The Routledge Companion to Financial Accounting Theory

559 Pages·2015·3.19 MB·English

by  Stewart Jones

The Routledge Companion to
Financial Accounting Theory
Financial accounting theory has numerous practical applications and policy implications.
For instance, international accounting standard setters are increasingly relying on theoretical
accounting concepts in the creation of new standards, and corporate regulators are increasingly
turning to various conceptual frameworks of accounting to guide regulation and the interpreta-
tion of accounting practices.
The global financial crisis has also led to a new-found appreciation of the social, economic
and political importance of accounting concepts in general and corporate financial reporting in
particular. The fundamentals of capital market theory (i.e. market efficiency) and measurement
theory (i.e. fair value), for example, have received widespread public and regulatory attention.
This comprehensive, authoritative volume contains the current scholarship and practice in
the established field of financial accounting theory. It is a prestige reference work and a valuable
resource for students, academics, regulators and practitioners.
Stewart Jones is Professor of Accounting at the University of Sydney, Australia. He is co-author
of the bestselling textbook Financial Accounting Theory, Third Edition (2009, Cengage) and edits
the prestigious accounting journal Abacus.
Routledge Companions in Business,
Management and Accounting
Routledge Companions in Business, Management and Accounting are prestige reference works
providing an overview of a whole subject area or sub-discipline. These books survey the state of
the discipline, including emerging and cutting-edge areas. Providing a comprehensive, up-to-
date, definitive work of reference, each Routledge Companions can be cited as an authoritative
source on the subject.
A key aspect of these Routledge Companions is their international scope and relevance.
Edited by an array of highly regarded scholars, these volumes also benefit from teams of con-
tributors which reflect an international range of perspectives.
Individually, Routledge Companions in Business, Management and Accounting provide
an impactful one-stop-shop resource for each theme covered. Collectively, they represent
a comprehensive learning and research resource for researchers, postgraduate students and
practitioners.
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The Routledge Companion to Auditing
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The Routledge Companion to Non-Market Strategy
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The Routledge Companion to Financial Accounting Theory
Edited by Stewart Jones
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The Routledge
Companion to Financial
Accounting Theory
Edited by Stewart Jones
First published 2015
by Routledge
2 Park Square, Milton Park, Abingdon, Oxon OX14 4RN
Simultaneously published in the USA and Canada
by Routledge
711 Third Avenue, New York, NY 10017
Routledge is an imprint of the Taylor & Francis Group, an informa business
© 2015 Stewart Jones
The right of the editor to be identified as the author of the editorial material, and of the
authors for their individual chapters, has been asserted in accordance with sections 77
and 78 of the Copyright, Designs and Patents Act 1988.
All rights reserved. No part of this book may be reprinted or reproduced or utilised in
any form or by any electronic, mechanical, or other means, now known or hereafter
invented, including photocopying and recording, or in any information storage or
retrieval system, without permission in writing from the publishers.
Trademark notice: Product or corporate names may be trademarks or registered trademarks,
and are used only for identification and explanation without intent to infringe.
British Library Cataloguing in Publication Data
A catalogue record for this book is available from the British Library
Library of Congress Cataloging in Publication Data
The Routledge companion to financial accounting theory / edited by Stewart Jones. —
1 Edition.
pages cm. — (Routledge companions in business, management and accounting)
Includes bibliographical references and index.
1. Accounting. I. Jones, Stewart, 1964- editor.
HF5636.R684 2015
657.01—dc23
2014038304
ISBN: 978-0-415-66028-0 (hbk)
ISBN: 978-0-203-07425-1 (ebk)
Typeset in Bembo
by Swales & Willis Ltd, Exeter, Devon, UK
Contents
List of figures ix
List of tables x
Contributors xii
1 Development of financial accounting theory 1
Stewart Jones
2 History of financial accounting theory in Britain 12
John Richard Edwards
3 Financial accounting and reporting in the United States of America –
1820 to 2010: Toward sunshine from shadows 39
Gary J. Previts and Dale L. Flesher
4 Evolution of early practice descriptive theory in accounting 91
Stewart Jones and Max Aiken
5 Accounting and the decision usefulness framework 110
Thomas A. Lee
6 Price variation and inflation accounting research 129
R.J. Chambers
7 Standard setting, politics and change management:
a personal perspective 147
Sir David Tweedie
8 International differences in IFRS adoptions and IFRS practices 167
Christopher Nobes
vii
Contents
9 Fair value and the great financial crisis 197
Amir Amel-Zadeh and Geoff Meeks
10 Fair value and IFRS 217
Geoffrey Whittington
11 Valuation models: An issue of accounting theory 236
Stephen H. Penman
12 Earnings management: Implications and controversies 254
Joshua Ronen and Varda Yaari
13 Agency theory: Usefulness and implications for financial accounting 341
Alfred Wagenhofer
14 Disclosure and the cost of capital: A survey of the theoretical
literature 366
Jeremy Bertomeu and Edwige Cheynel
15 A Bayesian understanding of information uncertainty and the
cost of capital 396
D. J. Johnstone
16 Controlling for risk in accounting research 423
Nuno Soares and Andrew W. Stark
17 Financial measurement and financial markets 438
Mike Dempsey and Stewart Jones
18 Social theorisation of accounting: Challenges to positive research 452
Trevor Hopper, Junaid Ashraf, Shahzad Uddin and
Danture Wickramasinghe
19 True and fair: A business ethos ‘par excellence’ 472
Frank Clarke and Graeme Dean
20 Accounting for the carbon challenge 492
Janek Ratnatunga and Stewart Jones
21 Corporate sustainability reporting: Theory and practice 514
Geoff Frost and Stewart Jones
Index 536
viii
Figures
8.1 Methods of implementing IFRS (for consolidated statements of listed
companies) 169
8.2 A suggested classification of accounting ‘systems’ in some developed
Western countries in 1980 183
9.1 Bank holding company assets measured at fair value and assets measured
at cost in absolute terms and as a fraction of total bank assets 200
9.2 Trading assets and mortgage-backed securities held as a proportion of
trading assets of large bank holding companies (with total assets
greater than US$ 100 billion) 201
9.3 Quarterly asset growth vs. leverage growth 1980–2008 309
12.1 Smoothing versus truth-telling 264
12.2 The distribution of net income scaled by market value 265
12.3 The reporting strategy of a short-run MBT firm 290
12.4 The reporting strategy of a long-run MBT firm 291
13.1 Agency problems from financing 343
14.1 Manufacturing in Ohio (period 1850–1860) 367
14.2 Cost of capital in the railway industry (1920–1926) 368
14.3 Effect of information on the risk premium 372
15.1 Stochastic process generating asset value and signal with probabilities
conditioned on the market state 401
15.2 Contour plot of posterior probability as a function of signal
error characteristics 403
15.3 Contour plot of posterior covariance as a function of signal
error characteristics 404
15.4 Contour plot of posterior asset price as a function of signal
error characteristics 405
15.5 Contour plot of posterior expected return as a function of signal
error characteristics 406
ix