literature). However, I do not believe (as stated in the flier for the book) that it is bessentialreading for students studying corporate governance for undergraduate, MA or MBA

degrees.Q In my opinion, such students need a more introductory text on corporate

governance, such as Mallin (2004), Monks and Minow (2004), or Solomon and Solomon

(2004).

Taking account of the track record of many of the contributors, it is not surprising that

the quality of the contributions is of the highest standard. Most of the chapters are written

in an accessible style. The book has a useful and extensive index.

I prefer this book to another similar series, also edited by Keasey, Thompson, and

Wright, and published by Edward Elgar Publishing. The Edward Elgar series (of which

there are six volumes published/due for publication) comprises reprints of previously

published academic articles in each volume, rather than original commissioned articles as

in this book.

In my opinion, this is a must-have book for researchers and scholars of corporate

governance.

References

Jensen, M. C., & Meckling, W. H. (1976). Theory of the firm: Managerial behavior, agency costs and ownership

structure. Journal of Financial Economics, 3(4), 305–360.

Mallin, C. A. (2004). Corporate governance. Oxford University Press.

Monks, R. A. G., & Minow, N. (2004). Corporate governance (3rd ed.)West Sussex7 . Blackwell Publishing.

Solomon, J., & Solomon, A. (2004). Corporate governance and accountability. West Sussex7 John Wiley &

Sons Ltd.

Niamh Brennan

University College of Dublin,

Quinn School of Business,

Belfield, Dubin 4, Ireland

D.R. Myddelton, Unshackling Accountants, The Institute of Economic Affairs (IEA),

London, 2004 (194 pages, o12.50, ISBN: 0 255 36559-4)

This short nine-chapter text is published by a U.K. free-market think tank, The Institute

of Economic Affairs (IEA), whose goal is to explain free-market ideas to the public,

including politicians, students, journalists, businessmen, academics, and anyone interested

in public policy. As the organization’s website professes, bIEA authors. . .are. . .always onthe lookout for ways of reducing the government’s role in our lives.Q This text supports thisaim by providing a cogent and fierce attack on accounting regulation and regulators. It

argues that accounting regulators are mistakenly promoting brevolutionaryQ principles and(measurement) standards that impose the view that the primary purpose of financial

statements is to enable the prediction of future cash flows (a decision-usefulness

doi:10.1016/j.intacc.2005.09.005

Book reviews428

approach). This conflicts with the author’s view that the key role for financial statements

should be to monitor managers’ stewardship. The bvast majorityQ of companies and

practicing accountants, it is claimed, oppose these principles and standards. They are

frequently motivated by tenuous evidence linking accounting scandals to deficiencies in

accounting regulation and often operate to ignore accounting’s inherently subjective

nature. While accounting may require rules, it is argued that these will most likely evolve

through competition in use rather than through standardized imposition.

The author initially reviews the purpose of company accounts, the emergence of United

Kingdom and international accounting standards, and somewhat selective arguments for

and against these standards. He also explores resistance to emergent conceptual framework

projects, political interference in standard setting and the role of various private and public

sector bodies in setting standards.

The trend by regulators towards viewing company accounts as instruments for

predicting future cash flows is strongly criticized. At the same time, the author vehemently

defends monitoring the stewardship of managers as the primary purpose of company

accounts (bthe least imperfect approachQ [p. 27]). Here is the core of the arguments in

chapter 1 which dismisses perceived attempts by accounting regulators to turn company

accounts into quasi-prospectuses:

bBy putting the emphasis on decision-usefulness for investors, the ASB (the U.K.

accounting standards setting body) is in effect regarding company accounts as if they

were annual prospectusesQ (p. 30).

The various conceptual-framework projects in the U.S. and U.K. are accused of

ignoring bmost professional accountants’ preferencesQ and of failing to bcharacteriseaccounting as it is, only how it might beQ (p. 39, quotation from Page, 1992). This

apparently digresses from what bmost peopleQ think accounts are actually for and

represents a brevolutionQ by a regulatory elite. It is deemed a bfactQ that fundamental

analysis of accounting reports is bnot very useful to investorsQ for predicting future profits.

No allusion is made, however, to the growing popularity of residual income valuation

models drawing mainly on accounting numbers as the basis of fundamental company

valuation. Furthermore, in quoting Beaver in support of this argument (p. 44), a rather

unquestioning adherence to the efficiency of markets is betrayed.

The emergence of accounting standards in the United Kingdom, the European Union

and United States of America is critiqued in chapters 2 and 3. Throughout the text, the

author promotes the view that bprofessionalQ accountants should be free to bmake up their

own mindsQ as bthe question remains whether any group of people should tell professional

accountants in great detail how to do their jobQ (p. 59). However, given widespread

concerns about the role of the accounting profession, it would have been helpful if the

author had elaborated on this notion of bprofessionalismQ among accountants he believes

should be left to their own devices. The trend towards bharmonizationQ is also challenged

by suggesting that a strong empirical case linking more binformativeQ disclosure to lower

costs of capital has not yet been made.

Chapters 4 and 5 argue for and against accounting standards. Preventing dishonesty

among account preparers and combating a perceived lack of auditor independence are

briefly outlined and dismissed as arguments in favor of standards. It is suggested that

Book reviews 429

possible damage to investors from an absence of standards is unproven but this point

requires more development and stronger support. For example, it is partially supported by

stating that

bBetween 1945 and 1969 the ICAEW issued Recommendations to its members,

while the Scottish Institute preferred not to. But no one suggests that Scottish

company accounts were therefore of lower quality than English ones. So is there any

reason to suppose that the absence of accounting standards after 1970 would have

damaged UK investors?Q (pp. 87–88).

We are also informed that the best way to get stock markets to reflect relevant news

managers possess is to allow insider trading in order to make stock prices better guides to

value for the investing public. Many readers may ponder long and hard about this

suggestion.

It is further maintained that the complexity of accounting decisions could be reduced by

merely providing advice (or bsuggestionsQ) on technical issues as opposed to mandatory

guidance. However, a rather alarmist example is used to support this point:

bRelying on authority to compel truth can be dangerous, as the examples of Nazi

mathematics and Soviet biology from the last century remind usQ (p. 89).

Some standards are accused of complicating measurement and presentation. FRS 3Vsprofit and loss account layout is deemed bhard to followQ although later it is recommended

that this standard be kept (given its focus on disclosure as opposed to measurement). In

essence, more complexity requires more discretion on the part of directors and auditors

and less regulation. The role of standards in enhancing comparability is deemed irrelevant

if one does not regard valuation as one of the main purposes of accounts.

The arguments against standards include their tendency to stifle independent judgment

given that accountants and company directors are required to follow orders. This

apparently outlaws thinking and imagination thereby potentially crippling the profession.

However, how exactly this might prove bcripplingQ is not explored. It is also contended

that standards prevent competition in ideas in contrast to voluntary regimes which permit

pondering on difficult subjects with views changing slowly. Standards are also blamed for

legitimizing some bbadQ accounting with recent standards on goodwill receiving critical

treatment. Finally, standards raise bpublicQ expectations and create ba climate of false

securityQ (p. 108, quotation from Clarke, Dean, & Oliver, 1997, p. 37) whereby too much

is expected from accounts. Accountants are requested to resist pandering to ignorance by

implicitly promising the public something they cannot deliver.

The responses of the (then) Big 8 to the U.K. ASB’s initial Statement of Principles draft

are subsequently used to highlight the disdain bpracticalQ accountants feel for this bbalancesheet approach.Q The way some principles have been bfudgedQ in subsequent standards is

highlighted and in a typically provocative manner the author claims that:

b. . .the ASB sometimes gives the impression of a highly exclusive religious sect,

vouchsafed from heaven, whose destiny is to steer the benighted masses of old-

fashioned accounting professionals towards the promised land, even against their

own instinctsQ (p. 113).

Book reviews430

Chapter 7 is devoted to highlighting political interference in standard setting and a

particular emphasis is placed on the interference in the development of forms of inflation

accounting in the U.K. in the 1980s. Government interference from all sides of the

political spectrum appears to have rendered current purchasing-power accounting (favored

by the author) redundant as a potential solution.

At this stage of my reading, I was beginning to beg for some balance in the narrative,

given its often overbearing bgovernment regulation/standards bad–free markets/free

bprofessionalQ accountants goodQ philosophy. The author challenges the reader to consider

if there really were so many more or worse accounting scandals before standards were

introduced. He also asserts that some accounting scandals were due to public ignorance

but fails to support this with convincing evidence. In essence, he argues that scandals will

always be with us, so there is little point issuing standards to try to prevent them. We must

accept their inevitability and place our faith in an expert bfreeQ accounting profession

unburdened by restrictive regulation.

Chapter 8 proceeds to consider various regulatory agencies and discusses some

perceived costs and benefits of regulation. Its concluding section entitled bAn accounting

regulator from hellQ effectively summarizes many of the author’s key points in the form of

this regulator’s bten deadly sins.Q This is an amusing, if somewhat alarmist and sometimes

contentious list.

The author’s conclusions are clear and somewhat more reasoned than much of the

preceding narrative. He recommends very short, voluntary guidelines (bsuggestionsQ) onbasic matters of disclosure for public listed companies only with no compulsory accounting

standards, no standards on measurement and no standards whatsoever for unlisted or small

companies. He reiterates his view that revolutionary regulators are overturning borthodoxQaccounting despite little evidence that investors have been damaged in the absence of

accounting standards. His so-called bsensible proposalQ (p. 168) is that standards on

measurement should be abandoned but that disclosure standards could remain. Auditors and

management would simply agree on how items should be measured and then relay this in the

accounts. He concludes that in an ideal world, accounting standards would not be necessary.

His faith in professional practicing accountants is undimmed throughout and this bclassQ ofprofessional seems to be implicitly beyond rebuke.

In conclusion, this is a stimulating book with many controversial proposals. It is

somewhat polemical and is selective with its evidence. bSelf-evidentQ claims which it is

assumed brook no argument litter the text and there are too many references to bmost

peopleQ or beveryoneQ agreeing with statements by the author. I found the rather stark

uncritical bfree marketsQ agenda pervading the contents devoid of any attempt at balance in

places. However, this bias also serves to excite interest throughout and the arguments

presented invite rebuttal and debate from all sides of the accounting (and political)

spectrum, particularly from accounting regulators. I look forward to the accounting

regulators’ responses.

References

Clarke, F., Dean, G., & Oliver, K. G. (1997). Corporate collapse: Regulatory, accounting and ethical failure.

Cambridge University Press.

Book reviews 431

Page, M. (1992). The ASB’s proposed objective of financial statements: Marching in step backwards? A review

essay. British Accounting Review, 24(1), 79.

Brendan O’Dwyer

University of Amsterdam Business School,

The Netherlands

E-mail address: B.G.D.Odwyer@uva.nl.

doi:10.1016/j.intacc.2005.09.001

Book reviews432