A mere whiff of City scandals

About 10 to 20 per cent of graduates go into accountancy, making the demand for accounting books considerable. But what is on offer?

The market is saturated with texts specialising in the technical aspects of accountancy and this is another weighty (753 pages) addition to a bulging market. The book is neatly divided into three parts. The first consists of six chapters and is largely introductory. It focuses on basic accounting records and the raw material for the preparation of company financial statements. The second part consists of 11 chapters and focuses on the components of company financial statements such as accounting for fixed assets, tangible assets, inventories, leases, debt, equity, pension costs, complex financial instruments and foreign currency translations. The third part has three chapters and looks at financial statements from the investors'' viewpoint. It contains advice on how to analyse financial statements and spot manipulation of accounting numbers. The book is also global in that it refers to the United States and international accounting standards.

Corporate Financial Accounting and Reporting is well written. Each chapter develops the subject matter in a logical manner with plenty of step-by-step examples to illustrate the technicalities of accounting rules. They conclude with a summary and suggestions for further exercises. The book is reasonably up to date and can be used to cover the introductory as well as more advanced courses in accounting.

While technically sound, the book suffers from the usual drawbacks. For example, it presents accounting as an asocial and apolitical practice. Newspapers highlight the role of accounting in the loss of jobs, investments, savings, tax revenues and pensions, yet the book promotes the traditional view that accounting is somehow "neutral".

It is so concerned with getting the techniques right that it does not even recognise that company balance sheets are basically statements of property rights and that the income statement (or the profit and loss account) is a celebration of the supremacy of finance capital over all other parts of society.

Viewed this way, accounting is seen to be implicated in social inequalities, exploitation and power. The book creates little curiosity about the role of accounting in a capitalist society. Indeed, it contains no concept of society.

Throughout it is assumed that company accounting reports are prepared for the benefit of capital markets. The impact of accounting practices on various stakeholders is ignored. Much of the socio-political research undertaken in accounting and published in accounting journals has also been ignored.

The technical parts of the book could have been enriched by a brief discussion of scandals that highlight the shortcomings of accounting. Many of these scandals show that the knowledge enshrined in major books has already failed. While one or two accounting scandals (for example, "spring ram") get a brief mention in the book most are rarely mentioned, far less analysed. Episodes such as the collapse of Polly Peck highlight the problems of foreign accounting translation but are not mentioned. The Sound Diffusion and Atlantic Computers collapses point up the problems with lease accounting, but do not attract any attention in the book.

Many companies now provide qualitative and textual information, including interesting photographs and cover designs, in their annual reports. Such information highlights the impact that companies have on gender and ethnicity relationships and how they respond to pressure- group activity. The book, however, primarily encourages the reader to analyse the quantitative aspects of financial statements.

Despite its shortcomings, Corporate Financial Accounting and Reporting compares very well with its counterparts. But anyone wishing to use the book for the later stages of degree courses or for postgraduate courses will need to supplement it with journal articles so that accounting can be understood in a broader socio-political context.

Prem Sikka is professor of accounting, University of Essex.