The Evolution of Selected Annual Corporate Financial Practices in Canada 1900-1970 by GeorgeJ. MurphyReview by: R. H. ParkerThe Accounting Review, Vol. 64, No. 4 (Oct., 1989), pp. 812-813Published by: American Accounting AssociationStable URL: http://www.jstor.org/stable/247866 .

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812

tainty about the future), an article on third-party liability by J. J. Davies, and one on indepen- dence by Edward Younkins.

The timing of the articles in the "Evidence of Early Thought and Practice" section range from 1891 (Arthur Drummond) to 1912 (R. H. Mont- gomery). Walter Staub's 1904 "Mode of Con- ducting an Audit" is there together with an 1897 piece by W. Robertson on auditor's respon- sibility and one by M. Webster Jenkinson on auditing in Scotland in 1913-1914.

Among the contemporary audit thought and practice pieces are the Herman Bevis article that established the "attest function" and David Flint's exploratory essay on "The Role of the Auditor in Modern Society." John C. Burton and Patricia Fairfield's recent article on "Audit- ing Evolution in a Changing Environment" con- cludes the book. The editor also includes a piece of his own on "The Modern Audit Function" as well as an extended introduction justifying the items selected for inclusion.

In a little over 300 pages there is not much room to address the substantial changes that have affected the auditing profession over the past 150 years in Great Britain and the United States. The editor has had to do some careful selection and chose to stay mostly at the survey level with an occasional vignette to provide an example. While it may be true that the literature dealing with the history of auditing may not be as large as might be desired, there are still several issues only hinted at at most. The bibliographies at the end of the articles may prove to be as valuable as some of the articles in this respect.

Nevertheless, the editor has made a valuable attempt to capture a sense of history in the recent development of the process and the profession called auditing that has not been previously ac- complished. May his effort serve as a challenge to bring more extensive contributions to the field.

FREDERICK L. NEUMANN

Professor of Accounting University of Illinois

at Urbana-Champaign

GEORGE J. MURPHY, The Evolution of Se- lected Annual Corporate Financial Prac- tices in Canada 1900-1970 (New York and London: Garland Publishing, Inc., 1988, pp. ix, 221, $35.00).

George Murphy is one of the few accounting historians writing about Canada and the book under review is to be welcomed as a readily avail-

The Accounting Review, October 1989

able means of dispelling the ignorance of most non-Canadians on the development of corporate financial reporting in that country.

The great facts of Canadian history are its mixed British and French origins and its proxim- ity to the United States. The French play no role whatsoever in this book but relevant British and American developments are covered throughout. Murphy's hypothesis is that "the evolution of Canadian reporting practices has been, over the years, an interesting interplay of English [sic] and American influence acting upon, and to- gether with, the unique elements of the Canadian scene" (p. 3). He pays no attention to develop- ments in other English-speaking countries such as Australia and New Zealand.

The core of the book is three chapters which describe the evolution of financial statements in Canada from 1900 to 1970 by reference to corpo- rate legislation, financial press commentary, the professional and academic literature, and a sam- ple of corporate annual financial statements. These are preceded and followed by a chapter each on auditing and depreciation. The former is rather heavy going and might have been better placed later in the book.

Murphy sees the 1930s as the decade in which the dominant external influence on Canadian financial reporting became American rather than British (p. 27). This happened, he argues, be- cause of geographic proximity (but that was always there), the increasing U.S. investment, and the articulateness of the American Institute of Accountants. But the transition took time. For example, in 1951 the Canadian Institute of Char- tered Accountants was still supporting the phrase "true and correct" in audit reports. The British had substituted "true and fair" in 1948. It was not until 1959 the the CICA recommended the U.S. phraseology of fair presentation in accor- dance with generally accepted accounting prin- ciples.

Murphy stresses throughout the importance of Ontario legislation on federal legislation and the influence on the former of the Ontario Institute of Chartered Accountants and of British legisla- tion-but as early as 1907 the legislation of On- tario had developed beyond its British counter- part. (Something rather similar had happened about a decade earlier in the Australian state of Victoria.) Canadian law and practice was in ad- vance of British in the area of consolidated state- ments.

"Anglo-Saxon" accounting is often distin- guished from that of Continental Europe and Latin America by the unimportance of tax rules. But such a distinction is not absolute: tax rules

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Book Reviews 813

always have some influence. In Canada, accord- ing to Murphy, the influence of the tax depart- ment on depreciation practice has been both profound and pervasive:

Between 1932 and 1954, tax requirements forced a certain correspondence between book and tax de- preciation, which meant that between those years most companies used the straight line method of depreciation and between 1949 and 1954 most companies began to use the tax department ver- sion of the diminishing balance method. The re- sc A:::ing of the correspondence requirement in 1954 again led many companies to change their depreciation methods (p. 154).

In the area of inventory valuation, LIFO is rare in Canada for the same reason as in Britain: its inadmissibility for tax purposes, which re- sulted from a Canadian case taken on appeal in 1956 to the Privy Council in London.

Events in Canada often paralleled those in other English-speaking countries. The CICA's first Recommendation in 1946 postdates those of the American and English Institutes (1939 and 1942, respectively) but appeared in the same year as that of the Australian Institute. Financial Re- porting in Canada (1953 onwards) began later than Accounting Trends and Techniques but much earlier than its British equivalent (1970). Australia, for some reason, has produced only sporadic surveys of corporate financial reporting practice.

This book closes with 1970 so there is no dis- cussion of the CICA's unique role in standard setting. Elsewhere (Accounting Historians Jour- nal, Spring 1986), Murphy has attributed this in part to Canada's relative lack of corporate scan- dals which have rebounded to any enduring dis- credit of the accountancy profession. Here he notes how much of the Canadian concern has been vicarious, the financial and professional literature dwelling at enormous length on the Britsh Royal Mail Steam Packet case and the American McKesson & Robbins case (p. 157). In the 1980s Canada has had a few scandals of its own to worry about.

R. H. PARKER University of Exeter

CHRISTOPHER W. NOBES and ROBERT H. PARKER, Issues in Multinational Account- ing (Oxford: Philip Allan Publishers Lim- ited, and New York: St. Martin's Press, Inc., 1988, pp. xi, 183, $49.95).

This book contains eight chapters, loosely linked by some relation to the multinational

enterprise (MNE). Nobes and Parker, two well- known international accounting professors in the United Kingdom (U.K.), have edited the book, and, in addition, have individually written three of the chapters and collaborated on a fourth. Two chapters were written by two other U.K. accounting academics (S. Gray and C. Roberts) and the contributors of the remaining two chapters are researchers in economics, finance, and international business, all in the U.K. (J. Dunning, S. McLeay, and R. Pearce) except for J. Arpan, Director of International Business Programs at the University of South Carolina.

The text is divided into three parts. Part I con- sists of one chapter, by Dunning and Pearce, which highlights the increasing importance of MNEs. The chapter provides data showing chang- ing patterns and recent growth in direct foreign investments as well as the importance to leading industrial firms of overseas production, sourcing, and sales. Then, a simple theory of international production is described. Finally, the issues in evaluating the desirability of the increasing MNE influence, particularly from the host country's perspective, are summarized. These issues include economic efficiency, equitable distribution of gains (or losses) between the MNE and the host country, and host country sovereignty and the development of economic self-reliance, particu- larly in the long run.

Part II consists of three chapters, two au- thored by Nobes and one by Parker, which are devoted to comparative financial reporting. These chapters are the most closely integrated portion of the book. They form a cohesive dis- cussion of the causes of differences in interna- tional financial reporting, the differing treatment in major areas, and a conceptual framework for viewing the regulation of accounting practices.

In one chapter, Nobes identifies seven factors which he believes underlie differences in financial reporting. These are (1) differences in legal sys- tems, (2) the different sources of capital, (3) the influence of the tax system on accounting, (4) the size and importance of the accountancy profes- sion, (5) the degree of inflation, (6) the influence of macroeconomic theory, particularly with re- spect to the relevance of replacement cost data, and (7) the effect of nonsystematic, exogenous economic and political events. Most of these fac- tors are not new. Both Gerhard Mueller, in sev- eral articles as well as his well-known texts in international accounting, and Nobes himself, in his earlier writing, have identified and discussed the most important of these factors.

Another chapter in this part, also by Nobes, provides a brief discussion of eight areas where

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