Does the SEC’s Waiver of IFRS to U.S. GAAP Reconciliation Improve the Quality of Financial Reporting?

In December 2007, the U.S. Securities and Exchange Commission (SEC) adopted Securities Act Release No. 8879, “Acceptance from Foreign Private Issuers of Financial Statements Prepared in Accordance with IFRS without Reconciliation to U.S. GAAP.” The SEC’s new rule applies to financial statements issued for fiscal years ending after November 15, 2007, and interim periods after the effective date. The ruling has significant implications for U.S. firms, U.S. capital markets, and accounting practitioners and researchers.

Prior to 2008, the SEC required foreign registrants to file a Form 20-F, analogous to a Form 10-K, within six months after the fiscal year-end. In a Form 20-F, foreign private issuers reconciled their earnings and stockholders’ equity measures to U.S. GAAP. The SEC’s main motivation for the requirement was to protect U.S. investors who may not be familiar with non-U.S. accounting practices (Siconolfi and Salwen, 1992). However, the reconciliation requirement also suggests that U.S. GAAP is not only superior to foreign accounting standards, but is also superior to standards issued by the International Accounting Standards Board (IASB). (Note 1)

In contrast, the new ruling indicates the SEC’s confidence that IFRS represents a single set of high-quality accounting standards and that financial reports prepared under IFRS are as informative and useful as those prepared under U.S. GAAP. However, it is noteworthy that the Financial Accounting Standards Committee (FASC) and the Financial Reporting Policy Committee (FRPC), both part of the American Accounting Association (AAA), reached dissimilar conclusions in recent studies of the value of 20-F reconciliations to investors. The FASC argues that “allowing foreign companies to use IFRS without costly reconciliations to U.S. GAAP is likely to make U.S. stock exchanges more competitive…” (AAA, 2008a), whereas the FRPC indicates that “the research on the U.S. GAAP-IFRS reconciliation suggests that material differences between IFRS and U.S. GAAP exist and that

information contained in the reconciliations is reflected in investment decisions made by U.S. investors” (AAA, 2008b). The FRPC concludes, after reviewing the academic literature, that it “does not support the SEC’s decision to eliminate the U.S. GAAP-IFRS reconciliation requirement for foreign-private issuers” (AAA, 2008b).

Users of foreign firms’ financial statements also disagree among themselves on the SEC’s decision to allow IFRS filers to remove the reconciliation to U.S. GAAP. The CFA Institute, which represents investment analysts and portfolio managers, states in its comment letter to the SEC that “to the extent accounting standards have not yet converged (or new differences develop), investment professionals rely on the reconciliation as an efficient and cost-effective way of bringing to their attention the material differences in accounting” (CFA Institute, 2007). The CFA Institute further argues that “we believe that it is premature to eliminate this requirement at this time” (CFA Institute, 2007). In contrast, Fitch Ratings, the third largest rating agency, argues that it “does not pay very much attention to US GAAP reconciliations in 20-F reports and does not consider that their elimination would have a substantial impact on [its] ability to conduct analysis” (Fitch Ratings, 2007).

This policy debate on whether IFRS reporting is comparable to U.S. GAAP is what motivates this study. The controversy is complex because the features of any financial reporting system affect the application of any set of accounting standards (Barth, Landsman, & Lang, 2008). Although the SEC ruling is intended as a step toward convergence of U.S. GAAP and IFRS, the decision to waive the U.S. GAAP reconciliation requirement and allow IFRS is controversial. Against this background and concern, this paper examines properties of accounting information for cross-listed foreign firms on the U.S. stock exchanges across two periods: the U.S. GAAP reconciliation period and the IFRS reporting period.

Our investigation starts by comparing accounting-quality metrics for foreign issuers that apply IFRS to those for a matched sample of foreign firms that do not in the IFRS reporting periods. The results indicate that foreign issuers applying IFRS demonstrate more earnings management and less timely recognition of losses than do foreign firms filing U.S. GAAP reconciliations in the IFRS reporting period. However, the results also show that IFRS firms exhibit a higher association of accounting amounts with share prices and returns. Differences in accounting quality between the two sets of firms in the U.S. GAAP reconciliation period do not account for the IFRS reporting-period differences. We also compare accounting-quality metrics for IFRS firms in the periods before and after the SEC waiver and examine whether the change in accounting quality for IFRS firms between the U.S. GAAP reconciliation and IFRS reporting periods is different from that for their counterparts. The results document that foreign firms filing U.S. GAAP reconciliations experience a greater improvement in accounting quality in terms of less earnings smoothing and more timely recognition of losses than do foreign issuers adopting IFRS between the U.S. GAAP reconciliation and IFRS reporting periods. Overall, the combined evidence suggests that for non-U.S. firms, applying IFRS does not enhance financial reporting comparability with firms filing U.S. GAAP reconciliations.

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(Author: Chia-Ling Chao, Shwu-Min Horng

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Developing Improved Tools for the Economic Analysis of Innovations in the Bioeconomy: Towards a Life Cycle-Strengths-Weaknesses-Opportunities-Threats (LC-SWOT) Concept?

In the coming decades, humanity is expected to face several major challenges, including an increase in the world’s population, in particular in emerging countries (China, India), a further concentration of people in towns and cities, the ageing of the population in developed countries, and an increase in incomes and related changes in consumption habits. This will cause a growing demand for food, energy and health services, to be obtained at reasonable costs, in a context characterized by increased global competition and resource scarcity, at the same time without compromising the fight against climate change.

In such a context, innovation has been placed at the heart of the EU strategies as emphasized by the Europe 2020 strategy and by the Innovation Union flagship initiative (European Commission, 2010a, b). In this context, the concept of the bioeconomy (or bio-economy or bio-based economy) has been put forward as the guiding perspective concerning primary production based on the management of biological resources. The bioeconomy has been defined in a number of different ways in various policy documents issued in recent years (see e.g. Clever Consult BVBA, 2010; OECD 2009). The word bioeconomy itself has often been introduced in the economic disciplines, yet for rather different concepts. The EU communication “Innovating for Sustainable Growth: a Bioeconomy for Europe” and its accompanying working document (European Commission 2012a; b) qualify the Bioeconomy as encompassing “the production of renewable biological resources and their conversion into food, feed, bio-based products and bioenergy. It includes agriculture, forestry, fisheries, food and pulp and paper production, as well as parts of chemical, biotechnological and energy industries. Its sectors have a strong innovation potential due to their use of a wide range of sciences (life sciences, agronomy, ecology, food science and social sciences), enabling and industrial technologies (biotechnology, nanotechnology, information and communication technologies – ICT, and engineering), and local and tacit knowledge.” A narrower definition is used by the OECD (2009): “…the bioeconomy can be thought of as a world where biotechnology contributes to a significant share of economic output.” In projecting the future of biotechnology and the bioeconomy up to 2030, this study identifies three key elements characterizing this sector: a) an advanced knowledge of genes and complex cell processes; b) renewable biomass; c) integration of biotechnology applications across sectors.

The bioeconomy in the EU (using the EU definition) presently accounts for an annual turnover of 2046 billion euro (of which 965 from food and 381 from agriculture) and 21 505 thousand employees (of which 4400 thousand in the food industry and 12 000 thousand in agriculture) (Clever Consult BVBA, 2010).

The bioeconomy is believed to be able to play an important role in creating economic growth and providing responses to global challenges, hence contributing to a smarter, more sustainable and inclusive economy. However, the different scientific contributions with regard to the potential for the future development of the bioeconomy (Carlson, 2007, OECD, 2009; May, 2009; The Royal Academy of Engineering, 2009) show rather diversified estimates of development, in particular in relation to the many variables that can affect such development.

The OECD (2009) identifies 4 drivers for future development of the bioeconomy: 1) public support to biotechnological research and training of young researchers; 2) public regulation; 3) management of intellectual property; and 4) public acceptance of biotechnologies. Innovation in public policy is recognised to have a central role across such determinants due to the apparent inability of market mechanisms and the present policy framework to guarantee a suitable response to future needs. The BECOTEPS (2011) white paper emphasises that a “successful bioeconomy needs coherent and integrated policy direction”, with key areas including investment in research, encouraging innovation, strengthening entrepreneurship in the bioeconomy, providing a skilled workforce, guaranteeing an innovation-friendly regulatory framework which balances both risks and benefits, and a good two-way communication with the public embedded in R&D projects to ensure societal appreciation of research and innovation. The documents of the main European Technology Platforms highlight, in particular, the need for an increased understanding of the concerns of consumers and citizens, as well as initiatives aimed at improved communication. The recent communication about resource-efficient Europe encourages to consider the whole life cycle of the way resources are used, including the value chain, and the trade-offs between different priorities.

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(Author: Davide Viaggi

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Creating and Sustaining a Maintenance Strategy: A Practical Guide

The need to improve manufacturing operations in the UK is without question. Global competition is intense and this has forced several UK manufacturing companies to transfer operations to low-cost economies. It is therefore imperative that the remaining manufacturing facilities continuously improve and become as efficient and effective as possible. The primary mechanism in business to steer such actions is strategy and this should be developed, implemented and linked across corporate, business and functional levels (Skinner, 1969, Pinjala et al., 2004). When manufacturing performance is considered, equipment maintenance has a key influence on safety, cost, customer service, and quality. Research by Robson (2010) found that maintenance organizations in the North East of England were not creating maintenance strategies and linking them to manufacturing and business goals. However, this may not be an issue unique to the UK because similar concerns were raised in Sweden by the research of Jonsson (1997).

It is not clear why managers choose not to create a maintenance strategy (Note 1) but it could be that they “do not know how”. The plethora of strategic models and frameworks certainly makes it difficult, because there is no clear pathway for practitioners to follow. This paper addresses the problem by firstly reviewing the literature in respect to strategy and from this, developing a pragmatic approach to the formulation and implementation of a maintenance strategy. The structure of the paper is as follows: Section 2 considers the benefits of creating a maintenance strategy and why it is important to do so; Section 3 presents a short review of the literature covering both corporate and maintenance strategy; Section 4 proffers a practical approach to developing a maintenance strategy; Section 5 explains how a maintenance strategy can be audited and finally; Sections 6 provides a set of conclusions.

Maintenance strategies are important because they can bring significant benefits to manufacturing organizations. The interdependence between manufacturing operations and equipment maintenance means that if a suitable maintenance strategy is deployed this should lead to improved machine reliability and availability. A maintenance strategy also ensures that scarce and expensive resources i.e. maintenance labor and materials are efficiently and effectively used. In the UK, most manufacturing companies expend between 4-6% of their annual turnover on maintenance (Willmott, 1994). The alternative to a maintenance strategy is poor and ineffective equipment maintenance, which will detrimentally affect all areas of manufacturing operations. Improving the reliability of machines also aligns well with the concepts of Lean Manufacturing, because reliable machines mean repeatable and predictable processes which in turn, reduce the waste due to overproduction and unplanned stoppages (Slack et al., 2007). The completion of customer orders in full and on time becomes more likely as product defects caused by equipment failures diminish. From a maintenance organizational perspective, a holistic maintenance strategy sets out a sustainable vision for the future with clear policies for equipment maintenance and staff. This covers a wide gamut of topics e.g. objectives, goals, appropriate machine maintenance tactics, performance measures, training, staff development, succession planning etc. The generation of a documented strategy with agreed plans, also promotes the reputation of the maintenance function within the plant hierarchy, raising its profile and strategic status. In this situation, the maintenance function is no longer a “necessary evil” but rather a function that is positively contributing to the business and measuring its performance and progress against agreed targets.

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(Author: Kenneth Robson, Robert Trimble, John MacIntyre

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Foresight Analysis at the Regional Level – A Participatory Methodological Framework

Rural regions, accounting for a large part at the European but also the global scale, are nowadays in front of great challenges as to their future sustainable development. Most of them are confronting problems of decline and out-migration, ageing of their population, a lower skill base and average labor productivity, etc. (Organisation for Economic Co-operation and Development [OECD], 2006), which are strongly affecting their future development perspectives. Moreover, they have to deal with new challenges emerging from the external environment, such as climate change, changing consumption patterns, technological developments, increasing urbanization patterns, etc.

In order to effectively cope with challenges of the internal and external environment, a society empowering, place-based, cross-sectoral approach for policy making needs to be adopted, pursuing the sustainable exploitation of available resources and human capital, as well as the better coordination and interaction among sectors, levels of government and public and private actors (Stratigea, 2011). Towards this end, planners are challenged to focus on the development of tools and approaches that will support policy makers in making knowledgeable decisions towards desirable futures that can be well adjusted to the peculiarities of each specific rural context. The focus of the planning efforts, in such a context, is not only on the policy results delivered, but also on the process through which these results are produced and the way tools used can structure thoughts and support an effective communication platform for interaction among local participants in a planning exercise. Such an effort implies the need for planning tools that can handle uncertainty and complexity and support a more pluralistic approach (Godet, 1994), capable of integrating information on local views, opinions, visions etc. in the decision making process.

Along these lines, the focus of the present paper is on the structuring of a participatory methodological framework, for planning the integrated future agricultural development of a specific Greek rural region, the region of Kastelli-Herakleion in Crete. This framework is based on the LIPSOR participatory analytical model, integrated with the Focus Groups and the Future Workshop participatory tools. The structure of the paper has as follows: Section 2 refers to the problem to be dealt with in the specific study region; in Section 3 the participatory methodological framework is discussed; in Section 4, the empirical results of the application of this framework in the region at hand are presented; and finally, in Section 5, some conclusions are drawn.

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(Author: Anastasia Stratigea, Chrysaida – Aliki Papadopoulou

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Model Stability Test of Money Demand by Monthly Time Series Using CUSUM and MOSUM Tests: Evidence from Turkey

Suggestions of economic policy stand for the accurate estimation of the relationships among variables. Parameters of the estimated model indicate the effects of policies. If the parameters do not change with respect to policies, it may be suggested that the existing policies are valid in the long-term. This situation is known as Lucas critique in the literature. If the policy change is recognized at an unknown point and slowly in particular time period (as shown in Lucas critique), it may be inferred that the policies are not considered with structural change (Greene, 2002). This circumstance may damage the succes of explanatory power of the model and may cause the invalidity of the results, so the stability of model should be tested by convenient methods.

There were various studies regarding model stability in the literature. These studies stand for Lucas critique (1981), which argues that “the economic policies must change whenever the parameters of the model change”. The common suggestion of the studies refers to the neccessity of model stability against policy changes in order to use the model as an economy policy. Model stability can be tested by package programs with developing technology. In these programs, CUSUM and CUSUMQ packages are generally used.

This study considers specific model stability tests that can be used when the policy change is slowly recognized in a time period at an unknown point. There are certain weaknesses of frequently used CUSUM and CUSUMQ model consistency tests statistically (Andrew, 1993; Yashchin, 1993; Turner, 2010). MOSUM test, which was constructed based on the cumulative sums of the recursive resudials as CUSUM test, enables more robust estimation than COSUM test and therefore gives more information about the model (Chu et al., 1995, Zeileis et al., 2002). For these reasons, the results of two tests were involved in the study.

The paper is organized as follows. Section 2 involves the studies in the literature associated with model stability tests, Section 3 consists of econometric methodology and model form about time series analysis, furthermore after the variables used in the study are introduced, the results of unit root, cointegration, CUSUM and MOSUM tests being obtained by using Eviews-6 and R-2.14.2 package programs are interpreted respectively. Section 4 concludes the study.

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(Author: Emrah Talas, Fatih Kaplan, Ali Kemal Celik

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Electronic Books Impact Global Environment—An Empirical Study Focus on User Perspectives

The paper has been around for over two thousand years. Ever since the Chinese first invented paper with linen and straw, it quickly outdated books made of bamboo, silk, skin, and papyrus. Today’s paper industry relies heavily on trees for its products. It was reported that primary forest area was reduced globally by 60,000 square kilometers per year, about the size of Ireland [greenfacts.org, 2009]. The paper industry and other non-lumber products consumed 1.6 billion trees, or 300 million tons of paper each year which equals to 43 percent of the total tree consumption globally [understory.ran.org, 2008]. The U.S., which contains only 5 percent of the world’s population, uses 30 percent of all paper, and the forest and paper products industry generates $200 billion dollars in sales every year, accounting for 7 percent of the total manufacturing output of the United States. About 28 percent of all wood cut in the U.S. is used for papermaking [ecology.com, 2011]. Deforestation due to paper and other industries’ needs has alarmingly endangered our environment and the nature [Parsons, 2012].

Ebooks that do not use paper are emerging from an almost zero ten years ago, to today’s total sales of $2,079 million US$ in 2012 and have grasped 31.85% of the total sales of books [mediabistro.com, 2013]. E-book sales are expected to surge to $2.7 billion by the end of 2013 with a compound annual growth rate of 72 percent, according to Yankee Group projections [Trachtenberg, 2011].

The emergence of ebooks [and all other digital forms of publishing, i.e. newspaper, magazines, etc] is challenging the traditional way of publishing and reading. The academic research in this area is still quite limited due to this emerging nature of ebooks. Newsweek, with its 80 year history, recently announced a complete seizure of its printed form, while retaining only its digital form [Hagey and Fitzgerald, 2012]. Plenty of other printed publications, i.e. PC Magazine, Gourmet, and SmartMoney, etc. have embraced digital-only strategies, encouraged by the proliferation of digital tablets and the growth in digital advertising over the past two years [Gillette, 2012].

This study, in an empirical setting, examines the users’ preferences, in order to provide some managerial insights on this digital publishing market: what consumers prefer and how they make purchasing decisions. The focus is mainly on the issues of the digital publishing and printed publishing. In addition, this study attempts through an empirical exploration to investigate if there were any differences resulted from the consumers’ viewpoints between ebooks and printed books, centering on product offerings and their qualities, price (including promotions), deliveries and usability. This study aims to explore the impact of the emerging ebooks on the publishing industry, on book readers and their reading behavior, on our society and on general global environment.

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(Author: Chiang-nan Chao, Leonora Fuxman, I. Hilmi Elifoglu

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The Impact of Collaborative Innovation between Established Industry and Academic Technology Spin-offs

Economic growth is not only dependent on existing knowledge and technological innovation; economic growth needs also the development of breakthrough technologies and their market diffusions. Research laboratories and universities count for a great many of these technological innovations. However, deficiencies in the commercialization of technologies by academic institutions are manifold (Brown, 1985; Sohn and Lee, 2011; Hall et al., 2001; O’Gorman, Byrne and Pandya, 2008). Owing to the entrepreneurial limitations of research organizations, technologies are transformed by established industries or academic spin-offs that incorporate the technology while it is under development from an academic parent organization.

Figure 1 illustrates the role of the transfer performer along a technological lifecycle curve. Small firms are suited to major breakthrough product innovations, while established firms focus on product diffusion and optimization. Bollinger, Hope and Utterback (1983, p. 4) found that “Small companies see an invention as a major opportunity because it allows them to enter a marketplace. Conversely, large, established firms tend to view the small enterprises as a threat.”

With their technological expertise, internal flexibility, and agility, academic spin-offs have innovation advantages over incumbents and differentiations as a technological transfer channel to discover innovations (Hess and Zwicker, 2009; Autio, 1997; Fontes, 2005). Entrepreneurial researchers conduct research and development (R&D) projects and build new technology absorptive capacities (Vanhaverbeke et al., 2008). This leads to a prototype or pilot installation that can be used to test the production and market issues and accomplish the transformation of a research result into a technology or product.

For established firms in times of sustainable innovation, the incremental behavior of a technological lifecycle can be controlled by their established technology absorptive capacity and the relationship with their academic partners (Christensen, 2003). In turbulent times, disruptive or breakthrough innovations may occur quickly in an irregular step function. In an industry experiencing a period of turbulent innovation, with many competing technologies pushing for position, this is a genuine challenge for established firm’s external technology absorptive capacity (Cohen and Levinthal, 1989). This is also confirmed by the theory for large incumbents to become ambidextrous (Tushman and O’Reilly, 1996). Enterprises should actively increase their technology scanning behavior. Radical innovations then become possible. Open innovation theory (Chesbrough et al., 2006) suggests an “opening up“ of R&D for an external breakthrough technology development (e.g., with spin-offs).

Di Guardo and Harrigan (2011, p. 10), in a comprehensive meta-analysis analysis, found a “… technological change groups common theme is analysis of strategic alliances as a vehicle to speed capability development by acquiring and exploiting knowledge developed by others while minimizing firms exposures to technological uncertainties.” Firms need to increase innovation and technological screening behavior across firm boundaries to early technology lifecycle phases and increase cooperation with academia and its spin-offs as alliance partners.

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(Author: Stephan Hess, Simon Suhrbeer, Roland Y. Siegwart

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Financialization of Turkey Industry Sector

Financial statements are the final product of accounting process. Income statement provides data for investment and other decisions. Income measurement and financial position of an economic entity has always been a challenge for accounting standard setting bodies. The main purpose of financial reporting is to provide information for user groups, especially stockholders and creditors to assist them in making decisions. Financial statements (including notes) are the main instruments in conveying the information to the users of financial information.

2007-2008 mortgage crisis, namely the second big crisis in the history of capitalism, is directly related to the financialization of private incomes that are spared for the expenditures for housing, education, healthcare, pension, and insurance, or in other words; the increase of their occupation with the financial markets. Even though the gross domestic produced in the global economy is increasing in the last thirty years, the rate of economic growth is interrupted from time to time due to financial and economic crises. While growing criticisms suggest that the world economic order is expanding on an unstable, shortsighted, and unequal manner; this paper discusses the occurrence of the crisis which took the world economy under its influence since August 2007, around the financialization concept as the last stage of capitalism.

Financialization means the shifting of capital accumulation priorities by the firms from real investment activities to short term, risky, and high yielding financial assets, whereas it means that the increase in indebtedness of households due to easy borrowing through financial intermediaries who do not make any risk evaluation. Additionally, the creation of profits which are increasingly created in the financial markets by the non-financial corporations (NFCs) causes the reduction of funds that are available for fixed capital investments.

Financialization, which started in the U.S.A., rapidly grasped the world with the help of globalization. A façade of this transformation is formed by the movements of rapidly innovated new products and the dramatic enlargement of the financial sector, whereas the other side of this transformation the active and leading role of the financial actors in the economy by continuing to grow in the face of this situation. In that sense, growing importance of the financial sector seems to be an indicator of financialization.

On the one hand, the capital search of commercial companies were facilitated by qualitative and quantitative transformation of banks and other financial institutions during the financialization process, liberalization of capital movements, globalization and integration of financial markets; on the other hand commercial banks started to bear towards short term profit oriented credits, while giving up financial intermediation via lending financial capital to industrial and commercial institutions and concentrated on capturing personal incomes which they see as profit source.

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(Author: Isil Tellalbasi, Ferudun Kaya

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The Incorporation of International Accounting Concepts in the Curriculum at Private Universities in the State of Pennsylvania

International Financial Reporting Standards (IFRS) is a method of presenting the financial position and results of operations for corporations that has been adopted by “120 nations and reporting jurisdictions” (Benjamin, M. 2/29/2012). The United States is one of the countries that has not adopted IFRS but still uses Generally Accepted Accounting Principles (GAAP) maintained by the Financial Accounting Standards Board (FASB). The Securities and Exchange Commission (SEC) has set and extended deadlines on the incorporation of international standards and is currently working on a convergence project (Deloitte, 2009).

Accounting educators are struggling with the incorporation of international standards in the accounting curriculum. Many private colleges and universities have limited number of courses available to cover a range of accounting topics to prepare students for careers in accounting and the Uniform Certified Public Accounting examination. “The American Accounting Association, whose members are accounting professors, created a task force in 2007 to develop IFRS curricula that could be rolled out to colleges” (Leone, M., 10/8/2009). Accounting professors at private colleges and universities in Pennsylvania were surveyed to determine the progress of incorporating international standards in the curriculum. The results of the survey are listed in Tables one to four and the survey questions are listed in Appendix one.

This study sent a survey to private Pennsylvania Colleges and Universities with undergraduate accounting programs (Pennsylvania Colleges Offering a Major in Accounting – College Toolkit, 12/5/2012). The accounting professors were asked to rate on a scale of 1 – 5 the incorporating of international accounting concepts into the undergraduate accounting curriculum. The concepts could be covered in existing courses or by designing a stand-alone course in international accounting. A copy of the survey is in Appendix 1. The survey also asked the professor “Does your university have an elective or required course on International Accounting”? We received 32 surveys that answered the 20 questions concerning incorporating international accounting concepts in the curriculum. Seven of the colleges reported having a stand-alone course in the undergraduate curriculum.

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(Author: Michael J. Gallagher

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Outcomes of an Ethical Work Climate among Salespeople

More than thirty years ago Murphy and Laczniak (1981) stated that marketing was the business function most often linked with unethical behavior. Although all areas of marketing can be scrutinized for questionable ethical behavior, professional selling is often mentioned as the marketing area where dubious behavior occurs. Salespeople are the “front line” representatives of the company. Their behavior is related to the company’s image (Jaramillo, Mulki, and Solomon, 2006). Thus, ensuring ethical behavior among salespeople is important. One of the best ways to encourage ethical behavior among salespeople is to develop an ethical work climate.

While sales force research has shown that ethical climate is related to a variety of work outcomes (Babin, Boles, and Robin, 2000; Jaramillo, Mulki, and Solomon, 2006), recent research has shown that the presence of an ethical work climate is related to the degree to which salespeople identify with their company (DeConinck, 2011; Briggs, Jaramillo, and Weeks, 2012). Various positive work outcomes such as increased job satisfaction, performance, and organizational commitment, and lower absenteeism and turnover (Ashforth, Harrison, and Corley, 2008; Weiske et al., 2009; Riketta, 2005) occur when employees identify with their organization. Thus, understanding the relationship between ethical work climate and organizational identification is important.

The purpose of this study is to investigate the relationship among of ethical climate and several work outcomes among salespeople. This study makes two important contributions to research investigating ethical climate in a sales force. First, few studies have analyzed the relationship between organizational identification and ethical behavior/ethical climate (Briggs, Jaramillo, and Weeks, 2012; DeConinck, 2011; Umphress, Bingham, and Mitchell, 2010; Walumbwa et al., 2011). This situation is surprising given the number of studies linking organizational identification to various employees’ attitudes and behaviors (Riketta, 2005).

The second important contribution made is to examine the relationship between ethical climate and turnover. Most prior research has investigated ethical climate and its relationship to turnover intentions, but not actual turnover (Fournier et al., 2010; Jaramillo, Mulki, and Solomon, 2006; Stewart et al., 2011). Turnover among salespeople is especially important given the high number of salespeople who leave either voluntarily or involuntarily (Darmon, 2008). Therefore, additional research into understanding the relationship among ethical work climate and actual turnover, and not turnover intentions is important.

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(Author: Jim DeConinck, Mary Beth DeConinck, Debasish Banerjee

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