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Accounting Regulation and Management Discretion—A Case Note
Author(s) -
BátizLazo Bernardo,
Billings Mark
Publication year - 2012
Publication title -
abacus
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.632
H-Index - 45
eISSN - 1467-6281
pISSN - 0001-3072
DOI - 10.1111/j.1467-6281.2012.00370.x
Subject(s) - accounting , audit , discretion , depreciation (economics) , context (archaeology) , order (exchange) , business , economics , accounting standard , accounting management , action (physics) , accounting information system , finance , political science , capital formation , financial capital , law , market economy , human capital , paleontology , physics , quantum mechanics , biology
This article explores the manipulation of published financial reports in order to counter the potentially unfavourable impact of newly introduced regulation. In this case the reported capital ratio of a major British building society was enhanced using a sale and leaseback transaction with a related party and a change in depreciation policy, methods which reflected limited alternatives. Analysis of the case is set in the context of the sector and addresses the questions of whether these manipulations were within then‐prevailing generally accepted accounting principles and why, despite disclosure in the society's financial statements, they failed to attract public comment or concern, regulatory action or an audit qualification. In examining a major British mutual financial organization we depart from traditional analyses of managerial discretion in accounting choices in British companies.