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Accounting knowledge and professional privilege: A replication and extension
kcounting Organizations Printed in Great Britain
and Sock@. Vol. Ii. No. 5. pp. 499-50
ACCOUNTING
0361-3682190 13.00f.00 Pergamon Press plc
I, 1990.
KNOWLEDGE AND PROFESSIONAL PRIVILEGE: A REPLICATION AND EXTENSION*
ALAN J. RICHARDSON Queen’s University, Ontario
Abstract This paper replicates and extends the results of Richardson (1988) who reported a strong negative correlation between occupational prestige and the codification of financial reporting practices based on the data reported in Price-Waterhouse ( 1975). Using independent data collected by Gray etal. ( 1984) for 1982 this result is demonstrated to be robust across data sources and time periods. In addition, Gray et& provide data on the consistency of practice independently of the codification of those practices. Occupational prestige is uncorrelated with the degree of consistency of reporting practices.
Richardson (1988) reported a strong negative correlation between the occupational prestige rankings of professional accountants and the degree to which the profession had standardized practices in critical aspects of financial reporting. A weakness of that work is the reliance on the Price-Waterhouse ( 1975) data base in order to calculate the degree of discretion in reporting practices. This data base has been found to contain factual errors and may reflect the practices of one firm rather than the profession as a whole (cf. Nobes, 1984). Richardson ( 1988) recognized these problems, but argued on theoretical and methodological grounds for the appropriatness of his use of the Price-Waterhouse data base. The concerns about the quality of this particular data base, however, suggest the need to replicate these results with independent data. This paper replicates and extends the results based on the data assembled by Gray et al. (1984) through the offices of Deloitte, Haskins & Sells. This data base is independent of the Price-Waterhouse data and improves on that data by citing the specific source of required practice (eg. in law or in professional pronouncements) and by reporting on a survey of ‘lhe research assistance of Aileen Cassells on this project McLeod Fund of the School of Business, Queen’s University.
actual practice among large companies in each country. The Gray et al. data is used to replicate the central result of Richardson (1988) and allows a test of an assertion in that article that professional privilege is supported by the process of codification independently on the discretion exercised in day-to-day practice.
DATA AND MEASURES The data for this study are Tremain’s (1977) study of occupational prestige as supplemented by Richardson ( 1988) and Gray et aI. ( 1984) study of international financial reporting requirements and practices. Tremain’s data provides measures of occupational prestige standardized to allow cross cultural comparisons. Gray et al. present two sets of data on the financial reporting practices of 30 countries. The first set of data is the reporting requirements reflected in laws, professional pronouncements and stock exchange requirements. The format of these data is identical to that used by PriceWaterhouse. The second set of data is the actual reporting practices in each country based on a is gratefully
499
acknowledged.
Funding
was provided
by the D.I.
500
Ah!
J. RICHARDSOK
survey of between 20 and 50 major companies. These data are recorded in six frequency intervals ranging between 91-100% and O-10% of companies using a given reporting practice. These data sets were used to create two indices as described in Richardson ( 1988). Thirty practices dealing with (a) the extent of corporate concentration, (b) the level of profits or (c) the distribution of profits were selected and used to construct a “service to capital” index (STC84) based on requirements and an equivalent index, STC84P, based on actual practices. In the case of the practice data, entries in the two extreme categories were used to proxy cases where discretion is constrained. In each case, the index has a theoretical range of zero to infinity with higher values representing greater professional discretion reflected either in the lack of codified requirements or in the existence of significant variance in actual practices. Any case with a value of infinity was set equal to the maximum real value for purposes of analysis. In total, there are 30 countries represented in the Gray et al. data base. Nineteen of these overlap with the sample used in Richardson (1988). Among these 19 cases, data was missing for two cases (Columbia and Mexico) for the occupational prestige variable and for three cases (Argentina, Brazil and New Zealand) for the STC84P variable. In two cases (Thailand and Uruguay) prestige data was available for countries in the Gray et al. data base that were not in the Richardson (1988) sample. In the results below, the maximum number of cases has been used to calculate each correlation and thus varies between 16 and 30.
RESULTS The correlation matrix and means and standard deviations for all variables are shown in Table 1. In order to differentiate the STC index calculated with the Price-Waterhouse (1975) data base, it has been labelled as STC75 in the figure and in the following discussion. The correlation between STC75 and STC84,
TABLE 1. Correlations standard
among variables and the mean and deviation of all variables
SK84 0.5594’ (n= 19)
STC75 STC8-i
STC84P 0.0403 (n = 16) 0.3362’ (n = 27)
STCBiP
Prestige -0.5183’ (n = 17) -0.45~l’ (n = 19) -0.0078 (tz = 16)
‘p
Mean
Standard
deviation
IV
2.90
2.64
19
5.60 0.70 60.57
9.46 0.4 I 8.49
30 27’ 19
’ For three countries (Argentina. Brazil and New Zealand) a!1 entries under practices were recorded as “not applicable”.
based on the 19 countries common to both data bases, is 0.5594 (p < 0.05). This correlation provides evidence of the reliability of the STC measure and supports the use of the PriceWaterhouse data base in thiscontext. The correlation between STC84 and prestige, based on the 19 countries for which complete data is available is -0.4541 (p < 0.05). This correlation is weaker than the reported between STC75 and prestige (-0.5183, p C O.OS), however, this is not unexpected. The Tremain data is drawn from the 1960s and 1970s. Although Tremain demonstrates the intertemporal stability of occupational prestige rankings for this period, this result becomes less certain the further we are from this era. A review of the literature failed to identify more recent studies than those used to update Tremain’s data in Richardson ( 1988). The declining strength of the relationship is thus assumed to reflect the currency of the data, but none-the-less shows a remarkable robustness across data sources and time periods. Finally, the Gray et al. data allow the relative impact of formal codification and consistency of practice on occupational prestige to be assessed. There is a significant positive relationship between STC84, representing the codification of reporting standards, and STC84P, representing
ACCOUI’XING
KNOWLEDGE
the degree of consistency in reporting practice (0.3362,p < 0.05). This result is intuitively obvious, the more highly codified standards are, the more consistent is reporting practice, and provides evidence of the face validity of these measures. There is, however, no significant relationship between the level of consistency in practice, STCEViP, and occupational prestige (-0.0078, p = N.S.). These results are consistent with the caution in Richardson (1988) that the dynamics of public claims for privilege grounded in standard-setting may not be the same as the dynamics ofprofessional power over clients grounded in day-to-day practices.
AND PROFESStONAL PRIVILEGE
501
DISCUSSION This paper replicates the results of Richardson (1988) based on independent data and a more recent time period. The analysis indicates that the negative relation between discretion in standards and occupational prestige is robust, The paper also extends these results to examine the relative impact ofdiscretion in standards and discretion in practice on occupational prestige. The analysis demonstrates that while there is a positive relation between these aspects of discretion, there is no relation between discretion in practice and occupational prestige.
BIBLIOGRAPHY Gray, S. J., Campbell, L. G. Pr Shaw, J. C., International Financial Reporting: A Comparutiz~e International Sun9 of Accounting Requirements and Practice in 30 Countries (London: MacMillan. 1984). Nobes, C. W., International Classzyication of Financial Reporting (London: Groom Helm, 1984). Price-Waterhouse and Co., Accounting Principles and Reporting Practices: .4 Survey in 46 Countries (Canada: Price-Waterhouse International. 1975). Richardson, A. J.. Accounting Knowledge and Professional Privilege, Accounting Organizutions and Society (1988) pp. 381-396. Tremain. D. J., Occupational Prestige in Comparative Perspectic,e (New York: Academic Press, 197-).
and Sock@. Vol. Ii. No. 5. pp. 499-50
ACCOUNTING
0361-3682190 13.00f.00 Pergamon Press plc
I, 1990.
KNOWLEDGE AND PROFESSIONAL PRIVILEGE: A REPLICATION AND EXTENSION*
ALAN J. RICHARDSON Queen’s University, Ontario
Abstract This paper replicates and extends the results of Richardson (1988) who reported a strong negative correlation between occupational prestige and the codification of financial reporting practices based on the data reported in Price-Waterhouse ( 1975). Using independent data collected by Gray etal. ( 1984) for 1982 this result is demonstrated to be robust across data sources and time periods. In addition, Gray et& provide data on the consistency of practice independently of the codification of those practices. Occupational prestige is uncorrelated with the degree of consistency of reporting practices.
Richardson (1988) reported a strong negative correlation between the occupational prestige rankings of professional accountants and the degree to which the profession had standardized practices in critical aspects of financial reporting. A weakness of that work is the reliance on the Price-Waterhouse ( 1975) data base in order to calculate the degree of discretion in reporting practices. This data base has been found to contain factual errors and may reflect the practices of one firm rather than the profession as a whole (cf. Nobes, 1984). Richardson ( 1988) recognized these problems, but argued on theoretical and methodological grounds for the appropriatness of his use of the Price-Waterhouse data base. The concerns about the quality of this particular data base, however, suggest the need to replicate these results with independent data. This paper replicates and extends the results based on the data assembled by Gray et al. (1984) through the offices of Deloitte, Haskins & Sells. This data base is independent of the Price-Waterhouse data and improves on that data by citing the specific source of required practice (eg. in law or in professional pronouncements) and by reporting on a survey of ‘lhe research assistance of Aileen Cassells on this project McLeod Fund of the School of Business, Queen’s University.
actual practice among large companies in each country. The Gray et al. data is used to replicate the central result of Richardson (1988) and allows a test of an assertion in that article that professional privilege is supported by the process of codification independently on the discretion exercised in day-to-day practice.
DATA AND MEASURES The data for this study are Tremain’s (1977) study of occupational prestige as supplemented by Richardson ( 1988) and Gray et aI. ( 1984) study of international financial reporting requirements and practices. Tremain’s data provides measures of occupational prestige standardized to allow cross cultural comparisons. Gray et al. present two sets of data on the financial reporting practices of 30 countries. The first set of data is the reporting requirements reflected in laws, professional pronouncements and stock exchange requirements. The format of these data is identical to that used by PriceWaterhouse. The second set of data is the actual reporting practices in each country based on a is gratefully
499
acknowledged.
Funding
was provided
by the D.I.
500
Ah!
J. RICHARDSOK
survey of between 20 and 50 major companies. These data are recorded in six frequency intervals ranging between 91-100% and O-10% of companies using a given reporting practice. These data sets were used to create two indices as described in Richardson ( 1988). Thirty practices dealing with (a) the extent of corporate concentration, (b) the level of profits or (c) the distribution of profits were selected and used to construct a “service to capital” index (STC84) based on requirements and an equivalent index, STC84P, based on actual practices. In the case of the practice data, entries in the two extreme categories were used to proxy cases where discretion is constrained. In each case, the index has a theoretical range of zero to infinity with higher values representing greater professional discretion reflected either in the lack of codified requirements or in the existence of significant variance in actual practices. Any case with a value of infinity was set equal to the maximum real value for purposes of analysis. In total, there are 30 countries represented in the Gray et al. data base. Nineteen of these overlap with the sample used in Richardson (1988). Among these 19 cases, data was missing for two cases (Columbia and Mexico) for the occupational prestige variable and for three cases (Argentina, Brazil and New Zealand) for the STC84P variable. In two cases (Thailand and Uruguay) prestige data was available for countries in the Gray et al. data base that were not in the Richardson (1988) sample. In the results below, the maximum number of cases has been used to calculate each correlation and thus varies between 16 and 30.
RESULTS The correlation matrix and means and standard deviations for all variables are shown in Table 1. In order to differentiate the STC index calculated with the Price-Waterhouse (1975) data base, it has been labelled as STC75 in the figure and in the following discussion. The correlation between STC75 and STC84,
TABLE 1. Correlations standard
among variables and the mean and deviation of all variables
SK84 0.5594’ (n= 19)
STC75 STC8-i
STC84P 0.0403 (n = 16) 0.3362’ (n = 27)
STCBiP
Prestige -0.5183’ (n = 17) -0.45~l’ (n = 19) -0.0078 (tz = 16)
‘p
Mean
Standard
deviation
IV
2.90
2.64
19
5.60 0.70 60.57
9.46 0.4 I 8.49
30 27’ 19
’ For three countries (Argentina. Brazil and New Zealand) a!1 entries under practices were recorded as “not applicable”.
based on the 19 countries common to both data bases, is 0.5594 (p < 0.05). This correlation provides evidence of the reliability of the STC measure and supports the use of the PriceWaterhouse data base in thiscontext. The correlation between STC84 and prestige, based on the 19 countries for which complete data is available is -0.4541 (p < 0.05). This correlation is weaker than the reported between STC75 and prestige (-0.5183, p C O.OS), however, this is not unexpected. The Tremain data is drawn from the 1960s and 1970s. Although Tremain demonstrates the intertemporal stability of occupational prestige rankings for this period, this result becomes less certain the further we are from this era. A review of the literature failed to identify more recent studies than those used to update Tremain’s data in Richardson ( 1988). The declining strength of the relationship is thus assumed to reflect the currency of the data, but none-the-less shows a remarkable robustness across data sources and time periods. Finally, the Gray et al. data allow the relative impact of formal codification and consistency of practice on occupational prestige to be assessed. There is a significant positive relationship between STC84, representing the codification of reporting standards, and STC84P, representing
ACCOUI’XING
KNOWLEDGE
the degree of consistency in reporting practice (0.3362,p < 0.05). This result is intuitively obvious, the more highly codified standards are, the more consistent is reporting practice, and provides evidence of the face validity of these measures. There is, however, no significant relationship between the level of consistency in practice, STCEViP, and occupational prestige (-0.0078, p = N.S.). These results are consistent with the caution in Richardson (1988) that the dynamics of public claims for privilege grounded in standard-setting may not be the same as the dynamics ofprofessional power over clients grounded in day-to-day practices.
AND PROFESStONAL PRIVILEGE
501
DISCUSSION This paper replicates the results of Richardson (1988) based on independent data and a more recent time period. The analysis indicates that the negative relation between discretion in standards and occupational prestige is robust, The paper also extends these results to examine the relative impact ofdiscretion in standards and discretion in practice on occupational prestige. The analysis demonstrates that while there is a positive relation between these aspects of discretion, there is no relation between discretion in practice and occupational prestige.
BIBLIOGRAPHY Gray, S. J., Campbell, L. G. Pr Shaw, J. C., International Financial Reporting: A Comparutiz~e International Sun9 of Accounting Requirements and Practice in 30 Countries (London: MacMillan. 1984). Nobes, C. W., International Classzyication of Financial Reporting (London: Groom Helm, 1984). Price-Waterhouse and Co., Accounting Principles and Reporting Practices: .4 Survey in 46 Countries (Canada: Price-Waterhouse International. 1975). Richardson, A. J.. Accounting Knowledge and Professional Privilege, Accounting Organizutions and Society (1988) pp. 381-396. Tremain. D. J., Occupational Prestige in Comparative Perspectic,e (New York: Academic Press, 197-).