Accounting Horizons 

About: Accounting Horizons is an academic journal published by American Accounting Association. The journal publishes majorly in the area(s): Audit & Financial accounting. It has an ISSN identifier of 0888-7993. Over the lifetime, 822 publications have been published receiving 50104 citations.

Transforming the Balanced Scorecard from Performance Measurement to Strategic Management: Part II

Abstract: Several years ago we introduced the Balanced Scorecard (Kaplan and Norton 1992). We began with the premise that an exclusive reliance on financial measures in a management system is insufficient. Financial measures are lag indicators that report on the outcomes from past actions. Exclusive reliance on financial indicators could promote behavior that sacrifices long-term value creation for short-term performance (Porter 1992; AICPA 1994). The Balanced Scorecard approach retains measures of financial performance--the lagging outcome indicators--but supplements these with measures on the drivers, the lead indicators, of future financial performance. THE BALANCED SCORECARD EMERGES The limitations of managing solely with financial measures, however, have been known for decades. [1] What is different now? Why has the Balanced Scorecard concept been so widely adopted by manufacturing and service companies, nonprofit organizations, and government entities around the world since its introduction in 1992? First, previous systems that incorporated nonfinancial measurements used ad hoc collections of such measures, more like checklists of measures for managers to keep track of and improve than a comprehensive system of linked measurements. The Balanced Scorecard emphasizes the linkage of measurement to strategy (Kaplan and Norton 1993) and the cause-and-effect linkages that describe the hypotheses of the strategy (Kaplan and Norton 1996b). The tighter connection between the measurement system and strategy elevates the role for nonfinancial measures from an operational checklist to a comprehensive system for strategy implementation (Kaplan and Norton 1996a). Second, the Balanced Scorecard reflects the changing nature of technology and competitive advantage in the latter decades of the 20th century. In the industrial-age competition of the 19th and much of the 20th centuries, companies achieved competitive advantage from their investment in and management of tangible assets such as inventory, property, plant, and equipment (Chandler 1990). In an economy dominated by tangible assets, financial measurements were adequate to record investments on companies' balance sheets. Income statements could also capture the expenses associated with the use of these tangible assets to produce revenues and profits. But by the end of the 20th century, intangible assets became the major source for competitive advantage. In 1982, tangible book values represented 62 percent of industrial organizations' market values; ten years later, the ratio had plummeted to 38 percent (Blair 1995). By the end of the 20th century, the book value of tangible assets accounted for less than 20 percen t of companies' market values (Webber 2000, quoting research by Baruch Lev). Clearly, strategies for creating value shifted from managing tangible assets to knowledge-based strategies that create and deploy an organization's intangible assets. These include customer relationships, innovative products and services, high-quality and responsive operating processes, skills and knowledge of the workforce, the information technology that supports the work force and links the firm to its customers and suppliers, and the organizational climate that encourages innovation, problem-solving, and improvement. But companies were unable to adequately measure their intangible assets (Johnson and Kaplan 1987, 201-202). Anecdotal data from management publications indicated that many companies could not implement their new strategies in this environment (Kiechel 1982; Charan and Colvin 1999). They could not manage what they could not describe or measure. INTANGIBLE ASSETS: VALUATION VS. VALUE CREATION Some call for accountants to make an organization's intangible assets more visible to managers and investors by placing them on a company's balance sheet. But several factors prevent valid valuation of intangible assets on balance sheets. …

Conservatism in Accounting Part I: Explanations and Implications

Abstract: This paper is the first in a two‐part series on conservatism in accounting. Part I examines alternative explanations for conservatism in accounting and their implications for accounting regulators....

Earnings Management: Reconciling the Views of Accounting Academics, Practitioners, and Regulators

Abstract: We address the fact that accounting academics often have very different perceptions of earnings management than do practitioners and regulators. Practitioners and regulators often see earnings management as pervasive and problematic—and in need of immediate remedial action. Academics are more sanguine, unwilling to believe that earnings management is actively practiced by most firms or that the earnings management that does exist should necessarily concern investors. We explore the reasons for these different perceptions, and argue that each of these groups may benefit from some rethinking of their views about earnings management.

Fraudulent Financial Reporting: Consideration of Industry Traits and Corporate Governance Mechanisms

Abstract: This paper provides insight into financial statement fraud instances investigated during the late 1980s through the 1990s within three volatile industries—technology, health care, and financial services—and highlights important corporate governance differences between fraud companies and no‐fraud benchmarks on an industry‐by‐industry basis. The fraud techniques used vary substantially across industries, with revenue frauds most common in technology companies and asset frauds and misappropriations most common in financial‐services firms. For each of these three industries, the sample fraud companies have very weak governance mechanisms relative to no‐fraud industry benchmarks. Consistent with prior research, the fraud companies in the technology and financial‐services industries have fewer audit committees, while fraud companies in all three industries have less independent audit committees and less independent boards. In addition, this study provides initial evidence that the fraud companies in the techno...

Conservatism in Accounting Part II: Evidence and Research Opportunities

Abstract: This paper is Part II in a two‐part series on conservatism in accounting. Part I examined alternative explanations for conservatism in accounting and their implications for accounting regulators (SEC and FASB). Part II summarizes the empirical evidence on the existence of conservatism, conservatism's increase over time, and conservatism's alternative explanations. It also discusses opportunities for future research on conservatism. The empirical literature uses a variety of conservatism measures in time‐series and cross‐sectional tests of contracting, shareholder litigation, taxation, and accounting regulation explanations for conservatism. The tests' results suggest the importance of all four explanations. Two non‐conservatism explanations—earnings management and the abandonment option—cannot individually or jointly explain the observed systematic understatement of net assets that is the hallmark of conservatism. Researchers should note that accounting's effects on managerial behavior play a central role...