The Routledge Companion to Financial Accounting Theory Financial accounting theory has numerous practical applications and policy implications For instance, international accounting standard setters are increasingly relying on theoretical accounting concepts in the creation of new standards, and corporate regulators are increasingly turning to various conceptual frameworks of accounting to guide regulation and the interpretation of accounting practices The global financial crisis has also led to a new-found appreciation of the social, economic and political importance of accounting concepts in general and corporate financial reporting in particular The fundamentals of capital market theory (i.e market efficiency) and measurement theory (i.e fair value), for example, have received widespread public and regulatory attention This comprehensive, authoritative volume contains the current scholarship and practice in the established field of financial accounting theory It is a prestige reference work and a valuable resource for students, academics, regulators and practitioners Stewart Jones is Professor of Accounting at the University of Sydney, Australia He is co-author of the bestselling textbook Financial Accounting Theory, Third Edition (2009, Cengage) and edits the prestigious accounting journal Abacus Routledge Companions in Business, Management and Accounting Routledge Companions in Business, Management and Accounting are prestige reference works providing an overview of a whole subject area or sub-discipline These books survey the state of the discipline, including emerging and cutting-edge areas Providing a comprehensive, up-todate, definitive work of reference, each Routledge Companions can be cited as an authoritative source on the subject A key aspect of these Routledge Companions is their international scope and relevance Edited by an array of highly regarded scholars, these volumes also benefit from teams of contributors which reflect an international range of perspectives Individually, Routledge Companions in Business, Management and Accounting provide an impactful one-stop-shop resource for each theme covered Collectively, they represent a comprehensive learning and research resource for researchers, postgraduate students and practitioners Published titles in this series include: The Routledge Companion to Fair Value and Financial Reporting Edited by Peter Walton The Routledge Companion to Nonprofit Marketing Edited by Adrian Sargeant and Walter Wymer Jr The Routledge Companion to Accounting History Edited by John Richard Edwards and Stephen P Walker The Routledge Companion to Creativity Edited by Tudor Rickards, Mark A Runco and Susan Moger The Routledge Companion to Strategic Human Resource Management Edited by John Storey, Patrick M.Wright and David Ulrich The Routledge Companion to International Business Coaching Edited by Michel Moral and Geoffrey Abbott The Routledge Companion to Organizational Change Edited by David M Boje, Bernard Burnes and John Hassard The Routledge Companion to Cost Management Edited by Falconer Mitchell, Hanne Nørreklit and Morten Jakobsen The Routledge Companion to Digital Consumption Edited by Russell W Belk and Rosa Llamas The Routledge Companion to Identity and Consumption Edited by Ayalla A Ruvio and Russell W Belk The Routledge Companion to Public-Private Partnerships Edited by Piet de Vries and Etienne B.Yehoue The Routledge Companion to Accounting, Reporting and Regulation Edited by Carien van Mourik and Peter Walton The Routledge Companion to International Management Education Edited by Denise Tsang, Hamid H Kazeroony and Guy Ellis The Routledge Companion to Accounting Communication Edited by Lisa Jack, Jane Davison and Russell Craig The Routledge Companion to Visual Organization Edited by Emma Bell, Jonathan Schroeder and Samantha Warren The Routledge Companion to Arts Marketing Edited by Daragh O’Reilly, Ruth Rentschler and Theresa Kirchner The Routledge Companion to Alternative Organization Edited by Martin Parker, George Cheney,Valerie Fournier and Chris Land The Routledge Companion to the Future of Marketing Edited by Luiz Moutinho, Enrique Bigne and Ajay K Manrai The Routledge Companion to Accounting Education Edited by Richard M S.Wilson The Routledge Companion to Business in Africa Edited by Sonny Nwankwo and Kevin Ibeh The Routledge Companion to Human Resource Development Edited by Rob F Poell,Tonette S Rocco and Gene L Roth The Routledge Companion to Auditing Edited by David Hay,W Robert Knechel and Marleen Willekens The Routledge Companion to Entrepreneurship Edited by Ted Baker and Friederike Welter The Routledge Companion to International Human Resource Management Edited by David G Collings, Geoffrey T Wood and Paula Caligiuri The Routledge Companion to Financial Services Management Edited by Tina Harrison and Hooman Estelami The Routledge Companion to International Entrepreneurship Edited by Stephanie A Fernhaber and Shameen Prashantham The Routledge Companion to Non-Market Strategy Edited by Thomas C Lawton and Tazeeb S Rajwani The Routledge Companion to Cross-Cultural Management Edited by Nigel Holden, Snejina Michailova and Susanne Tietze The Routledge Companion to Financial Accounting Theory Edited by Stewart Jones This page intentionally left blank The Routledge Companion to Financial Accounting Theory Edited by Stewart Jones First published 2015 by Routledge Park Square, Milton Park, Abingdon, Oxon OX14 4RN Simultaneously published in the USA and Canada by Routledge 711 Third Avenue, New York, NY 10017 Routledge is an imprint of the Taylor & Francis Group, an informa business © 2015 Stewart Jones The right of the editor to be identified as the author of the editorial material, and of the authors for their individual chapters, has been asserted in accordance with sections 77 and 78 of the Copyright, Designs and Patents Act 1988 All rights reserved No part of this book may be reprinted or reproduced or utilised in any form or by any electronic, mechanical, or other means, now known or hereafter invented, including photocopying and recording, or in any information storage or retrieval system, without permission in writing from the publishers Trademark notice: Product or corporate names may be trademarks or registered trademarks, and are used only for identification and explanation without intent to infringe British Library Cataloguing in Publication Data A catalogue record for this book is available from the British Library Library of Congress Cataloging in Publication Data The Routledge companion to financial accounting theory / edited by Stewart Jones — Edition pages cm — (Routledge companions in business, management and accounting) Includes bibliographical references and index Accounting I Jones, Stewart, 1964- editor HF5636.R684 2015 657.01—dc23 2014038304 ISBN: 978-0-415-66028-0 (hbk) ISBN: 978-0-203-07425-1 (ebk) Typeset in Bembo by Swales & Willis Ltd, Exeter, Devon, UK Contents List of figures ix List of tables x Contributors xii ╇ Development of financial accounting theory Stewart Jones ╇ History of financial accounting theory in Britain John Richard Edwards ╇ Financial accounting and reporting in the United States of America – 1820 to 2010: Toward sunshine from shadows Gary J Previts and Dale L Flesher ╇ Evolution of early practice descriptive theory in accounting Stewart Jones and Max Aiken 12 39 91 ╇ Accounting and the decision usefulness framework Thomas A Lee 110 ╇ Price variation and inflation accounting research R.J Chambers 129 ╇ Standard setting, politics and change management: a personal perspective Sir David Tweedie ╇ International differences in IFRS adoptions and IFRS practices Christopher Nobes 147 167 vii Contents ╇ Fair value and the great financial crisis Amir Amel-Zadeh and Geoff Meeks 197 10 Fair value and IFRS Geoffrey Whittington 217 11 Valuation models: An issue of accounting theory Stephen H Penman 236 12 Earnings management: Implications and controversies Joshua Ronen and Varda Yaari 254 13 Agency theory: Usefulness and implications for financial accounting Alfred Wagenhofer 341 14 Disclosure and the cost of capital: A survey of the theoretical literature 366 Jeremy Bertomeu and Edwige Cheynel 15 A Bayesian understanding of information uncertainty and the cost of capital D J Johnstone 396 16 Controlling for risk in accounting research Nuno Soares and Andrew W Stark 423 17 Financial measurement and financial markets Mike Dempsey and Stewart Jones 438 18 Social theorisation of accounting: Challenges to positive research Trevor Hopper, Junaid Ashraf, Shahzad Uddin and Danture Wickramasinghe 452 19 True and fair: A business ethos ‘par excellence’ Frank Clarke and Graeme Dean 472 20 Accounting for the carbon challenge Janek Ratnatunga and Stewart Jones 492 21 Corporate sustainability reporting: Theory and practice Geoff Frost and Stewart Jones 514 Index 536 viii Figures ╇ 8.1 Methods of implementing IFRS (for consolidated statements of listed companies) 169 ╇ 8.2 A suggested classification of accounting ‘systems’ in some developed Western countries in 1980 183 ╇ 9.1 Bank holding company assets measured at fair value and assets measured at cost in absolute terms and as a fraction of total bank assets 200 ╇ 9.2 Trading assets and mortgage-backed securities held as a proportion of trading assets of large bank holding companies (with total assets greater than US$ 100 billion) 201 ╇ 9.3 Quarterly asset growth vs leverage growth 1980–2008 309 12.1 Smoothing versus truth-telling 264 12.2 The distribution of net income scaled by market value 265 12.3 The reporting strategy of a short-run MBT firm 290 12.4 The reporting strategy of a long-run MBT firm 291 13.1 Agency problems from financing 343 14.1 Manufacturing in Ohio (period 1850–1860) 367 14.2 Cost of capital in the railway industry (1920–1926) 368 14.3 Effect of information on the risk premium 372 15.1 Stochastic process generating asset value and signal with probabilities conditioned on the market state 401 15.2 Contour plot of posterior probability as a function of signal error characteristics 403 15.3 Contour plot of posterior covariance as a function of signal error characteristics 404 15.4 Contour plot of posterior asset price as a function of signal error characteristics 405 15.5 Contour plot of posterior expected return as a function of signal error characteristics 406 ix .. .The Routledge Companion to Financial Accounting Theory Financial accounting theory has numerous practical applications and policy implications For instance, international accounting. .. Contributors xii ╇ Development of financial accounting theory Stewart Jones ╇ History of financial accounting theory in Britain John Richard Edwards ╇ Financial accounting and reporting in the. .. Land The Routledge Companion to the Future of Marketing Edited by Luiz Moutinho, Enrique Bigne and Ajay K Manrai The Routledge Companion to Accounting Education Edited by Richard M S.Wilson The Routledge