Accounting

Principles and Practices

Hollie Montgomery
Accounting: Principles
and Practices
Accounting: Principles
and Practices

Edited by
Hollie Montgomery
Published by The English Press,
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New York, NY 10001, USA

Copyright © 2021 The English Press

This book contains information obtained from authentic and highly regarded sources. Copyright for
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ISBN: 978-1-9789-7375-6

Cataloging-in-Publication Data

Accounting : principles and practices / edited by Hollie Montgomery.

p. cm.
Includes bibliographical references and index.
ISBN 978-1-9789-7375-6
1. Accounting. 2. Bookkeeping. 3. Business. 4. Finance. I. Montgomery, Hollie.
HF5636 .A23 2021
657--dc23
Contents

Preface....................................................................................................................................VII

Chapter 1 An exploration of the accounting profession – The stream of mobile

devices........................................................................................................................................1
Victoria Stanciua and Mirela Gheorghea

Chapter 2 Group accounting: the effect of IFRS adoption...............................................................18

Ioannis Samarasa and Stergios Athianosa

Chapter 3 From the accounting of war to the accounting of peace: putting bricks

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for a new environmental accounting.................................................................................40
Paul Diaconu

Chapter 4 An analysis of the influences of individual optimism, risk taking

and self-confidence on professional accounting judgment...........................................65
Victoria Bogdana, Ioana Teodora Meştera, Dana Gheraia and
Carmen Mihaela Scorţe

Chapter 5 Corporate social responsibility research in accounting.................................................89

Ümmühan Aslan and Seçil Sigalı

Chapter 6 A research note of potential scientific management accounting

research area in CEECs........................................................................................................108
Beata Zyznarska-Dworczak

Chapter 7 Does simplified accounting limit small and micro companies’

access to bank financing?....................................................................................................122
Halina Waniak-Michalak

Chapter 8 Relationship between advertising expenditures and earnings

the UK firms..........................................................................................................................142
Maqsood Iqbal Qureshi

Chapter 9 The interaction effect of accounting information systems user

satisfaction and Activity-Based Costing use on hotel financial
performance..........................................................................................................................156
Ioannis Diavastis, Evgenia Anagnostopoulou, Georgios Drogalas and
Theofanis Karagiorgos

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VI Contents

Chapter 10 What kind of accounting standards should the IASB write?......................................184

Mary Tokar

Permissions

List of Contributors

Index

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Preface
The processing, communication and measurement of financial as well as non-financial
information regarding economic entities like businesses and corporations is referred to as
accounting. It is often termed as the language of business as it measures an organization’s
economic activities and transfers this information to various investors, regulators, management
and creditors. The important sub-fields of accounting are auditing, management accounting,
financial accounting, taxation and accounting information systems. Accounting research is
an area in accounting which focuses on the research in the effects of the reported information
on the economic events and the effects of economic events on the accounting processes. It also
researches how accounting plays an important role in organizations. The topics included in
this book on accounting are of utmost significance and bound to provide incredible insights

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to readers. Some of the diverse topics covered in this book address the varied branches
that fall under this category. The extensive content of this book provides the readers with
a thorough understanding of the subject.

The researches compiled throughout the book are authentic and of high quality, combining
several disciplines and from very diverse regions from around the world. Drawing on the
contributions of many researchers from diverse countries, the book’s objective is to provide
the readers with the latest achievements in the area of research. This book will surely be a
source of knowledge to all interested and researching the field.

In the end, I would like to express my deep sense of gratitude to all the authors for meeting
the set deadlines in completing and submitting their research chapters. I would also like
to thank the publisher for the support offered to us throughout the course of the book.
Finally, I extend my sincere thanks to my family for being a constant source of inspiration
and encouragement.

Editor

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 1
An exploration of the accounting profession –
The stream of mobile devices
Victoria Stanciua, 1 and Mirela Gheorghea
a
The Bucharest University of Economic Studies, Romania

Abstract: Facing the digital era challenge, the accounting profession is implied
in its renewal process aiming at responding in an adequate manner to the companies’

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and society’s continuous changing requirements. The paper emphasizes the impact
of the information technology on the accounting profession and signals the positive
impact and also the concerns brought by mobile devices in the accountants’ work
and training. In this context, the authors performed a survey aiming to understand
the accounting students’ perception in regard with IT impact over the accounting
profession and the usefulness of mobile devices. The study’s findings provide
important insights on the mobile devices use in the accounting work and how the
teaching process can help students acquire IT skills and awareness on the
professional use of mobile devices. The paper contributes to the research on the
accounting developments in the digital era demonstrating the benefit of new
technologies’ implementation and integration of the mobile devices. The Romanian
as well as the south-eastern European scientific literature are scarce in regard with
mobile use in the accounting profession. In this regard the authors’ research provide
significant insights aiming at motivate and stimulate the mobile devices use in the
accounting profession and in the academic and long life accounting training.

Keywords: Accounting profession, information technology, mobile devices, m-

learning.

JEL codes: M41, A2, O33

1
Corresponding author: Professor Victoria Stanciu, Department of Accounting and
Management Information Systems, Bucharest University of Economic Studies; Piata
Romana nr. 6, 010374 Bucharest; email addresses: [email protected].

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2 Accounting: Principles and Practices

1. Introduction
Aiming at ensuring business increase and profitability for their companies, managers
adopted new business models and new business approaches. A significant role in all
these changes is played by information technology that has substantial changed the
way we are doing business today and has fundamentally change the decision making
process and reshaped many professional areas. The companies are operating in an
intelligent economy that produces huge streams of data impacting the business and
decision making process. The changes induced by big data, cloud computing, mobile
and intelligent devices and not lastly social platforms, just to mention some
information technologies “on the wave” are significantly impacting the accounting
profession. The IT environments, in which the companies are running the businesses
and the accountant professionals are performing theirs daily work, redefine the
professional profile of the accountants. The accounting professionals have to face

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the new challenges generated by digital services, artificial intelligence, cybercrime
etc. The properly use of all new technologies brings huge challenges for the
profession and reshapes the professional profile of the accountant enlarging the
capabilities and skills to be achieved at individual level.

The accounting function acquires an important and critical role inside the company
and the accounting profession is exposed to a continuous pressure in regard with its
ability to permanently respond to the shareholders’ requests. The classical role of
ensuring the accounting data processing and providing internal and external
reporting is changing, the accountants being “left for more strategic roles” (Faye,
2013). It is expected that more time to be allocated to the data analysis aiming at
emphasize the economic and financial trends of the company, to identify options for
the decision making process, better control the risks and, not lastly, budgeting and
planning.

The unprecedented impact of the IT stream over the accounting profession raises
new challenges and expectations for the profession. The complex information
systems ensuring data processing, the change of the accounting data flows and
processes (as for example ERP systems and cloud computing) require new IT and
control skills. Data management and information security become an important issue
for the accounting professionals. The new IT solutions implemented in the
companies as well as the computing based solutions for the accounting professionals
change the environment in which the accounting professional is working, his way of
thinking and practice and, is providing also important advantages – ensuring
accuracy, effectiveness and efficiency.

The auditors feel at their turn the IT impact. The auditing procedures and objectives
register changes as a result of the complex IT environment created inside the client’s
company and as a result of diverse IT audit software and mobile devices that are now

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An exploration of the accounting profession – The stream of mobile devices 3

part of the auditors’ daily work. The auditors’ thinking and procedures reshaped as
a response to the new challenges. Auditing implies a deep understanding of the
control environment, more and more IT-based in nowadays, that determine the
auditors’ decision in regard with the nature and deepness of the tests and procedures
applied.

In the last years, the mobile devices and, especially smartphones and tablets, have
exceeded the number of laptops and desktops. These mobile devices became
significant instruments in the professional and personal life. In the business
environment, the use of mobile devices and specialized applications offered
important benefits as for example: high speed connectivity with the clients and
employees, unlimited access to information, a closer collaboration between the
actors in the business environment, new products and services delivered, improved
and more accurate information provided for the decision making process. The

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companies that are proactive and prove strategic orientation to the new information
technologies face better the competitive challenges and succeed in their effort to
grow future opportunities. “Many technologies considered emerging – like cloud and
mobile solutions – are quickly becoming mainstream” (Wolters Kluwer CCH,
2013:10). The professional use of mobile devices, and here is a significant increase
of the BYOD (Bring Your Own Device) trend, induces not just significant
advantages but also new problems and concerns regarding sensitive data security.
Not all the companies proved real awareness regarding data security in the context
of BYOD swift. Nowadays it is observed the extended professional use of m-devices
like tablets and phones in social media. The more active ones are the young
professionals. The vast majority prefers to act as “listeners” rather than
“contributors” (INSIGHT, 2015). The international surveys emphasize that
accountants are using social media aiming at remaining in contact with their
professional network, keeping up to date with professional issues and sharing
knowledge (idem).

The same trend of integration of the mobile devices it is observed in the educational
environment. Next to the e-learning concept it is now more referred the concept of
m-learning defined as a complementary form of learning, adapted to the digital era,
offering direct access to the information with no space and time limit. The
opportunities offered by m-learning are useful for the student’s formation and also
for the live long training of the professionals. The Romanian as well as the south-
eastern European scientific literature are scarce in regard with mobile use for
accounting profession and training. Increased interest on m-learning has been
revealed by the literature review on the Asian and Anglo-Saxon academic space. In
this regard the authors’ research provide significant insights aiming at motivate and
stimulate the mobile devices use in the accounting professional life and the academic
and long life accounting training.

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4 Accounting: Principles and Practices

The present research is part of a wider research project initiated five years ago aiming
at analysing and tracking the evolution of the accounting profession and the
imperative requirements raised by the profession for the accounting students training
through the university studies as a result of the IT deep emerge in the accounting
professional life.

The purpose of this paper is to develop a discussion on the IT role and importance
for the accounting profession and to raise the awareness on information technology
dimension in the field and on the need for a more adequate training, using all new
approaches and devices (mobile devices inclusively), in the benefit of the future
professionals as well as for the certified accountants and auditors.

2. Literature review

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2.1. The accounting reshaping in the digital era

The constant and sometime unforeseeable evolution of the global society inducing
the dynamic of the professions, accounting inclusively, imposes permanent update
of the universities’ curriculum. The professional challenge is significant and the
accounting aspirants have to face complex professional requirements. The
Association of American Colleges and Universities signalled since 2007 that the new
generations of graduates “need a cross-disciplinary knowledge, high level skills, an
active sense of personal and social responsibility to apply knowledge to complex
problems” (AAC&U, 2007:3). In this respect, universities cooperate with the
professional bodies and recruiting companies aiming at revise the graduate attributes.
As McCabe states, “graduate attributes are the qualities, skills and understandings
the university community agrees its students should develop during their time with
the institution” (McCabe, 2010: 1). Those graduate attributes have to cover technical
knowledge specific for the accounting profession and a diverse set of skills providing
all together the professional basic foundation for the future accountant making him
prepared to face not only the present challenges but also to permit its professional
development for the next 30-40 working years. The IT skills and knowledge and the
critical thinking are new learning coordinates in our opinion. In this context the
universities should find the right answers at least two imperative questions: (1) What
the accounting student should know?; (2) How he should learn? Meaning which are
the most appropriate approaches and technical (digital inclusively) means for
accounting learning.

The accounting and financial professionals’ work is performed today in a highly

computerized environment. This new professional context implies extended IT
abilities and skills for the accountants, changes in their thinking and work
methodologies and procedures, new analytical skills and relevant information

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An exploration of the accounting profession – The stream of mobile devices 5

security knowledge. The entire accounting professional profile has been changed and
this process will continue.

If traditionally, accountants analysed only historical data, nowadays they need to

investigate a larger field - big data – and to gain extended skills and knowledge to
explore this endless and permanently renewing source of data. “As big data
accelerates the process by which business reimagines itself, so the accounting and
finance professionals will have to start to reinvent themselves” (Faye, 2013: 8).
Information technology in general and big data in particular will reduce the time
spend by accountants for collecting, validating and processing (classical processing)
data and enlarge the time spend for analytics procedures delivering business insights
and stronger risk assessment changing the accountant role inside the company. Nga
and Mun consider that the role of the accountant needs to be transformed from the
“classical one” to a controller and moving onward as an enabler and co-creator of

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organizational value (Nga & Mun, 2013). The future accountants “have to be
prepared for a more engaging role as leaders and partners of organizational change”
(Nga & Mun, 2013: 503).

Specialists, clients and business managers positively appreciate the increasing usage
of the mobile devices in the business and accounting field. Statistics emphasize that
smartphones and tablets selling increased significantly from 11.8% in 2013 to 16.5%
by 2017, and smartphones will increase from 59.5% to 70.5% (Columbus,
2013). The mobile workforce registered constant increase as a result of the BYOD
wave being estimated at 1.3 billion in 2015.

Peters (2007) appreciates that the usage of the mobile devices in the business
environment conducted to increased efficiency by flexibility, speed and access to the
information for the businessmen at global scale, an increased satisfaction for their
users, improved conditions for data storage and the associated back-up, “saving of
time and money and creating greater responsiveness to change” (Peters, 2007: 9).

Today, mobile devices like smartphones, tablets, notebooks etc. are vital instruments
for the all accounting professionals providing the needed junction between their
work and day-by-day life. „These technologies will reinvent work and the workplace,
allowing greater flexibility around when, where and how work is done. Being onsite
will become much less important, and these tools will enable, and often require,
anytime, any place work” (INTUIT, 2011: 6). In the same time it can be observed
that the decrease of the time needed for accounting and financial data collection and
validation has ensured increased analysis opportunities in the benefit of the clients
and the mobile devices integration has generated a higher degree of work’s flexibility
and a more ample interaction with the clients. This context of mobile device insertion
in the professional work ensuring connectivity and availability “at anytime and
anywhere” raises the potential risk to loose “control over boundaries between work

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6 Accounting: Principles and Practices

and personal activities” (Cousins & Robey, 2015: 37). This is an important issue that
should be researched being a significant gap in regard with the negative and
unpredictable impact of mobile devices.

2.2. Mobile devices in the accountants’ education and training

The changes induced by the new information and communication technologies had
a significant impact over the education and training systems. It is observed an
evolution from the traditional approach to new ones as for example e-learning and
m-learning approaches. Nowadays the potential of Internet is exploited by
implementing blending learning not only by the universities but also by specialized
training companies, accounting field being one benefiting of the new approach.
Blended learning is generally positively perceived by students and ensures timeless

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access, time saving and induces lower costs of education. There are also drawbacks,
the most important one being the lack of indirect contact with the teacher and, by
consequence, being unable to ask questions on regular basis (Grabinski et al., 2015).
In the context of e-learning expansion, m-learning became a “natural” step forward.
The literature offers a large set of definitions for m-learning. Some authors consider,
m-learning as an extension of e-learning characterised by the usage of mobile devise.
„A new stage of e-learning having the ability to learn everywhere at every time
through use of mobile and portable devices” (Georgiev et al., 2004 cited by Akour,
2009) or „ E-learning that uses mobile devices and wireless transmission” (Pinkwart
et al., 2003 cited by Akour, 2009). Some other researches emphasize another
important characteristic of m-learning system: getting access to the information in
any time and location (Kutluch & Gulmez, 2013, Cheon et al., 2012) hereby
maintained the advantages of e-learning unanimously appreciated by the students.
The arguments for this point of view stay in the mobile device properties: ”(a)
portability: mobile devices can be taken to different locations, (b) instant
connectivity: mobile devices can be used to access a variety of information anytime
and anywhere, and (c) context sensitivity: mobile devices can be used to find and
gather real or simulated data” (Ben Moussa, 2003; Churchill & Churchill, 2008;
Klopfer et al., 2002; Sharples, 2000, cited by Cheon et al., 2012: 43). We also retain
the opinion emphasizing that portability, social interactivity, context sensitivity,
connectivity and individuality (a „unique scaffolding that can be „customized to the
individual’s path of investigation”) „produce unique educational affordances”
(Klopfer et al., 2002 cited in Peters, 2007: 3).

Akour (2009) considers technology as a significant component of the m-learning

system: the infrastructure, the mobile devices applications’ interface, and the quality
of the service represent characteristics with significant impact over the m-learning
system. Aiming at completing the definition of the m-learning paradigm it should be
added next to the technical component, the content, the curriculum design, and
student learning styles. The m-learning system offers flexibility (the trainee decides

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An exploration of the accounting profession – The stream of mobile devices 7

when and where to study), availability for the persons with diverse disabilities,
ensures interactivity by providing an easier cooperation and communication between
trainees; stimulate the interest for the studied topics and increasing the efficiency of
the learning process. The advantages offered by m-learning facilitates its promotion
in the academic teaching process as well as in the accounting professional area
aiming at improve live long training. There are also disadvantages induced by the
technical characteristics of m-devices: limited memory, small screens, need for
battery recharge, loosing Internet connection in the areas with limited access, use of
files with special format. M-learning has different parameters comparing with e-
learning and also t-learning (tablet learning). That imposes the learning materials
adaptation in regard with the learning device. Aiming at providing useful learning
materials, they have to be adapted “for delivery from “e” to “m” and, now, from “e”
to “t” and from “m” to “t” “(Little, 2013: 29). Tablet use in learning purposes is
increasingly accepted being also a device used in work environments. The

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advantages brought by tablets are: light, “easy to transport, and have an interface
capable of integrating all inputs and outputs” (Burford & Park, 2014: 622).

The students’ interest for m-devices use in the learning process emphasized that
students are “digital natives”; they natively speak the digital language of computers,
handheld devices, and the Internet”. In opposite, the professors manifested a
reticence for the use of mobile devices (Derakhshan, 2009). In this context, the m-
learning has the potential to increase the students’ interest for study and, on the other
hand implies the professors special training in this regard so that the learning
materials to be adapted to these new requirements.

Al Fahad (2009) studied the King Saud University students' attitudes and perceptions
towards the effectiveness of mobile learning. His conclusions underline that the
majority of the students, subjects in his study, considered that the wireless networks
increase the flexibility access to the educational resources and the students’
implication in the educational process is also increased. Al Fahad also emphasized
that students’ engagement in the learning process was affected in multiple ways:
behavioural, intellectual and emotional. Kutluk and Gülmez (2013) have analysed
the mobile learning perspective in the case of students taking accounting lessons.
They retain the students’ positive attitude in regard with mobile devices’ integration
in the learning process as a result of the ease of use and flexibility in research and
homework tasks.

Several studies emphasize the m-learning disadvantages, analysed from technical,

psychological and pedagogical point of view. Technically, the limits are induced by
factors like: screen dimension and low resolution, inadequate memory, slow network
speeds, and lack of standardization and comparability (Haag, 2011; Huan et al.,
2008; Lowenthal, 2010; Park, 2011; Wang & Higgins, 2006; Wang et al., 2009 cited
by Cheon et al., 2012). The psychological limitation is exemplified by the hedonic

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8 Accounting: Principles and Practices

use of m-devices such as texting with friends, listening to music, and checking social
network services (Park, 2011; Wang et al., 2009 cited Cheon et al., 2012). The
students less focus and class disruption induce the pedagogical limitations.

Being registered a gap in the research in regard with the Romanian students’
perception on the m-devices use in their training and future professional life, the
authors perform an empirical study, the findings and conclusions being synthetized
in the chapters below.

3. Insights in mobile devices perception of Romanian

accounting students – An empirical study

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3.1. Methodology

The authors’ research had two coordinates: a qualitative one aiming to identify the
tendencies, priorities, objectives in accounting profession as a result of the
information technology penetration in the companies’ processes and accountants’
work and a second one aiming at performing and empirical study in regard with the
accounting students preparedness for the professional life in the context of the
significant changes imposed by IT impact and especially by mobile devices. The
research imposed the literature review of existing studies performed worldwide in
regard with the accounting changes and new requirements as a result of the IT
impact, and surveys performed by prestigious international organizations regarding
the evolution of accounting profession in all its aspects and fields of action. The
authors investigated the scientists and academics’ research on the topic and retained
their opinions and concerns that were synthetized in the previous chapters.

The empirical study was performed in 2016 aiming at investigate the accounting
students’:
- familiarity in regard with mobile devices
- opinion on mobile devices’ use for professional purposes
- perception on ethical characteristics of an accounting professional.

Subjects of our study were the students of the Bucharest University of Economic
Studies. We collected a total of 110 questionnaires, out of which we discarded seven.
In our sample, 67% of the respondents are bachelors in Accounting and Management
Information Systems and 33% master students in Accounting and Management
Information Systems and Finance and Banking. 85.4% of the respondents were
female, reflecting the characteristic of the students’ structure in the Bucharest
University of Economic Studies. The questionnaire included 10 items, and we
conducted the data analysis starting from the following questions:

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An exploration of the accounting profession – The stream of mobile devices 9

1. Are the accounting students aware of the IT importance for the

profession?
2. Are the accounting students familiar with mobile devices use?
3. Do they appreciate the adequacy of mobile devices for the accounting
work?
4. What are the usual activities performed on mobile devices by the
accounting students?
5. Which are the accountant professional most important characteristics?
The study results and conclusions are presented in the chapter below.

3.2. Results and discussions

The study emphasized the students’ awareness on the need of mobile devices use in

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the professional life. 92.2 % of the respondents consider very important the use of
mobile devices the most appreciated being the laptops followed by tablets,
notebooks, iPods and PDAs.

Figure 1. Types of mobile devices used by accounting students

Based on the responses, we conclude that the students are using a diverse set of
mobile devices; just 13 out of 103 declared that they are not using mobile devices (7
bachelors and 6 master students). In the top of the respondents’ preferences are the
laptops and smartphones. We detailed our analysis on the main groups of
respondents: undergraduates and master students.

We investigated which are the mobile devices used by the undergraduate students.
44.12% declared that they are using just laptops, 11.76 % are using smartphones,
and just two students are tablet users. 32.35% of the undergraduates have in daily
use two mobile devices (mainly laptops and smartphones), 10.29% are using three
mobile devices and just one student is using four mobile devices (laptop,

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10 Accounting: Principles and Practices

smartphone, tablet and notebook). Seven students did not mention a mobile device
in their daily use, and two-mentioned PCs (device that cannot be included in mobile
category).

In the master students’ sample, 45% are laptops’ users out of 48.58% that declared
that are using one mobile device. 34.28% are using on daily basis two mobile
devices, 6 students out of 35 did not mention a mobile device and 2 master students
mentioned PCs as a mobile device.

Table 1. Number of devices used by student

1 mobile 2 mobile 3 mobile 4 mobile No mobile
device device device device device
Undergra- 45.6% 32.35% 10.29% 1.47% 10.29%
duates

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Master 48.58% 34.28% 0 0 17.14%
students

The responses reveal some important information: the students are mobile devices
users in an overwhelming majority. In the top of preferences, for both undergraduate
and master students are the laptops and smartphones. 17 students (16.5%) out of 107
did not mention a mobile device or indicated PCs. In our opinion, these 16.5% of the
sample don’t have a correct understanding of the concept of mobile device. We
consider that more detailed training on mobile devices topic is needed aiming at
clarifying the m-device concept, the specific characteristics, functionalities,
advantages and disadvantages and how these devices can be integrated in the
accounting systems and work.

There are mobile devices that are not frequently used as for example tablets,
notebooks etc. This situation can be explained in two ways: the students did not feel
the need to use these kinds of devices (they are not aware of the devices capabilities
or they really don’t find these devices useful for their use) or there are financial
constraints determining a certain priority in the mobile device purchase. If we
correlate the students’ answers on the use of mobile devices with the ones regarding
the purpose of mobile device use, there is an evident correlation. As long as the
students are using the mobile devices for collecting information and communication,
the laptops and mobile phones are providing the needed capabilities. That is why,
more theoretical and practical study cases are needed aiming at provide information
in regard to the m-devices utility and capabilities.

The respondents’ use of mobile devices on daily basis aim activities like collecting
information (94.68%), communication (86.17%), information share (63.95%), and
collaboration (62.33%). 32.35% of the undergraduates and 34.28% of the master
students declared that they spend, daily, the same time for all the above mentioned
activities. The fact that collecting information and communication are on the top of
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An exploration of the accounting profession – The stream of mobile devices 11

preferences is not surprising and confirms the results from the authors’ surveys on
previous graduates’ generations. It remains the problem of selecting the information
from credible sources, on this topic being room for training improvement. It is
encouraging to see that 62.33% of the respondents consider mobile devices as
providing collaboration support. The profession its self imposes collaboration and
support for the work group and mobile devices are appropriate in this regard.

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Figure 2. Accounting students’ preferences for m-devices activities
on daily basis

We also wanted to investigate the students’ perception in regard to computing skills

needed by the accountants. 96% of the respondents considered the computing skills
as very important and important. Just 2 respondents considered the computing skills
as being not important. In our opinion, this correct perception of the majority of
respondents is sustained by the coherent and well balanced set of IT courses included
in the Faculty of Accounting and Management Information Systems’ curriculum.
The theoretical basis and, very important, the practical abilities and skills acquired
in the IT classes, in regard with accounting and auditing issues, determined the
students’ awareness on IT knowledge related to the profession. This IT fundaments
will offer a solid base for further developments and will ensure their proactive
approach towards new information technology use in the profession. Being familiar
with mobile devices and understanding the advantages brought by these
technologies, the students agreed on the utility of mobile device use in the accounting
profession.
We investigated the students’ opinion in regard to the social media use in the
accounting profession. 97.17% of the respondents recognised the social media utility
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12 Accounting: Principles and Practices

for the profession. The main declared scope was to collect professional knowledge
(55.34%). Getting new clients represents the second motivation (34.95%), and lastly,
knowledge share was indicated by 33.98% of the respondents. Our findings
corroborate with previously researches in regard with Romanian accounting students
preferences for the use of social networking and the opportunity of their use for the
professional developments (Stanciu & Aleca, 2012). The authors’ survey results are
also in line with the international surveys on the same topic, indicating a passive
attitude (preferring to collect new information and knowledge then sharing ones).
These responses are correlated with the ones reflecting the students’ preferences in
regard with the mobile use, when they indicated as first preference the information
collection.

WT Figure 3. Social media use in profession

We wanted to see the students’ perception in regard with mobile devices use in the
learning process. The advantages offered by mobile devices analysed were:
interactivity, user satisfaction, efficiency, flexibility, and availability for persons
with disabilities. The most students’ options go to efficiency, interactivity and
flexibility (Table 2).

Table 2. Students’ opinion in regard with the m-devices advantages

in the learning process
User
Interactivity Efficiency Flexibility Availability
satisfaction
Undergra-
duates 35.29% 7.35% 33.82% 22.06% 1.47%
Master students 25.71% 2.86% 51.43% 14.29% 5.71%

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An exploration of the accounting profession – The stream of mobile devices 13

Taking into consideration the survey’s targeted subjects, undergraduates in the 3rd
year of study and master students, we investigated which are, from theirs perspective,
the most important characteristics for an accountant. Our analysis was performed on
three layers: ethics (with the following characteristics: honesty, integrity,
trustworthy), professionalism (with the characteristics: professional, intelligent,
wise, specific abilities) and leadership (with the characteristics: charismatic, model
for others, good communicator, good listener, good organizer, high influential). On
ethical layer integrity and honesty were the most appreciated. On the professionalism
layer, the accountant professional profile and his intelligence were most appreciated.
Less importance was allocated to wisdom and specific abilities. We believe that the
respondents’ limited experience in professional life explains their options; as long as
for example wisdom is a characteristic that usually is put in relation with mature
generation. In the respondents’ view an accounting leader should be a good

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organizer, demonstrating good communication skills and being a good listener. His
power of influence is appreciated to be more important rather than his ability to be a
model for others and his charisma.

Figure 4. Students’ perception on the accountant characteristics

The data analysis emphasizes that on the professionalism layer the most appreciated
characteristics by the undergraduates and master students were professional and
intelligent and for the leadership layer: good organizer and good communicator
(figure no. 5).

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14 Accounting: Principles and Practices

11.43%
Good Communicator 23.53%

60.00%
Good Organizer 51.47%
Master Students
25.71% Undergraduates
Intelligent 22.06%

51.43%
Professional 60.29%

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0.00% 20.00% 40.00% 60.00% 80.00%

Figure 5. Students’ perception on the chief accountant profile

The graphic shows that the respondents (both the undergraduates and master
students) correlate the professional characteristic with that of good organizer for the
accounting leader.

Or the ethical layer there are differences in the subjects’ opinions: the most
appreciate by the undergraduates (54.41%) is honesty and by the master students the
trustworthy (42.86%).

22.86%
Integrity 7.35%

34.29% Master students

Honesty 54.41%
Undergraduates

42.86%
Thrustworthy 38.24%

0.00% 20.00% 40.00% 60.00%

Figure 6. The respondents’ opinion on the most important ethic

characteristics
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An exploration of the accounting profession – The stream of mobile devices 15

It was very important for us to see the undergraduates desire to apply for an
accountant position. 66 out of 68 Accounting and Management Information Systems
undergraduate students declared they option for an accounting career. One
respondent declared that he wishes to apply for a programmer position (this being in
line with the faculty speciality – Accounting and Management Information Systems).
Just one undergraduate declared that the accounting profession is not in line with his
profile and, as a consequence, he is going to change the professional path.

Following the questions representing the initial starting point of our investigation the
authors can conclude that:
- The students are aware of the importance of IT knowledge for the
profession and consider mobile devices useful for their future work;
- The students are daily users of laptops and smartphones, and less
oriented towards tablets and notebooks.

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- There is room for better training in regard to the mobile devices
capabilities aiming to enlarge their use for more diverse activities in
accounting activities.
- Social media is considered important for the profession but the students
prefer a passive role.
- Mobile devices use in training and learning is appreciated for the
flexibility and efficiency provided.

4. Conclusions
The accounting profession continues its renewal facing the IT wave aiming at
remaining in line with the companies’ and society requirements. This process is
continuous and implies deep changes in the accounting professionals’ profile and
work. New skills, knowledge and abilities are required nowadays. The accountants’
work, in all the areas of the profession, is changing not only at the level of means
and techniques used but also in its content and role. New developments like cloud
computing, big data, mobile devices are impacting the accountants’ work and way
of thinking. The huge stream of data, which is increasing day-by-day, should be well
managed, store, processed and secured and the accountants have to adapt their work
to the new IT environment. The changes in the accountant work determine a
significant swift in regard with the accountant role in the company. He is now more
implied in planning and strategic tasks and is a partner of organizational change.

The attention provided to the mobile devices is sustained by the significant

advantages: flexibility, connectivity, portability, and ease of use. The other side of
the coin emphasizes important concerns in regard with data security and the risk to
lose control over boundaries between work and personal activities. Strong security
and data processing policies next to improved organizations’ culture and employees’
____________________ WORLD TECHNOLOGIES ____________________
16 Accounting: Principles and Practices

training will facilitate the right integration of mobile devices in the accountants work
and training, making possible the maximization of the IT resources effectiveness and
efficiency. The authors’ research emphasized the Romanian accounting students
awareness in regard with the utility of the m-devices in the profession and their
“native” ability in m-devices’ use. Their preferences in regard with m-devices use
are centred on communication and data collection. Social media represents one of
the most important coordinates in the students’ daily m-devices’ use. Social media
is perceived as very important for the professional life facilitating knowledge
acquisition and providing visibility in the professional life and, by consequence,
increasing the chance to enlarge the client portfolio.

The authors’ research covers an area less investigated in the Romanian and south-
eastern Europe and fills a gap in the Romanian literature in regard with this topic.
The purpose of this paper was to develop a discussion on the IT role and importance

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for the accounting profession and to raise the awareness on the mobile devices use
in the benefit of the accounting professionals work and training.

Acknowledgements
The paper was presented in the 12th International Conference Accounting and
Management Information Systems AMIS 2017, Bucharest, Romania and the authors
benefited of the debates and recommendations of the participants. The present paper
integrates the recommendations and feed backs of the specialists participating to the
conference.

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An exploration of the accounting profession – The stream of mobile devices 17

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 2
Group accounting: the effect of IFRS adoption

Ioannis Samarasa,1 and Stergios Athianosa

a
TEI of Central Macedonia, Greece

Abstract: The present study examines the value relevance of disclosed related
party transactions (RPTs) in the Greek listed companies on the Athens Stock

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Exchange. We are based on two types of transactions: exchange of goods-products
and the exchange of assets (group accounting), using a value relevance approach.
We apply the model of Ohlson (1995) for the period 2003 - 2013 and we observe
that the reported earnings of firms selling goods or assets to related parties exhibit a
lower valuation coefficient than those of firms without such transactions. The
Greek accounting standards provide limited recognition of assets, together with the
frequent use of forecasts, resulting in a more conservative recognition of results
compared to the IAS / IFRS, which are using fair value for the recognition of
financial instruments and internally generated intangible assets.

Keywords: IFRS, value relevance, group accounting, financial reporting

JEL codes: M41

1. Introduction
An accounting number can be considered to be strengthening – recording the
relative value relevance, if it is connected with the forecast of the equity market
values. The condition for strengthening the value relevance of the accounting
numbers is associated with the importance of the forecasting regarding the stock
prices and whether these numbers reflect important / useful information to
investors regarding the valuation of companies.

1
Corresponding address: Ioannis Samaras, Adjunct Lecturer, Department of Accounting
and Finance, TEI of Central Macedonia, Terma Magnisias 62100 Serres – Greece;
e-mail:[email protected]

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Group accounting: the effect of IFRS adoption 19

The research of Barth et al. (2001), concerning the value relevance and its
relativity, constitutes a result of comparison with an existing research of
Holthausen and Watts (2001). Specifically, in their research, Holthausen and Watts
(2001) conclude that the study of the value relevance provides little or no
information on the setting of standards. In contrast, Barth et al. (2001) conclude
that the development of editorial research regarding the value relevance provides
important and useful information in the configuration of standards.

According to the above, the present study investigates two different aspects. First,
it investigates the immediate effects of the compulsory adoption of the IFRS in
the financial statements due to the significant accounting differences in the pre-
adoption period (Nobes, 2006), by using transition statements as determined by
IFRS 1 "First adoption of the International Financial Reporting Standards".

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Secondly, it investigates the implications arising from the adoption of the
IFRS and the consequences of such adoption in the value relevance of accounting
numbers, after the recording and the settlement of intercompany transactions,
which take place during the preparation of the consolidated group financial
statements, such as transaction of goods and exchange of assets (Ball, 2006; Hung
& Subramanyam, 2004; Barth et al., 2005; Leuz & Wysocki, 2008).

The examined period spans the period from 2003 to 2013. More specifically, the
sample is categorized into two sub-periods in order to describe more accurately the
effect of adoption in time of transition (2003-2004-2005), and the effect in a
mature period after the year of transition (2005-2013).

In the present study we examine the effect of the transition from the one
accounting system (Greek GAAP) to another (IAS / IFRS), as a result of the
differences arising during the preparation of the first financial statements in the
year 2005. It investigates the implications arising from the adoption of the IFRS
and the consequences of them in the relative fair value of accounting numbers after
the recording and settlement of intercompany transactions, which take place during
the preparation of the consolidated financial statements of the group company,
such as exchange of goods and exchange of assets (IAS 27, 28, 31 and IFRS 3).

The remainder of the paper proceeds as follows: we present Literature Review in

Section 2; we describe the data and the methodology in Section 3; we present
empirical results in section 4; and finally, we conclude and state future research in
Section 5.

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20 Accounting: Principles and Practices

2. Literature review

The performance of the companies that have transactions with related parties is
disputed. It would be of great interest to investigate whether there is a connection
between the transactions of related parties and the existence or creation of
incentives to manipulate earnings. The above finding is the result of the research
of Bushman and Smith (2001), Gordon and Henry (2003), Gordon et al. (2007) and
Sherman and Young (2001).
With reference to the research of Sherman and Young (2001), with regard to
examining the current economic environment, they argue that there is intense
pressure and personal motivation for managers to achieve sales growth in order to
succeed the expectations regarding the investors income. According to the SEC,

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a consequence of the above is that more and more companies issue misleading
financial statements, primarily by engaging "games" around profits. The result of
these aggressive accounting strategies is the disorientation of shareholders, who
obtain no real sense of the company’s financial health, since at the time when
problems come to light; the values of their shares record a sharp drop. Therefore,
the question that arises is how to enable investors and their representatives on
corporate boards to identify risks before they "burst" in their face.
Regarding Sherman and Young (2001), investors and their representatives, should
be vigilant, paying special attention to the following six points: the measurement
and recognition of income (revenue), the reservation and provision for future
unstable costs, valuing assets, financial derivatives, intercompany transactions, and
the information used to measure bench-marking performance. The
aforementioned constitute fields in which it is possible to record any possible
fraud against the shareholders.

According to the research of Gordon and Henry (2003), intercompany

transactions are specified as those between the company and its directors,
governors, officers or members of it. These transactions, which are varied and
complex, depict and set up the concept of corporate governance, one of the key
research issues of the past decade. Gordon and Henry (2003) emphasize the
financial structure of intercompany transactions and its effect on the research
literature through the investigation of two alternative aspects of these transactions.

There exists an opinion that these transactions constitute an area of conflict of

interest among shareholders, due to the managers and directors allocating the
responsibility for the administration and monitoring functions to the shareholders
of the firm, which verifies the existence of the agency theory phenomenon that is
evident during the process of such transactions. Secondly, this conflict of interest
exists through the effectiveness and the satisfactory economic nature of these

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Group accounting: the effect of IFRS adoption 21

transactions, confirming an in-depth knowledge of the company for the upcoming

results.

According to the results of recent Greek studies regarding the value relevance, it is
argued that there is a nonlinear relationship between conservative reporting and the
value relevance of earnings. In particular, value relevance increases when moving
from companies with low conservatism to middle - conservative firms (Kousenidis
et al., 2009), also in accordance with IFRS, the introduction of the value relevance
principle brought significant changes in the accounting value of the share, but not
in the earnings per share (Kousenidis et al., 2010; Ge et al., 2010). In addition,
there are numerous implications regarding the value relevance of profits, in
particular the available content of information for both profits and changes in
profits decreased after the implementation of the IFRS (Negakis, 2013), and finally

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the application of IFRS contributed to a more timely recognition of losses,
compared to the Greek GAAP (Dimitropoulos et al., 2013).

2.1 Related party transactions

Kohlbeck and Mayhew (2010) resulted in an interesting balance between the

valuation of transactions with related parties and a decline in the value of the
company. In addition, they found that companies with related parties and the
valuation of those have a negative correlation, which constitutes a different
evaluation for companies with such parties, which is statistically and
economically significant. Through the results of the research, they concluded that
the market assesses the residual income more for companies without related
parties, than for companies with such parties. The findings of residual income
confirm that investors assess with less confidence reported income and reduce the
returns of shareholders from future revenues.

With reference to the international studies, the integration of assets through the
control of participations weakens the minority of shareholders, which causes a
decrease in the value of stock prices and stock returns for those companies which
have access to such transactions (Johnson et al., 2000; Jiang et al., 2005; Jiang &
Wong, 2010).

However, Jiang and Wong (2010) showed that companies eventually have a
stronger tendency to use the discrete accruals in order to affect the earnings, if
there are intercompany sales or when there is no involvement in the related sales
management. The level of propping is significantly lower in areas with strong
economic configurations than in areas with weak.

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22 Accounting: Principles and Practices

In addition, stock markets determine new legislation under which they require
disclosure of intercompany transactions, achieving direct correlation with the
developed world financial markets (Djankov et al., 2008; La Porta et al., 2006).

La Porta et al. (2006) analyze certain provisions in securities legislation that are
affected by the IPOs of each country, by examining the relationship between these
effects and various development criteria of equity markets and additionally
interpreting the evidence based on the available theories of securities legislation.
The manipulation through the accruals principle can transfer profits from one year
to the next, resulting in the realized profits of the future years not to be affected
by this action. Therefore, the manipulation, through the transfer of prices arising
from intercompany transactions, is a permanent earnings modification.

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According to the research of Jian and Wong (2008), controlling owners of firms
listed in the Chinese stock market, are using related sales to hold the earnings.
Furthermore, discrete intercompany accounts receivable are not statistically
significantly positive when firms have incentives to achieve specific objectives
concerning the earnings. The abnormally high sales of the related parties, which
are recorded in their research are not entirely a result of abnormal accrued sales,
which will generate significantly positive discrete accounts receivable of related
parties; on the contrary, the abnormal sales of related parties may also appear as
cash flows (cash) from sales of listed companies to the controlling owners. In
general, the prior academic research has focused more on tunneling than on
propping of intercompany transactions.

Tunneling and propping of internal business transactions is of particular

importance in companies with concentrated ownership. The structure of
concentrated ownership is observed very frequently in many countries
worldwide, particularly in East Asia (La Porta et al., 1999; Claessens et al., 2000).

Specifically, La Porta et al. (1999) in their research have used data related to the
ownership of companies operating in 27 developed economies, in order to identify
the perfect way to monitor shareholders of these companies. The survey results
showed that very few of the sample companies had developed a public profile,
according to the display model of ownership profile of modern business, as
reported by Berle and Meann's (1932).

In their research Bertrand et al. (2002) report that the owners of business groups
often have been accused of the integration of minority stakeholders, through
tunneling of resources (funds) from companies with low cash flow in companies
with strong cash flows. When applying the methodology in clusters (group of

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Group accounting: the effect of IFRS adoption 23

companies) in India, a significant amount of tunneling is identified, much of which

is reported through non-functional components of the earnings.

The Cheung et al. (2006) investigated a large group of transactions between

related parties of listed companies on the stock exchange of Hong Kong and its
controlling shareholders. The results showed that on average companies receive
significant negative returns during both the initial announcement and during the
twelve-month period following the announcement of related transactions having a
priori as a result of the integration of minority shareholders.

According to the aforementioned, it is clear that the necessity for additional

increase in the disclosure of information from the consolidation of financial
statements is considered obligatory. These disclosures incorporate information
concerning the economic relations of related companies, which are considered

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to be necessary by the investors, for a better understanding of the results.

3. Data and methodology

3.1 Methodology

Based on the above mentioned, investors are considered, by IFRS, as the

primary users of the financial reports. They do not apply an accounting practice
based on taxation, as the conservative accounting system of the countries of
Central Europe, which relies on code and laws (as in Greek GAAP). The
aforementioned accounting model is also referred to as French-German, which
indicates the involvement of the state directly in the economic function, defining
the range of taxation and the allocation of dividends. This differs from the Anglo-
Saxon model of accounting, according to which the links between companies and
investors are encouraged by providing information to the market. Hypothetically,
gains and losses are presented with greater validity under the IFRS, by providing
more significant information to the financial statements, which is unlike the
accounting rules of the continental European countries (Ball, 2006; Barth et al.,
2008). This has created the impression that the accounting data appear greater in
valuation consistency in countries that prefer the conversion from state-oriented
accounting systems (stakeholder oriented) to investment-oriented accounting
systems (shareholder oriented), such as those of the IFRS.

A recent study investigated these findings (Capkun et al., 2008; Paananen, 2008),
resulting in mixed conclusions. By applying the model of Olhson (1995) in its less
complex, the version reinforces the literature of the present study through the
exploration of the consistency in the value of accounting results in the period
before and after the adoption of IFRS.

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24 Accounting: Principles and Practices

Through the investigation of the above proposal for greater relevance in the
value at a highly state-oriented (stakeholder oriented) accounting regime, such as
the Greek, this study contributes to the contradiction whether the investment-
oriented accounting regime (shareholder oriented) appears to be of greater
relevance in the valuation of the results, compared with the typical state-oriented
(stakeholder oriented) accounting systems in continental Europe (Ali & Hwang,
2000). In addition, this study provides an answer to the question that arose from
Healy and Palepu (2001), “what type of standards creates high quality accounting
statements” setting the accounting quality as the connection between book and
market value. Accounting quality increases, the closer the relationship between the
two sizes (Barth et al., 2008)).

3.1.1 Models of incremental correlation and transition to the IFRS

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An additional part of the literature explores the incremental correlation of value of
an accounting number (Amir et al., 1993; Harris & Mueller, 1999; Hung &
Subramanyam, 2004). Based on the models of marginal analysis, it is examined
whether the accounting numbers under review are in favor of strengthening the
interpretability degree of the value, indicating other variables (Holthausen &
Watts, 2001: 6). Respectively, Biddle et al. (1995) believe that the investigation of
the value relevance, coherence and its incremental examination, constitute two
separate concepts. Two methods of measurement may record incremental
coherence of relative value among them, although they may present no difference
in the coherence of relative value (Hung & Subramanyam, 2004). The present
study supports the literature of incremental analysis models, in general through the
use of the model and in particular through the implementation of it during the
transition from Greek GAAP to IFRS (Horton & Serafeim, 2009; Capkun et al.,
2008; Schadewitz & Markku, 2007).

Examining the book value of equity capitals in 2005, one can test the incremental
value relevance of the adjusted accounting numbers, as they have been disclosed in
the first financial statements under IFRS. Regarding the transition of the Greek
companies to the IFRS and, in particular, the companies listed on the Greek stock
market, the present study raises the question of whether modifications in
accounting numbers are planned to moderate the use of creative accounting in the
valuation. In addition, considering that the relevant research hypothesis
investigates the significance degree of the adjustments disclosed in the
reconciliation statements, it examined simultaneously the benefits of these
statements. Since the adjustments in the balance sheet are coherent with the
relative value, then the reconciliation statements offer significant information to
investors.

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Group accounting: the effect of IFRS adoption 25

3.1.2 The Ohlson model

The model of Ohlson (1995), which contains current accounting information and
defining factors, is depicted as follows:
Pit  a0  a1BVit  a2 NI it  a3 it  eit (1.1)

where Pit represents the value of the business, BVit is the book value of equity, ΝΙit
represents net income, the variable νit depicts the "other information" that is
available to the market participants and has not been estimated yet (events that
still have no effect in the variables BVit and ΝΙit) (Myers, 1999) and the
coefficient eit represents the term of statistical shock.

The most common way to implement the Ohlson model in the literature is to

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bypass the variable νit, which refers to "other information" regarding the prediction
(Ohlson, 2001).
Pit  a0  a1 BVit  a2 NI it  eit (1.2)

Ohlson (2001) explains that the depiction of the model without the variable νit leads
us to a more simplistic application of the model, which is that when using it, if we
assume that νit is equal to zero, it means that when determining the prices, only the
publicly available information of the book value of equity capital and net profits is
of great importance. The aforementioned is a strong indication that expectations for
future returns, which are not reflected in the current economic circumstances, are
irrelevant. This may lead to a potential inaccuracy of findings, concerning the
coefficients of the variables included in the model (Hand, 2001; Lo & Lys,
2000a).

However, a significant number of researchers have reacted to these concerns by

including several variables, as substitutes, in the "other information." Such
examples include the forecasts of financial analysts and the level of compliance
or harmonization (Bryan & Tiras, 2007; Goncharov et al., 2006). In addition, a
remarkable group of researchers believe that the disclosure of corporate
information is guiding the market prices of shares or the predictability of earnings,
thereby improving the forecasts of analysts (Lundholm & Myers, 2002; Hope,
2003; Hussainey & Walker, 2009).

Therefore, based on the above results of these studies, the final part of the present
research is composed by the following adaptation of the model.
The model has been transformed as follows:

Pit  a0  a1 BVit  a2 NI it  a3Vit   it (1.3)

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26 Accounting: Principles and Practices

The determination factor/variable of net income (NI) can also be expressed as

follows:
NI
NI   EPS
number of shares outstanding

Hence, the determination factor NI can be replaced in the Ohlson model with
earnings per share (EPS).

Finally, regarding the determination variable Vit , which represents “other

information” of the issue under examination, it refers in four separate factors
which are expressed as dummy variables (dummy), the sale of goods-products (S
goods), the sale of assets (S assets), the effect of the transition to the IAS / IFRS
(IFRS) and the impact of the economic crisis (Crisis). The first two refer to the

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intercompany transactions, which are based on both the repealed IAS 22 as well
the IFRS 3 and IAS 24, which are eliminated during the preparation of the
consolidated financial statements of the group. In case of no elimination or
disclosure of the related party transactions, particularly when trading with a profit
margin, it leads to a distortion of the results of the two entities (parent and
subsidiary) and hence in possibly wrong business decisions, since the fair and
relevant price of the share will be manipulated. The additional variables refer
to the importance of the adoption of the IAS / IFRS, considering in the years
2003-2004 (pre-adoption period) and 2005-2013 (post-adoption period). Finally,
the variable that determines the economic crisis (Crisis) covers the period 2010-
2013. In order to examine the correlation, and hence the effect, on the valuation of
accounting numbers, the four dummy variables are dichotomous, receiving the
value 1 when firms disclose the exchange of goods and assets, and 0 if they do not
disclose such type of transactions for the whole period under consideration (2003-
2013). Regarding the dummy IFRS, it takes the value 0 for the years 2003-2004
and for the period 2005-2013 it receives the value 1, trying in this way to test the
effect of the IAS / IFRS adoption on the value relevance. Finally, the fourth
dummy variable CRISIS, receives the value of 0 for the period 2003-2009, while
it is taking the value 1 for the period 2010-2013, trying to examine whether, in
addition to the impact of the IAS / IFRS adoption, the financial crisis has affected
the value relevance.

Moreover, according to the basic principles of finance, we are aware that the
determination factor for an increase or a reduction in a share price is an increase
or a reduction in the earnings per share (since due to the fluctuation in the value
of profits it is strongly dependent on the dividend policy of each company, which
is prefixed by the shareholders as a key factor for the placement of their funds).

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Group accounting: the effect of IFRS adoption 27

Consequently, trying to measure the effect on earnings (the case of selling goods -
products - services - fixed assets, with mark - up or discount) from the existence
and the possible changes in intercompany transactions, the above model is restated
as follows:
Pit  a0  a1 BVit  a2 EPS it  a3 IFRS it  a4 Sgoodsit  a5 Sassetsit  a6 CRISIS it  a7 BVit * IFRS it 
 8 BVit * Sgoodsit  a9 BVit * Sassets it  a10 BVit * CRISIS it  a11EPS it * IFRS it  a12 EPS it * Sgoodsit
 a13 * EPSit * Sassets it  a14 EPS it * CRISIS it   it (1.4)

Where:
P = the share price at 31/3 of each year
BV = book value of a share
EPS = earnings per share

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Sgoods = dummy variable which refers to sale of goods-products
Sassets = dummy variable which refers to sale of assets
IFRS = dummy variable which shows the effect of IAS/IFRS adoption on
the value relevance
Crisis = dummy variable which shows the effect of the Crisis on the value
relevance
BV*Sgoods = slope dummy
BV* Sassets = slope dummy
EPS*Sassets= slope dummy
EPS* Sgoods = slope dummy
BV*IFRS = slope dummy
EPS*IFRS = slope dummy
BV*Crisis = slope dummy
EPS*Crisis = slope dummy

Finally, it encourages the development of future researches, concerning financial

disclosure of companies in less developed countries, where the results will be
really useful and significant.

3.1.3 Research hypothesis

In accordance with the above literature review regarding the creation of

intercompany transactions and with reference to the purpose and the objective of
IFRS 3, IAS 24, IAS 27, the research hypotheses of this study can be formulated as
follows:

H1-A According to the Greek GAAP the valuation of earnings is lower for firms
that sell goods-products to related parties than for firms without such transactions.

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28 Accounting: Principles and Practices

H1-B According to the IFRS the valuation of earnings does not differ for
businesses that sell goods-products to related parties than for firms without such
transactions.

H2-A According to the Greek GAAP the valuation of earnings is lower for firms
that sell assets to related parties than for firms without such transactions.

H2-B According to the IFRS the valuation of earnings does not differ for
businesses that sell assets to related parties than for firms without such
transactions.

An additional factor that has emerged over the last three years, in the case of
Greece, concerns the economic crisis. Taking into account the strong influence

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of the crisis in the equity values of companies, we considered as an important
fact to examine the degree of influence in the value relevance. It is important
because any effect on the price may be due to the economic crisis and not to the
extent/degree of disclosure of the intercompany transactions in the value relevance
(as mentioned in the above cases), since several studies (Kiran, 2010; Todd, 2002;
Itzhak et. al., 2012) demonstrate the impact of the economic crisis in value
relevance. The aforementioned reasons led us to the formulation of the third
research hypothesis, through which we want to highlight any potential effect of the
crisis on the price. Therefore, the third hypothesis is formed as follows:

Η3. The impact of the economic crisis on the value relevance is significant.

3.2 Data

The sample consists of 254 Greek Listed Companies, which have adopted IFRS for
the first time in 2004-2005, after the mandatory enforcement by the European
Union for all listed companies. More specifically, the period under consideration
for which it begins the analysis of the sample is the year 2003, because it is one of
the last years that the financial statements of both listed and non-listed companies
in the ASE were disclosed by the Greek generally accepted accounting principles.

In the financial year 2005, the disclosure of the financial statements took place
under the IAS. That year was a milestone for the IAS, because it is the first year in
the disclosure of the financial results became mandatory based on these standards.
More specifically, the sample of this research comprises the firms that compose the
sum of the Athens Stock Exchange (ASE) companies for the years 2003 to 2013.

Regarding the sample limitations, financial institutions, banks and insurance

companies have been excluded due to the individual nature-feature of their
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Group accounting: the effect of IFRS adoption 29

liabilities. Additionally, some companies were excluded, because the financial

statements had not been received (first adoption on 14 February 2006, or was under
supervision for 2005) (Athianos et al., 2007).

4. Empirical results

4.1 The effects of accounting differences in the numbers

of the financial statements

In Table 1 we present the descriptive statistics of the book value, the share price
and the earnings per share for the period 2003–2004 (pre-adoption) and 2005–2013

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(post-adoption).

Specifically, we observe that the mean and the median of the book value are
slightly greater according to IAS / IFRS (2.5765 and 1.5998 respectively for the
IAS / IFRS and 0.8962 and 0.6497 respectively for Greek standards). This result is
fully consistent with the Greek accounting standards (the Greek accounting
standards provide limited recognition of assets, together with the frequent use of
forecasts) resulting in a more conservative recognition of results in comparison
with the IAS / IFRS, which are using fair value for the recognition of financial
instruments and internally generated intangible assets. Moreover, the standard
deviation is higher according to the IAS / IFRS (3.2842 for the IAS / IFRS and
1.0412 for the Greek standards), which suggests that the adoption of international
accounting standards increases the cross-sectional variation. This is consistent with
the orientation of income smoothing of the Greek accounting standards and the
orientation in fair value of the IAS / IFRS (because fair value may enlarge the
difference between companies). However, the minimum values of the book value
(0.0058 according to the IAS / IFRS and 0.0002 for the Greek GAAP) do not
show any substantial change, remaining almost constant.

Regarding the earnings per share, the results show greater mean and median
under the Greek GAAP (0.1535 and 0.0948, respectively for the Greek standards
and 0.07950and 0.0241, respectively for the IAS / IFRS), but the differences
between Greek and international accounting standards are minimal/unconsidered.
Additionally, the standard deviation of earnings per share increases, according to
the IAS / IFRS (from 0.6784 to 1.0666).

It should be noted that it is not necessary for the book value and earnings per share
to change, moving in the same direction, because the book value records the
aggregated result of the accounting differences, and earnings per share record the
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30 Accounting: Principles and Practices

results during the fiscal year. For instance, a change from the tax-oriented
accelerated depreciation method to the straight line method would increase the
accounting value of tangible assets and therefore the book value of equity capital,
leading to a decrease (increase) of the depreciation expense, resulting in increased
(reduced) net profits in the previous (next) stage of the useful life of tangible
assets.

Table 1. Descriptive statistics for the periods under consideration

Variables for
the period PRICE BV EPS S GOODS S ASSETS
2003-2004
Mean 2.6636 0.8962 0.1535 0.4545 0.0629
Median 1.8300 0.6497 0.0948 0.0000 0.0000

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Maximum 14.960 3.1187 5.4227 1.0000 1.0000
Minimum 0.2000 0.0002 -3.9600 0.0000 0.0000
Std. Dev. 2.4900 1.0412 1.0666 0.4988 0.2432
Skewness 2.4265 1.0089 1.0963 0.1825 3.5994
Kurtosis 3.1944 3.1608 2.948 1.0333 6.9560

Variables for
the period PRICE BV EPS S GOODS S ASSETS
2005-2013
Mean 3.2174 2.5765 0.0795 0.9208 0.0543
Median 1.4900 1.5998 0.0241 1.0000 0.0000
Maximum 28.7200 28.8134 5.8200 1.0000 1.0000
Minimum 0.0200 0.0058 -3.9432 0.0000 0.0000
Std. Dev. 4.3379 3.2842 0.6784 0.2700 0.2267
Skewness 2.5782 3.3585 5.4849 -3.1176 3.9330
Kurtosis 10.4498 18.3853 77.4733 10.7195 16.4685

Finally, regarding the value of the share price, it is observed a significant increase
in the maximum, between the Greek standards and the IAS / IFRS (from 14.9600
to 28.7200, respectively). This is explained by the reaction in the price, confronting
the adoption of the IAS / IFRS as a positive fact, which increases the transparency
of recording and the correctness of the financial results of the companies. The other
numbers of the variables of the share price remained almost unchanged, when
comparing the two periods, which confirms the conservatism due to the income
orientation.

According to Table 2, we present the degree of correlation between the variables

under consideration, for the periods 2003-2004, and 2005- 2013, separately.
Specifically, during the period 2003-2004, we observe that the correlation of the
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Group accounting: the effect of IFRS adoption 31

book value (BV) with the value (Price) is at 0.2385. A similar result is presented
through the correlation of earnings per share, with the price at 0.5241. Which
implies that probably the two accounting figures (book value and earnings per
share) are significantly affecting the configuration of the stock price and hence
the market value of the firm. Therefore, the number of reported corporate
earnings was, in the period prior to the adoption of IAS / IFRS (2003-2004), a
significant accounting figure for the configuration of the value. In contrast, the
correlation of the dummy variables, Sgoods and Sassets, with the price we
observe that it is at a very low level (0.1161 and 0.0597, respectively).
Moreover, we observe that the two key variables (earnings per share and Book
value of share) correlate at 0.3413. This result may indicate that the Book value
has no effect on reported earnings per share of the company. That fact, of course, is
supported by the orientation of the IAS / IFRS, including a special emphasis on the

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real value of the company "ignoring" any impact on the results and in particular on
the profitability. Regarding the degree of correlation between the dummy
variables (Sgoods and Sassets) with the Book value, the correlation is also at a
low level, suggesting the non-respect of intercompany transactions between them.
The above fact continues to exist, in the correlation of the dummy variables
(Sgoods and Sassets), with earnings per share (0.0048 and 0.0016, respectively). A
similar result exists regarding the correlation of the dummy Sassets with the
dummy variable Sgoods at 0.0260.

For the period 2005-2013 when the adoption of IAS / IFRS took place, we observe
that the correlation between the book value of the share with the price is at
0.2058. The particular result is at the same level with the correlation of the
second most basic variable, the earnings per share of the stock, with the
correlation at 0.3840. According to the result we observe that the
implementation of IAS / IFRS, may not fully achieve the possibility of avoiding
the manipulation of the results, in a further effort to constitute the most important
factor in the shaping of the firms’ market value. In contrast, the correlation of the
dummy variables with the price is low, at 0.0363 for the variable Sgoods and
0.0363 for the variable Sassets. A similar correlation is recorded with the earnings
per share.

In addition, we observe that the correlation between the earnings per share and
the book value of the stock is at 0.1539. While the correlation of the dummy
variables, Sgoods and Sassets, and the Book value remains at a very low level.
The result confirms, to some extent, what really happens in the case of
intercompany transactions. There is a great possibility that the above result
constitutes the motivation for the adoption of new rules during the preparation of

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32 Accounting: Principles and Practices

the consolidated financial statements, together with the changes which have
occurred since the first implementation until today.

Table 2. Correlation Matrix for the periods under examination

Variables Price BV EPS Sgoods Sassets

Panel A: 2003-2004

Price 1.0000
BV 0.2385 1.0000
EPS 0.5241 0.3413 1.0000
Sgoods 0.1161 0.0850 0.0048 1.0000

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Sassets 0.0597 0.0903 0.0016 0.0260 1.0000
Panel B: 2005-2013
Price 1.0000
BV 0.2058 1.0000
EPS 0.3840 0.1539 1.0000
Sgoods 0.0363 -0.0574 0.0413 1.0000
Sassets 0.0363 0.0061 -0.0109 0.0260 1.0000

4.2 Estimation of the Ohlson model

In this part the results are presented through two different ways of analysis.
Specifically, in the first section, we present the results of the model based on the
pooled method. On the contrary, the second analysis is carried out by the panel
method.

Table 3 presents the model, reflecting the entire variables examined in this
research, comparing the methods of pooled and panel analysis. More specifically,
BV and EPS are both statistically significant at the level p <10%, while earnings
per share have a negative effect on the dependent variable (based on the panel
method analysis). In addition, dummy variable CRISIS is also of statistical
significance at p <1%, having also a negative effect on the stock price for both
methods of analysis, confirming the research hypothesis 5, based on the
economic crisis negatively affecting the value relevance and substantially the
equity value of firms. Regarding the dummy variables which refer to the
intercompany transactions (disclosures) of goods and assets, they exhibit inverse
image under the two testing methods of analysis. More specifically, the
dummy variable Sgoods according to the pooled method is not statistically

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Group accounting: the effect of IFRS adoption 33

significant while under the panel method displays a statistical significance at p

<5 %. Similarly, the dummy variable Sassets is statistically insignificant
according to the panel method, and the significance is at p <10% for the pooled
method of analysis. Furthermore, dummy variable concerning the adoption of
IAS / IFRS, is in similar levels (p <10%) for both methods of analysis.
According to the slope dummies BV * Sassets, BV * Crisis and EPS * Sassets,
they are not statistically significant for both methods of analysis. Regarding the
slope dummy EPS * Sgoods and EPS * IFRS, they have a greater statistical
significance based on the pooled method (p <1% compared to p <10% and p <5%
versus p <10%). However, with the application of the panel method, the dummy
variable EPS * IFRS has a negative effect on the price. Additionally, with the
pooled method of analysis, the dummy variable EPS * IFRS is statistically
significant at p <5%, negatively affecting the dependent variable (price), while

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under the other method of analysis, it relies on an insignificant level. Furthermore,
the adaptability of model (Adj. R2), we observe that it is in a very good level, at
42.55%, for the pooled method, while at 12.53% for the panel method of
analysis.

Table 3. Estimations of the least square method concerning the regression

model
Pit  a0  a1BVit  a2 EPS it  a3 IFRS it  a4 Sgoodsit  a5 Sassetsit  a6CRISISit  a7 BVit * IFRS it 
 8BVit * Sgoodsit  a9BVit * Sassetsit  a10BVit * CRISISit  a11EPS it * IFRS it  a12EPS it * Sgoodsit 
 a13 * EPSit * Sassetsit  a14EPS it * CRISISit   it

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34 Accounting: Principles and Practices

Finally, comparing the two methods of analysis with reference to the Akaike
info criterion, we would choose the pooled method of analysis since it has the
most appropriate coefficient, 5.144 versus 6.019 based on the panel method.

We therefore consider that the results confirm the research hypothesis 1A and B,
whereas the dummy S goods, as a fixed term and as a dummy variable, negatively
affect earnings per share of firms, particularly in cases where the adoption of IAS /
IFRS (dummy IFRS both as a constant term as well as a slope dummy) affects at
statistical significant level the value relevance.

The results of the 2nd hypotheses are not consistent with the validity of
International Accounting Standards which provide increased recognition of
tangible fixed assets, while using low estimates/forecasts. The results constitute an
outcome of the conservative nature/feature of the Greek GAAP, characterized by

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conservatism and focusing on the stabilization of net profits.

The Greek accounting system belongs to the wider France-German accounting

system which is characterized by the taxation function (Stakeholder oriented), in
contrast with the IAS/ IFRS where the main concern is the investor (Shareholder
oriented). Furthermore, we conclude that the related party transactions based on the
assets do not significantly affect the value relevance, as we consider that are
absorbed from the direct impact on the book value.
Finally, the non-confirmation with the conditions of the hypotheses 2A and B, are
probably due to the specificities of this type of intercompany transactions
(exchange of assets), and the rarity of this type of disclosure, compared to the
exchange/trade of goods / products, according to the Greek GAAP but also
according to the IAS / IFRS. Additionally, intercompany exchange of assets is
supposed to be a more complex and costly process for businesses, while for these
transactions are required elements such as residual value, market value, installer /
uninstaller costs, assembly / disassembly costs and proper period of operation.
Regarding the 3rd Hypotheses, it is observed that with the addition of the dummy
variable Crisis the final model responds in a satisfactory level, as all the key
determining variables, the dummy variables and the slope dummies affect the value
relevance in a statistically significant level. Special mention deserves the effect of
the dummy variable Crisis both as constant term but also as a slope dummy,
affecting negatively the price (dependent variable) but also the EPS on a statistical
level of p <1%. Overall these results confirm the research hypothesis 3, that the
economic crisis negatively affects the value relevance and substantially the share
value of companies.

Through the above results, we concluded that the addition of the dummy
variables in the initial model of Ohlson provides us with the sufficient explanatory
____________________ WORLD TECHNOLOGIES ____________________
Group accounting: the effect of IFRS adoption 35

power, as well as the key variables of the model (book value and earnings per
share). Additionally, they constitute a useful tool in the determination of the
variable Vit which incorporates the "other accounting information" in the model of
Ohlson (1995), which cannot be determined only by the basic variables.

5. Conclusions

According to the above analysis, it is observed that in the total model the book
value (earnings per share) has a greater (lesser) role in the valuation according to
IAS / IFRS, compared with the Greek GAAP, this result has a direct impact on the
greater emphasis given by the IAS / IFRS on the balance sheet and the fair value

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and less emphasis is given to smoothing earnings per share.
The Greek accounting standards provide limited recognition of assets, together
with frequent use of forecasts, resulting in a more conservative recognition of
results compared with the IAS / IFRS, which are using fair value for the
recognition of financial instruments and internally generated intangible assets. This
is consistent with the orientation of income smoothing of the Greek accounting
standards and the orientation in fair value of the IAS / IFRS (because fair value
may enlarge the difference between companies).

Basic limitation of this research is the degree of impact from the transition to the
IAS / IFRS and therefore the clearing statements, in those statements there is an
opportunity for manipulation of the accounting practices, the application of which
took place before or during the period of transition. The lack of familiarity with the
IAS / IFRS of the authors of the financial statements, is an additional limitation,
and may even lead to misinterpretation of the standards requirements, having the
effect of not being properly implemented. The degree of compliance with the
mandatory disclosures will include almost always a degree of subjectivity,
although the necessary procedures were applied. The aforementioned limitations
result in the difficulty of reproduction of the particular research by other scholars.

The above results are considered to be reliable, as the customized coefficient (Adj
R2) in the sum of the models is high, a fact that has been particularly emphasized
in the research of Kothari and Zimmerman (1995), regarding the usage of prices
instead of returns, during the calculation and the testing of variables. Finally, it is
worth mentioning that the addition of the dummy variables in the basic model of
Ohlson, does not provide us with such a great interpretative ability as the key
variables of the model do (book value and earnings per share). In contrast, the
dummies constitute a useful tool in the determination of the variable νit which

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36 Accounting: Principles and Practices

incorporates the "other accounting information" in the model of Ohlson (1995),

which can not be determined only by the basic variables.

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Negakis, C. I. (2013) “The explanatory power of earnings for stock returns in the
pre-and post-IFRS era: Some evidence from Greece”, Managerial Finance,
vol. 39(9): 814-824
Nobes, C., (2006) “The survival of international differences under IFRS: towards a
research agenda”, Accounting and Business Research, vol. 36, no. 3: 233-
245
Ohlson, J.A., (1995) “Earnings, book values and dividends in equity valuation”,
Contemporary Accounting Research, vol. 11: 661-688
Ohlson, J.A. (2001) “Earnings, book values, and dividends in equity valuation: An
empirical perspective”, Contemporary Accounting Research, vol. 18: 107-120
Paananen, M. (2008) “The IFRS adoption’s effect on accounting quality in
Sweden”, Working Paper, University of Hertfordshire, UK.
Schadewitz, H. & Markku, V. (2007) “How markets valuate and respond to IFRS
reconciliations adjustments in Finland”, Working Paper, University of Oulu,

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Turku School of Economics, Finland
Sherman, H. D. & Young, S. (2001) “Tread lightly through these accounting
minefields”, Harvard Business Review, July–August
Todd, M. (2002) “A cross-firm analysis of the impact of corporate governance on
the East Asian financial crisis”, Journal of Financial Economics, vol. 64:
215–241

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 3
From the accounting of war to the accounting
of peace: putting bricks for a new
environmental accounting
Paul Diaconua1
a
Bucharest University of Economic Studies, Romania

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Abstract: This paper critically examines the potential movement from
accounting of war to accounting of peace. The 20th century capitalist economy
developed in the war, and also stimulated the war. In contradiction with the current
state of facts, some economists such as Vandana Shiva promote the idea of creating
an earth democracy, which is intended to accept equality of rights between the
humans and other species, and to organize life so that to protect the environment
against any human aggression. Accounting, as a tool of evaluation and presentation
of economic information, was involved directly in the manifestation of human
aggression, under its various forms, in the capitalist society. By considering as
main value the concept of profit, a whole range of issues related to the
environmental preservation and the limitation of natural resource were neglected.
Thus, the accounting presented the resources under the form of operating costs, and
not as capital. Nature was considered as an unlimited resource, and not as a value
that should be kept and maintained in the future. The new paradigm might be
called accounting of peace. The paper discusses how accounting has to redefine its
concepts to support earth democracy and the proposed natural sustainable
economy. Accounting, as a tool of force for war, did nothing but stimulate the
aggressive behaviour of the world leaders, and also of the multinational
corporations.

Keywords: accounting of war, accounting of peace, earth democracy,

globalization, sustainability

JEL codes: Q01, M41

1
Corresponding authors: Department of Accounting and Auditing, Bucharest University of
Economic Studies, Romania; 6 Piata Romana, Bucharest; email addresses:
[email protected]

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From the accounting of war to the accounting of peace: putting bricks for a new... 41

1. Introduction
Almost 100 years ago, the economists of that time put forward the conceptual basis
of the war economy. The Romanian economist Gheorghe Trasca (1939) defined the
“war economy” as a set of “special economic measures in view to maintaining the
production, the commodities movement, and the proper distribution thereof
generally, for satisfying the needs of weapons and food for the troops and people in
war time”. Napoleon posited that three things are required to be able for fighting a
war: money, money, and money again. In the 19th century, the wars usually lasted a
short time, which allowed their funding, either from the States’ economies, or
loans, accumulated duties and taxes. The 20th century came with another type of
war, the war of attrition, lasting long, eroding the economies and the resources of
the governments. Lunderdorf (1937) gave an explanation of the concept of “total
war”, for that times, as follows: “in our days, and with the means of destruction

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that we have, the war does not impress only a part of the nation, the part on the
military front line, but also the whole nation”.

At that time, the economists found a solution, specifically, in the creation of a

planned economy controlled by the countries that were most intensively preparing
for war: Germany and Italy. As the war was considered a permanent state of facts
in the national-socialist Germany, the wehrwirtschaft was inaugurated.
Consequently, the government controlled the entire production that mobilized all
activities and distribution of manpower, raw materials, driving force even in
peacetime, as it considered such action to be in the best interest of the national
economy. For the same reason, the government supervised the transport and
foreign trade, as the Romanian economist Gheorghe Trasca (1939) pointed out.
The economy stood on an autarkic base at that moment. The concept of economic
autarky was promoted as a state policy at that time. Economic autarky stands for
meeting own needs by own means; in other words, to succeed to buy nothing from
outside. For that purpose, the nation needed a considerable vital space, from which
it would have been able to procure raw materials, and a commodity market
organized within its economic sector. In that way, they furthered both the concept
of terra nullis, and of the vital space of a nation. Of course, in Mussolini and
Hitler's conception, autarky was an ideal state of an economy, which would have
organized the economy, starting from the premise of an existing permanent war.
Thus, Il Duce declared in front of the autarkic supreme council on the 18 th of
November 1939: “There is no peace economy, nor a war economy. There is only
one economy, for war, because historically, the number of the years of wars proves
that the state of war is the normal state of a nation, and a kind of war is practised
even during the so-said years of peace, which at its turn prepares an armed war”.
(Trasca, 1939). The German National Socialists went ahead and affirmed the need
to provide the German people with a “territory, that is due to Them ... The German
borders are random and have temporary limits during the political struggle. The

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42 Accounting: Principles and Practices

people make and can change the border of the states. The fact that a people has
managed to acquire a territory does not give Them the right to hold it for ever.
Germany will become a world power or will cease to exist. Germany needs an
increase of its territory for becoming a world power and gain the required
importance and the means of living for its citizens” posited Hitler in Mein Kampf
(chapter Munich, page 94 and after). Moreover, he also reveals the means used for
ensuring the living space: “The right relies only on force”.

The opposite of the above conception was synthesized by the head of the Catholic
Church at that time, on the 24th of December 1939 in front of the members of the
Sacred College: a right and honourable peace should ensure the nations the right to
life and independence of all nations, whether big or small, strong or weak. A
nation’s desire for life must never prevail as against the sentence to death of
another nation.

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The aim of this paper is to critically examine how current accounting practices and
theory are based on a conflictual social game which maintain the warship attitude
in the human society. The paper reviews seminal papers in sustainability and brings
arguments that the actual state of facts is profound toxic and against the nature.
Moreover, it brings forward to the accounting domain the concept of accounting of
peace, in line with the aim to create a peaceful society. Accounting as a tool of the
economy has to redefine itself based on the new concepts and ideas derived from
the sustainability paradigm.

The paper has made a comprehensive inventory of the causes which transform the
accounting in a tool of war in the hands of the actual society. Moreover, the paper
discusses the new shape of the accounting concepts if the society is reaching a
point from where the new philosophy of life is coming and the accounting is
stopping as being a tool to measure the war parameters (profit and enriching), and
start measuring the peace parameters (the happiness of the members of the
community).

The paper is structured as follows: the introduction briefly presents the aim and the
context of the paper and is followed by a literature review. The next section
includes the critical analysis of the change of the paradigm implications. Finally,
the paper concludes with some implications for the field of accounting resulting
from the change in the economic paradigm.

2. Literature review
Chwastiack and Lehman (2008) discuss in their paper two basic hypotheses. The
first hypothesis would establish the accounting procedures used to help the

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From the accounting of war to the accounting of peace: putting bricks for a new... 43

concealment of the intrinsic value of the companies against the other companies, to
attend the rationalization process and to witness the occidental man’s warlike
behaviour, which determine modernism enhancement, and of the impact on the
social organisation of life in the society. The second hypothesis implies an analysis
of the specific implementation means, through which the accounting, in its
indifference, disregards the others’ intrinsic value of goods, and backs up the war
of rationalization and the war in general, as from the point of view of its conduct.
Six fundamental aspects are put forward, in relation to this hypothesis:

1. The mechanism of capitalism wants to make us to think that the main aim
of the society is the fortune preservation, which, in this way, is above the
sacristy of life. The accounting contests the intrinsic value of any object,
admitting only its financial value.
2. Considering the nature as a commodity, the accounting annihilates its

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intrinsic value, allowing its cruel use that can potentially lead to different
wars.
3. It can draw a parallel between accounting and the war, admitting that both
transmit the violence under a more feasible form, by denying the other’s
intrinsic worth, engaging a dehumanized rhetoric and creating a distance
between the perpetrator and the victim.
4. Accounting contributes to the rationalization of inequalities, to the
simultaneously use and denial of the life created by the corporate
globalization agenda, by exaggerating the role of economic development
before all considerations.
5. Economic sanctions follow the impeccable logicalness of accounting,
which aims to produce brutal negative consequences to the enemy, under
an invisible form, with the perpetrator’s minimal costs.
6. Accounting transforms the war into a reasonable deal, like health care, by
considering the value of any activity in terms of profit or loss.

Stiglitz (2015), in The Great Division, writes:

“the real measurement of economic performance is given by the welfare of a
representative family, and from this point of view, US registered a zero growth in
the last quarter of the century”.

Vandana Shiva, in Earth Democracy: Justice, sustainability and peace (2005)

develops a new concept of a social organization called Earth Democracy in which
all species, all people and cultures are considered equal, they themselves having
intrinsic value. No man has the right to own other species, to dispose of other
people's existence, or to own the knowledge of other cultures by copyright and
other intellectual property rights. In other words, the knowledge is a common good
available to all members of the society. The earth community should be
reconsidered as a living democracy. No man has the right to encroach on the
ecological space of other species and other people, or threaten them with violence.
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44 Accounting: Principles and Practices

Nature and culture diversity must be defended. All beings have their own
sustainable natural right to live. Earth Democracy is based on living economies, but
also on economic democracy. The economic systems in the Earth Democracy
protect the ecosystems and their integrity, protect people's lives and ensure vital
needs for each of them. In the earth economy there are no dispensable people, nor
disposable species or crops. Healthy economies are built on the structure of local
economy and sustain the local production; just unavailable resources shall be
purchased from other economic areas.

Daron Acemoglu and James A. Robinson explain in an ample work, Why Nations
Fail (Acemoglu & Robinson, 2015) the reasons of the prosperity of some nations
that have succeeded in the competition of social prosperity and political
affirmation. They assert that the solution is the establishment of inclusive economic
institutions, protected by virtuous circles, supported by inclusive political

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institutions. In antithesis, exclusive political institutions form vicious circles by
supporting exclusive economic intended to preserve the elites’ winning
mechanisms, which in their turn, supported the inclusive economic institutions that
were protected by a social virtuous circle formed around thereof and prevented the
elites’ deviations and abuses.

In his Brief History of the Future Jacques Attali (2007) outlines a future society
somewhat convergent with that imagined by Vandana Shiva. His work is, in fact,
the history of capitalism as a civilization stage of history, as it lays on a single
principle: the principle of a gradual emphasized individualization of human beings.
Therefore, Attali (2007: 27) concludes: “The essence of the evolution of history
consists... in the birth of an individualistic order, which has made human rights an
absolute ideal. An order capable to produce wealth through an incessantly a
violation of the individual’s ideal, more than any previous order”.

Attali (2007) evokes a series of ongoing transformations revolving around an

order-based economy, and the author considers that no religion will able to slow
down the progress of the idea of individual freedom. This new order self-facilitates,
through that fact that is designed under a unitary form, and uses a single language -
that of money - and focuses around a single brain, where the elite (creative class)
exists, an elite characterized by a taste for new and able to transform any new
service in an industrial product. Around this centre are an environment (consisting
of intermediate state units) and a periphery. The Centre will never invent anything
new; it just copies and uses the suburbs’ creativity. Globalization and the creation
of the new economic order will continue up to saturation, but not in a post-
industrial sense, as we are dealing with the beginnings of the industrialization of
services, aimed to transform them into new industrial products. This fact will
generate a nomadism set up on two levels: the class of international citizens, the
agents of the new economic order and the helpless that will migrate continuously to
survive. Nomadic ubiquity will be achieved by connecting the most people to
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From the accounting of war to the accounting of peace: putting bricks for a new... 45

computer networks, and when the connection will be fully completed, nomadic
ubiquity will turn to hyper-surveillance.

Attali (2007) defines the next 50 years as the stages of a new earth evolution: the
hyperempire, the hyperconflict and the hyperdemocracy. First wave – the
hyperempire: the sole crisis, for the people existing in the middle therein, will be
the time, for the said period. Everything is time consumer; that is why the time will
become a commodity, and the obsession of time will generate two requirements of
life: to protect and to entertain; the result therefrom is the hyper-development of
two industries: the insurance industry and the entertainment industry. Attali
axiomatise that the world will become poly-centered between 2025 and 2035, the
United States will give up its empire status, and the world will be organized around
a planetary market in 2050: the hyperempire. However, the author believes that the
empire will belong partly to US, and generally, its consumption commodity will be

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further the prolongation of nomad commodity, like its half-blood culture, its
precarious life, and its individualist or narcissist values (see p. 132). Under the
pressure of the market, all the prerogatives of the states will be spoiled, its
suzerainty included. The hyperempire will be set up after a geo-political fight
wined by the market.

Moreover, Attali asserts that the surveillance means will replace the state’s role in
two stages: the hyper-surveillance and the self-surveillance. The people will be
forced, by the insurance costs, to carry out self -monitoring for complying with the
rules stipulating imperatively to be in shape (both physically and intellectually).
Discretion will not have any reason to exist and curiosity, based on the idea of
secrecy, will disappear. Then, the necessity of transparency will tend to be absolute
in all branches. By reducing the powers and functions of the state, the market will
encourage the consumers to the detriment of the workers. “The nations will be just
some oases involved in a competition, in view to attract the caravans that are
passing by” (p. 144). Being so weak, the states will not be able any more to govern
the hyperempire, and its functions will be taken over by private commercial
institutions, two of which being the centre of the empire: the assessors and the
insurers. The companies will become non localized “circuses” of two types: pirate
and relational. The first type will be the main actor in the second wave
(hyperconflict) and the second type will be active in the third wave
(hyperdemocracy). The actors will be hypernomads (expatriate population) and
infra-nomads (those in extreme poverty). The rest, the vast anonymous mass will
be assigned to political control, labour and consumption, and will be represented by
qualified sedentary people. “The world will only be a juxtaposition of loneliness,
while love - a juxtaposition of masturbations” (p. 148). The things will become
increasingly worse until the arrival of the final days of freedom, in the name of
freedom, and the violence of money will be followed by the violence of weapons.

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46 Accounting: Principles and Practices

Second wave: The triggers of the hyperconflict, generalized at the planetary scale,
will include multitude forms of anger: laymen’s anger against economic order and
the United States, the believers’ anger against human degradation, the enslaved
masses’ anger against slavery. The four types of wars inside this period will be: for
resources, for borders, influence wars, and the wars between sedentary people and
the pirates.

Third Wave: The hyperdemocracy. Jacques Attali asserts that despite all signs, the
dynamic of the weal, which will follow after the market and after the war, is
already underway, with characters ranging from artists, non-profit organizations
concerned with social and charity activities. Countless positive forces, he also says,
even now are contributing to the establishment of a better world. The best Lawyers
of change will be, as always in history, the disasters. Firstly, the market will
cohabitate with the democracy, then the hyperdemocracy, which will appear, says

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the author, in Europe, will gain full rights. Through the actions of relational-type
enterprises, an international community will be gradually established, whose
institutional base will be the United Nations. The regulated and globalized market
will not enter the sanctuary of democracy any more, and the free of charge services
shall extend to all essential areas of existence, concludes Attali.

The vanguard of hyperdemocracy will comprise a new class: transhumans. They

will be altruistic, aware of future history, sedentary and nomadic at the same time,
refusing to be part of the creative economic class; they feel pleased to provide
pleasure and making the other worthy. Transhumans will mainly include women
and will initiate a relational-type economy (based on free services), which will be
further globalized. At its establishment, the hyperdemocracy „shall strive to win
other wars, which are more urgent: against humans’ madness, climate degradation
and fatal diseases, against alienation, exploitation and misery” (p. 196). Any
change for the better will come when the mankind will be almost completely
devoiced of humanity. The survival of natural ruins will last during the first two
waves, under the pressure of the factors preserved by art and the feelings: „beauty
will be able to host and protect the last spark of humanity” (p. 213). Thus, Attali's
findings converge with Vandana Shiva’s description of earth democracy.

By analysing the current economic and social evolutions, we find out different
action forms of the empire even in the current period. George Friedman, chairman
of Stratfor admitted in an interview at the conference of the Chicago Council of
Global Affaires on the theme „Europe: Destined for Conflict?” (Friedman, 2015)
that the US military manifestations are actions specific to any empire, an empire,
which in the speaker's opinion, is the largest in history, having in view its capacity
to control the entire territory of the oceans and the air.

Particularising to the accounting field Arnold (2009) emphasised that in those

times of hyper-conflict the “accounting practices are deeply implicated in the
current financial crises and in proposals for recapitalizing financial institutions and
restoring stability to the global financial system.” The main charge brought to the
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From the accounting of war to the accounting of peace: putting bricks for a new... 47

accounting is the lack of future perspective in anticipating crises and the limits to
respond efficiently to them. In the way the actual accounting has its concepts set up
it will never be able to break the economic cyclicity which is generating economic
storms.

Also McSweensy (2009) demonstrate that the so-called “real economy” is hardly
contaminated by numerous financial crises during the actual economic secular
cycle. A main cause of those crises identified by him are the hypothesis of the
economic theories that decline the possibility of financial market failure. He
suggest paths in which the actual financial theories contributed to the
circumstances and actions which generated actual crises.

Gill (2009) is providing an epistemological analysis of how accounting discourse is

contributing to the process of undermining the ethical standards of accounting

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practice. Its study illustrates how concepts of informational truth are utilized in a
commercial environment as rhetorical devices to influence desired commercial
imperatives. The author identifies accounting practice as being a “highly developed
art”, while accountants act as “painters rather than photographers”. In this
environment, unethical practice is viewed not as a behavioural aberration but as an
inevitable consequence of standard practice so that “ethics are rendered fragile by
collaboration and cooperation”, and considered as merely failure to “manage
stakeholder perceptions” and to maintain reputation.

Concluding, we notice that the same conceptual debates during the commencement
of the Second World War are found under various forms in our days, under a
similar context of ideas. Relevant for the accounting domain are questions such as:
How accounting developed as a docile instrument of globalization and how it acted
in the past as an aggression toll? How accounting has to redefine its concepts based
on the new thinking of earth democracy and hyper democracy? The next section
will critically examine these questions.

3. A critical analysis of the change in paradigm

3.1 How accounting developed as a docile instrument of globalization and how

it acted in the past as an aggression toll?

The accounting means that helped the establishment of a super-empire / the current
situation and the stimulation of the hyperconflict are:

3.1.1 Expansionist nature of capitalism

The fundamental objective of capitalism, as a way of organization, is profit and

enriching. Human identity is limited to the consumer concept, and the human
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48 Accounting: Principles and Practices

relationships are regarded in terms of market mechanism. Accounting is only able

to establish the difference between the revenue and expenses, wherefrom the profit
is calculated. Accounting reporting system lays, in fact, on two big concepts,
explanation of the means for carrying out the profit, and the preservation of
fortune. Thus, the accounting narrows down the entire issue of human existence to
a gain process, as a difference between sales an acquisitions. Such fact just
transformed the economy to a long-term non-sustainable process, starting from
wrong grounds. Therefore, Schumacher (1973) ascertained in his work that the
natural resources would not be considered as disposable revenues, but treated as a
capital, taking into account that such resources are not recoverable and become
depleted within a certain period of time. The valuation that disregards the
constructive or destructive nature of economic actions, as well as the sale of
weapons or of any quantity of corn to a hungered population (Boulding, 2000;
Galeano, 1998) is another major problem of the accounting.

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In fact, the accounting fails to assess the transactions sustainability and morality
and judges such transactions intrinsically, thus providing a false picture on the
sustainable competitiveness of business. A most polluting business is profitable in
the countries of the Third World, as such countries have not implemented adequate
environmental standards. However, such industry would not develop in any
economy where the toxicity level generated by any economic process implies
additional costs, which would make its development prohibitive. In fact, such costs
should be assessed in any business, taking into account the environment protection
requirements, irrespective of the market on which it operates, even if any
preservation regulations do not exist, because only a sustainable economy could
provide a fair comparison of all businesses. Thus, maintaining / increasing the
quality of the environment and enhancing the quality of life should represent the
fundamental objective of any economic activities.

3.1.2 Earth democracy and the valuation in accounting

In the current period, the social & human perception has created a democracy
concept – equal rights and justice just at the level of human race. By contrast,
nature, in terms of other life forms, is considered just a cost generator through its
use, or its arrangement from time to time. Thus, the value of things and beings of
nature is given by the human race’s amounts paid for the use thereof. We, humans,
never arise any issue of assessing any forest as a distinct legal subject, with its right
to exist independently from our right to exploit it. Its value is given by the
maintenance costs and later, by the exploitation of the forest. But we cannot find
anywhere in the accounting valuations the intrinsic value of the forest, which
creates and maintains life, as the latter has no legal significance, and therefore, no
economic significance for us. The lack of any explicit nature’s rights to life, equal
to those of the human race, admitted in our contemporary society, deprives the
nature of an accurate assessment of the suffered losses pursuant to its exploitation.
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From the accounting of war to the accounting of peace: putting bricks for a new... 49

The exploitation of the human labour is remunerated through labour in any

organization producing income, under existing legal relationships clearly defining
the manner applicable to the use of the human labour in any enterprise, but for the
physical use of any animal, the only cost is related to food provision and
sometimes, to ensuring its living conditions. Nobody asks any horse if it wants to
tow a cart, or a dog if it wishes to guard the yard, or what such animals would like
in exchange for the work done. Basically, we, humans, consider the nature as a
usable resource, and not an equal part of our everyday life, which is practically a
capital. This is the reason why Horkheimer and Adorno (1993) notice that „was
nothing less than to explain why humanity, instead of entering a truly human state,
is sinking into a new kind of barbarism.”

Even though we are born in nature and we have our place in the natural ecosystem,
however, the emergence of human thought deteriorated this symbiotic relationship,

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positioning us antithetically to the surrounding world, while the human race was
developing. The human thought - the reason - atrophied our instincts formed in the
stage of our direct cohabitation with nature, and consequently, we, the humans,
have invented complex equipment’s after thousands of years, which determine
what a wild animal feels (the impending earthquakes, through its own senses),
without any special efforts, being unaffected by the systems of human judgment.
Our wish for satisfying as many needs as possible positions us often in an antithesis
to nature, and at the same time human kind consider it as available and usable,
without any question on the right of nature to its own existence. Throughout human
existence, we consider nature an inexhaustible resource and we treat it as such.

Humans have not questioned them self if nature itself has the same rights for
existence as ours, and consequently, we should treated it as a matter of law, equal
to human law, and in economic terms we should evaluate it not by its operating
cost, but by nature's worth of use or as a capital required for the development of
our existence. Therefore, we should become aware that both the human race and
the rest of nature share the same space and the same future. The Illuminists insisted
on individual autonomy, technical rationality and culture based on rights, by
denying our interdependence with the surrounding world, consisting of dangerous
or non-controllable wild creatures. We, humans, control the nature with our mind,
converting it into a resource. Moreover, the dominant modernist trajectory
supposes that nature has no growth limits and that humanity must struggle
continuously for economic development in order to increase its wealth. However,
most analysts seem to agree that the current direction of growth is not sustainable.
The stage of the achievement of the foregoing limits is a subject of speculation.
The prediction of the Club of Rome (Wikipedia), fixing the limits in the late 21st
century appears premature, as the fact depends upon an increasing of efficiency
and the technological progress in the production and use of energy. The economic
growth is also based on the assumption that natural resources are inexhaustible and
unlimited quantities of waste and pollution can be injected into the ground, water
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50 Accounting: Principles and Practices

and the atmosphere without causing irreparable damages. The foregoing assertion
starts from the premise that nature has no limits against the human society’s abuse
(Chwastiak & Lehman, 2008). The authors, by quoting Taylor (1978), conclude
that a solution would be the creation of a society in a state of equilibrium, in which
the economic system will have to recognize and act within the limits provided by
nature. According to Taylor (1978), the main challenge of the balanced society is
„intolerable inequity” that can be tolerable, through rapid growth, only temporarily.
But the question is what kind of society would produce a balanced distribution of
income and would it eliminate the „intolerable inequity” in its interaction with
nature? The failure of the response to this question has already generated conflicts
in relation to the territorial waters, fisheries, mining areas of natural deposit, which
badly worsen the situation, and does not made anything better for the evolution of
economic growth. The states that are producing raw materials, such as African and
Asian states (see also Afghanistan), are more exposed to civil and armed strife than

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the countries without any natural resources but having advanced technologies (see
Germany or the Scandinavian countries).

Accounting, as an exponent of the neo-liberal capitalism, not only stimulated and

evaluated favourably the culture of violence, but also instigated, by its
unsustainable concepts, the competition for natural resource extraction. The long-
term strategy of the major international corporations is an eloquent example. BHP
Biliton, the biggest international company in the field of natural resources
extraction, is the most telling example. Hereunder are some excerpts from the
company’s website:
“We are BHP Billiton, a leading global resources company. Our purpose is to
create long-term shareholder value through the discovery, acquisition,
development and marketing of natural resources. Our strategy is to own and
operate large, long-life, low-cost, expandable, upstream assets diversified by
commodity, geography and market.” (www.bhpbiliton.com, 2014)
Our strategy is tied to economic growth in both emerging and developed
economies. Sustainable growth requires an effective response to climate change.
BHP Billiton accepts the IPCC’s (Intergovernmental Panel of Climate Change)
assessment of climate change science, which has found that warming of the
climate is unequivocal, the human influence is clear and physical impacts are
unavoidable. We believe that the world must pursue the twin objectives of limiting
climate change to the lower end of the IPCC emission scenarios in line with
current international agreements, while providing access to the affordable energy
required to continue the economic growth essential for maintaining living
standards and alleviating poverty. ….. We will, through material investments in
low-emissions technology, contribute to reducing emissions from fossil fuels.”
(Annual Report, www.bhpbiliton.com, 2014)

As it can be seen in the Report of the biggest natural extraction company

worldwide, beside the presentation including the evaluation of the extraction of
natural resources in terms of profit maximization, the environmental
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From the accounting of war to the accounting of peace: putting bricks for a new... 51

responsibilities incorporate therein slowly, slowly, because the company is bound

to undertake such obligations in view to maximize the shareholders’ profits, on one
side, and to reduce the polluting emissions, generated by the power industry and
the destruction of the environment by the extraction of mineral fossil resources.

3.1.3 Dissolution of social relationships and the development of human

individualism

Jacques Attali (2007) paid attention to the existing tendencies toward the
dissolution of social relationships in the contemporary world, the discretisation of
the family, nation, and race concept, and the development and control of
individuals through the web. The author certainly refers to the new tendencies of
setting up social networks, where the people replace their family, to which they
should have shared their feelings, by abstract intangible individuals, through the

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social networks. The result is an enhancement of the human egocentrism, the
individuals’ loneliness, and the easy control of the people in view of economic
purposes, by identifying them through the commercial applications designed to spy
the people’s commercial behaviour, and therefore, the buyers make the most of the
information provided by the network managers. Similarly, the insurance companies
or the security services of any country can easily monitor the individuals, taking
advantage of the topics approached by the people on social networks and obtaining
potential sufficiently concluding information about each individual’s information
network. In this way, the utterance of human feelings on the social networks may
be converted into commercial information and finally, into money and economic
performance.

As a matter of fact, the explosive enhancement of Facebook’s shares is actually

based on the commercial exploitation of the people’s feelings, particularly of the
youth’s personal opinions, by making them to disclose their
secrets/feelings/emotions in front of hundreds of unknown fans, instead of their
family or beloved person, so basically destroying the classic cell of the society: the
human family. In terms of anthropological terms, the destruction of the family, of
the direct woman & man relationship, and the people’s connection to a social
network of which financial interests they do not know, transform such individuals
in a controlled mass of any society, similar to canis lupus (grey wolf), where the
master is the alpha male, and the rest of the community is below it and gravitates
around it. While the society is getting matriarchal capacities, along with the
formation of human poly-conjugal relationships, the accounting remains
unconcerned and does not assess any destruction of the classic human social
networks, counting just the economic performance of the social sites that have been
turned into the merchant of the masses of consumers, or into ultra-spies of the
human behaviour.

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3.1.4 Globalization

Globalization phenomenon was promoted since the very the end of the Second
World War. Concomitantly with the establishment of the Organization of United
Nations, other financial institutions were setting up, in this respect, in order to act
worldwide: the International Monetary Fund and the World Bank. It goes without
saying that generally, the denationalisation/privatization policy of the two financial
institutions did not achieve final successful solution, except certain particular cases.
The Romanian economy has also become a victim of the privatization solutions
supported by the World Bank and the International Monetary Fund. Thus, pursuant
to the monitoring actions and imposed solutions of the two organizations for just
20 years, the Romanian infrastructure and industry, like in many other countries
where these organizations have imposed hard economic policies, were destroyed
finally, because the safety seatbelts of the nations that have followed the policies

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imposed by these organizations were damaged. Thus, the privatizations in the
strategic fields, such as water and sewer system, electricity, oil, banks has pushed
the country to such situations in which the government could not intervene
practically and effectively to protect their citizens in crisis situations, being
powerless against the book profits of the big corporations that had acquired the
control of these essential control pedal. The price of drinking water was increased
in many situations, taking advantage of the corruption networks developed at the
level of the public utilities companies, which became foreign companies, while the
government could not do any price adjustment. The privatization of the banks led
to the destruction of the loans given to the national companies, thus bringing
forward the foreign and multinational companies. Pursuant to the privatization of
the national oil company, the government had not any key solutions to regulate the
market in the crisis periods, as it had used to do before, when the government had
owned the oil company and had faced successfully any surge in the fuel prices in
the economy.

None of the facts acclaimed by the exponents of globalization was achieved in the
emerging economies, if the national governments followed the advice of the
exponents of globalization. The so-called economic growth, which should bring
economic prosperity for all (Gershman & Irwin, 2000; Millen et al., 2000), turned
into a bubble of economic growth, mainly including the real estate business, which
upset the economies worldwide, once with the beginning of the economic crisis in
2008. At the same time, at the advice of the International Monetary Fund (IMF)
and the World Bank (WB), huge artificial indebtedness occurred in the emerging
market economies. Romania took out a loan in 2009, aiming at balancing the
balance of payments of the National Bank of Romania, under the “Vienna 1
agreement” concluded with nine foreign banks under the umbrella of the IMF and
the WB, and at the request of such banks that were operating in Romania to
guarantee the loans granted in the market, Romania was forced to give up the
existing minimum mandatory deposits of those banks at the National Bank of
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Romania, with a view of the transfer of such deposits to their home countries, to
safeguard parent banks. The initial amount of the loan was about 20 billion euros
of which 9.8 billion euros were actually drawn for the mentioned purpose. Thus,
the Romanian nation borrowed from the International Monetary Fund and the
World Bank an amount of 9.8 billion euros to save the parent banks in Austria,
France, Germany, Turkey, Greece etc. (Mediafax, 2010). For such banks, in
economic terms, such draw was called a recapitalization of the bank; in economic
terms, for Romania, it was called spoliation of a country, to solve partially or not at
all, the financial problems of the foreign banks.

The impoverishment phenomena of the economies represent a general process,

where the public services of education, the health services and the water provision
services were privatised, and the people who could not afford to pay these services
were practically deprived of their right to life (Korten et al., 2002). The cultural

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and relative aspects of the poverty became absolute features and life-threatening,
pursuant to the vesture of corporative globalization (Korten et al., 2002).

The research it has been chosen from the numerous effects and examples of the
manifestation of globalization in economy and accounting those considered as the
most devastating:

IASB Standards and the European Directives have destroyed the cultural
capital of the nations in favour of the International Standards
Until 50 years ago, the accounting system developed simultaneously with the
economic environment, always being an information instrument of the economic
actors, whether managers, traders, employees, governments, or public, in general.
The accounting theory was always considered as a prolongation and sedimentation
of any discovery of the accounting procedure at that time. The innovation aspects
were perfected in practice, and afterwards the accounting theory abstracted such
aspects to be further used by the next generations (Dobroteanu, 2004). The
appearance of IASC (the International Accounting Standards Comittee) in 1973
(Feleaga, 1996), and the Accounting Directives (the 4th and the 8th Directives) were
the first pawl of the normal evolution of the accounting theory. The international
accounting standards were established on the grounds of the US standards, which
were reconciled with the European accounting policy, and the two systems of
accounting knowledge met each other in the body of international normalization
IASC, under a convergence process that lasted about 20-30 years (Feleaga, 1996).

Pursuant to the convergence process, which supposed the embedment of the

accounting policies applicable to different elements and economic transactions into
the international standards, identifying, as a rule a benchmarking and some
alternative accounting policies, the harmonization process allowed the limitation of
the options as regards the accounting of economic transactions in the re-viewed
international accounting standards. Thus, IASB (the former IASC was renamed as
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the International Accounting Standards Board) became the main body of the
international accounting normalization, in view to becoming accessible to potential
investors from other financial markets. In fact, IASB created its intellectual capital
by establishing own accounting standards, and proceeded to export it to all
industries wishing to have access, whether deliberate or not, to the global market of
financial services. It was the first genetic structural change in the propagation
mechanism of accounting that implemented the practice in theory since thousands
of years, consisting in an inversion, the implementation of theory in practice. This
fact generated numerous mutants in the global economy, as the international
accounting standards were developed starting from the knowledge levels of
neoliberal economies and was exported, without seeing on the entire area
controlled by the capitalist society. In fact, the mechanism described above
reconfirm Bourdieu’s theory (1986) referring to the expansion of the occidental
intellectual capital and the destruction of the local knowledge, which practically,

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was the result of the economic development of that period. Certainly, the failure of
the international standardization as regards the accounting system of the small and
medium enterprises proves a lack of utility in this process for the nations captured
in the process of the international accounting standardization.

ACCA, a means for exporting the English intellectual capital into accounting
The actions of the Certified Public Accountants from Great Brittan, related to the
capitalist economies, is another mechanism that succeeds to remove the local
accounting knowledge, and the accountants’ connection to the imposed accounting
systems. Taking advantage of a performance training system required by the level
of knowledge found in the British economy, the British professional body succeeds
to multiply its professional training mechanism and exploit it financially on a
global scale. As a consequence, the certification system promoted by the British
ACCA has become an extremely effective financial mechanism for the export of
the British accounting knowledge to all developing capitalist economies, the
members of the profession gaining, in this way, a preferential status of their
professional recognition.

Basically, we are witnessing a well promoted mechanism for the sale of specific
courses (intellectual capital) to countries with lower accounting training, but we
have in mind the hyperdemocratic precepts brought forward by Jacques Attali
(2007) – the transhumans; or by Vandana Shiva (2005), who state that selling any
knowledge is immoral and against the most advanced precepts of human
cohabitation. In the authors’ opinion, knowledge must be a common good of our
civilization and no organization should take advantage of a dominant access
position to knowledge, because this fact would mean a subjugation of individuals
who have not yet accessed such knowledge, and also a non-democratic exploitation
of such individuals, for financial purposes. Basically, the need to open the barriers
to knowledge and the need of not taking any advantage from the scientific
discoveries, within the meaning of financial exploitation, come from the study of
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Kohlberg (1984) who wants a society composed of individuals who understand not
only the need for social order (the 4th stage in Kohlberg's study: Maintaining Social
Order), but also maintain the vision of the universal principles of human existence,
such as justice and freedom (the 6th stage: Universal principles).

The loans from the International Monetary Fund and the World Bank: the
privatization of public services - a manifestation of violation of the
fundamental human rights to privacy and of the freedom of movement
Obviously, the findings of Stiglitz (2015) regarding the fact that, through
accounting, the institutions of corporate globalization extract resources from the
under-developed countries, while such countries are not aware of the destructive
phenomena to which they are submitted to. Accounting has become a part of a
regulatory schemes that allows the private accumulation to take roots and flourish
in the under-developed countries, Arnold and Sikkim (2001), Lehman (2005)

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quoted by Chwastiak and Lehman (2008). The supranational institutions can
govern remotely (see the actions of the IMF and World Bank) through the
international accounting system, but also by other components of information
technology, destroying the safety systems of the states through the privatization of
the fundamental services of the states (Eurodad, 2006; Neu et al., 2006). Even
more, according to the discourse affirming that the economic issues must precede
the social issues, the production of public goods, such as education, water,
electricity is made in such a way that the marketization thereof has become
essential (Neu & Ocampo, 2007).

Although the loans and the monitoring arrangements of the International Monetary
Fund and the World Bank should generate prosperity in the countries under the
financial assistance programs, in fact, the situation is contrary to what has been
expected. For example, the percentage of the overall income generated by 20% of
the poorest countries of the world has not increased in the last period, but declined.
Thus, 20% of the poorest countries produced 2.3% of the global revenue in 1960,
and 1.4% and 1.1% in 2000 (Gershman & Irwin, 2000: 14). Moreover, the number
of the persons suffering from chronic hunger had declined between 1970 and 1980,
but it started to grow in 1990 (Cavanagh & Mander, 2004: 23) quoted by
Chwastiak and Lehman (2008: 214).

3.1.5. Forms of the hyper empire

The war stimulates the economy

The economic organization, in the view of being prepared for a war anytime, is an
old precept promoted by Mussolini and Hitler in the early 20 th century. Il Duce
lectured at the Autarkic Council on 19 November 1938, stated that war is the
normal state of the nations and the economy must be permanently prepared for war.
German Nazis thought that the economy of war – the wehrwirtschaft – is the
normal state of the economy and must be constantly maintained. Unfortunately, the
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US politicians came to the same conclusion, founding out that the recovery from
the Great Depression of 1929 - 1933 could not be achieved only through state
intervention in the economy, when the state became a major buyer of goods and
services during the Second World War. Even after the end of the war, they
concluded that if the US government had narrowed its interference in the economy,
a new economic depression would have been generated after the satisfaction of
consumers’ needs (Chwastiak, 1999).

Consequently, the US government continued its Keynesian military policy through

which the budget has become the main mechanism that furthered the status-quo of
the distribution of wealth and power through wastage generation undeclared
subsidies awarded to the high technology industry (Caldicott, 1986; Chomsky,
1992; Markusen & Yudken 1992), because on the other hand, it is quite difficult
for the population to accept the taxes increase, to support these industries, and

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because such costs enter into a tough competition with education, health, culture.
That is why the initiative of an extensive health reform of the Obama’s
administration - „Obamacare”- faced the an extremely tough resistance of the
centres of power of the US administration, and the package of measures was
extremely criticized, starting from the fact that such initiative would require cuts in
the military budget. US government strives to convince its citizens that the defence
budget should be a consistent one, to the detriment of social services, by
convincing them that the state security is more important than the human safety.
This was achieved by creating a permanent psychosis among US citizens that their
life is threatened by the evil empires (Russia), terrorists (9/11, Syria), or imposing
the overthrow of certain dictators, in view of the democratization of relevant states
(Iraq, Libya, Syria, Yugoslavia). In the meantime, accounting has contributed
permanently to the militarization of the United States and stimulated the creation of
a mechanism through which the budget allocations are transferred from the US
taxpayers to the capitals of the companies providing military facilities, via the US
budget (Chwastiak, 1996, 1998, 1999).

However, the main fault of accounting is the stimulation of a permanent war state
in the society and economy, turning the war into a viable permanent option, and
failing to segregate the Profit & Loss obtained under life-sustainable transactions
from the Profit & Loss obtained under life-destructive transactions. In fact, in spite
of all its efforts for transparency in the last hundred years, accounting failed in
sorting out the profits earned from the production of food for hungry people and
the profit from the bombs of mass destruction. Even more, as the elitist
mechanisms of the weapon production determined an extremely close list of
weapons suppliers, the profits of those companies increased and restricted
competitiveness in this field. US weapon production has brought gains not just for
the weapons manufacturers. An entire industry connected to the US lobby system
prospered from the US military force. It is the case of the companies that received
commercial contracts with the states transformed into commercial partners (de
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facto, read colonies), by which they drain the resources of such states to the US
economy. It is what, in specific terms, are called colonial agreements. We still need
to mention that such contracts are not just the privilege of the US companies, but
also traditionally belong ever to the winning countries, either in military wars or in
economic wars.

Colonial contracts: Bechtel highway in Romania, China’s loans in Angola and

the appearance of ghost cities
The long series of colonial contracts is spread anywhere in history, where any state
in the position of conqueror had to transfer in one form or another the values
produced by other nations. In fact, a colonial agreement means a contract
concluded, either directly or indirectly, between a company from the conqueror’s
State (empire) and the conquered State, by the transfer of its monopoly to such
company (water, electricity, oil). Romania has also concluded many forms of

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colonial agreements over time, which were means superior to the Conqueror
State’s means of ddirect taxes collection from the Defeated State (war reparations).
Thus, for the arrangement regarding the acceptance of Romania into NATO, the
Romanian administration signed a contract with Bechtel American Company for
the construction of a highway between Brasov and Oradea (Autostrada
Transilvania), without any auction or a design contest. That time, the press reported
with reference to that colonial contract: „In 2003, the Romanian government:
Nastase government, decides to finance the Brasov - Cluj - Bors highway
construction and entrusted this contract to the American company „Bechtel”. The
event has immediately roused controversies and scandal, because of the price,
which was secret, and of the assignment details that made the contract ineligible for
any European aid etc. The contract was active in 2004, discontinued in 2005, on
the initiative of the newly installed political power it was resumed in 2006 after a
renegotiation, other renegotiations took place in 2009 and 2011, and finally the
agreement was cancelled this year. Finally, the Romanian state has paid ~ 54% of
the originally price estimate, giving to service only ~ 12% of the length of the
highway. „(Hotnews, 2013). The contract price of 2.3 billion euros
(http://www.autostrada-transilvania.ro, 2014), representing the price of Romania's
entry into NATO, is extremely high.

The Colonial contracts are concluded not only with the US. A famous example is
the transfer of the right of oil extraction by the Angolan government to a Chinese
state company, in exchange for the construction of houses for people in need. One
of the populist election promises of the President José Eduardo dos Santos was the
construction of one million houses for the local poor population of the country.
Consequently, the Chinese company built entire cities in exchange of the oil
extracted from the Angolan subsoil. The first 3.4 billion dollars’ worth of the
project was a total fiasco, because Kilamba city built in this way had 20,000 new
homes that remained empty because of the exorbitant costs of the apartments. For
an ordinary Angolan, $ 120,000 represents an amount far too high for a gain of 2-3
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58 Accounting: Principles and Practices

dollars per day. China, however, has obtained considerable resources of oil, in
exchange for the buildings constructed for the poor people who never moved in.
(https://www.youtube.com/watch?v=V8HyDGCNxpo). In the case of these
colonial contracts, the accounting has failed to show the huge losses suffered by the
countries and has registered the data as profits or investments, without seeing their
social impact. The treatment of the transactions from the angle of the obtusely of
the profit and loss account eludes the overall picture of the wastage of economic
resources determined by lost or unfeasible social causes.

Economic blockades
The economic sanctions system has become the most viable tool to determine a
nation to subdue to (Garfield, 2002) at the end of the Cold War. Since the
economic sanctions were adopted by the United Nations in 1945, they were applied
fourteen times until 1990. The most severe economic sanctions were imposed on

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Iraq (Gordon, 2002), quoted by Chwastiak by providing a cheap alternative to the
war. The creators of the economic sanctions may impose a maximum pressure on
the opponents, with minimum sacrifices (Harding, 2004).

The research shows that although the economic sanctions achieve their political
goals, they bring serious harm to the civilian population and, in particular, to the
disadvantaged people (Gartfield, 2002; Harding, 2004). For example, the economic
sanction on Iraq has caused more victims than the Iranian-Iraqian war and the first
war in Iraq with the US in1991. According to the United Nations, about 1.2 million
Iraqis died as a result of that embargo and the post-war bombing, and UNICEF said
that Iraq experienced the most appalling mortality rate in the world with less than
5,500 deaths among the 5 years old children, per each month (Newman, 1999, p.
23 quoted by Chwastiak, 2008). As stated by Eric Hoskins, a Canadian doctor who
conducted a research team on the allied bombing in Iraq, they „have effectively
destroyed any vital element for human survival in Iraq: electricity, water,
agriculture, industry, health” (https://en.wikipedia.org/wiki/Eric_Hoskins). The
officials from the Pentagon have justified their action as being necessary to
accelerate the effects of sanctions (Clark, 1992; Nagy, 2001). The US officials
were aware that Iraq was dependent on the equipment imports and chemical
products specialized for purifying water, and according to a document of the
Defence Intelligence Agency, „failure to provide these items would result in lower
quantities of pure drinking water for the majority of the population. The result
could be materialized in increased incidents, and even epidemics or diseases”
(Nagy, 2001, p. 22). In 1999, a United Nations official in Baghdad acknowledged
that the root of infant mortality in the country was the lack of clean water that
caused the children’ Kathy Kelly disease (Cockburn & St. Clair, 1999; Gordon,
2002). Madeline Albright, the US ambassador at the United Nations, when asked if
they deserved these punishments with the price of the deaths of half a million
children in Iraq, she replied: „I think it was a very hard choice, but the price, I
think, was worth it” (Kelly, 2001: 145; Pilger, 2004: 19 quoted by Chwastiak,
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2008). The example herein describes the accounting’s failure in the evaluation of
the deaths of half a million children, a real post-modern holocaust, as compared to
the benefits of applying economic sanctions on a regime that did not meet the US
interests.

The history of the embargo against Iraq was nothing in comparison with the
victims of the economic blockade against Syria and the Islamic State in 2015 and
up to-day. Thus, an atypical state formation, which has radicalized the Muslim
civilization, was born on the background of the regrouping of Sadam Husein’s
Sunni generals. As researcher it will be interesting to see the costs evaluated
through the means of the accounting of war, for the sanctions imposed to the
Syrian government, and the collateral destruction caused by the war against the
Islamic State in Iraq and Syria at the end of the war.

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Environmental preservation and the accounting evaluations
Accounting quantifies the environmental pollution, solely through the costs
imposed to the developed countries in view of preserving the environment. None of
the normal elements of costs generators, related to environmental preservation, is
found in the under-developed countries or uncontrollable nations. It will be
founded only part of the costs for environmental preservation in the developing
countries, because the environmental legislation thereof has various stages of
implementation (please see also Romania). In other words, accounting fails to
quantify, consistently and consequently, the environmental impact of polluting
processes. However, the president of Stratfor: George Friedman, appraised at
conference in Australia, at a book launching, that the only chance to introduce any
means for environmental preservation, in view of being used by the states, is to
discover new technologies and to replace fossil fuels. Wishing to come off of the
umbilical cord generated by fossil fuel resources controlled by the Arab states and
also influenced by Russia, the United States will have every incentive to replace
these technologies, for solving this strategic problem. In the opinion of the US
geostrategic analyst, the solution will not come from the potential treaties, which
the world's states are trying to conclude worldwide but through the medium of the
US Army, such technology being a solution to counteracting the Arab and Russian
geopolitical influence. Therefore, the technologies, which will replace fossil fuels,
will be thoroughly pursued to achieve the annihilation of such states’ influence
over the US economic interests.

3.2 How accounting has to redefine its concepts based on the new thinking
of earth democracy and hyper democracy?

An interesting debate between economists shall be launched, regarding the

evaluation of happiness and the balance between the human race and the
environment in the context of respecting the equality in rights and preservation of
the natural environment but also the preservation of the traditions and human
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behaviours regardless the size of the socio-groups (Shiva, 2005). This new concept
will try to replace the current concepts of profit and fortune which become obsolete
in the new societies.

A first issue is the quantification of any transaction under which human species
receives benefits and animal species should be slaughtered. The question is how it
could be evaluated the right of the human race to sacrifice other species for own
food? When it could be sacrificed an animal or a plant to satisfy our existential
needs? Can the financial evaluation further quantify these transactions? Is the legal
system ready to accept equal rights to life for all species on Earth? Is there any
difference between wildlife and the human life reproduced by man in order to
satisfy its needs? Is there a limit for the mineral resources extraction? How do it
can be reflected in the accounting books the environmental degradation, even a
temporary one, and the need to rebuild the devastation done to nature in a

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sustainable time horizon?

A first issue that should be solved is the legal problem: equal rights with other
species in nature. This will generate a profound paradigm in human life, with
extremely important consequences in all areas. It should be thinking about how
complicated it was for humanity to accept the abolition of slavery and forced
labour, to be able to evaluate this proposed step. Today it still can be funded
sequels of the oppression of people by people in different societies, such as at the
prison countries like North Korea, for example.

It can be believed that the definition of, and the solutions for, the first problem will
take a good time. The implementation of the solutions implies the evaluation of the
opportunity cost of sacrificing an individual (who does not belong to the human
species) to satisfy a need of another individual. In the researchers’ opinion is sure
that the value judgment cannot be financially assessed and here it should turn to
assessments specific to life forms, such as, for example, the transfer of energy: how
much energy does a human individual gain by killing an individual of a non-human
species? This would be the measure of the rationality or non-rationality of that
action.

The second problem is the definition of the fundamental objective of any

organization that becomes a relational organization, according to Attali’s
predictions. If the individuals who promotes hyperdemocracy are transhumans, for
whom the others’ happiness represents the achievement of their objectives, then the
human happiness generated by the organization is the supreme measure of its
performance. But how do we assess such happiness? If it can be evaluated the
decision to sacrifice an individual of another species for the benefit of the human
species, through the human’s energy gain versus the energy costs related to the
individual’s sacrifice, it could be similarly assess that the energy value of
happiness, gained as a result of the actions of the relational enterprise, versus the
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energy consumption needed to carry out such actions. It can be appreciated that
energy is a more conservative assessment tool, and easier to be absolutely
perceived and evaluated than a monetary unit that depends on the transactions on a
certain market and is subject to certain monetary regulations. Basically, the energy
is converted into money market, and such currency is moving, as the life depends
on it, and therefore, it could be perceived both by the human race and their species
with which we have the obligation to share a common future.

The Accounting reports of peace should succeed to present the happiness brought
by an organization and the positive energy resources thereof that are able to
maintain the creative processes of happiness.

Thus, it can be imagined a report addressing the means used to achieve happiness
in an organization, by explaining how such organization has produced an additional

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positive energy (happiness) in the society (happiness produced to the individuals),
the equivalence of the profit and loss on the current day, and a report presenting the
elements generating happiness / positive energy in the future and those that will
generate energy consumption in the organization in the future (unhappiness), and
which correspond in terms of a reporting system to the balance sheet of the current
day.

In accounting it can also be imagined a report of main energy flows within an

organization: operational energy flows (equivalent to operation flow), strategic
energy flows (equivalent investment flows), and streams for attracting new
energies or for the withdrawal thereof (equivalent to the current financial flows). It
is interesting to find out what would be the role of the financial system and of the
interest as a means of remuneration of the time in a financial system? The
researcher consider that the immorality of the interest usage promoted by all
religious philosophies of the world, will determine its removal from the
hyperdemocratic society of Attali and Vandana Shiva, where the monetary system
will be already compromised. Maybe the negative interests are the reverse side of
the usage of the immoral rates of interests in these times.

4. Conclusions
By extrapolating the theme of this research, the accounting, as a tool of force for
war, did nothing but stimulate the aggressive behaviour of the world leaders, and
also of the multinational corporations, which are guided by what the accounting of
war calls “profits”. On the planetary scale, profits have the meaning of George
Friedman’s assertion in his speech: “the subjugation and control of others is your
profit. And for your profit, the damage caused to others is quantified just through
the costs generated by the use of arms in the respective conflict”. The accounting

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was failing to speak in its financial reporting, under which the accountants carry
out their current activity, about any facts that involved the loss of life on both sides,
about physical and psychological mutilation. That is why economic philosophy
must develop new concepts, by which such reasoning shall not continue to lead to
Friedman's conclusions, which are in harmony with „collateral casualties”. From
now on, economists must develop new concepts and use such concepts to develop
its existential philosophy. Therefore, the solution proposed by Vandana Shiva
(2005) is the transition from an “economy of war”, acclaimed by the Nazis and
replicated in various forms throughout the 20th century and the early 21st century, to
“earth democracy” and her proposed “natural sustainable economy”. In this regard,
an accounting information system shall be rebuilt and adapted to peace conditions.
Thus, the hyperdemocracy imagined by Jacques Attali (2007) is a social
organization, which will start in Europe and will be based on relational enterprises
in inclusive systems, safeguarded by virtuous circles, as defined by Acemoglu and

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Robinson (2005). In terms of political organization, it will have to rely, according
to them, on inclusive political institutions, grouped, as Attali conceives, around the
Organization of United Nations. The transhumans, as entities who feel that the
main way of the people’s self-fulfilment is his/her happiness, will form the advance
guard of hyperdemocracy and will consider the others’ happiness as a purpose and
a value as such. In other words, the accounting of peace will have to devise a new
system of values, which will put the human happiness and respect for equal rights
between species on the highest basement of value, and afterwards, also the need to
preserve the natural environment, and the protection of traditions (Shiva, 2005),
which should replace the current accounting concepts of profit and wealth, which
becomes too narrow to define new human and social values.

A new and interesting debate will be for the next researches how it can be secured
the new social order by the usual violence of the actual society to not disturb the
new equilibrium of the new society as imagined by Shiva Vandana. The protection
of the juridical system has to be made in such way that the horrors of the past and
abuses of the present to not revive ever. Future research might investigate the
optimum organization in the next period, in a manner similar to the picture
imagined by the philosophers and the environmental activists, and to derive the
implications for accounting.

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 4
An analysis of the influences of individual
optimism, risk taking and self-confidence on
professional accounting judgment
Victoria Bogdana, 1, Ioana Teodora Meştera, Dana Gheraia and
Carmen Mihaela Scorţea
a
University of Oradea, Romania

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Abstract: Chaotic dynamics of today’s global business environment exert a
tremendous pressure on professionals accounting judgment performance. A survey
was mailed to Romanian professional accountants to examine their perception on
accounting judgments and decisions. The results based on 531 valid responses
indicate that professionals considered that a judgment in accounting is influenced
by the responsibility of the accountant in preparing the financial statements
according to the regulatory financial reporting framework. Also, they think that an
adequate accounting judgment is best characterized by: "logical, consistent and
substantiated", characteristics. Exploring statistical differences between
accountants, grouped by age, gender, as well as years of practice, we found that
younger investigated accountants are more optimistic that the ones over 45. We
have used Chi-Square test and Pearson’s correlation coefficient and showed that
there is a correlation between accountants’ propensity towards optimism and their
perception regarding the need of a theoretical framework of JDM, and between
accountants’ propensity towards risk and their choice regarding the aspects that
influence accounting judgment. Also, accountants’ self-confidence is in direct
correlation with their opinion regarding the aspects that influence JDM in
accounting, but there is no statistical correlation between accountants’ propensity
towards optimism and their choice regarding the aspects that influence accounting
judgment. Our results showed that is on interest to further investigate these
correlations to identify new ways to improve JDM in accounting. The role of

1
Corresponding author: Victoria Bogdan, University of Oradea, Faculty of Economics,
str. Universităţii nr. 1, Oradea, 410089, Romania, email address:
[email protected], [email protected]

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66 Accounting: Principles and Practices

professional accountant is shaped by the pressure of several external factors that

also mark their behavior, hence, accountants are not robots, are humans.

Keywords: professional accountants, judgment and decision making, optimism,

risk taking, self-confidence

JEL codes: M41, A14, Z13

1. Introduction
Given that the accounting standards offer mainly general guidance regarding
preparation of financial statements, accounting professionals are found many times

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in situations requiring specialized skills, use of cognitive skills and exercise
professional judgment (Brown et al., 1993), as the financial reports are the end of
the product of numerous judgments and decisions (Hronsky & Houghton, 2001).
Judgment and decision-making in accounting is part of the psychological research
area "Behavioral Decision Theory", which explores how the accountants make use
of these skills - judgment and decision (Trotman, 1998).

The subject of judgment and decision-making in accounting, we found treated in

literature since the twentieth century, when Mapp (1937) supports the idea that
"factual information and accuracy in its procurement are essential, but its value is
submerged unless with it is synchronized the development and training of the
judgment". Later, in 1987 Treadway Commission emphasizes that "bona fide
differences of opinion arise in financial reporting, especially if novel or complex
transactions are involved. Generally accepted accounting principles may not
always be clear on the appropriate accounting treatment and the company and its
independent public accountant must use judgment in making a decision"
(Treadway Commission, 1987). Although, we are in a time when research is
highest in all areas, we support the idea that the accounting is very different from
other areas, even from the audit because significant difference in various problems
or analysis appear, or even in accounting judgment (Mason & Gibbins, 1991).

In terms of accounting professionals, constantly subjected to pressure in order to

make the best decisions, "accounting professionals, in general routinely think about
actions, situations, objects, persons, or events outside the realm of their direct
experience. That is, they think about the future or the past distant locations rather
than proximate locations, other individuals” perceptions or experiences, or
hypothetical events rather than actual events. They also make plans, render
judgments, and make choices based upon, or influenced by those thoughts
(Weisner, 2015). Chand and Patel (2011), in their research analyzed the period

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An analysis of the influences of individual optimism, risk taking and self-confidence... 67

between 1972 and 2010, where in the five top-tier accounting journals, they made
review of what have been published on accounting judgment and decision making.
The review of the studies propose that judgment and decision making in accounting
has some basic points: "(i) to identify the extents of similarity in the meanings of
key accounting concepts held by various parties involved in the preparations and
use of financial reports, ( ii) to describe how professional accountants interpret and
apply accounting standards, in particular examining the ambiguity in the
interpretation of uncertainty expressions, (iii) to identify the influence of other
factors, including national and linguistic culture, on the interpretation and
application of accounting standards, and (iv) to provide some insight into the
theoretical and conceptual issues in accounting judgment and decision-making
research".

The present study is based on a survey of Romanian professional accountants’

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opinion on judgment and decision making in accounting and is part of the studies
that analyze the behavior of professional accountants. Taking into account the
review of previous work on the topic we have set up research questions and
elaborated hypotheses. We consider our endeavor adds value to the existing
behavioral accounting research by questioning and investigating some potential
correlation between individual traits, like: optimism, risk taking and self-
confidence and judgment and decision making in accounting. Our work is
organized as follows: a brief introduction on behavioral accounting research and
the first studies conducted on judgment and decision making in accounting
announcing our intentions of research, prior research on the topic highlighting
several studies related to accounting judgments, estimates and decision making, the
methodology and sample selection process, descriptive statistics of the interested
received responses from professional accountants, research questions and
hypotheses based on the analysis of similar studies, the section of discussion of
obtained results from the statistical testing of the work hypotheses and in the last
section of the paper we have outlined the main findings, limits of our study and
potential for future works on the topic.

2. Previous research conducted on judgment, decision

making and accounting professionals behavior
Accounting is not an exact science, because getting relevant information is
necessary to carry out the reasoning for each case (Istrate, 2004). Given this,
becomes imperative, at a time when the truth is not only one, to investigate
perceptions of professional accountants on accounting judgment and decision
making. Reporting to timing, the 50is, when in judgment and decision making
(JDM) prevailed mathematical models, now the reviews are structured by task
categories, with section headings such as “preferences,” “beliefs,” and “decisions
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68 Accounting: Principles and Practices

under risk and uncertainty” (Payne et al., 1992), and “risky choice,” “intertemporal
choice,” and “social decisions” (Loewenstein et al., 2007).

As far as the notion perception is concerned, Solomon and Trotman (2003), noticed
that judgments refer to “subjective assessments made as a prelude to taking action”
and decision mean “action that people take to perform some task or resolve some
problem”. Thus, investigating perceptions of professional accountants on
accounting judgment and decision making has shown that judgment of professional
accountants is not made in a vacuum and that a number of factors, like culture,
level of education, experience, accounting firm affiliations, influence the
accountants when making professional judgment (Libby & Luft, 1993; Fraser &
Hatherly, 2003).

Chand and Patel (2011) found in the five top-tier accounting journals only 17

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papers for the period 1972-2010, that fall within the domain of accounting
judgment research. There are studies that provide some insight into the theoretical
and conceptual issues in accounting judgment and decision making research
(Belkaoui, 1980; Gibbins, 1984; Emby & Gibbins, 1988; Brown et al., 1993;
Hornsky & Houghton, 2001; Doupnik & Richter, 2003; Clor-Proell & Nelson,
2007). Barcellos et al. (2016) conducted an exploratory analysis on Brazilian
professional accountants; their cognitive reflection abilities were measured through
Frederick’s (2005) cognitive reflection test (CRT). The results revealed that male
Brazilian accountants tend to be more reflective than their female counterparts and
also, that professional accountants tend to become less reflective and more
impulsive, as they age. Patel (2006), empirically examined through a survey
questionnaire administered to a sample of senior professional accountants from Big
Five accounting firms, the cultural influences on professional judgment of
Australian, Indian and Chinese Malaysian accountants in relation to auditor-client
conflict resolution, and whistle-blowing as an internal control mechanism.

Patel’s (2006) results showed that Australian professional accountants are less
likely to resolve audit conflicts by acceding to clients than Indian and Chinese
Malaysian professional accountants, and are also less accepting of resolving audit
conflicts in this way. Furthermore, Australian professional accountants are more
likely to engage in whistle-blowing as an internal control mechanism than Indian
and Chinese Malaysian professional accountants, and are also more accepting of
doing so. The empirical study conducted on 251 professional accountants
employed in Hong Kong firms, by Lui et al. (2001), examined interrole conflict
influence on job satisfaction and propensity to leave. The obtained results from
hierarchical regression analysis revealed that interrole conflict was associated with
low job satisfaction and high propensity to leave. Another study written by Shafer
(2002), examined the effects of ethical pressure on management accountant’s
perception of organizational-professional conflict, and related work outcomes. In

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An analysis of the influences of individual optimism, risk taking and self-confidence... 69

order to asses Certified Management Accountants perception on the relevant

variables a survey was mailed to a random sample of professionals and the
obtained results indicated that ethical pressure was associated with higher levels of
perceived organizational-professional conflict and also, higher levels of conflict
were associated with lower levels of organizational commitment and job
satisfaction. While, results of Patten’s (1990) survey on lower level accounting
professionals indicate that accountants have a higher perception of the importance
of the heart traits (first identified by Maccoby) that have been associated with
ethical inclinations than both managers and business students previously surveyed.

As regard the studies conducted on Romanian professional accountants’ behavior,

we mention that in 1999 and 2005 the attitude towards flexibility of a number of
Romanian accountants were tested (Olimid & Calu, 2010) and the authors observed
that, over time, accountants’ attitude moved to less uniformity. In another train of

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thoughts, Mustata et al. (2011) showed the sociological-psychological environment
of accountants and their everyday problems and considered that Herzberg’s theory
can identify and explain reasonably well the motivational factors of today’s
Romanian accounting professionals. Albu et al. (2011a) are of the opinion that
after a 50-year communist period and 20 years of continuous reforms as a
background, the Romanian accountant is forced by the business environment to
expand its roles, transforming more and more into a consultant or business analyst;
the transformation being accompanied by a special emphasis on personal and
environment-related competencies, leading to an improvement of CSR practices.
Also, Albu et al. (2011a) revealed that future development of the Romanian
profession is needed and the Romanian accounting professional bodies, CECCAR
and CAFR, have to commit to increase the orientation or Romanian accountants
towards CSR, as other professional bodies do at the international level.

Other studies analyzed the historical evolution of accounting and the change in the
accounting profession in Romania (Albu et al., 2010; Albu et al., 2011b) or the
ethical behavior of the accountants (Usurelu et al., 2010).

3. Research methodology and sample selection process

3.1. Methodology

We carried out this study based on the results of previous research (Bogdan et al.,
2016; Bogdan et al., 2015a; Bogdan et al., 2015b) which had as central objective
testing the correlations between various endogenous psychological variables or
certain personality traits and the perception of MA students in accounting and
finance regarding the accounting professional judgment. Our study is among
questionnaire-based studies conducted by the investigation of professional

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70 Accounting: Principles and Practices

accountants on their cognitive abilities, their specialized and transversal

competences or professional judgment. The main objective of our study is to
investigate the perception of professional accountants on professional judgment
and accounting decision making. In this view, the research instrument used was the
questionnaire that was sent to professional accountants. In this endeavor we have
included in the category of professional accountants the people who operate mainly
in accounting and who are chartered accountants or certified accountants certified
by the professional body CECCAR.

The questionnaire contains 43 questions out of which:

 7 questions aim at general information on education and professional
qualification, experience, the organization of business and professional
income, age and gender of respondents;
 20 questions investigating the professional judgment and accounting

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options, as follows: 3 questions aim at the perception of professional
accountants of the influences and motivations in exercising the
professional judgment and the interest in selecting accounting policies, 6
questions are related to the theoretical framework of professional
accounting judgment (KPMG, 2011), 4 questions seek the respondents'
perception on the attributes of professional accounting judgment and the
behavior of professionals to its characteristics, a question envisages the
professional judgment exercised in order to award an accounting treatment,
4 questions are intended to interview the respondents in terms of the
relationship between the time factor, customer satisfaction, the
expectations of managers and the professional accounting judgment and 2
questions target the link between the professional reasoning and costing;
 16 questions are considering testing some of the personality traits of the
respondents such as their ability to make decisions autonomously, the
optimism of people, their tendency to assume risk, their creativity, the fact
that they are self-confident and convincing people, and their resistance to
stress. The last 4 questions are noticeable in the questionnaire since they
took into account the testing of the personality traits of respondents by
projective techniques, using the association method (Bogdan et al., 2016;
Balaciu et al., 2014).

Of the 43 questions a number of 6 questions are open, mostly being closed

questions where was asked to tick one or more responses as appropriate. The Likert
scale with 5 response options has been used. The period of application of the
questionnaire was October 2016 - January 2017. It was administered for
completion by meeting, face to face, the professional accountants at the monthly
meetings that took place at the branch. To be completed by as many professional
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An analysis of the influences of individual optimism, risk taking and self-confidence... 71

accountants in the country the questionnaire was posted online. The link where the
questionnaire could be accessed for completion was mailed with an accompanying
message to all the professional accountants contained in the 2016 CECCAR, table,
published in the Official Gazette no. 417 bis / 02.06.2016, Part I. Obviously,
messages were sent to request the completion of the questionnaire by professionals
that had valid email addresses. The sample selection process of the professional
accountants is presented bellow. The statistical processing of the responses was
carried out using SPSS v.20. We have used Cronbach’s alpha, in order to check the
internal consistency of our questionnaire, the value of the statistic being 0.83,
which confirms its reliability. For the validation of our research hypothesis, we
have used the Chi-Square test, which is a non-parametric test used for the analysis
of the existence of a correlation between two variables (numerical or alpha-
numerical), as well as the Pearson’s correlation coefficient, in order to evaluate its

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direction and intensity.

3.2. Sample selection process

From the 2016 CECCAR Table published in the Official Gazette no 417 bis /
02.06.2016, Part I, we selected the email addresses of the chartered accountants,
certified accountants, natural persons and the email addresses of auditing and
consulting companies, for all the counties of the country. Botoşani and Brăila
counties were excluded from the sample because they had not published the email
addresses of the CECCAR either in the Official Gazette or on their own web pages.
The mail addresses were collected for the board members of CECCAR both in the
picture published in the Official Gazette and on the public web pages of CECCAR
organizations subsidiaries. About 20% of the emails sent were invalid because of
incorrect or inexistent email addresses and the average response rate per county
was between 7 and 10%. At the end of the period of administration of the
questionnaire a number of 531 valid responses were obtained.

4. Descriptive statistics

Most of the professional accountant respondents, around 44%, are university

graduates with bachelor degree in economics, followed by those with higher
economic education, bachelor and master, around 33%. And, as it can be seen in
the diagram below, regarding the professional profile of the respondents, most of
them are chartered accountants (54%), followed by those qualifying as chartered
accountants and auditors, the least being the liquidators (6.3%).

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72 Accounting: Principles and Practices

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Figure 1. The professional profile of respondents
In terms of practical professional experience in accounting, 76.8% said they had
over 10 years of experience in accounting, only 1.1% of them not having at all or
being inactive. And regarding the organization of work for accounting services
rendered, 40.9% of the total, are freelancers without employees, a close share
(38.6%) having those who are the employees of an entity. An interesting situation
is that of the responses on the annual income obtained from accounting services
rendered. As seen in the chart below, most of the respondents obtained from
accounting services rendered, annual income between 10,000 lei and 25,000 lei,
and 25,000 lei and 50,000 lei, respectively.

Figure 2. Distribution of income obtained from services provided

by investigated professional accountants
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An analysis of the influences of individual optimism, risk taking and self-confidence... 73

38% of the professional accountants investigated are over 50 years of age, 30.5%
are aged between 35 and 45 years and those aged 23 to 30 have the smallest share.
A surprising situation for us is the distribution of respondents by gender, thus more
than three quarters of the respondents are female persons (76.2%). On the main
aspects that influence the exercise of professional accounting judgment when
seeking the election of an accounting treatment for accounting the economic and/or
financial events and transactions, the largest share of the respondents consider that
the responsibility of the accountant to prepare financial statements in line with the
economic reality and the provisions of the regulatory framework for accounting
and financial reporting are relevant, while the expectations of owners to obtain
dividends as favorable as possible exercise the smallest influence on the accounting
professional judgment.

Table 1. Factors that influence the professional accounting judgment

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in the perception of investigated professionals
Respondent’s opinion
regarding the item
Factors
Strongly Strongly
that influence the agree
Agree Undecided Disagree
disagree
professional accounting
judgment in the perception of
investigated professionals
The provisions of the regulatory
accounting and financial reporting 60,22% 39,05% 0,73% 0 0
framework
Generally accepted accounting
55,21% 43,76% 1,02% 0 0
principles
The expectations of owners in terms
9,25% 29,25% 28,39% 18,49% 14,62%
of obtaining dividends
The expectations of owners in terms
of the entity's financial position and 12,10% 40,17% 24,41% 14,04% 9,29%
performance
The provisions of the manual of
accounting policies and procedures 39,88% 52,69% 5,79% 1,03% 0,62%
of the entity
Accountant's personality 21,46% 27,47% 25,32% 14,81% 10,94%
Accountant's culture, education and
47,30% 43,78% 5,81% 1,66% 1,45%
professional experience
Code of ethics and professional
44,81% 46,06% 7,47% 1,04% 0,62%
deontology
Accountant's communication skills
19,96% 45,49% 25,75% 5,58% 3,22%
with stakeholders
Accountant's responsibility in
63,62% 33,74% 2,64% 0 0
preparing financial statements

Most of the respondents (64% of them) totally agree with the fact that professional
accounting judgment may only be exercised after the information on
economic/financial event or transaction has been collected and analyzed. Almost
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74 Accounting: Principles and Practices

half of the interviewed subjects (49% of them) believe that the professional
accounting judgment can be exercised only in the context of a conceptual
applicable accounting framework, of accounting standards or regulations and other
accounting guides. Almost half of the interviewed subjects (48%) agree with the
fact that the professional accounting judgment may be exercised only after a
process of appropriate logical judgments, a figure close to these being strongly in
agreement with this statement and almost two thirds of the respondents strongly
agree with the fact that the professional accounting judgment should be properly
documented. Nearly half of the subjects, the share of 47%, consider that the choice
of an accounting treatment following the exercise of a professional accounting
judgment will be done in consultation with the management of the entity, while
more than half of the respondents strongly agree with the statement that adequate
and quality professional accounting judgment affect the relevance of the financial
accounting information. More than half of those surveyed (56%) strongly agreed

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with the statement that the exercise of professional accounting judgment is a key
skill for the accounting professionals, while less than half of those surveyed (48%)
agree with the statement that professional accountants must question the economic
events / transactions to exercise a proper professional judgment. An interesting
perspective was outlined in the analysis of responses to the question which
concerned the most important characteristics of an adequate accounting reasoning.
The respondents to this question were asked to choose and to number on a scale
Likert 5, in terms of importance, 5 of the 8 characteristics mentioned. As seen in
the chart below, according to the respondents, the adequate accounting judgment is
characterized best by the following characteristics: "logical, consistent and
substantiated", followed by "independent, without being influenced by the will of
managers” and in the lowest proportion by "flexibility".

Table 2. Characteristics of an adequate professional accounting judgment

in the opinion of investigated professionals
Respondent’s opinion
regarding the item

Characteristics of Very Less The least Indifferent/

Important
an adequate professional important important important Unsignificant
accounting judgment in the
opinion of investigated
professionals
Logical, consistant and
66,53% 21,43% 5,92% 2,65% 3,47%
documented
Flexible 16,25% 44,69% 19,69% 9,38% 10,00%
Precise, using only relevant
38,52% 40,37% 10,90% 5,80% 4,41%
information
Accurate, not altered by
51,95% 32,03% 8,01% 4,33% 3,68%
errors
Reasonable, estimating the
probabilities generated by 21,97% 48,74% 15,91% 6,82% 6,57%
risks and uncertainties
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Respondent’s opinion
regarding the item

Characteristics of Very Less The least Indifferent/

Important
an adequate professional important important important Unsignificant
accounting judgment in the
opinion of investigated
professionals
Targeted, determining the
decision as a result of a 19,35% 45,54% 15,77% 11,01% 8,33%
choice from several options
Independent, not influenced
49,27% 30,69% 8,35% 5,85% 5,85%
by the managers' decision
Balanced, harmonizing the
experience with knowledge, 40,40% 30,81% 9,60% 9,34% 9,85%
intuition and emotions

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To the open question which related to the listing of the first words that come to the
mind of the respondents when they hear the phrase professional accounting
judgment, the analysis of responses indicates a multitude of options out of which
the following can be distinguished, in order of preference of the respondents:
fairness, logic, experience - professionalism or balance. The analysis of responses
to questions that test the main personality traits of the respondents shows that 75%
of the respondents surveyed consider to a large or very large extent that, under
conditions of uncertainty, their expectations are positive. This is confirmed by the
result of responses to the question what they would do if they held a garden party
and on the day of the event it would rain heavily, showing that two-thirds of the
respondents felt they had bad luck and that the next party would be a success.
Therefore, from the analysis and interpretation of the above responses we can
recognize and identify a trend toward optimism of professional accountants
interviewed in what concerns the perception of unforeseen or uncertain events.
Further, being asked if they are willing to take a failure when they do something
innovative, more than half of the respondents (53.9%) say yes to a large extent and
21.6% to a very large extent and the fact that they usually have concerns that
something unforeseen could ruin their plans, more than 60% of the respondents say
that only slightly and only 25% say that to a high or very high extent. We can thus
recognize from the interpretation of responses that there is a propensity of
professional accountants investigated towards risk taking. The subjects were also
interviewed on the ability to have confidence in themselves so that the results of
the interpretation of results obtained indicate that 69.6% of the respondents believe
that they are largely convincing people, and 21.1% to a very high extent and also,
63.7% of the respondents believe that they easily recognize their mistakes to a high
extent and 29.8% to a very high extent. Therefore, we can identify a trend of
professional accountants investigated towards self - confidence and the ability to
persuade.

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76 Accounting: Principles and Practices

5. Research questions and hypotheses

Gray (1988) using Hofstede’s (1980) societal cultural patterns showed that the
value systems or attitudes of accountants may be expected to be related to and
derived from societal values with special reference to work related values. As a
consequence, accounting values will, in turn, impact on accounting systems (Gray,
1988). Given those shown by us in previous studies conducted with reference to the
professional accounting judgment (Bogdan et al., 2016; Bogdan, et al., 2015a;
Bogdan et al., 2015b), we formulate the following research questions:
1) What is the perception of professional accountants investigated on the
need for a theoretical framework of professional accounting judgment?
2) Do the personality traits considered (optimism, risk and self-confidence)
influence the choice of respondents in what concerns the choice of the

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main aspects that determine the exercise of an accounting judgment when
seeking the allocation of an accounting treatment for economic and / or
financial events or transactions?
3) Do the personality traits considered (optimism, risk and self-confidence)
influence the perception of professional accountants to investigate the need
for a theoretical framework of professional accounting judgment?

To answer the above questions, we have developed the following research

hypotheses, grouped in three analysis panels:

5.1. Optimism and accounting professionals’ judgment

Conservatism versus optimism, as cultural dimension of accounting has been

studied and investigated by many researchers from the impact on accounting
measurement practices. As Gray (1988) emphasized conservatism versus optimism
means a preference for a cautious approach to measurement so as to cope with the
uncertainty of future events as opposed to a more optimistic, laissez-faire, risk
taking approach. Optimism may be defined as a generalized expectancy for
positive outcomes independent of the source of the outcomes (McKenna, 1993).
According to Weinstein (1980), people believe that they are less at risk than their
peers for many negative events and also, the optimistic bias can be assessed either
directly or indirectly (Weinstein & Klein, 1996). In a meta-analysis of 27
independent samples Klein and Larsen (2002), investigated the relationship
between optimistic bias and perceived control finding out that the greater control
people perceive over future events, the greater their optimistic bias but this
relationship was shaped by participants’ nationality, education status and risk
status. Birnberg (2011), observed that in the last decades psychologists,
experimental economists and accountants have begun to examine the role of the
decision maker’s emotional state (affect) on the decision process. Thus, Chung et
al. (2008) analyzed auditors’ behavior making inventory valuation decisions and

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An analysis of the influences of individual optimism, risk taking and self-confidence... 77

found that mood state affects the degree of conservatism in the audit mission.
Hence, the author highlighted that auditors in a positive mood are less conservative
than those in a negative mood. We must understand and do not forget that
specialists, either they economists, engineers, accountants, judges, etc. before being
specialists are humans. Humans do not act like robots. Lerner and Keltner (2000,
2001) reported that fearful individuals make more pessimistic estimates and more
risk-averse choices, while anger leads individuals make more optimistic risk
estimates and risk-seeking choices. Considering those shown above, we formulated
the following hypotheses:
H1: There is a correlation between the trend toward optimism of professional
accountants and the option of the respondents on the main aspects that determine the
exercise of the accounting judgment.
H2: There is a correlation between the tendency towards optimism of professional
accountants and their perception towards the need for a theoretical framework of

WT
professional accounting judgment.

5.2. Risk taking and accounting professionals judgment

According to Kahneman (2011), the author who knows perhaps more than anyone
else about the oddities of human assessment of risk is Paul Slovic. The same
Kahneman (2001), identifies in Slovic’s work studies both on ordinary citizens, led
by emotion rather than by reason, easily influenced by unimportant details and
having an inadequate sensitivity to the differences between the low probabilities
and the negligible ones, and on the experts who are far superior in operations with
figures and amounts. Slovic, quoted by Kahneman (2001), shows that the experts
exhibit the many of the same biases as ordinary people, in attenuated forms, but
often their assessments and their preferences for risk disagree with those of other
people. The same Kahneman (2001) stresses the fact that Slovic, challenged the
full control of experts on risk management policies and the idea that risk is
objective. Risk does not exist outside of us, irrespective of our culture and mind,
waiting to be measured; human beings have invented the concept of risk to help
them understand and adjust to the uncertainties of life (Slovic, 2000).

Weber and Johnson (2009) noted that psychophysical risk return models assume
that perceptions of risk and return are psychological constructs that can vary
between individuals and as a result of past experiences and decision content and
context. Observed risk taking is the result of a long list of cognitive and affective
evaluation and integration processes (Weber & Johnson, 2009). An important
premise is one of Miller’s (1987) that business is inherently risky and all decisions
in business involve risk. Masters and Deines (2011) focused on the examination of
risk taking propensity of management accountants and whether gender and
professional certification affects their tendency to take risk. In the opinion of
Masters and Deines (2011) differences in risk taking propensity exist between
CPAs and noncertified accountants because of the differences in their training and
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78 Accounting: Principles and Practices

experience. Helliar et al. (2002) examined through a large survey among

accountants and managers the attitudes to risk by Scottish chartered accountants
and considered whether their risk-taking attitudes are similar to or different from
those of other business managers in the U.K. The results of Helliar et al. (2002)
study showed that accountants and managers exhibit many of the biases that have
been documented for executives in other countries: a focus on the framing of a
decision, an emphasis on the magnitude of negative outcomes and an insensitivity
to probability estimates. We share Weber and Johnson’s (2009) view regarding the
study of risk taking propensity of management accountants, CPA’s and non-CPA’s,
that identifying the differences will help the management clarify the type of
controller needed in the firm’s approach to taking risk and also it will assist
accountants in understanding their role as a controller.

Considering of interest, in the light of the above, the inclination toward risk of

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professional accountants we have developed the following assumptions:
H3: The propensity towards risk of the professional accountants investigated affect
their option on the main aspects that determine the exercise of the accounting
judgment.
H4: The propensity towards risk of the professional accountants investigated is in an
inverse correlation with the need for a theoretical framework of professional
accounting judgment.

5.3. Self-confidence and accounting professionals’ judgment

Siegel (2000) as a result of the interview conducted on management accountants in

respect to the skills needed for entry level management accountant positions
observed that several professionals mentioned the confidence factor. In
professionals’ view, schools could better prepare people for the work environment,
teach student show to talk to people and not step on their feet. Siegel (2000)
underlined that surveyed management accountants considered that one solution for
professionals is to do things that generate self-confidence like getting a broader
education or becoming involved in sports. On the other hand, Jones and Abraham
(2008) noted that accounting practitioners are no longer merely required to
undertake tasks such bookkeeping, data analysis or tax preparation, instead their
role is extended to knowledge professionals with a greater emphasis on emotional
intelligence. Thus, Jones and Abraham (2008) investigating the role of emotional
intelligence in accounting education found out that academics who had been
employed as practicing accountants had higher perceptions of the importance of
particular roles undertaken and skills needed by graduates, which included personal
skills like self-confidence, self-belief and management proficiency.

An exploratory study made by Gul (1983) was interested in obtaining preliminary

evidence on whether age, experience, cognitive styles influence accountants’
decision confidence. Gul (1983) hypothesized that accountants who are relatively
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field dependent are likely to make decisions more confidently than their relatively
more field dependent accountants, when provided with ambiguous type
information. More accounting studies are concerned with analyzing
overconfidence. As Russo and Schoemaker (1992) noted good decision making
requires more than knowledge of facts, concepts and relationships but
unfortunately we tend to have a deeply rooted overconfidence in our beliefs and
judgments. Russo and Schoemaker (1992) considered that overconfidence has
remained a hidden flaw in managerial decision making. There are several ways to
define or to measure overconfidence and also overconfidence shows up in many
different ways (Bar-Yosef & Venezia, 2014). DellaVigna (2009) defined
overconfidence as the overestimation of one’s own performance in task requiring
ability that includes the precision of one’s own information. As Ifchner and
Zarghamee (2014) observed, overconfidence is a systematic deviation from
standard economic theory about beliefs. Barber and Odean (2001) showed that

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overconfidence has been identified among psychologists, physicians, nurses,
investment bankers, engineers, entrepreneurs, lawyers, negociators and managers
and showed that particularly in financial markets men are more overconfident than
women. Empirical evidence of overconfidence’s effect on economic decisions we
found in Malmendier and Tate (2005), showing that overconfident CEOs make
inferior corporate investments and Oyer & Schaefer (2005), empirical investigating
employees’ overconfidence in order to analyze the company’s policy on stock
options for compensation. From the perspective of those shown in the above lines
we proposed the hypothesis testing:
H5: Self-confidence of professional accountants interviewed positively influence their
option on the main aspects that determine the exercise of the accounting judgment.
H6: Self-confidence of professional accountants interviewed directly influence their
option on the need for a theoretical framework of professional accounting judgment.

6. Discussion of results
We have first investigated a potential statistical difference between accountants,
grouped by gender, age as well as years of practice in what concerns optimism, risk
taking and self-confidence. We have conducted a T-test for the difference between
the means in each group, the value of the statistics being presented together with
their corresponding probability of acceptance of the null hypothesis.

Table 3. Statistical difference analysis

conducted on the investigated professional accountants
Gender Age Years of practice
F M 25-45 Over 45 Under 10 Over 10
yrs yrs
Optimism
average 3,639279 3,792373 3,782511 3,523636 3,601064 3,648010
coefficient

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80 Accounting: Principles and Practices

Gender Age Years of practice

T stat -1,36644 2,599386 0,369743
P 0,172301 0,009617 0,711732
Risk
Taking
3,082164 3,148305 3,089686 3,080000 3,095745 3,078358
average
coefficient
T stat -0,845936 0,137421 -0,193319
P 0,397917 0,890754 0,846789
Self-
confidence
4,090180 4,038136 4,060538 4,114545 4,031915 4,105721
average
coefficient
T stat 0,915873 -1,08414 1,172375
P 0,360092 0,278830 0,241612

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Our conclusion was that there is a statistical significant difference only in what
regards the optimism of the accountants, grouped by age. The younger accountants
are more optimistic that the ones over 45. Further on, in this stage of our research
each hypothesis was analyzed and interpreted, using specific statistic calculations,
qualitative appreciations and direct observations of data gathered.

H1: Professional accountants’ propensity towards optimism is correlated to their

choice regarding the main aspects that influence the professional accounting
judgment.

For the validation of this hypothesis we have analyzed the answers to the following
questions: Q30. When in uncertainty, your expectations are usually positive? Q31.
You planned an outdoor party but in the day the party should take place it pours
cats and dogs. What do you think about it? as well as Q8. Which are the aspects
that you believe to influence the professional accounting judgment when choosing
an accounting treatment for economic and/or financial events and transactions? In
order to investigate this research hypothesis, based on answers to questions Q30
and Q31, we have determined an average score for each subject, ranging from 1 to
5, the highest value indicating a maximum propensity towards optimism. A similar
average score has been computed, using the answers to question 8, these scores
ranging from 1 to 5 as well, the lowest value reflecting a total disagree with the
particular aspects that influence the professional accounting judgment. The Chi
square value associated to the distribution of the answers to the questions is 30.5,
the value is higher than 0, which indicates a correlation between the accountants’
propensity towards optimism and their choice regarding the main aspects that
influence the professional accounting judgment. The value is not statistically
significant as the critical value for a 5% level of confidence and 24 degrees of
freedom is 36.42, higher than our calculated value. H1 is therefore not validated.

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Our second assumption is:

H2: There is a correlation between the accountants’ propensity towards optimism and
their perception regarding the need of a theoretical framework of professional
accounting judgment.

For the validation of this hypothesis we have analyzed the answers to the following
questions: Q30. When in uncertainty, your expectations are usually positive? Q31.
You planned an outdoor party but in the day the party should take place it pours
cats and dogs. What do you think about it? as well as Q11. Do you believe that the
accounting professional judgment can be carried out only after all the information
regarding the event or economic/financial transaction had been collected and
analyzed? Q12. Do you believe that the accounting professional judgment can be
carried out only in the presence of an applicable accounting conceptual framework
for the accounting standards, regulations and other accounting guide books? Q13.

WT
Do you believe that the accounting professional judgment can be carried out only
after a proper logical reasoning process? Q14. Do you believe that the accounting
professional judgment should be adequately documented? In order to investigate
this research hypothesis, based on questions Q30 and Q31, we have used the
average scores computed previously, the highest value indicating a maximum
propensity of towards optimism. A similar average score has been computed, using
the answers to questions 11, 12, 13 and 14, these scores ranging from 1 to 5 as
well, a high value reflecting a strong agreement with the necessity of a theoretical
framework of the accounting professional judgment. The Chi square value
associated to the distribution of the answers to the questions is 115.01, which
indicates a correlation between the answers in the sample. The value is statistically
significant as the critical value for a 5% level of confidence and 90 degrees of
freedom is 113.15, lower than our calculated value. H2 is therefore validated.

H3: Accountants’ propensity towards risk influence their choice regarding the main
aspects that influence the professional accounting judgment.

For the validation of this hypothesis we have analyzed the answers to the following
questions: Q32 Are you usually taking upon yourself the blame of a failure when
trying to do something innovative?, Q33 Do you usually fear that something
unpredictable could ruin the plans? as well as Q8. Which are the aspects that you
believe to influence the professional accounting judgment when choosing an
accounting treatment for economic and/or financial events and transactions?

We have computed average scores for the answers to questions 32 and 33 ranging
from 1 to 5 - the higher the value, the higher the propensity towards risk. The Chi
square value associated to the cross tabulation between the average values is
357.01 which indicates a strong correlation between the answers in the sample. The
value is statistically significant as the critical value for a 5% level of confidence

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82 Accounting: Principles and Practices

and 266 degrees of freedom is 305.04, lower than our calculated value. H3 research
hypothesis is therefore validated.

H4: An inverse correlation between accountants’ propensity towards risk and their
perception regarding the need of theoretical framework in what concerns the
accounting professional judgment can be recognized.

For the validation of this hypothesis we have analyzed the answers to the following
questions: Q32 Are you usually taking upon yourself the blame of a failure when
trying to do something innovative?, Q33 Do you usually fear that something
unpredictable could ruin the plans? as well as Q11. Do you believe that the
accounting professional judgment can be carried out only after all the information
regarding the event or economic/financial transaction had been collected and
analyzed? Q12. Do you believe that the accounting professional judgment can be

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carried out only in the presence of an applicable accounting conceptual framework
for the accounting standards, regulations and other accounting guide books? Q13.
Do you believe that the accounting professional judgment can be carried out only
after a proper logical reasoning process? Q14. Do you believe that accounting
professional judgment should be adequately documented? The average scores for
the answers to questions 32 and 33 were correlated with the corresponding average
scores for the answers to questions 11, 12, 13 and 14, the higher the values, the
stronger the belief that there is a need of theoretical framework in what concerns
the accounting professional judgment. The Pearson’s correlation coefficient is
equal to 0, so there is absolutely no correlation between the answers to the 2 sets of
average scores. H4 research hypothesis is therefore not validated.

H5: Professional accountants’ self-confidence is in direct correlation with their

opinion regarding the main aspects that influence the carrying out of an accounting
judgment process.

We have analyzed answers to questions Q36 As a rule, do you consider yourself as

being convincing?, Q37 Do you usually admit when you are wrong? as well as Q8.
Which are the aspects that you believe to influence the professional accounting
judgment when choosing an accounting treatment for economic and/or financial
events and transactions? The self-confidence was evaluated by computing average
scores ranging from 1 to 5, a high value of the indicator reflecting a high self-
confidence. These values were used in correlation to the average scores reflecting
the answers to question 8, computed as stated previously. The Pearson’s correlation
coefficient which equals 0.122 reflects a direct but weak correlation between
accountants’ self-confidence and their opinion regarding the main aspects that
influence the carrying out of an accounting judgment process. The value is
statistically significant for a 0.05 level of confidence, hence, H5 research
hypothesis is validated.

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An analysis of the influences of individual optimism, risk taking and self-confidence... 83

H6: Professional accountants’ self-confidence is in direct correlation with their

opinion regarding the need of a theoretical framework of accounting professional
judgment.

We have analyzed answers to questions Q36 As a rule, do you consider yourself as

being convincing?, Q37 Do you usually admit when you are wrong? as well as
Q11. Do you believe that the accounting professional judgment can be carried out
only after all the information regarding the event or economic/financial
transaction had been collected and analyzed? Q12. Do you believe that the
accounting professional judgment can be carried out only in the presence of an
applicable accounting conceptual framework for the accounting standards,
regulations and other accounting guide books? Q13. Do you believe that the
accounting professional judgment can be carried out only after a proper logical
reasoning process? Q14. Do you believe that the accounting professional judgment

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should be adequately documented? Pearson’s correlation coefficient which equals
0.09 reflects a direct but weak correlation between the accountants’ self-confidence
and their opinion regarding the need of a theoretical framework of accounting
professional judgment. The value is statistically significant for a 0.05 level of
confidence, hence, H6 research hypothesis is therefore validated.

7. Conclusion, limits and further research

Study and investigate, in many and different ways, judgment and decision making
in accounting, nowadays, is of huge interest due to the need of better understanding
how a true professional accountant can successfully handle the multitude of
challenges that put pressure on him. Performance indicators of company, managers
expectations, financial reporting framework and standards, time deadlines of
various reports, auditors opinion, budgeting policies, accounting options, online
business development, and other several factors, exert a tremendous pressure on
the performance of professional judgment in accounting and also on decision
making. In this context, in order to face gracefully all these challenges,
professional accountants should be endowed with personality traits and cognitive
abilities such as self-confidence, optimism, clarity in thinking, stress resistance,
ability to adapt to changes, ability to withstand risks, uncertainties and
vulnerabilities, and so on. Hence, today is more about individual and transversal
skills and abilities and less about specialized skills concerning bookkeeping,
accounts and preparing the reports.

In this paper through a survey on Romanian professional accountants we have

investigated their perception regarding judgment and decision making in
accounting, collecting a total of 531 valid responses to our questionnaire. The
analysis of obtained results showed that most of the investigated accounting
professionals considered that a specific professional judgment in accounting is
mainly influenced by the responsibility of the accountant in preparing the financial
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84 Accounting: Principles and Practices

statements in line with the economic reality and accordingly to the provisions of
the regulatory financial reporting framework and accounting standards. Also, the
investigated professionals think that an adequate accounting judgment is best
characterized by the following characteristics: "logical, consistent and
substantiated".

Further on, exploring a potential statistical difference between accountants,

grouped by gender, age, as well as years of practice in what concerns optimism,
risk taking and self-confidence, we have conducted a T-test for the difference
between the means in each group, and found that there is a statistical significant
difference only in what regards the optimism of the accountants, grouped by age.
Thus, the younger investigated accountants are more optimistic that the ones over
45.

WT
Our hypotheses test results have shown that there is no statistical correlation
between professional accountants’ propensity towards optimism and their choice
regarding the main aspects that influence the professional accounting judgment, as
there is no inverse correlation between accountants’ propensity towards risk and
their perception regarding the need of theoretical framework of professional
accounting judgment. On the other hand, the results shown that there is a
correlation between the accountants’ propensity towards optimism and their
perception regarding the need of a theoretical framework of professional
accounting judgment, and between accountants’ propensity towards risk and their
choice regarding the main aspects that influence the professional accounting
judgment. Also, professional accountants’ self-confidence is in direct correlation
with their opinion regarding the main aspects that influence judgment and decision
making in accounting and with their opinion regarding the need of a theoretical
framework of accounting professional judgment.

The limits of our study are found in the sampling process and survey questions
formulation. However, it contributes to enriching judgment and decision making
literature by testing the links between several personality traits variables and
accounting professional judgment. Future works will be oriented towards statistical
investigation of different correlations between received answers concerning
professional accounting judgment, demographic variables and time deadlines,
managers and clients expectations and satisfaction.

Acknowledgements
This work has been presented at the 12th edition of the International Conference
Accounting and Management Information Systems (AMIS 2017) held at the
Bucharest University of Economic Studies, on June 7-8, 2017, under the title of
“Accountants are not robots! How professional accounting judgment is affected by
individual optimism, risk taking and self-confidence”.

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An analysis of the influences of individual optimism, risk taking and self-confidence... 85

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 5
Corporate social responsibility research in
accounting
Ümmühan Aslana and Seçil Sigalı b,1
a
Bilecik Şeyh Edebali University, Turkey
b
Dokuz Eylul University, Turkey

Abstract: The aim of this study is to examine the corporate social responsibility

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(CSR) practices and reporting in Turkey, as reflected by the accounting research.
Research findings are examined and classified in two main approaches, which are
“CSR Awareness” and “Determinants and Impacts of CSR Practices and
Reporting”. The findings show that the external incentives are insufficient in
promoting CSR practices in Turkey. Research calls for more enforcement,
specifically related to the environmental disclosures. Although the findings on the
bidirectional relationship between CSR practices and the financial performance
variables are contradictory, company size and growth, sound corporate governance
practices as board independency is found as significant determinants of the extent
of the CSR disclosures.

Keywords: Corporate Social Responsibility, Accounting Research, Turkey

JEL Codes: M41, M14

1. Introduction
Although CSR practices are examined across different business research
disciplines, in this study, we analyze the CSR research in accounting over the past
decade, focusing on the studies that published Turkish evidence. The link between
CSR and accounting can be explained by the general responsibility and the
experience the accounting profession has on the measurement, disclosure, and
assurance of information, including CSR related information; thus accounting

1
Correspondence Address: Assist. Prof. Dr. Seçil Sigalı, Dokuz Eylul University, Maritime
Faculty, Department of Logistics Management, Tinaztepe Campus, 35390, Buca, Izmir,
Turkey, [email protected]

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90 Accounting: Principles and Practices

professionals have the opportunity to participate in the creation, assurance,

issuance, and the analysis of CSR reports (Huang & Watson, 2015).
The aim of this study is to examine corporate social responsibility (CSR) practices
and reporting in Turkey as reflected by the accounting research. A review approach
is adopted using the classifications of Buckley et al. (1976) for the methodologies
in accounting research. The research findings are examined and classified as their
methodologies as well as two main approaches, which are “CSR Awareness” and
“Determinants and Impacts of CSR Practices and Reporting”.
Buckley et al. (1976) classifies accounting research in four main groups. These
approaches are summarized by Vasarhelyi (1981: 48) as:
 Analytical Research: This line of research analyzes the accounting
phenomena by internal logic or simulation, and uses observation or
mathematical modeling as research techniques.

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 Archival Research: Variations of empirical research that works with data
already recorded from the outside sources that are gathered by the
researcher. Content analysis, sampling, and scanning techniques are used.
 Opinion Research: Uses Surveys or Delphi techniques to analyze the
opinions of individuals or groups.
 Empirical Research: These are field research, case studies, or laboratory
studies that apply observation instruments, time, motion, and simulation.
It can be said that the concept of CSR and sustainability issues are still rather new
in Turkish business environment (Cozannet et al., 2007), and the rise of the local
and the international demands in terms of CSR in the country is mainly accelerated
by the European Union (EU) accession negotiations in 2005, and the efforts of EU-
Turkey legislation harmonization, additionally by being a part of Kyoto protocol in
2009 (Ararat et al., 2011; Çakar & Alakavuklar, 2014).
Since it is commonly recognized that the rise of CSR is an important element for
the internalization and growth efforts of Turkish corporate sector, also for Turkey’s
sustainable future (Cozannet et al., 2007); academic research on Turkish CSR
practices contributes to these efforts. The early studies are generally normative, and
designed in Turkish language to create and develop the CSR awareness in Turkey
mainly until 2008. This aim can be defined as “to describe CSR conceptually, and
present the positive roles of CSR in firm-level and country-level sustainable
development to Turkish business society” that would act as an incentive of CSR
practices for corporate business. Mainly after 2009, academic research explores
and observes the corporate-level CSR practices in Turkey by analytical, archival,
and opinion studies to increase and measure CSR awareness. The number of
empirical studies on CSR increased in recent years that analyze the determinants
and impacts of best CSR Practices and Reporting in Turkey. The next section
shows the data used in detail, the third section presents the findings of the study,
and the fourth section discusses the implications and provides directions for the
future research.

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Corporate social responsibility research in accounting 91

2. Data
The studies published in the last decade (2005 through 2016- March) in 4
prominent accounting journals in Turkey are reviewed as The Journal of
Accounting and Finance, World of Accounting Science, Financial Analyze,
Accounting and Auditing Review, and Journal of Accounting & Taxation;
additionally the studies that presented Turkish evidence in other national and
international journals are included. Table 1 shows the statistics of the articles that
are used as data. In total, 52 studies are determined and analyzed, and according to
Panel A, 14 of these studies are published in The Journal of Accounting and
Finance. Normative studies are also included in Table 1, since it is observed that
mostly normative articles were published until 2008-2009 on CSR. It can be
observed 39 of these articles are published in Turkey, and 13 articles are published

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in international journals in other countries. The Journal of Accounting and Finance
and World of Accounting Science journals are observed as the leading accounting
research journals in Turkey in publishing CSR-related studies.
Accordingly, Panel B presents that 69% of the articles are published in Turkish,
and 31% in English. Panel B also shows the classifications of the methodologies of
the articles reviewed according to Buckley (1976)’s classifications, additionally the
number of normative articles. 27% of the articles are classified as empirical studies,
whereas %19 presents the opinions of Turkish corporate business. 64% of the
articles that are mostly the analytical, archival, and opinion studies, aim to measure
and increase CSR awareness in Turkey; whereas 36% focus on the analysis of the
Determinants and Impacts of CSR Practices and Reporting.

Table 1. Data
Panel A. Journals Reviewed
Published in Turkey Number
The Journal of Accounting and Finance (MUFAD-Muhasebe ve Finansman
Dergisi) 14
World of Accounting Science (MÖDAV- Muhasebe Bilim Dünyası Dergisi) 4
Financial Analyze (Mali Çözüm) 3
Business and Economics Research Journal 2
Management Journal (Yönetim Dergisi) 2
Accounting and Auditing Review (Muhasebe ve Denetime Bakış) 1
Journal of Faculty of Political Science, IstanbulUniversity 1
Journal of Accounting &Taxation (Muhasebe ve Vergi Uygulamaları Dergisi) 1
Journal of Business, Economics & Finance 1
Atatürk University Journal of Economics and Administrative Sciences 1
Ege Strategic Research Journal 1
Business, Economics, and Finance 1
Celal Bayar University Journal of Management andEconomics 1
Anadolu University Social Sciences Journal 1

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92 Accounting: Principles and Practices

Published in Turkey Number

Journal of Selçuk Communication 1
Int. Journal of Management Economics and Business 1
Dokuz Eylul University Journal of Graduate School of Social Sciences 1
Journal of Management Marketing and Logistics 1
Journal of Yasar University 1
TOTAL 39
Published in Other Countries
Procedia – Social and Behavioral Sciences 1
International Journal of Productivity and Performance Management 1
African Journal Of Business Management 1
Social Responsibility Journal 1
International Journal of Economics and Finance 1
Corporate Governance: The International Journal of Effective Board
Performance 1

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Journal of Management Research 1
International Journal of Business and SocialScience 1
European Journal of Research on Education 1
Corporate Governance 1
Economic and Environmental Studies 1
Journal of Modern Accounting and Auditing 1
International Journal of Business and Management 1
TOTAL 13

Panel B. Language and methodological classifications

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Corporate social responsibility research in accounting 93

Panel C. Yearly Distributions

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 TOTAL
Analytical 0 1 0 0 0 1 0 1 0 1 0 2 6
Archival 0 0 1 0 1 2 0 1 1 1 1 1 9
Opinion 0 1 0 2 0 2 0 2 1 1 1 0 10
Empirical 0 0 0 0 0 1 1 1 1 6 4 0 14
Normative 2 2 4 0 0 1 3 0 0 0 1 0 13
TOTAL 2 4 5 2 1 7 4 5 3 9 7 3 52

Panel C shows the yearly distributions of the articles analyzed according to their
methodologies. The normative articles are published mostly until 2008, designed in
Turkish language to create and develop the CSR awareness in Turkey until 2008.
Mainly after 2009, the number of analytical, archival, and opinion studies rise that

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aim to increase and measure CSR awareness. The empirical studies on CSR are
mostly published in 2014 and 2015 to explore the determinants and impacts of best
CSR Practices and Reporting in Turkey. In Summary, Table 1 presents the
accounting academic efforts of supporting the local and international efforts of first
creating, and then increasing CSR awareness in Turkey.

3. Findings

3.1 CSR awareness

This section presents the findings of the articles on CSR awareness in Turkey.
Mainly the analytical, archival, and opinion studies are focused on CSR awareness.
3.1.1 Analytical and archival studies
The aims of these studies are two-fold as to measure and increase the awareness
degrees of CSR practices and reporting amongst Turkish companies. Accordingly,
these studies are 85% published in Turkish language; emphasizing the roles of CSR
practices and reporting in firm level, country-level, and global-level sustainable
development. The positive effects of CSR practices as an indicator of firm social
performance and on long-term firm value and competitiveness are mostly
underlined. The main limitation of these studies is that the samples analyzed
include solely the listed non-financial or financial companies due to the lack of
sufficient data of SMEs in Turkey.
Although, CSR awareness is measured via various tools in these studies, it can be
said that mostly content analysis method is used to measure the extent of CSR
disclosures as the total words or sentences related to the constructed environmental,

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94 Accounting: Principles and Practices

social, and economic disclosures of CSR. The content analysis method is

commonly applied to annual reports, and CSR/Sustainability reports if available.
Mostly using Global Reporting Initiative (GRI) guidelines and Borsa Istanbul
(BIST) Corporate Governance Index, the compliance levels are measured. Using
GRI and BIST Corporate Governance guidelines are stated as a second major
limitation in these studies. These studies report that the CSR awareness amongst
Turkish listed companies is growing in a yearly basis, however the disclosures on
CSR are not at a desirable level in respect of the best practices. The companies
generally meet the minimum requirements of the GRI standards based on their
application level. However there are differences between firms’ scores even though
they are in the same application levels according to GRI guidelines. Some firms
reveal more information than others, but in general firms do not disclose CSR
information voluntarily. The companies disclose the practices of stakeholder
management extensively; however disclosures regarding stakeholder engagement

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are insufficient. The results reveal the significance of stakeholder engagement in
determining the material information to be disclosed in CSR reporting (Karataş
Çetin et al., 2015).
Ertuna and Tükel (2009) report that the CSR practices are mostly society oriented
charitable contributions, and since family ownership structure is common in
Turkey, these practices are performed via charity foundations of the family owners.
Thus, traditional effects on CSR practices are observed, and international effects
are limited, as other stakeholders oriented practices such as suppliers and
customers (Ertuna & Tükel, 2009). Consistently, Süher (2010) points out that,
companies in Turkey engage in CSR activities more in religious and official
holidays.
In summary, results of these studies suggest that Turkish companies should give
more weight to CSR reporting, specifically on environmental and social issues, and
the CSR awareness in Turkey is interrupted by the lack of “CSR/sustainability
index”. It is important to note here that in accordance with these suggestions, Borsa
Istanbul (BIST) Sustainability Index project has been launched on November 2014;
BIST 30 companies are included in 2014 and BIST 50 companies in 2015. Starting
from 2016, volunteer companies from BIST 100 are added to the list of companies
to be assessed. However, the authors highlight enforcement on CSR disclosures as
a suggestion to increase the CSR awareness since voluntary disclosures are limited
and insufficient.
3.1.2 Opinion studies
The opinion studies of CSR practices in Turkey are mostly focused on SMEs since
the analytical, archival and empirical research lacks data on these companies. The
questionnaires are applied to managers, clients, and Turkish CPAs aiming to
measure and increase the CSR awareness in the country.

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Corporate social responsibility research in accounting 95

It is found that in Turkey, CSR/sustainability reporting is most commonly practiced

by the enterprises operating in the field of health products, followed by holdings
and enterprises operating in the energy sector (Özçelik et al., 2015). Wastes and
refining costs are increasing throughout SMEs in Turkey, thus mandatory
environmental regulations are needed (Lazol et al., 2008).

These studies point out that certified public accountants (CPAs) in Turkey have
significant roles in CSR Reporting such as reporting the current condition of
companies, and the processes for strategic targets (Caliskan, 2012), as well as
mandatory requirements, clients, managers, and competitors act as the main
incentives to increase the CSR awareness of SMEs (Erolvd, 2010). According to
Ergüden and Kaya (2014), efficiently functioning reporting and accounting system,
effective organizational structure in addition to effective politics and procedures
would contribute to the sustainable life spans of Turkish SMEs, and the SMEs

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should focus on their internal information systems.

The opinions of the SME managers reflect that investments in CSR have had a
positive effect, in particular in long-term company performance and activities
carried out on sustainability is crucial in potential competitive advantage
(Erdirencelebi & Dundar, 2012). Managers also agree that the subject of
sustainability has become increasingly important in their primary activities,
however solely 28.89% indicated that CSR/Sustainability is related to their conduct
of business. It can be said that although SME managers point out that CSR is
becoming increasingly important in long term company performance, the necessary
conditions in undertaking activities or investments in CSR has been limited
(Erdirencelebi & Dundar, 2012). Additionally, managers view CSR/sustainability
practices as an important element of corporate reputation; CSR practices that are
regulated by law are among priorities of enterprises; however CSR practices that
cause additional costs are not among the priorities of enterprises (Ozcelik et al.,
2015).

Findings indicate that companies use economic factors as the main performance
indicators and they fail to collect data relating to social and environmental factors.
This indicates insufficient data is one of the important obstacles facing sustainable
practices in SMEs (Erdirencelebi & Dundar, 2012).

In summary, the opinion studies determine that the external incentives are
insufficient in promoting CSR practices of SMEs in Turkey. Studies also report the
significant roles of CPAs in Turkey in CSR Reporting and sustainability issues.
This line of research also calls for enforcement specifically on environmental
regulations.

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96 Accounting: Principles and Practices

3.2 Impacts of CSR practices and reporting

The empirical studies analyze the determinants and impacts of CSR disclosures on
the firm-level financial performances, aiming to provide evidence from a
developing country and contribute to this line of global CSR research. Thus 93% of
empirical studies are written in English language and examine listed non-financial
and financial companies in Turkey.

The dominancy of content analysis as well as regression analysis can be observed

in these studies. The extent of CSR disclosures is used as the dependent variable to
examine the determinants; and as an independent variable to search for the impacts
of CSR practices on various financial performance indicators. Consistent with the
analytical and archival studies, empirical studies underline the limitations of the
CSR measurement in Turkey. Since Borsa Istanbul Sustainability Index is

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established recently, most studies use Istanbul Stock Exchange Corporate
Governance Index (CGI) listed companies (28 companies) which are ranked
according to their corporate governance rating scores as companies that have high
social responsibility scores.

Özçelik et al. (2014) analysed the bank sustainability performance, and report that
in Turkey lack of legal arrangements and lack of public awareness on sustainable
issues act as barriers on CSR reporting; the CSR/sustainability reports are difficult
to understand and compare. The results of these studies reveal that in Turkey,
company size and growth measured by total assets and sales are significant
determinants of the extent of CSR disclosures, however the findings on the
financial performance variables as dependent and independent variables are
contradictory. The lack of dynamic regression models applied in these studies is a
major methodological limitation, and the differences in industrial and time effects
may explain the conflicting findings. Exceptions to this argument are the studies of
Aras et al. (2010) and Karasioğlu and Demirel Arıcı (2012). According to the
results of Aras et al. (2010), some causality is related to the lagging of periods
between firm size, profitability, risk level and CSR, nevertheless solely size
variables are linked to CSR. Karasioğlu and Demirel Arıcı (2012) suggest that CSR
causes better financial performance with solely on a one-year lag, and argue that
although majority of the companies limit CSR activities because of costs, economic
benefits of the CSR exceed the costs.
These findings are summarized and explained in Table 2 in detail. Aras et al.
(2010) found a positive relationship between firm size and corporate social
responsibility, and no significant relationship between corporate social
responsibility and financial performance/profitability. However, Akbaş (2014)
found that the profitability and the extent of environmental disclosures are
negatively related.

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Corporate social responsibility research in accounting 97

Erdur and Kara (2014) found a positive relationship between CSR level and return
to assets (ROE) ratio, and reported that as the companies that have a high level of
corporate social responsibility have a high activity level in using its assets, and as a
result the potential for making profit is increasing in that companies.

Table 2. Some of the results of the empirical studies on the impacts

of CSR practices and reporting*
Determinants Impacts
Authors Year Sample
Aras et al. 2010 BIST 100 ROA NA ROA NA
ROE NA ROE NA
ROS NA ROS NA
FIRM SIZE +
Arsoy et al. 2012 CGI FPI + FPI NA

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Akbas 2014 BIST 100 ROA -
LEV NA
FIRM SIZE +
Karasioglu and
2012 CGI ROA NA ROA +
Demirel Arıcı
ROE NA ROE -
Taşkın 2015 Banks ROA NA ROA -
ROE NA NIM +
Şahin et al. 2011 BIST 100 Board Ind. +
Kılıç et al. 2015 Banks Board Ind. +
FEMALE +
Erdur and Kara 2014 CGI ROE +
ROA +
MV/BV +
* BIST 100= Borsa Istanbul 100 Index, CGI= Borsa Istanbul Corporate Governance
Index, ROA= Return on Total Assets, ROE= Return on Total Equity, ROS= Return on Total
Sales, FPI= Financial Performance Index(Constructed by Arsoy et al., 2012), NIM= Net
Interest Margin, Board Ind.= Board Independence, Female=Female Directors on Board,
MV/BV= Market to Book Value, NA= No Relation is found

Erdur and Kara (2014) also found that there is a positive relationship between CSR
rating score and market to book ratio. This result is interpreted as Erdur and Kara
(2014) as CSR disclosures are relevant in investment decisions in Turkey.
Consistently, Altuner et al. (2015) found that intellectual capital, corporate
governance and CSR disclosures are interrelated in Turkey for listed firms.

Taşkın (2015) found that CSR scores decreased return to assets ratio (ROA) and
ROE, and stated that banks with more CSR practices have lower profitability.
Taşkın (2015) also report that banks with higher CSR scores tend to charge higher
net interest margins (NIM) from their customers, which can be interpreted as that

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98 Accounting: Principles and Practices

the banks with more CSR practices or disclosures are more costly to the customers,
additionally customers are more likely to prefer banks with more CSR practices
even if they charge more.

Şahin et al. (2011) report that independent directors lead to better CSR.
Consistently, Kılıç et al. (2015) found that female directors on board have a
significant positive impact on CSR reporting, and board size plays a positive role
on the CSR reporting and that this effect is reversed after a certain point has been
reached pointing out that a board can lose its efficiency when it is too large.

Additionally, Kaynar (2011) PhD thesis reports positive relationship with CSR
practices and financial performance. In this thesis, it is found that the dollar
amounts of CSR practices that are disclosed in the annual reports, positively and
significantly affect ROA and earnings per share.

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In summary, it can be said that the findings of the empirical studies present
contradictory findings on the bidirectional relationship between CSR practices and
the financial performance variables, however the sound corporate governance
practices, specifically board independency are found as significant determinants of
the extent of the CSR disclosures in Turkey. The findings highlight the need for
more research evidence on corporate governance variables are needed since these
studies are limited.

4. Conclusion
This study adopts a review approach and analyzes the findings on CSR practices
and reporting in Turkey as reflected by the accounting research. The findings show
that although CSR awareness is increasing at a yearly basis, the external incentives
are insufficient in promoting CSR practices in Turkey, specifically for SMEs.
Research calls for more enforcement specifically related to the environmental
disclosures.

The main findings of the research show that the listed companies and financial
institutions currently guide CSR practices and reporting in Turkey those are under
more enforcement compared to other companies. However, when the compliance
levels of these companies are analyzed, it is reported that the disclosures on CSR
are not at a desirable level in respect of the best internationally recognized
practices.

These results are in line with Ararat et al. (2011:10)’s argument that: “Without the
demand for sustainability and sustainable investments, the emerging interest in
Environmental, Social, and Corporate Governance (ESG)disclosure in Turkey will

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Corporate social responsibility research in accounting 99

not be materially instrumental in improving the ESG performance of Turkish firms;

and the current upsurge in voluntary disclosure may remain an inefficient
practice”.

Therefore, as Caymaz et al. (2014) point out, it is crucial to spread CSR awareness
in all levels of society via corporate businesses and NGOs to create this demand
from the society in Turkey, as managers view CSR/sustainability practices as an
important element of corporate reputation (Özcelik et al., 2015). Accordingly,
Taşkın (2015) report that customers are more likely to prefer banks with more CSR
practices even if they charge more.Thus the creation of public awareness is crucial
is improving the social performance of the Turkish companies.

Research presents proof that sound corporate governance and CSR are positively
related, and the efforts of promoting sound corporate governance practices

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specifically for SMEs would contribute positively to CSR practices and the extent
of disclosures. Hence, as the scope and the extent of corporate governance related
enforcement increases in Turkey, it is expected that CSR practices would lead to
the rise of country-level sustainable development. Therefore, more research in
Turkey is needed on the corporate governance mechanisms that best deal and
promote CSR practices to be used as guidance on regulatory developments.

Additionally, the studies that reflect the opinions of SMEs’ managers report the
significant roles of CPAs in Turkey in CSR Reporting and sustainability issues,
therefore future SME oriented studies on the engagement of the CPAs in CSR
practices and reporting would contribute to the increase in SMEs social
performance.

References
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empirical ınvestigation on companies listed on Borsa Istanbul 100 index”,
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100 Accounting: Principles and Practices

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 102

APPENDIX

The studies reviewed can be found below with the following key findings (normative studies are excluded):

Methodology Author(s) Key Issues Key Findings

Basar and Basar Current The voluntary disclosures on social reporting are limited and shallow
Analytical (2006) practices in due to the lack of mandatory requirements; that is problematic to
social investors and the other stakeholders since these disclosures may not be
reporting relevant to their economic decisions.

Çiftçioğlu and Poroy CSR and Solely two firms in BIST 100 index as also in BIST Corporate
(2010) Segment Governance index did not prepared segment reporting. Consequently,
Reporting social responsible firms due their obligation to society, give correct
Relationship information about their activities.

Caymaz et. al. The It is crucial to spread social responsibility awareness in all levels of
(2014) Relationship society via businesses and NGOs and being attentive in reporting in this
Between process. CSR awareness is increasing in Turkey, however following the
Sustainability current global trends in CSR is insufficient, Turkish businesses are
and CSR accountable to contribute to these trends.
Parlakkaya et. al. CSR reporting Solely 20% of Turkish banks report CSR practices in compliance with
(2016) in banking the global standards.
industry
Akmeşe and Aras CSR activities Most tourism companies do not have/disclose CSR policies, however
(2016)

Yelkikalan and Köse

(2012)
WT
of Borsa
Istanbul
Tourism Index
The Effects of
the Financial
Crisis on CSR
CSR awareness in increasing in a yearly basis.

Businesses adopting CSR concept and executing it at the level of

philanthropy with a sense of continuity carried on their CSR activities
without interruption in times of crisis.

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Accounting: Principles and Practices
 Methodology Author(s) Key Issues Key Findings
Altıntaş et al CSR Reporting Listed companies' disclosures on CSR are not at a desirable level in respect of the
Archival (2007) of listed best practices. Turkish companies should give more weight to CSR reporting,
companies especially on environmental and social issues.
Ertuna and CSR practices CSR practices are mostly charitable contributions and society oriented. Since
Tükel (2009) of listed family ownership structure is common in Turkey, these practices are performed
companies via charity foundations of the family owners. Traditional effects on CSR practices
are observed, and international effects are limited as other stakeholders oriented
practices.
Süher Web site CSR It is observed that companies in Turkey engage in CSR activities more in religious
(2010) disclosures and official holidays. This is interpreted as traditional effects on CSR practices.
Kavut (2010) Environmental The volume of environmental disclosures of Turkish companies increase over
disclosures time. However, the extent of disclosures is insufficient in compliance with the
global practices.
Corporate social responsibility research in accounting

Altuntaş and Sustainability Compliance levels of the sustainability reports to GRI guidelines are reported as
Türker (2012) reports beginner level, and the extent of the disclosures are limited.
Aktaş et. al. CSR Reporting CSR and Sustainability reports usually meet the minimum requirements of the
(2013) in Turkey GRI standards based on their application level. However there are differences
between firms’ scores even though they are in the same application level. Some
firms reveal more information than others, but in general firms do not disclose
many indicators voluntarily.
Altuntaş and Sustainability Compliance levels of the sustainability reports to GRI guidelines are reported as
Türker (2012) reporting beginner level, and the extent of the disclosures are limited.
KarataşÇetin Stakeholder Companies disclose the practices of stakeholder management extensively;
et. al. Engagement in however disclosures regarding stakeholder engagement are insufficient. The
(2015)

Öztürk
(2016)
Reporting
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Sustainability

Environmental
Disclosures
results reveal the significance of stakeholder engagement in determining the
material information to be disclosed in sustainability reporting.
Diversity of the information presented in environmental reports, gradually,
decreases due to the adoption of GRI Guidelines compared to the findings of prior
research.

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103
 104

Methodology Author(s) Key Issues Key Findings

Hoştutand CSR practices CSR practices in Turkey and Italy focus on issues such as renewable
Archival Van Het Hof of energy, waste, responsible use of global resources, recycling,
(cont.) (2014) transnational education, fostering entrepreneurship and healthy nutrition. CSR
corporations policies are determined by a number of factors such as the sector of
the company, the industry's environmental impact, the country's
economic, environmental and social development, legislation,
education, working conditions and culture.
Çelik and Özdemir CSR for Compatibility between EU and Turkish Environment Issues will not
(2006) sustainability be possible with the current Environment Law, which only includes
Opinion general terms therefore more enforcement is needed.

Lazolet. al. Environmental Wastes and refining costs are increasing throughout SMEs in Turkey
(2008) costs of SMEs

Erol et. al. Perception Mandatory requirements, clients, managers, and competitors act as
(2010) levels of CSR incentives to increase CSR awareness.
in SMEs
Karacaer and Bozkurt CSR activities CSR reports are perceived as society oriented. CSR awareness is not
(2010) and reporting at a desirable level.
in Turkey
Çalışkan (2012) CSRand the CPAs in Turkey have significant roles in CSR Reporting such as
accounting reporting the current condition of companies, and the processes for
profession strategic targets.
Erdirençelebiand
Dündar
(2012) WT
Corporate
view on
sustainability
Investments in the area of sustainability have had a positive effect, in
particular in long-term company performance. Companies agree that
sustainability has become increasingly important in their primary
activities but in practice only 28.89% indicated that sustainability is
related to their conduct of business.

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Accounting: Principles and Practices
 Methodology Author(s) Key Issues Key Findings
Ergüden and Kaya Deficiencies If Turkish SMEs wish to have sustainable life spans, they need to
Opinion (2014) of SMEs and allocate the most extent of emphasis on the variables that make up the
(cont.) propose internal information systems factor some of which are efficiently
remedies to functioning reporting and accounting system, effective organizational
cure these structure in addition to effective politics and procedures.
areas

Özçelik et al Examine the In Turkey, sustainability reporting is most commonly practiced by the
(2015) issues that enterprises operating in the field of health products, which are
lead followed by holdings and enterprises operating in the energy sector.
enterprises to 16% of the enterprises that responded to the questionnaire operate in
sustainable the energy sector, 13% in the health/drug sector, and 9% are holdings.
Corporate social responsibility research in accounting

activities Sustainability practices have been seen as an important element of

corporate reputation.
Aksoylu CSR and Business and environmental policies of CSR together had
(2013) Accounting approximately a 17.5% effect on the accounting information system.
Information The effects of the market and social policies of CSR on the accounting
Systems information system were at significantly low levels.
KüçükYılmaz CSR Practice Environmental protection is weak, and corruption remains a
(2008) in the Turkish problem. Within the framework of meeting European standards,
Automotive Turkish companies must make the demonstration of their capacity to
Distribution build more sustainable modes of production, which is an essential
Companies stake to optimize their contribution to the improvement of the quality

WT of employment and to the sustainable development of Turkey.

Companies should promote CSR as part of its mandate to create the
foundation for a more productive, competitive, knowledge-based
economy.

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105
 106

Methodology Author(s) Key Issues Key Findings

Aras et. al. CSR and financial The authors found a significant relationship between firm size and CSR.
Empirical (2010) performance However found no significant relationship between CSR and financial
relationship performance/profitability for Turkish listed companies. CSR is perhaps not
sufficiently related with firm financial and economic performance in
developing countries yet.
Şahin et. al. Impact of board Inside directors and CEO duality lead to worse financial performance. On
(2011) composition on CSR the other hand, independent directors lead to better CSR in Turkish listed
and financial companies.
performance
Arsoy et. CSR and financial In Turkey, financial performances of listed firms determine the CSR
al. performance Performance of the companies.
(2012)
Akbaş Determinants of the Leverage and age have no relation environmental disclosure, however size
(2014) environmental and industrial effects are significant. Profitability and the extent of
disclosure environmental disclosures are negatively related for nonfinancial firms.
Özçelik and Evaluation of bank TSKB ranks first in sustainability performance. In Turkey lack of legal
Öztürk sustainability arrangements and lack of public awareness on sustainable issues stand out
(2014) performance as the factors preventing the sustainable reporting are widespread. Firms
report sustainability in ways that are difficult to understand and compare.
There is a need to establish clear, user-friendly methodologies and tools to
measure the progress that companies are making towards sustainability.
Özçelik et. CSR and financial Significant relationship between company size and CSR. No significant
al. performance relationship between financial performance, risk, type of ownership and
(2014)
Başar
(2014)
Akbaş
(2014)
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CSR and financial
performance
Determinants of the
environmental
disclosure
CSR.
Financial performance and CSR is negatively related for BIST Chemical,
Petroleum and Plastic Index Companies.
Company size and industry membership are positively related to the extent
of environmental disclosure, while profitability is negatively related.
However, neither leverage nor age has a statistically significant relationship
with the extent of disclosure.

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Accounting: Principles and Practices
 Methodology Author(s) Key Issues Key Findings
Erdur and Kara CSR and Positive relationship between CSR and market value/book value ratio,
Empirical (2014) financial return on equity ratio, return on assets ratio, leverage ratio and net profit.
performance No relation between corporate social responsibility and companies’ total
relationship sales and return on sales ratio.
Adalessosi et al 2013 In sustainability information presentation, Indian companies were more
(2015) sustainability likely to produce an ‘integrated report’ than others. Brazilian sample
reports of indicated the lowest GRI scores with the lowest median of the 4 countries.
Brazil,
Germany,
India and
Turkey
Kılıçet. al. Impact of Female directors on board have a significant positive impact on CSR
Corporate social responsibility research in accounting

(2015) corporate reporting in banks. The number of branches is an important driver of CSR
governance reporting. Board size plays a positive role (even if insignificant) on the
on CSR CSR reporting and that this effect is reversed after a certain point has been
reporting reached. This might mean that a board can lose its efficiency when it is
too large.
Altuner et. al. Corporate Positive linkages among corporate governance, intellectual capital and
(2015) Governance CSR is found for listed manufacturing firms.
and CSR
Karasioğlu and CSR and CSR causes better financial performance with only a one-year lag. Most
DemirelArıcı(2012) financial of the companies hesitate to do socially responsible activities because of
performance costs. But according to the study, economic benefits of the CSR exceed

Taşkın
(2015)
WT
CSR and
financial
performance
the costs of it.
Banks with more CSR practices have lower profitability. Banks with
higher CSR scores tend to charge higher net interest margins (NIM) from
their customers, as that the banks with more CSR practices or disclosures
are more costly to the customers; additionally customers are more likely
to prefer banks with more CSR practices even if they charge more.

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107
 6
A research note of potential scientific
management accounting research area in
CEECs
Beata Zyznarska-Dworczaka1
a
Poznan University of Economics and Business, Poland

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Abstract: The paper is a commentary on the future of management accounting
in Central and Eastern European countries, portrayed in the manuscript in the
Journal Sustainability in its Special Issue titled “Corporate Social Responsibility
(CSR) in Developing Countries: Current Trends and Development”. The
manuscript “The Development Perspectives of Sustainable Management
Accounting in Central and Eastern European Countries” written by Beata
Zyznarska-Dworczak promotes the role of management accounting in a wider
social, ethical, environmental, cultural and historical context. This approach
contributes to the understanding of sustainable management accounting towards
socio-economic transformations and developments in Central and Eastern
European countries, in the research perspectives of alternative management
accounting. It encourages to treat sustainable management accounting as a social
and institutional activity, realizing a complementary role (to conventional) of the
management accounting system in this region of Europe because of its emerging
economy perspective. This approach determines new potential scientific
management accounting research area. The aim of this paper is to outline the
potential for researchers to influence the development perspectives of sustainable
management accounting. The paper, as a thought provoking discussion of science,
raises the following questions: may the alternative context of sustainable
management accounting provide opportunities for researchers investigating
accounting issues in Central and Eastern European countries? is it possible to
combine alternative perspectives into management accounting research? how to
combine it with conventional economics-based mainstream research? How to
measure corporate sustainability performance in management accounting system?

1
Corresponding author: Department of Accounting, Poznan University of Economics and
Business; Al. Niepodległości 10, 61-875 Poznan; email address:
[email protected].

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A research note of potential scientific management accounting research area in CEECs 109

Keywords: accounting theory, corporate social responsibility, management

accounting, Central and Eastern European countries, CEECs, discussion

JEL codes: M41, M42, M49.

1. Introduction

Management accounting research is usually carried out using a conventional,

mainstream approach, characterized by functionalism and rationalism. An
alternative approach to management accounting, in turn, entails expanding the
basis on which management accounting is conceptualized. It demonstrates the role
of accounting in a wider social, ethical, environmental, cultural and historical

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context. Such approach expands the scope of management accounting research to
include, among other things, the theories of organization, sociology, psychology
and philosophy, as well as behavioral theories. Thus, creates the basis for scientific
understanding of the impact of sustainability on management accounting area, in a
different context.

The paper is a commentary on the future of management accounting in Central and

Eastern European countries (CEECs), portrayed in the manuscript in the Journal
Sustainability in its Special Issue titled “Corporate Social Responsibility (CSR) in
Developing Countries: Current Trends and Development”. The manuscript “The
Development Perspectives of Sustainable Management Accounting in Central and
Eastern European Countries” (Zyznarska-Dworczak, 2018) (in the further part of
this paper it is named “Manuscript”) contributes to the understanding of sustainable
management accounting in the context of socio-economic transformations and
developments in Central and Eastern European countries, in the research
perspectives of alternative management accounting. It promotes to treat sustainable
management accounting (SMA) as a social and institutional activity, realizing a
complementary role (to conventional) of the management accounting system. Such
approach is dedicated for CEECs because of its emerging economy perspective and
specific features of the market.

An alternative approach to SMA determines new potential scientific management

accounting research area. So the aim of this paper is to outline the potential for
researchers to influence the development perspectives of sustainable management
accounting. The paper as a thought provoking discussion of science raises the
following questions:
- May the alternative context of sustainable management accounting provide
opportunities for researchers investigating accounting issues in Central and
Eastern European countries?

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110 Accounting: Principles and Practices

- Is it possible to combine alternative perspectives into management accounting

research?
- How to combine alternative approach into management accounting research
with conventional economics-based mainstream research?
- How to measure corporate sustainability performance in management
accounting system?

So the aim of this paper is to outline the potential for researchers to influence the
development perspectives of sustainable management accounting in CEECs in the
light of alternative management accounting research, promoted in the Manuscript.

2. The development of management accounting in CEECs

The features of the current business environment shape the characteristics of

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management accounting practices used in business (Albu & Albu, 2012: 245).
However, there are many factors directing management accounting practices
toward convergence or divergence around the world (f.e. Granlund & Lukka, 1998;
Zarzycka et al., 2017). This is the subject of numerous studies in the form of
comparative international, comparative cross-national or inter-industry longitudinal
studies (Mia & Chenhall, 1994; Libby & Waterhouse, 1996; Chenhall & Langfield-
Smith, 1998a; Chenhall & Langfield-Smith, 1998b; Granlund & Lukka, 1998;
Simionescu & Bica, 2016; Ax & Greve, 2017; Pratheepkanth, 2018). Although the
growth in international managerial accounting research over the last decades has
been significant, there are no general frameworks to help researchers identify
opportunities to add to this body of knowledge (Haka & Heitger, 2004: 21). The
cause of this phenomenon can be seen in the relative perception of economic,
social and environmental corporate responsibilities in different region of the world.

An innovative approach to management accounting in Central and Eastern

European Countries, adopting “alternative” theoretical and methodological
perspectives promotes the manuscript “The Development Perspectives of
Sustainable Management Accounting in Central and Eastern European Countries”,
written by Zyznarska-Dworczak (2018), issued in Journal Sustainability in its
Special Issue titled “Corporate Social Responsibility (CSR) in Developing
Countries: Current Trends and Development”. The innovative nature of promoted
in the manuscript approach is proved by the means of bibliometric analysis, based
on the database of the scientific papers in the Web of Science’ database relating to
management accounting research in CEECs from 1945–2017 (Zyznarska-
Dworczak 2018: 3-8). A bibliometric data indicate that the number of publications
relating to management accounting research in Central and Eastern European
countries is low, but it shows growth over the analyzed period. Over than 72% of
publication comes from 3 countries: Romania (57%), Czech Republic (38%) and
Poland (23%). Additionally, most publications come from the second decade of the
21st century, and over 50% from the last 4 years. This study reveals key trends in
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A research note of potential scientific management accounting research area in CEECs 111

changes in the field of management accounting research, and allows to anticipate

the direction of future research in this region.

The Manuscript of Zyznarska-Dworczak assumes that Central and Eastern

European countries may be treated as a homogeneous research group for
implicating the development perspectives of management accounting because of
their historical, cultural, social, institutional and economic circumstances differing
between these countries and more developed region. So the key factors influencing
management accounting development in CEECs result from (Zyznarska-Dworczak,
2018: 8):
 socio-economic transformations and developments;
 globalization and global competition;
 limited resources: capital assets, human resources (including management),

WT
intellectual capital, IT, new technology;
 facing financial crises with weaker financial and operational facilities than the
rich West,
 increasingly strong corporate relationships with companies from Western
Europe, necessitating the implementation of international policies by
subsidiaries,
 looking for the solutions to strengthen their management systems which will
be capable of reacting to the changing internal and external environment;
 a growing need for the transformation of the sustainability of organizational
practices.
Due to Zyznarska-Dworczak (2018) management accounting development is also
determined by the need of meeting the stakeholders’ expectations regarding
credibility and transparency in corporate reporting, their CSR involvement, and
thus gaining a comparative advantage that encourages the market to cooperate and
the capital to invest. The observed in the companies from CEECs changes concern
organizational structure, their production structure, managerial practices taking into
account the social, environmental and ethical expectations, performance
measurement, demand for more detailed information about their socio-economic
and environmental potential, the need for better skills and competency of
accountants (Zyznarska-Dworczak, 2018: 8).

Nevertheless the constraints of CEECs, like education, quality, know-how,

technology, IT, acquisition of knowledge in the area of management accounting by
enterprises in CEECs, may make management accountants to concentrate on
corporate economic goals and limit their responsibility for their socio-
environmental performance.

Notwithstanding, sustainability is a concept that has gained increased attention

among social and economic actors in recent years, and also determines the
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112 Accounting: Principles and Practices

management accounting perspectives. CSR-related matters in CEECs has become

“an important concept materializing in the accounting academic and practitioner
literature, as well as in the practices of local companies” (Albu et al., 2016: 193).
And though management accounting research is usually carried out using a
conventional, mainstream approach, Zyznarska-Dworczak (2018) proves in her
Manuscript that the analysis of the prospects of the development of management
accounting in CEECs requires the perception of the role of management accounting
in a wider social, ethical, environmental, cultural and historical context (thesis no 1
of the Manuscript).

This approach enabled Zyznarska-Dworczak to state that alternative scientific

research drives the development of management accounting towards social
practice, determined by the nature of the organizational and social environment,
laying the foundations for an analysis of the development of sustainable

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management accounting in CEECs (thesis no 2 of the Manuscript). In the next
stage it is proved that sustainable management accounting as a social practice can
be a subject of alternative scientific research in the area of management accounting
(thesis no 3 of the Manuscript). As the main conclusions the Manuscript indicates
the proof of the thesis no. 4 that sustainable management accounting as a subject of
alternative scientific management accounting research may constitute a means of
promoting management accounting research in CEECs’ companies (Zyznarska-
Dworczak, 2018: 2). The Manuscript is an attempt of theoretical and
methodological proving of these statements.

3. An alternative approach to SMA as potential scientific management

accounting research area

Conventional research is considered to be dominant in management accounting

research (Chua, 1988; Baker 1997; Baxter & Chua, 2003; Baxter & Boedker 2008;
Wanderley & Cullen 2011). Such research results in positive theories, used for the
explanation of the rules, meanings, and development of certain management
accounting concepts (Hoque, 2006: 3). Notwithstanding, the mainstream type of
management accounting research has been criticized by various researchers (e.g.,
Scapens, 1994; Wickramasinghe & Alawattage, 2012; Williams, 2014; Hopper &
Bui, 2016; Alawattage et al., 2017), who have identified serious problems in terms
of developing knowledge and innovation in the research area. For these
researchers, the simplification and reduction of reality via its quantification, and
the formulation of hypotheses, have not contributed to a better understanding of
management accounting and to predicting its development (Major 2017: 174).

In contrast to the ”mainstream” paradigm, which has flourished and is still

considered as the only credible research method in North America, alternative
accounting research has found fertile ground in the UK, Australia, New Zealand
and Europe. Critical management accounting research is equipped with tools to
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A research note of potential scientific management accounting research area in CEECs 113

challenge the claims of absolute truth and offer opportunities for informed and
democratic debate (Alawattage et al., 2017: 178, 185). Assuming that accounting
change is not linear, predictable, controllable, exclusively technical or well-
behaved (Baxter & Chua, 2003: 107), some researchers adopt “alternative”
perspectives in their research (c.f. Chua, 1988; Baker 1997; Lillis & Mundy, 2005;
Anderson & Widener, 2006; Baxter & Boedker, 2008; Wanderley & Cullen, 2011;
Major 2017; Alawattage et al., 2017; Zyznarska-Dworczak 2015, 2018).
For alternative researchers, it is impossible to quantify and reduce reality, in
contrast to what positivists believe (Major 2017: 174). One of the main objectives
of alternative management accounting research is to treat it as a social practice,
which is built by a mutual influence of the external and internal environment of a
business enterprise. It is pursued across scientific perspectives (Zyznarska-
Dworczak, 2018: 9).

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The Manuscript promotes an adoption of alternative approach to management
accounting in CEECs. Considering the conditions of management accounting
development in CEECs, outlined in Part 2 of this article, the Manuscript postulates
the theoretical framework of sustainable management accounting, from the
emerging economy perspective conducted in the light of alternative management
accounting research. The Manuscript promote to treat SMA as a social and
organizational activity, based on an internal accountability tool. SMA research may
help to create the theoretical framework of sustainability control and planning
system focused on the environment of a business entity and its environmental,
social and ethical impact. In this sense SMA is distinguished by its key features,
like (Zyznarska-Dworczak 2018: 13-14):
- Focus on the environment of a business entity and its environmental, social and
ethical impact;
- Balance between the economic, social, environmental and ethical goals;
- Basically internal perspective, supporting sustainability reporting also external;
- Flexibility in defining corporate goals;
- An integrated form of planning and control methods for the fulfillment of
economic, social and environmental goals supporting the evaluation of the
business entity’s impact on its environment;
- Dedicated instruments: Activity Based Responsibility Accounting, Sustainable
BSC, Activity- and Strategy-Based Responsibility Accounting;
- Financial and non-financial indicators: economic, environmental (natural
environmental), labor, social engagement, other;
- Long-term planning, control, motivating operating level personnel from the
perspective of economic, environmental, social and ethical goals;
- Group decision-making, including lower level personnel, making it possible to
take multiple business impact perspectives into account.

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114 Accounting: Principles and Practices

The Manuscript proves that the anticipated direction of development of SMA

research in CEECs may be analysed in each perspectives of alternative
management accounting research, identified by Baxter and Chua (Baxter & Chua,
2003):
1. institutional theory;
2. a non-rational design school;
3. naturalistic research;
4. the radical alternative;
5. structuration theory;
6. a Foucauldian approach;
7. a Latourian approach.

As the results of the Manuscript indicate the greatest impact on SMA research in
CEECs may have institutional theory, developed under the influence of the concept

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of institutionalism in sociology and the theory of organization. The institutional
theory has become one of the most popular choices among management accounting
researchers who seek to study management accounting change (Alsharari et al.,
2015: 478). According to Scapens (1994) the institutional framework views
accounting practices as institutionalized routines, which enable entities to
reproduce and legitimate behaviour, and to achieve organizational cohesion.
Moreover accounting as institutionalized routine creates understandings of
activities according to particular sets of accounting rules and procedures which
enable decisions to be made and activities undertaken in a complex and uncertain
world (Scapens 1994: 301). Thus institutional theory`s perspective may help to
answer the management accounting research questions: how to understand the
social and organizational nature of SMA? how to implement and evaluate an
integrated form of tools? (table 1).

Table 1. SMA research question from institutional theory`s perspective

How to understand the social and organizational nature of SMA?
How to legitimate SMA?
Institutional How to implement and evaluate an integrated form of tools to
theory measure and balance the economic, social, environmental and ethical
goals?
(Source: Own elaboration based on Zyznarska-Dworczak, 2018: 12).

Institutional theory, assuming limited rationality and opportunism, may encourage

accounting researchers to look seriously at the nature of all management
accounting practices, and not to dismiss those practices which do not conform to
some theoretical ideal (Scapens 1994: 301). In this way it helps to understand the
social nature of the management accounting practice and to clarify the scope of
various internal and external influences on development of management
accounting systems. Thus, its perspective may be helpful in selection,
implementation and evaluation of the methods used to measure and balance the
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A research note of potential scientific management accounting research area in CEECs 115

economic, social, environmental and ethical goals. Harmonization of different

objectives in a socially-responsible entity may also be researched in the light of a
non-rational design school (table 2).

Table 2. SMA research question from a non-rational design school`s

perspective
How to legitimate a seemingly irrational approach for business – not
only economically?
A non-
How to harmonize economic, environmental, social and ethical
rational objectives? and for how to plan it?
design school How to focus on the environment of a business entity and its
environmental, social and ethical impact?
(Source: Own elaboration based on Zyznarska-Dworczak, 2018: 12).

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Since a non-rational design school questions presumptions of rationality in
organizational choice, it helps to appreciate the problematic construction of
management accounting information systems and their constitutive role in
organisational sense-making. (Baxter, Chua, 2003: 98-99). Thus that approach may
quite distinct from ideas about the sensible allocation of resources that underscores
other accounts of management accounting information systems and their use.
thanks to this it helps to legitimate a seemingly irrational approach for business,
based not only on economic results but also on social and environmental
achievements. In this sense SMA is expected to support corporate decisions
targeted at the change from a rational maximization of business value/profit to the
harmonization of goals.
Naturalistic research`s perspective may, in turn, justifies management accounting
research within specific organizational context. It is enacted quite differently from
one organisation to another, conveying local values, meanings and nuances
(Baxter, Chua, 2003: 99). This school expands management accounting research
perspectives and encourages to search for answers to the research questions
presented in the table 3.

Table 3. SMA research question from naturalistic research`s perspective

How to develop SMA against many financial and non-financial
factors influencing an entity performance?
Naturalistic How to evaluate the achieved by an entity performance influenced
research by the complexities of its environment?
How to reevaluate these achievements against the changing internal
and external environment?
(Source: Own elaboration based on Zyznarska-Dworczak, 2018: 12)
It is worth investigating, how to develop SMA against many financial and non-
financial factors influencing an entity performance. It is also future direction of
management accounting development research of searching for the answer to the
question, how to evaluate and reevaluate corporate achievements influenced by the
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116 Accounting: Principles and Practices

complexities of its environment. This approach assumes that management

accounting practices are influenced by the complexities of the multiple
constructions of the environment and the expectations that they convey
(Zyznarska-Dworczak 2018: 9). Thus, it also may be treated as an instrument to
reduce the inequalities in an entity through proper capital allocation and
performance management. It may be a key assumption of the radical alternative in
management accounting research (table 4).

Table 4. SMA research question from the radical alternative`s perspective

How to reduce the inequalities in an entity through proper capital
The radical allocation and performance management?
alternative May SMA help to reduce the inequalities? How to manage it?
(Source: Own elaboration based on Zyznarska-Dworczak, 2018: 12)

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The radical alternative is the answer to facts that inequality undermines corporate
social stability and that members of organisations and society internalise values
that reproduce an unequal society (Baxter & Chua, 2003: 99). In this school SMA
research is expected to reduce the inequalities in an entity through proper capital
allocation and performance management. The implementation of this task requires
development of an integrated form of planning and control methods and tools for
the fulfillment of economic, social and environmental goals supporting their
harmonization. Such research may derive its strength from a combination of
quantitative and qualitative research methods, since they require the integration of
quantitative and qualitative data from various perspectives of business (Zyznarska-
Dworczak, 2018: 15).

The understanding of accounting as a social and organizational practice may also

be explained according to the assumption of structuration theory. As is presented in
table 4, this alternative approach may support researchers in interpreting the
connection of management accounting with institutionalized social relationships
(Zyznarska-Dworczak, 2018: 13).

Table 5. SMA research question from structuration theory`s perspective

How to interpret the connection of management accounting with
institutionalized social relationships?
Structuration
How to support the understanding of accounting as a social and
theory
organizational practice?
How to legitimate SMA as a way of goals communication?
(Source: Own elaboration based on Zyznarska-Dworczak, 2018: 12).
Structuration theory relates to the process of conceptualizing the interconnection
between the agency of individuals and the reproduction of social structures, it
assigns an equal importance to the structure and the agency, and is intended to

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A research note of potential scientific management accounting research area in CEECs 117

show how management accounting is connected with institutionalized social

relationships (Baxter, Chua, 2003: 99).

A Foucauldian approach, using organization and management theories, is dedicated

to research into team coordination and flexibility of defining goals. It suggests a
means of motivating management accounting to become actively involved in
business responsibility, and may be used for internal management decision-
making, including financial and nonfinancial transactions that affect the external
and internal environment of the business (Zyznarska-Dworczak 2018: 16). This
approach is expected to find the answers to the research question: how to consider
all the manifestations of power relations in a socially-responsible entity, expected
to harmonize its different goals (table 6).

Table 6. SMA research question from a Foucauldian approach`s perspective

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A How to consider all the manifestations of power relations from the
Foucauldian perspective of the goals harmonization in a socially-responsible entity?
approach How to motivate management accounting to become actively involved
in business sustainability and responsibility?
(Source: Own elaboration based on Zyznarska-Dworczak, 2018: 12)

As the results of the Manuscript indicate this approach may also give rise to
research on the possibilities of motivating management accounting to become
actively involved in business sustainability. However, this research area requires
in-depth investigation relating the coordination of an entity’s team in achieving the
harmonization of the goals. A complement to the answer to this research question
may be a response given by a Latourian approach, which may help to research the
role of management function in the harmonization of economic, environmental,
social and ethical goals (Zyznarska-Dworczak, 2018: 13). A Latourian approach,
which uses sociological actor-network theory, allows to understand the
relationships of the parties-users accounting system from the perspective of the
pursuit of their own goals (table 7).

Table 7. SMA research question from a Latourian approach`s perspective

How to coordinate an entity`s team in achieving the harmonization of
A Latourian the goals?
approach How to define the goals in flexible way?
How to support management function in the harmonization of
economic, environmental, social and ethical goals?
(Source: Own elaboration based on Zyznarska-Dworczak, 2018: 12)

Adopting an Latourian approach in management accounting research may support

to understand stakeholders’ information needs, and determine what kind of data the
SMA should provide, and thus, the direction in which the management is supposed
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118 Accounting: Principles and Practices

to act. The Latourian approach perspective may significantly assist management

accounting researchers in the application of SMA to motivate personnel across the
organization to respect social responsibility policy objectives, including
sociological techniques. (Zyznarska-Dworczak 2018: 13, 16).

As the findings of the Manuscript, presented in Tables 2-7, indicate that the
concept of SMA research requires a consideration of the widest relationships of an
entity to its environment, and its impacts in the longest period possible when
measuring achievements. Therefore, the author’s concept focuses on interpretative
and critical research requiring an expansion of the current quantitative research, so
that it includes qualitative research. It allows the inclusion of non-financial
information in the management accounting system, which is generally skipped in
the mainstream approach. As emphasized in the Manuscript valuable area of

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management accounting research is the phenomenon of how an organizational and
social context moves management accounting systems towards the cognitive and
cultural explanations of an entity. At the same time it is worth examining how
these aspects empower the management accounting system to perform stabilizing
and standardizing functions within an entity in CEECs (Zyznarska-Dworczak,
2018: 15). Although the development perspectives of management accounting in
Central and Eastern European countries is extensively influenced by corporate
goals and social needs resulting primarily from political, structural, social and
economic transformations in this region, there is still place for scientific solutions,
useful for both theory and practice.

4. Conclusions

The paper presents a multi-dimensional picture of the complexity and variety of

sustainability management accounting in Central and Eastern European countries,
promoted in the Manuscript of Zyznarska-Dworczak (2018). This approach
postulates the understanding of changes and the prospects for the development of
management accounting in this region, with in-depth consideration of corporate
sustainability by perceiving the role of accounting in a wider social, ethical,
environmental, cultural and historical context. The paper proves that each of the
alternative approaches to management accounting research determines the potential
of future research of sustainable management accounting in CEECs. The paper, as
a thought provoking discussion of science, raises many research questions relating
the direction of future research in this region.

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A research note of potential scientific management accounting research area in CEECs 119

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 7
Does simplified accounting limit small and
micro companies’ access to bank financing?
Halina Waniak-Michalaka,1
a
University of Lodz, Poland

Abstract: Enterprises that use simplified accounting can provide less information

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to lenders, thereby possibly hampering risk analysis. In this paper I investigate
whether simplified accounting is a barrier for Polish Small and Medium-sized
Entities (SMEs) enterprises to access financing resources, or makes funding more
expensive for them. Telephone interviews with managers of banks and a review of
statistical data are used to show that simplified accounting methods may influence
the cost of capital of Polish SMEs, but it does not create a barrier to accessing
external sources of financing.

Keywords: SME; micro entities; bank financing; simplified accounting; Poland

JEL codes: M21, M41

1. Introduction

The problem of difficult access for small and micro enterprises to external capital,
especially to commercial sources of funding, is presented in many publications
(Nassr & Wehinger, 2015, Duan; Han & Yang, 2009; Biernat & Planutis, 2013;
Cassar, 2004; Udell, 2015). This is a barrier for development that stems from the low
credit rating and high credit risk attributed to small companies. There are several
major reasons for which these businesses may be perceived as riskier: lack of
sufficient collateral (Czajkowska, 2013), the legal status (partnerships or
proprietorships) (Bauer, 2013), inadequate knowledge of financial management (i.e.

1
Corresponding author: University of Lodz, Management Department; Matejki St. 22/26,
90-237; e-mail address: [email protected]

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Does simplified accounting limit small and micro companies’ access to bank... 123

the inability to estimate the cost of capital, to assess the profitability of investments,
to manage the risk) (European Parliament, 2012) and scope of accounting (Ayadi &
Gadi, 2013). Small companies may be perceived as even riskier in developing
countries, such as Poland, where the economy is less stable than in mature markets
(Beck et al., 2008). This is why in these countries banks are less interested in
investing in small companies than in developed countries (Dalberg, 2011).

Accounting has many ways of application. It is used by business entities, but also by
non-profit organizations, professionals and governmental institutions. The principle
role of accounting is to provide an information useful for users (managers, owners).
The dimension of accounting (the scope of accounting) can be very narrow and ends
with recording economic transactions or preparing financial statements. However, in
a modern world, an accounting may also serve to “identify, measure and
communicate economic information to permit informed judgments and decisions by

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the users of accounts” (Porter & Norton, 2014), so the scope of accounting may be
much broader.

The scope of accounting and reporting is closely related to the legal status of a
business registered in Poland. In capital companies (not using simplified
accounting), in which the concept of separate entity is used, the assessment of credit
risk is easier and less costly than in the case of the self-employed or micro-
companies. Moreover, ownership structure determines the level of tolerable financial
risk. Family businesses operating mainly to provide an income for the owner and the
members of his/her family reluctantly become indebted due to the fact that this is a
threat to the stability of family life (Starczewska-Krzysztoszek, 2014). Thus, in this
paper I investigate whether simplified accounting is a barrier for Polish Small and
Medium-sized Entities (SMEs) enterprises to access financing resources, or makes
funding more expensive for them.

The first part of the paper describes accounting regulations for small and micro
enterprises in Poland and what kind of simplifications in accounting Polish
businesses may use. The second section presents the literature review on the
influence of simplified accounting on an access of small companies to finance. The
last part of the paper shows results of interviews with bank managers and findings
on the bank’s offer for small businesses.

The findings may be important for all researchers interested in the role of financial
information in the decision making of creditors and the consequences of the
simplification of accounting for access of small companies to bank finance
(including IFRS for SMEs). In order to reach our goal, literature research and
interviews with five banks managers were used. Interviews with bank managers were
anonymous, because official permission of the bank headquarters for the interview
is almost not possible to obtain in Poland. Access to more managers was extremely
challenging despite numerous attempts. While this impairs generalizability of
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124 Accounting: Principles and Practices

findings via such a small number of interviews, this data nicely complements
statistical data and our in-depth understanding of the polish case.

2. Accounting Regulations for Small and Micro Enterprises

in Poland
Small and micro enterprises, depending on the type of business and its size, fall under
different accounting and tax regulations. The basic legal act regulating the activity
of business units receiving income more than 1,200,000 EUR is the Accounting Act
issued on the 29 of September 1994 (with further refinements).

On September 5 2014, the regulator introduced a new category of business entity,

the micro and small unit, which do not have to use all the regulations of the

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Accounting Act. It was forced by the UE Directive 2013/34/EU of the European
Parliament and of the Council of 26 June 2013 on the annual financial statements,
consolidated financial statements and related reports of certain types of
undertakings. Limits of revenues, balance sheet sum for micro, small and medium-
size entities indicated in the Directive were presented in the Polish Accounting Act
in PLN. Therefore, the regulator included in this group of micro entities firms that
do not exceed two of the three following amounts:
a) 1,500,000 PLN – balance sheet sum,
b) 3,000,000 PLN – annual revenue,
c) 10 employees – average annual number of full time employees (FTE)

These micro-entities can prepare simplified financial statements, including a balance

sheet and a profit and loss statement.

Small entities, according to the Polish Accounting Act, are firms that do not exceed
two of the following three amounts:
a) 17,000,000 PLN – balance sheet sum,
b) 34,000,000 PLN – annual revenue,
c) 50 employees – average annual number of full time employees (FTE)

Small entities additionally have the right to prepare simplified financial statements,
however they are more detailed than the statements of micro enterprises. Entities that
do not reach revenues of 1 200 000 EUR have to follow the regulations of the Income
Tax Act for individuals, according to which, particular entities are required to keep
a revenue and expense ledger and others will pay the flat rate of tax on registered
income or pay a fixed tax using a tax card (Table 1).

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Table 1. The scope of bookkeeping and reporting of Polish business units

in connection with the chosen form of taxation and size of activity

Type of Information
Conditions Description
accounting provided
Tax card  revenues< 150,000 tax is paid as a  salaries register
Euro lump sum,  copy of invoices
 Activity described in regardless of the of sale and
article 3 of the Income value of revenues purchase
Tax Act and costs incurred
 number of employees<
3

Tax on registered  revenues<150,000 tax is paid as a  salaries register

income: Euro percentage of the  copy of invoices
 activity described in registered revenues of sale and

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art. 2 and 8 of the (costs are not taken purchase
Income Tax Act into account)  register of
 number of employees equipment and
>3 intangible assets
 register of
supplies

Revenue and  revenues<1,200,000 The company pays  revenue and

expense ledger Euro the tax depending expense, financial
 partnership or on its income results
proprietorship (revenues minus  register of salaries
costs). The  register of
company uses tax equipment and
regulation instead intangible assets
of the Accounting plus amortization
Act to record plan
revenues and costs,  record of the
vehicle usage and
supplies
Full Accounting for Fulfilment of 2 of the Full accounting  Information from
micro companies following 3 requirements: with some the accounting
1. balance sheet sum < exceptions, such system: costs,
1,500,000 PLN, as: simplified revenue, assets
2. net sales <3,000,000 financial and liabilities,
PLN, statements,  A simplified
3. average employment possibility to use financial
<10 FTE tax regulations in statement for
 legal status of capital place of accounting micro entities
company regulations. Notes including:
for financial revenue from sale
statements are not and other revenue
necessary (without details),
main positions of
assets and
liabilities.

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126 Accounting: Principles and Practices

Type of Information
Conditions Description
accounting provided
Full Accounting for Fulfilment of 2 of the Simplified  Information from
small companies following 3 requirements: financial the accounting
 balance sheet sum < statements, without system: costs,
17,000,000 PLN, a statement of the revenue, assets
 net sales <34,000,000 changes in equity and liabilities,
PLN, or a cash flow  financial
average employment <50 statement as well statement for
FTE as activity small entities
statement on the
condition that the
information will be
presented in notes
for the financial
statement. In
addition, financial

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ratios and
information on the
influence of the
entity on the
environment are
not required.
Source: Own elaboration on the basis: Dz.U. z 1998 r. n. 144.; Dz.U. 1991 n. 80; Dz.U.
1988 n. 44; Dz.U. 1994 n. 121.

It must be noted that every business entity in Poland may choose not to use simplified
accounting, even those that record revenues lower than 150,000 EUR. However,
despite such a possibility, many small businesses use simplified accounting,
recording only revenue (revenue card for each employee in the case of the tax card)
and wages. Research shows that only 16.79% of SMEs and 6% of micro-enterprises
kept full accounting (Fundacja Rozwoju Biznesu [Foundation for Business
Development], 2013), while most (approx. 70% of enterprises) use a revenue and
expense ledger (see Figures 1; 2; 3). Only about 6-7% of micro enterprises use full
accounting and 65% of small companies, implying that the problem with access to
external financing may affect only 1/3 of small companies but more than 90% of
micro enterprises. If we exclude the revenue and expense ledger, the biggest problem
concerns only micro enterprises (Figure 2 and 3), because almost only micro entities
use tax on registered income and revenue and expense ledger.

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Does simplified accounting limit small and micro companies’ access to bank... 127

120,00%

97,94% 98,15% 97,1% 97,95% 97,84% 97,92% 97,01%

100,00% 92,66%

80,00% 75,28%
67,15% 70,26% 70,27%
62,8% 65,86% 64,53% 65,05%
60,00%

40,00%

20,00% 10,26%
5,99% 6,81% 5,4% 6,57% 7,12% 7,37% 7,58%

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0,00%
2008 2009 2010 2011 2012 2013 2014 2015

micro small medium

Figure 1. Share of number of enterprises not using simplified accounting

in the number of SMEs in Poland in the years 2008-2015
Source: Own elaboration on the basis of statistical data of the General Statistics
Office: „Działalność przedsiębiorstw niefinansowych” [Activity of nonfinancial
enterprises] for the years 2008, 2009, 2010, 2011, 2012, 2013, 2014, 2015

The revenue and expense ledger must be kept by entrepreneurs in Poland who
receive annual income higher than 150,000 EUR., that is, those who cannot pay
income tax on the basis of a flat rate of recorded income or the tax card. The income
and expense ledger is a form of taxation and bookkeeping (most popular among
micro-entities and second most popular among small businesses) (Figure 2). It must
be noted that the least popular forms of accounting are flat rate tax and the tax card,
i.e. the simplest tax and accounting forms (Figure 3). However, they also cause the
highest difficulties in obtaining external financing (Pogodzińska-Mizdrak, 2008) and
the inability to subtract operating expenses from revenue (including reporting losses
during economic crises and the possibility to pay lower tax in the following years).
Despite the constraints of the information contained in the revenue and expense
ledger, it is a reliable source of information for lenders. In comparison with other
simplified forms of bookkeeping, it does not create a large obstacle in obtaining
external financing. It is possible to conduct a financial analysis of the entity and even
prepare financial statements to apply for external financing (i.e. EU grants)
(Jaworski, 2009) by taking into account such data from the revenue and expense
ledger as:
1) sales revenues,
2) other revenues,
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128 Accounting: Principles and Practices

3) values of purchases,
4) additional costs of purchases,
5) wages and salaries, in cash and in kind,
6) other expenses,
7) register of plant, property and equipment and intangibles,
8) register of cash, receivables and payables (not obligatory, but some
enterprises keep records),

90,00%
78,55%
80,00%
67,6% 67,46% 68,32% 69,38% 68,86%
70,00% 64,51% 66,48%

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60,00%
50,00%
40,00%
30,00%
20,00%
10,00%
0,00%
2008 2009 2010 2011 2012 2013 2014 2015

micro small medium

Figure 2. Share of number of enterprises using the revenue and expense ledger
in the number of SMEs in Poland in the years 2008-2015
Source: Own elaboration on the basis of statistical data of the General Statistics
Office: „Działalność przedsiębiorstw niefinansowych” [Activity of nonfinancial
enterprises] for the years 2008, 2009, 2010, 2011, 2012, 2013, 2014, 2015

Simplified taxation and accounting forms are used in many countries as an incentive
for entrepreneurs to set up a business in the form of a proprietorship or partnership
(often a family business) (Żabiński, 2011). Simplified forms of taxation and
accounting such as a flat rate of recorded income or a tax card are designed for micro-
companies operating to a limited extent, so these forms of taxation do not occur in
the group of small and medium-sized enterprises.

The use of these forms of taxation and accounting enables a considerable

simplification of bookkeeping, documentation, and a decrease of the cost of control
on the side of the tax authorities. The amount of tax to be paid by the entrepreneur

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Does simplified accounting limit small and micro companies’ access to bank... 129

keeping the tax card depends on the type of services provided and the size of the
premises where the activity is run.

On the other hand, these forms of accounting limit the selection of: the type of
activity (some forms of bookkeeping like the tax card or tax on registered income
are available for just a few types of activity), the number of employees (up to 5
people for a tax card), the amount of revenue or income, and thus the number of
services or products sold (i.e. number of lessons given by tutors). A flat rate of
recorded income can be used by Polish entrepreneurs if their revenue for the previous
year did not exceed 150,000 EUR. This possibility to select the form of accounting
and taxation is also limited by the type of business, for example, entrepreneurs
serving financial services or freelancers cannot use the flat rate of recorded income.

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35,00%
29,50%
30,00%
26,71% 25,97% 25,78%
24,56%
25,00% 23,25%
21,2%
20,00% 18,25%

15,00%

10,00%

5,00%
0,05% 0,00% 0,00% 0,00% 0,02% 0,00% 0,01% 0,15%
0,00%
2008 2009 2010 2011 2012 2013 2014 2015

micro small

Figure 3. Share of number of enterprises using the flat rate of recorded

income or the tax card in the number of SMEs in Poland in the years 2008-
2015
Source: Own elaboration on the basis of statistical data of the General Statistics
Office: „Działalność przedsiębiorstw niefinansowych” [Activity of nonfinancial
enterprises] for the years 2008, 2009, 2010, 2011, 2012, 2013, 2014, 2015.

According to GUS (General Office of Statistics) data for the years 2010-2015, the
scope of accounting (full accounting, revenue and expense ledger, tax on registered
income or the tax card) affects the amount of investments. It is difficult to say
whether this is due to the lower capital requirements or difficulties in obtaining funds
for projects.

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130 Accounting: Principles and Practices

120,0%

98,7% 98,8% 98,8% 98,8% 99,0% 99,1%

100,0%

80,0%

60,0%

40,0%

20,0%
1,3% 1,2% 1,2% 1,2% 1,0% 0,9%
0,0%

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2010 2011 2012 2013 2014 2015

full accounting revenue and expense ledger

Figure 4. Share of value of investments of companies with more than 10

employees: using full accounting or revenue and expense ledger
Source: Own elaboration on the basis of statistical data of the General Statistics Office: „
Bilansowe wyniki finansowe podmiotów gospodarczych w 2015” [Balance sheet financial
results of business entities in 2015]

Figure 4 shows that the value of investments in property, plant and equipment of
enterprises using the revenue and expense ledger hovers around 1% of all
investments in property, plant and equipment of companies. Most enterprises using
the revenue and expense ledger work in the following sectors: "manufacturing"
(29%), "trade" (20%) and "construction" (16%).

Lower investments may also be related to the legal status of the business unit.
Entities keeping simplified accounting, and recording revenues only for tax purposes
operate as partnerships or as proprietorships, therefore, they also have personal
responsibility for the entities’ obligations. The risk from the outstanding debt and
any investment projects is perceived differently and limited to a greater extent than
in capital companies (Bauer, 2013).

Costs related to the scope of accounting depend on the location of the business, its
type and its size. The following table presents a comparison of the costs of
bookkeeping and the tax burden.

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Does simplified accounting limit small and micro companies’ access to bank... 131

Table 2. Comparison of the cost of bookkeeping and the tax burden

for different forms of accounting in Poland
Average cost of bookkeeping
Type of bookkeeping/ (min. for about 20 documents
Tax
accounting a month, salaries
for 1 employee)
tax card 95 max. 1507 zł (depending
on the type of activity)
tax on registered 95 20 %, 17 %, 8,5 %, 5,5 %
income or 3% for registered income
(depending on the type of activity)
revenue and expense 150 18% of gross profit
ledger
full accounting 400 18% of gross profit

Source: Own elaboration on the research of the proposals of 20 accounting offices in Poland,

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and the Income Tax Act Dz.U. 1991 nr 80 poz. 350,

3. Impact of Simplified Forms of Accounting on Access to External

Financing

In many countries, simplified, cash-based forms of accounting are allowed (Bergner

& Heckemeyer, 2016). Certain studies have argued that small businesses consider
the option to choose simplified tax accounting in their choice of legal status.
Simplified forms of accounting (bookkeeping) are provided in many countries to
make the calculation of tax easier for entrepreneurs (Czaja-Cieszyn, 2009).
However, the problem of access to external financing was not a major concern for
the regulators, as small enterprises finance their projects mainly through their own
sources, thus demand for external financing is low (Mikócziová, 2010). The growth
of a business would lead to the need to opt for the revenue and expense ledger or full
accounting, especially when the legal status of the business changes. Nevertheless,
even in this situation, business entities may choose to prepare simplified financial
statements.

In Poland, additional simplifications for micro and small businesses were introduced
in 2015 and 2016 in response to EU Directive 2013/34 (Klimczak & Krasodomska,
2017). At present, small capital companies may use a simplified method for the
valuation of assets and liabilities and prepare simplified financial statements.
Research shows that the introduction of these simplifications may result in savings
in the region of 17 million PLN for companies using these facilitations
(Mścibrodzka, 2014)i.

However, financial statements, also simplified, are aimed at providing useful

information to users of the information. For many years, the discussion has been
ongoing over whether increasing the information in financial statements contributes

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132 Accounting: Principles and Practices

to the increase of their usefulness, and whether it is in line with the expectations of
stakeholders (Buk, 2010; Nowak, 2015; Volkov & Laing, 2012).

Entrepreneurs who use simplified accounting but recognize the shortcomings of the
information from their accounting system, voluntarily keep additional accounts, such
as receivables and payables accounts (Brest, 2013). They do this because they
consider this information crucial either to manage the business or as important for
lenders. The business entity when choosing a form of accounting may take into
account not only the law, but also the specifics of its activity, the requirements of
suppliers and creditors.

Simplifications of accounting for small businesses are however to reduce the cost of
accounting and adjust the level of information in financial statements to the scope of
activities. Many complicated transactions never occur in the activities of small

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entities, so certain regulations (like fair value measurement) are not useful. Jóźwicka
and Zakrzewska-Bielawska (2014) indicate that particular entrepreneurs, despite
being aware of the benefits of keeping full accounting, decide on simplified
accounting due to the lack of skilled workers or accounting knowledge of the owner,
as well as the cost of software and salary of the accountant.

At this point one question arises, whether such a simplified report will still be useful,
and to what extent these simplifications can apply? The exemption of micro entities
from preparing additional information means that other parts of their financial
statements may not be of value (Maszczak, 2015; Martyniuk, 2016). Moreover,
simplified accounting cannot generate enough information for managers, i.e. the
costs necessary to make effective management decisions (Szczypa, 2016). Takats
(2013) is in disagreement with this assertion, arguing that there is no evidence that
along with the simplification of reporting comes the simplification of the information
in the accounting system.

As research shows, capital providers criticize simplified accounting not only because
of the limited usefulness of information, but also the poor reliability of the data
presented in the reports (Jaworski, 2009). Studies reveal that companies that prepare
simplified financial statements, also use simplifications that are not allowed in the
Accounting Act (Kaczmarczyk, 2014). For example, small businesses use tax
regulations for calculation of depreciation, or do not recognize allowances in
receivables or other assets. Simply put, small companies often use tax regulations in
place of general accounting regulations, because they think that simplification of
accounting means that they may use the same regulations for calculation a tax
income and a financial result in the income statement (Kaczmarczyk, 2014).

Most owners of micro enterprises indicate that their reasoning behind not using bank
loans are the high collaterals required, high funding costs and complicated

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Does simplified accounting limit small and micro companies’ access to bank... 133

procedures (Banasik & Napora-Lędźwa, 2014). One of many reasons for the worse
credit conditions of small entities is the low quality of financial information provided
(Palazuelos et al., 2017; Berger & Udell, 1995). Sometimes, even preparation of
financial statements is not enough to decrease the level of risk, and audited financial
statements are required (Berger and Frame, 2007). Some researchers that small
companies can have more difficult access to bank loans than larger firms (Schiffer
& Weder, 2001) due to the company’s lack of transparency on creditworthiness
(Ayadi & Gadi, 2013). It may be caused by insufficient information on the financial
situation of small enterprises. Small and micro enterprises usually can’t present
financial statements on their revenues, profits and liabilities which may create a
significant obstacle for an evaluation of creditworthiness (Dalberg, 2011).

Studies show that small enterprise are attractive but also very risky clients for banks
(Kulczycki, 2016). Simplified tax forms like the tax card do not generate any

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information for stakeholders (including lenders). Thus, the low value of information
is often a barrier when applying for external funding. This is because a reliable
assessment of the financial situation of the company becomes impossible if there is
no data on assets, liabilities and expenses (Fedak & Osikowicz, 2009). Simplification
of the information generated in the accounting system of micro businesses makes the
assessment of the financial situation of these entities more difficult than companies
keeping full accounting. Difficulties concerning the assessment of the level of
financing risk for a company entering the market are large, and lead to the automatic
assignment to this type of businesses of the lowest rating, and thus higher interest on
loans. Because analysts cannot conduct ratio analysis for companies that do not
prepare financial statements, an assessment of credit risk for these entities must be
supplemented by qualitative assessment, including an analysis of the market (sales
opportunities, competition, product quality, cooperation with suppliers, customers)
as well as their history of business and management skills. As research shows, self-
assessment by entrepreneurs is much higher than the assessment done by credit
institutions. This may explain the reasons why entrepreneurs are dissatisfied with the
credit decision given, and search for other reasons for which the loan application was
rejected (Sobolewski, 2013).

Keeping simplified accounting may, however, be an obstacle to the development of

the company when it becomes necessary to access other sources of financing, such
as venture capital funds or EU grants. Applications for funding under the national
and regional programs of development in Poland, co-financed with sources from the
EU, also require data from the balance sheet, the income statement and the cash flow
statement. These reports can be prepared in a simplified form for the two previous
financial years and for the current period. A forecast is prepared for the duration of
the project and the subsequent three years (for SMEs) after the completion of the
project. The content of the application for the grant is uniform for all applicants
(though it may vary slightly depending on the program) regardless of their
organizational and legal form or scope of accounting. Enterprises that keep the
____________________ WORLD TECHNOLOGIES ____________________
134 Accounting: Principles and Practices

revenue and expense ledger or pay tax on registered income or a tax card must also
prepare financial statements for previous years and a forecast for the forthcoming
few years. In such a situation, it is necessary to enlist the help of consulting firms or
accounting offices to prepare the financial information, as inexperienced
entrepreneurs are unable to do this without the support of specialists.

In addition, for micro companies or individuals using the tax card or the flat rate on
registered income, the problem is to determine the value of fixed assets and
inventory, as the personal assets of the owner of the business are often used in their
business activity. This problem has been repeatedly considered from the point of
view of SMEs' access to grants from international aid programs. However, the
benefits of keeping full accounting are not truly recognized by SMEs.

3. Required Financial Information - Interview and Market

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Analysis Results
Entrepreneurs using simplified accounting may have greater difficulty in obtaining
the necessary external financing as the limited information from the accounting
system does not enable a full risk assessment of the entity’s financial situation.
Referring to the reporting simplifications for micro entities introduced to the Polish
Accounting Act, we can state that these simplifications may, on the one hand, reduce
the cost of accounting for small and micro enterprises, but, on the other, these
simplifications can deepen the difficulties of SMEs in obtaining capital. As a result,
the investments of small and micro enterprises are financed through their own
resources, or deferred in time. This causes a mismatch between the needs of
entrepreneurs and their financial capacity, and thus is the reason for the lack of
growth possibilities and fulfilment of the market demand in a period of economic
growth (Bauer, 2013).

Commercial banks take the decision to issue a loan after the analysis of the
creditworthiness of the enterprise, i.e. after the evaluation of their financial situation,
the ability to repay the debt and the assessment of any existing potential collaterals.
The amount of the loan and its cost depend on the result of this analysis; the amount
does not always cover all the expected expenses of the investment project’s
implementation for which the loan is taken. The entrepreneur who keeps a revenue
and expense ledger or pays tax in the form of the tax card (one that is not able to
provide reliable financial information about his business) stands the least possibility
of obtaining a loan.

The analysis of the information presented on the websites of banks (required

documents to apply for the loan) did not provide an answer to the question of whether
the revenue and expense ledger or other simplified forms of taxation and accounting
make access to bank loans more difficult. Depending on the type of credit offered by
____________________ WORLD TECHNOLOGIES ____________________
Does simplified accounting limit small and micro companies’ access to bank... 135

the bank, different financial information or documents may be needed. In most cases,
banks require access to the revenue and expense ledger. Entrepreneurs paying a flat
rate on registered revenue or the tax card must provide the tax documents submitted
to the tax office. However, depending on the financial situation of the entrepreneur,
on the amount of the loan requested or on other reasons, the bank may require
additional documentation to assess the creditworthiness of the applicant.

In order to answer our research question, direct interviews with managers from five
selected banks in Poland were used along with an analysis of the documentation
required by banks for loan applicationii. Different research methods, like survey or
statistical analysis of financial information of SMEs couldn’t be used because of lack
of financial data on SMEs activity in Poland and high costs of the surveyiii.

Interviews were conductediv in December 2015 with five employees of different

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banks in Poland. One of the respondents was a director of the regional division of a
bank, and the 4 others were bank consultants. The aim of the study was to answer
the question of whether keeping simplified accounting effects an increase in the cost
of credit. Three questions were asked:
1. Is it possible to obtain a loan for the company using simplified accounting?
If so, what are the requirements?
2. Is that loan more expensive or collaterals higher than for companies using
full accounting?
3. Are there any limitations on the amount or purpose of the loan?

Respondents stated that the interest rate on the loan depended on many factors
considered in the process of multi-criteria credit rating, such as: character, ability,
means (own resources invested in the project), purpose (if the goal is economically
justified), amount in comparison with value of assets, suggested methods of
repayment and collaterals. However, since the analysis of the creditworthiness of
small companies keeping simplified accounting may not be as clear as for other
entities (the lack of possibility to calculate financial ratios), the bank's risk is greater
for loans to small businesses, thus the loan for these businesses must be more
expensive. The threshold of a loan depends on business earnings or the owner’s
income. Enterprises using a tax card or revenue and expense ledger are treated as
individuals when the process of creditworthiness assessment is applied. For example,
the value of a loan depends on the value of existing loans of the business owner, their
spouse and the income per member of the family. A director of a bank answered that,
in his opinion, the key reason for the difficult access of small entrepreneurs to bank
loans was the inaccurate estimation of capital needs:
“The owner of a small business is afraid that an application for a higher loan will be
rejected, so asks for a lower amount. Then he secures the loan using his machines or
other assets. In many cases, the amount of the loan is not sufficient, therefore he must
search for a second loan. But it then turns out that he has no more collateral and his
application for a loan is rejected. This is not a result of the fact that he runs a small or

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 136 Accounting: Principles and Practices

micro company, or that he uses simplified accounting, but a result of his inability to
plan his investments over the long term”.

Analysis of the market offer revealed that there are two main groups of business
clients of banks: small business and companies. However, entrepreneurs running a
business in the form of proprietorships are considered to be individuals, therefore
their credit conditions are the same as for other non-business clients. Banks accept
any financial documents that companies can deliver: financial statements for
companies keeping accounting books, copies of revenue and expense ledger or tax
reports. Bank charges are similar for corporations and small enterprises, however,
possible differences in credit conditions may appear when signing the contract, and
concern the total cost of the loan, the period for which the loan is granted and its
amount (Table 3).

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Table 3. Costs of external financing for companies in Poland
Provision Provision for Credit Average interest Preparation
for investment administration rate of financial
operation loan statements
loan for grant
purposes
Small business 0-7% (on 1.5-4% 50 WIBOR (Warsaw 500 PLN
average Interbank Offered
1.75%) Rate) 1M or 3M
plus margin, about
2-5%
Corporation 0-2% 1.50% 150 Negotiated (lower -
than interest rate
for small business
by 2-4%)

4. Conclusions
The conducted analysis of banks’ loan offers, and interviews with bank managers
led to the formulation of the conclusion that the simplified forms of accounting may
influence the cost of credit, however, the most important reason for the problem is
insufficient collaterals. Despite this, for many entrepreneurs, it may be a factor
limiting the value of investments and may discourage them from applying for
funding.

Business entities that prepare simplified financial statements should not encounter
problems with access to external financing. Although keeping full accounting
facilitates the running of a business’s activity and allows for a decrease in the cost
of capital in the case of applying for external financing, it is not necessarily the
solution to all SME barriers for access to external sources of funding.

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Does simplified accounting limit small and micro companies’ access to bank... 137

Interviews results indicate that the problem of SMEs access to finance does not result
from the form of accounting. It concerns more the knowledge of managers and their
ability to plan investments in the business. The results of the interviews should,
however, be compared with survey among small business owners to find out if the
bank managers’ statements stay in line with entrepreneurs’ opinion. Therefore,
future research should investigate how business owners choose their investments and
plan investments cash flows, the pros and cons of simplified accounting according
to business owners, what information business owners require to manage their
enterprise, or the extent to which small business owners using simplified accounting
keep additional financial information out of the accounting system.

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Does simplified accounting limit small and micro companies’ access to bank... 141

The Act on tax for individuals of July 1991, number 80, position 350 (Dz.U. 1991 n.
80)

Appendix 1 Interviews information

No. Interviewee
1 Director of the regional division of the bank
2 Bank consultant
3 Bank consultant
4 Bank consultant
5 Bank consultant

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i
The research of consequences of introducing planned changes in the Accounting Act.
ii
Requirements presented on the websites of Polish banks.
iii
Because SMEs are not very willing to participate in surveys, the research among SMEs
must be conducted by specialized agencies on a wide scale to obtain a minimum rate of
response.
iv
Notes were taken during the interviews

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 8
Relationship between advertising expenditures
and earnings of the UK firms
Maqsood Iqbal Qureshi1,a
a
Gulf University of Science and Technology, Kuwait

Abstract: This article studies the asset value of the UK firms advertising

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expenditures by estimating the relation between advertising expenditures and
earnings for a large cross-section of the UK firms for the period from 1999 to 2003
and reports that advertising expenditures are significantly correlated with earnings.
The results indicate that advertising expenditures contribute to earnings afar the era
these expenditures are incurred. These expenditures are positively significantly
correlated with earnings at least up to four years after the year of the expenditure.
Additionally, this article also examines the possible differential media advertising
asset value effects on earnings and results do not appear to report asset value
differences across electronic and print media advertising expenditures. The overall
results of this study suggest positive contribution and long lived effects of
advertising expenditures to earnings and hold important implications for policy
makers and standard setters.

Keywords: advertising, intangible, earnings, media advertising

JEL codes: M4

1. Introduction
Firms spending in marketing and advertising have increased tremendously in recent
years. The worth of international ad market is estimated at 537 billion U.S. dollars
in 2017. According to the Advertising Association (AA)/WARC Expenditure Report
the United States was the major ad market globally with an advertising spend of

1
Department of Accounting, Gulf University of Science and Technology, P.O Box7207,
Hawally 32093, Kuwait Email: [email protected]

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Relationship between advertising expenditures and earnings of the UK firms 143

197.4 billion U.S. dollars in 20171. The United Kingdom (UK) stays fourth among
the world’s major advertising markets, and first among markets in Europe2. The UK
experienced the eighth consecutive year of market growth and its advertising
spending raised 4.6% to reach £22.2bn in 2017. Forecasts for the next two years
indicate continued growth of 1.4% in 2018 and 3.8% in 20193.

Advertising is a means of communication with variety of consumer groups.

Advertising plays an important role in our economic system through its economic,
social, marketing and communications functions. Chen and Allmon, (1998) assert
“Advertising and promotions are an integral part of our social and economic system,
evolving into a vital communications system that gives businesses and consumers
the ability to deliver carefully prepared messages to target audiences”. The firms
incur advertising expenditures with expectations that these outlays will create sales
and profit in the future. Confidence (2005) argues that advertising expenditure utilize

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current resources in anticipation of long-term benefits to the firm.

Research investigating the asset value of advertising expenditures provide

contradictory evidence. For instance, where studies such as Hirschey and Weyganddt
(1985); Chauvin and Hirschey (1993); Hirschey(1985); Hirschey and Spencer
(1992); Notta and Oustapassidis (2001) ; Shah et al. (2009) and Qureshi (2015,2017)
support the view that advertising having an asset value there are other studies such
as Reekie and Bhoyrub (1981); Bublitz and Ettredge (1989); Erickson and Jacobson
(1992); Sougiannis (1994) and Core (2003) that do not support this.

The existing research on economic durability of advertising expenditures provide

some evidence that supports short lived view of advertising but the evidence is
inconclusive for the long lived view. Wyatt (2008) provides possible reasons for that
mixed evidence and indicates the gaps in the literature. Wyatt (2008) further argues
that these gaps in the research demand for investigation of the long-term effects of
advertising expenditures, which have been limited thus far due to difficulties finding
data.

In the UK information on advertising expenditures is only available from a

commercial organization ACNielsen MEAL4. Shah et al. (2009) argue that lack of
disclosure of data from the accounting system in the UK has limited research on
advertising expenditure in the UK5. The firms do not report expenditures of
intangibles separately in the financial statements and Wyatt (2000) argues that
expenditure disclosures on intangibles are mainly limited to R&D. Therefore, the
research on intangibles is limited to certain expenditures and this contributed to the
difficulty being experienced in assessing their contribution to firms’ financial
performance and value relevance.

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144 Accounting: Principles and Practices

Advertising expenditures are not disclosed separately in annual financial reports

under current GAAP that demands advertising activities to be immediately expensed.
The current manifest accounting practice to consider advertising as a cost line item
instead value generating activity decreases the earnings, on the one hand, and also
results in the exclusion of a possible intangible asset from the financial reports, on
the other. Nakamura (2005) argues that this practice understates profit in the short
run and overstates in the long run. The debate on appropriateness of the current
accounting treatment is still going on. If advertising creates intangible asset and
provide long term benefits then to capitalize and subsequently amortize advertising
spending systematically like that of tangible assets rather than expensing all spending
once is more appropriate. The main purpose of this research is therefore, to examine
the long-run relationship between advertising and earnings.

This study makes the following contributions to the literature. This study adds to the

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limited research available on asset value of advertising expenditures in the UK. In
their study Shah et al. (2008) note that lots of the evidence on intangibles is from the
US, and there appears to be relatively diminutive evidence on this issue in the UK.
Our findings are important and hold implications for future standard setting in the
UK and other countries re advertising recognition and disclosure in the financial
statements where the immediate expensing of advertising investments rather than
capitalization leads to accounting distortions such as downward bias in the value of
assets, current earnings and shareholders’ equity. Second, there has been little effort
to examine the long term effects of advertising on earnings and this study looks at
multi period instead of single-period effects of advertising. Wyatt (2008) argues that
previous research focused primarily on value relevance in the short term and used
single-period advertising models that limit scope of their findings. Third, prior
studies examining effectiveness of the advertising expenditures has overlooked role
of different advertising media in understanding value creation and durability of
benefits from advertising. The previous research assumed homogenous effects of
advertising and generally used total advertising expenditures, irrespective of the
form of advertising medium used to communicate it. Nonetheless, each medium
differs from each other in terms of efficiency, the information it delivers, the outlays
related with it, the frequency of the messages and so on. A relevant question is then
what is the effect of each medium on profitability of the firm. We answer this
question by splitting advertising expenditures among electronic and print media
advertising and analyze long-lived effect of each medium on earnings. If there are
medium advantages in advertising, the different media advertising expenditures will
possibly have different effects on the profitability of firms.

The rest of the paper is organized as follows. The following section offers a brief
review of the literature. This is followed by discussions on data and the research
approach. The next section presents estimation results. The final section provides
summary of the research findings and directions for future research.

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Relationship between advertising expenditures and earnings of the UK firms 145

2. Literature review
Earlier research on the asset value of advertising expenditures can be classified into
studies of the advertising – sales, advertising – market value and advertising –
profitability relationship. Among the research of advertising effects on sales, Magna
and Muller (1991); Elliott (2001); Yiannaka et al. (2002); Ouyang et al. (2002) and
Zhou et al. (2003) offer evidence of an effect of advertising on sales. While Picconi
(1977); Hula (1988) and Abbott et al. (1997), among others, indicate an insignificant
effect of advertising on sales.
In the recent past a number of studies have used valuation models to examine the
relation between market value and advertising expenditures of the firm. Research
such as Hirschey (1982, 1985); Connolly and Hirschey (1984); Hirschey and
Weyganddt (1985); Hirschey and Spencer (1992); Chauvin and Hirschey (1993);

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Shah et al. (2009); Joshi and Hanssens (2010); Qureshi (2015 and 2017) and
Mcllkenny and Persaud (2017) report positively significant association between
market value and advertising expenditures. On the contrary Core (2003) finds no
effect of advertising on market value.
Advertising and profitability studies provide rather mixed results. Though some
research report an advertising and profitability correlation (Notta & Oustapassidis,
2001; Graham & Frankenberger, 2000; Sougiannis, 1996; Porter, 1976); others are
unable to find a significant association between advertising and profitability (e.g.
Reekie & Bhoyrub, 1981).
In their analysis Comanor and Wilson (1967) find a significantly positive
relationship between the profit rates and the advertising/sales ratio. Their findings
provide evidence that advertising causes profitability. Porter (1976) provide
evidence that electronic and print media advertising have different implications for
market performance. Porter finds significantly greater impact of television
advertising on profitability than those for other types of advertising. In another study
Hirschey (1978) reports a positive correlation between overall advertising and
profitability. However, Hirschey (1978) finds significantly greater positive effect of
television advertising on profitability than does advertising in general. In their study
Sridhar et al. (2016) find a positive and significant effect of national, regional and
online advertising on firm performance.
Nickell and Metcalf (1978) and Paton and Williams (1999) use U. K. sample and
indicate a positive association between advertising and profitability. In their study
Reekie and Bhoyrub (1981) using the UK data for the period from 1968 to 1977
could not find a significant relationship between advertisement and profitability. Lev
and Sougiannis (1996) report an association between advertising expenditure and
operating income. Lev and Sougiannis (1996, P120), insert that, “…a $1 advertising
expenditure is associated with an operating income (before advertising) increase of
roughly $1.00-1.60”.

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146 Accounting: Principles and Practices

Graham and Frankenberger (2000) examine the impact of advertising expenditures

on frim financial performance for a sample of 320 publically traded firms with
reported advertising expenditures for 10 consecutive years. Their results indicate
long-run relationship between advertising and both with future earnings and market
values. Graham and Frankenberger (2000, p154) insert that, “…depending upon the
type of product, changes in advertising expenditures are significantly associated with
earnings up to 4 years following the year of the expenditures”. Notta and
Oustapassidis (2001) examine asset value of advertising for television (TV), radio,
magazine and newspapers for 350 food manufacturing firms. They show that only
TV advertising positively effects profitability.

3. Data, research strategies and model development

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To investigate relation between advertising and earnings we use a model that is
empirically an extension of that developed by Lev and Sougiannis (1996) and
Graham and Frankenberger (2000). Lev and Sougiannis (1996) defines the earnings
of firm i in year t, Eit, as a function of tangible, TAit and intangible assets, IAit.

Eit = g (TAit, IAit) (1)

Where g denotes the earnings process, TA stands for tangible assets, and IA stands
for intangible assets of firm i in year t.

Though earnings, and tangible assets are stated in financial reports, the intangible
capital, IA, is not stated except for specific intangible assets e.g. purchased goodwill
and therefore has to be assessed. The existing primary accounting practice is to treat
advertising and research and development (RD) as a single period expense. Recent
research (e.g. Hirschey 1982,1985; Connolly & Hirschey 1984, 1990; Hirschey &
Weygandt 1985; Chauvin & Hirschey1993,1994 and Graham & Frankenberger
2000) has extensively used various measures of intangibles such as RD and
advertising expenditures as proxies to account for unrecognized intangible assets.
Hirschey (1982) hypothesizes that current advertising and RD expenditures are
indicators of future profitability and these outlays create intangible capital. Graham
and Frankenberger (2000) argue that ”…advertising and R&D expenditures
contribute to future earnings, it follows that earnings in any particular year are
determined to some extent by both prior-year and current-year expenditures.”

We can expand equation 1 as follow:

Eit = g(TAit, GWit, RDit, ADit,) (2)

Where GW is goodwill, RD is research and development, and AD is advertising

assets. Graham and Frankenberger (2000) contend that the asset value of advertising

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Relationship between advertising expenditures and earnings of the UK firms 147

and RD expenditures is their contribution to future earnings. Following Lev and

Sougiannis (1996) this research employ current year advertising and R&D
expenditures to surrogate for advertising and RD assets. Lev and Sougiannis (1996)
and Graham and Frankenberger (2000) illustrate the RD asset as ∑Һi,t-k*RDi, t - k
where Һi,t - k is the contribution of a dollar in R&D expenditure in year t- k (k = 0,
…, n) to earnings in year t. The advertising asset is defined as∑νi,t-k*ADi,t-k where
νi,t-k is the contribution of a dollar in advertising expenditure in year t - k (k= 0, . .
., n) to earnings in year t.

To examine the effect of advertising expenditures on financial performance equation

(2) is expressed as follow:

Eit = α0 + α1 BVit+ α2 ADit + α3 RDit + α4GWit + ξ (3)

where the subscript ‘it’ signifies firm i at time period t, E is earnings, BV is book

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value, GW is goodwill, RD is research and development expenditures, AD
advertising expenditures, and ξ is an error term to allow for potential omitted
variables.

If advertising expenditures have asset value α2 should be positive and statistically

significant. This provides evidence that advertising expenditures contribute to
earnings. We thus form the following hypothesis to test the association between
advertising and earnings of the firm:
H1. Advertising expenditures have no association with future earnings.

To examine potential differential media effects on the earnings, we split total

advertising expenditures (AD) in equation 3 into print (ADPRN) and electronic
(ADEL) media advertising expenditures and estimate the following equation:

Eit = α0 + α1 BVit+ α2 RDit + α3 GWit + α40 ADPRNit + α50 ADELit + ξ (4)

To investigate the relative importance of different media in advertising-earnings

relation we form the following hypothesis:
H2. Print and electronic media advertising expenditures have no association
with future earnings.

To examine multi-period rather than single-period effects of advertising we estimate

the following model:

Eit = α0 + α1 BVit+ α2 RDit + α3 GWit + α41 AD2003it + α51 AD2002it + α61

AD2001it + α71 AD2000it + α81 AD1999it + ξ (5)

Where AD2003, AD2002, AD2001, AD2000 and AD1999 are advertising

expenditures in years 2003, 2002, 2001, 2000 and 1999 respectively.

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148 Accounting: Principles and Practices

To study multi-period rather than single-period effects of advertising we test the

following hypothesis:
H3. The advertising expenditures have no long lived association with earnings.

Data and sample

We extract data from Datastream and Datastream Worldscope for all variables apart
from advertising that is acquired from ‘Nielsen Media Research’. Our sample
includes a range of companies (from small to large) from different UK industry
sectors6. The sample consists of those firms reporting positive earnings for each year
from 1999 to 2003. We exclude firms with negative earnings from the sample as
relation between advertising and negative earnings is undefined. Table 1 reports
descriptive statistics for variables of pooled firms years from 1999 to 2003. The
descriptive statistics disclose some degree of skewness in most of the variables.

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Table 1: Descriptive statistics
I. Total Media Advertising
E BV AD RD GW
Mean 0.23 1.72 0.004 0.03 0.26
Median 0.12 0.70 0.00 0.00 0.00
Maximum 15.06 187.39 0.70 11.59 24.04
Minimum 0.00002 -11.89 0.00 0.00 0.00
Std.Dev. 0.54 7.24 0.03 0.23 0.88
Observations 4342 4342 4342 4342 4342
II. Print and Electronic Media Advertising
E BV RD GW ADPRN ADEL
Mean 0.23 1.72 0.03 0.26 0.0017 0.002
Median 0.12 0.70 0.00 0.00 0.00 0.00
Maximum 15.06 187.39 11.59 24.04 0.26 0.32
Minimum 0.00002 -11.89 0.00 0.00 0.00 0.00
Std.Dev. 0.54 7.24 0.23 0.88 0.01 0.02
Observations 4342 4342 4342 4342 4342 4342
III. Total Media Advertising - Multiyear Effect
E BV AD RD GW
Mean 0.18 1.36 0.004 0.03 0.17
Median 0.11 0.74 0.00 0.00 0.00
Maximum 1.10 14.97 0.70 1.23 5.11
Minimum 0.001 -5.10 0.00 0.00 0.00
Std.Dev. 0.19 1.87 0.03 0.08 0.46
Observations 733 733 733 733 733

To control heteroscedasticity issue deflation has been used and number of shares
(OS) is used as deflator. Correlation matrixes reported in Table 2 confirms that none
of the variables is highly correlated with any other in our samples.

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Relationship between advertising expenditures and earnings of the UK firms 149

Table 2: Correlation matrix

I.Total Media Advertising
E BV AD RD
BV 0.663
AD 0.094 0.020
RD 0.253 -0.009 -0.007
GW 0.202 -0.053 -0.005 0.229
II. Print and Electronic Media Advertising
E BV RD GW ADPRN
BV 0.663
RD 0.253 -0.009
GW 0.202 -0.053 0.229
PR 0.094 0.033 -0.009 -0.015
ADEL 0.087 0.017 -0.003 -0.002 0.698

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III. Total Advertising -Multiyear Effect
E BV AD RD
BV 0.663
AD 0.094 0.020
RD 0.253 -0.009 -0.007
GW 0.202 -0.053 -0.005 0.229

4. Empirical results
Total media advertising and earnings - empirical findings model 3

Model 3 is used to estimate relation between advertising and earnings for the big
pooled sample from year 1999 to 2003 and results are presented in Table 3.

Table 3: Model 3 Estimation Results - Pooled Sample (1999-2003)

E = 0.092 + 0.05 BV + 1.56 AD + 0.52 RD + 0.12 GW
Variable Constant BV AD RD GW R2 Cases
Pooled (p 0.092 0.05 1.56 0.52 0.12 0.56 4342
value) (0.00) (0.00) (0.00) (0.00) (0.00)

The overall R2 of the pooled sample is 0.56 which means that independent variables
explains 56% of the earnings. Advertising (AD) is the variable of key interest in this
study. AD is positively significantly related to earnings at 1% level. A positively
significant effect of AD on earnings suggests value relevance of advertising
expenditures. Therefore, these findings do no support hypothesis H1. This result is
correspondent with Hirschey (1978), Nickell and Metcalf (1978) and Paton and
Williams (1999) which report a significantly positive relationship between
advertising and profitability.

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150 Accounting: Principles and Practices

The firms use advertising for brand building and promotional purposes. Sridhar et
al. (2016) assert that advertising help increase firm performance through brand
switching, retention of a large fraction of existing customer base and increased sales
among others. We observe in Table 3 that £1 increase in advertising increases
earnings by £1.56. This indicates that earnings reveal realized benefits from
advertising. The coefficient (AD) of total advertising variable in the regression is
greater than one which suggest that contribution of advertising to earnings exceeds
the nominal value of the expenditure. Graham and Frankenberger (2000) argue that
advertising will create value if the present value of this benefit exceeds its cost. These
findings show advertising expenditures have significant future economic benefits to
the firm which provides justification for investments in advertising to build
intangible assets. Chauvin and Hirschey (1993) view advertising expenditures as
intangible capital with positive effects on future cash flows and assert that “… data
on advertising and R&D spending appear to help investors form appropriate

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expectations concerning the size and variability of future cash.” Sougiannis (1994)
argues that unamortized balances of research and development and advertising
expenditures generate capital stock.

The result also shows that other variables in the regression, i.e., BV, RD, and GW,
have significant positive effects on earnings. The coefficients of BV, RD and GW
are positive and statistically significant at the 1% significance level.

Print and Electronic Media Advertising and Earnings - Empirical Findings

Model 4
Table 4 reports the effect of print media and electronic media advertising on
earnings.

Table 4: Model 4 Estimation Results - Pooled Sample (1999-2003)

E=0.09 + 0.05 BV + 0.52 RD + 0.12 GW + 2.14 ADPRN + 1.61ADEL
Variable Constant BV RD GW ADPR ADEL R2 Cases
Pooled 0.09 0.05 0.52 0.12 2.14 1.61 0.55 4342
(p value) (0.00) (0.00) (0.00) (0.00) (0.01) (0.02)

The regression 4 is run for the pooled sample where two different levels of
accumulation for advertising expenditures, i.e., press and electronic media
advertising expenditures, are used to detect their potential differential earnings
effects. The estimation results suggest that both print (ADPRN) and electronic media
(ADEL) advertising are positively significant at 1% level. Therefore, these findings
do no support hypothesis H2. The estimated coefficient values of ADPRN and
ADEL are 2.14 and 1.61 respectively. This indicates that both print and electronic
media advertising generate intangible assets for firms. These results contradict
findings of Hirschey (1978) and Notta and Oustapassidis (2001) who only find a
positive and significant effect of electronic media (television advertising) on
profitability of the firms.
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Relationship between advertising expenditures and earnings of the UK firms 151

The firms use different media to increase brand awareness, sales, and profitability.
We find relatively high effectiveness of print media than electronic media spending.
We noted that £1 increase in print media advertising increases earnings by £2.14,
whereas a £1 increase in electronic media advertising increases earnings by £ 1.61.
Macleod (2004) noted that different media advertising outlays varies significantly
by country and found television (electronic media) as the most important advertising
medium in the US and newspapers (print media) in the UK. In their study Wurff et
al. (2008) provide reasons for these variations such as differences in legislation and
industrial structure, marketing traditions and entrepreneurial habits. Our results
provide empirical evidence of relative performance effects of print and electronic
media that can provide guidance for distribution of advertising expenditures across
different media.

The results also illustrate that there is strong correlation among the earnings and GW

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and RD. The coefficients of both GW and RD are positive and highly significant.
The coefficients of other control variable BV is also statistically different from zero.
BV is significantly positively related to earnings. Adjusted R2 for regression 4 is
0.55.

Multi Period Advertising and Earnings - Empirical Findings Model 5

Hypothesis 3 tests long lived relationship between advertising and earnings. Table 5
presents the regression 5 results.

Table 5: Model 5 Estimation Results - Pooled Sample (1999-2003)

E=0.06 + 0.06 BV + 0.63 RD + 0.10 GW + 1.26 AD2003 + 1.55 AD2002 +
+ 1.97AD2001+ 1.35 AD2000 + 0.84 AD1999
AD AD AD AD AD
Variable Const. BV RD GW R2 Cases
2003 2002 2001 2000 1999
Pooled 0.06 0.06 0.63 0.10 1.26 1.55 1.97 1.35 0.840.44 733
(p value) (0.00) (0.00) (0.00) (0.00) (0.01) (0.01) (0.00) (0.01) (0.01)

The results show long advertising assets lives. The results indicate that advertising
expenditures contribute to earnings up to 4 years following the year of the
expenditure. The estimated coefficients of AD2003, AD2002, AD2001, AD2000 and
AD1999 are positive and highly significant at 1% level and in all these years lagged
advertising effects are identified. The adjusted R2 of the pooled sample is 0.44 which
means that independent variables explains 44% of the earnings.

In our sample advertising expenditures impacts earnings for up to 5 years and the
coefficients of advertising variables range from 0.84 in 1999 to 1.97 in 2001with an
overall mean of 1.39. This denotes that one pound expenditure in advertising will on
average contribute £1.39 to earnings over the five years period. The 2003 year
expenditures will contribute to earnings for 4 other years, 2002 year expenditures

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152 Accounting: Principles and Practices

will contribute 3 more years, 2001year expenditures will contribute 2 other years and
1999 year expenditures will contribute 1 more year. In year 2003, by £1 investment
in advertising over the period 1999-2003, the firm recognized benefits of £1.26 from
2003 investment, £ 1.55 from 2002 investment, £1.97 from 2001 investment, £1.35
from 2000 investment and £ 0.84 from 1999 investment. The total benefit realized
over the period from 1999-2003 add to £ 6.97. Lev and Sougiannis (1996) compute
annual amortization rate of research and development (RD) capital for a given year
as the ratio of that’s year benefits expired to total benefits.

We expand Lev and Sougiannis (1996) definition to advertising capital to calculate

annual amortization rates over the period 1999 to 2003. For the UK firms advertising
expenditures amortization rate for 2003 was 18.10% (1.26/6.97), for 2002 was
22.20% (1.55/6.97), for 2001 was 28.30% (1.97/6.97), for 2000 was 19.4%
(1.35/6.97) and for 1999 was 12.00% (0.84/6.97). Regression results provide general

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evidence of durability of advertising expenditures which are significantly associated
with earnings for more than one period. The results indicate that advertising
expenditures offer economic benefits lasting more than one year. The results in
regression 5 suggests that advertising expenditures have at least average 5 years asset
life. This result is in line with Graham and Frankenberger (2000) who report that
advertising expenditures are significantly associated with earnings for more than one
year and with Hirschey and Weygandt (1985) who suggest one to five years life of
advertising.

5. Conclusion
In this study we estimate the relation between the UK firms advertising expenditures
and subsequent earnings for the period from 1999 to 2003 and offer further evidence
for the asset value of advertising outlays. We find a positive and significant long run
association between advertising expenditures and earnings. Our results provide
evidence regarding durability of advertising expenditures which contributes to
earnings up to four years following the year of the expenditure. This study also offers
empirical evidence of the likely differential media effects by dividing total
advertising into print, and electronic media advertising. The empirical evidence
suggests a significant positive relationship between different measures of advertising
expenditures and the firm earnings. From the analysis we can infer that the
effectiveness of advertising does not vary significantly with the type of medium used
to convey it.

All in all these results lessen the argument that which media advertising should be
considered as an intangible asset investment and may be of interest to those policy
makers and standard setters. Advertising expenditures effect on earnings of firms in
different sectors, and of different sizes can be verified in future research.

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Relationship between advertising expenditures and earnings of the UK firms 153

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1
https://www.statista.com/statistics/273736/advertising-expenditure-in-the-worlds-largest-ad-
markets/
2
https://www.statista.com/topics/1747/advertising-in-the-united-kingdom/
3
http://expenditurereport.warc.com/FreeContent/AA-WARC%20FY2017.pdf
4
Wyatt (2008) reports that advertising expenditures are not available in the UK while these
are variably disclosed in the US.
5
UK firms have a discretion to disclose advertising expenditures in financial statements.
6
Both financial and insurance firms are excluded from the sample for standard reasons.

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 9
The interaction effect of accounting
information systems user satisfaction and
Activity-Based Costing use on hotel financial
performance
Ioannis Diavastisa,1, Evgenia Anagnostopouloua,
Georgios Drogalasa and Theofanis Karagiorgosa

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a
University of Macedonia, Greece

Abstract: The interaction of Information Technology (IT) and contemporary

management accounting systems is an emerging research area. This paper aims at
exploring the interaction effect of Accounting Information Systems (AIS) user
satisfaction and Activity-Based Costing (ABC) use on hotel financial performance.
We empirically test the above relationship in Greek hotel industry, because its
highly competitive and information-intensive nature is characterized by the
necessity for useful and accurate cost accounting information. Using hierarchical
regression analysis, results suggest that when ABC use interacts with AIS user
satisfaction, hotel financial performance is improved. On the contrary, AIS user
satisfaction and ABC use have no significant association with financial
performance when they act independently. This study fills a gap in the literature by
developing a new framework that combines IS user satisfaction theory (IS Success
Model) and contemporary management accounting techniques. Moreover, it
underlines the role of AIS user satisfaction as an enabler of ABC. Finally, our
findings extend the hospitality accounting literature, since empirical research on
ABC is limited in the hotel industry.

Keywords: accounting information systems, user satisfaction, Activity-Based

Costing, financial performance, hotels

JEL codes: M41, M15, L83

1
Corresponding address: Ioannis Diavastis, PhD Candidate, Department of Business
Administration, University of Macedonia, 156 Egnatia Str., Thessaloniki, Greece, e-mail:
[email protected]
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The interaction effect of accounting information systems user satisfaction and Activity-Based... 157

1. Introduction
Hotel industry is generally regarded as an information-intensive sector (Huh et al.,
2009; Law & Jogaratnam, 2005) due to the requirement for timely and accurate
information from both customers and hotel practitioners (Melián-González &
Bulchand-Giduma, 2016). Hence, the role of Information Technology (IT) and the
effective use of Information Systems (IS) are of great importance for operational
success in hotel industry (Wang & Qualls, 2007). Effective use of IS (or else IS
effectiveness) can be achieved if users are satisfied with the respective system
(Gatian, 1994). Along these lines, Ham et al. (2005) emphasize the necessity for
examining the users’ perceptions of hotel IT applications. Therefore, user
satisfaction, which is indicated as a surrogate of IS effectiveness (DeLone &
McLean, 1992), should be taken under consideration when the relationship of IS

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and hotel financial performance is examined. In this respect, hotels can improve
their performance in terms of enhanced employee and operational productivity,
increased repeated stays and decreased costs (Chathoth, 2007; Siguaw et al., 2000).

Moreover, the need for timely and accurate cost accounting information is also
essential for hotel financial managers in order to calculate the true cost of services
(Patiar, 2016). Activity Based Costing (ABC) has been suggested as one of the
most innovative and sophisticated management accounting techniques
(Krumwiede, 1998a; Maiga & Jacobs, 2003). In hotel industry, financial managers
face a much more uncertain and complex environment in comparison to their
colleagues in other business sectors due to the industry’s specific characteristics
(Winata & Mia, 2005). For this reason, extensive use of management accounting
information, which can be obtained through the use of ABC, is required (Mia &
Pattiar, 2001). The main claim made for ABC is that its use leads to cost reduction,
full control of ongoing performance and financial benefits (Maiga, 2014). Although
the majority of empirical research has shown a positive relationship between ABC
use and financial performance, this relationship is deemed significant mainly under
specific contextual variables.

Our study particularly focuses on Accounting Information Systems (AIS), which

are defined as “computer-based systems that process financial information and
support decision tasks in the context of coordination and control of organizational
activities” (Nicolaou, 2000: 91). The prime objective of AIS is to generate financial
and managerial information (Nikolaou, 1999) for decision making optimization,
which, in turn, results in the improvement of firm financial performance. AIS can
be identified either as conventional information systems such as spreadsheet
solutions, or in an integrated manner such as Enterprise Resource Planning (ERP)
financial subsystems (Spathis, 2006; Taipaleenmäki & Ikäheimo, 2013).

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158 Accounting: Principles and Practices

The aim of this study is to explore the interaction effect of AIS user satisfaction
and ABC use on hotel financial performance. Due to the highly competitive and the
personalized nature of hotel industry (Mia & Pattiar, 2001), hotel financial
managers and chief accountants should be satisfied as users of AIS by getting
information that meets their requirements. Furthermore, at the same time, they
should obtain relevant and useful costing information by using sophisticated
costing systems such as ABC. Hence, we suggest that when AIS user satisfaction
interacts with ABC use, hotel financial performance will be improved.

To address our research proposal, we use structured questionnaires with a view to

identifying the use of ABC, to measuring AIS user satisfaction and to assessing
hotel financial performance. In our study, we rely on self-reported measures of
hotel financial performance, as suggested by previous studies (Krumwiede &
Charles, 2014; Maiga, 2012; Maiga 2015). As far as these ratings are used for

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relative rather than absolute analysis and are obtained by respondents of upper
organizational level (Van der Stede et al., 2005), they are considered to be reliable
while no serious concern for potential leniency bias exists (Perera et al., 1997).
This research is conducted in the context of hotel industry in Greece. The selection
of the Greek hotel industry as target population for our research is rationalized by
the importance of tourism for Greek economy and the intensity of market
competition in the specific sector. Tourism forms the main part of Greek economy,
contributing more than 16% to the Greek Gross Domestic Product (GDP) and
representing 18.3% of total employment (SETE, 2013). Moreover, the Greek hotel
industry results in 45% of tourism income (IOBE, 2012), with a total bed capacity
of 800 thousands (SETE, 2013).

The importance of contingency theory is underlined in literature (Zhang et al.,

2012). As a result, the potential synergies of IT and management accounting are
still under investigation. Previous research has empirically tested how IT
integration (Maiga et al., 2014), IT quality (Krumwiede & Charles, 2014) and IT
sophistication (Cagwin & Bouwman, 2002) interact with ABC use on firm’s
financial performance. However, to the best of our knowledge, no prior study has
attempted to examine the synergy effect of AIS user satisfaction and ABC use on
financial performance. Therefore, the first contribution of our study is to develop a
new framework that integrates IS user satisfaction theory (IS Success Model) and
contemporary management accounting literature, providing a great opportunity for
further research in this area. Second, despite the increasing economic importance
of hotel industry, empirical research related to ABC in hotel industry is limited
(Patiar, 2016). Consequently, this study extends prior research by exploring ABC
use in relation to hotel financial performance and its interaction effect with AIS
user satisfaction. Third, it stresses the significance of AIS user satisfaction and
ABC in hotel performance, during the economic crisis that has affected the Greek
economy. In such an uncertain business environment, the financial implications of

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The interaction effect of accounting information systems user satisfaction and Activity-Based... 159

managers’ need for extensive, timely and accurate management accounting

information have to be explored. Finally, this research highlights AIS user
satisfaction as an enabler of ABC. Since the direct association between ABC and
firm performance has been empirically examined with mixed results (Maiga &
Jacobs, 2008), it is important for academics to treat AIS user satisfaction as a
mediator in this relationship.

The results of our study suggest that when ABC use interacts with high levels of
AIS user satisfaction, hotel financial performance is improved. This finding
indicates the importance for hotel financial managers to be satisfied with the use of
AIS when contemporary management accounting techniques are implemented.
Moreover, AIS user satisfaction and ABC use have a positive but not significant
impact on financial performance when they act independently.

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This article is organized as follows: In the next section we present detailed
literature review. Then, we describe the methodology used. Subsequent sections
address results and conclusions of the study.

2. Literature Review
2.1 Accounting Information System Effectiveness

Academic research has examined the effectiveness of IS based on the IS Success

Model (DeLone & McLean, 1992). According to this model, IS Success is
analyzed in six categories: system quality, information quality, use, user
satisfaction, individual impact and organizational impact. The updated version of
this model (DeLone & McLean, 2003) includes service quality, which affects user
satisfaction, and intention to use, which is indicated as a user attitude measurement.
Additionally, individual impact and organizational impact are merged into a
construct named “net benefits”. Finally, the updated DeLone and McLean IS
Success Model suggests that user satisfaction may lead to net benefits. Along these
lines, the satisfaction of IS users is considered to be a representative measure of IS
effectiveness (Ranganathan & Kannabiran, 2004). Empirical research on the
relationship between IS user satisfaction and firm performance confirms that user
satisfaction leads to enhanced organizational performance (Baraka et al., 2013;
Ben-Zvi, 2012; Gelderman, 1998; Kivijiirvi & Saarinen, 1995). Moreover, Daoud
and Triki (2013) suggest that a firm’s performance cannot be influenced directly by
information quality and system quality but only through user satisfaction.

As far as AIS are concerned, user satisfaction indicates a measure of system

effectiveness. It is worthwhile to explore whether AIS users are satisfied with the
information generated by the system for decision making, because system
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160 Accounting: Principles and Practices

designers can induce users to adopt procedures without intention (Mauldin &
Ruchala, 1999). Therefore, AIS have to meet the needs of users, or in other words
to be effective. Previous empirical results suggest that the implementation and the
integration of AIS in the core business strategy lead to financial and economic
benefits (Grande et al., 2011).

Concerning hotel industry, empirical research suggests that the use of IT systems
does not always improve hotel productivity (Buhalis, 1998; David et al., 1996),
resulting in a productivity paradox. For this reason, IS effectiveness is of high
interest for hotel IT and financial managers. According to Ham et al. (2005), users’
perceptions of IT applications should be taken into consideration when hotel
performance is examined in relation to IT systems. Additionally, Karimi et al.
(2004) suggest that when a firm operates in an uncertain business environment like
the hotel industry, user perceptions of IS should be evaluated. Hence, IS user

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satisfaction is perceived to be a key factor for the success of hotels (Au et al.,
2002). Finally, the studies of Jang et al. (2006) and Lo and Darma (2000) also
underline the significance of IS user satisfaction in the context of hotel industry.

Following the above discussion, AIS user satisfaction, as a surrogate of AIS

effectiveness, is considered to be a critical driver of hotel financial performance.
Since the hotel industry is characterized by intense competition (Winata & Mia,
2005), labour intensity and service customization (Botta- Genoulaz & Millet,
2006), and at the same time, forms a more complex and uncertain business
environment compared, for example, to the manufacturing industry (Winata &
Mia, 2005), it is even more important for hotel financial managers to be satisfied
with the use of AIS. Thus, AIS should serve as a tool to allow them to meet their
information requirements. Hotel financial managers should get only necessary and
useful information by computerized systems (Burgess, 2000). Furthermore, apart
from depicting the financial state of the firm, AIS support hotel financial managers
in making effective managerial decisions and improving control operations
(Kasavana, 1982). Overall, AIS users must be fully satisfied to perform better in
their job and provide better service quality, which, in turn, leads to improved
profitability (Au et al., 2002). In hospitality literature, empirical research suggests
that the use of AIS, as a back-office application, has a positive impact on hotel
performance (Ham et al., 2005). However, taking into account that the use of AIS
is considered mandatory, AIS user satisfaction is expected to result in a
competitive advantage and increased profitability for hotels. Concluding, we
anticipate that the impact of AIS user satisfaction on hotel financial performance
will be positive.

We develop the next hypothesis:

H1: AIS user satisfaction has a positive impact on hotel’s financial performance.

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The interaction effect of accounting information systems user satisfaction and Activity-Based... 161

2.2 Activity-Based Costing

One of the most serious problems for accounting practitioners is the allocation of
overhead costs to different products and services and the choice of a cost
accounting system. The use of traditional costing systems may lead to distortions in
product or service costing. This is because overhead costs account for a significant
portion of total costs and their occurrence is not always in accordance to the
volume of production (Lea, 2007). Furthermore, the increase in the variety of
products and services requires an accurate cost allocation. In traditional costing, the
easiness of allocating costs in a single activity may result to be too “erroneous and
dysfunctional” (Babad & Balachandran, 1993: 565). Hence, ABC was first
introduced in the 1980s and has been accepted as a better costing system for
obtaining accurate and relevant cost information (Chen et al., 2001). The main
objective of ABC is to provide the more accurate tracing of costs to individual cost

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objects, by means of measuring and then pricing out all the resources used for
activities that will lead to the production of goods and services for customers
(Cook et al., 2000).

ABC is a costing method that analyzes the activities involved in the production of a
single product or service and assigns overhead costs to activities (Beheshti, 2004;
Everaert et al., 2008). Afterwards, the costs of all activities consumed by a product
or service are accumulated (Babad & Balachandran, 1993). More specifically, the
procedure is taking place in two stages. First, the costs of resources are allocated to
the activities by using cost drivers. In the second stage, the costs of activities are
apportioned to cost objects by cost drivers (Cooper, 1990), which are relevant to
each activity separately and can be either volume or non-volume related. Cost
drivers result to be the link between activities and costs objects (Cooper, 1988;
Cooper, 1990; Cooper & Kaplan, 1992). By conceiving costing information at all
the stages of production, ABC users are able to understand at a great extent the
source of costs (Dalci et al., 2010), and to identify products and services that are
profitable or not (Beheshti, 2004).

In management accounting research, several empirical studies have investigated the

benefits of ABC in organizational and financial terms. Findings suggest that when
firms use ABC rather than traditional costing systems, the firm’s financial
performance is improved. Kennedy and Affleck-Graves (2001) find that ABC
adopters have a significantly higher financial performance compared to non-
adopters. Moreover, according to the study of Lea (2007), the use of ABC has a
greater impact on short- and long-term profitability than traditional costing or
throughput accounting. Finally, Elhamma and Yi Fei (2013) suggest that ABC
leads to increased competitiveness, profitability and higher organizational
performance in relation to the traditional methods of management accounting.

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162 Accounting: Principles and Practices

In the case of the hotel industry, traditional costing would be unsuccessful to

allocate these costs in an accurate way (Kaplan & Cooper, 1998), since the greatest
portion of costs is indirect. A clear understanding of the drivers of operating
expenses can be beneficial in hotel industry (Potter & Schmidgall, 1999).
Therefore, ABC results to be a valuable tool for hotel financial managers to make
strategic management decisions properly, because it generates a more detailed,
relevant and accurate information (Christensen & Sharp, 1993). Patiar (2016)
argues that there are four reasons for hotels to adopt ABC: implementation of
effective product strategies through the accurate allocation of indirect costs,
positioning in a competitive market through the use of detailed cost information,
improvement of efficiency through the elimination of non-value-added activities
and achievement of organizational objectives through cost control. Pavlatos (2008)
suggests that if hotels adopt more functional costing systems such as ABC, they
will be able to reduce costs without providing poorer quality of services and make

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extensive use of cost data for pricing decisions, performance evaluation and other
management practices. The accuracy and the usefulness of costing information are
also important for hotel managers to implement management pricing strategies.
While pricing may be based either on competition, customer psychology or
demand (Pellinen, 2003), costing information is crucial in terms of pricing
decisions due to the fact that cost based pricing is commonly used in hotel industry
(Hung et al., 2010). Additionally, Makrigiannakis and Soteriades (2007) propose
that when hotels use costing information for pricing strategies, accurate cost
allocation to their services is required. In this respect, managers can properly
implement customer profitability analysis using ABC, with a view to increasing
profitability (Cooper & Kaplan, 1991). In conclusion, the use of ABC can force
hotels to gain cost advantage over competitors and increased efficiency in strategic
and operational decisions, which, in turn, lead to improved profitability and
financial performance (Patiar, 2016). Hence, we expect that the impact of ABC use
on hotel financial performance will be positive.

We develop the next hypothesis:

H2: ABC use has a positive impact on hotel’s financial performance.

2.3 The interaction effect of AIS user satisfaction and ABC use

As new technology emerges and advanced IS are being implemented, it is

anticipated that management accounting techniques will be affected or even
become innovative (Rom & Rohde, 2007). Albu et al. (2015) propose that IS and
IT can ensure effective management. Nevertheless, the impact of IT in the adoption
and success of ABC is indicated in several studies. Advanced information
technology is one of the most important factors for managers in order to implement
ABC system (Nassar et al., 2015). IT systems that support ABC can vary

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significantly from spreadsheet solutions to ABC software system (Charaf &

Bescos, 2013). Hence, IT quality does not form an obstacle in implementing more
sophisticated costing systems such as ABC (Al-Omiri & Drury, 2007). Along these
lines, Pavlatos (2012) suggests that high-quality IT leads to extensive use of cost
management systems in hotel industry. Summing up, IT can enable managers to
properly implement and use ABC by providing detailed data and cost driver
information.

Innovative management accounting techniques require timely and accurate

information as well as high quality of system characteristics. Although IT
integration can facilitate the implementation of management accounting
techniques, it remains unexplored whether the user satisfaction of IS and the use of
sophisticated costing systems can synergize with a view to enhancing firm’s
profitability. Prior research has explored how IT integration, IT sophistication and

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IT quality interact with the use of management accounting techniques on financial
performance. Cagwin and Bouwman (2002) suggest that the interaction of ABC
and information technology sophistication has a positive but not significant effect
on financial performance. Maiga (2012) finds that IT integration has a significant
positive impact on financial indicators for ABC users while this association does
not exist in Volume-Based Costing adopters. Additionally, the findings of Maiga et
al. (2014) indicate a great synergistic effect of IT integration and ABC system on
plant manufacturing financial performance is indicated. Cooper (1988) suggests
that ABC becomes more beneficial in higher levels of IT while Krumwiede
(1998b) claims that high-quality IS can enable ABC to reach the highest
implementation stage. Furthermore, Krumwiede and Charles (2014) propose that
when firms use ABC and implement high-quality IS, they can better identify
profitable services and customers and thus, enhance their profitability. Taking all
the above under regard, as long as costing systems become more sophisticated, IS
effectiveness is getting increasingly important.

As a consequence, the use of AIS has to be effective by providing all the essential
information for the use of ABC. Managers, as ABC users, should get significant
costing information in all stages of production and delivery of hotel products and
services, while at the same time they should be satisfied with the AIS, which allow
them to meet their information requirements. In hotel industry, this synergy is very
important for accurate and efficient decision making because of the highly
competitive and personalized nature of business (Mia & Pattiar, 2001). The
enhanced flow of information will enable hotel financial managers and chief
accountants to make management decisions and implement pricing strategies,
which, in turn, lead to improved organizational and financial performance.
Therefore, we anticipate that the interaction between AIS user satisfaction and
ABC use will have a positive effect on hotel financial performance. This

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proposition is also in accordance with contingency theory of management

accounting (Chenhall, 2003).

We develop the next hypothesis:

H3: The two-way interaction of AIS User Satisfaction and ABC Use will have a
positive impact on financial performance.

3. Methodology
3.1 Sample

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After an extensive literature review, a questionnaire was developed in order to
collect data. In accordance with the study of Chongruksut and Brooks (2005), our
instrument was pretested by three expert academics and three management
accountants in hospitality industry. The pre-test forced us to make some minor
modifications with a view to enhancing the effectiveness of our instrument in terms
of clarity and readability. The population of our research represented all publicly
listed hotels in Greece. Target respondents were financial managers and chief
accountants. A sample of 350 hotels was randomly selected from Hellastat
database (ICAP - Gallup’s subsidiary in Greece). The current study applied the
simple random sampling technique based on previous research in hotel and
management accounting research (Duh et al., 2006; Garrido-Moreno & Padilla-
Melendez, 2011; Jogaratnam & Tse, 2004; Laitinen, 2014; Paraskevas, 2000; Uyar
& Bilgin, 2011; Zeglat & Zigan, 2014). Thus, all hotels had the same chance to be
selected for sampling. Invitations to participate in our research were sent via email
and after coming in contact with chief financial managers and chief accountants, a
total of 155 completed questionnaires were returned, forming a response rate of
44.3%. Moreover, we had two sampling criteria in order to accomplish the
objectives of our study: (1) hotel financial managers and chief accountants have to
use any cost accounting system; (2) hotel financial managers and chief accountants
have to be users of AIS. Therefore, 52 of the completed questionnaires were
excluded because they did not meet both sampling criteria, leaving 103 usable
responses.
The analysis of our sample shows that 21 out of 103 respondents (20.4%) have
adopted ABC. This result is in line with the empirical studies of Ittner et al. (2002)
and Banker et al. (2008), who find ABC adoption rates of 26% and 19.8%
respectively. In the context of economic crisis, the adoption rate of ABC in our
research suggests that Greek hotel financial managers and chief accountants have
conceived the importance and the potential benefits of the use of a sophisticated
cost accounting method.

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3.2 Measurement of variables

3.2.1 AIS User Satisfaction (AISUS)
In our study, we measure AIS user satisfaction with a multidimensional instrument.
This is because a single-item instrument may be characterized as unreliable for the
reason that it cannot depict whether the user is satisfied with every attribute of the
system. Along these lines, previous studies have explored the satisfaction of users
on information quality, system quality and system use (Guimaraes & Igbaria, 1997;
Hosnavi & Ramezan, 2010) in order to overcome the difficulty of measuring IS
user satisfaction.
Therefore, we explore AIS user satisfaction with an overall user’s evaluation of the
system characteristics, which is consistent with the study of Ong et al. (2009). On

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the grounds that the use of AIS can be characterized as mandatory and not
voluntary, we replace usage with usefulness, based on the empirical results of
Seddon and Kiew (1996) and the studies of DeLone and McLean (1992) and
Szajna (1993). This is also consistent with Wu and Wang (2006: 730) who note
that “system use is necessary but not sufficient to create system benefits”. Also,
Iivari (2005) finds a not significant association between usage and individual
impact due to the mandatory nature of the system. Moreover, we exclude service
quality in order to construct a well representative measure of user satisfaction,
according to the results of meta-analysis research of Petter and McLean (2009).
They suggest that service quality is not significantly related to user satisfaction.
Overall, we explore whether users of AIS are satisfied in terms of information
quality, system quality and usefulness.
In developing the above instrument, we include three groups of questions that
evaluate the satisfaction of users in each item. Based on the study of Gu and Jung
(2013), we examine information quality in terms of relevance, timeliness, accuracy,
sufficiency and format of information generated by AIS. Regarding system quality,
we adopt four items used by Wu and Wang (2006), which include system stability,
acceptable response time, a user-friendly interface and ease of use. Finally, we use
six items developed by Davis (1989) in order to evaluate satisfaction on usefulness:
accomplishment of tasks more quickly, improvement of job performance, increase
of productivity, enhancement of job effectiveness, making easier to do tasks, AIS
usefulness in job. Hence, an instrument of fifteen items is developed in order to
capture satisfaction of an AIS user while negative wording is avoided (Gounaris et
al., 2007). Each item of AIS User Satisfaction (AISUS) is measured on a 7-point
Likert scale ranging from (1) ‘strongly disagree’ to (7) ‘strongly agree’.
3.2.2 ABC use (ABC)
Based on the studies of Banker et al. (2008) and Maiga et al. (2014), we develop
an ABC use variable, asking whether ABC system is implemented at the firm
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(0 = not implemented, 1 = plan to implement, 2 = implemented). In our study, we

merge the first two categories into one category, which represent firms that have
not implemented ABC at the time of the survey. Thus, ABC use is operationalized
as a dummy variable where ‘0’ represents ‘no implementation’ and ‘1’ represents
‘implementation’.

3.2.3 Financial Performance (FP)

Research in IT and especially in management accounting (Van der Stede et al.,

2005) has been relied on self-reported measures at a great extent. Moreover, a raw
of studies has examined financial performance based on perceptions of managers
(Brown & Dev, 1997; Clinton & Hunton, 2001; Ham et al., 2005; Ismail & King,
2005; Jurison, 1996; Krumwiede & Charles, 2014; Terziovski et al., 2003).
Although published financial ratios can be used, they may be affected by intangible

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impacts and environmental conditions (Wu & Wang, 2006). Another downside of
published financial ratios is that they are too aggregated, short-term and based on a
past performance view (Duh et al., 2006). Hence, in our research we use self-
reported measures of financial performance based on previous studies. Maiga et al.
(2014) use a construct measure for financial performance. They ask respondents to
assess the improvement of profitability that their firms has experienced, compared
to their major competitors, in terms of Return on Sales (ROS), Turnover on Assets
(TOA) and Return on Assets (ROA). Additionally, Krumwiede and Charles (2014)
measure financial performance with ten metrics, by asking respondents to evaluate
their firm’s performance in relation to their competitors over the last three years.
In this study, we measure financial performance by asking respondents to indicate
the extent to which hotels have experienced improvement in Return on Assets
(ROA), Return on Sales (ROS) and Return on Equity (ROE) over the last five
years compared to their major competitors. ROA, which represents firm’s
profitability and management efficiency, is an appropriate indicator of financial
performance in hotel industry (Lee & Kim, 2009). ROS, which demonstrates the
firm’s effectiveness to expand to new or existing markets, has also been used in
previous research (Zhang, 2005). Finally, ROE, which represents firm’s
profitability by measuring management ability to use shareholders’ money, can be
a reliable tool for capturing financial performance when financial data are not
available (Madan, 2007). Each item of financial performance (FP) is measured on a
7-point Likert scale ranging from (1) ‘much worse than our competitors’ to (7)
‘much better than our competitors’ over the last five years.

3.2.4 Control variables

To avoid bias caused by other variables that are omitted from our model, the effect
of AIS User Satisfaction and ABC use on financial performance is controlled for
system years, size and competition.

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System Years (SY): Taking into account that firms go through different post-
implementation stages to obtain gains, IS impact has to be examined with a time
lag. This is also proposed in the studies of Brynjolfsson and Hitt (1998) and Liu et
al. (2007), who find significant benefits in financial terms after three years of
implementation. Jurison (1996) suggests that the IS impact on organizational
performance is observed with a time lag. Finally, according to review of Hou
(2012), users that have implemented a system for more years than others will be
more satisfied by this system. This variable is calculated as the length of time since
the implementation of AIS, in years.

Size (SIZE): The impact of firm size on the financial benefits of IT use has been
examined in academic literature. Outcomes and benefits of using an IS are not the
same between companies of different size (Mabert et al., 2003). Moreover, large
firms tend to have more market power in controlling the operational environment

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and more resources to develop management accounting systems (Laitinen, 2014).
Similarly, Albu and Albu (2012) find that size plays significant role for the use and
complexity of management accounting practices. Firm size is measured according
to the number of beds based on Camisón (2000) and Claver‐ Cortés et al. (2007).
This variable takes the value of ‘1’, if the firm is a family hotel (1‐100 beds), ‘2’, if
it is a small hotel (101‐150 beds), ‘3’, if it is a medium-sized hotel (151-300 beds),
and ‘4’, if the firm is a large hotel (more than 300 beds).

Competition (COMPET): According to Laitinen (2014), market competition affects

performance and enables firms to continuously revise their management control
systems. Furthermore, Maiga et al. (2014) suggest that competition enhances
incentives for raising performance. Since the effective use of AIS can assist
managers to obtain a deeper understanding of their work and lower uncertainty in
decision making (Chong, 1996), market competition is expected to force firms to
exploit their IT resources in order to gain this competitive advantage. Additionally,
highly competitive markets require accurate cost data (Chen et al., 2001) with a
view to determining prices (Patiar, 2016) and meeting the pressure as a result of
globalization (Charaf & Rahmouni, 2014). In our research, market competition is
measured on a seven-point Likert scale ranging from (1) ‘low competition’ to (7)
‘high competition’ by asking respondents to indicate the extent to which their firms
have experienced market competition over the last five years. Because the research
is undertaken in the Greek hotel industry, this control variable has to be included in
our model as long as there are significant differences in terms of competition in
regions all over Greece. This particularity is indicated in the annual study of ICAP
(2012) in hotel industry, and it is supported by the data of Hellenic Chamber of
Hotels that reveal a significant variation of bed capacity in Greek regions.

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3.2.5 Data analysis techniques

Hierarchical regression analysis is used in order to determine the existence of an

interaction effect in our study. Maiga et al. (2014) suggest that the main effects of
the two-way interaction model are arbitrary and have no theoretical meaning due to
the use of non-ratio scales. Hence, this analysis is the most appropriate to allow the
main effects and the interactive effects of independent variables to be analyzed
separately. In our study, the following regression models are employed:

(1) FP = α0 + α1 SY + α2 SIZE+ α3 COMPET + ζ

(2) FP = γ0 + γ1 SY + γ2 SIZE + γ3 COMPET + γ4 AISUS + γ5 ABC + ε
(3) FP = β0 + β1 SY + β2 SIZE + β3 COMPET + β4 AISUS + β5 ABC + β6
(AISUS x ABC) + δ

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where
FP = hotel financial performance measured by the average of the response
items.
SY = total years of using AIS.
SIZE = firm size.
COMPET = the market competition within the region of the firm’s
operation.
AISUS = user satisfaction of AIS measured by the average of the response
items.
ABC = use of the ABC system operationalized as a dummy variable which
takes ‘1’ if the firm has implemented ABC system and ‘0’
otherwise.
AISUS x ABC = interaction term. ζ,ε,δ are the error terms.

4. Results
In this part, we present the descriptive statistics of our sample and discuss the
content and construct validity of our instrument. Then, we proceed to the
examination of our hypotheses, presenting the correlations and the regression
results.

4.1 Descriptive statistics

The sample consists of 67 medium sided and 36 large hotels, based on the number
of beds. Family and small hotels were not identified in our survey. This finding can
be explained based mainly on two reasons. First, small hotels usually lack
resources and skilled personnel in order to implement AIS in their core business.
Second, due to limited financial resources (Fotiadis et al., 2013), small hotels are
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not capable of implementing cost and management accounting techniques,

especially sophisticated ones such ABC. This is because their implementation
demands a high level of managerial personnel and high-quality IT systems.

Concerning respondents’ characteristics, 67% of the respondents are male while

84.5% of them are over 31 years old. It is noticeable that almost 79% of the
respondents are holding a bachelor or a postgraduate degree. Moreover, the
questionnaires were answered at a percentage of 83% by financial managers and
chief accountants that have working experience over 6 years as accounting and
financial professionals. The latter finding indicates the high working experience of
the respondents, which is quite critical for our research results and implications.

4.2 Content and construct validity

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In terms of content validity, our instrument was developed after an extensive
literature review in AIS, cost accounting and hospitality. As it was mentioned
before, the questionnaire was then evaluated and reviewed by academics and
professionals in the fields of management accounting, accounting information
systems and hospitality.

In order to examine construct validity of our instrument, factor analysis was

applied using principal component analysis for the AIS User Satisfaction (AISUS)
and the Financial Performance (FP) multi-item constructs. To evaluate the
suitability for conducting factor analysis, this study used the Kaiser– Mayer–Olkin
(KMO) test and Bartlett’s test of sphericity. Values of KMO were higher than 0.6
(Tabachnick & Fidell, 2007) and the results of Bartlett’s test of sphericity were
significant for both of two constructs (Table 1). These results indicated the
suitability of the variables for factor analysis.

Table 1. Tests for factor analysis

Construct Number Kaiser- Bartlett’s test
of items Meyer-Olkin of sphericity
AIS User Satisfaction 15 0.946 Significant (p<0.001)

Financial Performance 3 0.719 Significant (p<0.001)

Items with factor loadings less than 0.55 due to our sample size (Hair et al., 2009),
and items with factor loadings greater than 0.30 on two or more factors (Lai et al.,
2007; Yoon et al., 1998) were eliminated from the scale with a view to improving
the validity of the instrument. We established these rules since they are common
practices for achieving higher uni-dimensionality and construct validity. As a
result, five items of AIS User Satisfaction construct (AISUS1, AISUS3, AISUS7,
AISUS10 and AISUS12) were eliminated from the analysis. After the elimination

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of these items, a new factor analysis was performed. The results revealed that each
of two variable constructs (AIS User Satisfaction, Financial Performance) ended up
with just one component, and so they can be treated as single measures. The fact
that all items loaded on a single factor for each variable construct indicates uni-
dimensionality and discriminant validity. In terms of reliability, the internal
consistency of each multi-item construct variable was examined by using
Cronbach’s alpha and corrected item-total correlations scores. As shown in Table
2, the internal consistencies of each scale are quite high. The Cronbach’s alpha
coefficients ranged from 0.830 to 0.938, which are higher than the suggested cutoff
value of 0.60 (Hair et al., 2009). Furthermore, correlation between the item and the
rest of the scale is represented by corrected item-total correlation. If the value of
items-total correlation is low, then the item should be deleted because it is not
measuring what the rest is trying to measure (Lai et al., 2007). Variables with an
item-to-total correlation score lower than 0.3 had to be removed, as suggested by

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Ko and Stewart (2002). The item-to-total correlations for AISUS scale ranged from
0.564 to 0.838 and for FP scale ranged from 0.663 to 0.721. Therefore, no item was
excluded.

Table 2. Construct uni-dimensionality and reliability

Construct Instrument Numbers of items Total variance Cronbach
Items explained (%) alpha
Original Deleted
AIS User AISUS1- 15 5 64.656 0.938
Satisfaction AISUS15
Financial FP1-FP3 3 0 74.793 0.830
Performance

4.3 Correlations

Table 3 reports the Pearson correlation matrix and descriptive statistics of the
variables. Financial Performance (FP) has a positive relationship with AIS User
Satisfaction (AISUS) (r=0.271, p≤0.01) and ABC use (ABC) (r=0.311, p≤0.01).
Additionally, it is positively correlated with all control variables. ABC use (ABC)
is positively and significantly correlated with AIS User Satisfaction (AISUS). This
result suggests that effective use of IS can enforce firms to implement and use
ABC. Moreover, Size is positively and significantly correlated with ABC use
(ABC) (r=0.387, p≤0.01). This finding is in accordance with the results of
Krumwiede (1998b). The descriptive statistics of our variables reveal that hotel
financial managers and chief accountants are moderately satisfied with AIS, as the
mean of this variable is 3.767. Finally, the mean value of Competition (COMPET)
is 4.816, illustrating the highly competitive business environment of the Greek
hotel.

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Table 3. Correlations, Means and Standard Deviations for the variables

(N=103)
FP AISUS ABC SY SIZE COMPE
T
FP 1
AISUS 0.271** 1
ABC 0.311** 0.384** 1
SY 0.302** 0.177 0.154 1
SIZE 0.210* 0.263** 0.387** -0.081 1
COMPE 0.153 0.103 0.084 -0.094 0.067 1
T
Mean 3.884 3.767 0.204 8.029 3.350 4.816
Std. 1.126 0.908 0.405 3.057 0.479 1.413

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Dev.
*, ** indicates significance at 5% and 1% levels respectively
FP: the level of firm’s financial performance measured by the average of the response
items, SY: total years of using AIS, SIZE: firm size, COMPET: the level of market
competition within the region of the firm’s operation, AISUS: the level of AIS user
satisfaction measured by the average of the response items, ABC: use of the ABC
system operationalized as a dummy variable which takes ‘1’ if the firm has
implemented ABC system and ‘0’ otherwise, AISUS x ABC: interaction term of AIS
user satisfaction and ABC use

4.4 Regression results

The cross-product term is strongly correlated with the variables that compose it,
causing high multicollinearity. For this reason, based on the review of Maiga et al.
(2014), it is a common practice to manipulate the origin points for the continuous
variables, without affecting the value or the significance of the regression
coefficient. In this study, the continuous variable (AIS User Satisfaction) is mean
centered. According to Hair et al. (2009), a small degree of multicollinearity can be
indicated if Variance Inflation Factor (VIF) values are low (<10). The highest
value of VIF in our model is 2.280, which suggests that no multicollinearity exists.
Furthermore, our variables have to satisfy the following assumptions for
conducting multiple regression analysis: linearity, constant variance and normality
(Hair et al., 2009). Scatterplots, Levene’s test and Shapiro-Wilk test were
undertaken respectively and no problems were identified. Regarding
autocorrelation, we conducted the Durbin-Watson’s (DW) test. Our model presents
values near 2 (DW=2.038). This result indicates the absence of autocorrelation in
residuals.

The results of the hierarchical regressions are presented in Table 4. Equation (1)
reports the results of the control variables. System Years (SY) and Size (SIZE)
have a significant impact on Financial Performance (FP) (α=0.124, p=0.000;
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α=0.529, p=0.016 respectively). Competition (COMPET) has a positive impact on

financial performance at p<0.10. In Equation (2), AIS User Satisfaction (AISUS)
and ABC use (ABC) are inserted in the model. Both variables are positive but not
significantly related to Financial Performance (FP) (γ=0.135, p=0.279; γ=0.453,
p=0.121 respectively). Hence, H1 and H2 are partially supported. Nonetheless, in
Equation (3), the interaction term of AIS User Satisfaction (AISUS) and ABC use
(ABC), which is included in the model, is significantly and positively associated
with Financial Performance (FP) (β=0.760, p=0.047). In this case, H3 is strongly
supported. Moreover, all three control variables have a positive impact on
Financial Performance (FP). Finally, the explained variance of the model is 24.7%,
which is 3.2% higher in relation to the main effects model.

Table 4. Regression Results for Financial Performance

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Equation (1) Equation (2) Equation (3)
α p- value γ p- value β p- value
SY 0.124 0.000 0.104 0.003 0.104 0.003
SIZE 0.529 0.016 0.307 0.194 0.218 0.357
COMPET 0.135 0.068 0.116 0.113 0.109 0.132
AISUS 0.135 0.279 0.053 0.681
ABC 0.453 0.121 0.046 0.897
AISUS x ABC 0.760 0.047
R2 0.418 0.464 0.497
Adj. R2 0.175 0.215 0.247
ΔR2 - 0.040 0.032
F 6.981 5.311 5.242
p- value 0.000 0.000 0.000
FP: the level of firm’s financial performance measured by the average of the response items, SY:
total years of using AIS, SIZE: firm size, COMPET: the level of market competition within the
region of the firm’s operation, AISUS: the level of AIS user satisfaction measured by the
average of the response items, ABC: use of the ABC system operationalized as a dummy
variable which takes ‘1’ if the firm has implemented ABC system and ‘0’ otherwise, AISUS x
ABC: interaction term of AIS user satisfaction and ABC use

In conclusion, our results indicate that AIS User Satisfaction (AISUS) and ABC
use (ABC) do not have a significant impact on Financial Performance (FP) when
they act independently. On contrary, they have a significant and positive
association with Financial Performance (FP) when they interact with each other.

5. Conclusion and discussion

This paper contributes to IT and management accounting research by developing a
new framework that combines IS user satisfaction theory and contemporary
management accounting techniques. Therefore, we explore the significance of the

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interaction effect of AIS user satisfaction and ABC use on firm financial
performance in the Greek hotel industry.

Using hierarchical regression analysis, results suggest that AIS user satisfaction has
a positive but not significant impact on hotel financial performance. This result
suggests that the potential organizational benefits must be examined through
individual impacts, as suggested in the initial IS success model (DeLone &
McLean, 1992). Furthermore, our results indicate that the direct effect of ABC use
on hotel financial performance is not significant. This outcome raises the
importance of enabling contextual factors that will synergize with the effective cost
accounting information provided by AIS. Therefore, when ABC is used
concurrently with other initiatives, then it is more beneficial (Cagwin & Bouwman,
2002). Finally, the interaction effect of AIS user satisfaction and ABC use is found
to have a significant positive impact on hotel financial performance. Thus, we

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propose that IT systems should not only be of high quality or integrated when they
interact with ABC use (Krumwiede & Charles, 2014; Maiga et al., 2014), but they
should be also effective in terms of user satisfaction in order for financial benefits
to be gained.

This study creates several implications. First of all, when the effect of a
sophisticated costing system on organizational performance is examined, AIS user
satisfaction should be taken under consideration. Hence, AIS user satisfaction is
highlighted as an enabling factor under which ABC use leads to improved
performance. The synergy of AIS user satisfaction and innovative management
accounting techniques creates a new theoretical framework in the literature, which
can be extended in the light of our results. Along these lines, the effective use of
AIS can enforce firms to implement contemporary management accounting
techniques such as ABC, as suggested by the correlation results. Finally, since AIS
user satisfaction does not have a significant direct effect on financial performance,
the role of individual (managerial) performance should not be omitted, acting as a
mediator in this relationship.

From a managerial point of view, it is important for hotel financial managers and
chief accountants to be satisfied with the AIS, when ABC system is used, in order
to make accurate decisions and implement efficient management strategies, which,
in turn, lead to improved financial performance. This research is undertaken during
a severe economic crisis that has affected the Greek hotel industry to a great extent.
Based on our findings, hotel financial managers have conceived the potential
benefits of implementing innovative management accounting techniques while at
the same time they are satisfied with the use of AIS in an uncertain business
environment. Hence, an efficient management accounting system such as ABC can
ensure the hotel’s financial stability (Briciu & Capusneanu, 2013). The results of
this study can be used as a driver for many hospitality software designers to

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improve the characteristics of AIS based on the needs and the perceptions of users.
Hotel financial and accounting executives and software developers have to
collaborate to increase a user’s satisfaction. Additionally, specialized seminars or
workshops can be hosted, providing all the necessary feedback for designing and
implementing customized AIS for hospitality firms with the participation of hotel
financial managers and software developers. Finally, a time lag between AIS
implementation and financial performance is proposed by the results of regression
analysis. Consequently, hotel financial managers and chief accountants, as users of
effective AIS, should be patient with acquiring financial benefits. Just like our
study proves, the longer the using time period, the better financial performance is
achieved.

The present study has a number of limitations that can be addressed in future
research. First, in developing the variable of AIS user satisfaction, we have not

WT
included items regarding the dimension of service quality, based on the results of
previous meta-analyses. Second, since the research is conducted in the Greek hotel
industry, generalizing our results to other industries (such as manufacturing
industry) and countries should be done cautiously. Third, the use of perceptual
financial performance ratings may not represent objective reality (Maiga et al.,
2014).

Despite the limitations above, this study provides opportunities for further research
and investigation. A new framework is developed in the current study, combining
IS user satisfaction theory and management accounting literature. Thus, a goal of
future research is to extend this framework and validate our results in other
settings. Moreover, instead of using self-reported indicators for assessing financial
performance, future research can include both primary and secondary data. A
future study should also contain other control variables such as hotel characteristics
-category, hotel age, brand affiliation status, location and lodging type- and
mediators such as organizational structure and managerial performance. Finally,
due to the fact that our construct variables are based on the managers’ perceptions,
a longitudinal approach to this study should be applied because the needs and the
beliefs of users may change during the time.

Acknowledgement
The authors would like to thank the editor and two anonymous reviewers for their
helpful comments and suggestions.

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The interaction effect of accounting information systems user satisfaction and Activity-Based... 175

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 10
What kind of accounting standards should the
IASB write?
Mary Tokara1
a
International Accounting Standards Board

Disclaimer

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This paper is based on remarks delivered at the Accounting and Management
Information Systems (AMIS) conference, organized by the Bucharest University of
Economic Studies in collaboration with the International Association for
Accounting Education and Research (IAAER) in June 2015. The text of those
remarks is available at http://www.ifrs.org/Alerts/Conference/Documents/2015/
Romania-June-2015.pdf. Views expressed are those of the author and do not
necessarily represent views of the International Accounting Standards Board or the
IFRS Foundation.

Abstract: This paper focuses on a long-standing challenge for standard setters:

what kind of standards should they write? How specific and prescriptive should
standards be? How should cost considerations influence requirements? How
should standard setters balance comparability with effective communication of an
entity’s strategy and business model? What are reasonable expectations for the use
of judgement? And what is the interaction of the types of standards with the
training – both skills and subject matter knowledge – of accountants? These issues
are explored using examples from recent IASB standard setting, primarily the
IASB’s new revenue standard. The author concludes that there is no single answer.

Keywords: IFRS, IASB, accounting standard-setting, financial statements,

judgement, comparability, materiality, business model

JEL codes: M41

1
Corresponding author: Mary Tokar, Board Member at the International Accounting
Standards Board, email [email protected].

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What kind of accounting standards should the IASB... 185

1. Overview

The purpose of this paper is to explore competing objectives that accounting

standard setters face as they try to make financial reporting more relevant and
effective. Exploration of these issues is illustrated using examples from recent
standard setting by the International Accounting Standards Board (IASB),
primarily the IASB’s new revenue standard.

The objective of the paper is to help stakeholders to

 respond to proposals issued by standard setters;
 apply, or audit the application of, International Financial Reporting
Standards (IFRS);
 be more effective in using financial statements prepared using IFRS, and

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 help those who train accounting, audit and finance professionals.

2. Comparability vs communication and the role

of the business model

Comparability is one of the four enhancing qualitative characteristics of financial

reporting set out in the IASB’s Conceptual Framework1. The IASB’s decision
(made jointly with the US Financial Accounting Standards Board (FASB)) to
enshrine comparability in its Conceptual Framework signals the central role of
comparability in IFRS. The IASB emphasises comparability because it focuses on
helping investors to make choices between investment alternatives – when to
invest, when to hold an existing investment, and when to sell. Some investors may
be focusing on a narrow question of, say, buying shares of Bank A or Bank B.
Others may be deciding between shares of Bank A or Insurance Company C. Still
others may be deciding between Bank B, Insurance Company D or Asset Manager
M. In order for financial statements to play an important role in making that
decision, an investor has to be able to compare the resources, claims and
performance of its investment alternatives.

So what’s the problem? Why don’t standard setters always pursue comparability at
all costs? The answer is because of the competing pressure for financial statements
to be a meaningful communication tool. And even Bank A and Bank B, operating
in the same sector in the same country, may have different strategies and perhaps
even different business activities. Time and time again the IASB is told that
accounting standards are rigid and too prescriptive to let an entity reflect how it is
using its resources, and how its performance should be measured.

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186 Accounting: Principles and Practices

In order for financial statements to be a communication tool and not just a

compliance exercise, the IASB has proposed2 that a measurement basis should
reflect both the characteristics of an item and how that item is used by the entity to
generate cash flows. The cost of this type of flexibility is that tailoring the
measurement to how an entity uses an asset may reduce the immediate
comparability of financial statements of two entities that hold the same asset and
use the asset in different ways.

Staying with the Bank A and Bank B example, both banks may participate in a loan
to Borrower C. Bank A’s business model is to hold and collect the interest and
principal while Bank B will package the loan with similar loans in a securitization
transaction. Under the IASB’s new financial instruments standard,3 Bank A would
classify the loan as measured at amortised cost while Bank B would measure the
loan at fair value. Arguably the different measurement of the same loan is, in each

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case, better aligned with the use of the asset and a better – more faithful –
representation of how the owner expects to generate cash flows from the asset.
Therefore, the financial statements are a relevant, faithful representation – a better
communication – of each entity’s business activities. But the direct comparability
of their balance sheets probably has been reduced, since the same item is measured
in different ways.

Would it be better to force Bank A, the “hold to collect” entity, to measure the loan
at fair value, even if changes in value are not expected to be realized? Would it be
better to force Bank B to measure the loan at amortised cost unless and until the
loan is sold? Or would that fail to provide relevant information about current
values and cash flows expected to be generated by Bank B in the near term?

The balance that the IASB struck in its financial instruments standard is to focus on
both the asset characteristics and the business model holding the asset. The asset
characteristics and the facts of the business model – not just the intention of
management – are the discipline that is expected to impose consistency and
comparability, both across periods and between entities. The comparability across
entities is less direct – the loan is measured two different ways – but ultimately
investors can compare how efficiently and effectively management has used the
resource – the loan – in its business. This is intended to make financial statements
more effective communication tools of what has been achieved and why, providing
a better basis for investors to make a choice between investing in Bank A or
Bank B.

A second type of comparability that standard setters wrestle with is comparability

across industries. How does an investor decide between investing in a bank, an
insurance company, an asset manager, restaurant chain or pharmaceutical
company? Should the IASB care about supporting comparability across industries

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What kind of accounting standards should the IASB... 187

rather than focusing only on comparability within an industry? Here are reasons
that it should care about cross-industry comparability.

First, business is evolving constantly. For example, insurance product offerings are
becoming more like investment vehicles – still with an insurance element, but often
with a significant deposit that is guaranteed to be returned, along with actual or
sometimes guaranteed minimum returns. So choices that may have been starker
25 years ago – invest in an insurance company or an investment management
company – may be blurred now. Investors look to compare performance, and
potential, of different sectors and entities in those different sectors. So
comparability across sectors is important, too, not just comparability within a
sector.

Cross-sector comparability is one reason that the IASB proposed in its insurance

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contracts project to measure insurance company revenue in a way that is
comparable to how revenue is measured in other industries.4 For some insurers,
this will be a big change, because some measures of volume include amounts that
are investment deposits. The IASB’s proposal is to require measurement of revenue
to exclude deposit amounts, which is what is done in other industries. Some
insurers are struggling with this change in current practice, in part because they
will lose a component of volume and therefore look smaller. But investors have a
right to expect that the meaning of “revenue” is consistent regardless of the type of
company that is reporting that revenue.

The IASB’s recently issued revenue standard5 also provides some lessons on
comparability. This was a long and challenging project that the IASB undertook
jointly with the US FASB. It replaces two current IASB standards and over
200 pieces of US generally accepted accounting principles (US GAAP) literature;
US GAAP was much more industry specific, with several different models and
many different specific requirements. Because there was much more specificity for
US GAAP, some entities reporting under IFRS looked to industry-specific
practices under US GAAP for their revenue recognition policies, for example in
areas like software development, licensing and entertainment.

The new revenue recognition standards – which are very close to wholly converged
– should be a very significant move to enhanced comparability of revenue
recognition across industries because virtually all industries are now sent to a
single standard with a single model for revenue recognition. Making “one size fits
all” work is proving challenging, however, in part because of the judgement that is
required to apply a single revenue model to different business activities and
contract terms.

One reason that the IASB and FASB undertook this project was that different
industry-specific revenue reporting requirements were impeding comparability. As
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188 Accounting: Principles and Practices

industry sector boundaries blurred, many time-consuming issues arose determining

which model applied. Consider how the evolution of business raises problems –
when the sale of music via a record (tangible) becomes sale of a CD (still tangible)
becomes the download of a file (an intangible) becomes the license to listen x
number of times or for x period of time (a license or a lease). Having inconsistent
thresholds for revenue recognition, resulting in different allocations across periods
and sometimes bringing along different cost (expense) recognition models, was
making comparability more challenging without enhancing the communication
aspects of standards. The changes required by the new standard are a substantial
“reset” of revenue recognition reporting. This change probably is more pronounced
for those using US GAAP than for entities reporting using IFRS, though it is a
significant change for IFRS as well. While US GAAP is “losing” lots of specific
guidance, IFRS is gaining more specificity than it has today.

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A single revenue standard does not mean a single revenue recognition approach –
there still are two types of revenue recognition. The two approaches are for two
different types of performance – point IN time and performance OVER time, with
percentage of completion used when goods or services are delivered over time.
Entities in a single industry should reach consistent conclusions regarding whether
delivery (performance) for a specific type of product is over time or at a point in
time. The measure of success of the standard and its implementation will be
whether that the consistency is comparable – that the same decision is reached for
comparable economics, and not just for the sake of consistency when terms and
conditions may vary and the underlying promise – and therefore performance –
differs.

3. The role of judgement in financial reporting

When the FASB and IASB started work on the new revenue standard, it debated
some radical new approaches, including revenue recognition on an activities basis
– as an entity undertakes productive activities. The alternative view was the
contract principle – recognise revenue as performance occurred. The boards
decided to base revenue recognition on contract performance. But, with all the
focus on which model to use, people may have failed to notice another change that
got embedded in the new standard – a step up in the level of judgement needed. By
sweeping away hundreds of pages of industry-specific guidance, and removing the
crutches of lots of specific “if this then that” guidance, entities are required to focus
on the economics of their transactions with customers. What has been promised?
Are those promises distinct performance obligations? How do you measure
performance? And what consideration has been promised in return for each
performance obligation? These questions sound like they should be easy to answer,
but they are proving difficult in practice – and it sometimes is unclear whether the
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What kind of accounting standards should the IASB... 189

problem is lack of clarity in the standard, or whether it’s a change management

issue.

Because revenue is such an important financial performance measure, and because

the boards recognised that adopting a new revenue standard would be a significant
change for many entities, the boards have been active in supporting consistent
implementation of the new standard. The primary vehicle for this has been a new
type of activity – a “Transition Resource Group”.6 The TRG is an advisory body to
the IASB and FASB, with a brief to discuss – in public, on the basis of publically
available issues papers – questions that have been raised about implementing the
new revenue standard. The TRG does not issue guidance, but rather develops
recommendations, on the basis of their discussion, whether the Boards should
consider providing additional guidance on a particular issue.

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The TRG discussions have provided some instructive examples about the
challenges of and skills needed to apply judgement. For example, the TRG has had
several discussions of the guidance in the standard for determining whether an
entity is a principal or an agent. The standard bases revenue recognition on
transfer of control of the goods or services to a customer. Control also is the basis
for determining whether an entity is a principal or an agent – a principal controls
the goods or services before they are delivered to the customer, while an agent
arranges for the goods or services to be provided, but doesn’t control them before
delivery. The TRG’s discussions highlighted the difficulty in applying a control
principle to services – can you control a service before it is provided?

The IASB tentatively decided that control does work as a test for services as well
as for goods, and plans to reaffirm this and clarify how the control test is applied. 7
Part of the TRG discussion suggested that some of the questions arose from
resistance to change and concern about making a judgement about control without
anything specific to point to. The proposed amendments will remove some of the
uncertainty by confirming the focus on control and reiterating the supporting role
of the indicators. The amendments will not give certainty and all stakeholders will
have to step up and be prepared to apply and defend their application of judgement.

The US SEC Chief Accountant has commented that the new revenue standard
requires “sound judgement that is supported by evidence8.” The tip of the iceberg
regarding evidence should be visible in an entity’s financial statements, in its
disclosure. The IASB’s new revenue standard has extensive disclosure
requirements that are intended to help users of financial statements understand “the
nature, amount, timing and uncertainty of revenue and cash flows arising from
contracts with customers.”9 This objective is backed up by 19 paragraphs of
specific disclosure requirements, including one that is focused on significant
judgements. These requirements are a way that an entity can – or rather, is required
to – explain its business activities, and how the revenue standard has been applied
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190 Accounting: Principles and Practices

by the entity. Customised information should be the focus, rather than providing a
boilerplate summary of the requirements of the standard.

Another example of the new revenue standard requiring the use of judgement is the
requirement to identify what the performance obligation is that the entity has
promised. A number of issues in this area have been discussed by the TRG. For
example, if an entity enters into a contract with a customer to manufacture 10 units
of a physical good then is there one performance obligation (to deliver 10 items) or
10 performance obligations? The answer is – it depends.

Consider one of the fact patterns discussed by the TRG. This is when a
manufacturer agrees to build a customized item, perhaps on demand, for a
customer. The entity (the manufacturer) will be involved in the item’s design, may
specify the materials and design the manufacturing process and then will operate

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the manufacturing process on demand to deliver up to 10 items over several years
as and when an item is ordered by the customer.10

Identifying the performance obligations in the example described above will be

challenging and will involve judgement. Questions to be answered include: is the
entity delivering design services? Is it delivering a finished product or
manufacturing services? In order to answer these questions, an entity, its auditors
and investors will have to consider things like who bears the cost of inefficiencies
in the manufacturing process (learning curve costs)? Does the entity get
compensated for those? There is no “formula” answer – not every long-term
contract, or every contract for custom-designed items, will be over time (and
therefore accounted for using percentage of completion). These issues also may be
relevant for the construction industry and a lot comes back to the basic question of
“what is the promise”?

Stepping back from extensive, detailed guidance to focus on basic questions and
the principles to answer those questions has several objectives, including reducing
arbitrage between slightly differing fact patterns because very different accounting
models are applied in different fact patterns. But writing a standard that has a
clearer focus on principles also serves a second objective – building a more flexible
standard that will withstand ongoing evolution in business models, because
business is not standing still. Forty years ago retailers bought inventory and took
inventory risk. Now, wholesalers may be compensating retailers for shelf space,
paying advertising allowances to have a retailer promote the wholesaler’s goods
and giving rebates and refunds for unsold merchandise. At what point does a
retailer become an agent? Right now that seems to be happening in selective
pockets of product offerings – maybe for some gift cards but probably not for
cereal or soap. But that may change, and a well written, principles-based standard
should be able to cope with changes in business better than a prescriptive rule with

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What kind of accounting standards should the IASB... 191

detailed implementation guidance. In order for the new revenue standard to remain
effective, though, it needs to be applied in a disciplined way, using judgement to
challenge past conclusions as changes occur, so that financial reporting continues
to be a faithful representation of current promises and activities, rather than
inherited industry practices that fail to evolve to reflect new business
developments.

One challenge for the new standard to be effective over a long time horizon, and to
be useful in coping with new business models that haven’t been developed yet, is
to learn the lesson of registering and assessing incremental change. Many have
heard the story of an experiment that took two frogs and tested their reaction to
boiling water. In one case, the frog was put in room temperature water and the
water temperature was raised degree by degree. Because each change was
incremental the frog didn’t notice until it was too late and died as the water

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approached the boiling point. In comparison, the frog dropped in a pan of near-
boiling water leaped out immediately and saved himself – the significant change
registered and he reacted.

For the new revenue recognition standard to be durable, established assumptions

and practices will need to challenged over and over, as the water temperature
changes by a degree or two. They need to stand back and say “is this transaction
really the same as the last one? Have the terms been nudged so that the transaction
has moved from over time to point in time? Have one or two terms been changed a
bit so that the entity is an agent even though historically it’s been a principal?” It’s
challenging to be the sceptic, to ask questions over and over again, but that’s part
of judgement. And if accounting standards are intended to deliver communication
and not just compliance, and accountants to be valued professionals, not just clerks,
then all stakeholders in financial reporting need to be challenging and embrace,
rather than resist, change.

4. What does the IASB expect of accountants? What should

investors and accountants expect of it?

Some of the things that the IASB expect of accountants were discussed in the
previous section, including expectations for the ability to apply judgement and to
be challenging and respect the principles in standards.

Another expectation is that accountants will apply judgement in the context of the
objectives and principles of a standard. This includes reading and understanding
the basis of conclusions which provides context for the decisions captured in a
standard. It’s been disappointing when, a couple of times, the TRG discussions
have suggested that while it is clear what the boards intended if the basis is
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192 Accounting: Principles and Practices

considered but the basis isn’t authoritative and the standard doesn’t explicitly
require the reading the boards intended so diversity is expected when the new
standard is applied. And the boards have heard some suggestions to amend the
standard to move a sentence from the Basis for Conclusions to the text of the
standard.11 That’s disappointing because it seems reasonable to expect
professionals to approach the standard with the objective of understanding what
was intended rather than an objective of creating loopholes or justifications for not
changing current practices. Returning to the example of how to measure revenue
from insurance contracts, it seems that the IASB may find it necessary to include a
statement in that standard that says “revenue cannot include customer deposits”
because of the need to change some existing practice and the resistance to that
change. Having to spell out everything that is precluded by the objectives and
principles that are the core of standards will leave standard setters playing catch up
with new products and deliberate structuring and is not a sustainable approach to

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standard setting.

A third expectation is that all stakeholders work to keep the concept of materiality
effective. The effectiveness of materiality – that the requirements of a standard are
not required to be applied to immaterial transactions12 – keeps financial reporting
from grinding to a halt with costs exceeding benefits. But the effectiveness of
materiality is under pressure, with preparers pointing to auditors requiring
quantification and documentation of immateriality, and auditors pointing to
regulators applying hindsight and challenging lack of documentation. One
consequence of this is that standard setters are being asked to specify more explicit
relief from the principles and requirements of a standard.

For example, the boards have been asked to introduce several additional “practical
expedients” to simplify application of the new revenue standard. The FASB has
been encouraged to introduce an accounting policy election to treat shipping and
handling as either a cost of sale or as a separate performance obligation.13 Without
this expedient, entities would be required to assess the substance of their promise to
customers to determine what the nature of their shipping promise is. Perhaps
another reason that an accounting policy approach is desired for shipping and
handling is because considering shipping and handling to be part of the promise of
selling the good might be inconsistent with the assertion that control is transferred
and revenue is recognised when goods are delivered to a third-party shipper.

And the FASB is not alone in facing this pressure – in its work on leases, the IASB
has decided to create a “low value asset” exception to the requirement for a lessee
to recognise a lease asset and liability for all leases. The IASB made this decision
because of very high levels of concern that its new leasing standard would be very
costly to apply because it would capture smartphone, tablet and laptop leases, and
that demonstrating that those contracts were immaterial might be as costly, on an

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What kind of accounting standards should the IASB... 193

ongoing basis, as applying the requirements of the standard. So the IASB decided
to create an exception that allows low value assets to be accounted for as they are
today, ie as operating leases.14

Practical expedients for items that are unlikely to be significant may seem to be a
reasonable way forward. But standard setters need to beware exceptions, and that’s
what practical expedients are. When you create expedients you draw boundaries,
create scoping challenges and increase overall complexity.

So, a challenge for all stakeholders-, is to look for ways to strengthen the
application of the concept of materiality (and immateriality). Improvements in this
area require behavioural changes that are difficult to mandate. The IASB is trying
to do its part, initially focused in the area of disclosure. In December 2014 it
finalised some wording changes to IAS 1, the standard on presentation of financial

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statements, to confirm that materiality is an overarching principle that applies
throughout the standards, including to disclosure requirements.15 So, even if a
standard says “an entity shall disclose…”, this applies only if the disclosure is
material.

The IASB also is working on guidance for determining what information is

material. It is planning to publish an exposure draft of a “materiality practice
statement” in 2015.16 This will include proposed guidance on how to apply the
concept of materiality both to recognition and measurement and also to disclosure.
Responses to the draft guidance will be used to assess whether this guidance is
helpful – both what is said about applying the concept of materiality and whether a
practice statement, which is non-authoritative, is the right vehicle for such
guidance.

5. Feedback

The proposed materiality practice statement is just one example of how standard
setters seek feedback on their proposals. Feedback from stakeholders is a critical
ingredient for the IASB’s effectiveness, and the Board wants that feedback,
whether it’s positive or negative.

The revenue TRG discussed above is an experiment with post-issue involvement in

the translation of standards into practice, using feedback from those who will be
preparing and auditing the application of the new standards. The TRG was formed
because of the significance of revenue to virtually every organization. This kind of
work is undertaken during the post-publication/ pre-adoption phase only on an
exceptional basis – when there’s a major change to be made.

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194 Accounting: Principles and Practices

The IASB can’t set standards without stakeholder input, because developing
standards includes building buy in to the outcomes and the changes required.
Standard setters balance the costs and benefits, working to satisfy the needs of
investors at a cost that is reasonable for those who prepare financial statements.

6. Mutual expectations

This section considers what stakeholders should expect from standard setters and
how standard setters’ expectations interact with how accountants are trained.
Stakeholders should be able to expect the following attributes and activities from
the IASB, which, although it is a private sector body, works in the public interest:
 Open, thoughtful consultation with stakeholders.
 Well considered Board conclusions that are reached in open, honest and

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well prepared debates in public meetings and captured in well drafted
proposals and standards.
 Well-articulated objectives and principles in those standards so that the
standards address the problems they set out to fix and are capable of
coping with unexpected developments.
 Standards that work together, are consistent with the Conceptual
Framework and help financial reporting realise the objective of satisfying
the information needs of investors.
 Facilities within the IASB to raise issues and have them evaluated, and,
when needed, responded to, including a well-resourced and effective
interpretation committee.
 Undertaking change when change is needed and when significant
improvements can be realised that justify the cost of change.

These are ambitious goals to achieve, and for the IASB to realise them, it needs to
hear from stakeholders. It needs to hear from stakeholders with ideas about how
best to achieve the goals set out above, and when it is not hitting its targets. The
IASB has a tremendous responsibility, and its members, staff and those charged
with oversight recognise that and want to live up to it.

The last paragraphs of this paper offer a few thoughts on what IFRS mean for the
training of accountants. The item at the top of the list for accountant training is
training in reasoning and logic. Knowing the subject matter is important, but
memorizing requirements without working to understand what they are trying to
achieve will leave accountants falling short of giving investors what they need and
will end up in endless debates responding to questions that boil down to “where
does it say I have to do that? Where does it say that I can’t do that?”
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What kind of accounting standards should the IASB... 195

A second item is another skills training point – practicing the application of

judgement. That’s a hard thing to teach, but it is necessary to apply IFRS and to
deal with many other issues in a professional’s career.

A third skill that accountants need is understanding how business works. Financial
reporting needs to account for the substance and not just the form of transactions.
Lastly, today’s accountants need training in finance. As companies and transactions
get more sophisticated, they are more influenced by finance concepts in setting the
terms of transactions. For example, it seems that many more “ordinary”
transactions reflect consideration of the time value of money than they did 30 years
ago, and that financial reporting considers the time value of money much more in
thinking about reporting requirements. The introduction of accounting for share-
based payments reflects accounting catching up with transactions that reflect
understanding of the value of options even when they are out of the money. So a

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good grounding in finance theory will help accountants to work through
understanding of the economics of a transaction and the appropriate accounting.

7. Summary

The objective of IFRS is to provide useful information to users of financial

statements.17 To achieve this goal, they need to be a communication tool and not a
compliance exercise. Setting standards that support this goal requires the
participation of many stakeholders, as does interpreting and applying the standards
after they have been issued. Good faith application of judgement, seeking to realise
the objectives of the standard and questioning established practice are all part of
achieving this goal. So are expertise in reasoning, economics and finance. All parts
of this equation are critical, but it is a goal worth striving for because it supports
efficient and effective markets and makes accounting a rewarding and respected
profession.

References
FASB (2015) FASB minutes of FASB meeting of 24 March 2015, Financial
Accounting Standards Board
IASB (2015) Conceptual Framework for Financial Reporting, Exposure Draft
ED/2015/3, International Accounting Standards Board, May 2015
IASB (2015) Clarifications to IFRS 15, ED/2015/6, International Accounting
Standards Board, July 2015
IASB (2015) Transition Resource Group paper 12, International Accounting
Standards Board, January 2015

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196 Accounting: Principles and Practices

IASB (2015) IASB Update, International Accounting Standards Board, February

2015
IASB (2014) IFRS 9 Financial Instruments, International Accounting Standards
Board, July 2014
IASB (2014) IFRS 15 Revenue from Contracts with Customers, International
Accounting Standards Board, May 2014
IASB (2014) IASB Disclosure Initiative, Amendments to IAS 1, International
Accounting Standards Board, December 2014
IASB (2014) Transition Resource Group paper 9, International Accounting
Standards Board, October 2014
IASB (2013) Insurance Contracts Exposure Draft ED/2013/7, International
Accounting Standards Board, June 2013
IASB (2010) Conceptual Framework for Financial Reporting, International

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Accounting Standards Board, September 2010
Schnurr, J. (2015) Remarks at the 34th Annual SEC and Financial Reporting
Institute Conference, Pasadena, CA, USA, June 5, 2015

1
IASB Conceptual Framework for Financial Reporting, International Accounting
Standards Board, September 2010
2
IASB Conceptual Framework for Financial Reporting, Exposure Draft ED/2015/3,
May 2015
3
IFRS 9 Financial Instruments, July 2014. Classification of financial assets is addressed
in Chapter 4
4
IASB Insurance Contracts Exposure Draft ED/2013/7 published June 2013; see
paragraphs 58 and B89 for a discussion of exclusion of investment components from
revenue
5
IASB, IFRS 15 Revenue from Contracts with Customers, published May 2014
6
Information about the TRG can be found at http://www.ifrs.org/About-us/
IASB/Advisory-bodies/Joint-Revenue-Transition-Resource-Group/Pages/Home.aspx
7
This proposal is included in the exposure draft Clarifications to IFRS 15, ED/2015/6,
published in July 2015
8
Schnurr, James, Remarks at the 34th Annual SEC and Financial Reporting Institute
Conference, Pasadena, CA, USA, June 5, 2015 (text http://www.sec.gov/news/speech/
remarks-34th-sec-financial-reporting-institute-conference.html), p3
9
IASB, IFRS 15 Revenue from Contracts with Customers, paragraph 110.
10
See TRG paper 9, discussed at the October 2014 meeting http://www.ifrs.org/
Meetings/Pages/Joint-TRG-for-Revenue-Recognition-October-2014.aspx
11
See TRG Topic 12 discussed at its January 2015 meeting http://www.ifrs.org/About-
us/IASB/Advisory-bodies/Joint-Revenue-Transition-Resource-
Group/Pages/Meetings.aspx
12
See IASB Conceptual Framework for Financial Reporting paragraph QC11 and
International Accounting Standard (IAS) 1, Presentation of Financial Statements,
paragraph 7

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What kind of accounting standards should the IASB... 197

13
See minutes of FASB meeting of 24 March 2015, available at http://www.fasb.org./
cs/ContentServer?c=Document_C&pagename=FASB%2FDocument_C%2FDocumentP
age&cid=1176165893693
14
See IASB Update, February 2015, available at http://media.ifrs.org/2015/IASB/
February/IASB-Update-February-2015.html#7
15
IASB Disclosure Initiative, Amendments to IAS 1, published December 2014, paragraph
BC30H
16
See “Upcoming Exposure Drafts” section of IASB work plan, available at
http://www.ifrs.org/Current-Projects/IASB-Projects/Pages/IASB-Work-Plan.aspx
17
See IASB Conceptual Framework for Financial Reporting, Chapter 1 “The Objective of
general purpose financial reporting”, International Accounting Standards Board,
September 2010

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This book was conceptualized with the vision of imparting up-to-date information and
advanced data in this field. To ensure the same, a matchless editorial board was set up.
Every individual on the board went through rigorous rounds of assessment to prove their
worth. After which they invested a large part of their time researching and compiling the
most relevant data for our readers.

The editorial board has been involved in producing this book since its inception. They have
spent rigorous hours researching and exploring the diverse topics which have resulted in
the successful publishing of this book. They have passed on their knowledge of decades
through this book. To expedite this challenging task, the publisher supported the team at
every step. A small team of assistant editors was also appointed to further simplify the
editing procedure and attain best results for the readers.

Apart from the editorial board, the designing team has also invested a significant amount
of their time in understanding the subject and creating the most relevant covers. They
scrutinized every image to scout for the most suitable representation of the subject and
create an appropriate cover for the book.

The publishing team has been an ardent support to the editorial, designing and production
team. Their endless efforts to recruit the best for this project, has resulted in the
accomplishment of this book. They are a veteran in the field of academics and their pool
of knowledge is as vast as their experience in printing. Their expertise and guidance has
proved useful at every step. Their uncompromising quality standards have made this book
an exceptional effort. Their encouragement from time to time has been an inspiration for
everyone.

The publisher and the editorial board hope that this book will prove to be a valuable piece
of knowledge for researchers, students, practitioners and scholars across the globe.

____________________ WORLD TECHNOLOGIES ____________________

List of Contributors
Victoria Stanciu and Mirela Gheorghe Beata Zyznarska-Dworczak
The Bucharest University of Economic Poznan University of Economics and Business,
Studies, Romania Poland

Ioannis Samaras and Stergios Athianos Halina Waniak-Michalak

TEI of Central Macedonia, Greece University of Lodz, Poland

Paul Diaconu Maqsood Iqbal Qureshi

Bucharest University of Economic Studies, Gulf University of Science and Technology,
Romania Kuwait

WT
Victoria Bogdan, Ioana Teodora Meşter, Ioannis Diavastis, Evgenia Anagnostopoulou,
Dana Gherai and Carmen Mihaela Scorţe Georgios Drogalas and Theofanis
University of Oradea, Romania Karagiorgos
University of Macedonia, Greece
Ümmühan Aslan
Bilecik Şeyh Edebali University, Turkey Mary Tokar
International Accounting Standards Board
Seçil Sigalı
Dokuz Eylul University, Turkey

____________________ WORLD TECHNOLOGIES ____________________

Index
A Certified Public Accountants, 54, 95
Accountants, 1-6, 8, 11, 15-17, 47, 54, 62, Chief Accountant, 14, 189
65-73, 76-88, 95, 100, 111, 158, 163-164, 169- Collaterals, 132, 134-136
170, 173-174, 184, 191, 194-195
Conduct Ratio Analysis, 133
Accounting, 1-21, 23-26, 28-31, 34-40, 42-43,
46-51, 58-70, 76-93, 98, 100-105, 108-144, Content Analysis Method, 93-94
146, 153-159, 161-167, 172-182, 187, 190- Contingency Theory, 158, 164
192, 195-197 Corporate Governance Index, 94, 96-97, 100
Accounting Information Systems, 115, 156- Corporate Social Responsibility, 85, 89-90, 96-
157, 169, 177-179, 181-182 97, 99-101, 107-110
Accounting Judgment, 65-68, 70, 73, 76-82, 84 Csr Disclosures, 89, 93-94, 96-98

WT
Accounting Standards, 18, 29, 34-37, 53-54, Current Earnings, 144
66-67, 81-87, 184-185, 191, 195-197
Accounting System, 19, 23, 34, 53-55, 95, D
105, 108-110, 117-118, 132-134, 137, 143, Determinants, 16, 87, 89-91, 93, 96-98, 106, 178
161, 164, 173
Activity-based Costing, 156, 161, 175-177, E
179-181 Earnings Per Share, 21, 26-27, 29, 31-32,
Additional Costs, 48, 95, 128 34-35, 98
Advertising, 142-155, 190 Economic Sanctions System, 58
Advertising Investments, 144, 153 Enterprise Resource Planning, 157, 175, 180
Annual Revenue, 124 Equity Capital, 25, 30
Asset Value, 142-147, 152 Expenditures, 142-155
Assets, 18-21, 26-30, 32, 34-35, 50, 96-97,
107, 111, 125-126, 131-135, 144, 146-147, F
150-151, 154, 166, 193, 196 Financial Management, 119, 122, 153, 175
Assets Ratio, 97, 107 Financial Reporting, 18-19, 36, 38, 62, 65-66,
Association Method, 70 73, 83-84, 86, 88, 139-140, 185, 188, 191-192,
194-197
Audit, 2, 66, 68, 77, 88, 121, 139, 185
Financial Statements, 19-20, 23-24, 26, 28-29,
Auditors, 2-4, 71, 76-77, 83, 86, 190, 192 32, 35, 65-66, 73, 123-124, 127, 131-134, 136,
139, 143-144, 154-155, 184-186, 189, 193-
B 196
Balance Sheet, 24, 35, 61, 124-126, 130, 133 Firm Performance, 101, 145, 150, 154, 159,
Balance Sheet Sum, 124-126 177, 179-180, 183
Bank Financing, 122, 137 Foucauldian Approach, 114, 117
Behavioral Decision Theory, 66
Book Value, 24-25, 27, 29-31, 34-36, 97, 107, G
147 Global Reporting Initiative (gri)
Guidelines, 94
C Group Accounting, 18
Capitalism, 43-44, 47, 50
Cash Flows, 22, 137, 150, 186, 189 I
Certified Management Accountants, 69 Institutional Theory, 114

____________________ WORLD TECHNOLOGIES ____________________

Index 201

Intangible Asset, 144, 152 O

Intercompany Transactions, 19-20, 22, 26-28, Ohlson Model, 25-26, 32, 38
31-32, 34 Operating Costs, 40
International Accounting Standards Board, 54,
184-185, 195-197 P
International Financial Reporting Standards Pearson’s Correlation Coefficient, 65, 71, 82-
(ifrs), 36, 185 83
Investors, 18, 20-21, 23-24, 36, 54, 102, 150, Performance Management, 92, 99, 116
185-187, 190-191, 194 Professional Accounting Judgment, 65, 70, 73,
Is Success Model, 156, 158-159, 173, 182 76-82, 84
Is User Satisfaction Theory, 156, 158, 172, Profits, 20-22, 25-26, 30, 34, 51-52, 56, 58,
174 61, 133, 153-154
It Audit Software, 2
R
J Related Party Transactions, 18, 21, 26, 34,
37-38

WT
Judgment And Decision Making, 66-68, 83-85,
88 Revenue Recognition, 187-189, 191

L S
Latourian Approach, 114, 117-118 Shareholders’ Equity, 144
Liabilities, 29, 125-126, 131, 133 Simplified Accounting, 122-123, 126-127, 130,
Liquidators, 71 132-137
Long-term Firm Value, 93 Small And Medium-sized Entities (smes), 122-
123
M Stakeholders, 22, 73, 94, 102-103, 111, 117,
M-learning System, 6 132-133, 185, 189, 191-195
Management Accounting, 88, 108-121, 156- Stock Market, 22, 24, 38
159, 161-164, 166-167, 169, 172-176, 179- Structuration Theory, 114, 116
182
Minimal Costs, 43 T
Tangible Assets, 30, 144, 146
N Tax Card, 124-129, 131, 133-135, 140
Net Interest Margins, 97, 107 Tax Regulations, 124-125, 132
Tax-oriented Accelerated Depreciation Meth-
od, 18, 29, 30

____________________ WORLD TECHNOLOGIES ____________________