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Craig Deegan & Jeffrey Unerman

Financial Accounting Theory european edition

 

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Financial Accounting Theory european edition

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Financial Accounting Theory european edition

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Craig Deegan  Jeffrey Unerman

London Boston Burr Ridge, IL Dubuque, IA Madison, WI New York San Francisco St. Louis Bangkok Bogotá Caracas Kuala Lumpur Lisbon Madrid Mexico City Milan Montreal New Delhi Santiago Seoul Singapore Sydney Taipei Toronto

 

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Financial Accounting Theory  Craig Deegan & Jeffrey Unerman ISBN-133 978 ISBN-1 9780077 00771089 108960 60 ISBN-1 ISB N-100 0-0 0-07-7 7-7108 1089696-55

Published by McGraw-Hill Education Shoppenhangers Road Maidenhead Berkshire SL6 2QL Telephone: 44 (0) 1628 502 500 Fax: 44 (0) 1628 770 224 Website: www.mcgraw-hill.co.uk  British Library Cataloguing in Publication Data http://www.download-it.org/learning-resources.php?promoCode=&partnerID http://www.download-it.org/lear ning-resources.php?promoCode=&partnerID=&content=story&storyID=19988 =&content=story&storyID=19988 A catalogue record for this book is available from the British Library 

Library of Congress Cataloging in Publication Data The Library of Congress data for this book has been applied for from the Library of Congress Acquisitions Editor: Mark Kavanagh Senior Development Editor: Natalie Jacobs Marketing Manager: Marca Wosoba Production Editor: James Bishop Text Design by Jonathan Coleclough Cover design by ego creative limited Typeset by MCS Publishing Services Ltd, Salisbury, Wiltshire. Printed and bound in Great Britain by Bell & Bain Ltd, Glasgow  Published by McGraw-Hill Education (UK) Limited an imprint of The McGraw-Hill Companies, Inc., 1221 Avenue of the Americas, New York, NY 10020. Copyright © 2006 by McGraw-Hill Education (UK) Limited. All rights reserved. No part of this publication may be reproduced or distributed in any form or by any means,Companies, or stored in Inc., a database or retrieval thenetwork prior written consent of The McGraw-Hill including, but notsystem, limitedwithout to, in any or other electronic storage or transmission, or broadcast for distance learning. ISBN-13 978 ISBN-13 9780077 00771089 108960 60 ISBN-1 ISB N-100 0-0 0-07-7 7-7108 1089696-55 © 2006. Exclusive rights by The McGraw-Hill Companies, Inc. for manufacture and export. This book  cannot be re-exported from the country to which it is sold by McGraw-Hill.

 

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Dedication

From Craig: My efforts are dedicated to my beautiful young daughter, Cassandra Joy Deegan. From Jeffrey: This book is dedicated to Terry and Alan Unerman – a most loving, devoted and very special couple.

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v

 

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Brief table of contents

Preface

 

Guided tour

xi   

xiv 

Technology to enhance learning and teaching   xvi  Acknowledgements

 

xviii 

1 Introduction to financial accounting theory 2 The financial reporting environment

 

3 The regulation of financial accounting

1 31

 

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4 International accounting

 

55 

 

85 

5 Normative theories of accounting 1: The case of accounting for changing prices

 

121

6 Normative theories of accounting 2: The case of conceptual framework projects

 

167 

7 Positive Accounting Theory

 

205 

8 Unregulated corporate reporting decisions: Considerations of systems oriented theories 9 Extended systems of accounting: The incorporation of social and environmental factors within external reporting  

 

267 

309 

10 Reactions of capital markets to financial   reporting 11 Reactions of individuals to financial reporting:   An examination of behavioural research

375 

12 Critical perspectives of accounting

427 

Index

 

 

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409 

456 

Detailed table of contents

Preface

 

xi 

Guided tour

 

xiv 

Technology to enhance learning and teaching Acknowledgements

 

xvi 

 

xviii 

1 Introduction to financial accounting theory

 

Opening issues   ◆ What is a theory?   http://www.download-it.org/learning-resources.php?promoCode=&partnerID http://www.download-it.org/lear ning-resources.php?promoCode=&partnerID=&content=story&storyID=19988 =&content=story&storyID=19988 ◆ Why it is important for accounting students to study accounting theory ◆ A brief overview of theories of accounting   ◆ Evaluating theories of accounting   ◆ Can we prove a theory?   ◆ Evaluating theories – considerations of logic and evidence   ◆ Outline of this book   ◆ Questions   ◆

2 The financial reporting environment ◆ ◆ ◆ ◆ ◆ ◆ ◆ ◆

3 The regulation of financial accounting ◆ ◆ ◆ ◆ ◆ ◆ ◆ ◆ ◆

 

Opening issues   Introduction   An overview of the development and regulation of accounting practice The rationale for regulating financial accounting practice   The role of professional judgement in financial accounting   How powerful is the accountant?   Chapter summary Questions

 

 

 

 

1 1 2  4 5  11 14 16  22  24 31 31 32  34 38  41 44 49  50 

 

Opening issues   Introduction   The ‘free market’ perspective   The ‘pro-regulation’ perspective   Public interest theory   Capture theory   Economic and social impacts of accounting regulation Lobbying and the economic interest group theory of regulation Accounting regulation as an output of a political process

vii

 

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55  55  56  57  62  65  67  69  71 75 

viii

DETA DE TAILE ILED D TA TABL BLE E OF CO CONT NTEN ENTS TS

◆ ◆

Chapter summary Questions

   

4 International accounting ◆ ◆ ◆ ◆

◆ ◆ ◆ ◆ ◆

77  79   

Opening issues   Introduction   Evidence of international differences in accounting

85  85  86  86 

 

Explanations of differences in accounting practices employed in different countries   Reasons for harmonization and standardization   Obstacles to harmonization and standardization of accounting   Processes and institutions of international accounting standardization   Chapter summary   Questions  

5 Normative theories of accounting 1: The case of accounting for   changing prices ◆

Opening issues

 

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◆ ◆

◆ ◆

Limitations of historical cost accounting in times of rising prices   Current purchasing power accounting   Calculating indices   Current cost accounting   Exit price accounting: the case of Chambers’ continuously contemporary accounting   The demand for price adjusted accounting information   Professional support for various approaches to accounting for changing prices   Chapter summary   Questions  

6 Normative theories of accounting 2: The case of conceptual   framework projects

88  106  108  109  114 115 

121 121 122  123 128  129  140  146  152  155  158  159 

167  167 



Opening issues



Introduction   168  What is a conceptual framework of accounting?   168  A brief overview of the history of the development of conceptual frameworks   171 Building blocks of a conceptual framework   175  Benefits associated with having a conceptual framework   194 Conceptual frameworks as a means of legitimizing standard-setting bodies   197  Chapter summary   198  Questions   199 

◆ ◆

◆ ◆ ◆ ◆ ◆

7 Positive Accounting Theory ◆ ◆ ◆ ◆

 

 

Opening issues   Positive Accounting Theory defined   The origins and development of Positive Accounting Theory Opportunistic and efficiency perspectives  

 

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205  205  206  208  220 

DETAILED TABLE OF CONTENTS

◆ ◆ ◆ ◆ ◆ ◆

Ownermanager contracting Debt contracting   Political costs   Some criticisms of Positive Accounting Theory Chapter summary   Questions  

 

224 237  241 247  252  253

 

8 Unregulated corporate reporting decisions: Considerations of   systems oriented theories ◆ ◆ ◆ ◆ ◆ ◆ ◆ ◆

Opening issues Introduction Political economy theory Legitimacy theory Stakeholder theory Institutional theory Chapter summary Questions

267  267  268  269  271 284 295  299  300 

               

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9 Extended systems of accounting: The incorporation of social and environmental factors within external reporting   ◆ ◆ ◆ ◆ ◆

◆ ◆



◆ ◆

Opening issues   Introduction   Stages of sustainability reporting   Historical development of social and environmental reporting practices Objectives of the social and environmental reporting process – the why  why stage stage   Identifying stakeholders – the who  who stage stage   Identifying stakeholder information needs and expectations – the for what stage what stage   Theoretical perspectives on some social and environmental reporting procedures – the how  how stage stage   Chapter summary   Questions  

10 Reactions of capital markets to financial reporting ◆ ◆ ◆ ◆ ◆ ◆

◆ ◆

Opening issues   Introduction   An overview of capital market research     The information content of earnings Results of capital market research into financial reporting Do current share prices anticipate future accounting earnings announcements?   Chapter summary   Questions  

 

 

11 Reactions of individuals to financial reporting: An examination   of behavi behavioural oural resear research ch ◆ ◆

Opening issues Introduction

   

 

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309  309  310  311 314 315  335  340  352  365  367  375  375  376  377  380  383 396  401 403

409  409  410 

ix

x

DETA DE TAILE ILED D TA TABL BLE E OF CO CONT NTEN ENTS TS

◆ ◆ ◆

◆ ◆ ◆ ◆ ◆ ◆

An overview of behavioural research   The Brunswik Lens Model   The use of particular information items and the implications of different forms of presentation   Decision-making processes and the use of heuristics   Issues of decision accuracy   Protocol analysis  

410  411

Limitations of behavioural research Chapter summary Questions

421 422  422 

415  417  419  420 

     

12 Critical perspectives of accounting

 

Opening issues   ◆ Introduction   ◆ The critical perspective defined   ◆ Critical accounting research versus social and environmental accounting research   ◆ ning-resources.php?promoCode=&partnerID=&content=story&storyID=19988 Possible impact of critical accounting research on social practice   http://www.download-it.org/learning-resources.php?promoCode=&partnerID http://www.download-it.org/lear =&content=story&storyID=19988 ◆ The role of the State in supporting existing social structures   ◆ The role of accounting research in supporting existing social structures   ◆

◆ ◆ ◆

The role of accounting practice in supporting existing social structures Chapter summary   Questions  

Index

 

 

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427  427  427  428  433 436  439  440  444 449  450  456 

Preface

This book has been written to provide readers with a balanced discussion of  different theories of financial accounting. Various theories for and against regulation of financial accounting are critically discussed and various theoretical perspectives, including those provided by positive accounting theory, political economy theory, stakeholder theory, institutional theory and legitimacy theory, are introduced to explain different types of voluntary reporting decisions. The book  also analyses and evaluates the development of various normative theories of  accounting, including various approaches developed to account for changing http://www.download-it.org/learning-resources.php?promoCode=&partnerID http://www.download-it.org/lear ning-resources.php?promoCode=&partnerID=&content=story&storyID=19988 =&content=story&storyID=19988 prices, and different normative perspectives about the accountability of business entities, as well as various conceptual framework projects. It also emphasizes the role of a number of factors in explaining both international differences in accounting and recent institutional efforts towards international harmonizing of  accounting. In addition to providing explanations for why or how organizations should disclose particular items of financial information, the book investigates research that explores how or whether people at an aggregate and individual level demand or react to particular disclosures. Reflecting the growing relevance of social and environmental reporting issues to students, government, industry and the accounting profession, social and environmental reporting issues are discussed in depth. The book also provides an insight into the role of financial accounting from the perspective of a group of researchers who are often described as working from a critical perspective. Being divided into 12 chapters sequenced in a logical order, this book can provide the entire core material required for a course on financial accounting theory. Alternatively, the book can be used as a key text for more general courses which include coverage of aspects of financial accounting theory. All of the material within the book could realistically be covered in the average 10 to 12 week  university term, with chapters being studied in the sequence in which they are presented. Because it provides a balanced perspective of alternative and sometimes conflicting theories of financial accounting, it also provides a sound basis for readers contemplating further research in different areas of financial accounting. In writing this book, a style has been adopted that enables students at both the undergraduate and postgraduate level to gain a sound understanding of financial accounting theory. Each chapter incorporates research from throughout the world,

 

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xi

xii

P REF ACE

hence the book is of relevance to financial accounting theory students internationally. Much of the explanatory material has been drawn from European practical examples – thus making the text even more accessible and relevant to students in Europe. To assist in the learning process, each chapter provides learning objectives, chapter summaries and end-of-chapter discussion questions. Throughout the book  readers are encouraged to critically evaluate and challenge the various views presented. To give the various perspectives a ‘real world’ feel, many chapters use recent articles from different newspapers, directly relating to the issues under consideration. In the five years since Craig Deegan wrote the Australian edition of this book, it has proved very popular among both students and lecturers throughout Europe. In addition to the academic coverage of the book, readers have praised the accessible and engaging style in which it was written. This new European edition retains the features of the Australian edition that students and lecturers found so appealing and distinctive, such as use of straightforward explanations, frequent practical http://www.download-it.org/learning-resources.php?promoCode=&partnerID http://www.download-it.org/lear ning-resources.php?promoCode=&partnerID=&content=story&storyID=19988 examples, and illustrations using =&content=story&storyID=19988 newspaper articles. With many illustrations drawn from European business and accounting situations, we believe this European edition be even more edition. appealing, relevant to readersofinupdating Europe than thewill earlier Australian Weaccessible have also and taken the opportunity the text to reflect the sometimes significant developments in accounting theory in the past five years. Craig Deegan and Jeffrey Unerman

About the Authors Craig Deegan Craig Deegan BCom (University of NSW), MCom (Hons) (University of NSW), PhD (University of Queensland) is Professor of Accounting and Director of  Research and Development within the School of Accounting and Law at RMIT University, Melbourne, Australia. Craig has taught at both undergraduate and postgraduate levels at universities in Australia for more than two decades and has presented lectures internationally, including within the United Kingdom, United States, South Africa, France, China, Singapore, Hong Kong, Malaysia, South Korea and New Zealand. Prior to working within the university sector Craig worked as a chartered accountant in practice. He is a Fellow of the Institute of Chartered Accountants in Australia. Craig’s research has tended to focus on various social and environmental accountability and financial accounting issues and has been published in a number of leading international accounting journals, including: Accounting, Organizations and Society ; Accounting and Business Research ; Accounting, Auditing and Accountability Journal ; British Accounting Review and Review and The International Journal of Accounting .

 

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PREFACE

xiii

 Jeffrey  Jeffre y Unerman Unerman Jeffrey Unerman BA (CNAA), MSc (London), PhD (Sheffield), ACA, ILTM is Professor of Accounting and Corporate Accountability in the School of  Management at Royal Holloway, which is one of the larger colleges of the University of London. He has taught at both undergraduate and postgraduate levels at universities in the UK since 1992. During this time he has also addressed audiences internationally in Ireland, France, Spain, Sweden, the Czech Republic, Lithuania, Belarus, the USA and Australia. Before joining the academic sector, he qualified as a chartered accountant (he is a member of the Institute of Chartered Accountants in England and Wales) and worked both in practice and commerce. His research, which has been published in a range of international academic  journals – including Accounting, Organizations and Society ; Accounting , Auditing  and Accountability Journal ; Critical Perspectives on Accounting ; The European  Accounting Review and Review and Accounting Forum – focuses on issues of accountability both for social and environmental performance and for the management of intellectual http://www.download-it.org/learning-resources.php?promoCode=&partnerID http://www.download-it.org/lear ning-resources.php?promoCode=&partnerID=&content=story&storyID=19988 =&content=story&storyID=19988 capital. He has worked on several research projects with other academics in the UK, Ireland, the Netherlands and Australia, and is a member of the Research Committee of the ACCA.

 

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Guided tour

Learning Objectives CHA P TER TER 1

Each chapter opens with a set of learning objectives, summarising what students should learn from each chapter.

Introduction to financial accounting theory

Learning Objectives Uponcompletingthis chapterreadersshould: ◆ understandthat thereare manytheories offinancial accounting; ◆

beaware ofthe importancethat knowledgeofdifferent accountingtheories hasin understandingandevaluating variousfinancialaccounting practices;



understandthat thedifferent theoriesof i esof financialaccounting areoften developedto o pedto perform differentfuncti e rentfunctions,suchas o ns,suchas todescribeaccounting practice,orto prescribeparticularaccountingpractices; understandthat theories,includingtheories ofaccounting,are developedas a result ofapplyingvariousvaluejudgementsand s and thatacceptanceof one t h eo r y, i n p r ef e re nce t o o t h er s , w i l i np a r t b e t i ed t o o ne ’s o w nv a lu e  judgements; beawarethat weshouldcritically evaluatetheories(interms ofsuchthings as theunderlying logic, assumptions made,and evidenceproduced) before acceptingthem.





Opening issues Atthebeginningofeachchapteranumberofissuesorprob e ranumberofissuesorproblemsareraisedthat relatetothe materialcovered.On completionofthe chapteryoushould beable tosupplyanswersto s to theproblems.In thisintroductorychapter,someofthe issuesthatwe caninitially considerare asfollows:

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Whydo studentsoffinancialaccountingneedtobotherwiththestudyof  ‘theories’? Whynot juststudy somemore of thenumerousaccounting ng standards(andthere arecertainly plentyofthem!) orotherpronouncements ofthe accountingprofession? 1

Opening issue CHA P TER TER 3

This section introduces the chapter by providing a topical debate issue for students to consider while they progress through the chapter.

The regulation of financial accounting

Learning Objectives Uponcompletingthis chapterreadersshould: ◆ understandsomeofthevarioustheoreticalargumentsthathavebeen proposed infavour ofreducing theextentof regulationoffinancial accounting; ◆ under standsomeof thevarioustheoreticalargumentsfor regulatingthe a tingthe practiceoffinancial accounting; ◆ understandvarioustheoreticalperspectivesthat describewhois likelytogain thegreatestadvantage fromthe implementationofaccounting regulation; ◆ understandthataccounting standard-settingisa verypoliticalprocess which seeksthe viewsofa broadcross-sectionofaccount users; ◆ under standthe relevanceto theaccounting standard-setting n g process of  potentialeconomicand socialimpactsarising fromaccountingregulations.

Opening issues (a) Throughoutthe worldinrecentyearsa numberof industrieshavebeen deregulated,for example,the bankingindustry, the telecommunications industryandtheairlineindustry.Therewerenumero r y.Therewerenumeroussimilarcallsfora s fora reduction in accounting regulations prior to the widely publicize c ized accounting‘scandals’at ’ at Enronandotherlargecompaniesinrecentyears (thesecallsusedsuchterminol e callsusedsuchterminologyas o gyas accountingstandardoverload  accountingstandardoverload )) – b u t whatcouldsomeoftheimplicat d someoftheimplicationshavebee i onshavebeeniffinancialaccountingwas deregulated? 55

OPPORTUNISTIC AND EFFICIENCY PERSPECTIVES

Exhibit 7.1 Caption

Dutch supermarket admits £317m error AccountancyAge.com Ahold, the Dutch-based supermarket giant, has admitted that it overstated its profits by at least $500m (£317m). As a consequence, the company said its chief executive and chief  financial officer would be leaving, while an investigation into its US food distribution division has begun. It has also postponed its annual results, which were meant to have been announced on 5 March. The news sent shock waves through the market as Ahold’s share price tumbled 40%. The trouble is believed to be centred around US Foodservice, Ahold’s distribution service, over the way it accounted for income. The company is already saddled with massive debt problems fuelled by an aggressive acquisition strategy, which has made merging different accounting practices together difficult. Accountancy Age, Age, 24 February 2003

223

Exhibits To give the various perspectives covered a ‘realworld’ feel many chapters include recent articles from a variety of newspapers, directly relating to the issues under consideration.

videdby PositiveAccountingTheory). Theextent ofthe opportunisticaccounting activitiesoftenonly becomesevidentfollowingcorporate failure,at whichtime the extentofasset overstatementwillbe highlighted. Thefollowingdiscussi n gdiscussionaddresse o naddressesthe variouscontractualarrangem u alarrangementsthat mayexist betweenownersand managers,and betweendebtholdersand managers, particularlythosecontractual arrangementsbasedon theoutput ofthe accounting system.Again,thesecontractualarrangementsare s are initiallyassumedtobe putin placetoreduce theagency costsofthe firm(the efficiencyperspective).However,it isassumedby PositiveAccounti i veAccountingtheorist n gtheorists thatoncethe arrangements arein place,partieswill, ifthey can,adopt manipulativestrategiesto generatethegreatest economicbenefitsto themselves(theopportu e lves(theopportunistic perspective).The v e).The following o wing materialalsoconsiders thepoliticalprocess andhow firmsmightuse accountingto minimizethe costsof potentialpoliticalscrutiny. Whilst someresearcherstend to utilizeeither z eeither the efficiency  or opportunistic  perspectives v es of Positive i ve AccountingTheory to explain particularaccountin c ularaccounting choices,it shouldbe notedthatin realityit t yit isoftendifficultto t to firmly conclude u de thatanaccountingchoicewas c ewas drivensolelyby anefficiencyor anopportunistic motivation.AsFields etal .(2001) .(2001) state: Unconstrainedaccountingchoiceis likelyto imposecostson financialstatementusers becausepreparersare likelyto haveincentivesto v esto conveyself-servinginformation.

xiv

 

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GUIDED TOUR

xv

CHAPTER SUMMARY

Chapter summary Thischapterprovid e rprovidesa numberof perspectivesaboutwhymanage v esaboutwhymanagementelects tomake particulardisclosures.Specifically,it reviewslegitimacytheory, stakeholdertheoryand, briefly,thenewly emergent(ina financialreportingcontext) institutio t utionaltheory– threetheoriesthatcanbe classifiedassystemsoriented theories.Systemsoriented e d theoriessee i essee theorganizationas beingpartof a broadersocialsystem. Legitimacytheory, stakeholdertheoryand institutionaltheoryare alllinked to politicaleconomytheorywhereinthe i caleconomytheorywhereinthe politicaleconomyconstit i caleconomyconstitutesthe u testhe social,politicalandeconomicfra c alandeconomicframeworkwithinwhichhumanlifetakesplace andsocial,political andeconomicissues areconsideredas inseparable.Political economytheorycan beclassifiedas e das either classicalor bourgeois. Bourgeois politicaleconomytheoryignores varioustensionswithinsociety andacceptsthe world asessentially l y pluralistic i c withno particularclassdominat c ularclassdominatinganother. i nganother. Legitimacytheoryand i macytheoryand stakeholder theory adoptthe bourgeoisperspective. Institutionaltheorycan adopteitherthe bourgeoisorclassical perspective. Legitimacytheor t imacytheory reliesupon e supon thenotionofa socialcontract,whic a lcontract,which isan impliedcontractrepresentingthe normsand expectationsofthe communityin whichanorganizatio z ationoperates.An organizationisdeemedtobelegitimat i onisdeemedtobelegitimateto e to theextentthatitcomplieswiththetermsofthesocialcont h thetermsofthesocialcontract.Leg r act.Legitimacyand therighttooperateareconsideredtogohandin hand.Accountingdisclosures areconsideredtorepresentonewayinwhichanorganizationcanlegitimizeits t imizeits ongoing n g operations. Wherelegitimacy is threatened, disclosure o sures are one strategyto e gyto restore legitimacy.In i macy.In practice,policiesto i ce,policiesto maintain a in or restore

299

Chapter summary This briefly reviews and reinforces the main topics students will have covered in each chapter to ensure they have acquired a solid understanding of the key  topics.

corpo ratelegitimacy aresometimesarticulatedin a tedin termsof reputationrisk  a tionrisk  management. Twodifferentcategoriesof e sof stakeholdertheoryhave beenreviewed,these beingtheethical (ornormative)branch,and themanagerialbranch. Theethical branchof stakeholdertheorydiscussesissuesassociatedwithrightsto e dwithrightsto information,rightsthatshouldbemetregardlessofthe powerof thestakeholders involved.With v ed.Withinthe ethicalbranch,disclosur o suresare consideredto beresponsibilitydriven.The managerialbranchof stakeholdertheory,onthe otherhand, predictsthatorganizationswill tendtosatisfy theinformationdemands ofthose stakeholders who are important t ant to the organization’s o n’s ongoing survival. Whethera particularstakeholderreceives informationwillbe dependentupon howpowerfulthey areperceivedto be,withpower oftenconsideredin termsof  thescarcityof theresources controlled by therespectivestakehol i vestakeholders.The d ers.The disclosur o sureof informatio m ation isconsideredtorepresentanimportantstrategyin managingstakeholders.

Questions This end-of-chapter feature is the perfect way to practice the techniques students have been taught and http://www.download-it.org/learning-resources.php?promoCode=&partnerID http://www.download-it.org/lear =&content=story&storyID=19988 apply thening-resources.php?promoCode=&partnerID=&content=story&storyID=19988 methodology to real-world rea l-world situations.

QUESTIONS

Whilemany researchersquestionthe relevanceof‘Western style’accounting standardsacrossallcountries,effortsbya number ofinternationalorgan i onalorganizations are nevertheless e ss continuingto n uingto encouragequite culturally-disparate countriestoadoptIASs r iestoadoptIASsIFRSs.Thisimpliesthatthemembersofsome . Thisimpliesthatthemembersofsome internationalorganizationsare i onsare either unaware ofthe literature, oralternatively, v ely, choosetorejectit asirrelevant.As effortsbya numberofcountries,in particular membersof theEU,continueinrelationtothe domesticimplemen t icimplementation of  internationalstandards,it isto beexpectedthat thisdebatewill continue.

Questions 4.1

In thecontextof financialaccounting, whatis harmonization o n andor standardization?

4.2

Identifysome i fysome factors thatmight be expectedto explain a in whydifferent countriesusedifferent systemsofaccounting. After considering n g theHofstede– Graymodel,brieflyexplainthe G raymodel,brieflyexplainthe hypothesizedlink z edlink betweensocietyvalues,accountingvaluesand accounting practice.

4.3

4.4

4.5

Anyeffortstowards standardizingaccountingpracticeson aninternational basisimpliesa beliefthata ‘one-size-fits-all’approachis all’approachis appropriate.Isthis naive? Whileit e it isoftenarguedthatwithinparticularcountriesthereshouldbe e sthereshouldbe someassociationbetween variousvaluesystems andaccounting systems,it isalsoargued(forexample,byBaydounandWillett,1995)thatovertime manyeventswouldtypicallyhave l yhave occurredthatconfound thisexpected ed relationship.Whattypeofevents mightconfoundtheexpectedrelationship?

4.6

4.7

BaydounandWillett(1995,p.72)identi t (1995,p.72)identifyanumberofproble f yanumberofproblemsintesting theHofstede–  Graytheory. Graytheory. Theyemphasize thatmany accountingsystems areimported fromother countrieswithpossibly differentcultures.As they  state: ‘Dueto theinterferencein whatwouldotherwise havebeen the natural evolutionof u tionof financialinformation o n requiremen r ements,there areno uncontaminatedexamples ofmodern accountingpractices in developing countries.Conseq r ies.Consequently greatcarehas tobe takenin usingdatafrom developingcountriestodraw inferencesaboutrelevance onthe basisof the Hofstede– Grayframew G rayframework.’Explainthepointof a inthepointof viewbeingprovidedby  BaydounandWillett.Doyoubelievethatthe . Doyoubelievethattheyarecorrect? Asnoted in thischapter, Hamid,Craigand Clarke (1993) providean argumentthatreligioncanhavea o ncanhavea majorimpactonthe accountingsystem em chosen by particularcountri c ularcountries e s and thatbefore ‘Western’methodsof 

 

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Technology to enhance learning and teaching

Online Learning Centre (OLC) After completing each chapter, log on to the supporting Online Learning Centre website. Take advantage of the study tools offered to reinforce the material you have read in the text, and to develop your knowledge of financial accounting theory in a fun and effective way. Resources for students include: ◆

Weblinks

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Also available for lecturers: ◆

Solutions Manual



PowerPoint Slides Group Assignments



Visit www.mcgraw-hill.co.uk/textbooks/deegan today

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For lecturers Primis Content Centre If you need to supplement your course with additional cases or content, create a personalised eBook for your students. Visit  www.primiscontentcente  www.primiscon tentcenter.com r.com or e-mail [email protected] http://www.download-it.org/learning-resources.php?promoCode=&partnerID http://www.download-it.org/lear ning-resources.php?promoCode=&partnerID=&content=story&storyID=19988 =&content=story&storyID=19988 for more information.

For students Study skills We publish guides to help you study, research, pass exams and write essays, all the way through your university  studies. Visit  www.openup  www.openup.co.uk/ss/ .co.uk/ss/ to see the full selection and get £2 discount by entering promotional code study  when buying online!

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Acknowledgements

Authors’ Acknowledgments Many people must be thanked for helping us write this book. Professor Rob Gray  from the University of St. Andrews is to be thanked for very useful and insightful advice provided in the initial development of this book and, through his Centre for Social and Environmental Accounting Research, for generously providing a great deal of useful research material. We also thank Professor David Owen from the University of Nottingham for his incisive advice and encouragement throughout the writing of both editions of this=&content=story&storyID=19988 book. Dr Julie Cotter from the University of  http://www.download-it.org/learning-resources.php?promoCode=&partnerID http://www.download-it.org/lear ning-resources.php?promoCode=&partnerID=&content=story&storyID=19988 Southern Queensland is also to be thanked for her views about how the book  should be structured and for her assistance in the writing of Chapter 10. In relation to development the original Australian edition, (Macquarie we also thank ProfessorColin Reg Mathews (CharlesofSturt University), Brian Millanta University), Dolley (Edith Cowan University), Dean Ardern (La Trobe University), Natalie Gallery (University of Sydney), for providing critical comments in relation to a number of the chapters, and Tanya Ziebell (University of Queensland) for unearthing some difficult-to-find research papers. In developing this European edition, we are very grateful for the helpful, perceptive and constructive comments – and for their strong encouragement – provided by Professor Brendan O’Dwyer (University of Amsterdam), Professor Richard Laughlin (King’s College, University of London), Alan Murray (University of  Sheffield) and, as noted above, Professor David Owen (University of Nottingham). We are also especially grateful to Franco Zappettini for his encouragement, patience and support, and to our colleagues at Royal Holloway and RMIT for their ongoing support, particularly John Ahwere-Bafo at Royal Holloway for his work on the companion website. Lastly, we thank the staff at McGraw-Hill for supporting this project. Particular thanks go to Mark Kavanagh, Natalie Jacobs and Deborah Hey in the UK and to Luisa Cecotti and Valerie Reed in Australia. We hope readers continue to find this European edition interesting, informative and enjoyable to read, and we welcome constructive feedback.

Publisher’s Acknowledgme Acknowledgments nts Our thanks go to the following f ollowing reviewers for their comments at various stages in the text’s development: xviii

 

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PUBLISHERS ACKNOWLEDGEMENT

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Patrick Devlin – Caledonian Business School Reggy Hooghiemstra – Erasmus University, Rotterdam Rotterdam George Ia Iatridis – Un University of of Ma Manchester Carolyn Is Isaaks – No Nottingham Tr Trent Un University  Chris Knoops – Erasmus University, Rotterdam Alan Murray – Sheffield University Management School D avrgar idaret OetwWo en odss Marg Ma Wood

– veersi rssity itty yo tiin gh am –U Un Un niiv iver off N No No ottt tti ngha ng ham m

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