China Science » Business, Management and Accounting

Customer Profitability Analysis Reports for Resource Allocation:The Role of Complex Marketing Environments

admin — Mon, 23 Jun 2008 01:08:51 +0000

Most decision making research in management accounting remains focused on cost information in a production context. Little is known on the relevance of customer profifitability analysis (CuPA) reports, which more accurately reflect revenue and marketing support variations acrosscustomers, for marketing decisions. This study uses an experimental design to examine the impact of such reports on resource allocation decisions (that affect the firm’s profits) in marketing environments varying in complexity. The main result of the experiment suggests that the value of CuPA reports depends on the complexity of the marketing setting. Only in a highly complex marketing setting do they enhance resource allocation decisions and resultant firm profitability. Conversely, in the simple marketing environment, decision makers can combine their traditional volume-based cost data with other available types of feedback to perform as well as under a more accurate CuPA report. These findings on complexity contrast with those of a prior study in a production context ( Gupta and King, 1997). It is argued that improvements in the current research design, in the form of regularly updated profitability reports and concerning accuracy, increase the relevance of CuPA reports in a complex marketing setting.

EDDY CARDINAELS　FILIP ROODHOOFT　LUK WARLOP

Corporate Lobbying on Accounting Standards:Methods, Timing and Perceived Effectiveness

admin — Mon, 23 Jun 2008 01:05:47 +0000

There is a long-standing concern in the literature about the potential importance of non-observable forms of lobbying that may be used by corporate managers to influence accounting standard setting bodies. To date, however, no study has documented their nature or their volume. This study provides such evidence in the context of the U.K.’s Accounting Standards Board (ASB) standard setting process for the period 1991-96. It also provides evidence with respect to the timing at which lobbying activity takes place and its perceived effectiveness by corporate managers. The findings suggest that companies use a variety of lobbying methods, including appeals to their auditors and private meetings with ASB members and staff. Importantly, however, the use of these methods is significantly associated with the use of comment letters; companies which submit comment letters are much more likely to use other methods than companies which do not. Other findings suggest that more companies lobby during the stages of the ASB process at which public consultation takes place (e.g., exposure period of a discussion paper) than at the earlier stages of the process (e.g., agenda formation) which are considered in the literature as the stages at which lobbying can be most effective. With respect to the perceived effectiveness of lobbying, companies which lobbied the ASB considered lobbying to be more effective than companies which did not.

GEORGE GEORGIOU

Political Influence and Coexistence of a Uniform Accounting System and Accounting Standards: Recent Developments in China

admin — Mon, 23 Jun 2008 01:02:24 +0000

This article investigates the role of political influence, as well as accounting tradition and the equity market, in China’s recent changes in accounting regulation. We find that the Chinese government, in part self-motivated and in part under external pressure, has been active in developing accounting standards in harmony with international accounting standards. However, it has retained a uniform accounting system in the Enterprise Accounting System issued in 2000 to accommodate the special circumstances of a transforming government, strong state-ownership, a weak accounting profession, a weak and imperfect equity market, and the inertial effect of accounting tradition and cultural factors. This article also contributes to existing models of accounting system classification by illustrating the need for considering political influence as a factor that affects the rate of transition towards full implementation of international accounting standards.

JASON ZEZHONG XIAO　PAULINE WEETMAN　MANLI SUN

Gaps in Guidelines on Audit Committees

admin — Mon, 23 Jun 2008 00:57:21 +0000

Since the 1940s, advocacy of the establishment of audit committees was undertaken by regulatory agencies, and subsequently by the accounting profession, and committees representing combinations of interest groups. Over time, this advocacy literature has reflected changing views about the key responsibilities of audit committees. Initially, audit committees were primarily concerned with negotiations with (or responding to) auditors, and reviewing financial statements prior to publication. Since the 1970s, formal guidelines or requirements have suggested additional responsibilities that involve oversight of the internal management of corporations. There is a pattern of renewed enthusiasm for enhanced corporate governance and for a stronger role for audit committees following spates of corporate crashes or disasters. Nevertheless, some of the lessons from those events continue to be ignored, so that arguably there are gaps in contemporary guidelines on audit committees. These gaps concern the need for audit committees to review the structure and design of delegations, and the adequacy of financial and operational information being provided to senior management and boards (particularly concerning subsidiaries and associated entities). These gaps are also reflected in the charters of the audit committees of Australia’s top 200 listed entities. However, in some respects, Australian practice has gone beyond the recommendations embodied in recent guidelines. Drawing from literature and practice, this article proposes a model charter which, if adopted, may contribute to improvements in the effectiveness of audit committees.

Gaps in Guidelines on Audit Committees

Applying Conceptual Framework Principles to Superannuation Fund Accounting

admin — Mon, 23 Jun 2008 00:52:50 +0000

The Australian accounting standard AAS 25, Financial Reporting by Superannuation Plans, was the first pension accounting standard internationally to apply established conceptual framework (CF) principles. In Australia those principles have guided standard setting for more than a decade. However, AAS 25 has been criticized for failing to provide useful financial information. The analysis provided in this article addresses this paradox. The findings reveal major anomalies in AAS 25 associated with the treatment of accrued benefits that distort financial position and performance measures. The conceptual flaws in the standard are attributed to the misapplication of CF principles and an absence of adequate guidance in the CF for non-corporate entities such as superannuation funds. Distorted financial information produced by superannuation plans has potential undesirable taxation and social outcomes. Consequently, there is an urgent need to update the Australian and international conceptual frameworks to provide guidance for revising accounting standards that better reflect current fiduciary and ownership relationships in non-corporate entities such as superannuation funds.

Gerry Gallery　Natalie Gallery

Judgment and Decision Making in Project Continuation: A Study of Students as Surrogates for Experienced Managers

admin — Mon, 23 Jun 2008 00:51:20 +0000

This work explores the efficacy of using students as surrogates for experienced managers in escalation studies. Participants were 222 managers with substantial project planning and evaluation experience and 146 undergraduate business students. Our results show that the experienced managers exhibited a strong tendency to continue projects, with this tendency being positively related to the degree of project completion. The managers also tended to invest a greater amount of additional resources in response to favourable rather than to unfavourable information, contingent on the degree of project completion. In contrast, the students’ decisions showed little sensitivity to the contextual information, and they exhibited no association between the likelihood they would continue a project and how much funding they would allocate to the project. These results suggest that caution is needed in generalizing student-based escalation findings to real-world business settings.

C. Janie Chang　Joanna L. Y. Ho

The Impact of the Type of Accounting Standards on Preparers’ Judgments

admin — Mon, 23 Jun 2008 00:49:28 +0000

This article examines preparers’ consolidation judgments and how they are impacted by the precision of accounting standards (substance-over-form versus rules-based). The examination is performed via two laboratory experiments in a consolidated accounting setting. In Experiment 1 it was found that when subjects used a substance-over-form accounting standard they justified their consolidation judgments on case specific information rather than on different interpretations of the phrase ‘capacity to control’. In Experiment 2 it was found that when subjects used a rules-based standard, incentives were found to impact on accountants’ consolidation judgments and more aggressive judgments were made through their assessments of case specific information. Comparison of the judgments made in Experiment 1 with one of the treatment groups in Experiment 2 enabled a comparison to be made of consolidation judgments of subjects under both substance-over-form and rules-based accounting standards. While both groups had the same incentive not to consolidate, marginally significantly more subjects using the rules-based standard did not consolidate than subjects using the substance-over-form standard. This finding is contrary to anecdotal claims that the imprecision of substance-over-form standards may be less effective in stopping biased financial reporting than rules-based standards.

Jim Psaros　Ken T. Trotman

The Profits of the Dutch East India Company’s Japan Trade

admin — Mon, 23 Jun 2008 00:47:37 +0000

This article analyses the eighteenth-century accounting practices of the Japanese trading station or factory of the Dutch East India Company (Vereenigde Oost-Indische Compagnie or VOC). The factory’s trade and its reported profits declined during the eighteenth century, but because of the complexity of the accounting issues involved, contemporaries held different views on whether the accounting data supported a continuation of the factory’s operations. For similar reasons, some historians have argued that the maintenance of the factory in the face of declining profits illustrates the poor quality of the VOC’s management, while others have argued in favour of the economic viability of the factory. The purpose of this article is to a more comprehensive analysis of the accounting issues facing the Japanese factory present in the eighteenth century than offered to date, in order to propose a way in which the accounting records may be approached as a source of data for historical research. :The conclusions are twofold. First, there were three main accounting issues facing the factory that should be considered when interpreting the accounting records. These issues can be summarized as transfer pricing, currency translation and overhead allocation. While all these issues have been recognized in the literature at some stage, they have never been considered in combination. Second, we tentatively conclude that if the recorded accounting figures are adjusted as proposed, they support the view that keeping the factory open was a correct decision from a commercial point of view.

Kees Camfferman　Terence E. Cooke

Stock Price Response to News of Securities Fraud Litigation:An Analysis of Sequential and Conditional Information

admin — Mon, 23 Jun 2008 00:46:00 +0000

This study examines investor response to three events that help define a federal class action securities lawsuit, specifically, the announcement that names an issuer as a defendant in the lawsuit (at the class action filing date), the disclosure or accounting restatement that ‘corrects’ the information deficiency (at the end of the class period), and the date at which the fraud on the market allegedly begins (at the beginning of the class period). We document a significant and predictable stock price response at each of these three events. Our tests also indicate that the market interprets these events not in isolation but as sequential and conditional events. Investor response differs on the basis of the characteristics of the issuer, the allegations in the complaint, and the outcome of the litigation. These results and the fact that we observe no systematic price momentum in investor response beyond the announcement dates imply that the market is reasonably efficient with respect to information about securities fraud litigation. Our results are robust to alternative definitions and procedures, and are based on a proprietary database that includes almost all federal securities class action lawsuits since 1990.

Paul A. Griffin　Joseph A. Grundfest　Michael A. Perino

Modern Costing Innovations and Legitimation: A Health Care Study

admin — Mon, 23 Jun 2008 00:43:47 +0000

This article is a study of the introduction of a modern costing technology – activity based costing (ABC) – into a health care organization which is undergoing change. The transformation of this organization is of particular interest as it focused on the experience of a service which had always existed by collecting blood, which is given as a free donation (the gift), and which is then converted into a variety of health care products. Typically, accounting innovations in the U.K.’s National Health Service are at the behest of central government: In this case, the adoption of ABC is on the initiative of the health care organization itself. The attractiveness of the specific costing approach from the perspective of the management of this health care organization is as an ingredient in legitimation – the portrayal of this entity as a ‘complete organization’.

Michela Arnaboldi　Irvine Lapsley