The intellectual capital concept emerged in the middle 1990s and quickly led to a significant corpus of literature that spanned a wide range of disciplines. Accounting was, therefore, only one of many sites of intellectual capital research and scholarship. While conscious of one's own disciplinary biases, it is not an exaggeration to claim that accounting was the site for a good deal of exciting and challenging work for a number of years. It is no surprise, therefore, to read in the editors' preface that this collection of essays was conceived in 2004, by which time many of the most enduring contributions to the accounting literature on intellectual capital had been published, a number of which bear the name of some of the contributors to this volume.

The field and resultant literature have continued to expand since that time, but it would be an exaggeration to claim that it is currently as dynamic as it had previously been. The present collection might, therefore, be seen as an acknowledgment of a plateauing of the intellectual capital field, with the editors themselves identifying the collection as being concerned with “the future of intellectual capital” (p. xi). With the benefit of hindsight, it is possible to argue that this collection constitutes an attempt to re-theorize intellectual capital in order to ensure that the concept and the field's continued development might be rather more robust than hitherto. As the current editor of a specialist journal that publishes accounting-oriented intellectual capital research, I believe there is a discernible increase in submissions of a more theoretical nature of late, something that might be seen as vindication of the editors' decision to approach a number of those closely associated with the development of the intellectual capital movement in Europe to “revisit” the concept.

Before outlining the contents of the volume, a further set of preliminary observations seems apposite. Readers may wish to access the American Accounting Association's Digital Library, where they may not be as surprised as I was to learn of an impressive paucity of papers on intellectual capital included there. On reflection, this is perhaps not quite so surprising, for while most of the early seminal contributions to the accounting-oriented intellectual capital literature emanated from Europe, and Scandinavia in particular, much of the current interest is attributable to Australia and researchers working in Bangladesh, Hong Kong, Malaysia, Sri Lanka, Taiwan, etc. Lev's (2001) work on accounting for intangibles is often, correctly, bracketed with that of Edvinsson, Sveiby, and Mouritsen, together with Low's (2000) Value Creation Index methodology, developed at Cap Gemini around the same time. Beyond this, the field is extremely thin. As a consequence, the volume under review is in the enviable position of being able to make an admittedly late contribution to enthusing North American colleagues about intellectual capital.

In the first chapter, the editors provide a concise overview of the previous decade of developments in the intellectual capital field and in which they identify this collection of essays as a contribution to a third generation of intellectual capital literature. It is followed by Johanson and Henningsson's fascinating and insightful story about the emergence of the intellectual capital concept in the middle 1990s. Johanson had long been associated with the project of accounting for people, having been heavily instrumental in the development of the human resource costing and accounting approach in association with colleagues at Stockholm Business School. This approach sought to extend Flamholtz's own human resource accounting approach, which had commanded significant attention in the 1970s, but had long since fallen from favor. The principal link between intellectual capital and human resource costing and accounting is via human capital, identified as one of the three components of intellectual capital. Given the desire of the OECD to identify some means of accounting for intellectual capital, over a two-year period (1996–1997), Johanson argued the merits of an approach that was informed by the increasing success of human resource costing and accounting, which was (and remains) largely confined to Scandinavia. Johanson and Henningsson's story is that the OECD was consistently strongly in favor of the use of an approach more akin to that exemplified by the balanced scorecard. This was a radical departure from the traditional accounting approach of deriving hard-number financial valuations that could readily be accommodated within financial statements, an approach commended at the time by Lev. The outcome of these deliberations was that the general form of accounting for intellectual capital was some form of scoreboard, possibly complemented by varying degrees of narrative.

Three of the remaining eight chapters explore how the continued development of the intellectual capital field might be well served by combining insights from other management disciplines with those of accounting. This reaffirms the founding belief that intellectual capital is a multidisciplinary concept that lends itself to a good measure of interdisciplinary thinking. In Chapter 4, Bjurström and Roberts approach this task from the knowledge management discipline. Knowledge management is a relatively new discipline that predates intellectual capital by a couple of years. Insights from knowledge management were particularly influential in the formulation of the Danish intellectual capital statement approach to intellectual capital reporting, arguably still the most attractive option developed to date. Bjurström and Roberts' specific focus is on the knowledge production process, which they argue to be quite different to traditional production processes. In knowledge production, all three components of intellectual capital are invariably enrolled, as a result of which it is necessary to pay particular attention to the connectivity that exists between them, something not always emphasized in the extant literature.

In Chapter 6, Leitner and O'Donnell explore the link between intellectual capital and the research and development process. Their particular interest is with how it is possible to successfully manage knowledge organizations, in which high levels of uncertainty are inevitable. They identify complexity theory as being potentially useful for this task, on the basis of its inherently interdisciplinary nature, making it highly appropriate for use in the multidisciplinary field of intellectual capital. This chapter is the least directly concerned with accounting issues, something clearly evident from its extensive bibliography.

Chaminade and Vang's essay, Chapter 8, focuses on the interface between intellectual capital and strategy. Although the strategic importance of intellectual capital was recognized in many early contributions to the literature, strategy has largely fallen off the agenda, something which the authors believe needs to be rectified. The greater part of the paper is informed by primary materials collected in relation to the reorganization of the Spanish electricity industry, a mature, low-tech sector, in the wake of liberalization in 1997. Engagement with intellectual capital themes at the beginning of the process subsequently diminished, something that the authors seek to evaluate. Their conclusion is that a focus on intellectual capital might not be universally relevant across organizations. Its utility is contingent on the strategy that is pursued in particular cases, as exemplified by the case of Unión Fenosa, one of the smaller operators in the reorganized industry.

A variation on the approach adopted in the latter three chapters is evident in Chapter 7, in which Almqvist and Skoog consider the value of the intellectual capital concept in the public sector, a major feature of most developed economies, which has generally been overlooked in the development of the field during its first decade. They argue that by combining intellectual capital with the New Public Management paradigm, it will be possible to fashion a more holistic view of the value creation processes that exist within contemporary public organizations. In their view, this should be recognized as a positive advance that would promote greater dialogue between stakeholders and would return more focus to input and process, as in the progressive public administration paradigm.

The remaining four chapters attest to the potential scope for future work under the intellectual capital designation. In Chapter 5, Catasús and Kristensson Uggla make the case for researching the ongoing evolution of the University as the central provider of both intellectual capital and knowledge workers. While accepting that the institution must continue to become more responsive to the needs of the broader society, they argue that it is vital that the University's traditional virtues should never be abandoned, inter alia the pursuit of playfulness and the promotion of reflexivity. At the opposite end of the continuum, so to speak, is Ahonen, Hussi, and Schunder-Tatzber's essay on “work-related wellbeing” in Chapter 3. Here, the focus is on a specific constituent of the human capital component of intellectual capital, namely, the health and well-being of employees, a topic that has been conspicuously absent from the first decade of intellectual capital literature. Unless people are able to enjoy the highest levels of both physical and mental health, their capacity to create and deliver value to stakeholders is reduced, to the detriment of the broader social order. In Chapter 9, Johansen's case study of the introduction and embedding of a balanced scorecard within a service business affirms the link between intellectual capital and the use of nonfinancial performance measures to report its growth, also a key theme in Johanson and Henningsson's contribution to the collection. More significantly, Chapter 9 is an example of the study of “intellectual capital in action” (or possibly “in practice”), an increasingly fashionable aspect of the current literature.

It is fitting that the final contribution is penned by Mouritsen, the most influential figure in the field over the past 15 years, who is granted license by the editors to focus explicitly on identifying the generic attributes of the future intellectual capital research agenda. Like Johansen's case study, Mouritsen's thesis is strongly shaped by insights from the actor network theory perspective, in this case, both Callon and his (now) more familiar colleague Latour. The future for intellectual capital research lies in greater exploration of “IC-as-has” rather than principally “IC-as-is,” what Latour designates as performative research as opposed to ostensive research. Mouritsen's position is captured in two cursory observations: “What IC has, is relations,” and “it is not a detached essence” (both on page 168), which apply equally to the insights offered by his co-contributors to their shared project as captured in this volume.

Taken as a whole, this collection of essays admirably conveys the continuing promise of the intellectual capital concept across a wide range of fields. It comes at an opportune time, since few of those who have already engaged with the concept would contest the observation that it is no longer the fashionable notion it was a decade ago. Equally few would be happy to see intellectual capital suffer the fate of so many previous management fads, such is its importance and potential. The contributors to the collection successfully convey their message without being over-reliant on rehearsing the past accomplishments of research in relation to intellectual capital. They collectively resist the temptation to revisit the first- and second-generation issues that the editors succinctly recall in their introductory chapter, in favor of a look towards the future. The emphasis here is strongly biased toward more theoretical concerns, something which I earlier intimated is a welcome feature of the current intellectual capital literature.

For those readers who may already have become attracted to the intellectual capital concept, the volume presents an alternative to research that documents how intellectual capital is currently being accounted for, i.e., measured and reported within organizations. Such studies are becoming increasingly commonplace, and although of both intrinsic interest and cumulative value, in the absence of a prescribed framework for such activity, their “normal science” character may prove insufficient to sustain the present momentum. If theorizing is not attractive, the exploration of intellectual capital in action, along the lines of the Johansen case study included here, is a further highly seductive alternative. Such contributions also affirm the progress that has accompanied the rise of interdisciplinary accounting research during the past three decades.

One of the concerns that I have about this volume is that despite its many virtues, it runs the risk of being dismissed by North American readers. Of the 18 contributors, seven can be identified with Sweden, together with three each from Denmark and Finland. This is, perhaps, unavoidable to some extent, given that three of the seminal contributions to the first and second generations of considerations on intellectual capital emerged from these three countries: the Skandia Navigator (Edvinsson, Sweden), the Intangible Assets Monitor (Sveiby, Finland), and the Danish Guidelines (Mouritsen, Denmark). But Scandinavia did not have the monopoly on intellectual capital theorizing in 2004. Work by Lev and Low has previously been identified. Stewart (1997), author of one the highly influential popular monographs on intellectual capital, hails from the U.S., while Bontis (1999) and McLean (1999), not to mention Lynn (1998), made early contributions from a Canadian accounting base. Casting the net wider, Guthrie (2001) has produced a range of outputs on intellectual capital dating back over a decade, thereby playing a major role in the continued high level of interest in the field evident among Australian academics throughout the past decade.

A second concern, again not unrelated to that of the debatable representativeness of the volume, is more personal and, therefore, possible to view as being somewhat idiosyncratic. Throughout the contributions, emphasis is placed on the multidisciplinary nature of the intellectual capital concept and the necessity to research and develop it in a thoroughly interdisciplinary way. I would strongly support such a viewpoint, but would wish to go a step further. Absent from these essays is any attempt to pursue or commend a critical perspective in respect of the intellectual capital concept. As a subset of interdisciplinary accounting research, work in the critical accounting tradition has made its own contribution toward enhancing the status of accounting viewed as an academic discipline, a trend that has also been evident across the broader spectrum of management studies. In several of the essays, explicit reference is made to the management control resonances of the intellectual capital concept, without any attempt to consider the potentially negative consequences that this might have for human capital, whether identified as knowledge workers or, more generically, as employees. Such research inquiries strongly merit being added to the roster of those already identified, further enhancing the continuing appeal of intellectual capital concept.

In summary, this is a highly impressive collection of essays on the intellectual capital concept. It is a must-read for anyone who feels they would like to know more about its evolution to date, as well as gain a range of insights about possible research topics and approaches that might fruitfully be pursued in connection with it.

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1

This series focuses on financial accounting and auditing and purposefully excludes management and tax accounting.

Every so often, a book changes the way we think about a whole research field, challenging our assumptions and reassessing what questions are relevant. Accounting in Networks, edited by Håkan Håkansson, Kalle Kraus, and Johnny Lind, has such ambitions. The editors, coming from the fields of marketing and the study of industrial organizations, examine a phenomenon which, in their opinion, the contemporary management accounting literature and textbooks have treated inadequately.

Much of today's most interesting accounting action takes place not within organizations, but through horizontal processes such as joint ventures, strategic alliances, research consortia, supply chains, and outsourcing. In particular, the editors stress two types of development processes that support the increased importance of inter-organizational relationships. One is the nurturing of more extensive and long-term business relationships between highly specialized companies that embark on joint development and production processes. The other is the growth of outsourcing, both in production and product development.

Has management accounting risen to the challenge of addressing the overall value chain of extensive relationships that firms now need to cultivate? Are the accounting practices we teach helpful in establishing priorities, evaluating, and managing long-term relationships with customers and suppliers? Håkansson et al. argue provocatively in their introduction that “contemporary accounting, with its reinforcement of the hierarchy [within a firm] and its preference for short-term competitive bidding in external relations, is not just ignorant of, but even an obstacle to, the development of extensive long-term cooperative horizontal relationships” (p. 6). Rarely has the state and relevance of accounting scholarship stood so condemned. I could not help but recall Johnson and Kaplan's 1987 manifesto, Relevance Lost, in its time a loud wake-up call to rethink and develop costing and management accounting practices. But if theory has lagged, there has been innovation in accounting practice, scholarly accounts of which can now begin to close this relevance gap. Accounting in Networks aims to step into the breach.

As a review of the emerging literature on accounting in networks, the book has important strengths. It brings to the multi-faceted nature of accounting in networks a multitude of theoretical perspectives, resisting the temptation to privilege one approach. The book's empirical, methodological, and theoretical pluralism makes it a treasure trove for future doctoral students and researchers seeking important topics in management accounting. However, while the book aims to be a comprehensive guide to the relevant literature, it is not a substitute for that literature and will not serve those looking for a one-stop-shop of insights and managerial lessons learned.

Part I of the book's three parts considers the roles of accounting in a variety of inter-organizational settings, including dyads, networks, joint ventures, and the public sector. Part II shifts the lens from the settings to the innovative boundary-spanning accounting techniques specifically associated with networks: customer accounting, target costing, and open-book accounting. Part III shows the four theoretical perspectives—transaction cost economics, the industrial-network approach, actor-network theory, and institutional theory—that have been deployed to explain the emergence and diversity of network accounting. These approaches are presented as complementary, rather than competing with each other. Although there are natural overlaps among the book's three parts, each responds to a specific set of concerns and offers its own rewards.

Reading the two introductory chapters and Part I, I particularly wanted to know why and when it is that organizational activities and related accounting practices are practiced in tight networks, rather than in more traditional settings. In Chapter 2, David Ford and Håkan Håkansson describe the “new business landscape” as a world of specialization, variety, interdependence, and relatedness, in which companies become—like it or not—highly dependent on, and significantly invested in, specific suppliers and customers. As inter-organizational activities, resources, and people span, blur, and even break down the former boundaries between counterparts, accounting's unit of analysis has to extend beyond the individual firm in order to measure the firm's capacity to make use of the resources of other companies and its success in doing so. Accounting, in turn, must record and control expenditure, costs, revenues, profit, and long-term returns related to an expanded network of assets and obligations.

In Chapter 3, John Cullen and Juliana Meira illustrate this challenge by showing how different dyadic (one-to-one) supply-chain relationships have been associated with different management control and accounting practices. The reviewed cases suggest that over time, the customer-supplier relationship becomes closer and the exchange of accounting information (through open-book accounting, target costing, or inter-organizational cost management) intensifies. Unfortunately, the authors (and much of the research covered in the book) are silent about the performance effects of matching accounting with the types of relationship the parties foster. I was left wondering: when does open-book accounting, or any of the innovations in inter-organizational accounting, start delivering benefits, rather than (potentially) hurting the parties involved? Researchers in logistics management lament that there is little (or, at best, mixed) evidence of firms actually exploiting the integration of business processes in supply chains, and that information sharing and visibility in supply chains is still limited (Bagchi et al. 2005), but this research is not mentioned in Accounting in Networks.

In Chapter 4, Johnny Lind and Sof Thrane extend the supply-chain discussion by conceptualizing indirect effects, taking into account networks that include suppliers' suppliers, customers' customers, and several counterparts in one direction. Such complex interactions between firms have been studied on a case-by-case basis, but the literature is at an early stage; we know little about the antecedents and the performance effects of the accounting practices used in these relationships. The authors offer plausible, but largely untested, propositions about the situation types and about the associated managerial issues and types of accounting practice. This area could be particularly fruitful for further research, as it raises the question of risk and indirect third-party effects, the consequences of which can send ripples—or shock waves—through an entire network, as we saw when the 2011 earthquake in Japan caused costly supply-chain disruptions to automotive industry players both in Japan and around the globe.

Chapters 5 and 6 outline further settings—joint ventures and the public sector—in which inter-organizational relationships generate particular managerial problems and tensions, which require novel accounting solutions.

The three chapters in Part II shift the emphasis to the innovative accounting practices observable in networks. Much of the reviewed literature is prescriptive, laying out the techniques and their potential benefits, but leaving us wondering exactly where, why, and with what effect particular practices are used. These chapters counter this apparent gap in the existing state of knowledge by showcasing emerging field-based empirical research on specific innovations (customer accounting, target costing, and open-book accounting) that is sufficiently descriptive to give us a sense of their surprises and at least some of their contingencies, such as the associations between the reviewed four customer accounting techniques with four types of customer relationship. Part II also calls for more research to develop a more systematic understanding of these emerging network-accounting practices.

Part III mobilizes a number of theoretical approaches that have long been present in the accounting literature and have been used in studies of network accounting. Shannon Anderson and Henri Dekker's important chapter gives an exhaustive summary of the problems that have been investigated from a transaction cost economics (TCE) perspective—particularly alliance decisions, partner selection, management control design, and change—and discusses TCE's strengths and weaknesses. The authors show that TCE, the dominant perspective applied to the study of network accounting, appears to be most useful for generating so-called congruence questions: whether the firm's choices in contracting with its alliance partners, designing governance, and management control practices, and so on, are consistent with the hazards and characteristics of its transactions. TCE also helps researchers formulate and address questions about when to expect changes in inter-firm relationships and accounting, but is less helpful in studying how alliance formation and management control and change take place. The authors suggest complementary perspectives that would enhance TCE's relevance in network research. However, it remains a constraint that, while TCE has been proven in simple dyadic settings, its advocates have given short shrift to the more complex network relationships characterizing the new business environment in which no firm or relationship is an island.

The final three chapters introduce three interdisciplinary perspectives that have started to bring new insights and explanations to network accounting. These perspectives complement the rational-economic perspective, which includes TCE, by embracing the complexities of the environment in which networks and network-accounting practices operate. These authors' chapters give a sense of the logic, value added, and potential pay-offs of these roads less traveled by mainstream accounting researchers, and open the door to exciting possibilities.

In Chapter 11, Håkan Håkansson, Kalle Kraus, Johnny Lind, and Torkel Strömsten introduce the industrial-network approach. As three of these coauthors are also the book's co-editors, this chapter is crucial to understanding the key tenet of this volume that “[t]he existence of significant and interconnected business relationships challenges traditional intra- and inter-organisational accounting design and use that support hierarchical coordination as it disturbs the ‘boundary' of the company and the ‘boundary' of the inter-organisational relationship” (p. 270). Starting in 1976, the industrial-network approach was developed by Håkansson and an informal network of multidisciplinary European researchers concerned with industrial marketing. It is based on the idea that business in industrial markets is conducted mainly through interactions between interdependent companies, whether they are customers, suppliers, development partners, or competitors. From this perspective, resources within a firm will be controlled, in part, by companies outside the traditional boundary and, conversely, resources existing in companies outside the boundary will, at least partly, be controllable from the company's point of view. The resulting research challenges are exciting and daunting. At a prescriptive level, accounting needs to be designed to capture both the direct effect of a company's decisions on the other company in the inter-organizational relationship and the indirect effects on third and fourth parties. The authors showcase (among others) a descriptive study of a German car manufacturer's open-book accounting practices, which account for indirect effects on both the manufacturer's suppliers and their suppliers. Here, accounting is seen as a collective process of finding temporarily valid and mutually satisfactory compromises, rather than the optimizing practice assumed by TCE researchers.

In Chapter 12, Jan Mouritsen, Habib Mahama, and Wai Fong Chua introduce actor-network theory, a network perspective grounded in sociology that requires the researcher to be particularly mindful of the situatedness and uniqueness of the phenomenon under study. This perspective serves knowledge-building particularly well at its inductive, exploratory stage and, thus, offers scholars of networks (and the role of accounting in them) such adventurous topics as how—over time and through the actions of human and nonhuman actors (such as accounting)—the network is practically accomplished, how its boundaries are settled, how the firm is defined, how the transactions are realized, and how the environment is stabilized. Rather than assuming a priori that accounting numbers have an impact and trying to predict that impact, these studies focus on the situated practice of accounting in order to understand what effect, if any, accounting has. The results are often surprising, as accounting numbers mobilized by different parties can influence investments and relationships among firms in unexpected ways. Note that generalizing results is not the concern here. Mouritsen and his colleagues argue that such a surprise is interesting and relevant “not because it describes all cases, but because it offers new candidates to explain how management accounting becomes powerful” (p. 312).

In the final chapter, Robert W. Scapens and Evangelia Varoutsa argue for the potential of the institutional perspective in illuminating a hitherto underappreciated aspect of inter-organizational accounting—institutions. The authors grant that economics-based perspectives such as TCE acknowledge institutions, but they regard those perspectives as exogenous rules or constraints that shape economic behavior. The institutional approaches advocated in this chapter see institutions as endogenous, embodied in the habits of a group, organization, or organizational field. The primary focus of the studies reviewed in this chapter is the institutionalized rules, routines, and norms, which can powerfully shape, legitimate, and change organizational practices, and often make them more alike (rather than divergent) as practices gradually comply with the institutional logic of their field. Researchers have used this perspective both to argue and to demonstrate that the legitimacy of inter-organizational relationships is critical to their success and can be a source of competitive advantage. Furthermore, the relationships themselves can, over time, change the institutional logic and thereby influence new relationships.

While the theoretical pluralism of Accounting in Networks is an important strength, the choice of these particular four perspectives seems somewhat arbitrary to me, particularly in the light of Chapman et al.'s (2007, 2009) recent comprehensive treatment of the available richness and diversity of contemporary research in management accounting. Approaches from other areas of management studies, such as strategy and logistics research, have also been instructive for the study of networks. I suspect that the editors had to make some tough choices between the depth and breadth of their treatment of available perspectives.

As long as changes in the business landscape continue to blur boundaries among industrial organizations, and as long as accounting plays a role in these changes, students of accounting will confront important and interesting research questions and will need to apply a variety of theories and methods. Accounting in Networks shows us that venturing outside one's theoretical and empirical comfort zone rewards the researcher with worthwhile questions and the excitement of genuinely useful insight and discovery.

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In this four-volume series motivated by the rash of high-profile business failures in the new millennium, J. Edward Ketz compiles 96 articles, book chapters, and speeches on accounting ethics so that we may assess where we are, what went wrong, and how to move forward to better theories and practices. Ketz opens the series with a brief overview of accounting ethics, highlighting Sarbanes-Oxley and Arthur Andersen as public symbols of the cure and disease for the accounting frauds and financial restatements that brought the accounting profession widespread unfavorable attention in the wake of the collapsed stock market bubble. He then turns to the series' objective of presenting the major important papers in the area of accounting ethics. Volume I, “Foundations” (for accounting ethics), includes Part 1 (ten selections) on principles and responsibilities of the accounting profession, Part 2 (six selections) on codes of professional conduct, and Part 3 (nine selections) on accounting and regulatory matters. Volume II, “Theories of Accounting Ethics and Their Dissemination,” includes Part 4 (nine selections) on some basic notions about accounting ethics, Part 5 (seven selections) on ethical theories, Part 6 (three selections) on economics and accounting ethics, and Part 7 (seven selections) on education of accounting ethics. Volume III, “Empirical Studies of Accounting Ethics,” includes Part 8 (four selections) on independence issues, Part 9 (seven selections) on ethical reasoning by CPAs, Part 10 (five selections) on international comparisons, and Part 11 (four selections) on ethics and accounting education. Finally, Volume IV, “Crisis in Accounting Ethics,” includes Part 12 (ten selections) on historical crises and early warning signals, Part 13 (seven selections) on Enron and its aftermath, and Part 14 (eight selections) on “Where we go from here?”

There are at least two audiences who will find this series informative. First, accounting educators who want to include ethics topics in their courses or create a stand-alone accounting ethics course will find a wide range of issues covered.1 The push from the public sector for more accounting ethics education is reflected in mandates by a growing number of state boards of accountancy, college and university accrediting bodies, and professional certifications (e.g., CPA, CMA) for both new and continuing professionals. Accounting academics who currently avoid incorporating ethics in their courses for lack of ethics expertise should find this series particularly useful. Second, accounting ethics researchers, especially new scholars or those interested in adding an ethics focus to their scholarship, will find the topics covered in this series fairly comprehensive, although corporate social responsibility is a noteworthy omission. Even the most seasoned accounting ethicists will be sure to find invaluable the 22-page index in Volume IV, listing over 2,000 topics and authors cited in the 96 studies, each cross-referenced to the volume and page number.

In my current role as Chair of the American Accounting Association's (AAA) Professionalism and Ethics Committee, I particularly enjoyed reading through this series to determine how it might aid in achieving one of the Committee's goals of assembling a comprehensive list of accounting ethics research for scholars, educators, and practitioners. I was pleased to find articles on every accounting ethics topic of personal interest to me, including auditor independence, auditor litigation, codes of professional conduct, fraud, earnings management, accountants' moral development, expectations gap standards, and whistle-blowing. Reading the series gave me a more thorough understanding of some of these topics. For example, I found interesting the historical perspective which some of the selections included, such as changes to the U.S. professional accounting codes of conduct over the past 100 years, from Protestantism-idealism, brethren of character and calling, to followers of the rules of the code, technically competent experts with a rational sensibility (Preston et al. 1995, Vol. I, 235–237). I also found interesting how little some criticisms of accounting have changed over the years. Briloff's (1966, Vol. I, 138–139), “Old Myths and New Realities in Accountancy,” decrying the linguistic gap in GAAP, the contrast between perception and fact, and the financial community's lack of knowledge of how peripheral services to management and auditor independence might lead to a crisis in confidence, could easily have been written in the 21st century, when the public is calling for “plain English,” auditor independence, and limiting nonaudit services which auditors provide to their audit clients.

To the extent that Ketz's choice of articles are representative of the best accounting ethics articles to date, he confirms critics' concern that the most acclaimed accounting journals rarely publish accounting ethics research. Only 17 of the 84 series articles were published in the top three accounting journals, with 16 in The Accounting Review (TAR), one in the Journal of Accounting Research (JAR), and no ethics articles at all published in the Journal of Accounting and Economics (JAE). In addition, 13 of the 16 articles published in TAR preceded 1986, leaving only three ethics articles published there in the last 20 years. While selections in the series were admittedly done on an ad hoc basis, this summary underscores the danger that new scholars face when choosing accounting ethics as their primary area of scholarship. In a mild criticism of the series, and in a mild defense of the top-ranked journals, I think Ketz missed some of the best ethics articles published in these journals. For example, Gaa's (1986) TAR article on user primacy in corporate financial reporting, Antle's (1984) JAR article on auditor independence, and Loeb's (1971) JAR article on ethical behavior in the accounting profession are notably absent.

The series is heavily weighted toward recent publications, with 13 of the articles published from 1931 to 1985 (all published in TAR), 15 articles published from 1986 to 1995, and the remaining 56 articles published from 1996 to 2004. The most frequent outlets in recent years include Research on Accounting Ethics (17 articles since 1995), Accounting Horizons (nine articles since 1996), and Critical Perspectives on Accounting (nine articles since 1996). While I am pleased that the series recognizes the important contributions which ethics articles in these journals have made, I was left with the impression that the process of searching for these articles was not robust. Perhaps the most glaring evidence of this is the omission of any accounting ethics articles from the primary accounting ethics journal, Research on Professional Responsibility and Ethics in Accounting (RPREA), after it changed its name from Research on Accounting Ethics (RoAE) in 2000. With 17 RoAE articles included in the series from the journal's inception in 1995 to 2000, it seems improbable that nothing of value has been published in the journal after its name was changed.

Perhaps the greatest challenge to anyone trying to identify the most important works in a given area is deciding what to include or exclude. This series is no exception. Even at four volumes and a cumulative 1,827 pages, in my opinion, the series is too short in some areas and too long in others. As an example where the series falls short, consider the section on ethical reasoning by CPAs (Volume III, Part 9). No area in accounting ethics has received more attention in the past 20 years than accountants' cognitive moral development. The attention is primarily driven by scholars' findings that accountants scored lower (higher is better) on Rest's (1986) Defining Issues Test (DIT) than other professional groups, including, heaven forbid, attorneys. Moreover, partners and managers scored lower than comparable norms for college-educated adults (Ponemon 1992, 189), suggesting that the ethical development of those entering and remaining in the accounting profession is stymied. While the series includes the seminal studies by Armstrong (1987) and Ponemon (1992), it omits important studies that challenge early findings that low DIT scores are necessarily detrimental to the profession (e.g., Fisher and Sweeney 1998; Bay and Greenberg 2001), leaving the reader with an unbalanced view of the literature's over-arching conclusions on this research stream.

On the other hand, the opening section (Volume I, Part 1) on principles and responsibilities serves as an example where the series is too long, or at least too loosely connected to the topic of accounting ethics. While some selections in this section, such as Scott's (1941) thesis that accounting is most directly concerned with the principle of justice, fairness, and truth, are excellent in showing the relationship between accounting ethics and accounting principles, other selections seem inappropriate. Givens' (1966) article on general accounting theory and Zeff's (1984) history of accounting principles are too far removed to fit Volume I's theme, foundations of accounting ethics. On a related note, the series' title, Accounting Ethics: Critical Perspectives on Business and Management, seems to go too far. Given the editor's statement that the series' scope would not even include all of accounting (rather, it focuses solely on financial accounting and auditing, while omitting management and tax accounting issues), to include business and management in the title seems overreaching.

In summary, despite some notable omissions, I find the series to be a worthy effort in assembling some of the best articles, book chapters, and speeches on accounting ethics. Yet, as Ketz concludes in his general introduction, I wonder whether good, consistent ethical behaviors are possible when post-modernism and deconstruction have replaced the philosophical foundations of meaning and truth with a vacuum. Ketz also finds that religion is absent from accounting ethics research, another notable void given the importance of this factor in transmitting norms to society. Did accounting professionalism lose more than it gained when it moved from calling and character to competence and charisma? Certainly, there is much fertile ground for future research and dialogue. If accounting academics can get past the $1,699 price tag, this series is a good place to start.

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Author Allan Littman's choice of The Fraud Triangle as the short title of this book seems an obvious attempt to attract attention by linking to “the fraud triangle,” which was defined many years ago in the academic and business literature and which has become a term of art. The origin of the well-known term is credited to Donald Cressey, a professor of social science—sociologist, criminologist, and penologist. Cressey was a prominent textbook author and consultant, perhaps best known for his research and publications concerning organized crime in the United States.

Cressey's triangle names and discusses the three conditions, each of which is present when occupational fraud takes place. These conditions are: Motivation or Pressure, Opportunity, and Rationalization. Littman takes a far different direction, as the remainder of the book's title, Fraudulent Executives, Complicit Auditors (in larger-size), and Intolerable Public Injury, sets forth the author's real objective. The goal seems to be to recount historical events to support his admitted and almost openly biased opinion about the failures of audit firms to detect and disclose material fraud in financial statements issued to the public.

This critical attitude toward audit firms and the public accounting profession appears early in the text, in the Introduction. Author Littman notes, “the accounting profession published auditing standards that effectively suppressed the duties of auditors to detect and expose fraud, while also failing to preserve the essential quality of auditor independence” (p. 14). Almost all of the book's contents deal with the failures of audits and auditors, with only limited attention paid to the actions of “fraudulent financial executives” who were responsible for creating and publishing grossly misleading financial statements in the first place. There is almost no discussion of any “intolerable injury” to investor victims of such behavior.

Allan Littman, who died at age 82 in December 2010, was a long-serving trial litigator specializing in cases involving auditors and fraud. He believed that professional auditing firms were directly responsible for allowing unethical corporate executives to provide misleading financial information to the public, resulting in significant injury to innocent investors. The fact that he passed away from cancer only three weeks after publication of this, his only book, may be the reason why there is much less extensive and less rigorous coverage of events that occurred during or after the recent financial crisis. Littman's evaluation of auditors' responsibilities in connection with the crisis would have been a valuable addition to the literature.

A redeeming quality of the work is its painstakingly detailed discussion of important events in the long-developing saga of the circumstances surrounding legal cases when professional auditors gave clean opinions on financial statements that later were proven to be fraudulent. Important to the presentation is the author's belief that the performance of audit firms has failed to keep up with contextual and environmental changes in business.

In years past, the compensation of senior executives did not include stock options and other motivations to influence reported results. Further, boards of directors seemed to exercise much more effective oversight, and the Securities and Exchange Commission (SEC) was viewed as a very powerful regulator of the auditing profession. And more of the actions of the American Institute of Certified Public Accountants (AICPA) seemed to support efforts to audit in the public interest, rather than in the interest of the client. A solution to the issue of the audit expectation gap has been with the audit profession for many decades.

Reflecting the author's legal training and experience, the volume abounds with discussions of significant court cases involving auditors and fraud. Likewise, the bibliography of books and articles is extensive. A special feature of the book is a group of 14 appendices covering verbatim documents relevant to auditors and the subject of fraud.

The documents range from the first Statement on Auditing Procedure issued by the then-American Institute of Accountants (AIA) in 1939 and the historic 1940 SEC Accounting Series Release describing the famous McKesson & Robbins fraud, to much later auditing pronouncements by the AICPA and Public Company Accounting Oversight Board (PCAOB). Other documents include court and other opinions and reports.

It is interesting to note that the listing of documents incorrectly refers to a Statement of Auditing Procedure or Statements of Auditing Standards, whereas the actual document titles were deliberately Statements on those matters rather than of them. The total number of pages devoted to the verbatim presentation of these formal legal opinions, professional pronouncements, and other documents amounts to about a whopping 42 percent of the total number of pages in the work. Usability of this information would have been enhanced if only the most relevant portions of many of the documents were presented.

Using a historical perspective and chronological orientation, Littman takes the reader back to the origins of “modern” auditing in the early 20th century. In Chapter 2, “Fraud Detection was the First Object of Modern Auditing,” he recounts a number of legal cases which held that fraud detection was the primary objective of an audit assignment. He describes Robert H. Montgomery, the prominent audit firm partner, the president of professional accounting organizations and auditing textbook author, as one who was instrumental in downgrading the importance of an auditor's duty to detect and disclose fraud. Rather, they engaged in activities for clients that decreased their audit skepticism and independence. This strategy has lingered in the public accounting profession for decades.

When Montgomery was serving as president of the American Institute of Accountants in 1936, the organization began a strategy which the public accounting profession has followed for many years. He successfully lobbied for self-regulation, including the setting of standards for performance of the external audit. This limited the regulation, or even oversight, by government. Only the massive frauds of the early 21st century—Enron and WorldCom—provided the impetus for Congress to form the Public Company Accounting Oversight Board (PCAOB) and give it authority to set auditing standards for public companies and to inspect audit files to determine how well audit firms performed in accordance with those standards.

Chapter 3, titled “The Attempt to Suppress the Duties of Auditors to Detect and Disclose Fraud,” provides interesting reading of historical events. The continuing back-and-forth attempts by reformers to heighten auditor attention to the subject of fraud seemed overmatched by apparent attempts by the AICPA and the major firms to resist such efforts. Every auditor who wishes to be well informed about fraud and auditors' responsibilities would be well advised to become familiar with the contents of these pages, as well as Chapter 4, “The Partial Revival of Auditing Standards on Fraud.”

Chapters 3 and 4 contain summaries of important legal cases, the work of various committees appointed by professional groups, and the changes in auditing standards that were brought about. The reports in 1978 of the Commission on Auditors' Responsibilities, known as the Cohen Commission, and in 1987 of the National Commission on Fraudulent Financial Reporting, known as the Treadway Commission, suggested reforms that the AICPA and audit firms did not always implement as the recommending bodies had intended.

Littman could well have provided more robust coverage of several topics involving alleged audit failures and fraud detection. The savings and loan crisis, including the well-known Lincoln Savings and Loan case, illustrated the propensity for senior executives to publish fraudulent financial statements, coupled with the apparent inability of external auditors to detect such behavior, to the detriment of investors and, in the case of savings and loan associations, the American taxpayer.

The topic of professional reform efforts should have had more discussion in the narrative of Chapter 5, concerning the weakening of auditor independence from the 1970s through the 1990s. For example, Littman should have discussed the attempts by the AICPA to address this issue, at least somewhat, through its formation of an Independence Standards Board (ISB). This group was designed to solicit greater input to the process of determining auditor independence. The Board was dominated by public accounting firms, with three of the eight members the CEOs of Ernst & Young, KPMG, and PricewaterhouseCoopers, and a fourth the CEO of the AICPA. Two of the other four members of the Board also had strong CPA ties as members of the Financial Accounting Foundation.

The ISB was formed in 1997 at the urging of the SEC to initiate research, develop standards, and engage in a public analysis and debate of auditor independence issues. After publishing six independence standards, the Board ceased to exist in early 2001 after much of its work was incorporated into SEC rulemaking. Perhaps because of its makeup, the work of the ISB was not considered by most observers to represent a success.

Also lacking in Littman's historical narrative is coverage of the important AICPA initiative in 1977 to form the SEC Practice Section (SECPS). The SEC strongly backed this group to improve audit performance for public companies through self-regulatory actions. The SECPS established quality control and other requirements for member firms beyond those contained in generally accepted auditing standards. The Section began the now-common practice of conducting peer reviews of audit performance and conformity with audit and quality control standards. The Fraud Triangle would have benefited greatly from a more complete, but critical, evaluation of the many efforts by the SEC and the AICPA to improve the quality of audits during this period.

Littman also failed to evaluate the work of the Public Oversight Board (POB), which was also created in 1977 to enhance the AICPA's strategy of self-regulation. The POB was a private-sector body charged with overseeing the work of the SECPS. Its objective was to help assure the SEC, investors, and the public at large that the audited financial statements of public companies could really be relied on. The POB's mission to provide oversight of the accounting profession as a whole was broadened in February of 2001. Then the POB was tasked to oversee not only the SECPS, but also the AICPA's Auditing Standards Board and Independence Standards Board.

Although looked upon as a part of the AICPA, the POB functioned quite autonomously, as it was funded by the dues of SECPS member firms. The POB set its own budget, established its own operating procedures, and appointed its own members, chairperson, and staff. It operated from separate New York City offices and later in Connecticut, rather than out of the AICPA's New York office, as did the ISB. Over the years, the POB issued numerous monographs and reports urging improvement in audit quality. But because these essentially required voluntary compliance, their influence was limited.

At the request of the SEC in October 1998, the POB established a panel called the Panel on Audit Effectiveness. This group conducted a review of the way audits of public companies were being performed, and assessed their quality and their impact on the public interest. In addition to sampling empirical data on audit performance, the Panel surveyed the views of thought leaders and many other prominent individuals who were interested in the quality of financial reporting. Its nearly 300-page final report was issued in September 2000. At the same time, efforts to augment governmental regulatory programs were undertaken, and the POB, in apparent frustration, voted itself out of existence in January 2002.

In this reviewer's opinion, the author's insertion of eight pages in Chapter 6 which are highly critical of the AICPA's ill-fated Cognitor initiative was a distraction that had little, if anything, to do with fraud and auditing. Cognitor was coined as a new noun designed to describe an all-around expert financial professional. This global attempt expressed the primary idea of Robert Elliott of KPMG to expand the scope of services that CPAs provided. Cognitor efforts lasted four years and sapped the attention of the AICPA from more productive endeavors.

The narrative in Chapter 7 does provide telling arguments to support Littman's thesis that the legal system had failed to deter those whose audit performance had aided or abetted fraudulent financial reporting. The Private Securities Law Reform Act (PSLRA) in 1995 changed the landscape of securities litigation cases, making them far more difficult to pursue. The Securities Litigation Uniform Standards Act (SLUSA) of 1998 was another barrier to successful class action securities cases. While the Sarbanes-Oxley Act of 2002 added criminal penalties if auditors falsely certify misleading financial statements, Littman believes that it did not eliminate the restrictions placed on private plaintiffs' pursuit of justice.

Apparently not given sufficient consideration by Littman is the fact that the PSLRA and SLUSA were passed by Congress intentionally to suppress private enforcement actions. So they cannot be “employed abusively to impose substantial costs on companies and individuals whose conduct conforms to the law” (p. 119). Seen by the legislators to be particularly abusive were some of the securities class action lawsuits. At the conclusion of the chapter which discusses current restrictions on victims' remedies is the author's cry to tear down the “wall of immunities for auditors, financial institutions, brokers, and others who aid and abet securities frauds” (p. 151). It does not appear that the investing public is listening to Littman's cry.

In a number of cases, the U.S. Supreme Court has affirmed existing laws to hinder private actions to recover securities fraud losses from gatekeepers, such as auditors. An affirmative answer to the question of “should more power be given to the plaintiffs' bar?” is a question that conflicts with the strong lobbying power of the public accounting industry. This lobbying is backed by the generous contributions by CPAs around the country to lawmakers' reelection campaigns.

The author's coverage in Chapter 8 of the Sarbanes-Oxley Act of 2002, the landmark legislation that has been called the most important since the original securities laws of the 1930s, is largely limited to a description of pertinent major provisions. A later chapter concerns pressures to repeal reforms, and it reiterates the recurring theme that reducing regulation to retain the prominence of the financial services in the United States was a strategy pushed by administrations of both political parties. But a major omission in the otherwise reasonably complete narrative of important events is Littman's failure to describe and then critique the work so far of the Public Company Accounting Oversight Board (PCAOB).

Added to the need to protect audit firms from liability is the “too big to fail” argument that a fraud settlement should not trigger the failure of any of the Big 4 firms. There is said to be insufficient audit capacity among the second-tier and smaller firms to add to their practices the performance of the required engagements. This could result in an auditing crisis of sustainability.

In contrast to the general coverage of Sarbanes-Oxley, the author's Chapter 9, which is devoted to a criticism of SAS 99, the current auditing standard on an auditor's responsibility for fraud, contains commentary concerning almost every paragraph in the pronouncement. It concludes with the opinion that auditors should be doing a better job of disclosing potentially fraudulent activities that they discover. Further, Littman believes that auditing students need more “real world” examples of actual frauds to prepare them to exhibit adequate skepticism as they perform audits.

In this connection, the Treasury Department in July 2007 appointed the Advisory Committee on the Auditing Profession. Noting the makeup of the committee as largely those sympathetic to the status quo, Littman believes in Chapter 11 that the committee's objective was to “lessen the governmental regulation of auditing and place additional obstacles in the way of private litigation on behalf of the victims of executive fraud and auditor misconduct” (p. 217). The mounting potential liabilities of the Big 4 firms due to possible lawsuit settlements have drawn increasing attention, and concern continues to this day.

At approximately the same time in 2007, the AICPA organized its Center for Audit Quality, whose board mainly consists of the top eight CPA firms' CEOs. Its report to the Treasury Committee supported the need to limit firm liability and that the concentration of the industry did not make any of the major firms “too big to fail” because of a lawsuit settlement.

As noted earlier, Littman's coverage of the 2008 sub-prime mortgage and financial derivatives crash in Chapter 12 is largely limited to a general discussion of events. Missing, in particular, is any attempt to evaluate the work of auditors in connection with the cause of the crisis. There is no comment on the activities of the SEC during this period, whose performance seems dismal in the view of most observers.

The Fraud Triangle can be largely considered a success only if viewed as a historical narrative describing, with critical comment, the major legal cases and other events occurring over the last 50 years regarding fraudulent financial reporting. Littman's coverage of the various responses of the public accounting profession to their discovery is incomplete and seems to be conspicuously biased, and does not always give credit to those whose efforts were stymied by congressional and other pressures, not just those of the AICPA. Considering the perspective of the author, perhaps this was to be expected.

Another example of the impediments placed in the path of litigators who wish an easier path toward financial recovery from audit firms that may have been associated with fraudulent financial disclosures is the June 2011 U.S. Supreme Court decision in Janus Capital Group v. First Derivative Traders. In a 5–4 decision, the Court held that a mutual fund advisor cannot be held primarily liable for “helping to draft a misleading prospectus over which it did not have ‘ultimate responsibility.'” This ruling is viewed by observers as “good news” for the many third parties like auditors who regularly provide assistance in the preparation of financial disclosures to the public.

The author's concluding “suggestions for improvement” cover a wide variety of subjects that would require consensus of many diverse groups and the actions of a number of bodies, including Congress. Many would agree with Littman that the premise should be soundly rejected that “global markets require less prosecution, regulation, and litigation remedies” (p. 272). The fact that there is great resistance to implementing many of the provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 makes agreement on specific meaningful changes highly unlikely.

In summary, readers of this work should constantly keep in mind the author's point of view, the context within which he wrote, and the purpose of the book.

HARRY I. WOLK (editor), Accounting Theory (London, U.K.: Sage Publications Ltd., 2009, ISBN 978-1-84787-609-6, pp. xlv, 1,518 in four volumes).

Harry I. Wolk, the compiler of this collection of 74 previously published articles and other essays, died in October 2009 at age 79. In 1984, he was assisted by two colleagues in writing a thoughtful, wide-ranging textbook on accounting theory, which is now in its seventh edition. He has, thus, been a close student of the accounting theory literature for many years.

Wolk's valedictory contribution is this anthology, which is divided into ten sections: philosophical background, accounting concepts, conceptual frameworks, accounting for changing prices, standard setting, applications of accounting theory to five measurement areas, agency theory, principles versus rules, international accounting standards, and accounting issues in East and Southeast Asia. Because he provides only a two-and-a-half-page general introduction, we cannot know the criteria he used to make these selections. The earliest of the articles dates from 1958, and one infers that this collection represents the body of work that, over his long career, mostly at Drake University, he found to be influential writings.

Among the major contributors to the theory literature represented in the collection are Devine, Mattessich, Davidson, Solomons, Sterling, Thomas, Bell, Shillinglaw, Bedford, Ijiri, and Stamp. Conspicuous omissions are Chambers, Baxter, Staubus, Moonitz, Sorter, and Vatter. Although many of the earlier pieces have stood the test of time, a number of the more recent selections would, inevitably, be open to second-guessing. To be sure, most of these articles can be accessed electronically, yet it is instructive to know the works that Harry Wolk believed were worth remembering, and it is handy to have them all in one collection.

The price tag of £600/$1,050 for the four-volume set will, unfortunately, deter all but the most enthusiastic purchasers.

Author notes

Editor's note: Two copies of books for review should be sent to the Book Review Editor: Stephen A. Zeff, Rice University, Jesse H. Jones Graduate School of Business, 6100 Main St., Houston, TX 77005. The policy of The Accounting Review is to publish only those reviews solicited by the Book Review Editor. Unsolicited reviews will not be accepted.