Shift in Academic Accounting Research: From Theory to Economics and Finance, Schemes and Mind Maps of Accounting

Download Shift in Academic Accounting Research: From Theory to Economics and Finance and more Schemes and Mind Maps Accounting in PDF only on Docsity! ACCOUNTING THEORY: A NEGLECTED TOPIC IN ACADEMIC ACCOUNTING RESEARCH by KHALID RASHEED AL-ADEEM Submitted in partial fulfillment of the requirements For the degree of Doctor of Philosophy Dissertation Advisor: Dr. Timothy J. Fogarty Department of Accountancy CASE WESTERN RESERVE UNIVERSITY January, 2010 CASE WESTERN RESERVE UNIVERSITY SCHOOL OF GRADUATE STUDIES We hereby approve the thesis/dissertation of _____________________________________________________ candidate for the ______________________degree *. (signed)_______________________________________________ (chair of the committee) ________________________________________________ ________________________________________________ ________________________________________________ ________________________________________________ ________________________________________________ (date) _______________________ *We also certify that written approval has been obtained for any proprietary material contained therein. 3 4. 3. Measurement .................................................................................................... 64 4.3.1. Accounting Theory ..................................................................................... 64 4.3.1.1. Reference to Accounting Theory ......................................................... 66 4.3.1.1.1 Reference to the Elements of the Structure of Accounting Theory 67 4.3.1.1.1.1. The first level of the structure of accounting theory .............. 67 4.3.1.1.1.2. The second and the third levels of the structure of accounting theory ........................................................................................................ 68 4.3.1.1.2 References to Major Statements Related to Accounting Theory ... 68 4.3.1.2. References to Accounting Theorists .................................................... 71 4.3.2. The Use of the Empirical Archival Method ................................................ 72 4.3.3. The influence of Economics and Finance ................................................... 78 4.3.4. Financial Accounting Topics ...................................................................... 78 4.4. Research Method ............................................................................................... 81 4.4. 1. An Illustration of Coding the Articles Included in the Sample ................. 81 4.4.1.2 Two Steps of Coding ............................................................................ 82 4.4.1.2.1. Articles Included in the Sample .................................................... 82 4.4.1.2.2. Coding the Main Articles .............................................................. 83 4.4. 2. The Criteria of Coding the Main Articles .................................................. 84 4.4.2.1.1 Reference to the Elements of the Structure of Accounting Theory 85 4.4.2.1.2 Reference to Major Statements Related to Accounting Theory .... 86 4.4.2.1.3. Reference to Accounting Theorists ............................................... 87 4.4.2.2. The Use of the Empirical Archival Method ......................................... 87 4.4.2.3. The influence of Economics and Finance ............................................ 89 4.4.2.3.1. A Special Consideration for Coding the Articles under the “Influence_Econ_Fin” variable .................................................................... 91 4.4.2.3.1.1. Deciding upon ambiguous works........................................... 91 4.4.2.3.1.1.1. Journals ........................................................................... 91 4.4.2.3.1.1.2. Books .............................................................................. 92 4.4.2.3.1.1.3. Online magazines ............................................................ 92 4.4.2.3.1.1.4. Reports ............................................................................ 92 4.4.2.3.1.1.5. Article from the world web ............................................. 93 4.4.2.3.1.1.6. Dissertations and Theses ................................................. 93 4.4.2.3.1.2. Stopping the search for unclear cited works .......................... 93 4.4.2.3.1.3. Cited works and material that are considered as neither economics nor finance .............................................................................. 94 4.4.2.3.1.4. The total number of citations ................................................. 94 4.4.1.4. Financial Accounting Topics ............................................................... 95 4.5. Data Analysis ..................................................................................................... 98 CHAPTER FIVE ............................................................................................................ 99 RESULTS AND FINDINGS ........................................................................................ 99 5.1. Introduction........................................................................................................ 99 5.2. Descriptive Statistics ........................................................................................ 101 5.2.1. Descriptive Statistics for the Sample as a Whole ..................................... 102 5.2.2. Descriptive Statistics for Each Period Included in this Study Separately 103 5.3. A Decreasing Trend in Accounting Theory over Time .................................... 107 5.3.1. ANOVA Design ........................................................................................ 108 4 5.3.2. Testing the Differences among the Means of the “Acc_Th” Variable ..... 110 5.3.3. Checking ANOVA Assumptions .............................................................. 111 5.3.4. ANOVA Results ....................................................................................... 112 5.4. Associations among the Variables ................................................................... 116 5.4.1. First Association: Accounting Theory and the Use of the Empirical Archival Method ................................................................................................. 116 5.4.2. The Second Association: The Use of the Empirical Archival Method and the Influence of Economics and Finance ............................................................ 118 5.4.3. The Third Association: Accounting Theory and the Influence of Economics and Finance ......................................................................................................... 119 5.4.4. The Fourth Association: The Influence of Economic and Finance Disciplines and Financial Accounting Topics .................................................... 121 5.4.5. The Fifth Association: Accounting Theory and Financial Accounting .... 121 5.4.6. A Comprehensive Illustration ................................................................... 123 CHAPTER SIX ............................................................................................................. 125 DISCUSSION, CONCLUSIONS, LIMITATIONS, AND FURTHER RESEARCH ........................ 125 6.1. Discussion ........................................................................................................ 125 6.1.1. The Emerging Financial Empirical Paradigm and the Decline of Accounting Theory in Academic Accounting Research ..................................... 125 6.1.2. A Discourse about the Theoretical Foundation of the Emerging Financial Empirical Paradigm ............................................................................................ 128 6.1.2.1. Changes in Society Dictate the Winning Theories ............................ 129 6.1.2.2. Escaping the Label ............................................................................. 130 6.1.3. The Dominance of the Financial Empirical Paradigm: Due to Usefulness or by Imposition ...................................................................................................... 131 6.1.3.1. On the Usefulness of the Prevailing Financial Empirical Paradigm .. 132 6.1.3.1.1. Judging the Prevailing Financial Empirical Paradigm: Its Relevance to Accounting Practice .............................................................. 133 6.1.3.2. Dominating Academic Accounting Research by Imposing the Prevailing Financial Academic Paradigm: An Alternative Viewpoint ........... 136 6.1.4. Background for the Change ...................................................................... 138 6.1.5. A Call for a Change .................................................................................. 139 6.1.6. Bringing Accounting Practice and Accounting Academia together ......... 140 6.1.7. The Existing Need for Normative Accounting Theory ............................. 141 6. 2. Conclusions .................................................................................................... 144 6.3. Limitations ....................................................................................................... 144 6. 4. Further Research ........................................................................................... 146 APPENDICES ............................................................................................................... 179 APPENDIX 1 ................................................................................................................. 180 GUIDELINES FOR CODING THE ARTICLES ..................................................................... 180 APPENDIX 2 ................................................................................................................. 184 HISTOGRAM OF THE FREQUENCY OF THE ACCOUNTING THEORY “ACC_TH” VARIABLE 184 APPENDIX 3 ................................................................................................................. 185 HISTOGRAMS FOR THE ACCOUNTING THEORY VARIABLE IN THE FIRST AND SECOND PERIODS (TIME_1 AND TIME_2) ................................................................................... 185 5 APPENDIX 4 ................................................................................................................. 187 A TABLE OF CORRELATION MATRIX SUMMARIZES THE ASSOCIATIONS AMONG THE VARIABLES .................................................................................................................. 187 APPENDIX 5 ................................................................................................................. 188 FREQUENCY FOR THE ACCOUNTING THEORY VARIABLE IN THE THIRD PERIOD ........... 188 BIBLIOGRAPHY ......................................................................................................... 189  8 List of Diagrams Diagram. 1 Hypothesized relationships among the variables………........................ 160 Diagram. 2 A time line of TAR’s age divided into four periods that are included in the study……………………................................................................. 161 Diagram. 3 Measuring the accounting theory variables………………………......... 162 Diagram. 4 Dimensions of financial accounting…………………………………… 163 Diagram. 5 Coding and transforming the data……………………………………... 164 Diagram. 6 The accounting theory variable against time……………………........... 165 Diagram. 7 The means of the accounting theory variable across the four periods………………………………………………………………… 166 Diagram. 8 The use of the empirical archival method variable plotted against the accounting theory variable………………………………………….…. 167 Diagram. 9 The use of the empirical archival method variable plotted on top of the accounting variable (both variables are plotted against time)…………. 168 Diagram. 10 The use of the empirical archival method plotted against time……....... 169 Diagram. 11 The use of the empirical archival method variable plotted against the influence of economics and finance variable………………………...... 170 Diagram. 12 The influence of economics and finance variable plotted against the accounting theory variable…………………………………………….. 171 Diagram. 13 The influence of economics and finance variable plotted on top of the accounting theory variable (both variables are plotted against time)...... 172 Diagram. 14 The influence of economics and finance variable plotted against time…………………………………………………………………….. 173 Diagram. 15 The influence of economics and finance variable against the financial accounting variable………………………............................................. 174 Diagram. 16 The financial accounting variable plotted against the accounting theory variable…………………………………………………………. 175 9 Diagram. 17 The financial accounting variable plotted on top of the accounting theory variable (both variables are plotted against time)…………........ 176 Diagram. 18 The financial accounting variable plotted agianst time……................... 177 Diagram. 19 The use of the empirical archival method variable, the influence of economics and finance variable, and the financial accounting variable plotted on top of the accounting theory variable (all 4 variables are plotted against time)………………….................................................... 178 10 Acknowledgment I thank Allah, the almighty, for the uncounted bounties He bestows upon me. He has given me more than He gives many of His creations. I thank and acknowledge the members of my committee. I thank Dr. Timothy J. Fogarty (chair) for the many things he has done for me while doing my master and doctorate. From his manner, I have learned the importance of backing up another man and to be patient until he stands on his feet. He has always been ready to offer his help. His generosity in sharing thoughts, knowledge, and material are appreciated. Knowing the accounting academic community, his guidance and advice have been very beneficial to me. His faith in me is a driving force for me to stand firm as I was faced with challenges. Above all, I am very indebted to him for admitting me into the doctoral program. Recalling the current state in which accounting academia is, to be admitted to such a program where I could choose the topic that I believe to be important is a rare opportunity in accounting academia at the current time. I extend my gratitude to Dr. Gary J. Previts for his guidance, encouragement, and very helpful comments. I truly appreciate the insights he has shared with me. They have remarkably shaped my thinking. His insights offered me perspectives within which I was able to see how things are the way they are. I am very appreciative to Dr. Larry Parker and Dr. Claudia Coulton. Every member of my committee has helped in his or her way. My parents have a lot to do with where I am now. I will not be able to pay them back for any of the favors that they have given me. I can only ask for mercy for my father whose death was a turning point in my life. I hope that my mother is pleased with me. I am in need of her forgiveness as well as perfect satisfaction and pleasure. 13 Zakaria Al-Qudah and Hazel Emery. This dissertation has benefited from early discussions with Dr. Christopher J. Burant, Dr. Amany Farag, both at Frances Payne Bolton School of Nursing, and Dr. Mohammad Darawad, who just finished his doctoral program at Frances Payne Bolton School of Nursing. I want to express my gratitude and thank all of them. It was not part of their job to spend their time on my work. I thank Dr. Paul Williams for the encouragement I got from him when I met at the 2009 Ohio Regional Meeting. Being encouraged by such a scholar means a lot to me. Showing an interest in my dissertation’s topic was a great encouragement to me. It was a unique pleasure to meet him and have conversations about the state of accounting academia. Special thanks are due to Patricia Petty for the many things she has done for me. I cannot forget her help and support. I wish her the very best. Khalid Rasheed Al-Adeem 14 Accounting Theory: A Neglected Topic in Academic Accounting Research Abstract By KHALID RASHEED AL-ADEEM A careful examination of accounting literature reveals the prospect for developing normative accounting theory that is capable of meeting society’s needs at any given time. Despite the importance and the possibility of developing such a type of theory, research concerning normative theorization ceased in favor of the new empirical accounting research, which investigates the usefulness of accounting information to decision- making. Launching this line of research was a consequence of changing the objectives of financial accounting. This study empirically analyzes the shift in academic accounting research as proxied by The Accounting Review (TAR). TAR is the American Accounting Association’s premier journal and the American oldest accounting journal devoted to the development of accounting theory. Coding of the articles published in TAR is the research method. Depending on whether or not an article possesses the characteristics of the four variables identified in this study, each article was coded as 0 or 1 under each variable. For each issue, the articles receiving a 1 were counted and summed up. Each issue became a unit of analysis. Samples came from issues published between 1926 and 2007. The years sampled were as follows: 1926-1930, 1952-1956, 1977-1981 and 2003-2007 respectively. 15 This study found accounting theory declined while the use of the empirical archival method, the influence of economics and finance in academic accounting research, and the financial accounting topics appealing increased. This study also found that the use of the empirical archival method is positively associated with the influence of economics and finance. Further, this study found that the influence of economics and finance is positively associated with financial accounting topics. These three trends increased in academic accounting research at the expense of discussing accounting theory as a topic in academic accounting research. The emergence of the new “financial empirical paradigm” mandated the elimination of the “conventional paradigm.” The theoretical foundations underlying the new financial empirical paradigm are accepted due to their “usefulness,” and they have also been enforced. Judged by its relevance to accounting practice, however contemporary academic accounting research seems to be moving away from accounting practice, broadening the schism between theory and practice. 18 problem of financial reporting by corporate entities to external parities” (Mumford, 1993, p.8) created by the separation between ownership and control in corporations (Berle and Means, 1932). Gaffikin (1988a, p.10) observes that “almost all efforts (in English) were concerned with building a theoretical structure for external financial reporting.” Searching for a theoretical basis for financial accounting is to discover accounting principles (Archer, 1993). In 1926, DR Scott observed a tendency of accounting theory to become a body of principles. Because accounting rules cannot be justified in theory and practice (Jones, 1857), accounting rules cannot be integrated to a theory and thus do not yield a theory of accounting. Accounting principles, on the other hand, can be integrated in a form of theory (see for example, Carlson 1964; Cohen, 1960). Accounting practice has developed from “fundamental premises” (McCredie, 1957, p.222) that can be established in the form of a theory of accounting. Accounting theory, which is based on principles (Chatfield, 1975; Flesher, 1991), can guide accounting practice. The separation between ownership and management which characterizes the American corporate economy represents a challenge to accounting. The emergence of the corporate economy represents “a formidable task” that accounting theorists need to address (Previts and Merino, 1998, p.210; see also Merino, 1993). Such a formidable task did not deter accounting academicians, accounting professional bodies, and academic accounting organizations from addressing this challenge. Once accounting theorists and academicians (e. g. Alexander; Canning; Chambers; Devine; Hatfield; Gilman; Littleton; Ijiri; May; MacNeal; Moore; Paton; Sprague; Stamp; Sterling; Sweeney), accounting professional bodies (e.g. American Institute for Certified Public Accountants (AICPA)) and accounting academic organizations (e.g. the American Accounting Association 19 (AAA)) recognized the need for general accounting theory, they were diligent in theorizing and searching for general financial accounting theory. Such efforts dictated the agenda for academic accounting research. As a result, many theories have been proposed as candidates for general theory for financial accounting1. For example, accounting academics and theorists have proposed deductive theories to depict how the enterprise interfaces with owners in the owners’ equity accounts (Wolk et al. 2004, pp.142-143). Mattessich (1993, p.179), describes the state of accounting theory as “the fragmentation.” Chambers (1956) finds difficulty in knowing what can be labeled as theory in accounting. Chambers (1956) also distinguishes between a theory of accounting and accounting theory. Since accounting theory, as defined by Chambers (1956), is general in the way it encompasses several alternative explanations, each theory of the proposed theories for accounting thus far is a theory of accounting. None of the proposed theories has gained wide acceptance (Chatfield, 1977, p. 228; the Statement on Accounting Theory and Theory Acceptance, 1977), nor has one of them “won out over others” (Lee, 2009, p.159). The lack of wide acceptance of a single accounting theory is concerning in that it makes accounting today a discipline without general theory. Several accounting writers have explicitly acknowledged the lack of having comprehensive or unified accounting theory (e.g., Belkaoui, 2004; King, 2006). In Gaffikin’s (1987, p. 17) perspective, accounting “seems to have developed no theory of its own, no philosophy.” In addition, the necessity of accounting theory extends to include academic accounting research to assure its independence from other disciplines. Accounting theory 1 Table 4 and table 5 in chapter 4 list some of their efforts. 20 that assists accounting researchers in designing their studies is missing (Fogarty, 2006; Smith, 2003). This does not mean that accounting researchers do not utilize theoretical foundations in their studies. Rather, what Fogarty (2006) and Smith (2003) are concerned about is that accounting researchers have turned their attention to other disciplines looking for theoretical foundations for their studies. Furthermore, the lack of having general accounting theory offers other disciplines a critical and notable role to play in academic accounting research. Carpenter and Strawser (1971 as cited in Belkaoui and Chan, 1988, p.7) found that, “accounting is increasingly relying on inputs from mature social-science disciplines for theoretical foundations.” The continuous borrowing of theories from other disciplines weakens accounting researchers’ claim of independence from such disciplines. The lack of having general accounting theory threatens the existence of accounting as an autonomous discipline. In his argument for the necessity of developing general accounting theory, Mattessich (1972, p.482) warns that “accounting as a discipline might dissolve and be absorbed by neighboring fields.” Recently, contemporary accounting writers (e.g., Demski, 2007; Fellingham, 2007) have raised concerns about whether accounting is an academic discipline. To Demski (2007, p.153) accounting is not an academic discipline. Exploring the neglect of accounting theory in current academic accounting research is valuable. Such an exploration contributes to our knowledge by addressing questions such as: What are the theoretical foundations that contemporary accounting researchers rely on in guiding their studies? Has a line of thinking recently been dominant in accounting research? This study is not, however, a survey of the proposed financial accounting theories nor does this study evaluate or judge such proposed theories in 23 associations between the accounting theory on one side and the use of the empirical archival method, the influence of economics and finance, and financial accounting topics on the other side. Negative associations between the two groups indicate that the shift in the focus of academic accounting research has been at the expense of continuing the efforts to develop accounting theory. Philosophers of the history of science, like Kuhn (1996), have attempted to explain stages in the development of sciences, particularly, the shift in the focus of a scientific community. Kuhn (1996) employs the term “a paradigm shift” to refer to a shifting of focus by a scientific community. A transition to a new paradigm is a transition toward maturity in a scientific field in Kuhn’s view. There has been similar observations about a shift in academic accounting research (e.g., Beaver, 1998; Buckmaster and Theang, 1991; Dopuch, 1979; Dyckman and Zeff, 1984; Gaffikin, 1988b, 2005a; Granof and Zeff, 2008; Hopwood, 2007; Lee, 2009; Oler et al. 2008; Previts and Robinson, 1997; The Association to Advance Collegiate Schools of Business (AACSB-International), 2008; Tuttle and Dillard, 2007; Wolk et al. 2004; Zeff, 1989). Hopwood (2007) classifies accounting research into two camps. The first camp, which can be labeled as “conventional accounting research” (Wolk et al. 2004, p.34), includes accounting researchers who have “a thorough understanding of accounting itself and can reflect on its internal logic and the possibilities of these to change” (Hopwood, 2007, p.1368). The second camp contains those who research the consequences of accounting. The latter represents the mainstream of contemporary accounting research. This camp is 24 what Dopuch (1979, p.67-68) calls a “new empirical paradigm” which started emerging after the publication of Ball and Brown (1968). Reiter (1998) asserts that the study of Ball and Brown (1968) was later supplemented by the study of Watts and Zimmerman (1978). Hopwood (2007) acknowledges that the two camps, or in Kuhn’ terminology the two paradigms, have been viewed as either/or. The rise of one camp (paradigm) must be at the expense of the other. While there may be an argument for a paradigm replacement or shift in academic accounting research, this study does not attempt to make the case that the paradigm shift is a development toward maturity as Kuhn suggests. The observed schism between academic accounting and accounting practice, which has been broadening as academic accounting continues its tendency toward empirical research, will be used as a criterion to judge and evaluate the prevalent paradigm. The remainder of this study is organized as follows. The second chapter reviews the relevant literature. The third chapter models the phenomenon of interest in a narrative style and a graphical format. The model ties the developed hypotheses that collectively provide a picture of what has taken place in academic accounting research in the past. The fourth chapter discusses the source chosen to collect data in order to test the hypotheses. The sampling procedure and measuring each variable along with the research method are discussed in chapter four. The results and the findings of the study are presented in chapter five. Chapter six provides a discussion and conclusions, and acknowledges the limitations of this study. Chapter six also suggests directions for future research. 25 CHAPTER TWO Literature Review This chapter contains three major parts. The first part discusses the discourse about accounting theory. This discussion is covered in seven sub-sections. The second part presents the shift in the focus of academic accounting research. The third part is devoted to contemporary academic accounting research. This part is divided into four sub-sections. 2.1. Accounting Theory While accounting is a pragmatic discipline, building accounting theory involves a conception of ideals. Examinations of the nature of accounting coupled with the consideration of its flexible role demonstrate the possibility of a philosophy of accounting and general theory of accounting through normative theorization. Early accounting professionals recognized the need for having such general theory to meet the challenges brought to accounting by the emergence of corporations. In addition to their own efforts, accounting professionals partnered with accounting academicians to develop general theory for accounting. Academic accounting research reflected the assignment from accounting practitioners that accounting academics had undertaken. However, as argued in the following pages, no single accounting theory gained wide acceptance over long periods of time. Dismay over normative theorization contributed to shifting the focus of academic accounting research away from developing normative accounting theory. The following sub-sections detail this discourse. 28 relationships among variables with the purpose of explaining and predicting the phenomena” (Kerlinger and Lee, 2000, p.11), then theories of the middle range “lie between the minor but necessarily working hypotheses that evolve in abundance during day-to-day research and the all-inclusive systematic efforts to develop a unified theory” (Merton, 1967, p.39). Accounting theories of the middle-range perceive the users of accounting data and the environment differently (Belkaoui, 2004). No single one of the proposed theories has been generally accepted (the Statement on Accounting Theory and Theory Acceptance, 1977). Those middle range theories cannot be viewed as substitutes for general accounting theory. A need still exists today for general accounting theory. Understanding the nature of accounting and the role of accounting has the potential of revealing the possibility of building general accounting theory and an approach to theorize in accounting. 2.1.3. On the Nature and the Flexible Role of Accounting Littleton (1966, p.363) asserts that, “accounting originated in known circumstances in response to known needs.” Chatfield (1974 p. 256 as cited in Wolk et al. 1984 p.114) claims that “accounting concepts mostly developed in a pragmatic fashion from practical operating necessities…” Cowan (1968, p.97) argues that, “accounting may be thought of as a set of particular responses to a set of particular needs.” Accounting procedures and techniques can thus be viewed as responses to business needs. Changes in business needs necessitate reaction from accounting in response to these needs. As Chatfield (1977, p.3, emphasis added) puts it, “…accounting processes are 29 reactive…they develop mainly in response to business needs at given times, and…its growth is relative to economic progress generally…” Similarly, accounting by nature is reactive to the advancement in the economic system that governs commercial activities in a culture (Chatfield, 1977). Needs of businesses existing in a culture define the role of accounting within the culture (Chatfield, 1977; Cowan, 1968; Littleton, 1966; Merino, 1993; Vatter, 1963). Changes in business needs entail changes in the role of accounting. DR Scott (1926, p.20) observed that, “…as business administration has changed in character[,] an accompanying change has taken place in technique used by it.” Accounting techniques are among those techniques used by business administrations (see DR Scott, 1926). Changes in accounting can be explained in terms of forces current at the time (Littleton, 1966, p.362). The ability of accounting to respond by changing its processes and techniques in accordance to external situations and forces (Hopwood, 1987, p.211) enables accounting to evolve and grow “in harmony with its surroundings” (Littleton, 1966, p.362). Accounting has an adaptive nature (Montgomery in the Foreword to Edward Peragallo’s Origin and Evolution of Double Entry Bookkeeping as cited in Nelson 1949 p.357). Thus, the flexibility of adapting to new roles might be a unique and determining attribute of accounting. The lack of awareness of such a quality permits some accountants to assert the impossibility of building general accounting theory. 2.1.4. On the Possibility of a Theory of Accounting through Normative Theorizing A theory of accounting is possible (McCredie, 1957). A possible way to theorize in accounting is the normative type of theorizing. This was the form chosen by early 30 accounting theorists, particularly prior to 1968. It was their way of attempting to build general accounting theory. Normative theories received considerable attention in accounting (Wolk et al. 2004). These theories were normative in nature because they all were intended to show how corporate reporting ‘should be.’ By stating “attempts can be made to improve accounting in the name of what it should be rather than what it is” (p.210), Hopwood (1987) represents a defense for such a position. Normative judgment is critical to the progress of research (Sterling, 1990). It was predicted in 1966 in A Statement of Basic Accounting Theory that, “a possible structure of future accounting theory would be more normative and less descriptive than in the past” (p.63). Also, in the mid-1960s, the Accounting Principles Board (APB) revealed its tendency not to synthesize “accepted practice[,]” but instead to “adopt a normative stance toward the development of basic concepts” (Zeff, 1999, p.95). Yu (1976, p. 104) argues that the normative approach is promising because “the kind of accounting that we practice is largely founded on a normative basis.” The normative type of theory fits the nature of accounting. Accounting by nature reacts responsively to business needs. This responsive nature of accounting ought to be considered and taken seriously in the debate of whether accounting has a theory. It is worthy of considering and pondering over Cowan’s (1968, p.97) statement that the responses of accounting to business needs can be formed in “a unified system of accounting.” This unified system of accounting can be built in a way that assures business needs in a given culture at a given time are met. Once business needs are identified, the objectives that accounting serves are stated. In other words, the objectives of accounting 33 2.1.5. Early Accounting Professionals Proposing Theories of Accounting Previts (1980, p.4, emphasis added) states, “Significant influence upon the development of financial accounting thought can be traced to the writing of a group of professional accounting pioneers of the period 1900 to 1920.” Previts labels this period as pre-classicalism in the development of the American financial accounting thought. He considers William Morse Cole, Arthur Dickinson, Paul-Joseph Esquerre, Henry Rand Hatfiled, Roy Bernard Kester, Rober Heister Montgomery, Charles Ezra Sprague and John Raymond Wildman as preclassical writers, who “transformed early accounting notions into those which served as a foundation for subsequent advances in accounting theory” (p.5). Furthermore, Previts and Merino (1998, p.211) argue, “the first integrative [accounting] theory to evolve was labeled ‘proprietary’.” The emergence of such a theory was a response from accounting theorists to the “formidable task” that was to “reconcile traditional accounting profit measurement based on individualistic economic theories with an emerging corporate economy” (Previts and Merino, 1998, p.212). Chatfield (1977) credits Sprague (1907) and Hatfield (1909) with presenting the proprietary theory of accounting in a complete form. Sprague and Hatfield articulated a doctrine whose underlying assumptions dominated American accounting textbooks (Chatfield, 1977). “[T]he meaning of accounts from the owners’ viewpoint” (Chatfield 1977, p.220) is a dominant perspective that has been taught using accounting textbooks. Depicting how the enterprise interfaces with owners in the owners’ equity accounts (Wolk et al. 2004, pp.142-143) is still taught in accounting textbooks. 34 According to proprietary theory, as applied to corporations, business is assumed and obligated “to maximize the wealth of its owners.” Based on this view, accounting records are kept and statements are prepared from the proprietor’s perspective and are aimed at measurement and analysis of the proprietor’s net worth (Chatfield, 1977, p.223). The entity theory challenges proprietary theory. Paton, (1922, p.89 as cited in Previts and Merino, 1998, p.213) an advocate of entity theory, argues that management’s goal is “to increase the return to all equities” and not just the return to common stock holders. Previts and Merino (1998, p.213) explain that Paton used the term “equities” to include all sources of financing for the firm. If the corporation is functionally separate from its owners and creditors, then the corporation and not the owners and creditors would be the center of accounting interest (Chatfield, 1977, p.224). Chatfield (1977, p.220) argues that “…the proprietary and entity doctrines…still serve as rationalizations for bookkeeping methodology and an integrating framework for accounting theory.” Therefore, one may argue that the initial efforts toward academic development of accounting theory began around 1920. One may also argue that accounting theorists who took the initiative to advance accounting theory depended on the work and contributions of accounting writers prior to 1920. For example, Sprague wrote on the elementary aspects of the proprietary equation as early as 1880. Hatfield (1977, p.2)3 credited the works of Thomas Jones and B. F. Foster for explaining the natural theory of accounts or what is usually known as the theory of two series of accounts, which was written in the mid 19th century. 3 H. R. Hatfield lived between 1866 and 1945. Previts (1977) states that Hatfield’s article originally appeared in the Zeitschrift fur Buchhaltung (Linz, Austia) in 1909. It was first translated in 1977 (for more about Hatfield’s article see Previts, 1977). 35 2.1.6. The Role of Academic Accounting Research in Building General Accounting Theory Accounting practitioners recognized the necessity of involving accounting academicians in building general accounting theory. McCredie (1957) realizes the gains that may be achieved from involving accounting academia. A main part of accounting theory results from the research process (Wolk et al. 2004). Since research is indispensable for the effectiveness of theory development (Schroeder et al. 2001), early accounting practitioners suggested “the development of a coherent accounting theory” as a direction for academic accounting research (the Statement on Accounting Theory and Theory Acceptance, 1977, p. 6). Accounting academicians played a critical role in advancing accounting practice by developing general accounting theory capable of guiding accounting practice. Prior to the 1960s, academic accounting research was an accumulation of the efforts of accounting theorists and accounting academicians to build accounting theory and to describe accounting practice. Academic accounting research was descriptive and mostly prescriptive. That is, academic accounting research was normative deduction and descriptive of practice (Zeff, 1989). Besides describing existing standards, practices and suggesting ways in which they could be improved (Granof and Zeff, 2008), accounting researchers prescribed how corporate reporting ought to be. Furthermore, the descriptive accounting research during this period was much different from what some contemporary accounting researchers propose as an alternative to prescriptive research (see Watts and Zimmerman, 1986, ch.1). Descriptive research which existed prior to the 1960s benefited 38 suggested as an approach for financial accounting reporting because an accounting response required an alternative approach for financial accounting reporting. In the late 1960s, the perspective in financial accounting shifted “from income measurement to an ‘informational’ approach” (Beaver, 1998, p.4). The Trueblood Report refocused “discussions in the accounting policy arena from stewardship reporting to providing information useful for decision makers” (Zeff, 1999, p.101). The investment process was recognized as a central aspect of the financial reporting environment (Beaver, 1998). In this environment, investors demand information that assists them in evaluating the future cash flows associated with the securities and the firm which issued these securities (Beaver, 1998). The accounting function thus has assumed an expanded responsibility for information flows (Davidson and Trueblood, 1961). Management plays the role of supplying information to investors and creditors (Beaver, 1998). The dissatisfaction with the old objectives of financial accounting has been paralleled with concerns regarding the state of academic accounting research. In the late 1950s, two reports on the state of business schools’ scholarships were published. The first report was authored by Gordon and Howell (1959) and sponsored by The Ford Foundation. The second report was authored by Pierson (1959) and sponsored by the Carnegie Corporation. The impact of these two reports upon academic accounting research was remarkable (e.g., Dyckman and Zeff, 1984; Heck and Jensen, 2007; The Association to Advance Collegiate Schools of Business (AACSB-International), 2008; Wyhe, 1994). Both reports expressed concerns with regard to the scholarship and research in business 39 schools. An intellectual comparison between business schools, and other schools and colleges was unfavorable to business schools (Gordon and Howell, 1959 p.356 as cited in The Association to Advance Collegiate Schools of Business (AACSB-International), 2008 p.8). A major criticism was the lack of scientific inquiry. Business faculties were short of research skills (Gordon and Howell 1959 as cited in Heck and Jensen 2007). Neither accounting nor accounting researchers were exceptions to such criticism. Academic accounting research made the investment process the center of the new financial reporting. In the late 1960s, relevant and useful issues of financial information and the optimal choice of accounting procedures were at the top of the research agenda (Lev, 1998). From the 1960s the agenda for academic accounting research shifted to scientific style research that investigates the decision usefulness of accounting information. Ball and Brown (1968) along with Beaver (1968) “launched the tradition of “returns/earnings studies” (Lev, 1968, p.153). These two studies initiated a type of academic accounting research grounded in financial economics (Tuttle and Dillard, 2007, p.402). Similar to any other “new methodological approaches [that] tend to attract a large number of followers” (Hopwood, 2007, p.1371), empirical accounting research initiated by Ball and Brown (1968) and Beaver (1968) attracted many new and young accounting scholars. Subsequent researchers examined “the extent to which the information conveyed by earnings was consistent with reflected security returns (no causal inferences drawn)” (Lev, 1998, p.154). That is, financial information’s usefulness was inferred from capital market evidence (Lev, 1998). The relationships expressed in such empirical 40 research in accounting while “mechanistic” (Wolk et al. 2004, p. 31) created a demand for theoretical foundations to guide empirical research in accounting. The study of Watts and Zimmerman (1978) introduced positive accounting research as an element of the emerging empirical research culture in accounting (Reiter, 1998). Watts and Zimmerman are known for popularizing agency theory in an accounting environment (Smith, 2003). Wolk et al. (2004, p.43) considered “the Watts and Zimmerman (1978) study…[as] the first major agency theory work done in accounting.” Watts and Zimmerman imported agency theory from the economic literature and utilized it in describing behavioral relationships. Basing their work on economic empirical literature, Watts and Zimmerman (1986, p.8) labeled their work as “positive” in that it was “concerned with how the world works.” Positive accounting research was an attempt “to answer the question of why particular standards were selected by policy makers or why management selects the particular accounting alternative it chooses….Positive accounting research attempts to explain behavioral relationships in accounting” (Wolk et. al. 2004, p.31). Positive accounting research is concerned “with the behavior of those who prepare and use accounting data-accountants, management, and users” (Christenson 1983 as cited in Wolk et al. 2004, p.34)5. Oler et al. (2008) deemed the publications of Ball and Brown (1968) and of Watts and Zimmerman (1978) as a turning point in the history of academic accounting research. Accordingly, two lines of academic accounting research have existed. The first 5 Some early studies, for example Grady (1965); Sanders, Hatfield and Moore (1938), are positive in nature (see table 4 in chapter 4). The early positivists were rather different from contemporary positivists in that the former were concerned with studying accounting as practiced in order to discover accounting principles. 43 limits the influence of this study to that of a methodological impact upon academic accounting research. The second trend is the increased influence of economics and finance (Bricker and Previts, 1990; Bricker et al. 2003; Gaffikin, 2005b; Lee 1995; Lee and Williams, 1999; Oler et al. 2008; Reiter, 1998; Reiter and Williams, 2002; Smith, 2003; Tinker, 2001; Williams and Rodgers, 1995). The third trend is the increase in financial accounting topics over time (Bonner et al.2006; Fogarty, 2007b; Kinney, 1990; Oler et al. 2008; Sundem, 1987; Tuttle and Dillard, 2007). This study asserts that the increases in these three trends have been at the expense of continuing efforts towards developing general accounting theory. These three trends are proposed to have negative associations with accounting theory. Chapter three discusses these hypothesized relationships in detail. The remainder of this chapter discusses each trend in detail. 2.3.2. The Use of the Empirical Archival Method The decline in normative theories was in conjunction with a movement toward so- called scientific research, namely logical positivist empiricism. A critique of accounting emerged in the 1970s resisting to this shift toward more positivist empiricism, as well as efficient market and agency studies (Neimark, 1990, p.105, emphasis added). Two major forces pushed academic accounting research to move toward empiricism. First during the 1950s and 1960s, criticisms emerged as to the lack of scientifically-based accounting research (Zeff, 1989). The second force was the concern 44 that very little was done by academia to enhance the understanding of accounting as a field of knowledge (Mautz, 1963). In addition to these two forces, the surroundings which existed prior to the shift toward empirical research which was represented by the view that accounting is an information system coupled with increase growth in the mathematical, behavioral, and economic theory of information “provided an ideal environment for the growth of empirical research” (Dyckman and Zeff, 1984, p.268). Since 1970, the accessibility of large financial databases and refined statistical techniques helped empirical accounting research achieve dominance to the extent that it became the mainstream (e.g. Buckmaster and Theang, 1991; Dopuch, 1979; Gaffikin, 1988b, 2005a; Previts and Robinson, 1997). Thus, the developments of computerization and technology, which has made handling a huge volume of data possible and manageable, is a variable in an explanatory model of accounting literature (Buckmaster and Theang, 1991, p.75). Furthermore, with “the availability of computer supported market price databases, ideas based in logical positivist empiricism, gained influence over the market for financial accounting theory” (Previts and Robinson, 1997, p.313). Rodgers and Williams (1996, p.74) noticed that while “lab experiments and data tapes rose in importance, accounting theory diminished in importance.” In sum, as Davidson (1984, p.282) exclaimed, the development of statistical techniques and quantitative analyses, the progress in computerization and the advancement in theories on motivation and other related aspects of behavioral science has pushed accounting research to a new phase of capitalizing “on these advances in related fields.” As a result of these many developments and advances imported to accounting 45 academia, Davidson hoped that accounting research had situated itself towards a more scientific approach. 2.3.3. The Influence of Economics and Finance “Since theory guides the research design of empirical studies” (Dopuch, 1979, p.67) and “since interpretation of empirical analysis is impossible without theoretical guidance” (Kothari, 2001, p.106), the need for theories exist. Contemporary empirical accounting researchers must find a source for theories to utilize in empirical archival research. Trained in a positivist economic orthodoxy (Williams and Rodgers, 1995) and because economics provides the greatest respectability (Williams and Rodgers, 1995; Reiter and Williams, 2002), accounting researchers who identify themselves as empiricists have chosen an economic paradigm. Specifically, accounting researchers in this category have chosen a financial-economic paradigm as a source theory for accounting knowledge. The influence of economic theory in accounting exists (Gaffikin, 2005b), and likely has been present since the writings of Paton whose theories and views were deeply rooted in classical economics. In addition to economics, finance is another discipline that has offered theories to accounting researchers (Smith, 2003). Watts and Zimmerman (1986, p.6) argue that, “the developments in finance aimed at explaining practice provided a ready basis for…a theory [of accounting].” Although finance might be viewed as a sub-discipline of economics, Smith (2003, pp.43-44) articulates, “the developments in this field [finance] have had such a radical influence on accounting research that they deserve separate consideration.” Accounting researchers who were trained to use research tools containing 48 to the extent that “it is not unusual now to observe accounting academics making no distinction between accounting and economics” (Williams, 2000, p.112). 2.3.4. Financial Accounting Topics Zeff (1983), when his five-year editorial term at TAR was complete, informed and warned about the consequences of the tendency toward narrowing the scope of TAR. However, his warnings were ignored. As documented by Rayburn (2006), the accounting discipline had limited the scope of accounting’s top academic journals. Such a narrowness began in the 1960s and 1970s (Tuttle and Dillard, 2007). Tuttle and Dillard (2007) observed a large increase in the number of financial accounting papers. Sundem (1987), a TAR editor, stated financial accounting had become the main topic of accounting research with 41% of submissions. Oler et al. (2008, p.4) found that “financial accounting research has remained the consistently dominant topic of research, and is becoming increasingly so.” During the period of 1984-2005, the proportion of financial accounting articles in the top-tier accounting journals are 72.2%, 60.2%, 50.6% and 51% of the articles in Journal of Accounting Research (JAR), Journal of Accounting and Economics (JAE), TAR, and Contemporary Accounting Research (CAR), respectively (Bonner et al. 2006). In 2006, the percentage of financial accounting topics published in TAR was about 66% (Tuttle and Dillard, 2007). The imported theories from economics and finance fit financial accounting topics. Agency theory which is a component of the “neoclassical economic paradigm” (Lee and Williams, 1999, p.881) is suitable for explaining phenomena produced by the principal- 49 agent problem. The separation between management and ownership makes agency theory a good theoretical framework for studies examining the relationships between managers and shareholders and for research questions related to the agent’s reporting to the principal. Similarly, other economic theories, such as rational choice theory and asymmetric information theory, are suitable and applicable to financial accounting. In general, economic theories of information and behavior assist in providing links between accounting information and market phenomena (Reiter, 1998). In summary, while normative theorization represents a possible way to build general accounting theory, dismay over normative theorization contributed to shifting the focus of academic accounting research away from developing normative accounting theory. As the objectives of financial accounting changed to decision usefulness, the investment process has become an essential aspect of the financial reporting environment. The change in the objectives of financial accounting was paralleled by a shift in academic accounting research to scientific style research that investigates the decision usefulness of accounting information. A closer look at contemporary academic accounting research reveals the existence of three increasing trends: the use of the empirical archival method, the influence of economics and finance, and the increased financial accounting topic content of research articles. The following chapter will discuss the development of research hypotheses to explore and expand our knowledge of the content of accounting literature over time. The hypotheses will be about accounting theory as a topic discussed in academic accounting 50 research. They will also be about the three increased trends that exist in academic accounting research. 53 empirical research has been in conjunction with a decline in research for accounting theory, but no data was supplied to support such an assertion. A study by Rodgers and Williams (1996) reached a similar conclusion supported by data. Analyzing a sample of articles published in TAR during the period 1967-1993, Rodgers and Williams (1996) find that while data tapes and lab experiments rose in importance, accounting theory has declined. They based their conclusion on descriptive statistics. Rodgers and Williams restricted the articles, which they analyzed, to the ones written by the “elite” authors, as they defined them. There might be, however, non-elite authors who published articles about accounting theory in TAR during that period. With all these studies being published, Lee (2009) still speculates that the emergence of empirical finance-based accounting research may be related to the decline of accounting theory. There is still a need to test the association between the rise of the empirical archival method and the decline in accounting theory. The increase in the number of manuscripts using the empirical archival method in academic accounting research may be related to the decrease in manuscripts concerned with accounting theory. It is accordingly hypothesized that: H2: The use of the empirical archival method in academic accounting research is negatively associated with accounting theory in academic accounting research. Like studies utilizing other empirical methods, studies where the empirical archival method is employed need theories for designing such studies and interpreting their findings. Empiricism, which currently dominates American accounting research, emerged from economic and finance traditions. The two studies which launched contemporary 54 accounting research (Ball and Brown 1968; Beaver 1968) have been grounded in financial economics (Tuttle and Dillard, 2007). The study by Watts and Zimmerman (1978), which has supplemented the Ball and Brown 1968 and Beaver 1968 studies, emerged from economic literature. Accounting researchers who are influenced by such studies peruse empirical studies that utilize the empirical archival method. Economics and finance may be chosen as theoretical foundations for these empirical accounting studies. It is hypothesized that: H3: The use of the empirical archival method in academic accounting research is positively associated with the influence of economics and finance upon academic accounting research. Utilizing theories from the economic and finance disciplines may decrease the importance of accounting theory. For example, agency theory has been used in guiding the design of empirical accounting studies and in interpreting their findings. It is hypothesized that: H4: The influence of economics and finance on academic accounting research has a negative association with accounting theory in academic accounting research. Wolk et al. (2004) point out that “…the roots of agency theory lie in finance and economics.” Agency theory and some other theories imported from the economic literature provide behavioral relationships. Imported theories from the finance literature assist contemporary accounting researchers in their investigations of relationships between the usefulness of accounting information and corporation performance. Contemporary accounting researchers use theories from finance to explain the observed 55 phenomena in the capital market and to predict unobserved ones (Gaffikin, 1988b). Theories imported from economics and finance may promote sub-areas in financial accounting. Such sub-areas were not previously studied or explored by accounting academics. Capital market research is an example of these sub-areas in financial accounting. Capital market research emerged in the accounting literature as importing theories from economics and finance continued. Beaver (1998, p.4) asserts that “financial accounting research in information economics, security prices, and behavioral science” reflects the shift in academic accounting research which took place in the late 1960s. It is hypothesized that: H5: The influence of economics and finance on academic accounting research is positively associated with the financial accounting topics in academic accounting research. This hypothesis does not suggest that financial accounting in general did not appear in academic accounting research prior to the importation of theories from economics and finance. Financial accounting topics have been appearing in academic journals since the time they were established. Fleming et al. (1990) found the ratio of financial accounting topics published in TAR during the period of 1926-1945 is 66.9%. What this study is concerned with is the proportion of financial accounting articles that can be associated with the rise of imported theories from the economic and finance disciplines. Excluding market studies from financial accounting, Kinney (1990) reports a small increase in the ratio of financial accounting (43.7%) as compared to the ratio of financial accounting published during Sundem’s (1987) term as TAR’s editor which was 41%. Using definitions of financial accounting different from the one used in 58 disciplines, in particular economics and finance, may be negatively associated with efforts to develop general accounting theory to guide accounting practice. Instead of working on building general accounting theory that would lead accounting practice, many contemporary accounting researchers employ borrowed theories in their empirical studies. The belief in agency theory leads researchers to deduce hypotheses related to external financial reporting. The appropriateness of imported theories from economics and finance in explaining phenomena produced by the problem of a principal-agent relationship may lead one to correlate the influence of economics and finance with the increased trends observed in financial accounting topics in academic accounting research. This increased trend in financial accounting topics in academic accounting has been at the expense of other accounting topics (Fogarty, 2007b). Accounting theory may fall into this category. The increase in financial accounting topics in academic accounting research may be negatively correlated with accounting theory. 3.2.2. Graphically Diagram 1 ties together hypotheses: H2, H3, H4, H5 and H6. Tying them together along with the first hypothesis (H1) provides a coherent and comprehensive picture of what may have taken place in academic accounting research. [Insert Diagram 1 here] 59 CHAPTER FOUR Study Design This chapter discusses the design of the study in four parts. The source of the data and the sample selection are discussed in the first part. The second part details how to measure each variable. In the third part, the research method deals with the procedure for coding the articles and the demonstration of the process of obtaining scores for issues (unit of analysis). The last part discusses how to analyze the obtained scores. 4.1. Data One of the goals of the emergence of academic accounting research has been to build general accounting theory. The American Association of University Instructors in Accounting (AAUIA)6 recognized the incapability of practitioners to deliver a body of knowledge that would contribute to the advancements of accounting theory. Later, the AAUIA reorganized to include research, particularly on accounting theory as a topic that AAUIA would pursue. Article II of the Report of the Committee on Revision of the Constitution and By-Law states “…improvement in accounting which will make its use more satisfactory and serviceable must come from attention to the theory of the subject” (AAUIA, 1925, p.153). The years following the constitutional revision experienced many efforts by the AAA to develop general accounting theory, specifically the years between 1936 and 1977 (for a detailed list of these efforts see the second part of Table 4 in this study; see Zeff 1999, p.90 for an introduction of these statements). Such efforts led accounting writers, like Langenderfer (1987), to view AAA’s main role as that of developing accounting 6 In 1935 AAUIA became AAA. 60 theory underlying sound financial reports, which at that time accounting scholars were very enthusiastic to establish. An official document sponsored and published by the AAA stresses such a role. A Statement Of Basic Accounting Theory states that “the American Accounting Association has a consistent record of activity in the development of accounting principles, standards, and accounting theory generally” (1966, p.vii). The AAA is capable of not only controlling the “legitimate scholarly agenda” (Rieter and Williams, 2002, p.602), but also influencing and shaping the American accounting academy through several means such as editorial boards, research, awards and others (see Lee, 1995; Fogarty and Liao 2006). TAR is the greatest and the most effective means that the AAA employs in organizing the contents of accounting knowledge (Heck and Bremser 1986; Williams 1985; Williams and Rodgers 1995). TAR has gained the recognition within the accounting community as a US-leading journal and a valuable source for accounting scholars to establish a reputation. It possesses the power of deciding the “contents of accounting knowledge” (Williams and Rodgers, 1995, p.263). US accounting faculties identify TAR as one of the most prestigious journals (Lee, 1997). Even though the AAA has expanded the number and the diversity of journals, none of them is as important as TAR in university performance evaluation decisions (Heck and Jensen, 2007). Clearly, TAR enjoys a significant value as compared to other accounting journals. Sunder, a former president of the AAA, describes TAR as “the granddaddy of the AAA’s publications” (2007, p.4). TAR is the manifestation, the phrase used by Rodgers and Williams (1996), of the latent desire of the AAA to promote certain directions and avenues in accounting research, to encourage specific research methodologies, and to motivate particular ideas. 63 establishment. The twenty-one years which follow the first period are skipped. The second period is then selected. The second period covers the years between 1952 and 1956. The twenty years following the second period are skipped. The third period is then selected. The third period covers the years between 1977 and 1981. The twenty-one years following the third period are skipped, leaving us with the last five years. Accordingly, the fourth period covers the years between 2003 and 2007. [Insert Diagram 2 here] Including these four periods in the sample is valuable for a variety of reasons. As stated above, the first period will offer us a sense of how the articles published in TAR appeared when it was established. The second period, as the literature reveals covers part of the time when the market for accounting theory reached its peak. Examining such a period is important to understand the relationship between accounting theory and the other variables. The third period starts in 1977 which is a decade after the publications of the studies of Beaver (1968) and Ball and Brown (1968). Dopuch (1976) considers the study of Ball and Brown (1968) as the opening of the new empirical paradigm in academic accounting research. Examining TAR as a proxy of academic accounting research a decade later after this type of study is published gives it relatively enough time to have an influence in accounting academia. During the third period, two studies of Watts and Zimmerman (1978, 1979) were published in TAR. Examining the fourth period is important for our understanding in that it allows more than two decades for the Watts and Zimmerman (1978, 1979), Ball and Brown (1968), and Beaver (1968) studies to have influences in academic accounting research. The fourth period also shows us the current 64 relations among the four variables (accounting theory, the use of empirical archival method, the influence of economics and finance, and financial accounting topics). 4. 3. Measurement This section discusses in detail how each variable is measured. For some variables (the use of the empirical archival method and financial accounting topics), detailed discussions about the lack of precise definitions for these variables are presented before a decision is made on how to measure these two variables in this study. For the variable concerned with the influence of economics and finance, extensive literature suggests a way of measuring this variable. For the last variable accounting theory, this study establishes its own criterion in measuring this variable. This criterion has two dimensions as discussed below. 4.3.1. Accounting Theory Accounting theory has been defined broadly in this study. By doing so, this study avoids possible criticism that a narrow definition of accounting theory may bring. Relying on a narrow definition may raise concerns that articles published in recent TAR issues will not be considered accounting theory. The reason for broadening the definition is to give articles published in recent years, particularly during the fourth period (2003- 2007), a chance to be treated as articles discussing accounting theory. This study considers the many possibilities available for a main article to be treated and classified as an article about accounting theory. 65 For an article to be classified as one dealing with accounting theory, three alternatives are available. Each alternative is represented by a dimension. If an article has a reference to only a dimension, then an article will be deemed to be about accounting theory. References to one dimension or a sub-dimension is considered enough for an article to be listed as being about accounting theory. Accounting theory is measured using two different dimensions. The first dimension is concerned with references to accounting theory. This dimension is divided into two different sub-dimensions. The first sub-dimension is concerned with references to any of the elements of the structure of accounting theory as defined by Belkaoui (2004). The second sub-dimension is concerned with references to any of the statements published by the AICPA and the AAA that are concerned with accounting theory or by the Financial Accounting Standards Board (FASB) that are concerned with the conceptual framework. These statements might be referred to while the article has nothing to do with accounting theory because a constraint is imposed upon articles that refer to such statements. This constraint is represented by factors such as citing an accounting theorist, examining the title of the article, and examining the contents of the article. For example, if the article concerns one of these statements and at the same time refers to an accounting theorist, it will be clear that this type of article is concerned with accounting theory. The second dimension is to refer to an accounting theorist. These dimensions are discussed in detail below. Diagram 3 summarizes these dimensions. Each of the following sub-sections discusses a dimension. Each sub-section provides examples of what will be classified as accounting theory and what will not be classified as accounting theory. 68 Belkaoui (2004, pp.167-173). Some accounting academics have suggested different objectives. Such suggested objectives, in addition to Trueblood Committee’s proposed objectives, will be considered in this current study for the purpose of measuring the accounting theory variable. This study considers published attempts toward developing and constructing accounting theory. [Insert Tables 1 and 2 here] 4.3.1.1.1.2. The second and the third levels of the structure of accounting theory Table 3 contains a detailed list of what would be included under levels 2 and 3 of Belkaoui’s “structure of accounting theory.” [Insert Table 3 here] 4.3.1.1.2 References to Major Statements Related to Accounting Theory Three organizations have sponsored and published these major statements. Based on the organizations the statements can be classified in three categories. In the first category, the statements were sponsored and issued by the AICPA (see the first part of Table 4). Some of these statements were intended to be a theory of accounting (e.g., The Basic Postulates of Accounting (ARS No. 1), 1961; A Tentative Set of Broad Accounting Principles for Business Enterprise (ARS No. 3), 1962). Other statements attempted to list and describe accounting principles (e.g., Inventory of Generally Accepted Accounting Principles for Business Enterprises (ARS No. 7), 1964). Other statements were concerned with accounting principles (e.g., A Statement of Accounting Principles by Sanders, Hatfield, and Moore, 1938). 69 In the second category, the statements were sponsored and issued by the AAA (see the second part of Table 4). Some of those statements were proposed as a theory of accounting (e.g., A Statement of Basic Accounting Theory, 1966). Other statements can be viewed as a survey and an evaluation of the proposed theories (e.g. the Statement on Accounting Theory and Theory Acceptance, 1977). The statements published by the AAA between 1936 and 1957 are related to each other (for a brief introduction see Zeff, 1999, p.90). In the third category, the statements were sponsored and issued by the Financial Accounting Standards Board (FASB). Collectively, these statements by FASB were intended to create the conceptual framework of financial accounting (see the third part of Table 4). This conceptual framework is a composite of seven statements issued during the years between 1978 and 2000. Although SFAC No. 4 is not for corporations aiming for profits, and although some accounting writers do not include it when they discuss the conceptual framework (e.g. Kieso et al. 2004; Nikolai et al. 2007, p.33, footnote 3), it is considered as part of the conceptual framework. This study is concerned with whatever efforts were put in place toward establishing a theory for accounting. Belkaoui (2004), King (2006) and Wolk et al. (2004) include it in their discussions of the conceptual framework. Objective number 11 (see Table 1) recognizes that nonprofit organizations are obligated to supply financial information and statements that assist in evaluating how they manage resources. Furthermore, the tendency toward building the conceptual framework was a result of not reaching agreement upon a theory of financial accounting. Accountants turned to building a conceptual framework as an alternative to self-regulating the accounting 70 profession (Archer, 1993). An attempt toward establishing an intellectual basis for setting accounting standards replaced the efforts to build a theoretical basis for financial accounting (Archer, 1993). These standards are to be derived deductively from the conceptual framework (Power, 1993) that FASB started working on in 1976. Belkaoui (2004 p.173) states, the conceptual framework is planned to be a constitution for the standards-setting development. The term “conceptual framework” is used to characterize the perceived need that has to be met (FASB, 1974 as cited in Archer 1993 p.63). That is, “The FASB has…realized that the whole problem of standard-setting rests not only on the objectives, but on an established body of concepts and objectives” (Belkaoui, 2004, p.173). The conceptual framework of FASB is the longest and the most expensive project in the history of accounting (Gore, 1992). Framework building is a part of the “traditional normative literature” (Dyckman and Zeff, 1984, p.236 footnote 5). Wolk et al. (2004, p.196, emphasis added) state, “The conceptual framework is thus an attempt to provide a meta-theoretical structure for financial accounting.” Some parts of the conceptual framework might be viewed as a theory (Gaa, 1988). This study considers the framework project as an attempt to create a theoretical foundation that was hoped to help in developing accounting. This study is not focused on evaluating or judging the proposed accounting theories nor the suggested alternatives for accounting theory (for example the conceptual framework). This study is rather focused on the decline in such efforts. Therefore, references to FASB’s statements that create the conceptual framework will be considered while measuring the accounting theory 73 Schwandt (2001) identifies two schools of empiricism. The first one is the strict (also called naïve) empiricism which “holds all knowledge is experiential, and that knowledge claims can be justified only by appeal to the evidence of the senses” (2001, p.67). That is, it “relies exclusively on perception and induction in building knowledge claims and eschews any important role whatsoever for concepts and theories” (2001, p.67). This form is what is known as logical positivism. Schwandt documents that historians and philosophers such as Kuhn and Stephen support the idea that scientists’ prior knowledge, beliefs, and concepts take part in justifying and testing scientific claims. Dewey (1938 as cited in Kaufmann 1959 p. 827) asserts that empirical knowledge “must have an immutable basis which is provided by logic.” Dewey (1938 as cited in Kaufmann 1959 p. 828) adds, “Isolated sense data or introspective data are not objects of knowledge; they acquire cognitive functions only when they are employed as signs of something beyond themselves.” These challenges called for a new form of empiricism. Logical empiricism was introduced to combine the importance of empirical observation and the role of concepts and theories in constituting valid knowledge (Schwandt, 2001). See Schwandt (2001, p.67-69) for the complete definition, related terminology and definitions. Schwandt’s (2001) first definition is similar to Webster’s definition in that knowledge is induced from data. For a claim of knowledge to hold and thus to be accepted, a claim of knowledge has to be supported by data. An observer is not assumed to be influenced by a priori. Prior knowledge, concepts and theories must not play a role in constructing knowledge. 74 Furthermore, empiricist ideology is “a claim to independence and objectivity” (Sy and Tinker, 2005, p.63). Methodologically speaking, empirical research can be conducted using several research methods such as: case study, experiment, field study, survey, laboratory, and archival. The lack of common and accepted definitions for most of these categories makes classifying empirical studies under these categories difficult (Fulbier and Sellhorn, 2006). In their attempts at defining empiricism, some writers compare and contrast empiricism against other research methodologies. Some writers contrast empiricism with pragmatism, which according to Schwandt (2001, p.67), “holds that action, not only just any kind of experience, is both the source and test of all knowledge”. For example, Beams (1969), an accounting writer, explains and defines empiricism in contrast to pragmatism. Other writers contrast empiricism to rationalism which according to Schwandt (2001, p.67) “holds that reasons is the primary way of acquiring knowledge.” Some writers, on the other hand, compare empirical theories to normative theories. For example, Roberston (1993, p.585) makes it clear that her call for empiricism in business ethics research should not be interpreted as a call for excluding normative theorization. Roberston’s clarification manifests the latent construct relationship between empiricism and normative types of theorizing in the minds of some writers. Another example of comparing empirical theories to normative theories is Dopuch (1979) who compares empirical to non-empirical accounting research. He (1979, p.67) argues that non-empirical researchers propose theories that are not subject to verification, and that early models in managerial and auditing were abstracted from real- world corresponding items. He makes it clear that the two forms of research are not two 75 different options, but instead they supplement each other. While empiricism needs theories to guide the research design, empiricism confirms and disconfirms theories (Dopuch, 1979). Early empirical research conducted in accounting research before 1950 suggested that empiricism was utilized by accounting researchers to support their normative positions (Buckmaster and Theang, 1991). Later in his article, Dopuch rejects some types of normative theorization. Specifically, he rejects normative theorizing that does not recognize that “accountants, managers and users of accounting information must take decisions under uncertainty and often within markets which are less than perfect” (p.80). Contrasting empiricism to normative theorization might be an inaccurate way of defining and describing empiricism and thus suggests a misunderstanding of empiricism. In the case of accounting research, Tinker et al. (1982, p. 167) argue that positive or empirical theories are “normative and value-laden in that they usually mask a conservative ideological bias in their accounting policy implications.” Mis-conceptualizing the term empiricism is expected to occur because the term empiricism, according to Benjamin (1954, p.171), is “vague.” No wonder some writers in their calls for promoting empirical research in their fields have chosen to define what they meant by the term empirical research. These writers have done so in order for them not to be misunderstood and for their arguments not to be confused. For example, in calling for empiricism in business ethics research, Roberston (1993, p.585) defines empirical research very broadly as “research on observable phenomena pursued scientific method.” Other writers have operationally defined the term “empirical research.” For instance, Buckmaster and Theang (1991, p. 58) state, “Empirical research is operationally 78 4.3.3. The influence of Economics and Finance In order to evaluate the influence of economics and finance, citations to economic and finance books, journals and other materials will be examined. Accounting writers have employed citation technique (e.g. Brown and Gardner 1985a, 1985b; Brown 1996; Bricker 1988, 1989; Tahai and Rigsby 1998). Fleming et al. (1990, 1991, 2000) utilize citation technique in examining the journals and books that had major influences on TAR’s leading authors, as defined and included in their studies, in three subsequent periods: 1926-1945, 1946-1965 and 1966-1985. Citing previous works is essential for advocating the author’s point of view (Oppenheim, 1996) because “those [cited] texts provide the article with the authority it needs to assert a knowledge claim” (Williams and Rodgers, 1995, p.279). Citations indicate knowledge dependent on the cited work (Baumgartner and Pieters, 2003). Accordingly, the journals and books which TAR authors have cited manifest the field of knowledge having a great influence on authors. In this study, citations to economic and finance books, journals and other materials have to be listed in the reference table in order for them to be considered for the purpose of measuring the influence of economics and finance. This will limit the place to search for such data within the reference tables. A citation listed in the article will be used in case of the unavailability of a reference table. 4.3.4. Financial Accounting Topics Disagreement upon a definition for financial accounting is expected to occur. Estes (1981, p.51) defines financial accounting as, “a broad field of accounting concerned 79 primarily with external financial reporting, including the normal financial statements.” Davidson et al. (1984, p.36) specify that external users are the users of financial accounting. On the other hand, the definition of Kieso and Weygandt (1998) extend the users to include internal users. Financial accounting is defined, according to Kieso and Weygandt (p.3), as “the process that culminates in the preparation of financial reports on the enterprise as a whole for use by parties both internal and external to the enterprise.” Ambiguity surrounds the term financial accounting. Nobes (2002, p.133) describes financial accounting as “a fairly vague term.” For example, the distinction between financial accounting and managerial accounting is indistinguishable when taking into account questions related to the principal-agent problem (Gould, 1982). An example of a research question that is related to the principle-agent problem would be a research question that addresses managers’ compensations as a means to create incentives for the managers (the agent) and to align their interest with those of shareholders (the principal). Such research questions can be viewed as related to managerial and financial accounting. While some might classify such research questions as managerial, others might classify them as financial accounting. The emphasis of an article may differ from one person to another. Such a disagreement is likely to occur. Fleming, Craci and Thompson (1991, p.28) documented disagreements occurred among them in classifying some articles published in TAR during the period 1946-1965. They justified such differing views over the primary emphasis of such articles. As a solution for research questions addressing the principal-agent problem, Gould (1982) suggests that viewing such questions as a type of financial accounting research questions may be enlightening and informative. 80 Relying on a single definition might not be a good way in deciding whether an article can be classified as financial accounting or not. Alternatively, some editors of TAR have supplied classifications of financial accounting topics. The classifications related to financial accounting can be utilized to operationally define the financial accounting variable in this study. For example, Kinney (1990) suggests four areas of financial accounting: financial accounting choices (excluding markets studies), financial accounting forecasts (excluding market studies), financial accounting standards (excluding market studies) and, finally, other financial accounting which includes articles that do not fit under the three previous categories. These four categories can be viewed as four different dimensions of the financial accounting variable (see Diagram 4). This study is concerned with the dimension(s) where it can be argued they would not have emerged had not developments in the economics and finance disciplines taken place and had data and software not become available. Heck and Jensen (2007) assert that developments in statistical software, the emergence of capital asset pricing model (CAPM) and the availability of CRSN stock price pushed accounting research to capital market research. Fogarty et al. (1999) claim that the study of Ball and Brown (1968), which was the opening of the new empirical paradigm (Dopuch, 1979), has attracted many accounting researchers to investigate the relationship between the usefulness of accounting information and corporate stock performance. Therefore, the operational definition of the financial accounting variable includes capital market studies. It does not matter under what classification of Kinney’s an article can fit as long the article investigates the market reaction to accounting information. 83 volumes published in the second and the third periods (1926-1930 and 1952-1956, respectively). 5. Teacher Clinic and Accounting Exchange. 6. Book Reviews. 7. Editorials. 8. Articles related to the symposium on appreciation which took place in 1930. The entire symposium was excluded from the sample. The articles were written without authors. These articles were prepared by students under the direction of Littleton. Comments followed each article. The EBSCO database (http://web.ebscohost.com) treats all that is related to the symposium as a single document. 4.4.1.2.2. Coding the Main Articles Once an article is identified as a main article, it will be coded four times, one for each of the variables of the study. If the criteria established in the measurement section is found in the article, a value of 1 will be assigned for the article. Otherwise, a value of 0 is assigned. After the coding is completed, the obtained data will be in a qualitative form (0’s and 1’s). The qualitative data will then be transformed to quantitative data by asking the question: how many articles are coded 1 in each issue? The obtained scores are quantitative in nature with interval scales which Anderson et al. (1994, p.5) describes as “a variable is interval when the data have the properties of ordinal data [and when] the 84 difference or interval between data value indicates how much more or less of a variable one element possesses when compared to another element.” [Insert Diagram 5 here] After coding all the main articles published during the four periods sampled in the study, for each issue the articles that have values of 1 will be summed. This procedure will leave us with scores for each issue. In other words, by this procedure, the observational unit becomes the issue and the scores of the issues can be read by the number of articles possessing the characteristics of the variable of interest per issue. For example, an issue with a score of three under the accounting theory variables can be read as three articles on accounting theory published in that issue. During 2006 and 2007, five issues were published in each of TAR’s volume. Volume 52 appearing in 1977 was supplemented by a special issue. This special issue as previously discussed also was excluded from the sample because it was a publication of Committee Reports. For the remaining years of the sample, four issues were in print in each volume. The maximum observational unit that each variable can have is 82. The procedure of counting the articles which receive the values of interest 1 will allow transforming the dichotomous values to interval scores. 4.4. 2. The Criteria of Coding the Main Articles In this part of the study, the criteria used to decide whether a main article will get 0 or 1 under each variable is presented and discussed. The criteria related to each variable are presented in a sub-section. Four sub-sections discuss these criteria. 85 4.4.2.1 Accounting Theory As stated previously in Section 4.3.1. three alternatives are available for an article to be coded 1 under the accounting theory variable. A reference to an element of the structure of accounting theory, a reference to one of the statements listed in Table 4, or a reference to one of the accounting theorists listed in Table 5 will qualify an article to be coded 1 under this variable. One count of reference to any of these three dimensions is sufficient to determine whether a main article focuses on accounting theory. One count of reference is considered the threshold of a main article’s content. The reason for such a low threshold, as discussed in Section 4.3.1., is to increase the chance of articles published in recent years to get a 1 under this variable. Below a count of one, an article would be considered to contain nothing of significance, as far as references to any of these three dimensions. 4.4.2.1.1 Reference to the Elements of the Structure of Accounting Theory In this study, for the purpose of determining whether an article is concerned with accounting theory or not, Belkaoui’s understanding of “the structure of accounting theory” will be utilized. Articles published in TAR discussing any of the elements of the “structure of accounting theory” suggested by Belkaoui will be considered as articles about accounting theory and thus a value of 1 will be assigned to such articles under the variable labeled “Acc_Th”; otherwise, a value of 0 will be assigned under such a variable. 88 definitions in their studies. Kinney (1990, p.259), who was also TAR’s editor during the period 1987-1989, admits that having a single scheme that is perfectly and completely informative is impossible. Relying on the proposed criterion of using specific topics as guidance for identifying the empirical archival method and on Fulbier and Sellhorn’s (2006) definition may, however, have a consequence. The consequence is the possibility of preventing some empirical articles published in TAR to be given the value of 1 under the variable “the use of the empirical archival method” while those articles are empirical in nature. Gaffikin (2005a) claims that empiricism existed prior to 1970. The discussion by Beams (1969) regarding empiricism and pragmatism identified these as two lines of accounting research strengthening Gaffikin’s claim (2005a). Buckmaster and Theang (1991) found that empiricism existed in accounting research in the pre-1950 era. Gaffikin (2005a) calls empirical accounting research that has appeared after 1970 “neo-empiricism” to distinguish it from that which existed previously. The two forms of empiricism are rather different. Early accounting researchers exploited empiricism for the purpose of developing accounting theory from best practices (Gaffikin, 2005a). They additionally employed it to bolster their normative positions (Buckmaster and Theang, 1991). However, during approximately the past 40 years, contemporary accounting researchers have been predominately utilizing empiricism in relation to the archival method. The new empiricism which occupied American accounting research (including TAR) is employed in data related to publicly traded corporations in which this study is explored with great interest. This study is intended to 89 explore the association between the use of this of method and the decline of accounting theory. Therefore, the exclusion of empirical articles published prior to 1970 does not impact or threaten the construct validity because in this study a specific empirical method (archival) is intended to be measured. All types of empirical methods do not need to be considered. Accounting research that emerged prior to 1970 can be named as “pre-neo- empiricism.” The articles in which the empirical archival method was employed will be given a value of 1, whereas for articles in which other methods were utilized a value of 0 will be assigned. This variable is labeled in this study “Using_Emp_ Arc.” 4.4.2.3. The influence of Economics and Finance Objective measures based on citation accounts are available to measure a journal’s influence (Baumgartner and Pieters, 2003). For example, Doreian (1988, p.47) suggests that “the ratio of citations received to citations relative to citable items published” used as a measure of a journal’s influence. Baumgartner and Pieters (2003, p.125) paraphrase such a measure as “the ratio of citations received to citations made.” In this study, a measure based on citation counts is developed to measure whether a main article was influenced by the economic or the finance disciplines. This modified measure is similar to Doreian’s measure in that it is a ratio. The ratio will be obtained by dividing the number of citations to economic and finance journals, books, and other materials listed in an article on the total citations listed in the article. The ratio can be organized as followed: 90 articlein thelistedcitationstotalThe articlean in listed materialsother and, books journals, finance and economic toCitations% = The cut off ratio proposed is 25% (the first quartile). If the ratio of citations to economics and finance is 25% or more, the article will be considered to be influenced by these two disciplines and thus a value of 1 will be assigned for the article. The value of 0 will be assigned to those whose ratio of citations is less than 25%, indicating they are not influenced by the two disciplines. Using such a percentage, one would still reach a similar decision that Oler et al. (2008) did with regards to Beaver’s article (1989). The ratio of citations of accounting articles in Beaver’s article total is 18% (3/17) which is less than 25%. For this reason, the article would not be deemed as an accounting article. This variable is labeled in this study “Influence_Econ_Fin.” Distinguishing between the nature of economics and finance may be difficult. One reason for this difficulty lies with the argument that finance is a sub-discipline for economics (Smith, 2003). However, since the influence of economics and finance variable has two dimensions: economics and finance, such multi-dimensionality should overcome this difficulty during the coding process. An article will get a value of 1 under the variable “Influence_Econ_Fin” as long as the author of the article refers to economic or finance journals or books. Classifying a reference as an economic reference or a finance reference does not impact measuring this variable. That is, as far as measuring this variable is concerned, whether the source of influence is from the economics discipline or from the finance discipline does not matter because the article will be assigned a value of 1 under this variable assuming the cut off ratio of 25% is achieved. 93 4.4.2.3.1.1.5. Article from the world web The article will be downloaded. Then it will be carefully read and examined. 4.4.2.3.1.1.6. Dissertations and Theses A database called “ProQuest LLC” available through KSL Case Western Reserve University is very helpful in identifying the academic department granting degrees. Based on the department, theses and dissertations will be classified. If a dissertation or a thesis had been granted by a finance department then such a dissertation or a thesis is finance work. On the other hand, if it had been granted by an accounting department then it will be deemed as an accounting work. 4.4.2.3.1.2. Stopping the search for unclear cited works In two points, concluding the search for information on unclear works is optimal. First, if while coding an article, the ratio of citations to economics and finance reaches the threshold (25%) and there are still cited works that are not clearly economics or finance, then attempts to do further search are stopped because they are no longer needed. That is because even if such works end up to be from the economics or finance disciplines, it will make no difference since the ratio is already met. The other occasion is when the ratio of citations to these two disciplines (economics and finance) would not reach the threshold. If the remaining unclassified works end up being from these two disciplines and yet the ratio will not reach the threshold, there is no point of exerting efforts in identifying unrecognizable works. 94 4.4.2.3.1.3. Cited works and material that are considered as neither economics nor finance The first type is working papers. It is not clear or known where such papers will appear. However, if a working paper is cited from the source that will publish the paper, such a paper is considered. For example, a cited working paper that is listed in National Bureau of Economic Research will be deemed as an economic reference. Second, daily newspapers such as Wall Street Journal (WSJ) and Washington Post as well as magazines such as Fortune and Business Week are not considered. The justification and rationale for not considering it lies in the fact that newspapers and magazines are not entirely focused on one field. It is difficult to say that WSJ is mainly about finance while articles related to accounting may appear. These newspapers and magazines are unlike CFO which is published by an Association known for its focus. CFO is considered as a finance magazine. 4.4.2.3.1.4. The total number of citations10 The total number of citations (the denominator of the ratio of citations used to decide whether an economic or finance influence exists or not) is obtained from the EBSCOHOST data base (http://web.ebscohost.com). 10 In actuality, I started the coding process with the fourth period, then the third period, the second period, and finally the first period. While coding the main articles which appeared during the fourth period, I relied on this database. However, during the third period, I occasionally found differences between the total I arrived and what is listed in the database. For the sake of accuracy, I decided to continue my own counting the totals of the cited works listed in the articles during the other three periods and used this count for the denominator. 95 4.4.1.4. Financial Accounting Topics What this study is concerned with is the proportion of financial accounting articles whose emergence can be associated with the rise of imported theories from the economic and finance disciplines. In this study, the dimensions of financial accounting emerging in later years are hypothesized to be correlated with the rise of imported theories from the economic and finance disciplines. The first dimension of the operational definition of financial accounting proposed in Section 4.3.4. characterizes part of such a proportion. The second dimension, which is concerned with financial statements, exemplifies another part of this proportion of financial accounting. The third dimension, which is concerned with the audit of financial statements, represents the remaining part of this proportion. Although auditing is a distinct area of inquiry, the audit of financial statements is an exception. The audit of financial statements is an aspect of auditing that focuses on the relationship between the capital market and the information produced by the agent (managers). This allows the imported theories from the economic and finance disciplines to migrate to articles about the audit of financial statements. The “Auditing Section” of the AAA suggests that auditing is a distinct area of inquiry (Bonner et al. 2006). With the exception of the audit of financial statements, research in the area of auditing utilizes a variety of theoretical foundations, making the influence of the imported theories from economics and finance upon research in sub areas of auditing other than the audit of financial statements of less interest when compared to the influence of those theories upon research concerning with the agent’s reporting to the principal. Associating the increase in research in the area of auditing with the increase of