Vernon K. Zimmerman Center for International Education and Research in Accounting

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The International Journal of Accounting
1998 Issues

Vol 33  No 1  1998
Vol 33  No 2  1998
Vol 33  No 3  1998
Vol 33  No 4  1998
Vol 33  No 5  1998

Volume 33 Number 1 1998
Special Issue

International Accounting Research from 1965 to 1996: Indexes and Annotated Bibliography of the International Journal of Accounting

Guest Editor: Belverd E. Needles, Jr., DePaul University

Dedication: To Vernon K. Zimmerman

Preface: Belverd E. Needles, Jr.


Index 1: Articles by Country/Region & Methodology: Comprehensive
Index 2: Articles by Subject: Comprehensive
Index 3: Articles by Country/Region & Methodology: European Region
Index 4: Articles by Subject: European Region
Index 5: Articles by Country/Region & Methodology: Asian/Pacific Region
Index 6: Articles by Subject: Asian/Pacific Region
Index 7: Articles by Country/Region & Methodology: Developing Countries
Index 8: Articles by Subject: Developing Countries
Annotated Bibliography

Volume 33 Number 2 1998

Editorial Comment: Andrew D. Bailey, Jr.


The Quest for International Accounting harmonization: A Review of Standard Stetting Agendas fo the IASC, US, UK, Canada and Australia, 1973-1997
by Donna Street and Kimberley Shaughnessy

Abstract: For 1973 through 1997, the research examines the evolution of accounting standards to ascertain the extent of similarities and differences in financial reporting practices among the IASC and national standard setters in the US, UK, Canada, and Australia. Collective and individual efforts aimed at minimizing differences to achieve harmonization/compatibility are discussed. The impact of the IASC's modified philosophy for the l 990s, specifically its cooperative endeavors with the G4 standard setters on agenda coordination and harmonization/compatibility of accounting standards, is also investigated.

During the 1970s and 1980s, the IASC, US, UK, Canada, and Australia achieved accounting standard compatibility in very few areas. Successes included the funds flow statement and leases. This failure to make significant progress toward harmonization/compatibility can be linked to limited agenda coordination and cooperation between the IASC and national standard setters. The research also reveals that significant periods of time, of as much as two decades or more, passed before the IASC and Anglo-American standard setters attained some form of consensus on agenda items initiated during the IASC's first two decades.

The IASC and Anglo-American standard setters entered the 1990s better equipped than in prior decades to engage in cooperative endeavors. By focusing on common themes in their conceptual frameworks and adopting a philosophy of harmonization via cooperation, the IASC and 04 have made considerable progress. Areas where the five standard setters have achieved consensus, or are close to achieving concurrence, include several projects initiated during the 1970s and 1980s. These projects include investments in associates, interim reporting, business combinations, joint ventures, deferred taxes, and pensions. In addition, projects launched by the G4+ l members during the 1990s have often produced compatible standards (or proposals) on a relatively timely basis. Examples include financial instruments, EPS, segment reporting, and comprehensive income. The research also reveals a few areas where consensus has not been achieved, such as accounting for the correction of errors, R&D, and interest capitalization.

Corporate Financial Disclosure in Emerging Markets: Does Economic Development Matter?
by Stephen B. Salter

Abstract: This paper breaks with previous research by concentrating on emerging market economies rather than developing countries. It tests the relationship between corporate financial disclosure and the sophistication of economies and capital markets within the context of the extant Cooke and Wallace (1990) model. It finds that, as posited in the model, firms in developed market economies have a significantly higher mean level of effective disclosure than those in emerging market economies. These differing levels of disclosure are modified by the importance of capital markets and a relatively low level of the uncertainty avoidance culture variable. The study also finds that the level of corporate disclosure is positively related to prior level of corporate financial disclosure regulation and is directly related to the ability to draw future foreign portfolio investment.

Ownership Effects on Audit-Detected Error Characteristics: An Empirical Study in an Emerging Economy
by Phyllis Mo and K. Hung Chan

Abstract: The presence of foreign subsidiaries and local companies, each playing a significant role in the local economy is a typical phenomenon in the business environment of emerging economies. The objective of this study is to extend the research concerning the relationship between environment at factors and error occurrence by examining the impact of organizational ownership (foreign subsidiaries in Hong Kong vs. local Chinese companies) on error characteristics. The second objective of this study is to examine the empirical characteristics of errors in an emerging economy, Hong Kong, with references to relevant U.S. studies. Hong Kong is part of the Chinese Economic Area, a Big Emerging Market identified by the U.S. Department of Commerce. In the past two decades, while there have been numerous empirical studies on error characteristics for US. audit data, there is a scarcity of such studies using non-U.S data. Due to differences in organizational culture, nature of business transactions as well as accounting practices, the error characteristics detected in audit populations in emerging economies may be significantly different from those discovered in the U.S. Results of this study should facilitate audit efficiency and effectiveness through improved audit risk assessment for each ownership type company and should also alert management of multinational corporations to incorporate the potential differences in error patterns in designing and implementing effective accounting controls for companies outside the US.

Differential Reporting in Singapore and Australia: A Small Business Managers' Perspective
by S. Mitchell Williams and Greg Tower

Abstract: This study examines societal values on two key issues of differential reporting, the preferred level of disclosure and perceived balance of costs relative to benefits of compliance. A theoretical framework developed by Gray (1988) is utilized. linking Hofstede’s (1980) societal values to issues in differential reporting and the accounting subcultural value of secrecy.

Interactive multiple regression analysis is used to ascertain the effect of power distance, uncertainty avoidance and individualism on the perceptions of the survey groups towards issues of differential reporting. Findings from this study indicated that the perceptions of small business managers in Singapore and Australia were consistent with prior literature. Uncertainty avoidance and to some extent power distance were found to have a significant effect on small business managers perceptions. This study indicates that the current association between societal values, accounting subcultural dimensions and accounting practice as depicted by Gray (1988) may have to be rearranged.

Colonialism and Accounting Education in Developing Countries: The Experience of Singapore and Sri Lanka
by Hema Wijewardena and Senarth Yapa

Abstract: This paper provides a comparative analysis of the nature of accounting education in Singapore and Sri Lanka. Both these countries were British colonies for nearly one hundred and fifty years and inherited their accounting education systems from the British. After fifty years of independence, Sri Lanka is still following the colonial system to produce its accountants. Singapore. however, moved away from the colonial system within four years of independence. This paper indicates that if a developing country continues to depend heavily on foreign education pro-grams and accounting bodies to produce accountants locally. the consequences can be less than desirable.


Japanese Accounting
Reviewed by Kyojiro Someya

Accounting Research in Lund
Reviewed by John Flower

Volume 33 Number 3 1998


National Culture and Subordinates' Upward Communication of Private Information
by Chee W. Chow, Richard Nen-Chen Hwang, Woody Liao and Anne Wu

Abstract: This study investigates the effects of national culture on the truthfulness with which sub-ordinates communicate upwards under alternate pay schemes. U.S. nationals and Chinese nationals in Taiwan were used to represent members of two cultures that significantly diverge on three cultural dimensions postulated to he relevant to this behavior: Confucian dynamism. Individualism/collectivism and a correlate of the latter: concern with face." The results of an experiment were consistent with the prediction that in the absence of face-to. face interactions with superiors. Chinese relative to U.S. nationals would make smaller misrepresentations of their private information. Also consistent with prediction based on concern with 'face", both national samples had lower levels of misrepresentations when there was face-to face interaction between superior and subordinate. However. contrary to prediction. U.S. nationals reacted more to such interactions than did their Chinese counterparts. Taken as a whole, these findings support the importance of national culture and attributes of the control setting on subordinates' communication truthfulness. At the same time, they suggest that how these factors affect employee behavior is more complex than hypothesized.

Earnings Management in Japanese Companies
by Masako N. Darrough, Hamid Pourjalali and Shahrokh Saudagaran

Abstract: This study examines choices of accounting, accruals using a large sample of Japanese companies, which operate in an environment that is generally regarded as being rather different from the United States. We find that debt-to-equity and asset hypotheses hold in the Japanese environment only for the years after the market crash of 1990. Prior to the crash, the number of employees seems to capture the political (or economic) pressure. Similar to their U.S. counter-parts, managers of Japanese companies chose income-increasing accounting accruals to increase their bonus and increase the amount of outside funding. The ownership effect was also observed on the choice of accounting accruals. Those companies that have higher degrees of ownerships by trust companies and stock brokers have incentives to choose income-increasing accruals to provide a more positive picture of the firm. Since this incentive does not exist for ownership by financial institutions, the opposite effect was observed. The effect of ownership by individual investors, management. or corporations on the choice of income-increasing accruals was opposite to that hypothesized in 1989. These opposite-to-expected effects were not present after the Japanese market crash. The stock market crash of 1990 appears to have had a profound effect on the choices of accounting accruals.

Effect of the Inconsistency in Accounting Standards on the Choice of Financial Instruments: The case of Debt Issued with Stock Purchase Warrants and Convertible Debt by Japanese Companies
by Akihiro Noguchi

Abstract: Accounting treatment for debt issued with stock purchase warrants in Japan was changed to record consideration for warrants and consideration for debt separately. As a result, accounting for convertible debts and debt with warrants became inconsistent, and the choice of financial instrument seems to be affected by that inconsistency. Some Japanese companies began to use covered warrants in the Euro market to repackage their convertible debt into debt with war-rants. This paper provides evidence which shows the necessity of consistent treatment for call options in convertibles and warrants.

New Forms of Assurance Services for New Forms of Information: The Global Challenge for Accounting Educators
by Gary L. Holstrum and James E. Hunton

Abstract: This paper explores recent initiatives to develop new assurance services that are being demanded for new types of information in the marketplace and the resulting global challenge to accounting educators. The paper develops a realistic scenario for new assurance services, identifies critical business performance areas for which new assurance services are demanded. discusses the work of the AICPA Special Committee on Assurance Services (Elliott Committee, 1994) and related international groups, and makes recommendations for actions by accounting educators. These recommendations parallel and enhance those of the American Accounting Association's Task Force on Future Audit, Attestation, and Assurance Services.

Accounting Income, Income Components and Market4o-Book Equity Ratios: Finnish Evidence
by Juha-Pekka Kallunki, Minna Martikainen and Teppo Martikainen

Abstract: This study provides new evidence on the relationship between various income-to-book and market-to-book equity ratios using Finnish data. Because of extremely wide earnings management possibilities that are tractable from 1~ublished financial statements, Finland provides a unique environment to lest the importance of income management in creating investors' cash flow expectations. The findings suggest that income statement items other than "bottom-line" earnings contain useful information when investors are creating cash flow expectations for Finnish firms. This holds especially for income components that can be regarded permanent. It also appears that the income management component of earnings has low value-relevance. This is the case also for extraordinary income/expenses, which can be regarded as transitory by nature. The findings of the study further suggest that in none of the various income levels investigated is negative accounting income significantly positively related to the market-to-book equity ratios. If income is positive, however, the positive relationship exists. These findings support the hypothesis that investors regard accounting losses as temporary, not reflecting future cash flow expectations. In general, the results of the study indicate that investors split accounting earnings into components and evaluate the value-relevancy of income statement items when creating cash flow expectations for firms.

Equity Returns: Local GAAP versus U.S. GAAP for Foreign Issuers from Developing Countries
by Norlin G. Rueschhoff and C. David Strupeck

Abstract: The number of foreign firms from developing countries with common stock listings on the New York and American Stock exchanges has been rapidly increasing. This provides motivation to study the accounting issues faced by foreign issuers from developing countries. Among the important reporting issues is the reconciliation between local GAAP and U.S. GAAP when foreign issuers apply the comprehensive body of accounting principles available in their own developing country for stockholder reporting in the United States. This study analyzes these reconciliation differences with particular attention to their effect on net income, stockholders' equity and equity returns. The findings highlight the fact that differences in accounting principles cause extreme variations in reported net income, stockholders' equity and equity returns for some developing country firms.


International Financial Reporting and Analysis: A Casebook
by Kenneth R. Ferris
Reviewed by Mark Lang

International Accounting and Finance Handbook
by Frederick D.S. Choi
Reviewed by Rolf Rundfelt

Accounting: An International Perspective
by Gerhard G. Mueller, Helen Gernon and Gary K. Meek
Reviewed by Thomas H. Beechy

The Development of Accounting in an International Context: A Festschrift in Honour of R. H. Parker
Edited by T. E. Cooke and C. W. Nobes
Reviewed by Richard Macve

Volume 33 Number 4 1998


The Difficulty of Achieving Economic Reality Through Foreign Currency Translation
by David A. Ziebart And Jong-Hag Choi

Abstract: The Financial Accounting Standards Board attempted to alleviate the problems with the reporting of foreign operations and foreign currency translation adjustments by issuing SFAS No. 52. This study examines the sign and magnitudes of the reporting errors that result under the best translation approach—current cost translated at the current exchange rate. Accordingly, a bench-mark is established regarding the "best" we will be able to accomplish when certain foreign currency market conditions exist. Unfortunately, the results demonstrate that a foreign currency translation that is economically interpretable is not easily achieved. To achieve economic interpretability, we suggest that supplemental information regarding current values, the timing of asset acquisitions, historical exchange rates at the time of the acquisitions, and the current exchange rates should be provided in financial statements or the accompanying footnotes.

"The values in the Ledger must be reckoned in one kind of money ducats, or lire, or Florence, or gold scud. . . you should always use the same kind of money...."

 Frater Lucas De Burgo Sancti Sepulchri, (1494, P.210):
Translation By Geijsbeek (1914).

Harmonization Of Foreign Currency Translation Practices: Canadian Treatment Of Long Term Monetary Items
by W. Rotenberg

Abstract: The harmonization of accounting practices requires that local practices be restricted. An example is the outstanding proposal to change the Canadian accounting treatment of foreign debt. Proposed d7anges include elimination of the deferral and amortization of translation adjustments: a uniquely Canadian accounting treatment that is now at odds with internationally accepted practices. The likely result will be greater recognition of translation adjustments in current earnings. This study is the first to examine the impact of the proposed changes on the reported leverage and profitability of Canadian companies. The impact is found to be significant.

Relationship Of Tax And Financial Accounting Rules In Anglo-Saxon Countries
by Thomas M. Porcano and Alfred V. Tran

Abstract: In this paper. we examine the relationship of tax rules and financial accounting rules in Anglo-Saxon countries In particular, we review the historical developments of the book-tax relationship in three Anglo-Saxon countries: the United States, the United Kingdom, and Australia. We identify the major sources of divergence between the two sets of rules in these countries, and briefly discuss the implications of an alignment of tax with financial accounting rules.

Managing Discretionary Accruals In Response To Reductions In Corporate Tax Rates In Canada, Malaysia And Singapore
by Raafat R. Roubi and A. William Richardson

Abstract: The accounting literature provides much evidence of incentives to manage earnings (Mealy 1985, Jones 1991, Moses 1987). Evidence on using discretionary current accruals as an earnings management tool to benefit from income tax rate changes in the USA is given in Guenther (1994). The present study provides empirical evidence on the management of discretionary current accruals by nonmanufacturing corporations in Canada, Malaysia and Singapore in response to changes in the statutory corporate income tax rates in these countries. It also tests competing hypotheses relating to managing discretionary current accruals, specifically the incentives provided by the positive accounting variables of political costs and debt covenants as proxied by firm size and firm leverage, respectively. Our analysis provides evidence on managing discretionary current accruals by companies in Canada and Singapore similar to that found by Guenther (1994) for the USA. The weaker Malaysian results can be attributed to cultural factors.

Profit Sharing And Corporate Performance: Some Evidence From Bangladesh
by Dhiman Chowdhury and Zahirul Hoque

Abstract: Despite the recent growth in profit sharing research in the Western World, little is known about the way profit sharing schemes are used in developing countries. This paper documents the incidence of profit sharing in a wide variety of Bangladeshi firms. In addition, consideration has been given whether Bangladeshi profit sharing schemes differ from those used in developed countries. Data has been collected from published annual reports, on-site semi-structured interviews and inspection of archival sources. Employee profit sharing is regulated by the Bangladesh Companies Profit (Workers' Participation) Act 1968 under which only S% of profit before tax is reserved for the employees. This legislation is not particularly restrictive, however, as it applies to only 6.2% of companies. Furthermore, incentive bonuses comprise only 4.5% of total remuneration. Although a profit sharing scheme has been introduced in some publicly quoted firms, it does not appear to serve as a dominant mode of increasing employee motivation and promoting commitment; it has been largely concerned with meeting the legal requirements of the government regulation. The use of profit sharing in privately owned (unlisted) firms is almost nonexistent. Quantitative analysis has revealed a positive association between pay and corporate financial performance where return on equity or market return on shares explain less than 2% of the variations in employee remuneration.

Internationalizing Accounting Education Through An Integration Approach: A Survey of U.S. Schools
by Rasoul H. Tondkar, Mary A. Flanigan, Ajay Adhikari and Judith A. Hora

Abstract: The integration of international accounting topics throughout the curriculum (integration approach) is often recommended ax the most preferred/desired method of internationalizing the accounting curriculum. This study presents the results of survey research on the extent of integration, use of instructional resources, and perceived incentives and obstacles to internationalizing accounting curricula through the integration approach in US. schools. Additionally, the paper suggests methods and instructional resources that can be used to add an international dimension into the accounting curriculum through an integration approach.

The findings reveal that the integration approach of internationalization is used more frequently in undergraduate programs (61%) compared to graduate programs (S2%). Financial accounting is the most frequently integrated, and auditing and taxation are the least frequently integrated areas for both undergraduate and graduate programs. The integrated lecture is the most popular method of integrating international topics into accounting courses, although other instructional resource materials such as foreign annual reports. assigned articles, and cases are also used. The findings of this study should benefit faculty currently involved in international accounting education as well as those planning on internationalizing their program in the future.

Book Reviews:

The Nature And Determinants Of Disclosure Adequacy: An International Perspective
by Ahmed Riahi-Belkaoui
Reviewed by Bikki Jaggi

Comparative Studies In Accounting Regulation In Europe
Edited By John Flower and Chris Lefebvre
Reviewed by Hervé Stolowy

The Regulation Of Financial Reporting In The Nordic Countries
by John Flower
Reviewed by Kristina Artsberg

The Iasc-U.S. Comparison Project: A Report On The Similarities And Differences Between Iasc Standards And U.S. Gaap
Edited By Carrie Bloomer
Reviewed By Allister Wilson

Accounting In Transition: The Implications Of Political And Economic Reform In Central Europe
Edited By Neil Garrod And Stuart Mcleay
Reviewed By David Alexander

Volume 33 Number 5 1998


Accounting Diversity and Firm Valuation
by Raymond D. King and John Christian Langli

Abstract: We examine accounting numbers and stock prices across three countries: Germany. Norway, and the United Kingdom (UK). The accounting systems in the three countries differ in faithfulness to clean surplus accounting and in conservatism. We address three questions. First, are there systematic differences across countries in the value relevance of accounting? Second. are there systematic differences in the incremental and relative value relevance of book values and earnings per share (EPS) across the countries? Third, do future earnings realizations (proxies for expected earnings) explain current stock prices? We find that accounting book value and EPS are significantly related to current stock prices across all three countries. German accounting numbers have the lowest relation with stock prices (~ 40%) and UK accounting numbers the highest (R2;= 70%), while Norwegian accounting numbers are in between (R2 60%). Second, the incremental and relative explanatory power of book value and of EPS differs across time and across countries Book values explain more than earnings in Germany and Norway, but less in the UK Finally, future income realizations explain little about market prices not already explained by current book value and EPS.

Budgeting And Standard Costing Practices In New Zealand and the United Kingdom
by Chris Guilding, Dawne Lamminmaki and Colin Drury

Abstract: The findings of a survey of budgeting and standard costing practices in New Zealand (NZ) and United Kingdom (UK) manufacturers are reported. The results suggest that some commentators 'predictions of a demise in standard costing and variance analysis are overstated. It has been found that standard costing systems continue to be popular and that the majority of accountants surveyed do not envisage abandonment of standard costing and variance analysis in advanced manufacturing technology environments. Comparisons between budgeting and standard costing practices used in NZ and the UK reveal a high degree of consistency. In the case of the few differences that have been observed, it appears that there is a greater lag behind prescribed practice amongst NZ manufacturers. The main differences noted are: a greater proportion of performance reports used in NZ budget centers fail to distinguish between controllable and non-controllable costs; NZ manufacturers are more reliant on historic data when setting standard costs; when distinguishing between variable and fixed costs, there is a greater tendency in NZ to simply treat direct costs as variable and overhead costs as fixed.

Relevance of U.S. Gaap For Japanese Companies
by Joseph H. Godwin, Stephen R. Goldberg, and Edward B. Douthett

Abstract: We use differences in U.S. -GAAP and Japanese-GAAP accounting measures to evaluate the value-relevance of U. S.-GAAP reports. We show data provided in US.-GAAP financial statements of Japanese firms is value-relevant beyond that contained in domestic-GAAP statements. Our results complement extant research and support the proposition that U.S. reporting methods provide value-relevant data. Understanding the value-relevance of data from Japanese firms is Important in its own right because of the major role these firms play in international markets. We also provide evidence on significant transnational firms that voluntarily provide U. S.-GAAP statements.

The Impact Of Corporate Attributes On The Extent Of Mandatory Disclosure And Reporting By Listed Companies In Zimbabwe
by Stephen Owusu-Ansah

Abstract: This article reports the results of an empirical investigation of the degree of influence of eight corporate attributes on the extent of mandatory disclosure and reporting of49 listed companies in Zimbabwe. Using a disclosure index which consisted of 214 mandated information items, the extent of mandatory disclosure by each sample company was quantified, and was used with other data specific to each sample company to test the relational hypotheses. Although several alternative specifications of multivariate regression models were developed and estimated, only the results of a robust regression analysis which indicated that company size, ownership structure, company age, multinational corporation affiliation, and profitability have statistically significant positive effect on mandatory disclosure and reporting practices of the sample companies were reported. The quality of external audit. industry-type and liquidity were statistically insignificant.

The State Of Accounting In Armenia: A Case
by Robert Bloom, Jayne Fuglister, And Mark Myring

Abstract: Armenia is a third-world country with a marginal economy and no capital markets to speak of. The government is bureaucratic. Corruption is widespread and secrecy has long been a tradition in business. Accounting is cash-based and oriented to the stewardship needs of the government There is no tradition of accounting for management decision making, much less accounting for external, non-government users. Education for accounting has essentially been in technical bookkeeping. Armenia has been attempting to privatize its economy but in order to do so it needs to restructure its accounting system.


The French Plan Comptable: Explanation and Translation
by Peter Standish
Reviewed by Bernard Raffournier

International Accounting Standards: Deutsche Fassung
Edited by the International Accounting Standards Committee

Rechnungslegung nach International Accounting Standards
by Jörg Baetge, Dietrich Dörner, Heinz Kleekämper and Peter Wollmert
Reviewed by John Flower

Management Accounting: European Perspectives
by Alnoor Bhimani, (Ed.)
Reviewed by Robin Cooper

International Accounting
by Peter Walter, Axel Hailer and Bernard Raffournier, (Eds.)
Reviewed by Carol A. Adams

International Accounting: A Global Perspective
by M. Zafar Iqbal Trini U. Melcher and Amin A. EImallah
Reviewed by Jill Mckinnon

Contemporary Accounting Issues in China-An Analytical Approach
by Lin Kin Cheung and Zhang Wei Guo
Reviewed by Amy Hing-Ling Lau


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Last updated 08/06/03