This is my final issue of JIAR as the Book Reviews Section Editor. I have been in this position since Lee Radebaugh reestablished the book review section in 2006 and appointed me as editor. With this issue, I have overseen the publication of 48 reviews. I believe that I have accomplished the goal of providing useful information to JIAR readers. The book reviews section also further validates scholarship published in the form of books, textbooks, and monographs. I would like to thank Lee Radebaugh and Ken Ferris for all of their support while I was in this position. I also want to thank all of the volunteer reviewers for their hard work. It is the work of the reviewers that makes this section possible.
Finally, I am pleased to welcome the new JIAR Book Reviews Section Editor, Tommy Carnes. I know that he will do a great job.
Call for Volunteers
If you would like to be considered as a JIAR book reviewer, please send your name, affiliation, complete contact information, and areas of expertise to Dr. Carnes at firstname.lastname@example.org. The new Book Reviews Section Editor also welcomes suggestions of English-language international accounting books and monographs that might be reviewed by JIAR. Books for review should be sent to Tommy Carnes at Berry College, PO Box 495024, Mount Berry, GA, 30149-5024. Reviews are assigned by the book reviews editor and unsolicited reviews are not considered for publication.
Abhay Abhyankar, Paul Klumpes, Liyan Tang, and Pengguo Wang,
Derivatives Reporting Practices by Multinationals
ABHAY ABHYANKAR, PAUL KLUMPES, LIYAN TANG, and PENGGUO WANG, Derivatives Reporting Practices by Multinationals, ACCA Research Report No. 117 (London, U.K.: Certified Accountants Educational Trust for the Association of Chartered Certified Accountants [ACCA], 2010, ISBN: 978-1-85908-463-2, pp. 56). Study available at: http://www.accaglobal.com/pubs/general/activities/research/research_archive/rr-117-001.pdf
The stated purpose of this research is to assess “the relative and incremental explanatory power of the prediction that firms' derivatives use can be related to specific firms' financial characteristics, as well as to market risk and to idiosyncratic sources of risk. It focuses on choices made about interest rate and/or foreign currency market-related exposure by the largest non-financial firms headquartered in the U.S. or Europe” (p. 5). The report is published as an Association of Chartered Certified Accountants (ACCA) research report. According to the ACCA, the aim of the research program is to generate high-quality research with a global focus.
This research report consists of seven chapters. The report starts with an Executive Summary and ends with References and an Appendix of derivatives disclosures from the annual reports of GlaxoSmithKline (2006) and Anheuser-Bush Companies (2005). Headquartered in the U.K., GlaxoSmithKline is a leader of the world's pharmaceutical market. Headquartered in the U.S., Anheuser-Bush Companies produces beers, flavored alcohol, and nonalcoholic beverages, and is a market leader.
The first chapter provides an introduction. Financial risk management is broadly defined as the process by which a firm's management identifies, measures, and controls financial risk exposure to large losses.
In the discussion of prior published research, Chapter 2, Zhang (2009) is identified as the only previous study that has comprehensively examined the linkage between interest rates and foreign currency derivatives. He finds that volatility of cash flows and risk exposures related to interest rate, foreign exchange rate, and commodity price decrease significantly for ineffective hedger/speculator firms, but not for effective hedger firms. Zhang's (2009) study is restricted to examining derivatives use by new users of risk-management programs, and does not examine the broader strategic, cultural, and institutional factors affecting derivatives use by firms. In addition to considering the empirical implications of a relatively comparable and distinct set of multinational firms, the ACCA study develops new measures of risk that can be associated with derivatives use, including idiosyncratic risk, the hedging ratio, and discretionary accruals.
Chapter 3 contains the discussion of the costs and benefits of hedging for a multinational firm and the development of the hypotheses. The six hypotheses concern specific types of derivatives used to hedge foreign currency and interest rate risk, and their association with various sources of market, firm, and institutional risk, respectively.
Chapters 4, 5, and 6 present the empirical heart of this study. Chapter 4 gives the details of the sample and the data. The sample consists of 111 U.S. and 74 European industrial firms. The period of the analysis of the data was from January 1, 2005, until December 31, 2008. Chapter 5 reports the results of a descriptive analysis of the overall use of derivatives, and then provides multivariate analysis of the hypotheses. Eight tables and four figures illustrate and support the research. A finding of the descriptive analysis is that while U.S. and European firms' use of derivatives is similar, the value is much higher for the European firms. The research shows that there is a relatively strong and robust association between both the propensity to use derivatives and the level of use of derivatives, with a range of firm-specific idiosyncratic and financial risk factors. These results are robust across both U.S. and European firms. In Chapter 6, a hypothesis that states that firms that are engaged in speculative and/or non-speculative derivatives exposure will have higher cost of capital than firms that do not is tested. This is done by using various methodologies to develop cost of capital estimates for firms. The firms are partitioned as to whether or not they used derivatives, and the extent to which they used the derivatives. The conclusion is that the cost of capital for heavy derivatives users of various types is, in many cases, significantly higher than for low derivatives users.
Chapter 7 gives the overall conclusions. There are strong traces of support for the view that derivatives use by complex multinationals performs a risk-management role in mitigating sources of idiosyncratic risk and incentive problems. Also, a robust relationship between both the propensity to use derivatives and the amount of use, and various financial characteristics of firms is demonstrated. However, the researchers express a warning that extreme caution must be given to these findings considering the relatively short time-frame between the initial adoption of International Accounting Standards (IAS) by large European firms and the implementation of costly and complex associated derivatives reporting requirements.
In summary, this report gives insight into the practices by U.S. and European multinationals of derivatives reporting. The analysis is convincing. In my view, this research report is useful for graduate students and researchers who are specifically interested in the subject. For regular accounting courses, however, the subject will be too detailed. The research report contributes to the aim of ACCA's research program. The report is of high quality, with a focus on the U.S. and Europe, the main regions of the world where derivatives are of great importance.
Dick van Offeren
Frederick D. S. Choi and Gary K. Meek,
FREDERICK D. S. CHOI and GARY K. MEEK, International Accounting, Seventh Edition (Upper Saddle River, NJ: Prentice Hall, 2011, ISBN: 13 978-0-13-611147-4, ISBN: 10 0-13-611147-5, pp. xiii, 476). Information available at: http://www.pearsonhighered.com/educator/academic/product/0,3110,0136111475,00.html
This book is a well-established text for international accounting courses, first published in 1984 by Choi and Mueller. This review will provide the following: an overview of the contents of the seventh edition, changes made from the sixth edition, suggestions for future improvement in the text, and an assessment of the suitability of the book for different types of international accounting courses.
The book consists of 12 chapters: Chapter 1—An Introduction, offering a background on the multidimensional environment of international business; Chapter 2—Development and Classification, reflecting how accounting evolved worldwide, including different frameworks of financial reporting; Chapter 3—Comparative Accounting in Europe, analyzing financial regulations and reporting in five European countries: France, Germany, the Czech Republic, The Netherlands, and the United Kingdom; Chapter 4—Comparative Accounting-Americas and Asia, examining financial regulation and reporting in five countries: the United States (U.S.), Mexico, Japan, China, and India; Chapter 5—Reporting and Disclosure, discussing the issues of forecast reporting, segmented reporting, social responsibility reporting, corporate governance, Internet business reporting, and XBRL; Chapter 6—Foreign Currency Translation, providing a history of this issue and analysis of FAS 52 and IAS 21; Chapter 7—Financial Reporting and Changing Prices, analyzing the adjustments to financial statements to reflect inflation and current replacement costs; Chapter 8—Global Accounting and Auditing Standards, discussing international convergence, the evolution of the International Accounting Standards Board (IASB), and the influence of the European Union and other international organizations that have impacted international accounting; Chapter 9—International Financial Statement Analysis, explaining ratios, the role of audits, cash flow analysis, and barriers to analysis; Chapter 10—Managerial Planning and Control, covering multinational information systems to support corporate strategies and performance evaluation; Chapter 11—Financial Risk Management, dealing with currency exposures, hedging, and speculation; and Chapter 12—International Taxation and Transfer Pricing, focusing on national tax systems and issues underlying the measurement of transfer prices. The end-of-chapter material includes references, discussion questions, exercises, and cases. The changes that the authors made are essentially updates in the chapters, especially on the following topics: corporate governance, international auditing, comparative accounting, capital markets, institutional developments, international accounting convergence, disclosure practices, and international website citations.
This text provides broad coverage of its subject matter, including the interdisciplinary nature of international accounting. The main strength of the book is its analysis of accounting and cultural influences in different countries. A second strength is its interesting cases, especially Regents Corporation on foreign currency translation in Chapter 6, and Muscle Max on transfer pricing in Chapter 12. A third strength is a comprehensive list of websites on international accounting.
The book could be improved in several ways. From a general standpoint, the authors should furnish more up-to-date references throughout the text. Also desirable would be current perspectives on the nature and composition of accounting boards, including the U.S. Financial Accounting Standards Board (FASB) and the IASB—both of which are expanding their memberships. The IASB, in fact, has added four “user” members recently. The authors could provide more critical analysis on such current topics as international accounting convergence (in particular, should the U.S. convert to International Financial Reporting Standards [IFRS]) and the future of international accounting. Overall, the book would benefit from more current material. There could be a student supplement providing online quizzes.
From a more specific standpoint, while the authors have updated the text for country accounting developments, including corporate governance, they are advised to treat these topics by comparing and critiquing them from one country to another rather than describing them by individual country. The authors should consider rewriting their presentation on derivatives to make it easier for students to follow, carefully explaining the rationale for these instruments and how to apply them in practice. A discussion of the events generating the recent global financial crisis would be suitable for inclusion in this text. Among the key issues are: “How did accounting affect this crisis?” and “How was accounting affected by the crisis?” Following that, the authors could offer a more current analysis of the fair value accounting controversy, along with the political events that have shaped its development—in particular, the roles played by the G-20 Summit meetings, the U.S. Congress, and the European Union. The discussion on sustainability might be expanded to cover the Global Research Initiative (GRI) as a broad model setting guidelines on the strategy, approach, and performance indicators that many global companies use to report their economic, environmental, and social performance. Excerpts from current GRI reports could then be presented and evaluated.
This book may be suitable for an international audience of graduate students, where theory rather than applications is the focus. By contrast, other international accounting books place greater emphasis on the mechanics of such topics as accounting for general price level and specific price changes, as well as derivatives and hedging. Accordingly, instructors seeking a text stressing perennial issues in international financial reporting may find this book appealing, but those searching for a book detailing how those issues are accounted for should consider alternatives. Nonetheless, the end-of-chapter material encourages its readership to think critically about the multidimensional issues presented.
The new edition is somewhat shorter than its predecessors (476 versus 510 pages in the sixth edition, 503 in the fifth edition, and 522 in the fourth edition), yet the subject matter is ever-expanding. This book is, perhaps, too brief to be a standalone text for most international accounting courses in the U.S. and Canada unless supplemental materials are furnished for such courses.
John Carroll University
Christopher Nobes and Robert Parker,
Comparative International Accounting
CHRISTOPHER NOBES and ROBERT PARKER, Comparative International Accounting, 11th Edition (Harlow, U.K.: Pearson, 2010, ISBN 978-0-273-72562-6, pp. xxi, 637). Information available at: www.pearsoned.co.uk/nobes
The 11th edition of Comparative International Accounting, by Nobes and Parker, continues to provide a relevant and challenging presentation of the rapidly evolving field of international accounting. It can be used at the undergraduate or graduate level as a stand-alone textbook. Its high technical level, however, makes it recommended primarily for graduate students and very well prepared undergraduate students with a solid background in intermediate accounting.
A major strength of this textbook, from the point of view of a U.S. reader, is its thorough discussion of International Financial Reporting Standards (IFRS) and its comparisons of IFRS to U.S. Generally Accepted Accounting Principles (GAAP). The persistence of various national accounting standards, despite widespread adoption of IFRS, is addressed. The coverage of national standards other than U.S. GAAP is necessarily brief. The book is not a country-by-country comparison, but largely a comparison of IFRS and U.S. GAAP with many strong references to European practices. Latin American, African, and Asian practices are included to a lesser, but still significant, extent. Another strength would be the ongoing discussion of the political influence on the accounting standard-setting processes, both at the national and international levels. Comparative International Accounting is very comprehensive when discussing financial reporting, and less comprehensive in its discussions of management accounting, international taxation, international auditing, and international financial statement analysis.
The book is very well organized with inter-chapter references, and follows a standard framework from chapter to chapter. This is a significant accomplishment given that many chapters are written by different authors, some from the U.S. and some from European backgrounds.
Comparative International Accounting contains six parts. Part I explains why international differences in financial reporting persist in spite of the adoption of IFRS by members of the European Union (EU) and many other countries around the world. Chapter 1 lays out the structure of the book and suggests that global influences on financial reporting include world politics, international trade, foreign direct investment, globalization of stock markets, changing patterns of share ownership, and the international financial system. Chapter 2 examines the forces causing differences in financial reporting. Several specific examples of differences are noted, including different levels of conservatism, ways of handling provisions and reserves, ways of measuring assets, and financial statement formats. Chapter 3 examines the classification of accounting systems, the value of classification, and historical efforts at classification. It asserts the continuing need for classification efforts in an IFRS world. Chapter 4 addresses the worldwide accounting harmonization movement, including its causes, obstacles, and results. The work of the International Accounting Standards Committee (IASC) and its successor organization, the International Accounting Standards Board (IASB), are highlighted, as are the roles played by the International Federation of Accountants (IFAC), the International Organization of Securities Commissions (IOSCO), and several other supra-national organizations. The authors conclude this chapter by noting that the IASB is well on its way to becoming the world's prime accounting standard-setter.
Part II discusses the financial reporting practices of groups listed on stock exchanges. Chapter 5 explains the differences between adopting IFRS and converging a national system toward IFRS. It emphasizes the differences between IFRS and U.S. GAAP, as well as the status of IFRS in the U.S. Chapter 6 outlines and summarizes the requirements of IFRS. An appendix includes a summary of each IFRS statement. Chapter 7 discusses the different versions of IFRS in practice, explaining how gaps, choices, and estimations in IFRS can lead to these different versions. The effect of different monitoring and enforcement practices is also discussed. Chapter 8 concentrates on financial reporting in the U.S., outlining U.S. standard-setting and enforcement practices, as well as the main features of U.S. GAAP. The main differences between U.S. GAAP and IFRS are discussed. Chapter 9, a new chapter in the 11th edition, deepens the U.S. GAAP-IFRS comparison for specific issues, including intangible assets, asset measurement, provisions and reserves, employee benefits, deferred tax, revenue recognition, and comprehensive income. Chapter 10 discusses enforcement of financial reporting standards in the U.S., the EU—especially the United Kingdom (U.K.), France, and Germany—and some Pacific Rim countries, including Australia, China, and Japan. Chapter 11, written by Stephen Zeff, reviews the impact of the political system on accounting standards, discussing lobbying in the U.S., the U.K., and various political efforts to influence IFRS, concluding that any attempt to understand the accounting standard-setting process must include an understanding of the political process.
Part III deals with accounting harmonization and transition in two parts of the world: Europe and East Asia. Chapter 12 emphasizes the EU and the countries of Central and Eastern Europe. Chapter 13 concentrates on Japan and China. Each of these chapters argues that international harmonization has had a major impact, but that regional and national influences still exert strong influences in each of these regions.
Part IV discusses national financial reporting. The authors remind us that in many countries, consolidated and unconsolidated statements of companies not listed on exchanges still follow national rules. Chapter 14 discusses why national rules still survive, highlighting the use of national rules to calculate taxable income. The issue of differential reporting requirements for small and medium-sized enterprises (SMEs) is addressed. Chapter 15 discusses the accounting rule-making processes in France, Germany, and the U.K. Appendices showing portions of the French plan comptable are included. Chapter 16 reviews financial statement formats and national accounting principles that are different from IFRS in France, Germany, and the U.K. Appendices show financial statement formats for these three countries.
Part V examines group accounting policies. A specific issue is discussed in each chapter, and IFRS and U.S. GAAP approaches to the topic are compared and contrasted. Consolidations are discussed in Chapter 17. Foreign currency translation is explained in Chapter 18, which was written by John Flower. Theoretical and practical issues with the various translation methods are discussed, along with some significant research efforts. Chapter 19, written by Clare Roberts, discusses segment reporting and the problems involved with identifying segments, and reviews research efforts designed to measure the costs and benefits of segment reporting.
Part VI deals with international financial analysis and management issues. Chapter 20, written by Stuart McLeay, surveys international financial analysis and discusses differences in accounting systems and disclosure practices, as well as methodologies to interpret international financial statements. Chapter 21, written by Graham Gilmour, discusses international auditing, including various international standard-setting processes and the international audit process itself. The work of IFAC and the International Auditing and Assurance Standards Board (IAASB) are noted. Chapter 22 surveys international taxation and includes differences in tax systems internationally. International tax planning, including transfer pricing, is also briefly addressed. The chapter concludes with a short discussion of current tax harmonization efforts. Chapter 23, written by Stephen Salter, discusses management accounting internationally, including exchange rate effects, and it surveys management accounting and control techniques used by various nations.
Each chapter begins with an outline of the chapter's contents referenced by the section number of the chapter. There is also a concise list of objectives provided for each chapter. Each chapter concludes with a summary, an extensive list of relevant references, and a list of useful websites. There is also a list of questions at the end of each chapter, with suggested answers for the first few chapter questions included at the back of the book. At the end of the text, there is a helpful list explaining abbreviations. There is a website for instructors who choose to adopt this text, which includes an instructor's manual and PowerPoint slides. In this edition, these materials are password-protected, and were not included as part of this review.
In conclusion, this text would serve as an excellent undergraduate or graduate textbook for an international accounting course for students with a strong accounting background. As a reference, it should be in the bookcase of every teacher or researcher involved in international accounting, and would be very useful to accounting faculty looking to integrate IFRS into their curriculum as the U.S. moves closer to adopting, or at least converging with, IFRS. IFRS financial statements from foreign registrants have become a reality for U.S. students entering the accounting profession. Comparative International Accounting is a valuable resource to help U.S. accounting professors meet their students' evolving needs.
John L. Haverty
St. Joseph's University