On the Optimal Relation between the Properties of Managerial and Financial Reporting Systems

We develop a theoretical model of the firm that links properties (stewardship vs. valuation focus) of financial reporting regimes with the informational properties of optimal managerial accounting systems. We show that, contrary to the standard textbook proposition, properties of management and financial accounting systems are not independent. Significantly, we provide an explicit connection between exogenous and observable properties of a firm's financial reporting system and the quality of the managerial accounting system on which manager(s) base real economic decisions. As the quality of those economic decisions can also be inferred from publicly available data, our theory generates new opportunities for empirical managerial accounting research on large nonproprietary samples. Further, by being able to identify enhanced performance due to improved managerial accounting information, our theory provides opportunities to gain a better understanding of the link between particular managerial accounting practices and the quality of the information produced.     

Examining Management Accounting Change as Rules and Routines: The Effect of Rule Precision

This study examines change in management accounting practices as change in rules and routines. Informed by the institutional theory‐inspired framework of Burns and Scapens (2000) , the rules and routines relating to capital expenditure controls in a capital‐intensive organisation are analysed. We explain how preciseness of rules affects not only the coupling of rules to routines, but also the emergence of multiple routines, enhancing the understanding of how management accounting practices remain stable and/or change over time. These results extend and refine recent research relating to management accounting change and offer new empirical insights into practice.     

Accounting Standards and Earnings Management: Evidence from China

This article examines the effect of an asset impairment–related regulatory reform on earnings management in China. Chinese Accounting Standard No. 8 (CAS No. 8), which prohibits the reversal of long‐lived asset impairments, was promulgated to constrain managerial opportunism with respect to previously recognized impairment loss reversal. CAS No. 8 forbids the reversal of long‐lived asset impairment losses only, while allowing the reversal of short‐term asset impairment losses. Based on a sample of China's A‐share listed companies on the Shanghai and Shenzhen Stock Exchange during the period 2001–2008, we reveal that managers use less current asset write‐downs and more reversals in the post–CAS No. 8 period. However, such reporting practices do not appear to be influenced by managerial incentives to avoid reporting losses and/or for “big bath” accounting purposes.     

Value or Glamour? An empirical investigation of the effect of celebrity CEOs on financial reporting practices and firm performance

In this study, I investigate the impact of managerial reputation, as proxied by high‐profile awards to CEOs, on financial reporting practices and firm performance. Using a sample of 269 awards given to 189 celebrity CEOs (CEOs who win awards) from 1987 to 2003, I compare within‐firm changes in financial reporting practices and firm performance before and after each CEO wins their first award. I find that celebrity CEOs engage in more conservative accounting practices and are less likely to engage in opportunistic earnings management to meet short‐term earnings benchmarks. In addition, firm performance improves after celebrity CEOs win awards.     

The process of measurement in managerial accounting: A psycho-technical systems perspective

This paper develops a formal framework of the act or process of measurement in managerial accounting. Although the traditional paradigm of measurement underlying accounting treats it as a technology designed to represent properties of events and transactions in numerical terms, this paper is based on the notion that managerial accounting measurement is intended to facilitate behavior, and thus requires an alternative view of measurement as a “psycho-technical system”. The paper presents the psycho-technical framework and examines its application in selected areas of managerial accounting: human resource accounting, social accounting, divisional performance evaluation, zero-based budgeting, standard costing, and evaluation of internal control systems.     

Observability and Subjective Performance Measurement

Accounting research provides theory and evidence on the choice and use of subjective performance measures for evaluating managerial performance. However, accounting research does not focus on the subjective performance measurement of managerial behaviour once measures have been chosen. We extend accounting research by investigating the factors that influence the subjective performance measurement decision. We predict that the level of subjective performance measurement is influenced by the informativeness of financial performance measures and by the verifiability of the nonfinancial measures in a formula‐based incentive plan. We expect that the measures' informativeness and verifiability depends on the observability of both the managerial behaviour being subjectively measured and the reliability of the financial and nonfinancial performance measures. More specifically, we hypothesize that the influence of the levels of the financial performance measures on the level of subjective performance measurement is moderated by the observability of either the managerial behaviour being measured (for the financial measures) or the performance measures' reliability (for the nonfinancial measures). Data from a firm provide support for our hypotheses.     

Long‐Term post‐merger announcement performance. A case study of Australian listed real estate

This study examines the long‐term postmerger performance of Australian Real Estate Investment Trusts (A‐REITs). The A‐REIT sector is used as a case study being less vulnerable to agency issues due to its regulatory structure (Eichholtz and Kok, 2008; Ratcliffe et al., 2009). Research on conventional firms has shown, on average, shareholders are worse off in the long run (Alexandridis et al., 2012). In contrast, we find that shareholders experience significantly positive abnormal returns, after accounting for the financial crisis. This outcome suggests that when managers are restricted with the use of retained earnings and the type of investment, they may be less susceptible to hubris and/or agency issues.     

Voluntary Disclosures as a Mechanism for Defining Entity Status in Australian Not‐for‐Profit Organisations

This study examines managerial efforts to portray an entity's not‐for‐profit (NFP) status based on voluntary disclosure practices. The annual report text of 61 NFPs are analysed in accordance with Salamon and Anheier's (1997) NFP definitional framework. Results indicate a predominant application of the structural‐operational definition. Furthermore, the ‘organised’ attribute of this definition prevails over the ‘non‐profit‐distributing’ criterion that has been advocated by various parties. Standard‐setting bodies may want to consider: (1) NFP management perspectives in any revised NFP definition; and (2) greater clarity in conceptual framework and standard‐setting arrangements to improve overall transparency in NFP reporting practices.     

Capital Versus Performance Covenants in Debt Contracts

Building on contract theory, we argue that financial covenants control the conflicts of interest between lenders and borrowers via two different mechanisms. Capital covenants control agency problems by aligning debt holder–shareholder interests. Performance covenants serve as trip wires that limit agency problems via the transfer of control to lenders in states where the value of their claim is at risk. Companies trade off these mechanisms. Capital covenants impose costly restrictions on the capital structure, while performance covenants require contractible accounting information to be available. Consistent with these arguments, we find that the use of performance covenants relative to capital covenants is positively associated with (1) the financial constraints of the borrower, (2) the extent to which accounting information portrays credit risk, (3) the likelihood of contract renegotiation, and (4) the presence of contractual restrictions on managerial actions. Our findings suggest that accounting‐based covenants can improve contracting efficiency in two different ways.     

A Review of Big Data Research in Accounting

The impending fourth industrial revolution has enhanced the role of big data analytics in today’s business practice. Consequently, many now consider big data as the most strategic resource in business to the extent that organizations that fail to utilize it may become competitively disadvantaged. Following these developments, questions have been raised about the future of the accounting discipline, especially in terms of how it can continue to add value to organizations. While some scholars have attempted to address this question, it remains an abstract concept requiring further investigation. Therefore, this study conducts a systematic literature review to determine the status of accounting research on big data analytics and provides avenues for further studies. By conducting co-occurrence network analysis on 52 peer-reviewed articles published from 2010 to 2020, three broad themes emerged, entailing big data implications for accounting practice, education, and research design. A further examination of the themes revealed few empirical studies on the phenomenon, as conceptual research dominates the field. Although external audit implications of big data are widely discussed, other accounting domains (e.g., managerial accounting and taxation) are underexplored. Therefore, future studies may focus on the implications of big data on variables such as performance measurement, information governance, tax behavior, curriculum design, and pedagogy.     

Carbon Management Accounting: Explaining Practice in Leading German Companies

This paper explores carbon management accounting (CMA) by examining the practices of leading German companies with pronounced policies and histories. Using interview data, field notes, documentary evidence, and questionnaires, this research identifies the CMA behaviour of 10 companies and grounds it in a theoretical framework to categorise the practices. With climate change to the forefront CMA provides an opportunity to (re)gain competitive advantage by exceeding the legislative requirements for reporting on carbon and carbon‐equivalent emissions, CMA, when properly understood and contextualised, provides an ability to increase both effectiveness and efficiency of information collection and dissemination, and may assist in overcoming the currently uncoordinated approaches evident in the sample companies, and thus contribute to improved carbon management performance.     

Acquisitions,Overconfident Managers and Self‐attribution Bias

We examine whether acquisitions by overconfident managers generate superior abnormal returns and whether managerial overconfidence stems from self‐attribution. Self‐attribution bias suggests that overconfidence plays a greater role in higher order acquisition deals predicting lower wealth effects for higher order acquisition deals. Using two alternative measures of overconfidence (1) high order acquisition deals and (2) insider dealings we find evidence supporting the view that average stock returns are related to managerial overconfidence. Overconfident bidders realise lower announcement returns than rational bidders and exhibit poor long‐term performance. Second, we find that managerial overconfidence stems from self‐attribution bias. Specifically, we find that high‐order acquisitions (five or more deals within a three‐year period) are associated with lower wealth effects than low‐order acquisitions (first deals). That is, managers tend to credit the initial success to their own ability and therefore become overconfident and engage in more deals. In our analysis we control for endogeneity of the decision to engage in high‐order acquisitions and find evidence that does not support the self‐selection of excessive acquisitive firms. Our analysis is robust to the influence of merger waves, industry shocks, and macroeconomic conditions.     

Accounting for Fair Competition between Private and Public Sector Armaments Manufacturers in Victorian Britain

Failures in rifle supply during the Crimean War (1853–56) caused the British government to seek a more reliable method for procuring weapons for military use. Fact‐finding missions to US rifle manufacturers led to the introduction of the ‘American system of manufacturing’ at a purpose‐built factory in north London. The extension of gun‐making facilities at the Royal Small Arms Factory, Enfield Lock, was accompanied by major accounting innovations driven by society's desire for ‘cheap and efficient’ government and, within a laissez‐faire environment, the need to ensure fair competition between private and public suppliers of military goods. Accounting practices based on ‘strictly commercial principles’ were then disseminated to other government military manufacturing establishments located at the Woolwich Arsenal. The historical knowledge revealed in this paper adds a new dimension to existing accounting historiography, which focuses principally on the business sector as the driving force for accounting change in Britain.     

The changing technological environment and the future of behavioural research in accounting

In an era where the pace of change continues to escalate, behavioural research provides an ongoing avenue for explaining the likely effects of emergent changes on decision‐making by providers, users and assurers of accounting information, and for providing ex ante enlightenment for policy‐makers. The purpose of this discussion is to identify contemporary changes affecting the accounting environment, discuss the potential impact to individual and organisational decision‐making, and explore how behavioural research can be utilised to examine these changes. Specifically, this discussion focuses on the impact that technological changes have had on financial reporting, external auditing and managerial accounting, with an eye towards the potential for these changes to radically alter the future of accounting and auditing research.     

An Analysis of Changes in Board Structure during Corporate Governance Reforms

This study examines the evolution of company board structure during a period of corporate governance reform. Using data over a time period following the publication of the Cadbury Report (1992) we present evidence of an increase in the independence of UK boards, as measured by an increased willingness to employ independent non‐executive directors, and to separate the positions of the CEO and the Chairman of the Board. In examining the determinants of these changes, we find that boards change more readily in response to changes in managerial control, equity issuance and corporate performance than changes in the firm‐specific operating environment of companies.     

Delivering the goods at TNT: the role of the performance measurement system

This paper explores the characteristics of the performance measurement system atTNT (UK) Ltd.which facilitate the translation of strategy into action.TNTis a successful and growing service organization and a market leader in the overnight distribution of parcels within the U.K. The performance measurement system and how it is used atTNTare described in detail. The authors then draw on the management accounting literature to provide an analysis framework which answers three central questions for performance measurement systems: whatdimensionsof performance to measure, how to setstandardsfor those measures and whatrewardsare to be associated with the achievement of those standards. The performance measurement system atTNTis appraised against this framework. AtTNTthere are five properties of the performance measurement system which have facilitated the translating of strategy into action. Three of these relate to the framework above; the company measures the right things in that dimensions are consistent with corporate strategy, it provides standards for performance through internal benchmarking, and adopts a mixture of financial and non-financial based rewards. In addition, however, there are two further properties of the system; the use of league tables to report the relative performance of the depots, and the presence of a strong corporate champion who drives the message and importance of the performance measurement system from the centre to the depots.     

Antecedents and Consequences of Eco‐Control Deployment: Evidence from Canadian Manufacturing Firms

Environmental issues have become an important consideration for a growing number of organizations. Eco‐control may represent a valuable tool to help organizations address such issues. The aim of this study is to provide an overview of the eco‐control practices adopted by Canadian organizations and to understand the antecedents and consequences of their adoption. More specifically, this study examines (i) the extent to which eco‐control practices are deployed within organizations, (ii) the factors and motivations that lead organizations to implement eco‐control practices, and (iii) the impact of adoption on firms’ managerial and operational environmental actions as well as on environmental and economic performance. Using survey data from a sample of 249 Canadian manufacturing firms, this article shows that environmental missions, environmental policies, environmental strategic planning, environmental budgets and environmental performance indicators are the most frequently adopted eco‐control practices among the investigated firms, while environmental incentives seem to be less frequently adopted. The results of this study also suggest that competitive and ethical motivations as well as size, environmental exposure and stakeholder pressure are all important factors in explaining eco‐control practice adoption by Canadian manufacturing firms. Moreover, the results of this study show that organizations that have undertaken more intensive managerial and operational environmental actions have also adopted more intensive eco‐control practices. Organizations adopting more intensive eco‐control practices perform better both environmentally and economically performance than firms adopting less intensive eco‐control practices.     

An examination of managerial accounting practices as a process of mutual adjustment

Managerial accounting practices are organizational control mechanisms which serve to constrain decision-makers yet, themselves, are the outcomes of emergent resistance, force and bargaining. The contradictory nature of managerial accounting practices as a form of social control is illustrated by a study of one firm's accounting practices before and after a severe financial crisis. Here, managerial accounting is seen as a dynamic process of mutual adjustment, changing and being changed by the wider organization. Assessment of the process of mutual adjustment reveals an unfolding, reflexive decision-making process in which accounting strategies are designed to centralize the direction of resources and the monitoring of division performance. However, these accounting rules and procedures are neither neutral nor uncontested, as divisional controllers resist corporate decision-makers. New patterns of organizational autonomy and interdependency are highlighted and created by these accounting practices, as managerial interdependencies are more tightly woven around centralized corporate missions.     

Succeeding in managerial accounting. Part 2: a structural equations analysis

Does the type of knowledge, and levels of ability and experience needed, depend on rank in managerial accounting? Are the knowledge, ability, and experience needed for managerial accounting success, consistent with the Libby & Luft (L&L) model (1993) of the determinants of judgment performance in accounting? We explore these questions using structural equation models of the performance evaluations of 2941 practicing managerial accountants. Results indicate that technical managerial accounting knowledge, ability, and experience predict job performance success for junior managerial accountants; industry knowledge, tacit managerial knowledge (TMK) and experience predict success for seniors; and, industry and TMK predict success for managers. The results suggest significant (though not identical) commonality in the predictors of success in managerial accounting and the determinants of judgment performance identified in the L& L model.     

Commentary: Business Black Swans and the Use and Abuse of a Notion

Historical enquiry reveals how ideas mutate. This paper traces how ideas and practices underpinning initial understandings of fair value accounting (FVA) have changed as the concept drifted from the utility rate‐setting context to that of corporate financial reporting. The recall of history for the purpose of ‘learning lessons from the past’ has frequently resulted in misunderstandings of the historical record and misapplication of so‐called lessons. A more fruitful approach to recalling history is to gain insights into the development of the ideas (good and bad) that have contributed to current predicaments. Initially fair value was the basis for specific pricing calculations related to companies with a highly restricted scope of operations. Later, more by accident than design, the concept became a general purpose application used in the financial statements of highly and freely adaptive companies. The mark‐to‐market (MtM) dispute emerging in the global financial crisis (GFC) has given rise to a further mutation of the use of FVA. Discarding MtM contradicts what history tells us was the purpose of adopting fair value into accounting for adaptive companies. This analysis also highlights how conducive accounting theory and practice are subject to politicisation. Accounting is an apparently unresisting victim of interested parties’ special pleading, resulting in the corruption of its technical function – in this case primarily because it is inconvenient to have accounting data tell it how it is.