foundation of Abacus in 1965. The discussion is confined to the specific problem of measuring individual assets and liabilities, rather than the wider problems of the choice of measurement unit (as in inflation accounting) or capital maintenance (as in income measurement). Changes in financial reporting practice and standards are considered in relation to developments in academic research. This has been a two‐way process: research has been stimulated by problems of practice, and practice, particularly as embodied in standards, has been influenced by the results of research. Both have been influenced by significant events in the world economy, notably the inflation of the 1970s and the global financial crisis that started in 2007. Historical cost has retained its position as the predominant measurement technique in practice, but considerable progress has been made in the implementation and understanding of current value measurements, although the principles for choosing between alternative current values (particularly ‘entry’ values as opposed to ‘exit’ values) require further exploration by standard setters, assisted by academic research.     

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.     

The internationalization of British professional accounting: the role of the examination exporting bodies

This paper extends the seminal study of the role of the UK accounting profession undertaken by Johnson and Caygill (1971). It is argued that the influence of the British accounting profession upon overseas countries has changed significantly from the export of UK accountants to the export of examinations. This has greatly facilitated the attainment of a UK qualification by overseas nationals and thus enhanced the international influence of UK accounting principles and practices. The possible implications of this trend for importing countries are also explored. Finally, the paper discusses the impact of this new development upon the professional body which is the leading provider of overseas examinations.