Preface vii About the authors ix How to use this book x Acknowledgements xii CHAPTER 1 Contemporary issues in accounting 1 Accounting theory 5 Why theory is needed 6 Types of theories 8 Evaluating and testing theories 11 Understanding the role of research 12 Research areas in accounting 14 Overview of chapters in this text 15 Summary 19 Review questions 20 Additional readings 20 End notes 21 CHAPTER 2 The Conceptual Framework for Financial Reporting 23 The role of a conceptual framework 25 History and evolution of the Conceptual Framework 27 The structure and components of the Conceptual Framework 28 Purpose, objective and underlying assumption of the Conceptual Framework 31 Qualitative characteristics of useful financial information 35 The elements of fi nancial statements 38 The benefits of a conceptual framework 41 Problems with and criticisms of the Conceptual Framework 44 Summary 48 Review questions 49 Application questions 50 Additional readings and websites 58 End notes 59 CHAPTER 3 Standard setting 61 Institutional framework 63 Accounting standards 65 Rules-based versus principles-based standards 66 Theories of regulation 69 Theory and accounting regulation research 74 The political nature of setting accounting standards 74 Harmonisation 78 Summary 80 Review questions 81 Application questions 82 Additional readings 85 End notes 86 CHAPTER 4 Measurement 89 Measurement in accounting 91 Measurement approaches and the accounting standards 93 Measurement and the quality of accounting information 104 Fair value 109 Stakeholders and the political nature of accounting measurement 111 Why measurement is a controversial accounting issue 116 Current measurement challenges 117 Summary 122 Review questions 123 Application questions 124 Additional readings 129 End notes 129 CHAPTER 5 Theories in accounting 131 What value does theory offer? 133 Types of theories 134 Positive accounting theory 134 Institutional theory 141 Legitimacy theory 142 Stakeholder theory 145 Contingency theory 147 Using theories to understand accounting decisions 147 Summary 150 Review questions 152 Application questions 153 Additional readings 155 End notes 155 CHAPTER 6 Products of the nancial reporting process 159 Identifi cation of the reporting entity 161 When information is reported 162 Manipulation of reported earnings 163 Exclusion of activities from the fi nancial reporting process 166 Voluntary disclosures 168 Why entities voluntarily disclose 174 Summary 177 Review questions 178 Application questions 179 Additional readings 182 End notes 183 CHAPTER 7 Corporate governance 185 The interest in corporate governance 187 What is corporate governance? 188 The need for corporate governance systems 189 Corporate governance guidelines and practices 191 Approaches to corporate governance 196 Developments and issues in corporate governance 198 Role of accounting and fi nancial reporting in corporate governance 202 The role of ethics 206 International perspectives and developments 209 Summary 211 Review questions 212 Application questions 213 Additional readings 219 End notes 220 CHAPTER 8 Capital market research and accounting 223 Capital market research and accounting 225 Research methods: event studies and value relevance 229 What the information perspective studies tell us 229 Do auditors or intermediaries add value to accounting information? 232 Value relevance 233 What value relevance studies tell us 235 The effi ciency of capital markets 237 Behavioural finance 239 Summary 244 Review questions 245 Application questions 246 Additional readings 251 End notes 251 CHAPTER 9 Earnings management 255 The importance of earnings 257 What is earnings management? 257 Methods of earnings management 258 Why do entities manage earnings? 261 Consequences of earnings management 266 Corporate governance and earnings management 266 Summary 268 Review questions 270 Application questions 270 Additional readings 272 End notes 272 CHAPTER 10 Fair value accounting 275 The role of fair value in accounting 277 The traditional defi nition 278 AASB 13/IFRS 13 Fair Value Measurement 279 Fair values are specifi c, what factors should be considered? 284 Fair value techniques 289 Disclosures 296 Specific issues 303 Summary 305 Review questions 306 Application questions 307 Additional readings 310 End notes 311 CHAPTER 11 Sustainability and environmental accounting 313 What is sustainability? 315 Sustainability reporting 317 Guidelines for sustainability reporting 320 Stakeholder infl uences 325 Environmental management systems 328 Climate change and accounting 329 Summary 333 Review questions 334 Application questions 335 Additional readings 337 End notes 338 CHAPTER 12 International accounting 341 Defi nition of international accounting 343 Diversity of international accounting practice 344 Environmental infl uences on accounting 344 International adoption of IFRSs 348 FASB and IASB convergence 354 Multinational organisations 355 Summary 357 Review questions 358 Application questions 358 Additional readings 360 End notes 361 CHAPTER 13 Corporate failure 363 What is corporate failure? 365 Causes of corporate failure 366 Costs of failure 367 Predicting corporate failure 367 Indicators of corporate failure 368 Corporate governance issues 369 Regulation and political responses to corporate failure 370 The anatomy of a corporate failure 371 A case study: the global fi nancial crisis 373 Summary 376 Review questions 378 Application questions 379 Additional rea dings 380 End notes 381 CHAPTER 14 Special reporting issues 383 Background 385 What expenditures should be capitalised? 386 Do intangibles pass the defi nition and recognition tests? 388 Implications of non-recognition of intangibles 392 Do heritage assets pass the defi nition and recognition tests? 394 Implications of recognition of heritage assets 399 Summary 401 Review questions 403 Application questions 403 Additional readings 409 End notes 409 List of key terms 412 Index 418
Michaela Rankin, PhD (RMIT), MEc (UNE), GradCertHE (Monash),BBus(Hons) (USQ), CPA, is a senior lecturer in the Department ofAccounting and Finance at Monash University, Melbourne. Prior tojoining Monash, Michaela held positions at both RMIT University andthe University of Southern Queensland, where she was awarded theInstitute of Chartered Accountants in Australia Award for TeachingExcellence in 1998. She teaches fi nancial accounting andaccounting theory at both undergraduate and postgraduate levels.Michaela has a broad range of research interests includingfinancial reporting and governance, executive compensation, theregulation and practice of sustainability reporting, carbonemissions disclosure, and accounting education. She has publishedwidely in international journals including Accounting, Auditing & Accountability Journal, British AccountingReview, Accounting & Finance, Higher Education Researchand Development and Australian Accounting Review. Patricia Stanton, PhD (Newcastle), BComm(Hons 1)(Newcastle), BA (Sydney) and DipEd (Sydney), is a senior lecturerin financial accounting at the University of Newcastle. She haspublished widely in international journals such as Accounting,Auditing & Accountability Journal, AustralianAccounting Review, Corporate Communications: AnInternational Journal and Accounting History. Two of herpapers have won international best paper awards. Her currentresearch interests are focused on the value of current reportingpractices, and the implications of corporate failure for theaccounting profession. Susan McGowan, BAcc (SAIT), MCom (UniSA), andGradCertEd(HigherEd) (QUT), is currently a senior lecturer in theSchool of Commerce at the University of South Australia. Herresearch interests focus on accounting education and internationalaccounting. Kimberly Ferlauto, BComAcctg (UWS), MComAcctg (UWS), CPA,is an associate lecturer in accounting at the University of WesternSydney. She has been teaching accounting theory for many years atboth an undergraduate and postgraduate level. Her focus whenteaching theory is on understanding why we do what we do asaccountants and application of accounting theory to current realworld events. Other teaching interests include entrepreneurship andsmall business, accounting information systems and financialplanning. Kimberly s main research interests includeaccounting measurement and social and environmental accounting. Matthew Tilling, BCom (Flinders), is a senior lecturer inAccounting at the University of Notre Dame, Australia. He hastaught a range of accounting topics to both undergraduates andpostgraduates in over a decade of university teaching, with aprimary focus on issues affecting large corporations. This academicfocus has been complemented with the provision of extensiveconsulting and training services to a range of professional andcorporate entities on a wide range of current accounting problems.He has also been involved with syllabus and exam design for highschool accounting in Western Australia. Matthew has publishedarticles on accounting education and social and environmentalaccounting in a range of international journals.