1. Critical Perspectives on Accounting and Finance
International Differences
Lecture 1

2. Critical Perspectives on Accounting and Finance - Team
Caroline Chaffer
(32)5058
Room 115 (MBA) Monday and Tuesday
Jill Webb
(32)5044
Room 117 (MBA) Monday and Tuesday 14:30 – 15:30
NB we are now based in the new Management Building Annex located behind the Management Building.

3. Objectives of the Module – 20 Credits
Critically analyse a range of theories on accounting practice
Identify some of the limitations of traditional accounting practice
Critically evaluate practical and theoretical initiatives in a specific area e.g. social and environmental reporting, capital market research
Critically evaluate the social and political nature of accounting
Critically evaluate arguments produced for and against the need for accounting regulation and conceptual framework

4. Work plan Session number Week commencing Lecture Topic Seminar Topic 1
Lecture Topic
Seminar Topic 1
16th January
Accounting Regulation: The International Picture 2
23rd January
Accounting Regulation: Rules v’s Principles 3
30th January
Accounting Choice: Statement of Financial Position 4
6th February
Accounting Choice: Earnings Management 5
13th February
Corporate Social Responsibility Reporting 6
20th February 7
27th February
Assignment Overview
Assignment preparation 8
6th March
Ethics
Assignment preparation: incorporating relevant literature/building an argument 9
13th March
Critical perspectives in accounting; Politics of standard setting
Assignment feedback

5. Reading List
Deegan C. & Unerman J. (2011) Financial Accounting Theory, 2nd edition. McGraw Hill. London
Essential and supplementary reading on the VLE – links to library resources
Module built around academic articles, text book provides overview

6. Assessment Individual assignment – 3,000 words Choice of topic
Lecture in week 7 to explain the assignment in more detail
Week 10 feedback week - feedback on your assignment plans

7. Assignment Option 1
Use theory and research evidence to critically evaluate possible management motivations for the manipulation of financial statements.

8. Assignment Option 2
From a theoretical perspective explain why companies produce Social and Environmental Reports (SERS) and use research evidence to support the theory/theories.

9. How To be Successful Participate/prepare for seminars
Still attend if you haven’t prepared
Use the reading list on the VLE as A START. You need to do independent research in addition
Use the VLE/Yorkshare
Ask – feedback and consultation times
Use feedback mechanism for assignment

10. What you need to master Finding literature relevant to the question
Reading literature efficiently – what to ignore and what to include
Synthesis – pulling together literature from different sources to address the question
Developing your writing style
Structuring an essay to address a question
Critical evaluation without sitting on the fence
EACH SEMINAR WILL LOOK AT ONE OF THESE SKILL AREAS SO YOU NEED TO ATTEND EVEN IF YOU’RE NOT DOING THAT ESSAY.

11. Attendance is important
UKBA tier 4 students must maintain regular attendance at seminars, and meetings with their personal supervisors. A register of attendance for both these events will be made.
If you are going to be absent as a result of illness or anything else, you should inform your personal supervisor.
Once we report a student to UKBA for non-attendance (as we are obliged to), TYMS will have no further involvement in the process and the question of deportation etc. is solely a matter for the UKBA.

12. International differences
Culture
Legal systems
Code law vs. common law
Providers of finance
Capital markets
Credit based governmental
Credit based financial institution
Taxation
Strength on link between tax system and accounts
Other
Convergence project EU
Scandals

13. The effect of culture on accounting systems – for example?
‘an expression of norms, values and customs which reflect typical behavioural characteristics’
Affects the way individuals would like their society to be structured and how they act with its substructure
Accounting is one of the substructures
International differences in accounting systems may be explained by a framework incorporating culture

14. Hofstede’s cultural dimensions
Four underlying societal dimensions along which countries could be positioned:
Individualism
Power Distance
Uncertainty Avoidance
Masculinity

15. Individualism versus collectivism
addresses degree of interdependence a society maintains among individuals
individualism refers to a preference for a loosely knit social framework wherein individuals care for themselves and their immediate families
collectivism stands for a tightly knit social framework where relatives, clan or other in-group look after each other

16. Power distance
power distance is the extent to which members of a society accept that power in institutions and organisations is distributed unequally
large power distance societies accept a hierarchical order in which everyone has a place
small power distance societies strive for power equalisation

17. Uncertainty avoidance
The degree to which the members of a society feel uncomfortable with uncertainty and ambiguity
strong uncertainty avoidance societies maintain rigid codes of belief and behaviour
weak uncertainty avoidance societies maintain a more relaxed atmosphere where practice counts more than principles

18. Masculinity versus femininity
Addresses the way in which a society allocates social roles
masculinity stands for a preference for achievement, heroism, assertiveness and material success
femininity stands for a preference for relationships, modesty, caring for the weak, and quality of life

19. Lecture exercise Rate your own “cultural dimensions”
In respect of the following questions rate yourself on a 1 -5 scale where 1 indicates full agreement with the (a) and 5 indicates full agreement with (b).

20. Question 1
What are your views on the government setting a minimum price per unit of alcohol sold?
Do you think that :
(a) this sort of measure is beyond the remit of the state and that people should be left to make their own mistakes?
(b) this is a useful government intervention and that it will improve the nation’s well being and perhaps reduce costs in the long term?

21. Question 2
What are your views on FTSE 100 companies voluntarily setting a quota which specifies a minimum number of women board members? Do you think:
this kind of positive discrimination is unfair and that the board should be chosen without these sort of restrictions
that even if this doesn’t result in the “optimal” board in terms of merit in the long term it would be worthwhile as it is this sort of policy that redresses inequality between the sexes by inspiring women further down in the hierarchy

22. Question 3
I prefer exam questions where there is a single right answer which you can get to be following a pre-determined method?
I prefer more open ended written exam questions where you can freely interpret the question and use your creativity and imagination?

23. Question 4 Compare the following 2 individuals:
A Chartered Accountant who successfully advises firms on how to minimise their tax liabilities should be more highly paid than ?
A successful social worker who makes a consistently correctly identifies cases of child abuse and works with dysfunctional families to cut crime and decrease reliance on benefits?
Who should be the more highly paid?
The Chartered Accountant
The Social Worker

24. Gray’s accounting values
Gray developed 4 accounting values deemed to relate to the accounting subculture, with the intention of linking them to Hofstede’s four societal values
professionalism versus statutory control
uniformity versus flexibility
conservatism versus optimism
secrecy versus transparency

25. Lecture exercise Part 2 Get into a pair Swap cultural preferences
Look at the questions on the sheet and use the answers given to try to predict what type of regulation your partner would prefer
When you have made your prediction discuss your answers and most importantly the rationale for your predictions i.e. link the preferences to the predictions

26. Professionalism
A preference for professionalism is linked to the following cultural dimensions:
Individualism
Weak uncertainty avoidance
Small power distance
Masculinity

27. Uniformity vs. flexibility
A preference for uniformity is linked to the following cultural dimensions:
Strong uncertainty avoidance
Collectivism
Large power distance

28. Conservatism vs. optimism
A preference for conservatism is linked to the following cultural dimensions:
Strong uncertainty avoidance
Collectivism i.e. low individualism

29. Secrecy vs. transparency
A preference for secrecy is linked to the following cultural dimensions:
Strong uncertainty avoidance
High power distance
Collectivism
Masculinity

30. An example: The UK
Regulation largely professional but some legally based (Companies Acts, EU Directives)
All companies required to produce financial statements (private & public)
Historical emphasis on backward looking financial statements – existing shareholders, agency theory, stewardship
Traditionally conservative
Common law system
Accounting separate from tax
Emphasis on transparency & flexibility

31. An example: The US
Regulation largely professional (FASB) but SEC overall responsibility
Only listed companies required to produce financial statements
Historical emphasis on decision usefulness to existing and potential investors and creditors
Traditionally neutral
Common law system
Accounting separate from tax
Emphasis on transparency but less flexibility than UK (rules based system)

32. Accounting regulation: the story so far…
Countries have developed their own accounting regulation although in many cases influenced by the UK & US
Rules developed in a specific context will be unique to that context
Over the last 25 years attempts made to harmonise these rules

33. What is harmonisation?
Harmonisation: process of increasing comparability of accounting practices by setting bounds to their degree of variation
De Jure : harmonisation of the rules
De Facto: harmonisation of practices
Standardisation: process which leads to the imposition of a narrow set of rules
Uniformity: single set of identical accounting rules
Harmonisation can happen without uniformity: convergence

34. Pressures for harmonisation
Accounting & world politics
1978 – 2005 EU harmonisation programme
1989: Collapse of communism – Germany
1997: Financial crisis in East Asia
2001: Collapse of Enron
Economic globalisation
Foreign trade
International Direct Investment

35. Foreign company listings on major stock exchanges
Table 1.7 Foreign company listings on major stock exchanges, January 2011

36. Uniform accounting standards
Against
Cost: economies of scale
Provide protection to auditors
Elimination of externalities caused by lack of comparability
Might lead to more accurate, comprehensive and timely information – reduce the cost of capital
May result in better quality of standards
Might not lead to optimal accounting quality as one size does not fit all
Markets remain primarily local not global
Standards are expensive - principles based?
Application of international standards requires a strong profession
Economic consequences
Uniform standards (De Jure) do not always lead to uniform practice (De Facto)

37. Some issues around comparability
Inefficient allocation of capital
Cost to multinationals
Lack of equity between small and large investors
Cost for companies of listing on international stock exchanges
Lack of flexibility and efficiency in the use of qualified staff – audit and accounting

38. Convergence or uniformity?
May be able to have some of the advantages of uniformity without the drawbacks
Converge national standards: best of both worlds
Competition between standards?

39. De facto harmonisation?
Can IFRS materially change reporting behaviour – real economic and political factors that are local in nature
Different versions of IFRS
Different translations of IFRS
Overt options in IFRS
Vague criteria
Role of judgement – different judgements
Lack of an enforcement mechanism

40. Summary You should be able to:
Explain uniformity, standardisation and harmonisation
Critically evaluate harmonisation and standardisation and outline the alternatives
Give an overview of the current position re accounting regulation in the EU
Explain why countries have developed different accounting regulations
Explain why dejure harmonisation might not lead to defacto harmonisation

41. Seminar History: what happened when and why?
What are the influences on accounting?
Current position:
Listed companies
Unlisted companies
Each group should have a country: Germany, Japan and China