INTERNATIONAL ASSOCIATION FOR ACCOUNTING EDUCATION AND RESEARCH (IAAER) potx

The methodology was as follows: 1 Establishment of a detailed bibliography of books on international accounting; 2 Selection of a sample of publications; 3 Definition of a table for anal

THE DEFINITION OF INTERNATIONAL ACCOUNTING

THROUGH TEXTBOOK CONTENTS

For Presentation at the 8th World Congress of the

INTERNATIONAL ASSOCIATION FOR ACCOUNTING EDUCATION

AND RESEARCH (IAAER)

Paris, France, October 23-25, 1997

Second draft (January 31, 1997)

May not be quoted or used without permission Review comments welcomed Please contact theauthor

_

Acknowledgments The works referred to in this report were studied by the author and by Véronique N'Guyen and

Philippe Touron, students on the HEC doctoral program at the School’s Department of Accounting and Management Control The study is based on a comparative table, developed after consulting several experts in the field, to whom we extend warm thanks: David Alexander, University of Hull (UK), Frederick Choi, New York University (USA), Gary Meek, Oklahoma State University (USA), Christopher Nobes, University of Reading (UK), Robert Parker, University of Exeter (UK), Lee Radebaugh, Brigham Young University (USA), Steven Salter, University of Cincinnati (USA), Stefano Zambon, University of Padua (Italy).

Particular thanks go to Michel Tenenhaus, Professor at the HEC Group, who supplied valuable help in statistical processing of data, for which we were assisted by Philippe Touron.

We should also like to thank Michel Lebas, Professor at the HEC Group, who reviewed a first draft of this paper and contributed to its improvement However, responsibility for the results and opinions expressed remains solely and entirely with the author.

Finally, we wish to thank Ann Gallon, for her much appreciated help in preparing the English language version of this paper.

THE DEFINITION OF INTERNATIONAL ACCOUNTING

THROUGH TEXTBOOK CONTENTS

ABSTRACT

In the last twenty-five years, international accounting has developed significantly, and this is reflected in the particularly wide range of literature published on the theme But there is a paradox: we have noted that although many works referred to factors that have had an internationalizing influence on accounting, few of them gave any real definition of the concept of international accounting Furthermore, there is no one single definition of international accounting, and several ideas currently co-exist.

This study aims to identify the field of international accounting by reference to a sample of European and American textbooks on the subject It should further our knowledge of the way in which international accounting

is approached in these textbooks, and enable academics to assess their position in relation to the various approaches currently used for international accounting education.

The methodology was as follows: (1) Establishment of a detailed bibliography of books on international accounting; (2) Selection of a sample of publications; (3) Definition of a table for analysis of the sample; (4) Application of the analysis table to the sample; (5) Classification; (6) Analysis of contents using the tables, based

on a principal component analysis; (7) Definition of international accounting by the authors; (8) Conclusion Among other observations, our statistical analysis revealed the dual nature of textbook approaches to international accounting There is one group of textbooks covering the accounting aspects of company internationalization, with

a "monistic" view of accounting systems, in other words one which considers financial accounting and management accounting together; these books are concerned with the accounting dimensions, in the broadest sense, of multinational corporations Then there is a second group of textbooks which take a country-by-country approach, and seek to highlight the differences between countries Problems relating to the internationalization of accounting frameworks are dealt with locally, on a national level It is true that a few books have a "mixed" approach, but they remain clearly affiliated to one of these two groups.

Can the existence of a link between the group a book belongs to and its author’s institution of education be pure coincidence? One thing is clear: the first group of books are written by authors teaching in the USA, while the second group are written by European-based authors.

INTRODUCTION - PRESENTATION

The development of international accounting

and adolescence to become a young adult, and its growth is reflected in the large quantity ofaccounting literature in the sphere Why are researchers and academics so interested in this

"discipline" ? There are several possible answers F Choi and G Mueller2 point out that now atthe end of the twentieth century, a period shaped by the forces of global competition, operating,financing, and investing decisions are colored by their international implications As many of thesedecisions are premised on accounting data, a knowledge of international accounting issues iscrucial for achieving proper interpretation and understanding in international businesscommunications

Paradoxically, we have observed that although many publications referred to factors with aninternationalizing influence on accounting, few of them supplied any real definition of the concept

of international accounting Furthermore, there is no one single definition of internationalaccounting, and several visions of the concept currently co-exist

Objectives of the research

This research aims to identify the field of international accounting by reference to a sample of

European and American textbooks on the subject It should further our knowledge of the way inwhich international accounting is approached in these books, and enable academics to assess theirposition in relation to the various approaches currently used for teaching international accounting

Methodology

Our goal is to identify the field of international accounting based on the themes covered bytextbooks on international accounting, and also their prefaces, forewords and introductorychapters

The following methodology was applied: (1) Establishment of a detailed bibliography of books oninternational accounting; (2) Selection of a sample of publications; (3) Definition of a table foranalysis of the sample; (4) Application of the analysis table to the sample; (5) Classification; (6)Analysis of contents using the tables, based on a principal component analysis; (7) Definition ofinternational accounting by the authors; (8) Conclusion

1 - ESTABLISHMENT OF A DETAILED BIBLIOGRAPHY OF BOOKS ON INTERNATIONAL ACCOUNTING

Our bibliography was drawn up by consulting the following sources: (1) the HEC library database; (2) the University of Paris-Dauphine library data base; (3) the catalogues of the majorAmerican and British accounting publishers: Addison-Wesley, Chapman & Hall, Harcourt BraceProfessional Publishing - Academic Press, Irwin, John Wiley & Sons, McGraw-Hill, PrenticeHall, Routledge, South-Western Publishing, and The Dryden Press; (4) bibliographies from books

on international accounting (the "snowball" effect)

We were looking for publications with the following key words in their titles: (1) "accounting"and "international"; (2) "accounting" and "multinational"; (3) "accounting" and "Europe" (or

"European"); (4) "reporting" and "international"; (5) "comptabilité" and "internationale"; (6)

"comptabilité" and "Europe" (or "européenne" or "C.E.E." or "Union européenne"); (7)

"principe(s) comptable(s)" and "Europe" (or "européenne" or "C.E.E." or "Union européenne");(8) "ragionaria" and "internazionale"

2 - SELECTION OF A SAMPLE OF PUBLICATIONS

Several books have been published in more than one edition, and it would have been interesting

to examine developments in the way their authors approached international accounting as the

which declining However, for the purposes of this study, we decided to examine the current state

of affairs, and only the most recent editions of the selected works were used

Books on international accounting can be divided into four categories: (1) Textbooks, (2)Reference books (country-by-country presentation), (3) Published research or anthologies, and(4) Case studies

This paper refers only to textbooks We determined that it was not advisable to analyze referencebooks, whose main objective is to describe accounting practices in a certain number of countries.Moreover, these works are not always truly comparative accounting studies, as they often onlyallot a relatively small amount of space to comparison4

For similar reasons, we eliminated from our sample publications relating to internationalaccounting but which represented research in the field, such as "Judgment in internationalaccounting" by A Belkaoui (1990), "International Group Accounting", coordinated by S Gray,

A Coenenberg and P Gordon (1993), and "International Accounting: A Survey" by J Samuels

and A Piper (1985) All of these are of great interest, but were eliminated as a result of ourdesire to study the way international accounting is viewed from an education standpoint, whichled to textbooks alone being selected for the final sample.

We are aware that our system of classification is debatable, as a "textbook" is a relative concept

Of course some research work, and even reference books (for example the collection directed by

L Klee - see appendix 2) can be used as a basis for teaching In addition, American textbookshave a very standardized presentation - chapter objectives, chapter, questions, specificbibliography - whereas European textbooks, particularly French ones, do not generally includesuch headings

For borderline cases, objective criteria had to be applied It was thus decided to exclude all workswhich did not contain questions or a bibliography, and so we arrived at a sample of 15 bookspublished since 1990 (see appendix 1) The publications we did not select are listed in appendix 2

3 - DEFINITION OF A TABLE FOR ANALYSIS OF THE SAMPLE

In order to define a table to analyze our sample and obtain comparable data, we sent a list of 34topics (see appendix 3) to 12 accounting academics and international accounting specialists,

perfectly apt for use in the study The following experts sent us their answers: David Alexander,University of Hull (UK), Frederick Choi, New York University (USA), Gary Meek, OklahomaState University (USA), Christopher Nobes, University of Reading (UK), Robert Parker,University of Exeter (UK), Lee Radebaugh, Brigham Young University (USA), Steven Salter,University of Cincinnati (USA), Stefano Zambon, University of Padua (Italy)

Several of our respondents remarked that the basic list was American in origin and therefore had

a certain in-built bias, since many of the proposed topics were based on the American view ofinternational accounting While in agreement, we believe that the effect can be counterbalanced,

as the list of topics is very detailed, and quite capable of adaptation to a non-American context,particularly a European context Furthermore, the sole aim of this list was to draw up a list ofthemes, not to apply the "American" list of topics to all the publications in the sample Theclassifications received from respondents were relatively similar, except in the case of certaintopics which call for the following comments:

accounting (1 of the 6 answers), in both of these themes (1 of the 6 answers) or in a differenttheme (2 of the 6 answers) This range of opinions illustrates the fact that transfer pricing covers

both taxation and management control aspects that are difficult to separate For the purposes ofthe study, only one theme could be accepted, and the decision was made to include transferpricing in the taxation theme.

in international accounting Three of our six experts put foreign currency management in general(topics 11, 12 and 15 of the list in appendix 3) into a different theme from accounting for foreignexchange transactions and translation (topics 13 and 14) Two put all these topics into the sametheme, while one included foreign exchange risk management (topic 15) in the "managerialaccounting" theme For simplicity’s sake, and to avoid increasing the number of themes, we opted

to put all foreign currency-related topics into a single theme

The themes determined in this way are listed below:

Table 1: List of themes

1 General presentation (Introduction/Definition of international accounting, emerging issues)

2 Classification of financial reporting practices (classifications and differences, environmental influences)

3 Comparative accounting practices (by countries and by issues)

4 Harmonization/International standards

5 Financial reporting and disclosure

6 International financial statement analysis

7 Foreign currency management (exchange rate, foreign-currency transactions and translation, future contracts, transaction exposure, accounting for inflation)

8 Managerial accounting (management control, strategic planning, performance evaluation, capital budgeting for multinationals, accounting information systems for multinational corporations)

9 International taxation (systems, transfer pricing)

10 Auditing (internal, external)

4 - APPLICATION OF THE ANALYSIS TABLE TO THE SAMPLE

We determined the proportion of the publication occupied by each theme in relation to the spacedevoted to all themes as a whole, by calculating the number of pages allotted to it This enabled

us to obtain comparable data for all the publications In drawing up the tables, the followingconventions were adopted:

studies, etc., we allocated the appendices to the relevant themes, proportionally to the number ofpages on each theme in the chapter

from a comparative point of view, covering practices in several countries: in this case, we

included it in theme n° 3 (comparative accounting practices) If, on the other hand, it is treated as

a question of accounting for price fluctuations, from a general, and often American standpoint,

we have put it into theme n° 7 (foreign currency management)

The same applies to translation of accounts into foreign currencies Either the approach iscomparative, and theme n° 3 applies, or translation is considered from an essentially Americanangle, in which case it is included in theme n° 7 (foreign currency management)

To reduce the bias inherent in application of this analysis system by one individual, the same tablewas used by three different persons: the academic leading the study, and two students on theHEC doctoral program The results were combined, to take into account differences in eachperson’s assessment of the table and interpretation of the publications The resulting final tables,with results for each work studied, are summarized in table 2 below

Table 2: Comparison: relative importance of themes covered

eral pres- ent- ation

Gen- ication of financial reporting practices

Classif- arative acc- ounting pract- ices

Comp-Harmon -ization/

national stand- ards

Inter- cial report- ing and dis- closure

Finan- national financial state- ment analysis

Inter-Foreign curren- cy manage- ment

ager- ial acc- oun- ting

Man- na- tional tax- ation

Inter-Audit -ing Total

Alexander & Nobes 15% 7% 27% 12% 0% 23% 9% 0% 7% 0% 100% Alhashim & Arpan 7% 2% 25% 14% 3% 12% 14% 9% 4% 10% 100%

Mueller, Gernon & Meek 7% 8% 12% 9% 21% 8% 5% 22% 8% 0% 100%

(1994, p 2) believe that the most important topics in international accounting fall into twocategories:

Financial accounting topics: Translation, Consolidation, Segment reporting, Inflation

accounting, Disclosure, Auditing, Taxation, Comparative accounting (with non-US nations)

Managerial accounting topics: Foreign exchange risk management, Foreign investment analysis,

Information systems, Transfer pricing, Budgeting, Performance evaluation, Control, Operationalauditing

This categorization is somewhat debatable, as it gives the role of foreign currencies, for example,

an impact in both areas, and has the same effect for other topics, such as consolidation or thetreatment of inflation

accounting and has two major dimensions: (1) Comparative: Examining how and why accountingprinciples differ from country to country; and (2) Pragmatic: accounting for the operationalproblems and issues encountered by individuals and firms in international business Although, inour opinion, there is no common division in these two systems of classification, Evans, Taylorand Holzmann add that the comparative dimension of international accounting is oriented towardfinancial accounting, and the pragmatic one tends to be managerial

L Radebaugh and S Gray (1993, p 9) also write that the study of international accountinginvolves two major areas: descriptive/comparative accounting and the accounting dimensions ofinternational transactions/multinational enterprises This second area principally covers theproblems encountered by multinational corporations: Financial reporting problems, translation offoreign currency financial statements, information systems, budgets and performance evaluation,audits, and taxes On the basis of this classification, our themes are distributed as follows:

Table 3: Classification of themes: Radebaugh/Gray

Descriptive/comparative accounting Accounting dimensions of international

transactions/multinational enterprises

2 Classification of financial reporting practices 8 Managerial accounting

3 Comparative accounting practices 9 International taxation

4 Harmonization/International standards 10 Auditing

5 Financial reporting and disclosure

6 International financial statement analysis

Using the classification proposed by T Evans, M Taylor and O Holzmann (1994), the resultsare as below:

Table 4: Classification of themes: Evans/Taylor/Holzmann

2 Classification of financial reporting practices 8 Managerial accounting

3 Comparative accounting practices

4 Harmonization/International standards

5 Financial reporting and disclosure

6 International financial statement analysis

Accounting information production Accounting information utilization

1 General presentation 5 Financial reporting and disclosure

2 Classification of financial reporting practices 6 International financial statement analysis

3 Comparative accounting practices 8 Managerial accounting

then used to classify the sample textbooks according to the categories in the above tables

Table 6: Number of themes

eral pres- ent- ation

Gen- ication of financial reporting practices

Classif- arative acc- ounting pract- ices

Comp-Harmon -ization/

national stand- ards

Inter- cial report- ing and dis- closure

Finan- national financial state- ment analysis

Inter-Foreign currency manage- ment

agerial acc- oun- ting

Man- ter- natio nal tax- ation

In- ing Total

Accounting dimensions of international transactions

Total cial account -ing

Finan- erial account- ing

Manag-Total Accounting information production

ting inform- ation utilization

Mueller, Gernon & Meek 65% 35% 100% 73% 27% 100% 49% 51% 100%

Quesada, Blanco & Gonzalez 100% 0% 100% 100% 0% 100% 66% 34% 100% Radebaugh & Gray 65% 35% 100% 78% 22% 100% 76% 24% 100%

6 - ANALYSIS OF CONTENTS OF TEXTBOOKS USING THE TABLES

The sample textbooks on international accounting were classified on the basis of relevant criteria

A principal component analysis , using two tables of data (table 2, Relative importance of themescovered, and table 7, Classifications, plus the total themes as shown in table 6), brings out thefactors which predominate in each publication’s contents This means that the properties of arelatively high number of variables (10 for table 2 and 7 for table 7) can be contained in two orthree factors The results obtained for table 2, then table 7 are presented below Two differentclassifications were developed in this way

6.1 Table 2 - relative importance of themes covered

Three factors are used They can analyze almost 75% of the global dispersion of individuals, inother words 75% of the spatial translation of individuals

6.1.1 The factors

The meaning of a factor is determined through interpretation of the axes This interpretation isfacilitated by the factorial coordinates of variables along the axis (see Diagram 1)

Diagram 1

RELATIVE IMPORTANCE OF THEMES

Position of themes in relation to factor 1 and 2

1.0 5

Auditing Financial Reporting and Disclosure Comparative Accounting Practices

General presentation Classification of financial

reporting practices Harmonization / International standards

Factor 1

Factor 2

-.5 -1.0

-1.0 -.5 0.0 1.0

.5

Factor 1 (F1): View of internationalization

Factor 1 shows:

• positive correlation with the "international taxation" and "foreign currency management"variables, and to a lesser extent, with the "managerial accounting" variable;

• negative correlation with the "comparative accounting practices" variable

In terms of content, it marks the contrast between works on multinational accounting and works

on comparative accounting practices The former cover problems inherent to theinternationalization of accounting systems common to most countries, while the latter examinedifferences between national accounting systems

Factor 2 (F2): The generalization (non specialization) factor

Factor 2 shows:

• positive correlation, principally with the "harmonization/international standards" variable, and to

a lesser degree with the "general presentation", then the "classification of financial reportingpractices" variable;

• negative correlation with the "auditing" variable

These variables never exceed 15% of the total pages in a sample publication

This factor reflects the fact that no particular subject dominates within the publication, and/or thatthe publication covers essentially general subjects: general presentation, classification of practicesand international standardization It therefore separates the non-specialized works from theothers

Factor 3 (F3)

Factor 3 shows:

• positive correlation with the "financial reporting and disclosure" variable;

• negative correlation with the "international financial statement analysis" variable