An analysis of the role of accounting standards for enhancing corporate governance and social responsibility

Accounting standards have been suggested as a means of requiring reporting by corporations that would enhance managers' concern for their shareholders and/or society. The analysis presented in this paper, however, leads to the conclusion that this role for accounting standards is not likely to be beneficial. The conclusion is based on the fact that the required measurements for useful standards cannot generally be made. This inherent limitation is absolute with respect to social responsibility concerns. With respect to corporate governance, accounting standards might be useful, primarily for reporting potentially fraudulent dealings and similar misuses of shareholder's assets by corporate managers. But even then, the cost of an accounting standard, ex ante, is likely to exceed its benefits to shareholders.     

Simple theories for complex processes: Accounting policy and the market for myopia

The tendency to use simplified models to capture and predict complex phenomena in the social sciences is discussed and criticized by examining a paper on policymaking, Watts and Zimmerman's “Demand for and Supply of Accounting Theories: The Market for Excuses.” Criticism of the paper takes three forms: 1) the methodology and testability is shown to be suspect; 2) the applicability of the evidence cited to the propositions stated is questioned; 3) contrary evidence is given to rebut the theory.     

Strategic behavior and regulation research in accounting

This paper focuses on models of political behavior that implicitly or explicitly form the foundation for empirical economic consequences studies in accounting. The studies that have appeared adopt a single-period of single-agendum-item perspective. This paper discusses differences in rational political behavior that arise naturally in single-period versus multiperiod settings. The behavioral implications of varying configurations of available information on agents' “ preferences” are also considered. Because of the tremendously complex empirical domain being studied, examples are relied on heavily to motivate the discussion rather than engaging in a formal modeling exercise.     

Duty,obligation, and responsibility in accounting policy making

The Financial Accounting Standards Board has been under considerable pressure in recent years to choose among accounting standard alternatives based on their anticipated economic consequences. It is the Boards's stated position, however, that standards ought to be chosen for the faithfulness of the representations they will bring about. This paper examines the philosophical justification for the opposing positions on the economic consequences issue. The issue is first examined as one of ends and means, and it is found that accounting policy makers have a stronger obligation to pursue faithful representations than they have a responsibility to pursue good economic consequences. A similar result is found when the ends—means distinction is dropped and the issue is examined as involving conflicting duties to refrain and to act. The conclusion is reached that there is no justification for departing from faithful representations.     

The effects of governmental accounting methods on asset-acquisition decisions: A theoretical model and three case studies

This study explores possible effects of municipal accounting practices on asset-acquisition decisions. Theoretical decision models are developed using expenditure and depreciation accounting for reporting performance. The models suggest that expenditure accounting may lead to uneconomical leasing. Case studies of three cities focused on comparing present values of their leases to purchase alternatives and on interviewing department administrators. Significant uneconomical leases were found. The case studies suggest that a complete model of municipal administrators' acquisition decisions include consideration of accounting methods used to report performance; perceived risk of obsolescence; restrictions of grantors, third-party reimbursers and higher management; and administrators' background and training.     

The possible new shape of accounting in the United States

The Dingell Hearings currently under way in the House of Representatives may be the most likely opportunity for a major alteration in the structure of accounting control in the United States since the passage of the Securities Acts in 1933–1934. One should assume that the subcommittee is serious about its objectives of providing for tighter SEC control over the accounting function and for increasing the effectiveness of auditing. In the following pages, I will offer my views on the crucial issues being considered by the subcommittee looking at the SEC and the accountants, and I will conjecture on the possible alternatives for congressional action. Finally, I will speculate on what these changes might mean to the structure of accounting practice and government regulatory activity, and I will make suggestions regarding some possible areas of future research into accounting institutions and policy.     

Integrating human resource accounting into the public policy process: An illustration

Traditionally, public policy formulation has been accomplished through political compromise. In recent years, growing public pressure for austerity and accountability in the use of public resources has made the analytical approach to policy formulation and evaluation increasingly important. This exploratory study illustrates how the human resource accounting model can contribute to an objective and systematic evaluation of a complex public policy issue. The study considers the attrition of commissioned officers from the U.S. Army as a loss of human resources and examines the relative investment in human resources from two primary sources of commissioning. This type of systematic analysis provides valuable information for the policy maker in making logical decisions on human resource development.     

Core theory and uniformity in accounting: Rationalizing the accounting rulemaker

If there are serious constraints on investors' abilities to process information, as well as to syndicate and share information, a uniform accounting system may convey substantial benefits to investors. After describing the potential benefits of a uniform accounting equilibrium, this article examines, using core theory, whether an unconstrained competitive environment with unrestricted coalition-formation possibilities amongst firms is likely to yield a uniform accounting equilibrium, or whether an accounting rulemaker is necessary for obtaining uniformity. It shows that an unconstrained competitive system may not yield a uniform accounting equilibrium even though it may be in every firm's (and security holder's) interest to have a uniform system. First, the core of the negotiations game among firms to set up a uniform system may be empty. That is, there may be no allocation of gains among firms resulting from an overall uniform accounting system which satisfies both individual and group rationality. Second, a uniform accounting system may have public goods characteristics which make a competitive uniform accounting equilibrium less likely. Both reasons serve to rationalize the accounting rulemaker.     

State regulation of accounting practices and municipal borrowing costs

This article examines the association between state regulation of accounting practices and municipal borrowing costs. The results demonstrate that stringent accounting regulations do have an effect on borrowing costs after abstracting the effects of other explanatory variables. The direction of the observed effect is difficult to assess due to presence of multicollinearity in the model. However, lower borrowing costs are suggested by the analysis.     

Inventories,credit transactions,and the marginal effective tax rate

It is observed that marginal effective tax rates (METR), as conventionally calculated, can only consider working capital requirements to a limited extent. A formula is derived to incorporate inventory requirements into the calculation and, via a numerical example, it is shown that such an incorporation can radically alter METRs from those conventionally calculated. The analysis is extended to credit transactions without affecting the above conclusion. Thus, if METRs are to be used as a means of evaluating the effects of tax policy on the incentive to invest, working capital requirements need to be explicitly allowed for.     

Theories of the state and the state of accounting: Economic reductionism and political voluntarism in accounting regulation theory

It has recently been suggested that the inability of the economics-finance literature to say anything definitive about the appropriate form of accounting regulation highlights the need to augment neoclassical economic analysis with sociopolitical considerations. It is argued in this paper that patching up the orthodox theory would be futile; that the flaws are so fundamental as to warrant abandoning neoclassical state theory and embarking on a serious debate about radical theoretical alternatives. Economic reductionism and political voluntarism are shown to be the main flaws in the neoclassical theory, and these deficiencies are primarily responsible for the present theoretical disarray. After a brief overview of radical theories of the state, this paper suggests that replacing—not refurbishing—neoclassical state theory is the most plausible strategy for accounting researchers.     

Stochastic and nonstochastic determinants of changes in client-industry concentrations for large public-accounting firms

Market-concentration ratios of audits of large publicly held firms have been found to be high by Zeff and Fossum (1967), Rhode et al. (1974), and Campbell (1981). Both stochastic (random) forces and nonstochastic (deterministic) forces may cause increased concentration ratios. To determine the affects of stochastic forces on audit-concentration ratios, a computer simulation was developed using Gibrat's (1931) theorem. The results of the simulation indicate that the volatility of the concentration ratios may be affected by nonstochastic forces as well as by stochastic forces. The nonstochastic forces are described and discussed vis-á-vis the public-accounting profession's competitive environment.