The Impact of Industry Regulation, Taxation and Corporate Strategy on Accounting Method Choice -- Cash vs. Accrual Accounting for Tobacco Licence Fees

Posted: 25 May 1998

See all articles by Wai Fong Chua

Wai Fong Chua

UNSW Australia Business School, School of Accounting

Baljit K. Sidhu

UNSW Australia Business School, School of Accounting

G.P. Whittred

Australian Graduate School of Management

Date Written: November 1995

Abstract

Case studies of the change from cash to accrual accounting for tobacco licence fees (TLF) by the three members of the Australian tobacco manufacturing oligopoly illustrate the endogeneity of accounting method choice and provide evidence of a "product market" effect on that choice. Prior to the switch the "results of operations" comprised net operating margin and timing differences between TLF invoiced (to customers) and TLF disbursements (to government). Changes in firms' institutional environment (regulation, taxation) and consequential changes in corporate strategy (sales mix, distribution channel) imply significant increases in the proportion of TLF timing differences in earnings. The accounting switch insulates operating results from the largely uncontrollable impact of TLF timing differences and, at the same time, removes an incentive for strategic buying by major customers.

JEL Classification: M41, H26

Suggested Citation

Chua, Wai Fong and Sidhu, Baljit K. and Whittred, Greg P., The Impact of Industry Regulation, Taxation and Corporate Strategy on Accounting Method Choice -- Cash vs. Accrual Accounting for Tobacco Licence Fees (November 1995). Available at SSRN: https://ssrn.com/abstract=2531

Wai Fong Chua

UNSW Australia Business School, School of Accounting ( email )

Sydney, NSW 2052
Australia
+61 2 9385 5828 (Phone)
+61 2 9385 5925 (Fax)

Baljit K. Sidhu

UNSW Australia Business School, School of Accounting ( email )

Sydney, NSW 2052
Australia

Greg P. Whittred (Contact Author)

Australian Graduate School of Management ( email )

Gate 11, Botany Street, Randwick
Sydney, NSW 2052
Australia
612 9931-9251 (Phone)
612 662-7621 (Fax)

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