...University of Wollongong Research Online Faculty of Business - Accounting & Finance Working Papers Faculty of Business 2005 Regulation as Accounting Theory M. Gaffikin University of Wollongong, gaffikin@uow.edu.au Publication Details This working paper was originally published as Gaffikin, M, Regulation as Accounting Theory, Accounting & Finance Working Paper 05/09, School of Accounting & Finance, University of Wollongong, 2005. Research Online is the open access institutional repository for the University of Wollongong. For further information contact the UOW Library: research-pubs@uow.edu.au 05/09 Regulation as Accounting Theory University of Wollongong Working Papers Series School of Accounting & Finance M J R Gaffikin School of Accounting & Finance University of Wollongong Wollongong NSW 2522 Australia Tel +61 (2) 4221 3718 Fax +61 (2) 4221 4297 eMail george@uow.edu.au www.uow.edu.au/commerce/accy/ Regulation as Accounting Theory Michael Gaffikin Theories of regulation are discussed and compared. Some important issues relating to regulation as a substitute for research in creating theory as discussed. Over the years there have been many arguments and debates over the necessity for regulation. Those who believe in the efficacy of markets argue that regulation is not necessary as market forces will operate to best serve society and optimise the allocation of resources. However, there are many who point out...
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...Chapter 3: The Regulation of financial accounting Why examine theories of regulation? Better placed to understand why some accounting prescriptions become part of legislation while others do not. Accounting standard – setting is a very political process While some proposed requirements may be technically sound and logical, they may not be mandated due to political ‘power’ or influence of some affected parties What is regulation? The Oxford Dictionary defines regulation in terms of a “prescribed rule” Macquarie Dictionary defined regulation as “a rule of order, as for conduct, prescribed by authority; a governing direction or law”. On the basis of these definitions can say that regulation is designed to control or govern conduct Hence, when we are discussing regulations relating to financial accounting, we are discussing rules that have been developed by an independent authoritative body that has been given the power to govern how we are to prepare financial statements, and the actions of the authoritative body will have the effect of restricting the accounting options that would otherwise be to an organisation. ‘Free Market’ perspective Accounting information should be treated like other goods, with demand and supply forces allowed to operate to generate an optimal supply. Arguments supporting ‘free – market’ perspective Private economic – based incentives ‘Market for managers’ ‘Market for corporate takeovers’ ‘Market for lemons’ Private economic – based incentives ...
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...Research Study Capital-Market Effects of Corporate Disclosures and Disclosure Regulation Christian Leuz Peter Wysocki June 26, 2006 Commissioned by the Task Force to Modernize Securities Legislation in Canada Christian Leuz Christian Leuz is currently the Professor of Accounting at the University of Chicago, Graduate School of Business. He is also the David G. Booth Faculty Fellow. Prior to this position, Professor Leuz was the Harold Stott Term Assistant Professor in Accounting at the Wharton School of the University of Pennsylvania and Fellow at Wharton’s Financial Institution Center. His research interests include transparency and corporate governance, financial disclosure and securities regulation, and the links between the institutions of market economies. Professor Leuz earned his doctoral degree and “Habilitation” at the Goethe University Frankfurt in Germany. His most recent publications have appeared in the Journal of Financial Economics, the Journal of Accounting and Economics and the Journal of Accounting Research. He is an Associate Editor of the Journal of Accounting and Economics and serves currently on the Editorial Board of The Accounting Review, the Journal of Accounting Research, the Journal of Business, Finance and Accounting, and the International Journal of Accounting. He has received several grants and honors, of which the Geewax Terker Prize is the latest. Peter Wysocki Professor Peter Wysocki is an associate professor of management at...
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...Chapter 4 The economics of Financial Reporting Regulation The case for unregulated markets for accounting information * Support for unregulated marketing all relate to the incentives for a firm to report information about itself to owners and to the capital market. * Agency theory explains why incentives exist for voluntary reporting to owners. * Wider voluntary reporting to the capital market is explained by signaling theory * The arguments supporting unregulated markets for accounting information are largely deductive in nature. Agency Theory * Predicts and explains the behavior of parties involved with the firm. * It conceives of the firm itself as a nexus of agency relationship and seeks to understand organizational behavior by examining how parties to agency relationships within the firm maximize their own utility. * One major relationship is between the management group and the owners of the firm. * Managers are hired to administer the firms’ activities. * Owners and Managers may have different goals and may not be in perfect agreement. While owners are interested to maximize return of investment and security prices, managers have a wider range of economic interests and psychological needs. Because of this conflict, owners communicate with managers in such a way as to minimize conflict between the goals of two groups. * Costs relating to monitoring management reduce managers’ compensation. Therefore managers have an...
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...[ABSTRACT] from the analysis of accounting information distortion that is illegal, because the accounting fraud, manifestations and hazards start to analyze the accounting fraud of China's listed companies the motivation to find out the real causes of the accounting fraud, and through drawing and learn from foreign countries in the prevention and treatment of accounting fraud experience, to present my accounting fraud prevention and treatment response. [Keywords:] listed company; accounting fraud; Governance 1, the listed company's accounting fraud and harm the performance of the form (A) the manifestation of accounting fraud 1. Fictitious business activities. Listed companies, the most common means of accounting fraud, namely through the fictitious transactions, increasing sales revenue or other income, and inflated assets. Such methods often need to forge economic contracts to cope with bills, tax invoices, customs declarations and a series of legal documents, which not only had violated accounting rules is contract Law, tax Law and other important economic Laws and regulations of the open defiance and provocation, is of a serious nature economic crime. 2. Manipulation of related-party transactions. Fraud, fictitious companies, apart from economic activity, more by way associated with particular transaction, such as debt restructuring, asset replacement, non-monetary transactions, etc. to achieve the purpose...
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...A single set of global accounting standards, rules to be followed by any public company as it reports annual operating results, has become the Holy Grail of Accounting. In today’s world, these rules are embodied in International Financial Reporting Standards. Unfortunately for many good but unwitting people, advocating the U.S. adoption of IFRS is a fool’s errand. To more fully understand the ramifications of this statement let’s turn to the dictionary for a basic frame of reference. Grail [greyl] –noun (from dictionary.com) Also called Holy Grail. a cup or chalice that in medieval legend was associated with unusual powers, esp. the regeneration of life and, later, Christian purity, and was much sought after by medieval knights: identified with the cup used at the Last Supper and given to Joseph of Arimathea. Informal. any greatly desired and sought-after objective; ultimate ideal or reward. Can we adapt the word’s definition to fit into the context of accounting? You beta. Holy Grail [greyl] of Accounting –noun (The Summa) Universally adopted set of global accounting standards that in modern urban legend is associated with unusual powers, esp. perfect transparency in corporate financial disclosure, universal comparability, ethical business purity, optimal investor returns, cross national and international economic stability, and is much sought after by various economists, politicians, governmental regulators, large audit firms and executives of...
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...Abstract It is fairly easy for a top executive to reduce the price of his or her company's stock. Due to information asymmetry. The executive can accelerate accounting of expected expenses, delay accounting of expected revenue, engage in off balance sheet transactions to make the company's profitability appear temporarily poorer, or simply promote and report severely conservative estimates of future earnings. And this phenomenon of accounting scandal exist in contemporary society. The integrity of the accounting profession and the credibility of financial information provided by businesses have been undermined by scandals. Accounting and business education should pay more attention to the ethical to prevent accounting scandals. And they should not be focused on the teaching of accounting techniques. Neoliberal ideology is a political movement beginning in the 1960s that blends traditional liberal concerns for social justice with an emphasis on economic growth. And it is similar to globalization. Globalization includes three elements that are difficult decreasing, quick response to alterations, and multilateral trade liberalization. And accounting professional contains individual professional judgment and professional self-regulation. Globalisation brings many benefits but also a number of problems, for instance, low price labour used by multinationals that Increasing wages for highly-skilled workers and reducing wages for less-skilled workers obviously leads to greater inequality...
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...Open Journal of Accounting, 2013, 2, 8-15 http://dx.doi.org/10.4236/ojacct.2013.21003 Published Online January 2013 (http://www.scirp.org/journal/ojacct) Sarbanes-Oxley and the Accounting Profession: Public Interest Implications Sara Ann Reiter1, Paul F. Williams2 2 1 Binghamton University, Binghamton, USA North Carolina State University, Raleigh, USA Email: sreiter@binghamton.edu Received October 31, 2012; revised December 1, 2012; accepted December 12, 2012 ABSTRACT The US accounting profession was caught up in, and some say responsible for, the whirlwind of accounting and business scandals that rocked the US markets in 2002. To restore investor confidence in financial information, the Sarbanes-Oxley Act created a new Public Company Accounting Oversight Board with the authority to set standards for auditors of publicly traded companies, thus ending a century of professional regulation of auditing. In this analysis we employ sociological theories of professionalism [1-4] to help understand the implications of the Sarbanes-Oxley legislation for the accounting profession and for the public interest. We explain why professional self-regulation is important for retaining valuable economic franchises. We also explain why the public interest orientation of the profession is important and how government take-over of auditing standards potentially erodes the public accounting profession’s commitment to the public interest. Self-control over professional work, a key characteristic...
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...Accounting regulation The Learning Objectives for this lecture: Regulatory framework Role of a conceptual framework Current state of play of conceptual framework for international standards Different approaches to accounting regulation •Free-market approach EMH Agency theory •Regulatory approach market mechanisms will not be able to achieve a socially optimal equilibrium price for accounting information Theory of efficient markets • The forces of supply and demand influence market behaviour and help keep markets efficient This applies to the market for accounting information and should determine what accounting data should be supplied and what accounting practices should be used to prepare it • Theory of efficient markets Cont • • • • • • The market for accounting data is not efficient The „free-rider‟ problem distorts the market Users cannot agree on what they want Accountants cannot agree on procedures Firms must produce comparable data The government must therefore intervene Theories Of Regulation • • • Accounting information is a „public good‟ Therefore some argue it is likely to be underproduced without regulation Others suggest supply would exist without regulation • There are competing theories regarding the need for and intention of regulation Defining Regulation “[R]egulation is the policing, according to a rule, of a subject‟s choice of activity, by an entity not directly party to or involved in the activity.” • Elements of...
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...1.0 Introduction This report talks about china s accounting systems and how it has developed and changed continuously till present. It looks into the history of Chinese accounting, followed by explaining how the institutional factors have had an impact and is backed up by 2 theorist, Hofestede and Grays model. It identifies the significant changes that occurred during its journey in adapting to the IFRS standards starting from 1949. Culture is a main aspect of china and has been incorporated into its accounting systems as well. To conclude it explains future problems that may arise and whether or not china will fully adapt to the IFRS system. 2.0 Brief history of accounting Previously there was no real accounting system in china with the exception of providing financial reports, therefore the Chinese government wanted to implement an accounting system. In 1949 the people Republic of China (PRC) a communist party came into power and adopted a communist accounting approach from Russia to achieve socio economic development without the reliance on developed nations. 2.1 Significant changes that have taken place 2.2 Great Leap Forward The regime of the Great Leap Forward 1958 – 59 was an effort to strengthen china’s economy, and catch up with the western world, but ended during the Cultural Revolution. A series of natural disasters like shortage of water, starvation led to the worst period in china’s history. 2.3 Cultural Revolution However the Cultural Revolution...
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...(prescriptive) accounting theory Inte baserad på empiriska tester (som positive teorier är) utan de är baserade på vad researcher tror ska eller borde inträffa vid särskilda omständigheter. Teorier som föreskriver (prescribe) istället för förklarar (describe) särskilda handlingar kallas för normativa teorier eftersom att dom baseras på normer som researchern som lägger fram teorierna har. T.ex. säger hur vi ska ta till oss och använda redovisningsmetoder. Kapitel 2 Theories of regulation Public interest theory There is the public interest theory of regulation which propose that regulation be introduces to protect the public. It assumes that the regulatory body (usually government) is a neutral arbiter of the public interest and does not let its own self-interest impact on its rule-making processes. “The regulator does its best to regulate so as to maximize social welfare. Consequently, regulation is thought of as a trade-off between the costs of regulation and its social benefits in the form of improved operations of markets”. Regulation put in place to benefit society as a whole rather than vested interests. Regulatory body considered to represent interests of the society in which it operates, rather than private interests of the regulators. Assumes that government is a neutral arbiter. Criticisms of public interest theory Critics question assumptions that economic markets operate inefficiently if unregulated. Question the assumption that regulation is virtually...
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...and Applications The state of accounting in Egypt: a case Khaled Dahawy The American University in Cairo Nermeen F. Shehata Cairo University Tad Ransopher Georgia State University Abstract Egypt, one of the largest Middle East economies, is beginning its transition to a market economy. As a developing nation, Egypt has witnessed several changes in its accounting system during last two decades. This case provides an analysis of the Egyptian accounting system with emphasis on the development of the Egyptian Accounting Standards. In addition, this case makes recommendations for the reformation of the Egyptian accounting system. Keywords: Egypt, International accounting standards, Egyptian accounting standards, Egyptian accounting system, Privatization, Culture The state of accounting, Page 1 Journal of Business Cases and Applications 1. INTRODUCTION The purpose of this case is twofold. The first goal is to present an analysis of the development of the Egyptian accounting system. The second goal is to provide several recommendations to facilitate the Egyptian accounting reformation. Once accounting reformation occurs, Egyptian companies can prepare financial reports that will be of greater benefit than those at present. To Egyptian companies the result will be an increase in foreign investment and funds raised from external sources. With these goals as the objective, Egyptians need to comprehend successful accounting systems and extract that which may...
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...ACCOUNTING FOR THE IPHONE AT APPLE INC. 1. Articulate the financial statement impact of the alternative accounting proposed by Apple. The alternative accounting method proposed by Apple is the Non-GAAP supplements it will continue to provide during earning releases. We want to articulate the relevant financial statement impact compared to that of subscription accounting in the following ways: (1) One-year aspect Income Statement: Revenue and cost of sales will increase because it reverses the current period’s amortization of deferred revenue derived from iPhone and Apple TV. As the profit before tax increases, the income tax will also increase. Balance Sheet: Deferred revenue will drop to zero because under the non-GAAP method, it is recognised as either current year revenue or retained earnings, thus the retained earnings will increase by a large amount. Tax liability will increase as a result of increase of profit before tax. Cash flow: The alternative use of accounting method will not cause fluctuation of cash flows. (2) Consecutive years aspect With the use of its current subscription accounting method, Apple is able to make its revenue more constant, show a positive growth in a consecutive period of time and eclipse the amount of revenue recognised from non-iPhone products. Thus the alternative accounting method can help investors to understand the financial performance better. In order to illustrate this impact on financial statement, we...
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...The independence of internal auditing in China Term Paper Advanced Auditing February, 15 * The independence of internal auditing in China Abstract China’s rapid economic growth boosted its accounting system that has evolved at a singular rate. The national government encourages foreign investors to participate in the domestic capital market actively. The government also strictly supervises the different national economic activities; as a result, the credibility of the auditing system plays a important role. Chinese government as well as some firms seek reliable and independent internal audit services. This paper will examine some factors which may cause lack of independence in Chinese internal audit systems, the difference between the internal auditing in China and in western countries. Based on interviews and questionnaires, suggestions are made for future improvement on the internal audit system in China. Key words: internal auditing, audit independence I INTRODUCTION The globalization of economy, complexity of business and allegations of fraudulent financial reporting have recently sharpened the ever-increasing attention to internal controls and internal auditing. (Karagiorgos et al., 2009) The role of internal auditing is also evolving as reflected in the following definition ‘an independent, objective assurance and consulting activity designed to add value and improve an organization’s operations. It helps an organization accomplish its objectives by bringing...
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...Accounting Theory • Docent Machteld Van den Bogaerd machteld.vandenbogaerd@kuleuven.be • Cursusmateriaal – handboek (aanbevolen – niet verplicht) Accounting Theory (Godfrey et al., 2010) – Toledo wetenschappelijke artikels, handouts, etc. Accounting Theory • Examen (75% vd score) – schriftelijk examen – gesloten boek – duurtijd: 2 uur – combinatie multiple choice & open vragen Accounting Theory • Opdracht (25% vd score) – literatuurstudie rond een welbepaald thema in groep (5 leden), onderwerpen zie Toledo – inhoud • beknopte bespreking (relevantie) thema • overzicht relevante/gehanteerde theorieën • gehanteerde onderzoeksmethode(n) • overzicht van de onderzoeksresultaten Accounting Theory – vorm • maximaal 5 bladzijden (zonder referenties) • referenties toevoegen in literatuurlijst • minstens 2 wetenschappelijke artikels per groepslid • 2 groepen werken rond hetzelfde onderwerp! Belangrijk: logisch gestructureerd en geïntegreerd verhaal - Peer assessment!! => Meer info: zie document ‘Enkele praktische tips’ op Toledo. Accounting Theory – deadlines • samenstelling groep + onderwerp (via e-mail): maandag 12 oktober 2015 • eerste versie (feedback): 5 november 2015 (enkel via e-mail) • finale versie (op papier + pdf) incl. peer review (op papier): 3 december 2015 • presentaties: 10 en 17 december 2015 + min. 2 vragen voor de parallelle groep. Presentatie: 10-tal minuten (achteraf mogelijkheid tot stellen van vragen door ...
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