Carien van Mourik

The Equity Theories and Financial Reporting: An Analysis

This paper reviews accounting literature in the English language on proprietary and entity theory in order to understand their implications for financial accounting and reporting. Although there is a lack of agreement on the definition and accounting implications of the various equity theories, the literature indicates clear differences between pure proprietary and pure entity perspectives of the firm. These differences particularly relate to the purpose of accounting and financial reporting, the distinction between debt and equity and its accounting implications for the analysis and recording of transactions and recordable events, and the definition, determination, disclosure and distribution of income. The main contribution of this paper is twofold. First, it explains in operational terms why an entity perspective of the company is theoretically irreconcilable with the asset--liability approach to the determination of income. Second, it makes clear that there is always an implicit perspective to financial reporting. Inconsistency in accounting standards results if the implicit perspective is not the same as the perceived focus of decision-usefulness.This paper reviews accounting literature in the English language on proprietary and entity theory in order to understand their implications for financial accounting and reporting. Although there is a lack of agreement on the definition and accounting implications of the various equity theories, the literature indicates clear differences between pure proprietary and pure entity perspectives of the firm. These differences particularly relate to the purpose of accounting and financial reporting, the distinction between debt and equity and its accounting implications for the analysis and recording of transactions and recordable events, and the definition, determination, disclosure and distribution of income. The main contribution of this paper is twofold. First, it explains in operational terms why an entity perspective of the company is theoretically irreconcilable with the asset–liability approach to the determination of income. Second, it makes clear that there is always an implicit perspective to financial reporting. Inconsistency in accounting standards results if the implicit perspective is not the same as the perceived focus of decision-usefulness.

The Equity Theories and the IASB Conceptual Framework

Abstract The International Accounting Standards Board (IASB) staff members ‘recommend that the IASB confirm its view that financial statements should be presented from the perspective of the entity as a whole’ [IASB (2014) Agenda Paper 10E Project – The Conceptual Framework. Reporting Entity – Perspective. London: The International Accounting Standards Board. May 2014. Available at: http://www.ifrs.org/Meetings/MeetingDocs/IASB/2014/May/AP10E-Conceptual%20Framework.pdf (accessed 9 July 2014), para. 28], which implies adoption of the Entity Theory. This paper explains the value judgements and arguments supporting the main equity theories and their perspectives on financial performance and financial position. It identifies Residual Equity Theory, instead of Entity Theory, as the dominant equity theory in the 2010 IASB Framework and the 2013 IASB Exposure Draft. Hence, there is a discrepancy between the perspective from which the IASB thinks financial statements should be presented and the perspective actually underlying the definition, recognition and measurement of the elements of financial statements in the IASBs Framework and Exposure Draft. Finally, this paper argues for a careful reconsideration and justification of the equity theory the IASB chooses as the basis for its Conceptual Framework.

The European IFRS Endorsement Process – in Search of a Single Voice

Abstract We analyse the creation and development of the European Financial Reporting Advisory Group (EFRAG), a key part of the EU endorsement mechanism for International Financial Reporting Standards (IFRS), which was probably the first example of a dedicated IFRS endorsement system. We discuss the historical background to the EU approach and we analyse how EFRAG evolved over its early years up to the Maystadt reform. Our analysis addresses its remit, its operational structure and financing and the key decisions made in the endorsement process over this period. We find that while national standard-setters had a limited role in the early stages, and EFRAG had limited resources, over time the pressure to find more resources and to try to achieve a unified voice in the creating of international standards have resulted in national standard-setters playing an ever-greater role. Nonetheless, a single voice for Europe is not likely to be attained

Goodwill accounting standards in the United Kingdom, the United States, France, and Japan

In this article, we revisit the history of accounting for goodwill in the United Kingdom, the United States, France, and Japan following the conclusions and predictions of Ding, Richard and Stolowy (2008). We aim at verifying whether the four phases of development of the accounting for goodwill between 1880 and 2005 are actually determined by the global change from a stakeholder model of corporate governance to a shareholder model. An extended time frame of analysis (until 2016) is considered in this study, which includes Japan among the country-specific accounting systems investigated. Our findings do not support Ding et al.’s predictions for Japan and demonstrate a disagreement between those countries which consider goodwill as a depleting asset and those which consider goodwill as a permanent asset. This observation might explain better the current debate concerning international harmonization on goodwill.

Articulation, Profit or Loss and OCI in the IASB Conceptual Framework: Different Shades of Clean (or Dirty) Surplus

The 2015 International Accounting Standards Board (IASB) Conceptual Framework Exposure Draft (2015 IASB CF ED) proposes a mixed valuation and transactions approach to income determination. Nevertheless, it does not clearly choose between single or dual concepts of profit, which renders the 2015 IASB CF ED’s financial accounting model somewhat incoherent. The 2015 IASB CF ED proposes a rebuttable presumption that profit or loss should be all-inclusive. Only the IASB can rebut this presumption, but the 2015 IASB CF ED provides no clear conceptual basis on which to rebut this presumption. In spite of considering dual measurement, the IASB believes that it is neither possible, nor necessary, to distinguish between profit or loss and other comprehensive income (OCI) on a conceptual basis. This paper suggests that the 2015 IASB CF ED’s approach to measurement can be improved by introducing a deprival value measurement rule in cases where fair value and historical cost are not appropriate. Furthermore, it argues that under dual measurement it is both necessary and possible to make a conceptual distinction between the realised items of income and expense in profit or loss and those recognised by accretion in OCI.Abstract The 2015 International Accounting Standards Board (IASB) Conceptual Framework Exposure Draft (2015 IASB CF ED) proposes a mixed valuation and transactions approach to income determination. Nevertheless, it does not clearly choose between single or dual concepts of profit, which renders the 2015 IASB CF ED’s financial accounting model somewhat incoherent. The 2015 IASB CF ED proposes a rebuttable presumption that profit or loss should be all-inclusive. Only the IASB can rebut this presumption, but the 2015 IASB CF ED provides no clear conceptual basis on which to rebut this presumption. In spite of considering dual measurement, the IASB believes that it is neither possible, nor necessary, to distinguish between profit or loss and other comprehensive income (OCI) on a conceptual basis. This paper suggests that the 2015 IASB CF ED’s approach to measurement can be improved by introducing a deprival value measurement rule in cases where fair value and historical cost are not appropriate. Furthermore, it argues that under dual measurement it is both necessary and possible to make a conceptual distinction between the realised items of income and expense in profit or loss and those recognised by accretion in OCI.

I Understood the Words but I Didn't Know What They Meant: Japanese Online MBA Students' Experiences of British Assessment Practices.

Abstract We report on a case study of high Japanese student failure rates in an online MBA programme. Drawing on interviews, and reviews of exam and assignment scripts we frame the problems faced by these students in terms of a ‘language as social practice’ approach and highlight the students’ failure to understand the specific language games that underpin the course assessment approach. We note the way in which the distance learning and online context can make the challenges faced by international students less immediately visible to both students and institution.

Fundamental issues in financial accounting and reporting theory

[About the book] Financial accounting, reporting and regulation is a vast subject area of huge global importance, with interest rising significantly in the light of the ongoing global financial crisis. The authors begin with a broad overview of the subject of accounting, setting the stage for a discussion on the theoretical and practical issues and debates regarding financial reporting, which are expanded on in the second part of the book. This includes how to define the reporting entity, recognition and measurement of the elements of financial statements, fair values in financial reporting and the costs and benefits of disclosure. The third part assesses the interest, need and theories behind the accounting, reporting and regulation industry, while parts four and five look at the institutional, social and economic aspects; with issues such as accounting for environmental management and, accounting regulation and financial reporting in Islamic countries, both issues of ever increasing importance. This authoritative Companion presents a broad overview of the state of these disciplines today, and will provide a comprehensive reference source for students and academics involved in accounting, regulation and reporting.

Methodology in Financial Accounting Theory

[About the book] Financial accounting, reporting and regulation is a vast subject area of huge global importance, with interest rising significantly in the light of the ongoing global financial crisis. The authors begin with a broad overview of the subject of accounting, setting the stage for a discussion on the theoretical and practical issues and debates regarding financial reporting, which are expanded on in the second part of the book. This includes how to define the reporting entity, recognition and measurement of the elements of financial statements, fair values in financial reporting and the costs and benefits of disclosure. The third part assesses the interest, need and theories behind the accounting, reporting and regulation industry, while parts four and five look at the institutional, social and economic aspects; with issues such as accounting for environmental management and, accounting regulation and financial reporting in Islamic countries, both issues of ever increasing importance. This authoritative Companion presents a broad overview of the state of these disciplines today, and will provide a comprehensive reference source for students and academics involved in accounting, regulation and reporting.