Topic 2 Flashcards
(15 cards)
What is the purpose of classification in accounting systems?
Brings order to complex accounting data, enables prediction of behavior, reveals underlying patterns, and explains why accounting differs across countries.
Similar to how classification in chemistry organizes elements by properties, accounting classification organizes systems by their characteristics.
What are the criteria for a ‘good’ accounting classification?
AAA (1977) criteria:
1) Consistent differentiating attributes,
2) Mutually exclusive subsets,
3) Maintained hierarchy,
4) Comprehensive coverage.
Nobes (2018) focuses on:
1) Faithful representation (accuracy)
and
2) Relevance (usefulness for decisions).
What was Mueller’s (1967) classification approach?
First accounting classification with four patterns:
Macroeconomic (Sweden), Microeconomic (Netherlands), Independent discipline (UK/US), and Uniform (France).
Limitations: No empirical testing, no hierarchy, and countries could fit multiple patterns.
What was Nobes’ (1983) hierarchical classification?
Distinguished micro-based, commercially-driven systems (UK/US/Australia) from macro-uniform, government-driven systems (Continental Europe).
Strengths: Theoretical foundation linked to financing systems, hierarchical structure, and explicit classification criteria.
What problems occurred with PW data-based classifications?
PW data was designed to highlight UK/US differences, not for classification.
Resulted in counterintuitive groupings (UK/US in different groups).
Da Costa (1978) showed only .05 correlation between UK/US systems despite their fundamental similarities.
What key issues affected d’Arcy’s (2001) classification?
Used KPMG data on rules (not practices) with statistical analysis.
Placed UK/US in different groups and Australia alone.
Major flaws: Data contained errors (e.g., Australian provisions mismeasured) and focused on rules rather than practices.
How do extrinsic and intrinsic classifications differ?
Extrinsic (Mueller, Gray): Group countries by external factors influencing accounting (legal, culture).
Intrinsic (Nobes, Frank): Group by accounting characteristics themselves. Intrinsic directly measure accounting, while extrinsic focus on causes.
How did Nobes (1998) adapt classification for IFRS adoption?
Proposed classifying accounting systems rather than countries, recognizing countries use different systems for different purposes (IFRS for listed consolidated, national rules for others).
This explains dual systems and different IFRS implementation patterns.
Why are classifications less useful now than when published?
1) IFRS adoption creating formal harmonization,
2) Evolution of national systems,
3) Changing institutional contexts,
4) Technological developments.
Country-based classifications appear less directly relevant with global standards.
How do classifications remain useful despite IFRS adoption?
Help understand:
1) National rules still used by most entities,
2) Variations in IFRS implementation following historical patterns,
3) Different approaches to IFRS adoption,
4) Enforcement differences.
Institutional factors continue influencing accounting implementation.
What did Nobes (2011) discover about IFRS implementation patterns?
Found country-based variations in IFRS practices follow previous classification groups.
Companies make different IFRS option choices based on their tradition, creating ‘national versions’ of IFRS practice.
Demonstrates classifications remain relevant despite formal harmonization.
What is the difference between ‘de jure’ and ‘de facto’ harmonization?
‘De jure’: Making standards/laws similar across countries. ‘De facto’: Making actual practices similar.
Research shows de jure harmonization doesn’t automatically create de facto harmonization, as practices remain influenced by national traditions even with common standards.
How have researchers improved classification methodology?
Moved from impressions or regulations to measuring actual accounting choices in company reports.
Nobes & Stadler (2013) measured specific IFRS policy choices across countries, providing stronger empirical foundation based on what companies actually do rather than what rules require.
Why do researchers classify UK/US accounting differently?
Classifications vary based on:
1) What’s being classified (rules vs. practices),
2) Time period,
3) Aspects emphasized (disclosure vs. measurement),
4) Data quality,
5) Theoretical perspective.
These differences explain contradictory findings across studies.
What does Nobes mean by ‘culturally independent’ aspects of classification?
Countries with similar cultures can develop different accounting based on financing systems.
Strong equity-outsider financing creates Class A accounting regardless of culture.
Explains why Netherlands (similar culture to Germany) developed Anglo-Saxon accounting despite Roman law.
