Financial Accounting Theory

Financial Accounting Theory

William R. Scott, Fourth Edition (Toronto, Canada: Pearson/Prentice Hall, 2006, pp. vi, 472).

Financial Accounting Theory has 13 content chapters, and several sections containing preface, acknowledgements, bibliography, and index (subject and author index combined). The first edition of the book appeared in 1997. The book's success is indicated by the frequency of revisions, averaging a revision for every three years the book has been in print. As the author has indicated in the preface, the fourth edition has substantial revisions in both contents and topics covered in the book.


Financial Accounting Theory's 13 chapters are well prepared and presented. The first chapter is an introduction. It sets the theoretical framework: both historical and ethical, and their applications to accounting research. Accounting research is approached from two complementary perspectives. The first is theory in research, described in ideal conditions, adverse selection, and moral hazard. The second aspect focuses on theory in practice, which is discussed within the context of standard-setting entities/bodies. The remaining 12 chapters are organized within these two broad frameworks: theory in research and practice of financial accounting.

Chapters 3 to 11 discuss research in financial accounting, while the last two chapters, 12 and 13, are devoted to accounting in practice - standard-setting entities, particularly those agencies in Canada. Chapter 13 has a section on the United States standard-setting bodies: Financial Accounting Standards Board (FASB), and Securities and Exchange Commission (SEC), as well as the International Accounting Standards Board (IASB). The United States and IASB are incorporated as they relate to the Canadian Accounting standard-setting and practices. This structure enables the student and/or reader to have a broader understanding of the Canadian accounting practices as they interface and shaped by the accounting practices in the United States and Europe.

For the instructor, the text has teaching supplements: an instructor resource CD-ROM, which contains instructor's manual; solutions to chapter-end questions and problems; learning objectives for each chapters as well as supplementary references; and PowerPoint® presentations. While Financial Accounting Theory has chapter-end questions and problems, it does not provide the student/reader with a list of suggested readings by chapters, which are relevant if the book is expected to be used in upper-level accounting theory courses or seminars. The book does offer supplementary materials for students, for example, a student CD that has sample exercise solutions for questions and problems included in the book, cases, business practices, examples from standard-settings, and supplementary readings. If it is expected that the book can reach wider audiences beyond students taking accounting courses, then these supplementary materials become relevant. Otherwise, access to these materials will be limited only to students enrolled in accounting courses.

It is obvious that the text is a financial accounting theory book that is suited for a broader audience: students and accounting researchers, as well as practitioners. As an accounting theory textbook, it is appropriate for upper-level undergraduate and advanced M.B.A. classes beyond intermediate and advanced accounting. It can also serve a supplementary reading for doctoral seminars in financial accounting theory classes. The book has been primarily written for students and practitioners in Canada. In this aspect, the materials presented in the book are primarily within the context of the Canadian accounting standardsetting and business environment. Nevertheless, the book can be used as a required or supplementary text in a financial and/ or an international accounting theory course. There has been an emphasis in internationalizing the accounting curriculum. Accounting theory courses have incorporated international and global accounting standards and policies.

Books like Financial Accounting Theory will assist in meeting the demands of instructors who are considering adopting books to use as a text and/or supplementary readings in their accounting theory and seminar classes at both the undergraduate and graduate levels. Whichever adoption method or preferences is used for Financial Accounting Theory, there is no doubt that it serves the needs of instructors, students, and practitioners who are interested and pursuing a career in international accounting.

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Gap Analysis

Gap Analysis

Dan Zahlis. Occupational Hazards. Cleveland: Sep 2007. Vol. 69, Iss. 9; pg. 26, 1 pgs

Abstract (Summary)
Nobody "knows all the answers," but Active Agenda's Gap Analysis module allows auditors to provide solutions along with opinions. Active Agenda's Gap Analysis items module is based on a list of Active Agenda's modules (a.k.a. business processes) and allows implementers to add related audit items on a module-by-module basis. The Gap Analysis module also can be used during audits to capture results. A key to the Gap Analysis module's design is the fact that each audit item flows from a module, or operational risk control automation solution contained within Active Agenda. The Gap Analysis module allows organizations to improve the process of evaluating processes.


Kurt Cobain, lead singer of the grunge rock band Nirvana, was fond of saying, "We have no right to express an opinion until we know all of the answers." Can I get a Hallelujah?!

Anyone working in industry is familiar with the many, and varied, opinions of auditors. Those being audited are much less familiar with receiving solutions (a.k.a. answers) from auditors.

The number of auditors a company experiences is defined by the risks posed by its products or services, the size and nature of its market, the breadth and variability of its distribution channels, the way the organization finances its risk (retain or transfer) and the regulatory environment where its goods and services originate and are eventually sold. Suffice it to say that a food processor in California, selling and distributing internationally, and buying insurance to finance his risk, knows a lot about auditors.

Multiple auditors are not necessarily bad and can be viewed as helpful harbingers of risk. Many business owners learn what is required to run their companies from the multitude of auditors sent by suppliers, customers, insurance carriers, insurance brokers, business consultants, accounting firms, corporate headquarters, distributors, certification entities and regulatory agencies. These auditing organizations audit similar business processes from differing perspectives. Audit action items frequently educate a company about the requirements of its business but they're often heavy on opinion (the what) and light on answers (the how).

Nobody "knows all the answers," but Active Agenda's Gap Analysis module allows auditors to provide solutions along with opinions.

Active Agenda's Gap Analysis items module is based on a list of Active Agenda's modules (a.k.a. business processes) and allows implementers to add related audit items on a module-bymodule basis. In other words, the auditor generates a list of questions related to the solutions they carry with them. (e.g., How do you track OSHA recordables? I'll, leave a free automated method with you.)

After an audit item list is created, an auditor can move a copy of the items to a Gap Analysis (a.k.a., audit) record on an as-needed basis. The result is an audit item checklist prepared in advance of an audit visit. Active Agenda allows the auditor to provide details of the items to be audited, the human resources typically responsible for each item and the estimated time to be spent during the evaluation. This checklist can be sent to the targeted facility in advance for personnel assignment on an item-by-item basis.

The Gap Analysis module also can be used during audits to capture results. As items are reviewed, the results are entered along with any commitments made during the visit. At the close out meeting, the auditor can provide a list of all findings and action items before she or he leaves the premises.

A key to the Gap Analysis module's design is the fact that each audit item flows from a module, or operational risk control automation solution contained within Active Agenda. This design allows auditors to streamline the audit process and leave a host of dynamic solutions to the opinions they record and express.

From an audited company's perspective, the Gap Analysis module streamlines the audit process, and each Gap Analysis item record contains a field to record how the organization addresses the specific audit question. This design allows frequently audited companies to answer these questions in advance.

One company asked us to add a field to mark audit items as an "Inquiry" in response to the many audit questionnaires they receive from their distributor network. The company uses the "Inquiry" field to filter audit items and build "answered audits" almost instantly. What once took days to achieve now can be accomplished in a matter of hours.

We developed the Gap Analysis module after spending a decade being inundated with process questionnaires and audits. We created the module because we don't think anyone should ask questions unless they're prepared to offer and participate in solutions (a.k.a., answers) too.

What Gets Measured

The Gap Analysis module can be used to score specific and overall business process performance, quantify the number of audits conducted over time and reveal the number of hours spent participating in audits. Gap Analysis module measurements can be generated by organization, by business process or by specific participant. The Gap Analysis module helps organizations to measure and manage audit efficiencies and mitigation efforts.


What Gets Done
The Gap Analysis module allows organizations to improve the process of evaluating processes. The module enables the instant and dynamic recording of audit findings so that mitigation efforts immediately can begin following, and sometimes during, an audit. The module allows auditors to provide automated solutions (a.k.a., answers) along with their observations and opinions, and allows frequently audited companies to answer questions once and retain the benefits of the time they invest in the audit process.

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