Issues in Accounting and Finance

Peter Atrill, Lindsey Lindley

• Publisher: Routledge
• Year: 2019
• Print ISBN: 9780367001506
• eBook ISBN: 9780429814495
• Topic: Social Sciences
• Subtopic: Business General
• Index: Social Sciences

First published in 1997, this volume and its contributors take stock of current issues in accounting and finance. Featuring specialists in business, accounting, finance along with Vice Chancellor John Bull, they examine areas including auditors' decision-making, financial shocks, the European corporate capital structure, GPs, accounting education and professional journals.

Part One
ACCOUNTING EDUCATION

1 Accounting research in higher education

Part of address ‘Thoughts of a Lapsed Accountant’ given by Professor John Bull, Vice-Chancellor, University of Plymouth

Introduction

It was perhaps my early upbringing in an arts sixth form that may have inadvertently led me into accounting. Why did Goethe regard accounting (book keeping) as ‘the noblest invention of the human mind’? Did Cicero really believe his impassioned plea that ‘there was no fraud, merely a misalignment of receipts and payments? Did Pliny really have such a low opinion of financial recording when he observed that ‘the recognition that they (vineyard walls) decline in value over time unless they are properly maintained has merely given owners the opportunity to manipulate their profits? Perhaps it was the uncertainty whether accounting is to be regarded as some intellectual or moral touchstone or merely as a manipulation of figures to justify any - or almost any - desired outcome that made it so fascinating. It is this dilemma that has polarised much accounting research - from learned but esoteric theories of valuation and income measurement to the delirious excitement of reinterpreting the meaning of a standard cost variance.

Research is essential in any discipline, and for my part, I am particularly keen to encourage research in accounting that addresses problems that users of financial data want clarified, and the results of which can be generalised. Perhaps in this respect I speak as a Vice-Chancellor only too conscious that one of this country’s major industries spending over £8 billion per year and with an asset base of around £12 billion - Higher Education - has attracted remarkably little attention as a field for financial research. The consequence, I believe, is that our financial decision making is not always as secure as it might be. Let me suggest a few areas of University finance that might repay more systematic research.

1. Resource Allocation
   At both the macro and micro levels - Funding Councils and institutions - remarkably little work has been done to establish teaching resource allocation models. At the macro level, distribution is now a derivative of historic Funding Council policies (from fixed unit costs to market determined prices), and at institutional level distribution tends to be driven by tempered pragmatism. Can we really not establish in a more objective manner the relative costs of delivering teaching and research in different subject areas? Are we not able to establish a transfer pricing model ie inter departmental/faculty teaching that does not distort interdisciplinary activity? There is a need to explore issues related to full and marginal cost pricing for teaching activities and establish appropriate standard (as opposed to actual) costs, ensuring that the management accounting system can deliver variance analysis to managers in a user-friendly and cost effective manner,
2. Investment Decisions
   It is estimated that over the next 10-15 years Universities will need to spend over £10 billion in renovating, modernising and improving building stock - a sizeable investment in any industry. A host of accounting and finance issues remain largely unexplored. What is the cost of capital in a University with no equity? What should be the appropriate asset valuation base? Are we properly evaluating the borrowing options - PFI, financial leases, BES schemes, escalating but cheap start mortgages? What are the risks associated with the increasingly elaborate VAT schemes associated with building projects?
3. Financial Reporting
   The new SORP is now with us, and is generally to be welcomed. However, I still have conceptual problems with the treatment of depreciation and the mechanisms for drawing down the revaluation reserve established as a balancing figure for the fixed assets which appeared for the first time on University balance sheets. Are we not in essence treating an unrealised capital gain as income? What income concept is in fact being applied? The accounting treatment clearly impacts on conventional measures of performance, and impacts on borrowing capacity - important, given that Universities have already borrowed approaching £2 billion from the commercial market.
4. Joint and By-Products
   Considerable attention has been focused upon the apportionment - allocation of costs between research and teaching - but are we costing joint or by-products? The issue is important not the least because Universities are exhorted by the NAO to ensure that the price charged for research/consultancy reflects the ‘full cost’. There is, too, the view - justified or not - from the ‘new’ Universities that the teaching/research split identified by the ‘old’ Universities when HEFCE was established was not transparent, and the relative cost of teaching is the key parameter for the imposition of efficiency gains.
5. Behavioural Accounting
   ‘Budgets affect people’ is a well established truism, but I am not aware of much work being done on the budgetary game in the University sector. If you believe - as I do, strongly - that a University must be driven by its academic vision and constrained by finance, then the impact of financial and budgetary systems must be at the worst neutral and at the best supportive of the vision. I am not at all sure that is the case in all - dare I say, any - Universities, and we do need to do some research on the games academics play!
6. Human Resource Accounting
   We are fond in saying that our staff are our most important asset, but we still seem to operate with reward and staff development systems that belie that assertion. I would very much like to see some fundamental research undertaken on human resource accounting in the education industry - it does have some particular features that are indeed unique.

Conclusion

So in conclusion, I would like to suggest that you apply your research efforts to what is indeed a major industry, the industry that employs you! I have outlined some areas which interest and concern me as a Vice-Chancellor responsible, as accounting officer, for the finance of a large business. When you are next considering a research topic please do not neglect your home base!

2 Using the balanced scorecard to stimulate and guide continuous improvement in accounting education

Otto Chang and Chee W. Chow

Introduction

In recent years, rapid advances in communication, data processing, and manufacturing technologies, together with the dismantling of trade barriers, have fundamentally reshaped the environment in which businesses operate. Change and ever-increasing levels of competition have become constants in this landscape. In response, companies are increasingly focused on satisfying their customers, as the latter are the ones who ultimately pay for their expenses and profit. Related to this, the dimensions of competition have expanded well beyond the traditional aspects of price and quality to include flexibility, speed, and continuous improvement in the ability to add value for customers.

What is true of the corporate world also applies, though probably to a lesser extent, to the business of accounting education. Increasingly, questions are being raised whether accounting education is meeting the needs of its customers. And who are the customers of accounting educational institutions and programmes? The group that most readily comes to mind is the students. But students really are only the output of accounting programmes. The customers - those who create the demand for accounting education in the first place - are the employers of accounting programme graduates. And just as business firms that fail to satisfy their customers will wither away under the assault of competitive forces, so will accounting programmess that fail to add sufficient value to their students.

Arguably the most noticed expression of concern for the current state of accounting education was the issuance, in 1989, of Perspectives on Education: Capabilities for Success in the Accounting Profession by the then-Big Eight international accounting firms. This document stated the opinion that accounting programmes were spending too much time teaching students technical rules that soon became obsolete, and too little time in developing communication skills, critical thinking and problem solving skills, interpersonal skills, integrative business knowledge, and the ability to become lifelong learners. In the U.S. and undoubtedly elsewhere, many accounting programmes have responded to this call for reform with efforts to revise their curricula and teaching processes. They were aided in no small part by such institutions as the American Accounting Association’s Accounting Education Change Commission. Despite such efforts, there still remains a lot of room for change. In a survey conducted by the U.S. Institute of Management Accountants [Siegel & Sorensen, 1994], controllers from a majority of the U.S. Fortune 500 companies indicated that current accounting programmes were overemphasizing the preparation of certified public accountants at the expense of a broad-based need for management accountants. Many courses in the area of business analysis and management information are either ignored or curtailed to the extent that students after graduation require extensive on-the-job training in order to perform their assigned responsibilities.

Accounting educators and programmes can ill afford to ignore the concerns and demands of the marketplace. Increasingly, funding agencies, and even the public at large, are clamoring for accountability from educational institutions.

On top of this, the business sector is developing alternatives to traditional venues of business education. Choi [1993, p. 428] has observed:

(B)usiness schools as a whole will face increasing competition from their clients as well. Industry, dissatisfied with the products they are receiving from academe, are increasingly developing their own inhouse educational programmess. Companies such as Motorola, Pepsi-Cola, General Electric, General Motors, Finland’s Nokia, and many Japanese firms are examples in this regard.

For conventional educational institutions, the list of competitors can be expanded to include formal programmes offered by consulting firms, such as Arthur D. Little, as well as distance learning programmes, such as the U.K.’s Open University, which have been made possible by the increasing availability of INTERNET, worldwide web, and better and cheaper communication technology. Faced with increased public scrutiny and competition, accounting programmes that aim to survive and prosper will need to increase their responsiveness to the changing needs of their customers, and to ensure continuous improvement in their ability to do so. The purpose of this paper is to suggest how a new management tool - the balanced scorecard - can help accounting programmes to initiate and sustain continuous improvement in their ability to increase the value-added of their services.

The balanced scorecard

The balanced scorecard is a set of integrated performance measures focused on key aspects of operations. These measures can be for an organization, a subunit, or even an individual. The scorecard is analogous to the instrument panel on an airplane. To fly an airplane to its destination, a pilot needs to know conditions both inside and outside of the plane during flight. The instrument panel provides information about these conditions. Similarly, in managing complicated corporate affairs, managers need to know a myriad of internal and external conditions. The function of the balanced scorecard is to provide management with a holistic view of what is happening inside and outside the organization. In many organizations, there is a tendency to keep adding performance measures as long as somebody makes a suggestion. The result is a mountain of reports that hinders rather than helps. A major advantage of the balanced scorecard is that it provides management with key and interrelated indicators without the problem of information overload.

While the idea of using combinations of financial and nonfinancial performance measures is not new, the balanced scorecard represents an innovative way of packaging such measures. Robert Kaplan and his associate from the business sector, David Norton, deserve much of the credit for increasing understanding and awareness of this approach through a series of articles in the Harvard Business Review and a recent book (Kaplan and Norton, 1992, 1993, 1996a, 1996b).

At the organizational level, the balanced scorecard involves identifying several key components of operations, establishing goals for these, and then selecting measures to track progress towards these goals. The number of components can be expected to vary depending on the nature ...

Table of contents

• Cover
• Half Title
• Title Page
• Copyright Page
• Table of Contents
• List of contributors
• Introduction
• Part One: Accounting Education
• Part Two: Developments in Management Accounting
• Part Three: Current Issues in Financial Reporting
• Part Four: Aspects of Financial Management