THE ACCOUNTING REVIEW American Accounting Association

Vol. 85, No. 4 DOI: 10.2308/accr.2010.85.4.1473

2010
pp. 1473–1474

BOOK REVIEWS
Stephen A. Zeff, Editor
Editor’s note: Two copies of books for review should be sent to the Book Review
Editor: Stephen A. Zeff, Rice University, Jesse H. Jones Graduate School of Business,
6100 Main St., Houston, TX 77005. The policy of The Accounting Review is to
publish only those reviews solicited by the Book Review Editor. Unsolicited reviews
will not be accepted.

ROBERT BLOOMFIELD and KRISTINA RENNEKAMP, Experimental Research in Fi-

nancial Reporting: From the Laboratory to the Virtual World, Foundations and Trends®
in Accounting 共Boston, MA: now Publishers, Inc., 2009, ISBN 978-1-60198-214-8, vol.
3, no. 1, pp. ix, 89兲.
In this monograph, Robert Bloomfield and Kristina Rennekamp make the case that accounting researchers
can benefit from using virtual worlds as a laboratory to study the impacts of complex institutions on aspects of the
financial reporting process. After a brief introductory chapter, the monograph proceeds with a description of
research in financial accounting and a discussion of the benefits of experiments for learning about behavior in
financial reporting contexts, and then moves in Chapter 2 to a discussion of costs and benefits of including
institutional complexity in accounting experiments. Chapters 3 and 4 describe two important virtual worlds and
how their economies work. Chapters 5 through 7 discuss the various ways of using virtual worlds to conduct
experiments, methods for implementing some key institutions, and potential problems with conducting experi-
ments embedded in virtual worlds and ways of mitigating these problems. Chapter 8 contains a discussion of the
costs and benefits of using virtual worlds to conduct research across research methodologies. Chapter 9 contains
concluding remarks.
A variety of audiences will find aspects of the monograph to be interesting and informative. As a nongamer,
I was surprised to learn that Second Life has dance parties and concerts. I was even more surprised to learn that
it has an active financial sector, including several stock exchanges, that there are external markets for its currency,
and that its owners had to ban banking activities after allegations of fraud. These facts confirmed for me the
“reality” of virtual worlds and piqued my interest in using them as a research tool.
As a researcher interested in financial reporting issues, I found the authors’ discussion of the benefits of
adding complexity to experiments 共Chapter 2兲 compelling. The authors point out that adding complex institutions
共defined broadly to include laws and regulations, common types of commercial and social contracts, and interac-
tions, etc.兲 to experiments allows examination of a broader set of questions. They provide several examples of
research questions that can be studied in this sort of experiment. I found the list, which includes examining the
effects of institutional changes on the reliability of financial reports, on how information intermediaries do their
work, on commercial arrangements, on real investment and production decisions, along with the authors’ ex-
amples, to be interesting and thought provoking. It prompted me to consider how I could use virtual worlds to
address issues of particular interest to me.
Specifically, while the authors do not explicitly make this point, their list makes clear that the set of
researchable questions is expanded when complex institutions are incorporated into experiments, because inter-
actions among individuals and between individuals and institutions are allowed. Thus, the set of possible depen-
dent measures is expanded to include joint outcomes, and multiple levels of “play” allow examination of aggregate
共e.g., economy-level兲 outcomes.
For example, consider controversial policy issues in accounting, such as the likely impact of adopting less

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precise accounting standards on auditor liability 共e.g., Schipper 2003; Benston et al. 2006兲. While careful thinking
can identify several of the critical causal factors 共e.g., Hail et al. 2009兲 and laboratory experimentation can identify
additional factors and test theoretical relationships 共Kadous and Mercer 2010兲, it is probably impossible to
anticipate all the effects of introducing a change in institution into a complex environment, such as the U.S.
economy, and it is unlikely that researchers working in this fashion can fully anticipate how various factors will
play against each other. This leads to what I see as the biggest advantage of adding complexity to experiments in
a virtual world environment—the opportunity for relatively low-cost, relatively efficient theory development. That
is, in addition to allowing testing of hypotheses about complex institutions, virtual world experimentation can
serve accounting research in the scientific role that is traditionally reserved for case studies and field
experiments—that of identifying new variables and relationships for development of theory, which can then be
further tested in controlled experimental settings or in archival data if the policy change is implemented. And they
can do so without the cost and time lags that would occur if the institutional changes were actually implemented
in the real 共as opposed to virtual兲 world.
While the early chapters inspire the reader to rush out to virtual worlds to conduct experiments, the later
chapters counteract this effect, to some extent. Specifically, the authors’ discussion of the various ways of con-
ducting studies in virtual worlds 共Chapters 5 and 8兲 leads one to quickly conclude that the broadest research
questions are out of reach unless one is able to corroborate with developers of virtual worlds. Also, there is a
disconnect in the monograph in that the discussion of how some key institutional details are implemented in
virtual worlds 共Chapter 6兲 focuses on how reporting and enforcement are automatic and can be perfectly enforced
in virtual worlds, which seems to rule out investigating more interesting questions that rely on discretion in
reporting and enforcement. On the other hand, the discussion in Chapter 7 about difficulties of conducting
experiments in virtual worlds and potentially mitigating factors is quite practical and is of immediate use to new
researchers or those just beginning to conduct experiments online, whether in virtual worlds or not.
Another positive aspect of the monograph is that it discusses of the types of studies that are well-suited and
ill-suited for virtual worlds. The reader gets a concentrated dose of this material in Chapter 8, but it is also
sprinkled throughout the rest of monograph. Thus, the monograph is not an indiscriminate booster for the virtual
worlds technology, but instead it provides a balanced discussion of the types of research questions that would and
would not benefit from the virtual worlds technology.
In sum, Bloomfield and Rennekamp’s monograph provides an introduction to the use of virtual worlds in
accounting research. In doing so, it provides new researchers with good coverage of some basic research design
issues, “old” researchers with some fresh new inspiration, and perhaps all of us with a glimpse into the future of
accounting research.

REFERENCES
Benston, G. J., M. Bromwich, and A. Wagenhofer. 2006. Principles- versus rules-based accounting standards:
The FASB’s standard setting strategy. Abacus 42 共2兲: 165–188.
Hail, L., C. Leuz, and P. Wysocki. 2009. Accounting convergence and the potential adoption of IFRS by the
United States: An analysis of economic and policy factors. Working paper, The Wharton School.
Kadous, K., and M. Mercer. 2010. Jury verdicts against auditors under precise and imprecise accounting
standards. Working paper, Emory University.
Schipper, K. 2003. Principles-based accounting standards. Accounting Horizons 17 共1兲: 61–72.

KATHRYN KADOUS
Associate Professor, Goizueta Business School
Emory University

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Book Reviews 1475

ROBERT S. KAPLAN and DAVID P. NORTON , The Execution Premium: Linking Strategy
to Operations for Competitive Advantage 共Boston, MA: Harvard Business Press, 2008,
ISBN 13: 978-1-4221-2116-0, pp. xiii, 320兲.

If you are an admirer of Kaplan and Norton’s earlier work on the balanced scorecard, then you will find much
to be pleased with in their most recent book, The Execution Premium. If you found the balanced scorecard
framework too narrow, you will also be pleased with their new book, because it contextualizes the balanced
scorecard 共BSC兲 within the larger framework of strategy development and execution. If you are a practicing
manager looking for sound advice about strategy execution, you will find much that is helpful. If you are a pure
academician looking for a book driven by empirical data that has been subjected to rigorous statistical analysis,
then you will be disappointed by the nonscientifically selected sample of cases which form the body of the data for
this book. However, I would still advise the purists to read the book, because they can use the practical examples
and case studies to enrich their classes and discover rich research opportunities to extend our understanding of
strategy and strategy execution in organizations.
For admirers of Kaplan and Norton’s prior works, this book continues the tradition of providing easy to
understand and execute tools and techniques for strategy development and execution. There is a simple framework
that ties together work on strategy development, strategy mapping, the balanced scorecard, and activity-based
costing.
The book begins by providing an overview of strategy development. This is a review of the traditional
frameworks for strategy formulation, such as SWOT and PESTEL analysis. Chapter 3 provides a useful discussion
about planning the strategy execution. It is a useful reminder that “planning the plan” is quite separate from the
planning effort itself. Chapter 4 continues the theme of planning the strategy by discussing the strategic initiatives
that need to be launched to execute the strategy. This is a crucial chapter which links strategy, operations, and
budgets. It forces a manager to ask what changes and operations are necessary to execute the strategy and what
resources he or she will need to drive the operational changes. Chapter 5 discusses the all-important structural and
behavioral issues involved in aligning organizational units with the strategy. This is probably one of the weakest
chapters in the book, because it does not deal with the messy problems of change management, leadership, and
motivation. In my opinion, the authors rely too heavily on structural solutions such as cascading the BSC or
creating a communications plan. In reality, alignment requires a shared frame of reference that cannot be achieved
through structural mechanisms alone. Chapters 6 and 7 cover operational improvements, using tools such as
traditional budgeting, activity-based costing, and capacity analysis. Most of the material in these chapters would
not be new for accountants. However, they are extremely useful for managers who may not appreciate the strategic
use of activity-based costing. The next two chapters deal with operational and strategic review meetings to adapt
and change the strategy in the light of changed circumstances. The last chapter concludes by arguing effectively
for the creation of an office of strategy management so that there is a clear owner of strategy and strategy
execution.
For those of the belief that the balanced scorecard framework was too narrow, Kaplan and Norton have
admirably redressed this imbalance by framing the BSC as part of a larger framework of strategy development and
execution. I happen to be one of those who always felt that measurement without a sense of strategy would
probably do more harm than good in an organization. My belief is based on a half century of research in the
behavioral sciences that shows that when people do not understand or subscribe to the purpose of the measure-
ment, they are likely to undertake dysfunctional behaviors. I am therefore delighted to see that the current book
recognizes the importance of communicating with, and aligning, people and strategy before putting in a scorecard.
For practicing managers, the book provides a lot of advice that will be helpful as they embark on their own
exercise of strategy execution. In particular, the concept of an office of strategy execution is an important and
underappreciated concept. This is probably because of the bad experience most corporations had with the strategic
planning office, which often became the place for unsuccessful line managers.
If you are an academician who believes in empirical data and rigorous statistical analysis, you will find very
little of it in this book. Most of the data in this book comes from Harvard Business School teaching cases or from
the consulting practice of Kaplan and Norton. From an empirical perspective, the flaws in the data are obvious.
The sample is nonscientific; it comes mostly from opportunistic interventions. It is a bit paradoxical that a book
which is selling a rational-scientific methodology for strategy development and execution uses cases as opposed to
a matched or paired sample methodology to show that the group with tight linkage between strategy execution and
operational improvement has better results than one that does not. Even the data for firms that have performed well
with a balanced scorecard and other mechanisms for sound strategy execution must be taken with a grain of salt.

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1476 Book Reviews

This is because the study covers a period from 2000 to 2006, one in which the stock market rose because of
reasons that have come back to bite us in the year 2008. For example, consider the case of KeyCorp—one of the
success stories cited in the book. All of its financial gains have been nearly wiped out, and I presume that the
company still uses the balanced scorecard.
Paradoxically, for future doctoral students and researchers looking for topics in managerial accounting, this
book’s weaknesses are a treasure trove of research opportunities. While Kaplan and Norton have started to enlarge
the context in which strategy is developed and executed, a large part of the domain of strategy execution remains
unmapped. The world of Kaplan and Norton is a simple, rational, ordered place. They see the problem primarily
in terms of mapping relationships between organizational structures and processes. Messy things such as organi-
zational power and politics, behavioral and motivational issues, and organizational culture are neatly sidestepped.
They are simply lumped into the “learning and growth” category which turns into the black box that holds all the
misbehaving children that bedevil strategy executors in the real world.
Most practicing managers, however, will tell you that strategy execution is a very messy process, because it
has to negotiate the tricky waters of organizational power and politics, organizational culture, and employee
motivation. These are not only significant challenges, but they require very different tools. While the balanced
scorecard and activity-based costing can help to understand weakness in performance, aligning employees requires
engagement and dialog. Leadership in these situations is not just about communications that inform or tell
employees, but requires engaging employees. Leadership becomes a matter of teaching and learning and not
simply communicating.
A great opportunity for future research comes from critically examining the process of strategy formulation
and execution from a different perspective. Kaplan and Norton’s work is rooted in the rational-predictive model of
managerial behavior. Their work assumes that there is a knowable but uncertain environment, and a manager’s
task is to identify opportunities through SWOT analysis and then exploit them through strategy execution. This
may work for organizations that operate under conditions of uncertainty or which can control the uncertainty
through predictive methods. But what happens when organizations face not just uncertainty but an unknowable
environment? How does strategy formulation and execution proceed in such situations?
One answer to this question comes from the work of Professor Saras D. Sarasvathy of the University of
Virginia, who has studied the behavior of entrepreneurs. Future scholars interested in the study of strategy should
read Sarasvathy’s book, Effectuation 共2008兲. She argues that entrepreneurs do not use managerial logic because
they operate in unknowable environments. Rather than trying to predict the future, entrepreneurs work to control
the future by co-creating it with self-selected stakeholders. They recognize the futility of predicting the future
when the future is unknowable. For entrepreneurs, clarity comes through action and not analysis. They do not
discover opportunities; they create opportunities. Saras calls this “effectual logic.”
The notion that entrepreneurs get clarity through action turns the logic of strategy on its head. In Saras’
world, execution would come before strategy. This is because an explicit recognition that the world is unknowable
and that opportunities are made, not found, means that strategy does not follow vision; rather, action follows a
vision that serves as a “soft goal” that will be shaped and molded into a strategy. Saras uses the analogy of cooking
to make her point. One way to cook is to start with a clear goal of what one wants to eat. With a clear goal,
execution means finding the right recipe for what we want to eat and then following it by making sure all the
ingredients are at hand. The other way to cook is to start with a soft goal, “taking care of being hungry.” There is,
however, no particular dish or recipe in mind. We simply throw open the refrigerator and the spice cabinet, see
what is at hand, and use these ingredients to throw together a dish. Note that both methods ultimately lead to the
larger goal of nourishing one’s body. The former begins with a goal and arrays the means to achieve the goal; the
latter begins with the means at hand to achieve, and in the process shape and mold a larger vision.
The question of whether to use means-ends or ends-means logic to study strategy is a significant question for
scholars of strategy and strategy execution. It raises the question of whether an organization that strictly follows
the traditional causal logic for formulating and executing strategy is missing out on the possibility of innovation
and creativity that is embedded in the logic of co-creation. With the massive failure of many of our major financial
institutions, the validity of our traditional business models has acquired an added sense of urgency. It would be
great for scholars of strategy to consider whether organizations that have successful strategy execution mecha-
nisms of the type which Kaplan and Norton present in their book are also characterized by higher levels of
creativity and innovation. This is an empirical question, and I do not have an answer, but I am convinced that it
is a question worth studying. To the extent that this book brings the issue of organizational performance, creativity,
opportunity creation, and its relationship to internal organizational structures and processes to the fore, it has
accomplished an important purpose. For this we can thank Kaplan and Norton even if we do not find their entire
message persuasive.

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REFERENCES
Sarasvathy, S. D. 2008. Effectuation: Elements of Entrepreneurial Expertise. Cheltenham, U.K.: Edward
Elgar Publishing.

SHAHID ANSARI
Professor of Behavioral and Managerial
Accounting
Babson College

STEPHEN ZEFF 共Editor兲, Principles before Standards: The ICAEW’s ‘N Series’ of Recom-
mendations on Accounting Principles 1942–1969 共London, U.K.: ICAEW Financial Report-
ing Faculty, 2009, pp. 189兲.* No ISBN. Available in hard copy. For an electronic copy, go to
www.icaew.com and search for Principles before standards.
The Institute of Chartered Accountants in England and Wales 共ICAEW兲 was second only to the American
Institute of Accountants in introducing a series of statements providing authoritative guidance on best accounting
practice. Studying to become a member of the ICAEW in the late 1970s, I had to familiarize myself not only with
the relatively new Statements of Standard Accounting Practice 共SSAPs兲 being issued by the Accounting Standards
Committee, but also with the “N Series,” so-called after the section of the ICAEW’s Members’ Handbook in which
the Recommendations on Accounting Principles were reproduced. The Recommendations were precisely as their
name implied, guidance that the ICAEW, as it stated in preambles to various Recommendations, “hoped will be
helpful to members when advising as to best practice.” They were not mandatory, and hence preparers and auditors
of financial statements could not be penalized if any Recommendations were not followed. Despite this, they
provided an authoritative basis for financial reporting in the U.K., were used by the writers of textbooks as the
basis for teaching accounting, and influenced both the SSAPs, which began to appear in 1971, and the require-
ments of U.K. company law relating to corporate financial statements.
The Recommendations form a central element of the history of standard setting for financial reporting, but
because they are now superseded, it has been difficult for modern researchers and regulators to compare their early
messages with more recent pronouncements. This collection has been published in the belief that the Recommen-
dations are of interest in their own right as evidence of how professional accountants thought about financial
reporting issues at a time when formal regulation was not a significant constraint on accounting policy choice.
Readers are able to study not only the substantive recommendations on specific accounting practices, but also the
quality of reasoning applied in developing the Recommendations. Over a period of some three decades, from 1942
to 1969, 29 Recommendations were published. The early Recommendations dealt with accounting for taxation, a
matter made particularly complicated by almost confiscatory levels of business tax in the U.K. during World War
II. To make matters worse, businesses paid income tax not on the profits of their current financial period, but rather
on the profits of the period that finished in the preceding tax year 共which for historical reasons ended on April 5兲.
However, against the background of impending reform of U.K. company law in the mid-1940s, the Recommen-
dations began to address more general issues, such as the presentation of the financial statements, reserves and
provisions, accounting for business combinations, depreciation, and accounting for stock-in-trade 共inventories兲.
Many of the early Recommendations were incorporated into the Companies Act 1948.
The Recommendations went beyond annual financial statements to deal with prospectuses, estates and trusts,
and retirement benefits. Several Recommendations were superseded by new pronouncements. For example, there
were three substantially revised Recommendations on accounting for tax, stimulated by major reforms to the U.K.
tax system. The Recommendations also touched on fundamental issues, with N12 共1949兲 and N15 共1952兲 both
dealing with price change accounting. They recommended the continued use of historical cost, with any revalu-
ations to take account of increased replacement costs being accounted for as reserves 共equity兲 rather than as
provisions 共liabilities兲. Recommendations would respond to external events, with the ICAEW publishing a Rec-
ommendation on foreign currency translation 共N25兲 in February 1968, just three months after the devaluation of
Sterling in November 1967.
Stephen Zeff, who edited the collection, has supplemented the Recommendations themselves by providing a
general introduction and a lengthy extract from his book, Forging Accounting Principles in Five Countries 共1972兲.
This sets out the complex and secretive process by which the ICAEW developed and approved the Recommen-
dations. An important element of this was the involvement of ICAEW members who were not in public practice.

*
The arrangements for this review were made by Christopher W. Nobes.

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The proportion of members who were neither principals of nor employed by accountancy firms had been growing
in the 1930s, and by the early 1940s over 20 percent of ICAEW members worked in business rather than practice.
The Taxation and Financial Relations Committee, responsible for developing the Recommendations, was the first
ICAEW committee to include members outside practice, and provided an impetus to greater involvement of such
members in the management of the ICAEW, including eventually membership of Council. Zeff has also included
an article, originally published in the weekly magazine The Accountant in 1953, in which Professor W. T. Baxter
of the London School of Economics questioned whether professional accountancy bodies such as the ICAEW
should make official pronouncements on “accounting theory” 共Baxter objected to the support for historical cost
given in N12 and N15, even though the documents themselves provided arguments for alternative accounting
systems兲. Baxter was not a member of ICAEW, but rather a Scottish chartered accountant, and his own institute
rejected the publication of similar recommendations. Baxter’s opinion was that technical guidance could be useful,
but that it should not replace professional judgment. He feared that the existence of formal statements of “ap-
proved” accounting theory would deter accounting students from exploring alternatives, and would ultimately lead
to stagnation, as new ideas would have difficulty in challenging the “conventional wisdom.”
Zeff also reproduces a hitherto unpublished interview with Michael Renshall, who had worked for the
ICAEW as an administrator involved in the development of Recommendations since 1960, became the ICAEW’s
first Technical Director in 1969, and was active in the transition to SSAPs. Renshall provides insights into why the
ICAEW considered it necessary to move beyond nonmandatory Recommendations, and notes the impact of
financial scandals in the late 1960s. In his insider’s account, Renshall celebrates the influence of a small number
of key individuals 共Ronald Leach of Peat, Marwick, Henry Benson of Coopers, and Professor Edward Stamp of
Edinburgh University兲, suggesting that the creation of the Accounting Standards Steering Committee in 1969 owed
a great deal to the personal charm and persuasiveness of Leach.
The re-publication of the Recommendations not only makes these important documents more accessible to
students and researchers of accounting regulation but also provides examples of different styles of presenting
guidance on financial reporting. The Recommendations range from a few paragraphs, presenting conclusions with
little discussion, to lengthy explanations revealing the thought processes of their authors. Some of the Recom-
mendations 共for example, the two documents on accounting in conditions of changing prices兲 could be utilized in
developing students’ powers of reflection and critique, as they are at the same time concise and contentious. The
supplementary items provide different angles on the standard-setting process. Does the emphasis on “due process,”
with standards being developed in full sight of the public, necessarily lead to higher quality standards than the
secret processes of the 1950s and 1960s? Do standard setters have any legitimate authority to make pronounce-
ments on accounting theory, or is their role at best one of applying principles developed by others to give guidance
on technical accounting problems? Although the publication of Principles before Standards gives the ICAEW the
opportunity of celebrating its contribution to the development of accounting standards, it also provides a valuable
resource that will ensure that the “N Series” is appreciated by a wider readership.

REFERENCES
Baxter, W. T. 1953. Recommendations on accounting theory. The Accountant 129 共4112兲: 405–410.
Zeff, S. A. 1972. Forging Accounting Principles in Five Countries: A History and an Analysis of Trends.
Champaign, IL: Stipes Publishing Co.

CHRISTOPHER NAPIER
Professor of Accounting
Royal Holloway, University of London

The Accounting Review July 2010

American Accounting Association