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and to some extent confine their discussion to what is on the surface. This approach is
unfortunate because it keeps academics and practitioners from looking behind this very
surface. However, such complex research is crucial to avoid a malfunctioning of incentive
systems of the type that ultimately lead to the collapses of corporations like Enron,
WorldCom, and Lehman Brothers.
References
Antle, R., & Demski, J. (1988). The controllability principle in responsibility accounting. The Accounting Review,
63(4), 700–718.
Holmstrom, B. (1979). Moral hazard and observability. Bell Journal of Economics, 10(1), 74–91.
Barbara Schöndube-Pirchegger
Otto-von-Guericke University Magdeburg, Magdeburg, Germany
doi:10.1016/j.intacc.2011.12.007
Financial Accounting and Reporting: A Global Perspective, Hervé Stolowy, Michel J.
Lebas, Yuan Ding. , Third Edition,. Cengage Learning EMEA, Andover, Hampshire,
UK (2010)., 800 pages, £49.99, ISBN: 978-1-4080-2113-2
Financial Accounting and Reporting: A Global Perspective is a textbook aimed at
students and managers who are “following their course of studies in institutions where
knowledge of a single (national) accounting system is recognized as a being insufficient
preparation for the world in which they will work” (preface). The authors are scholars
based in three different regions – Europe, US, and China – which allows the reader to
understand and analyze current accounting issues through a combined global vision. The
authors' diverse backgrounds explain the book's international context and indicate its
target audience: readers who will go on to careers in international fields who will manage
a variety of diverse business implications.
In order to achieve their objective, the authors bring together three simultaneous perspectives: user-orientated, national, and international points of view. This seems to be relevant to
students and managers who need to advance their knowledge of accounting practices, and
who will work in a local context where they will interact with global business operators.
Indeed, by developing their user perspective, these readers will be able to communicate as internal managers of financial information and as external users of accounting data. Further, this
tri-part perspective justifies the authors' approach to accounting issues. The authors focus on
detailed analysis and on solutions essential to decision-makers, rather than using a regulatory
or technical point of view.
The book is organized into three parts and consists of eighteen chapters. The body of the
text in each chapter is complemented with examinations of the economic logic of the
accounting issue, several illustrations and examples from the real world, and excerpts
144
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from the financial press. Each chapter provides an explanation of the latest IAS/IFRS,
when appropriate. All chapters are supplemented with review questions, assignments, a
list of recommending references and readings, and additional material on the dedicated
book website. The authors provide solutions to review questions at the end of the book. In
this third edition of the book, all chapters are updated with the latest developments of IAS/
IFRS, relevant FASB pronouncements, and examples and case materials from companies
operating worldwide.
The first part (Chapters 1 to 4) introduces the reader to financial accounting. Chapter 1
deals with the functions of financial accounting in the decision-making process, and the
users' information needs for a critical resources allocation decision. It also includes a
discussion of the IASB conceptual framework that serves as a foundation for a detailed
study of financial statements, the way the statement elements are measured, and the
concepts underlying these measurements. Chapters 2 and 3 depict the set of documents
that compose financial information and the main tools to analyze this information. Chapter
3 also outlines the multi-stage process to set up and organize the accounting system used to
produce financial statements. Chapter 4 follows with a description of some key accounting
principles applied to business transactions. This chapter is concerned with the quality of
accounting information, and draws on the guidelines, rules, and principles that organize
accounting.
The second part (Chapters 5 to 14) presents major accounting topics ranging from
revenue recognition to business combinations. It emphasizes the decision-making potential
and usefulness of reported financial information. Some chapters end with the calculation of
financial ratios, showing how differences in accounting methods and estimates can affect
reported financial conditions, results of operations, and ratios.
Chapter 5 describes the regulatory framework of accounting and financial reporting
issued by the IASB. Chapter 6 addresses revenue recognition issues. At the end of this
chapter, a reader can benefit from a theoretical example of investment grants based on
governance assistance, an unusual example rarely included in other textbooks. Chapters 7
and 8 cover tangible and intangible assets. These chapters emphasize the financial aspects
of tangible assets, and the criteria for R&D capitalization. Chapter 8 also includes some
examples of financial ratios based on the analysis of R&D. This chapter considers how
R&D has become essential as driver of a firm's value creation. Indeed, the authors point
out that financial analysts and investors have paid increasing attention to R&D, because
they consider these intangible resources as tools to monitor management's investmentdecisions. In Chapter 9, the authors focus on the accounting treatment of inventories.
Chapter 10 discusses financial instruments. It presents the categories of financial instruments by focusing on fair valuation and the debate about the problems encountered by
accounting standards setters (companies) around enforcement (application). Each category
of financial instrument is discussed with reference to FASB requirements. Equity, liabilities
and provision are described in Chapters 11 and 12. Chapter 13 deals with business combinations. Each consolidation method is based on a real-world case, and includes illustrations
of problems that an accountant might face before and after consolidation. Links between
real-life cases and illustrations allow a reader to keep track of the description of the diverse
consolidation methods. Chapter 14 presents the components of cash flow statement, and the
methods and information required for its preparation. The description is supported by
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145
equations and examples based on published financial statements, which help a reader to
identify and overcome the potential problems encountered in the calculation of cash flow
statement elements.
The third part (Chapters 15 to 18) is devoted to an overview of the essential elements of
financial statements' analysis. It focuses on the use of financial information by decisionmakers in greater detail, and leads to a discussion on both advantages and limitations of
financial statement analysis.
Chapters 15 and 16 describe the set of tools, practices, and procedures to decode the
content of the balance sheet and the income statement. Chapter 17 focuses on the analysis
of the cash flow statement that recasts the financial statement data provided by the accrual
process. It also describes how accountancy uses cash flow statements as a tool to analyze the
quality of earnings. The authors articulate their analysis using significant research studies
known as “accounts manipulation,” which include earnings management and creative
accounting. Further, the authors identify an alternative view for classifying accounting
manipulations by considering the influence of earnings management of cash basis vs. accrual
basis accounting. This analysis supports their statement about the usefulness of financial
statements outside of accounting manipulations. As the authors point out, Chapters 15, 16
and 17 answer the question of “how” a firm's value is created in financial statements by analyzing the content within each statement. In order to address this question, the book
supplements the third section with Chapter 18, which offers an integrated view for analyzing
financial statements. In this chapter, the authors apply the ratio analysis to the main sources of
information about firm's business, with particular focus on the measurement of return to
investors. The latter choice is effective in explaining how to quantify the firm's value creation.
Corporate governance is the final topic of Chapter 18, in which the authors explain that the
way managers use a firm's resources affects the reliability and usefulness of the figures
reported in financial statements. They explain how managers' ethical behavior poses some
limitations to the power of financial analysis.
The overall effect of this book is positive. The authors achieve their intention to write a
book targeted to users instead of preparers. It seems to be a good resource for students and
managers with an interest in subjects other than the theory and concepts of accounting. The
authors' combination of the economic logic of accounting problems with several examples
and illustrations is useful. This approach could be seen as one solely based on real-life
cases without entering in a regulatory or technical solution to accounting issues, but it
works effectively as an alternative way to address the decision-makers process, which is
an international process of significant value for students and managers across the world.
Michela Cordazzo
Free University of Bozen-Bolzano, School of Economics and Management, Italy
doi:10.1016/j.intacc.2011.12.008