Do Harmonised Accounting Standards Lead to Harmonised Accounting Practices? An Empirical Study of IAS 39 Measurement Requirements in Some European Union Countries

The objective of this paper is to investigate the level of harmonisation for IAS 39 Financial Instruments: Recognition and Measurement and to identify if different levels of harmonisation are associated with company-specific factors. Based on Rahman et al. (2002) , we used the Jaccard (JACC) index to determine the level of harmonisation between IAS 39 and the financial reporting practice of a broad-based sample of European-listed companies in 2005. We applied regression analysis to identify companies' specific characteristics that affect the level of convergence of the reporting practice of financial instruments. The results of this study show a high level of harmonisation between accounting practices of European companies included in our sample and IAS 39.     

Risk Perceptions of Financial Analysts and the Use of Market and Accounting Data

This paper reports the results of a laboratory experiment which attempts to test the relevance of accounting information and other market-related information in a risk-assessment task. Using the Brunswik lens model framework, estimates of ex ante risk on thirty stocks were regressed against nine company-specific cues and one industry variable. The results provide substantial evidence that publically available accounting and financial data convey information relevant for security risk evaluation.     

Harmonisation of Accounting Measurement Practices in the European Community

This study attempts to determine the level of accounting harmonisation in the European Community by examining selected measurement practices from the 1992/93 annual reports of companies from Belgium, Denmark. France, Germany, Ireland, the Netherlands. Portugal and the UK. Harmonisation is tested using the chi-square statistic and measured using the / index. The chi-square statistic tests for the equality of the proportions of accounting measurement methods across countries. The / index measures the extent of concentration around a particular accounting measurement method. The results reveal that accounting for foreign currency translation of assets and liabilities, treatment of translation differences, and inventory valuation are harmonised, while accounting for fixed asset valuation, depreciation, goodwill, research and development costs, inventory costing, and foreign currency translation of revenues and expenses are not harmonised. The results also demonstrate that the extent of harmonisation is greater among fairness oriented countries than among legalistic countries.     

Management accounting and control practices in a lean manufacturing environment

A lean strategy is rapidly becoming the dominant paradigm in manufacturing. Kennedy and Widener (2008) use a case study to develop a theoretical framework of management accounting and control practices for firms following a lean manufacturing strategy. We build on Kennedy and Widener (2008) by examining a structural equation model that provides evidence on the extent to which a lean manufacturing implementation is related to five management accounting and control practices. Using survey data from 244 US companies with an interest in lean manufacturing, we find a direct positive relation between the extent of a lean manufacturing implementation and a simplified strategic reporting system, value stream costing, visual performance measurement information, and employee empowerment. We find a direct negative relation with inventory tracking; however, we find it is conditional on the extent of top management support for change in production strategies such that firms decrease reliance on inventory tracking in the presence of strong management support. We also conclude that the management accounting and control practices work together as a package in a lean manufacturing environment as evidenced by the many direct associations among the five management accounting and control practices.     

The Impact of Adopting International Accounting Standards on the Harmonization of Accounting Practices

Over the past few decades numerous organizations have been actively participating in the efforts to improve the comparability of financial reporting. Many studies have discussed the benefits and drawbacks of comparability. This study investigated the affect on the harmonization, or comparability, of accounting practices when a sample of companies choose to use international accounting standards (IASs) when preparing financial reports.This study analyzed trends in the I index, a measure of concentration for the use of a particular accounting practice introduced by van der Tas, to determine if the choice of accounting methods by a sample of Swiss companies became more aligned with a sample of companies from three other countries. The study included a control sample of Swiss companies that did not switch from reporting using local Swiss standards during the same time period, 1988 through 1995. Four accounting practices were included; depreciation, inventory, financial statement cost basis, and consolidation practices. The practices used were compared with a sample of companies from three countries; Japan, the UK, and the US.The results indicated that across the 8-year period, the majority of the I indices comparisons were positive and statistically significant. However, the results did not support that these increases were due primarily to the adoption of IASs.     

The validity of management control topoi: Towards constructivist pragmatism

For decades, management accounting research paradigms have been in competition without reaching any apparent closure, and struggles to bridge the gap between knowledge and doing [Pfeffer, J., Sutton, R.I., 1999. Knowing what to do is not enough: turning knowledge into action. Calif. Manage. Rev. (Fall), 83–108] have not been successful either. This paper argues that this state of affairs is due to an insufficient understanding of reality, which is rooted in the management accounting paradigms. The paper establishes a concept of reality as an integrated set of conditions for actions and argues that, without such a concept, the issue of validity cannot be addressed: management accounting and control only provide valid results in practice if they incorporate the four aspects of the world of human life—facts, logic, values and communication. On the basis of these aspects, some predominant research paradigms are subsequently analysed and, using a case study, the paper shows how the four dimensions are integrated in the practice of a successful manager. Finally, the paper explains why the integration of the four aspects is always unique and company-specific, forming what is termed topoi.     

The impacts of inventory in transfer pricing and net income: Differences between traditional accounting and throughput accounting

This research proposes the Theory of Constraints (TOC) throughput accounting (TA) as an alternative management control mechanism in an international transfer pricing setting. We compare TA with the traditional accounting method and demonstrate that the traditional method underestimate factors as demand variation and inventories, which affects decisions, such as moving production to an offshore plant. A detailed system dynamics model is built to simulate the production process in an offshore supply chain to compare the methods. The study aims to fill a gap in the management accounting studies and contribute to the understanding of international transfer pricing and their management controls, exploring more than just the tax savings, which are usually considered isolated from operational factors for supply chain (SC) offshoring decisions. Furthermore, we conduct a brief literature review, present the model and discuss the results. It has been observed that inventory levels are an important part of accounting, offshored supply chains, and transfer pricing. Traditional cost and accounting methods favour higher inventory levels, and they can overestimate net income results up to 70% – especially in higher demand variation scenarios – when compared to the throughput accounting.     

Articulation in cash flow statements: a resource for financial accounting courses

Recent accounting research (Bahnson, P., Miller, P., & Budge, B. (1996). Nonarticulation in cash flow statements and implications for education, research and practice. Accounting Horizons, 10, 1–15 has shown that firms implementing the indirect method for reporting cash flows under SFAS 95 rarely produce financial statements that articulate cleanly. The purposes of this paper are (1) to provide financial accounting educators with a list of companies for which articulation does exist, (2) to describe the process by which educators can update the list in the future, or modify it to suit their own preferences, and (3) to present an analysis of firms’ reporting practices on the cash flow statement, which may be of interest to more advanced students studying the complexities of the statement of cash flows. This analysis of reporting practices involves an assessment of the articulation of individual COMPUSTAT line items (e.g. inventory) and subsets of line items (e.g. inventory, receivables, deferred taxes, and depreciation) for the 1998 data year. The findings indicate that relatively few firms report consistent values for single line items and that very few firms report consistent values across subsets of line items. Although the rate of articulation decreases as firm size, and hence reporting complexity, increases, 74 large, publicly-traded firms for which clean articulation does exist were identified. This list of firms should prove useful to introductory accounting educators who use real-world examples for classroom purposes.     

The board's role in risk disclosure: an exploratory study of Italian listed state-owned enterprises

The determinants of risk disclosure in the annual reports of listed state-owned enterprises (SOEs) have yet to be fully explored. This paper examines the potential impact of the composition of the boards of directors and other company-specific features on risk disclosure levels. The presence of women on a board made a significant difference to risk disclosure, as did the age of board members. Board directors having an accounting or finance/business qualification affected risk disclosure negatively; company size and an internet visibility were positively related to risk disclosure. Although an Italian study, the lessons here will have application to academia and to practitioners, policy-makers and standard-setters worldwide.     

A Statistical Model of International Accounting Harmonization

This article shows how the difference between the observed frequencies of accounting policy choice and the outcome of a random policy choice, where each available method has an equal chance of being selected, may be fully explained with a statistical model. The process of harmonization is described in a way that identifies departures from equiprobable accounting policy choice as either: (a) the systematic effects of harmonization, or (b) the effects of systematic divergence from international harmony where the frequency of adoption of differing accounting methods varies across countries, or (c) the effects of company-specific accounting policy choices. The understanding of harmony that underlies previous attempts to measure harmonization is such that, with respect to a particular financial statement item, a situation of maximum harmony is reached when all companies in all countries use the same accounting method. From the standpoint of modelling the harmonization process. however, a different concept of harmony may be more useful. In this article, therefore, we posit a state of distributional harnzony in which, other things being equal, the expected distribution of accounting policy choices is the same in each country. In this theoretical state. the odds of selecting a given accounting method from those available for a particular financial statement item are identical for each country. A major advantage of this benchmark is that it provides a basis for distinguishing between two possibly conflicting components of the international harmonization process: between-country harmonization and within-country standardization. A hierarchy of nested statistical models is then used to describe accounting policy choices made by companies with an international shareholding and registered in Europe, where the European Union has been involved in a program of accounting harmonization. The accounting policies analysed in depth in this article comprise the treatment of goodwill and accounting for deferred taxation. The results are compared with the comparability index method used previously in harmonization research studies.     

Fair value accounting for liabilities: The role of disclosures in unraveling the counterintuitive income statement effect from credit risk changes

When liabilities are accounted for at fair value, a deterioration of a company’s credit risk results in the reporting of an income statement gain; an improvement in a company’s credit risk results in a loss. Many argue that these income statement effects are counterintuitive and that financial statement-users are likely to misinterpret fair value gains as positive signals and fair value losses as negative signals. Utilizing an experiment with CPAs as participants, we find that these arguments are indeed valid. Specifically, we find that over 70% of the participants incorrectly assess a company’s credit risk as improving (deteriorating) when a fair value gain (loss) is recognized. We also find that disclosures that explicitly specify the relation between the direction of the credit risk change and the income statement effect significantly reduce participants’ misinterpretations, and are more beneficial when fair value gains versus losses are recognized. These findings provide empirical evidence in the debate over the recognition of company-specific credit risk changes and offer direction for improving disclosures in the area of fair value accounting.     

Adoption and Benefits of Management Accounting Systems: Evidence from Finland and Australia

This study provides empirical evidence on management accounting practices in Finnish manufacturing companies. It identifies the adoption of the management accounting practices, received benefits from the adoption and intentions to emphasize the practices in the future. The results indicate that financial measures like product profitability analysis and budgeting for controlling costs is likely to be important in the future, but it is also clear that greater emphasis will be placed on newer practices like customer satisfaction surveys and employee attitudes. The results of the management accounting practices are compared to the findings of a similar study based on Australian data.     

THE ROLE OF COMPONENTIAL AND INTEGRATIVE KNOWLEDGE IN ACCOUNTING EDUCATION

This study examines the role of componential knowledge, i.e., generally accepted accounting principles, and integrative knowledge, i.e., performing LIFO and FIFO inventory analysis, in solving complex accounting problems. This study predicts a dynamic, interactive process among componentiai knowledge, integrative knowledge and problem solution. Accounting students were given training in inventory methods, and then they were given inventory problems. The results support the prediction that there is a dynamic, interactive process between componential knowledge, integrative knowledge, and problem solving. The results provide several useful new directions for accounting pedagogy research and practice.     

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.     

Country Effects and Sector Effects on the Harmonization of Accounting Policy Choice

This study assesses the extent of accounting harmony in Europe prior to the recent switch to IFRS, by presuming that accounting is harmonized when 'all firms operating in similar circumstances adopt the same accounting treatment for similar transactions regardless of their domicile'. The policies studied concern inventory, depreciation and goodwill, and the odds of using alternative accounting methods are predicted by logistic regression. The empirical results suggest that, while international exposure and firm size are significant factors, country effects are considerably greater than sector effects, which is inconsistent with harmonized accounting.     

Financial reporting quality in international settings: A comparative study of the USA, Japan, Thailand, France and Germany

The purpose of this study is to show the importance of the business contexts of individual countries to understand corporate accounting practices in international settings. Using data from five countries, we show that while agency theory constructs are effective in explaining accounting practices in corporate settings that have a strong agency orientation, such as that of the United States, it is necessary to go beyond such constructs to understand accounting practices in other corporate settings. Given the variety of international business settings, we use a generic theory, institutional theory. To conduct this examination into cross-country accounting practices, we focus on an earnings quality measure based on accrual accounting practices, the abnormal accruals component of accounting earnings. We provide evidence to support the view that with varying business settings we are likely to see diversity in accounting practices that result in different levels of accruals or accruals based earnings quality.     

Harmonization of Accounting Measurement Practices in South Asia

This study examines the extent of harmonization of selected accounting measurement practices in three South Asian countries, India, Pakistan and Bangladesh. The study is based on a sample of 566 non-financial companies for the financial year 1997–1998. The degree of harmonization is measured using Van der Tas's (1988) I index and Archer, Delvaille, and McLeay's (1995) modified C index. The values of the I index and the C index show a relatively higher degree of harmonization in the areas of property, plant and equipment, foreign currency translation and long-term investment, and a lower level of harmonization in the areas of inventory, amortization of goodwill and leases. The results suggest that low harmonization levels are both due to the degree of flexibility available in selecting benchmark treatments in some International Accounting Standards (IAS) and also to non-compliance by companies with IAS-mandated requirements. Significant further work is required by South Asian Federation of Accountants and the other regional accounting bodies if the goals of regional and international accounting harmonization are to be achieved.     

Selecting instructional design for introductory accounting based on the experiential learning model

Introductory accounting courses are usually taken by all business majors. The teacher is the manager of the instructional system and must select an instructional strategy from among the many combinations available. It is important for educators to recognize the diversity of learning styles of students in the introductory accounting class so the course can be a more enriching experience for both accounting and nonaccounting majors. The experiential learning model is discussed in association with the teaching modes available to accounting educators. Kolb's Learning Style Inventory (1985) was used to determine the learning preferences for a large group of introductory accounting students. The results of this inventory and direction for the instructional design of introductory accounting courses are presented in this study.     

Hedging the purchase of direct inputs in an inflationary environment

An important category of costs that management need to plan for and control are the costs associated with the purchase of direct inputs. Traditional operations management methodologies model this problem as requiring management to direct attention to the trade-off between inventory holding costs versus stock-out and back-ordering costs. However, when advance purchase agreements on inventory can be made management can purchase claims which do not give rise to holding costs and hence the traditional analysis of the problem requires augmentation. Working under the assumption of non-resellability of inventory, we show how advance purchase agreements can be cast within an options framework. This allows us to reinterpret the problem as determining the optimal hedge for accounting profit and hence provides constructive guidelines for financial managers concerned about the effects of input price volatility on accounting profit.     

Accounting practices of the St. Joseph Lead Company: 1864-1900

This paper presents the results of an inquiry into the accounting practices of the St. Joseph Lead Company during the nineteenth century. For several decades following its incorporation in 1864 the St. Joseph Lead Company maintained a very crude double-entry bookkeeping system that lacked detailed cost accounting records. In fact, there is little evidence of any type of industrial accounting prior to 1890 when a direct cost responsibility accounting system was established. Thus, the industrial accounting procedures of the St. Joseph Lead Company appear to have lagged far behind the practices of the contemporary British and American mining firms which have been the objects of recent studies. The investigation thereby reveals considerable diversity in the industrial accounting practices of the American mining industry during the second half of the nineteenth century.