Volume 36 Number 1
Volume 36 Number 2
Volume 36 Number 3

Volume 36 Number 1 2001

ARTICLES

International Competitive Effects of Harmonization
by Alison J. Kirby

Keywords: Competitive effects; Harmonization of accounting standards; Developing countries

Abstract: The objective of this research is to theoretically examine international competitive consequences surrounding harmonization of international accounting standards.  Using a stochastic oligopoly model of two firms in each of two countries, it is shown that when firms only operate domestically, harmonization of accounting standards may not be beneficial for both countries.  If it is beneficial for both, then it is also a dominant strategy equilibrium and will be voluntarily implemented by the individual country’s standard setting boards.  Thus, a meta-FASB can play no value-adding role.  Conversely, when firms operate both domestically and internationally, a variety of equilibria may emerge.  In general, we observe the result that harmonizing on full disclosure may be detrimental to developing countries, while strictly benefiting developed countries.  Also, the benefits to disclosing cost information far exceed the costs of disclosing demand information.  Finally, the IASC may in some circumstances add value as a norm setter, not only as a designer/enforcer of more elaborate accounting rules.  Ó2001 University of Illinois.  All rights reserved.

Agency Effects and Escalation of Commitment: Do Small National Culture Differences Matter?
by Stephen B. Salter and David J. Sharp

Keywords:  Agency; National culture; Escalation of commitment

 

Abstract: In order to test for hypothesized effects of national culture on management control systems with cost-effective sample size, most cross-cultural studies rely on large differences in culture in the experimental design.  However, much of the world’s cross-border investment takes place between nations that are culturally close, for example, the USA, Canada and the UK.  Case evidence indicated that even apparently small cultural differences, such as that between the USA and Canada, can be particularly troublesome since it is widely assumed that small differences do no matter, when, in fact, they do.  This study explores the effect of an apparently small difference in national culture on the ability of agency theory to explain escalation of commitment to failing projects in two countries with significant cross-border investment, i.e., USA and Canada.  We found that the effect of adverse selection conditions was significantly stronger among managers from the more individualist USA.  We also found that more experienced managers were less likely to escalate commitment.  We discuss the implications of this finding for the design of control systems in US-Canada cross-border subsidiaries.  Ó 2001 University of Illinois.  All rights reserved.

A Comparison of Factors Affecting UK and US Analyst Forecast Revisions
by Glen D. Moyes, Brahim Saadouni, Jon Simon and Patricia A. Williams

Keywords:  Analyst forecast revisions; Earnings per share; Financial analysis; Sell-side analysts; United Kingdom; United States 

Abstract: An important task of the sell-side financial analyst is to provide investors with estimates of corporate earnings per share (EPS).  In this study, we examine if analysts from countries with comparable equities markets, regulatory requirements, accounting standards, and disclosure policies are influenced by similar factors in revising an earnings estimate.  The results of a survey sent to UK and US financial analysts indicate that in general the two groups do consider the same factors to be important.  However, there are significant differences in the relative importance of some of the factors examined.  These differences are most likely attributable to the more international focus of the UK analyst and the greater reliance of the US analyst on guidance from management.  Ó2001 University of Illinois.  All rights reserved.

Improving Activities and Decreasing Costs of Logistics in Hospitals: A Comparison of U.S. and French Hospitals
by Olivier Aptel and Hamid Pourjalali

Keywords:  Hospital supply management in France and the U.S.; Hospital logistics; Just-in-Time; Activity-based management for healthcare providers; Hospital cost reduction; Hospitals partnerships with medical suppliers; Hospital partnerships with other hospitals

 

Abstract:  This paper investigates logistic (or supply-chain management) differences between large hospitals in the U.S. and France.  Given that logistics and supply-chain management have been considered important aspects in hospital management, this paper explores the possible reasons for differences among hospitals in the U.S. and France.  The differences are drawn from variables, such as (1) the extent of responsibility given to the logistics department with respect to items, such as purchasing, physical supplying, receiving, inventory managements, internal distribution to medical departments, and management information systems; (2) the manner of distribution of supplies (such as central warehouse vs. direct vendor distribution); (3) the amount or the volume of medicine distributed; (4) the degree of partnerships between the hospitals and their vendors and other hospitals; and (5) the past efforts of logistics departments in improving the supply-chain management and future plans for improving the logistic functions.  The results provide evidence that U.S. hospitals have been able to reduce the supplies inventory level to a larger extent that their counterparts in France, the French hospitals, however, have a higher level of intention to do so.  Both groups support current and future partnerships with other hospitals and suppliers of good and services.  The ability of logistic management to reduce costs associated with medical supplies signals that supplies inventory reduction is possible in even very critical industries (such as medicine).  Consequently, the results of this study are relevant to the management of hospitals (and companies), which intend to improve their logistic functions and accounting information systems to decrease the costs associated with inventory.  In this paper, we have advocated that Just-in-Time (JIT) philosophy to be applied to hospitals in inventory cost reduction.  Contemporary management methods continue to emerge and the healthcare industry needs to continue incorporating these new developments in its operations so it can compete in a market that is more competitive than ever.  Ó2001 University of  Illinois.  All rights reserved.

An Empirical Examination of Corporate Myopic Behavior: A Comparison of Japanese and U.S. Companies
by Albert L. Nagy and Terry L. Neal

Keywords:  Management myopia; Income smoothing; International accounting; Discretionary accruals; Earnings management; Cross-cultural  

Abstract: The purpose of this study is to examine whether differences in the corporate environments of Japanese and U.S. companies are associated with differences in the extent to which Japanese and U.S. managers engage in corporate myopic behavior.  This paper empirically examines the management myopia issue by comparing the level of income smoothing that occurs between U.S. and Japanese companies.  A system of simultaneous equations is employed to measure the extent that management used discretionary accruals and research and development (R&D) investments to smooth income.  Our results suggest that while both Japanese and U.S. managers engage in some amount of myopic behavior (i.e., smooth income), Japanese managers do so at a significantly higher level.  Ó2001 University of Illinois.  All rights reserved.  Published by Elsevier Science Ltd.

BOOK REVIEWS

International Accounting: A User Perspective
by Elizabeth A. Gordon

International Accounting, Financial Reporting, and Analysis
by Richard A. Scott

The History of Accounting: Critical Perspectives on Business Management
by Stephen A. Zeff

Volume 36 Number 2 2001

The Impact of Culture on the Relationship Between Budgetary Participation, Management Accounting Systems, and Managerial Performance:  An Analysis of Chinese and Western Managers
JUDY S.L. TSUI

Keywords:  Culture; Budgetary participation; Management accounting systems; Managerial performance

 

Abstract: This study tests the hypothesis that the behavior and attitudes of Chinese and Western managers to budgetary participation will be different because of cultural differences.  Chinese managers are used to represent managers from a high-collectivist, large-power distance, and long-term orientation culture while Caucasian expatriate managers are used to represent a culture that is low-collectivist, small-power distance, and short-term orientation.  Data were collected from 51 Chinese subunit managers in Xian, China and 38 Caucasian expatriate subunit managers in Hong Kong who were requested to respond to questionnaires designed to measure the ‘availability’ of broad scope and timely management accounting systems (MAS), budgetary participation, and their managerial performance.  Multiple regression analysis showed that the three-way interaction term was significant, thus, suggesting that the interaction effects of MAS and budgetary participation on managerial performance were different, depending on the cultural background of the managers.  More specifically, the relationship between MAS information and managerial performance of Chinese managers was negative for high levels of participation but positive for Caucasian managers.  These results have implications for the design of effective control subsystems and suggest that the management accounting theories developed in the context of Western economies may not be generalized to the Chinese environment.

Accounting for Brands in France and Germany Compared with IAS 38 (intangible assets):  An Illustration of the Difficulty of International Harmonization
HERVÉ STOLOWY, AXEL HALLER, VOLKER KLOCKHAUS

Keywords:  Brands; International accounting standards; IASC; Intangible assets; International harmonization

 

Abstract: This paper compares the positions taken by IAS 38 over brands and the related treatments in France and Germany.  Despite many points of convergence, the paper shows that these two countries, often to be found in the same cluster of national accounting systems (the “Continental-European” model), have adopted very different solutions in relation to each other and to IAS 38.  The results of the study highlight the difficulty of international harmonization.  They also show that as far as the qualitative characteristics of accounting are concerned, the frequently made association between Anglo-American accounting philosophy and “relevance,” and between Continental-European accounting philosophy and “reliability”, may not apply when it comes to brand accounting.  To resolve this international “disharmony,” our paper militates in favor of disclosure of additional information.

International Accounting Harmonization, Banking Regulation, and Islamic Banks
RIFAAT AHMED ABDEL KARIM

Keywords:  International accounting standards; Islamic banks; Harmonization; Banking regulation; Investment banking; Commercial banking

Abstract:  Islamic banks perform both commercial and investment banking services but do not establish firewalls to separate these two services legally, financially, and managerially.  Unlike conventional commercial banks, Islamic banks are prohibited from charging or paying of interest.  Instead, Islamic banks offer profit-sharing investment accounts, such that investors’ returns depends on the return on the assets financed by the investors’ funds.  Supervisory authorities in countries in which Islamic banks operate have taken various approaches to regulate Islamic banking.  Such variations appear to have resulted in Islamic banks adopting different accounting treatments for investment accounts, although most of the countries in which Islamic banks operate either look directly to international accounting standards as their national standards or develop national standards based primarily on international accounting standards.  This rendered the financial statements of Islamic banks noncompariable.  It also implies that the calls for worldwide adherence to international accounting standards to achieve harmonization in financial reporting, regardless of cultural differences that affect the way in which business transactions are carried out (in substance as well as in form), should not go unchallenged.  The paper also casts light on the need to implement the accounting standards promulgated by the Accounting and Auditing Organization for Islamic Financial Institutes (AAOIFI), because these standards specifically cater for the unique characteristics of the contracts that govern the operations of Islamic banks.

A Six-Country Comparison of the Use of Graphs in Annual Reports
VIVIEN BEATTIE,  MICHAEL JOHN JONES

Keywords:  Annual reports; Comparative international accounting; Financial graphs

 

Abstract:  This study contributes to each of knowledge of comparative international reporting practices by exploring an aspect of the annual report package not previously research from a transnational perspective.  The financial graphs in the corporate annual reports of 50 companies in Australia, France, Germany, The Netherlands, the UK, and the US are investigated using an established methodology.  We conclude that companies in different countries adopt significantly different graphical practices, with German graphical practice being especially different.  Findings with regard to selected graphical reporting dimensions are not generally consistent with predictions based on the macro/micro-orientation of countries.

The Intellectual Structure of International Accounting in the Early 1990s
JOANNE LOCKE, HECTOR PERERA

Key Words:  Intellectual structure; Fragmentation; International accounting literature; Citation analysis; International accounting research

 

Abstract:  This paper derives an intellectual structure of the international accounting literature using co-citation analysis.  The structure is found to be fragmented, with a number of areas needing further research to integrate them.  The paper identifies the 10 most frequently cited documents.  These are predominantly books and standards.  It appears that books written by key researchers provide a foundation for the development of related research.  The paper also identifies a core literature in international accounting, which focuses on the areas of comparative systems, classification studies, foreign currency, and inflation.  By examining the structure and nature of international accounting research in the early 1990s, this study provides insights into the antecedents to contemporary international research.  This is useful in assessing how this area of research has developed since then as it creates a benchmark for comparison.  The study also contributes to defining the boundaries of the area.  Finally, the paper provides a measure of the degree of fragmentation of the international accounting literature and identifies areas that may be integrated through further research.
 

Volume 36 Number 3 2001

The Impact of National Influence on Accounting Estimates:  Implications for International Accounting Standard-Setters
JOSEPH J. SCHULTZ JR., THOMAS LOPEZ

Abstract:  The results of prior research suggest that national accounting systems are significantly associated with differences in market valuations and various other macromeasures.  These results, however, rely heavily on the analysis of archival data or survey evidence directed at national system differences.  As Pownall and Schipper [Accounting Horizons (1999) 259] note, archival research necessarily depends on the information in the financial reports and cannot explain the process linking the underlying standards to the reported information.  This study examines this process by investigating judgments made by accountants in France, Germany, and the United States.  To facilitate a comparison of this process across international boundaries, our experiment presents these accountants with the same economic facts that are governed by similar financial reporting rules.  Our results indicate that, even given similar facts and rules, judgments among the three nations’ accountants vary significantly.  They also suggest that national culture interacts with findings accepted as general within behavioral decision research.

Cross-Cultural Differences in the Behavioral Consequences of Imposing Performance Evaluation and Reward Systems: An Experimental Investigation
VIDYA N. AWASTHI, CHEE W. CHOW, ANNE WU

Abstract:  This study explores the effects of national culture differences on the behavioral consequences of imposing performance evaluation and reward systems (PERS).  It postulates that two cultural dimensions – individual/collectivism and power distance – can modify employees’ decisions under, as well as satisfaction with, imposed performance evaluation and rewards aimed at modifying their work-related behavior.  In a laboratory experiment that focused on a teamwork setting, these cultural attributes were operationalized via a comparison of US vs. Chinese nationals in Taiwan (CNT).  On the whole, the results were consistent with US nationals significantly changing the team orientation of their decisions in response to imposed performance measures and rewards, but a similar impact was not found for the CNT subjects.  And, consistent with culture-based predictions, US nationals had significantly lower satisfaction under imposed, rather than self-selected, performance evaluation and reward structures, while their CNT counterparts did not have a similar adverse reaction.  These results are consistent with prior Anglo-American-based research that the PERS significantly affects employee behavior.  But they also suggest that this finding may not be directly generalizable to employees whose national cultures differ from those of Anglo-Americans. 

Accounting and Management Controls in the Classical Chinese Novel:  A Dream of the Red Mansions
K. HUNG CHAN, ALBERT Y. LEW, MARIAN YEW JEN WU TONG

Keywords:  Accounting history; Accounting and management control; A Dream of the Red Mansions; Cultural and social perspective of control

 

Abstract: This study presents a systematic documentation of Chinese accounting and management control practices in two eminent family households of the early Qing Dynasty.  There is a lack of information on management control during this period (during the 18^th century) and a scarcity of empirical evidence on the control practices of family institutions in ancient China.  We attempted to address these problems by analyzing the accounting and management control practices described in the popular novel A Dream of the Red Mansions.  Further analyses were made to ensure that the control practices thus observed were in harmony with the social and cultural settings of the early Qing Dynasty.  Pairing the control practices observed in the novel with a definite set of cultural and social values led to several empirical conclusions.  Big family households of the early Qing Dynasty clearly recognized the important of, and made distinct achievements in, accounting and management controls.  They mastered the segregation of duties, the control of cash, the use of budgets for planning, the containment of costs, and the efficiency of operations.  However, social and cultural factors that were prevalent during the Qing Dynasty impeded the effectiveness of such practices.  The obsession with preserving harmony in society and the family system eventually led to excessive power distance and rigid rules, at the expense of flexibility and professionalism.  As history is often indicative of the future, the research results should facilitate our understanding of the management of family-owned businesses in Chinese communities.

A Comparison of New Zealand and British Product-Costing Practices
DAWNE LAMMINMAKI, COLIN DRURY

Keywords:  Product costing; Overhead cost allocation; Management accounting practice

 

Abstract: The results of a mailed survey designed to compare product-costing practices employed by New Zealand (NZ) and United Kingdom (UK) manufacturing companies is reported.  The study’s main findings are that, when company size is removed as an explanatory factor, there appear to be few systematic differences in the product-costing practices of the two countries, although there is a suggestion of marginally less sophisticated product-costing practices in NZ.  Widespread use of theoretically deficient costing practices in both countries adds to the growing evidence of time lag between the theory and practice of management accounting.

Transfer Pricing of Intangible Property Harmony and Discord Across Five Countries
SUSAN C. BORKOWSKI

Keywords:  Transfer pricing; Intangible assets

 

Abstract: Transnational corporations (TNCs) regard transfer pricing as the most important tax issue confronting them in the immediate future.  Couples with the increase in the number and type of cross-border transfers of intangible property, concerns arise about the adequacy of current transfer pricing regulations, and the harmony, or lack thereof, of such regulations when a TNC must address both host-and home-country tax authorities.  This study of TNCs domiciled in Canada, Germany, Japan, the United Kingdom, and the United States (US) reveals a similarity in corporation approaches to valuing intangible property that transcends national borders.  This is in stark contrast to current practices regarding the transfer of tangible goods, which vary by country, rather by industry or nature of the transferred good.  However, in many cases, this agreement is reached because TNCs are using transfer pricing methods for intangible transfers that do not follow the Organization for Economic Cooperation and Development (OECD) and/or US Internal Revenue Service (IRS) guidelines.