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Mid sem
Fichas del conjunto (75)
- 1A theory= A coherent set of hypothetical and pragmatic principles forming the general framework or reference for a field of inquiry based on logical reasoning
- 2Inductive reasoningPositive - observations
- 3Deductive reasoningNormative - basis of logic
- 4Accounting Theories =Accounting is a human activity, theories of accounting consider
• Behaviour to accounting information
• Needs for accounting information
• Why organisations elect to supply particular information - 5Theories may• How assets should be valued (IASB)
• Why managers choose an accounting method (ABC)
• How cultural background affects disclosure (Islamic) - 6Why study accounting theory• Motivation to provide certain types of information
• Motivation for individuals to support or lobby regulators
• Implications of choosing a particular accounting method
• How capital markets react to disclosure - 7An accountant needs to understand accounting theory:• Evaluate the suitability of accounting practice
• Develop improved accounting practice
• Defend the reputation of accountants when organisations fail - 8Development of accounting theory = no universally accepted theory of accounting or accepted perspective of theor• Relied on induction
• 1920’-1960’s theories developed from observation (positive)
• 1960’s – 1970’s theories sought to prescribe accounting practices (normative)
• Mid to late 1970’s theories aimed and explaining and predicting accounting practise (positive) - 9Positive Theoriesseeks to predict and explain particular phenomena via assumptions and via logical deductions enables prediction to be made
- 10Normative Theories =Based on what researchers believe should occur in circumstances
- 11Revolutionary scientific progressKuhn)
• Knowledge advances when one theory is replaced by another - 12Can we prove a theory= A theory might not be perfect but is useful
- 13Evaluating theoriestheories of account abstracts of reality. Choice of theory is based on values. Cannot provide perfect explanations or predictions.
- 14Logical deductions= Acceptance of argument must be based on accuracy of premise. An argument is logical to the extent the premises are true, although logical it may be untrue
- 15General Purpose Financial ReportingMedium and large organisations will have diverse reports for different needs
- 16Accounting Knowledge expected by usersIASB – users expected to be those with a ‘reasonable knowledge of business and economic activities and who review and analyse the information diligently’
- 17Rationale for regulating practice =• introduced in great depression due to accounts that poor information let to uniformed decisions.
• Corporate collapse in early 2000’s due to dodgy accounting (Enron)
• Sub prime bank crisis in 2007/2008 (Lehman Brothers) - 18Arguments in favour for regulation• Markets wfor information will be not efficient without regulation and sub optimal amount of information provided
• Accounting information for ‘public good’, the free rider problem and market efficiency ignores the rights of individuals
• More power = more information, Stiglitz after 1929 crash prevented crisis, markets don’t work well on own
• Promotes a ‘level playing field’ and uniform methods thus comparability - 19Arguments against regulation• Don’t need information as people will be willing to pay for such information
• Capital markets punish that fail to provide information, no info is a bad as no info (lemons)
• Regulation will lead to oversupply of information as users who don’t bear the cost overstate needs - 20Efficiency perspective= efficiency of business may be affected by regulation
- 21Opportunistic perspectiveassumes the selection of method is driven by self interest
- 22Conceptual FrameworkA coherent system of interrelated objectives + fundamentals that leads to consistent standards
- 23• Benefits of frameworko Developing is costly and takes time
o Can be more consistent and logical, increased international comparability
o Standards setters more accountable for decisions and communication - 24• Disadvantges of frameworko Smaller organisations feel overburden and ignore trasncations not in market or not transfer of property
o Promotes economic performance over social performance and pushes existing practise - 25Free market viewno regulations. Should be treated like other goods and supply and demand to generate optimal supply
- 26Private economic based incentivesassumes managers will operate business for own benefit, this is expected by stakeholders
- 27Market for managersabsence of regulation will still assume managrs will still do the ‘right thing’
- 28Market for corporate takeoversmanagers will do the right thing. Underperforming organisations by another entity
- 29Market for lemonsNo information is viewed as bad information, silence implies bad news to disclose
- 30Adam Smiths ‘invisible hand’ =used in favour of free market. Without regulation an ‘invisble hand’ productive resources will find their way to productive users
- 31Pro regulation perspective and theoriesaccounting information is a public good + should not be treated as a good and the free riders problem
- 32Public interest theory of regulationregulation to protect public. Utilitarian (benefit of society to over indivuals)
- 33Capture theory of regulation= introduced to protect public but monitored and controlled by those most affected by regulation
- 34Private interest theory of regulationeconomic interest group theory, government not neutral and will favour key voters and campaign financers, driven by self interest over public interest
- 35Standardisationthe implantation of strict rules (IASBs goal)
- 36Haramonisatina process of increasing comparability
- 37Benefits of IASB• Increased comparability, and therefore great capital inflows and easier for smaller companies to get support
• Less statements made for international companies and therefore costs saved there and in the standard setting process
• More effiencent, saves cost and increased information - 38Limitations of IASB• Very limited emprirical study showing the advantages and disadvantages of IASB
- 39Objectives of IASBseek to formulate and produce accounting standards for worldwide use, improve standards and regulation and believe that the differences in countries do not outweigh the benefit of standardisation
- 40Does standardisation of accounting standards lead to standardisation of practiceNo due to differences and environmental influences, this is why NOBELS (2006) said international accounting is an important area of research
- 41Reasons for difference1. Tax
2. Politics
3. modification at national level
(Ball 2006) - 42Anglo – American model= strongly influenced by professional accounting bodies rather than the governments and emphasises true and fair. Funds sourced from capital markets and use general purpose financial reports
- 43Continental European Modelsmall input from professional accounting bodies, little reliance on qualitive true and fair and strong reliance on government. Funds sourced from government, banks or family member or interested parties and special purpose financial reports
- 44The effect on culture on accounting systemDifferences in national culture explain why prior to efforts of IASB there we fundamental differences in accounting practices.
- 45• Culture defined as ‘an expression of norms, values and customs which reflect typical behavioural characteristics (author)(Takatera and Yamamoto 1987)
- 46Hofstedes Cultural Dimensionsthe collectiv e programminng which differs one group from another. Five underlying cultural dimensions, without IASB these will affect the development of standards at a national level
- 475 dimensions1. Individualism versus Collectivism
2. Large versus Small Power Distance
3. Strong versus Weak Uncertainty Avoidance
4. Masculinity versus Femininity
5. Long-term versus short-term orientation - 48= used to explain corporate disclosure, higher international profile tend to be less secretive and being local means less secret• Zareski (1996
- 49used both Hofsetdes and Gray to explain differences between European and Anglo American differences• Penara (1989
- 50the use of the French United Accountign System in Lebanon• Baydoun and Willett (1995
- 51explored the recent adopotion of IFRS in Fiji to see if it worked. Rules based were more appropriate than the principle based standards adopted by IASB• Chand and White (2007)
- 52Grays accounting values = 4 accounting Values relating to subculture linking to HofstedesUniformity vs flexibility
Professionalism vs statutory control
Conservatism vs optimism
Secrecy vs transparency - 53The effect of religion on accounting systemsreligion transcends national boundaries and impacts global harmonisation.
- 54examined how Islamic cultures failed to embrace ‘Western’ accounting practises.• Hamid, Craig and Clarke (1993)
- 55Business ownership and financing system = Business ownership and financing systems.1. Capital based markets (UK, US and Australia) greater demand for public disclosure
2. Credit based system: governmental (France and Japan) concerned with the protection of creditors
3. Credit based system: financial institutions (Germany) concerned with the protection of creditors - 56Current situatio IASBMore than 100 countries have adopted IASB even though these standards are changed
- 57Capital market researchexplores the role of accounting and other financial information in equity markets
- 58The market is• Semi-strong form: all publicly available information is rapidly and fully impounded into share prices in an unbiased manner when released (usual form) most relevant for accounting-based capital market research
- 59Event Studiesstudies that look at changes in share price around a particular event
- 60One infers wether an event e.g. earnings, conveys new information to the market as reflected in changes in the level or variability of security prices or trading volume over a short period of timeKothari (2001)
- 61Confounding events =in events studies there is a risk of confounding events, during a time there will be many events which affect share price. A confounding event is an event in the same time period as on being studied (confounding) which may influence the share price e.g. earnings being released on the same day an executive has resigned
- 62Return =End Price + Dividends – Beginning price
Beginning price - 63investigated the usefulness of accounting earnings under a historical cost model. At he time the assumption was HC resulted in meaningless information. Examined data from 261 US firms UNEXPECTED ARNIGNS ANNOUNCMENTS• Ball and Brown study (1968)
- 64• Information contained in the annual report using HCuseful to investors
- 65credit the development of PAT to the Ball and Brown• Watts and Zimmerman (1986)
- 66Does australia adjust faster ofr slower then USslower during the year with larger adjustments at announcemnts
- 67Can announcments affect industry wide• Earning announcements in one firm can result in abnormal returns in other firms of same industry (information transfer effect).
- 68Investors impose a larger penalty on the stock prices of peer firms with high earnings and high accruals when the same external auditor is used(Accounting review Vol. 83, No 1 2008 pp 83-110 Gleeson et al)
- 69• Benefits of voluntary disclosurethose in annual reports and media release
- 70• Recognition vs footnote disclosureInvestors place greater reliance on recognised amounts than on footnotes.
- 71o If earnings surpises have a similar revenue surprisethe earnings a driven by revenue growth
- 72believe revenue driven changes in earnings have a greater effecto Jegadessh and Livnatt (2006)
- 73R&D expensed + R&D capitalised both relevant, expensed has greater effecto Tuticci,Kirshnan,percy (2007)R
- 74 Share prices and related returns we related to accoutnign earnigns Fair value estimates of banks financial intruments were better then historical costs Revlauation of assets better aligns market and book valueo Beaver, lambert and morse (1980)
- 75found over short intervals earnings are more strongly associated with returns then realised cash flows, though the ability of cash flows to measure performance increases and time passeso Dechow (1994)
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- Bachelors Degree Accounting Theory Fichas sobre Mid sem, creado por Nicholas Rossi el 12/04/2016.
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- Nicholas Rossi
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