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Unformatted text preview: THE HISTORY OF ACCOUNTING STANDARDS IN NEW ZEALAND: AN EVALUATION OF THE ROLE OF THE INSTITUTE OF CHARTERED ACCOUNTANTS OF NEW ZEALAND A thesis submitted in fulfilment of the requirements for the Degree of Doctor of Philosophy in History in the University of Canterbury by B. F. Devonport University of Canterbury 2011 THE HISTORY OF ACCOUNTING STANDARDS IN NEW ZEALAND: AN EVALUATION OF THE ROLE OF THE INSTITUTE OF CHARTERED ACCOUNTANTS OF NEW ZEALAND Acknowledgements I wish to acknowledge the interest, support, tolerance and encouragement of many people including the Institute of Chartered Accountants of New Zealand and the Federation of Graduate Women who assisted with financial backing; my family, friends and fellow post-graduate students who cheerfully and continually encouraged me; the librarians at the Institute’s Head Office in Wellington who went to great efforts to find papers and material for me; and those whom I interviewed who generously spoke to me about their experiences in standard setting. I especially wish to thank the following who gave me a huge amount of their precious time, wisdom and experience: my supervisors, Professor Philippa Mein Smith (University of Canterbury, Christchurch) and Professor Tony van Zijl (Victoria University of Wellington); and Emeritus Professor Frank Devonport, my father, mentor and former setter of accounting standards. II Abstract Professions are characterised by the services they provide and in accounting this includes standard setting. The accounting profession became increasingly involved in the regulation of external financial reporting during the twentieth century by setting standards of accounting practice for its members and entity stakeholders. This narrative analysis of the history of accounting standards in New Zealand focuses on why the accounting profession in New Zealand, as elsewhere in the English-speaking world, assumed the responsibility to draft accounting standards. It argues that accountants did so to maintain their professional status. The New Zealand Institute of Chartered Accountants was instrumental in creating accounting standards in New Zealand. Cautious to begin with, the Institute soon became a progressive and innovative standard setter, not only developing a conceptual framework for New Zealand standards but also making the standards sector neutral. The Institute retained control of the drafting of accounting standards even when, as happened in the latter decades of the twentieth century, the New Zealand Government became more involved in the standard setting process. Recent changes in the standard setting process, however, such as the development and use of international accounting standards and the creation of statutory bodies to draft and authorise standards raise questions about the accounting profession’s continuing use of standard setting as a mechanism for maintaining professional reputation. III Table of Contents THE HISTORY OF ACCOUNTING STANDARDS IN NEW ..................................I ZEALAND: AN EVALUATION OF THE ROLE OF THE INSTITUTE OF CHARTERED ACCOUNTANTS OF NEW ZEALAND............................................I Acknowledgements ....................................................................................................... II Abstract ........................................................................................................................ III Table of Contents .........................................................................................................IV Glossary and Abbreviations ...................................................................................... VIII Introduction .................................................................................................................... 1 Research questions ..................................................................................................... 2 The structure of the thesis ........................................................................................ 10 SECTION ONE: STANDARD SETTING AND THE PROFESSIONALISATION OF ACCOUNTING ..................................................................................................... 14 Chapter One: Accounting History Literature and Methodology ................................. 15 Introduction .............................................................................................................. 15 Accounting history and its literature ........................................................................ 15 Accounting history and accounting ..................................................................... 16 Accounting history and history ............................................................................ 20 Accounting history literature from professionalisation to standard setting ......... 24 New Zealand studies in accounting history ......................................................... 30 Methodology ............................................................................................................ 34 Narrative and case study ...................................................................................... 34 Archival research and oral history ....................................................................... 39 Sources ................................................................................................................. 43 Table 1: Chairs of New Zealand Institute of Chartered Accountants Standard Setting Boards and Committees ............................................................................................... 45 Table 2: Decades involved in standard setting ............................................................ 46 Conclusion ............................................................................................................... 47 Chapter Two: The Professionalisation of Accounting ................................................. 49 Introduction .............................................................................................................. 49 Accounting as a profession ...................................................................................... 49 Larson’s Model of Professional Behaviour ......................................................... 56 The professional association ................................................................................ 63 The accounting profession in New Zealand............................................................. 67 Conclusion ............................................................................................................... 76 Chapter Three: The Professionalisation Process: Accounting Standards and Regulating External Financial Reporting..................................................................... 78 Introduction .............................................................................................................. 78 Why regulate external financial reporting ............................................................... 78 Regulating in the public interest .......................................................................... 85 Regulating for self interest ................................................................................... 88 The standard setting process .................................................................................... 95 The nature of accounting standards ..................................................................... 96 Standard setting as a political process ............................................................... 102 Conclusion ............................................................................................................. 111 Chapter Four: The Professionalisation Process: Developing Financial Accounting Theory ........................................................................................................................ 113 Introduction ............................................................................................................ 113 Financial Accounting Theory ................................................................................ 113 The Beginning of Financial Accounting Theory: To 1950 ................................ 117 IV Developing New Theories: 1950 to 1970 .......................................................... 122 Conceptual Frameworks: 1970 to the Present Day ............................................ 132 Conclusion ............................................................................................................. 145 SECTION TWO: STANDARD SETTING IN NEW ZEALAND ........................... 149 Chapter Five: Research Activity 1908 to 1937 .......................................................... 150 Introduction ............................................................................................................ 150 Setting the Scene: To 1919 .................................................................................... 150 The Pressure to Undertake Research: 1920 to 1929 .............................................. 154 Researching the Standardisation of Accounts: 1930 to 1937 ................................ 162 Conclusion ............................................................................................................. 173 Chapter Six: Coordinating Research and the Accounting Practice and Procedure Committee 1938 to 1960............................................................................................ 175 Introduction ............................................................................................................ 175 The Path to a National Research Committee ......................................................... 176 The Accounting Practice and Procedure Committee ............................................. 187 Conclusion ............................................................................................................. 203 Chapter Seven: ‘Feeling our Way’: The Board of Research and Publications 1961 to 1969............................................................................................................................ 206 Introduction ............................................................................................................ 206 The Board of Research and Publications ............................................................... 206 Membership ....................................................................................................... 206 The NZSA and academe .................................................................................... 209 Developing Tentative Statements of Accounting Practice ................................ 213 Strengthening Accounting Knowledge .................................................................. 223 Conclusion ............................................................................................................. 229 Chapter Eight: Becoming Less Tentative: The Board of Research and Publications 1970 to 1978 .............................................................................................................. 232 Introduction ............................................................................................................ 232 Standard setting as a professional activity ............................................................. 232 Challenges to the profession’s role in standard setting .......................................... 248 Equity accounting and other issues .................................................................... 248 Accounting for inflation ..................................................................................... 252 Mandatory standards and the profession-state relationship ................................... 257 The standard setting process and the nature of accounting standards ................... 261 Conclusion ............................................................................................................. 265 Chapter Nine: ‘Satisfying but challenging Times’: The Accounting Research and Standards Board 1979 to 1991 ................................................................................... 267 Introduction ............................................................................................................ 267 The Accounting Research and Standards Board .................................................... 268 The Standard Setting Process................................................................................. 273 Limitations in Standard Setting ............................................................................. 279 Accounting for inflation ..................................................................................... 279 SSAP-17 Accounting for Investment Properties by Property Investment Companies.......................................................................................................... 282 Complying with the standards ........................................................................... 284 Accounting Standards for the Public Sector .......................................................... 293 International and Other Developments .................................................................. 300 Conclusion ............................................................................................................. 302 Chapter Ten: Yielding control or wielding control? The Financial Reporting Standards Board 1992 to 2002 ................................................................................... 304 V Introduction ............................................................................................................ 304 The Financial Reporting Framework ..................................................................... 304 The Financial Reporting Standards Board ............................................................. 307 The Financial Reporting Act 1993 and the Accounting Standards Review Board 315 Sector Neutrality .................................................................................................... 320 The International Connection ................................................................................ 325 Conclusion ............................................................................................................. 333 Chapter Eleven: Harmonising Standards: The Financial Reporting Standards Board 2003 to 2011 .............................................................................................................. 335 Introduction ............................................................................................................ 335 Harmonising New Zealand and International Accounting Standards .................... 335 Challenges to Adopting International Financial Reporting Standards .................. 347 Sector neutrality ................................................................................................. 347 Differential reporting ......................................................................................... 352 Reviewing the Statutory Framework for Financial Reporting ............................... 354 Conclusion ............................................................................................................. 360 Conclusion ................................................................................................................. 363 Methodology .......................................................................................................... 364 The literature and the theoretical framework ......................................................... 365 The history and the theoretical framework ............................................................ 368 Future research ....................................................................................................... 386 Bibliography: Primary Sources .................................................................................. 388 Official Publications .............................................................................................. 388 Archives ................................................................................................................. 388 Newspapers/Journals.............................................................................................. 389 Conventions/Congresses/Conferences ................................................................... 389 Statutory Bodies/Promulgations of Professional Organisations ............................ 389 Bibliography: Secondary Sources .............................................................................. 392 Appendix A: Initial Registration of Members in the NZSA ..................................... 446 Appendix B: Designations of Accountants in the NZSA/ICANZ ............................ 447 Appendix C: Classes and Degrees of Membership of the NZSA ............................. 448 Appendix D: Membership Requirement for the Three Colleges of ICANZ ............ 449 Appendix E: Presidents of the New Zealand Institute of Chartered Accountants ..... 450 Appendix F: Members of the Accounting Practice and Procedure Committee ......... 452 Appendix G: Members of the Board of Research and Publications .......................... 454 Appendix H: Members of the Accounting Research and Standards Board and Financial Accounting and Research Subcommittees ................................................. 456 Appendix I: Members of the Financial Reporting Standards Board and Financial Reporting Committees 1 and 2 .................................................................................. 459 Appendix J: Members of the Accounting Standards Review Board ......................... 462 Appendix K: Research Officers ................................................................................. 463 Appendix L: Interviewees .......................................................................................... 464 Appendix M: Interview Questions ............................................................................. 467 Appendix N: Accounting Standards: Tentative Statements of Accounting Practice . 468 Appendix O: Accounting Standards: Statements of Standard Accounting Practice.. 469 Appendix P: Accounting Standards: Exposure Drafts ............................................... 472 Appendix Q: Accounting Standards: Research Bulletins .......................................... 477 Appendix R: Accounting Standards: Discussion Papers, Interpretations and Guidance Notes .......................................................................................................................... 479 VI Appendix S: Accounting Standards: Special Reports and Accounting Standards Review Board Releases.............................................................................................. 481 Appendix T: Accounting Standards: Financial Reporting Standards ........................ 482 Appendix U: New Zealand Equivalents to International Financial Reporting Standards Adopted in 2005 ......................................................................................................... 484 VII Glossary and Abbreviations General CCA CPP New Zealand APPC ARSB ASRB BRAP ED EP FAC FRS FRSB GAAP GU IAS ICANZ IFRS IPSAS Listed issuers NZICA NZ IFRS NZSA PBE PS RB SME SPSAC SPSAS SSAP TPA TSAP Current Cost Accounting Current Purchasing Power Accounting Practice and Procedures Committee Accounting Research and Standards Board Accounting Standards Review Board Board of Research and Publications Exposure Draft Exposure Draft Public Sector Standard Financial Accounting Subcommittee Financial Reporting Standard Financial Reporting Standards Board Generally Accepted Accounting Practice 1 Guideline International Ac...
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